Parliament today passed the Companies Bill,2012,after a wait of almost two decades,replacing the 58- year-old legislation with radical changes and ushering in more transparency in corporate functioning. The bill,on one hand,introduces new concepts like class-action suit,independent director,one-person company and auditors rotation,while on the other,it strengthens the monitoring of corporates by empowering fraud investigating unit. The new bill also requires companies to spend at least 2 per cent of their average profits in the last three years towards corporate social responsibility (CSR) activities. The passage of the bill will give impetus to the growth momentum, corporate affairs minister Sachin Pilot said,wrapping up the debate in the Rajya Sabha. He added that the focus of the bill is to enhance transparency with fewer regulations,self reporting and disclosure. The bill was passed by the Lok Sabha in December last year. The bill underwent several changes beginning 1993 when it was first introduced for a comprehensive review. It was again introduced in 1997 but failed to pass as the assent of Parliament could not be received. The ministry of corporate affairs introduced the Companies (Amendment) Bill again in 2003,which further underwent changes following global and domestic economic developments. Major changes were brought in after the Satyam scam of 2009 where founder and promoter B Ramalingam Raju of the firm disclosed fudging of accounts to the tune of several thousand crores. The passage of the legislation was hailed by India Inc,which termed it historic and lauded the efforts of the government to simplify the regulations. The Companies Bill is commensurate with global standards vis-à-vis disclosure requirements,increased democratic rights for shareholders,self-regulation and accountability. In a country where 75-80 per cent of the businesses are family-run and promoter-driven,we hope the new law would be able to achieve the fine balancing between ownership and management, Chandrajit Banerjee,director general,CII,said. Pilot said the government has accepted about 96 per cent of the suggestions of the standing committee and will seek views of stakeholders before finalising rules for the legislation. According to the new bill,companies will have to ensure that one-third of their board comprises independent directors while at least one member should be a woman. Further,the bill also makes rotation of auditors mandatory every five year while restricting the number of companies to 20 where they can practice. Mergers and amalgamation has also been simplified without the requirement of a court process. The new Act has several progressive features and is more transparency driven. It permits both inbound and out bound merger. Even deal making would be smoothened as inter-se shareholder rights have been specifically recognized as enforceable, Amrish Shah,partner and transaction tax leader,EY,said. The bill has done away with the concept of small depositors and has brought in the concept of one-person company. It has also introduced for the first time,class-action suits in a bid to protect small investors,shareholders and other affected parties. What has changed Companies Act,1956 Number of sections 678 No provision for class-action suit No provision for CSR No provision for independent directors,only 12 directors allowed No provisions for e-management No concept of one-person company Provisions for Company Law Board to resolve corporate cases Regulates only equity and debentures No cap on auditors,number of firms auditors can take up,no mandatory rotation Companies Bill,2012 Number of sections 470 Provision for class-action suit CSR up to 2% of average profits of last 3 years mandatory for companies above a certain limit; in case of failure to do so,an explanation required Concept of independent directors introduced; one-third board members to be independent,number of directors increased to 15 E-management allowed,board meetings through video-conferencing or electronic means given a go-ahead Introduced in the bill National Company Law Tribunal to replace Company Law Board and Board for Industrial and Financial Reconstruction Regulates all types of securities including equity and debentures Mandatory rotation after five year,a maximum of 20 firms can be taken by auditor
