Cos bill replaces 58-year-old law after 20 years of brainstorming

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