To usher in more transparency, simplify regulations.
By R. Chandrasekaran
CHENNAI: The Indian Parliament has passed a new Companies Act that overhauled more than six decade old Companies Act 1956, which underwent periodical amendments in tune with the changes. The bill will now be forwarded to President Pranab Mukherjee for his assent and then it will become law.
The Lok Sabha had already passed the bill and it was turn for Rajya Sabha to pass the bill on Thursday. In 2008, a draft bill was first introduced and the government had to set up a standing committee headed by the opposition Bharatiya Janata Party leader and former finance minister Yashwant Sinha. The government had accepted most of its recommendations and introduced it again in December 2012.
There has been lot of key changes in the latest bill and the interesting aspect is that it will have 470 clauses instead of 700 in the older version of the Act. This is expected to encourage transparency in investments and also strengthen the minority shareholders’ rights. The bill will make it difficult for companies to conceal any illegal transactions, and will promote gender equality.
The overhauled bill introduces the independent director concept; at least one-third of the directors should be independent for every listed company. These independent directors will be allowed to have a maximum of two five year terms.
The bill also introduces the class action suit concept for the first time in India and makes it compulsory for companies to publish consolidated balance sheets with unlisted subsidiaries.
The concept of corporate social responsibility (CSR) is being introduced wherever a company earns a profit of over Rs.50 million or a net worth of over Rs.5.0 billion or a turnover of more than Rs.10 billion. The companies, which fall under these categories, will “endeavor to spend” a minimum of two percent of its yearly profit for CSR. While the bill does not specify any penalty for non-compliance of this clause, the companies will have to spell out the reasons for the non-compliance.
The bill also puts a limit on auditors’ rotation of 10 years. The new bill gives the government’s investigative arm, Serious Fraud Investigation Office, more statutory powers to tackle corporate fraud.
Meanwhile, Federation of Indian Chambers of Commerce and Industry (FICCI) welcomed the passage of the companies’ bill. Its president Naina Lal Kidwai said, “The new Bill has introduced numerous changes and concepts which should simplify regulations and bring greater clarity and transparency in managing businesses. The global environment calls for economic laws and regulations that are effective and efficient, have a reasonable compliance cost and keep Indian businesses competitive.”