Companies Bill, 2009 introduced in LS

Companies Bill, 2009 introduced in LS
The Hindu Business Line, August 4, 2009, Page 15

Our Bureau, New Delhi

The Corporate Affairs Minister, Mr Salman Khurshid, on Monday introduced in the Lok Sabha a new Bill that seeks to replace the existing Companies Act of 1956.

The new Bill has been introduced in view of an earlier version (the Companies Bill 2008, tabled on October 23) lapsing after the dissolution of the 14th Lok Sabha with the announcement of elections.

Some of the special features of the Companies Bill, 2009 include prohibition of insider trading by company directors or key managerial personnel and declaring it as an offence with criminal liability; mandatory consolidation of financial statements of subsidiaries with holding companies and recognition of cross-border mergers, besides having a single forum for approval of mergers and acquisitions.

Framework for fair valuations

The Bill also provides that the minimum number of independent directors to be appointed in listed companies should be one-third of the total number of directors. For other companies, the number of independent directors may be prescribed through rules.

Also, companies will not be allowed to raise deposits from the public except on the basis of permission available to them through other special Acts.

The Companies Bill 2009 also provides a framework for enabling fair valuations in companies for various purposes. Appointment of valuers is proposed to be made by an audit committee or in its absence by the board of directors.

Moreover, shareholders’ associations or group of shareholders are to be enabled to take legal action in case of any fraudulent action on the part of a company and to take part in investor protection activities and “class action suits”. Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be dealt with by the National Company Law Tribunal.

Integrity of audit

The new Bill also provides that claim of an investor over a dividend or a benefit from a security not claimed for more than a period of seven years will not be extinguished. The Investor Education and Protection Fund (IEPF) is to be administered by a statutory authority.

Later, speaking to reporters, Mr Khurshid said that the Government has in the Bill factored in the lessons from the Satyam scandal. He also highlighted that the Bill will go to the Standing Committee which will also look into the proposed provisions.

Asked about auditors, the Minister said that although the Institute of Chartered Accountants of India (ICAI) was yet to submit its report (in the wake of the Satyam scandal), the Government has come up with certain provisions to ensure that the audit community maintains the integrity and independence of the audit process.