New Companies Bill tabled in Lok Sabha again

New Companies Bill tabled in Lok Sabha again
The Financial Express, August 4, 2009, Page 2

fe Bureaus, New Delhi

The government has again tabled the new Companies Bill in Parliament to replace the 53-year old Companies Act of 1956. The Bill had been introduced in the last Lok Sabha, but had lapsed with the dissolution of the House. While there have been several proposals to amend the bill since then, a ministry official said it was better to have the bill tabled in the house early, and so the amendments have been kept in abeyance. “The Bill has been re-introduced in its present form and amendments will be made after recommendations by the parliamentary standing committee,” said a ministry official.

The Bill, which is based on the concept of self regulation, recognises the chief executive officer, the chief financial officer and the company secretary as ‘key managerial personnel’ and provides for a single forum for mergers and acquisitions. It also provides for a more effective inspection and investigations of companies and penalties for offences.

The ministry of corporate affairs plans to make amendments, including defining the accountability of independent directors, as part of the bill. To strengthen corporate governance in firms, it has stipulated that independent directors should account for at least one-third of the board. For listed companies the clause 49 provision of the Listing Agreement of Sebi, which mandates having at least 50% of the board populated by independent directors, will prevail. In a recent statement, Salman Khurshid, minister of corporate affairs said, “The new Companies Bill will be more objective; it will give a balanced approach to both the role of independent directors and their accountability. The attempt (therefore) is to make it more unambiguous and explicit.”

Further, the government also seeks to make stringent norms for auditors and corporate governance in the bill. The bill also provides for formation of a one person company, while empowering the government to provide a simpler compliance regime for small companies.

The Companies Bill is the largest ever rewrite of the 53-year-old Companies Act. The proposed Bill will have 480 sections compared to over 600 sections in the Companies Act, 1956, in addition to providing for greater shareholder democracy and less government intervention. “The new legislation will try to promote shareholders democracy with protection of rights of minority shareholders, self-regulation with adequate disclosure and accountability and lesser government control over internal corporate processes,” said another official connected with the process.