Provisions of the Companies Bill 2013 and the law making powers of the Parliament of India

OVERVIEW OF COMPANIES BILL, 2013

THE COMPANIES BILL, 2013

The review and redrafting of the Companies Act, 1956 was taken up by the Ministry of Corporate Affairs on the basis of a detailed consultative process. The Companies Bill, 2013 was passed by Lok Sabha on the 18th of December 2012 and passed by the Rajya Sabha on 8th August 2013 and is all set to replace the 57 year old Companies Act, 1956. In the Companies Bill 2013, various new provisions have been included (which are not provided for in Companies Act, 1956) for better governance of the companies. Some of those new provisions are:

• Requirement to constitute Remuneration and Nomination Committee and Stakeholders

• Grievances Committee

• Granting of More powers to Audit Committee

• Specific clause pertaining to duties of directors

• Mode of appointment of Independent Directors and their tenure

• Code of Conduct for Independent Directors

• Rotation of Auditors and restriction on Auditor's for providing non-audit services

• Enhancement of liability of Auditors

• Disclosure and approval of RPTs

• Mandatory Auditing Standards

• Enabling Shareholders Associations/Group of Shareholders for taking class action suits and reimbursement of the expenses out of Investor Education and Protection Fund

• Constitution of National Financial Reporting Authority, an independent body to take action against the Auditors in case of professional mis-conduct

• Requirement to spend on CSR activities

The introduction of this basket of measures offers immense opportunities for all professionals also. India has suffered many corporate frauds and scams in the recent years and the new law proposes to plug the loopholes, smoothen out the wrinkles and speed up the corporate laws reform process.

After discussing the provisions of the Companies Bill 2013, the law making powers of the Parliament of India have been discussed in brief for more clarity on the subject.

The Background of Companies Bill, 2013

The Companies Act, 1956 is all set to be replaced by the Companies Bill 2013 which was passed by the Lok Sabha on 18th December 2012 and passed by the Rajya Sabha on 8th August 2013.

A brief background to the Introduction and status of the Companies Bill 2013 is as under:

• Companies (Amendment) Bill, 2003 had been introduced by Ministry of Corporate Affairs (MCA) (then Department of Company Affairs) in the Rajya Sabha on 7.5.2003.

• Later on, a large number of changes were found to be necessary in the Bill. The\ Ministry of Corporate Affairs took up a comprehensive revision of the Companies Act, 1956 (the Act) in 2004.

• A  'Concept Paper on new Company Law‘ was placed on the website of the Ministry on 4th August, 2004. The inputs received were put to a detailed examination in the Ministry. The Government also constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise on new Companies Bill. The Committee submitted its report to the Government on 31st May 2005.

• Companies Bill 2008 was introduced by the Government in the Lok Sabha on October 23, 2008.

• Due to dissolution of the 14th Lok Sabha, the Companies Bill, 2008 lapsed. The Government decided to re-introduce the Companies Bill, 2008 as the Companies Bill, 2009, without any change except for the Bill year and the Republic year. The Ministry of Corporate Affairs had introduced the Companies Bill, 2009 in the Lok Sabha on August 3, 2009.

• The 2009 Bill was referred to the Parliamentary Standing Committee on Finance on 9th September, 2009 which gave its report on 31st August, 2010.

• The standing committee, headed by the then finance minister, Yashwant Sinha, had given its recommendations on the Companies Bill, 2009, which has since been withdrawn (The Companies Bill of 2013 incorporates 162 recommendations made by the Standing Committee.)

• In view of numerous amendments to the Companies Bill, 2009 arising out of the recommendations of the Parliamentary Standing Committee on Finance and suggestions of the stakeholders, the Central Government withdrew the Companies Bill 2009 and introduced a fresh bill – The Companies Bill, 2011.

• The 2011 bill was introduced in Parliament on Wednesday, 14th December 2011.

• The Companies Bill, 2011 was referred to the Standing Committee on Finance on 5th January, 2012 after an objection was raised against it in Parliament.

• In the meanwhile, a corrigendum to the Companies Bill, 2011 had been issued that contained some changes of a substantive nature.

• The Standing Committee Report came on 26th June 2012.

• The Union Cabinet had issued a Press Release dated 04.10.2012 setting out amendments to the Companies Bill, which had been approved and the final draft of the Companies Bill, 2011 was prepared after considering the recommendations of the Parliamentary Standing Committee and taking the inputs from the finance and law ministries as well as the Planning Commission.

• Based on the Standing Committee‘s recommendations, the Bill was amended and introduced as the Companies Bill, 2012.

• The Lok Sabha on 18th December, 2012 gave its approval for the Companies Bill 2013, paving the way for a new modern company law. The Companies Bill 2013 was passed by a voice vote in Lok Sabha in a marathon late night sitting.

• Subsequently the Rajya Sabha passed the Bill with amendments at its sitting held on the 8th August, 2013 and returned it to Lok Sabha on the 12th August, 2013.

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