(This column, the first in a series that analyses the Companies Bill 2011, has been contributed by vakilsearch (www.vakilsearch.com), an online legal guidance and legal solutions provider.)
The paramount law governing commercial activity in our country is the Companies Act, 1956.
The Companies Act and the Companies created under the Act dominate industry and even the services sector (in particular IT and ITES), which contribute almost 85 per cent of the Indian economy. Some companies created under it like Tata Sons, Reliance and Wipro are global titans too.
So any change to the law is bound to create economy wide ripples.
On Wednesday, the Companies Bill 2011 was tabled in Parliament by the Corporate Affairs Minister, Mr Veerappa Moily. The much-anticipated Bill proposes sweeping changes to the existing law. While the existing Act has more than 700 sections, the new Bill has been presented with just 470 clauses.
The new Bill was introduced to incorporate the changes that had been suggested by many stakeholders and members after the 2009 Bill had been presented before Parliament.
The Statement of Objects and Reasons of the new Bill state:
The Companies Act, 1956 had been enacted with the object to consolidate and amend the law relating to the companies and certain other associations. The said Act has been in force for about 55 years and had been amended several times.
In view of changes in the national and international economic environment and expansion and growth of economy of our country, the Central Government after due deliberations decided to repeal the Companies Act, 1956 and enact a new legislation to provide for new provisions to meet the changed national and international, economic environment and further accelerate the expansion and growth of our economy. And for this purpose a Bill, namely, the Companies Bill, 2009 was introduced on August 3, 2009 in the Lok Sabha along with the Statement of Objects and Reasons appended to the said Bill outlining its salient features.
The said Bill was referred to the Parliamentary Standing Committee on Finance for examination and report and the Committee gave its Report on August 31, 2010.
Subsequent to the introduction of the Companies Bill, 2009 in the Lok Sabha, the Central Government received several suggestions for amendments in the said Bill. The Parliamentary Standing Committee on Finance also made numerous recommendations in its Report. The Central Government has accepted in general the recommendations of the Standing Committee and also considered the suggestions received by it from various stakeholders.
In view of large 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 decided to withdraw the Companies Bill, 2009 and introduce a fresh Bill incorporating therein the recommendations of Standing Committee and suggestions of the stakeholder.
Apart from reducing the number of sections drastically, the Bill also brings in changes like a ‘one man company' (which was crucial to bring the Indian law up to steam with developments in corporate law). Some of the changes are:
1. A more extensive range of activities will now be possible online
2. The inclusion of the expression ‘Corporation Sole' within the definition of Company
3. The changing role of Company Secretaries
4. The Mandatory Rotation of Auditors every five years
5. The changes in provisions relating to ‘Independent directors'
6. Bringing in the concept of a ‘One Man Company' to India
7. Corporate Social Responsibility has been made mandatory
8. Substantial judicial powers will be given to the National Company Law Tribunal
9. Increase in the powers of the executive to legislate through notifications
10. Changes relating to managerial remuneration
11. The change in the legal position with regard to Oppression and Mismanagement
And many more.
As is clear, the new Bill seeks to repair and fine tune the 1956 Act. While the intentions are good, it cannot be forgotten that the road to hell is paved with good intentions too.
This series of articles is our sincere attempt to critically analyse the Bill to shed light on vital parts and give you an insight on the things to come.
(To be continued)