Lok Sabha Passed the banking bill Clearing way for New Corporate Licenses

Lower House of the Indian Parliament, Lok Sabha on 18 December 2012 passed the most awaited Companies Bill 2011. This was one of the major achievements of the Corporate Affairs Ministry in the year. Passing of the bill means implementation of the modern legislation of reputation and growth in the corporate sector of India.

The country till date was following the Companies Act, 1956 in existence for regulation of companies. Following the changes in the economic scenario and commercial environment in the national and international market the Government of India considered the bill for comprehensive revision. The Companies Bill 2011 proposed reforms with contemporary provisions of omission of the unwanted compliance requirements mentioned. This would allow the companies of India to comply with the requirements of the Companies Act proposed in an effective manner.

The Union Cabinet of India passed a proposal for making official amendments in the Companies Bill, 2011, which was introduced in the Lok Sabha for the first time on 14 December 2011. The Parliamentary Standing Committee on Finance submitted its report to the Speaker of the Lok Sabha in reference to the bill on 26 June 2012. The Bill further was laid in the Parliament on 13 August 2012. Modifications through official amendments in the Companies Bill 2011 were done following the recommendations provided by the Committee. After this it was presented in the Lok Sabha once again and was passed.

Salient Features of the Companies Bill 2011

1. Amendment of Clause 135 of the Companies Act, 1956 – In the Section on Corporate Social Responsibility (Section135), for the first time has been introduced as a statutory provision, the word-make every endeavour to have been omitted from its Sub-clause (5). The first para of Sub-clause (5) of Clause 135 is now read as: The Board of every company referred to in sub-section (1), shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. Such clause is also amended to provide that the company shall give preference to local area of its operation and spend an amount earmarked for Corporate Social Responsibility (CSR) activities. The approach to implement or cite reasons for non implementation retained.
2. Amendment in Clause 36 the Companies Act, 1956: To help in curbing a major source of corporate delinquency, Clause 36 (c) amended, to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities.
3. Amendment in Clause 143 the Companies Act, 1956: Provisions relating to audit of Government Companies by Comptroller and Auditor General of India (C&AG) modified to enable C&AG to perform such audit more effectively.
4. Amendment in Clause 186 of the Companies Act, 1956: Clause 186 amended to provide that the rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities.
5. Amendment in Clause 144 of the Companies Act, 1956: Provisions relating to restrictions on non audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.
6. Amendment in Clause 203 of the Companies Act, 1956: Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD.
7. Amendments in Clause 147 and 245 of the Companies Act, 1956: Provisions relating to extent of criminal liability of auditors - particularly in case of partners of an audit firm - reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose.
8. Amendment in Clause 141 of the Companies Act, 1956: The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies.
9. Amendment in Clause 139 of the Companies Act, 1956: Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting.
10. Amendment in Clause 139: Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner at such interval as may be resolved by members instead of every year proposed in the clause earlier.
11. Amendment in Clause 2 of the Companies Act, 1956: Whole-time director has been included in the definition of the term key managerial personnel.
12. Amendment in Clause 42 of the Companies Act, 1956: The term private placement has been defined to bring clarity.
13. Amendment in Clause 61 of the Companies Act, 1956: Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation.
14. Amendment in Clause 152 of the Companies Act, 1956: Clarification included in the Bill to provide that Independent Directors shall be excluded for the purpose of computing ‘one third of retiring Directors’. This would bring harmonisation between provisions of Clause 149(12) and rotational norms provided in Clause 152.
15. Amendment in Clause 470 of the Companies Act, 1956: Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government up to five years (after enactment of the legislation) instead of earlier up to ‘three years’. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems.