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Experts want the government to make further changes to the Companies Act than cleared by the Cabinet earlier this week. Among their demands is sparing unlisted companies from related-party transaction norms.
On Tuesday, the Cabinet had cleared 14 changes to the Companies Act, 2013, paving the way for tabling the amendments in the current session of Parliament.
ALSO READ: Cabinet clears 14 changes to Companies Act
The Cabinet’s move to approve 14 amendments is expected to increase the ease of doing business in India, which is ranked 142nd among 189 nations on a recent World Bank list.
Through these 14 changes, the government has tried to ease provisions regarding related-party transactions, auditor reporting of frauds and companies filing their board resolutions with the Registrar of Companies, among other things.
Another demand by experts is related to a ceiling on the number of audits per partner.
“At present, it is set at a very low level (20 companies) and also requires private companies, small companies and one-person companies to be considered while determining that limit,” said Yogesh Sharma, partner (assurance), Grant Thornton India. “It is indeed proving to be a constraint on availability of auditors and we are still hopeful it will be looked into positively by the ministry in due course,” he added.
According to V Balaji, partner, Deloitte Haskins & Sells, a draft circular the corporate affairs ministry had issued for public comments in June 2014 had proposed certain exemptions for private companies. “These proposals do not appear to have been included in the amendments listed in the press release issued on Wednesday. One will have to wait and see if those proposals will also be taken up and implemented by the government,” he said.
The exemption of private companies from the provisions of related-party transactions was another demand of the corporate sector. That has not been addressed in this amendment. Pankaj Chadha, partner at a member firm of EY Global, said the relief would address many of the (industry’s) concerns, but there were other key areas — curtailment of scope of definition of relatives to include only financially dependent relatives, guarantee on loans to subsidiary companies, etc — that were not included in this amendment.
Another major demand was regarding private companies’ exemption from the mandatory audit firm rotation. According to Harinderjit Singh, partner, Price Waterhouse, subsidiaries of foreign private companies should also be exempted, as there is no public interest involved.
“Mandatory firm rotation should be limited to listed companies and public-interest entities that have taken money/deposits from public or borrowings from banks or financial institutions. Also, the applicability threshold for rotation provision for private companies is too low and should be aligned with thresholds as provided elsewhere in the Companies Act, 2013, for several other purposes,” he added.
“These changes (amendments) would come as a great relief to companies... However, there are several other areas where they would still continue to face challenges, and hope that there would be a more comprehensive post-implementation review of the Act, to address the other issues,” said Sai Venkateshwaran, partner and head of accounting advisory services at KPMG in India.
The Companies Act, 2013, was notified in August last year by the previous. Of the 470 sections in the Act, 283 sections and 22 sets of rules corresponding to such sections have so far been brought into force. This means, around 40 per cent of the Act is yet to be enforced.
The current government has been indicating for some time it would bring in necessary changes to address concerns raised by various stakeholders, including companies.
The Companies (Amendment) Bill, 2014, would now go to Parliament to bring into effect necessary amendments to the existing Act. According to sources, it is likely to be tabled in the current session.
