New Companies Bill introduced; to overhaul regulations

The Companies Bill, 2008 - that intends  to modernise and usher in a single framework for regulating Indian companies from incorporation to liquidation - was tabled in the Lok Sabha today.

Minister of Corporate Affairs Prem Chand Gupta introduced the Bill. Once approved by Parliament, the law will replace the existing Companies Act, 1956.

However, the Bill is unlikely to be cleared in the current session of Parliament and is likely to be referred to a standing committee, which would delve into the Bill and likely recommend changes, said a ministry of corporate affairs official. These recommendations would be incorporated in the Bill before it would be presented before Parliament for approval. The process can take up to two years, he added.

A comprehensive revision of the Companies Act, 1956 was taken up by the ministry because not only have the number of companies in India expanded from about 30,000 in 1956 to over 700,000 today. The complexity of the corporate sector has also increased, prompting the need for new laws to address the current scenario.   

Indian companies have expanded and grown into global entities, continuously entering into and bringing new activities into the fold of the Indian economy. In doing so, they are emerging internationally as efficient providers of a wide range of goods and services while increasing employment opportunities at home.

“The Companies Bill 2008 has proposed some far-reaching changes in the statutory framework and is expected to address the  business and investor community's desire for a more contemporary and effective regulatory environment,” said Rajiv Memani, CEO & country managing partner, Ernst & Young.

“The logical extension of the government's e-governance initiative, to permit board of directors' meetings through video-conferencing and postal ballots through electronic communication is laudable,” added Memani.

The Bill seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that foster entrepreneurship, investment and growth.

Highlights

Harmonise the company law framework with the sectoral regulation

Articulation of shareholders democracy with protection of the rights of minority stakeholders, responsible self-regulation with adequate disclosures and accountability. Reduction of government control over internal corporate processes

Easy transition of companies operating under the Companies Act, 1956, to the new framework as also from one type of company to another
New entity in the form of One-Person Company (OPC) while empowering government to provide a simpler compliance regime for small firms
Speedy incorporation process, with detailed declarations and disclosures about the promoters, directors etc., at the time of incorporation itself

Every company director would be required to acquire a unique Director Identification number (DIN)

Relaxation of restrictions limiting the number of partners in entities such as partnership firms, banking companies etc., to a maximum 100, with no ceiling as to professional associations regulated by Special Acts. Duties and liabilities of the directors and every company to have at least one director resident in India

Special courts to deal with offences under the Bill.  Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be dealt with by the National Company Law Tribunal