Seven years after it was first proposed, the cabinet on Thursday approved the Companies Bill 2011, a draft law to comprehensively amend the 55-year-old Companies Act 1956.
It will be tabled in Parliament during the current session. The Bill aims at the modernisation of corporate regulation. It will herald an era of e-governance, enhanced accountability, and corporate social responsibility (CSR) among companies registered in the country.
Several corporate governance and disclosure norms were included in the Bill to avoid recurrence of corporate scandals such as the alleged accounting fraud by the promoters of the erstwhile Satyam Computer in 2009. Additional disclosure norms for companies, mandatory rotation of auditors and audit firms, regulation of related-party transactions, protection of minority shareholders, provision for class action suits, enhancement of penalties and a mandatory slot for a woman director on company boards are all new proposals included in the Bill.
| HOW IT UNFOLDED | |
| 2004 | Ministry readies concept paper on revised company law |
| 2005 | J J Irani committee submits its report on concept paper, new law |
| 2008 | Cabinet approves new Bill, lapses due to dissolution of Lok Sabha |
| 2009 | Re-introduced as Companies Bill 2009, goes to parliamentary panel for scrutiny |
| 2010 | Parliamentary panel submits report on Bill |
| 2011 | Cabinet approves Companies Bill 2011 |
Among other things, it also proposes to tighten the laws for raising money from the public. The Bill seeks to prohibit insider trading by company directors or key managerial personnel by treating such activities as a criminal offence. Further, it has proposed companies earmark two per cent of the average profit of the preceding three years for CSR activities and make a disclosure to shareholders about the policy adopted in the process. Class action suits will empower investors to sue a company for oppression and mismanagement, and claim damages.
The Bill, referred to the cabinet a few weeks ago, was not cleared earlier due to some technical differences between the ministries of finance and corporate affairs over the delegation of powers to stock market regulator, Securities and Exchange Board of India.
The differences were later resolved by finance minister Pranab Mukherjee, Planning Commission deputy chairman Montek Singh Ahluwalia and corporate affairs minister Veerappa Moily. Apparently, it has been decided Sebi's view will be upheld in cases of conflicting jurisdictions. The United Progressive Alliance government had introduced the Companies Bill, 2008 during its previous tenure, though it lapsed with the dissolution of the 14th Lok Sabha. It was re-introduced in August 2009 and was vetted by a parliamentary standing committee on finance. The 2011 Bill incorporates most of the changes recommended by the parliamentary panel. Industry chamber Confederation of Indian Industries (CII) welcomed the decision. “CII is very hopeful the cabinet has kept the concerns of the industry in mind while clearing this important legislation,” said CII director general Chandrajit Banerjee.
