When The Companies Act, 1956 was passed many of our renowned corporates were toddlers or not yet born.? The law has been amended 25 times since its inception but still it fails to match the present corporate world. Hence the need arises to form a new law which can regulate the present corporate world.
A team of government officials drafted a bill and presented it before Lok Sabha on 3rd August 2009. Then it was sent to standing committee and later came back in 2011 with several changes. On 18th Dec 2012 it was finally passed in Lok Sabha and since then it is pending in the Rajya Sabha. With elections looming over the bill seems to have lesser attention.
The Key parameters of the Bills are ? Corporate Governance, Fund raising, M&As, Investor Protection, Corporate Social Responsibility etc. This bill also defines many new definitions for investors and corporates. It also impacts the company?s balance sheet and shareholders wealth. Some key features of this bill are ?
E-Governance: E-Governance has been proposed for many companies for maintenance and allowing inspection of documents by companies in electronic form, option of keeping the books of accounts in electronic form, financial statements to be updated on company website, e-voting, recording board meeting.
Definitions: 33 New definitions related to corporates are also introduced in the bill, some of which are accounting standards, CFO, CEO, Associate Company, Small Company, Employee Stock Option, Promoter, Related Party, Turnover, Chief Executive Officer, Chief Financial Officer, Global Depository Receipt. Also the limit on number of members of a private company has been raised from 50 to 200.
National Advisory Committee on Accounting Standards (NACAS) to be renamed as National Financial Reporting Authority (NFRA) and changes in responsibilities and powers. Notwithstanding any law NFRA shall make recommendation to central govt. for formulation and laying down of the accounting auditing policies and monitor and enforce compliance with accounting standards.
Investors Protection: Issue and transfer of securities and non-payment of dividends shall be monitored by SEBI. A suit may be filed by and investor who has been a victim of any misleading statement or the inclusion or omission of any prospectus or has invested in any fraudulent inducements.
The bill, first time, provides class action suit, which is key weapon for individual shareholders to take collective action against errant companies. Better disclosure requirements in financial statements and disclosure of interests of directors etc. It has also streamlined procedures relating to disclosure of transactions with parties related to directors, promoters etc.
It also provides prohibition on forward dealings in securities of any company by key managerial personnel, insider trading rules and restrict non-cash transactions involving directors of the company.
CSR:?CSR is a management theory, where a company engages in non-profit-making activities for the good of the society. According to the new Act, companies having net worth of rupees?? 500 crore or more or turnover of more than 1000 crore or more or net profit of 5 crore or more are required to spend at least 2% of their profits on CSR activities. If a company fails to spend such amount it will have to give reasons to the board. This approach is ?comply? or ?explain?.
With the elections closing in, the bill may not have another chance. If it is not passed in the upper house, being a finance bill it will lapse with this Lok Sabha and has to reintroduced in the lower house all over again.? If the bill gets passed in the Rajya Sabha the bill goes for presidential assent. The draft rules on the companies act will then be made public and the act comes into effect with notification by Ministry of Corporate Affairs.
Rishabh Diwakar:??He is an electronics engineer and is currently pursuing full time M.B.A in Energy and Infrastructure (Finance) from School of Petroleum Management, Gandhinagar. In past he has been associated with Tata Consultancy services Ltd for 3 years as a system engineer. He has also done research work for Indian Oil Corporation during his Internship and helped them to understand the role of media in branding.
