Revised Indian company law on the anvil following parliamentary assent

Posted: 09/08/2013

The Indian Parliament has given its assent to the Companies Bill 2012 which was passed by the Upper House on 8 August 2013. The Bill, which will replace the Companies Act 1956, was passed in the Lower House in December 2012. It seeks to increase levels of transparency, progress corporate governance norms, augment accountability of corporates and auditors, guard minority shareholders, and provide an enhanced framework for insolvency regulation and institutional structure.

Some of the main features are summarised below:

Greater accountability of companies

• The Bill regulates the tenure and liability of independent directors, and provides a code for them. In addition, a database for independent directors is to be maintained by the Government to facilitate director appointments.
• Boards of directors of companies must have a corporate social responsibility committee in addition to other committees such as audit and remuneration committees. These should include independent directors or non-executive directors in order to protect the interest of minority shareholders.
• Whistleblowing provisions have been introduced with a view to encouraging ethical corporate behaviour and rewarding employees for providing information regarding deviant practices.

Audit accountability

• The Bill contains provisions for rotation of auditors and audit firms. A stricter role for auditors has been envisaged and auditors will be prohibited from rendering non-audit services to ensure independence and accountability.
• The National Advisory Committee on Accounting and Auditing Standards, which will be renamed the National Financial Reporting Authority, will be responsible for ensuring that companies are accountable for monitoring and compliance of accounting and professional standards.

Mergers and acquisitions

The Bill prescribes a simplified procedure to facilitate mergers, acquisitions and amalgamations for holding companies and wholly owned subsidiaries, two or more small companies, and certain other classes of companies. Mergers, acquisitions and amalgamations between all other companies will be approved by the National Company Law Tribunal.

Investor protection

A stricter regime is proposed to regulate acceptance of deposits from the public. The Bill also contains provisions for class action suits, including the minimum number of people required for such suits and certain safeguards against misuse.

National Company Law Tribunal

The Bill defines the qualifications and experience required by members of the National Company Law Tribunal. It also states that appeals relating to its decisions will be heard by the National Company Law Appellate Tribunal.

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