Cabinet approves new Companies Bill

A liberal regulatory set-up for corporates is on the anvil with the Cabinet approving the introduction of a new Companies Bill that will replace the archaic and voluminous Companies Act of 1956. The Companies Bill 2008 also paves the way for the formation of a oneperson company (OPC) that would help start-up entrepreneurs operate as a company without facing the liabilities attached to a sole partnership firm.Corporate affairs minister Prem Chand Gupta said companies should expect a liberal and less cumbersome regime in India as the proposed Bill suggests cutting down many provisions that are not relevant in today’s economic environment. “Against the 800-odd provisions in the existing act, the proposed law aims at pruning this to almost half,’’ Gupta said, adding that the aim was to bring in “self regulation, but with accountability’’. Gupta had initiated the process to revamp the existing Companies Act in 2004 and the government had formed a committee, headed by JJ Irani, to help draft the new law for which it also held consultations with industry bodies as well as professional organisations like ICAI and ICSI.The Companies Bill 2008 would be tabled in the coming session of Parliament, Gupta said, adding that it contained various provisions aimed at bringing in a flurry of changes for the corporate sector.The Bill aims at cutting down many of the approvals companies need to take from the government at present. These include matters like remuneration of directors, related party transactions, attachment of balance sheet of subsidiary companies.“In another crucial recommendation, we have done away with promoters buying shares at a discount,’’ the minister said. Also, it lays down higher and stringent penalties for corporate offences, many commensurate with the nature of default and its effect on ordinary shareholders.The proposed Bill also states that 33% of directors on a company’s broad should be independent, which appears relaxed compared to the 50% norm stipulated by market regulator Sebi. Gupta said sectoral regulators were free to prescribe higher limits if they deemed fit. “So unlisted companies can have one-third independent directors while for listed companies, it has to be 50%, as prescribed by Sebi’s Clause 49,’’ he said. The Bill also proposes to raise the number of partners in a firm to 100 from the present 20, while not recommending any restrictions over the number of subsidiaries a company can have. It also recognises board meeting held through video conferencing and accepts communication and voting through e-mails and books of account in electronic form.
Unshackling INDIA INC.
1 Bill seeks appointment of a minimum 33% independent directors on board and restrictions on firms to raise deposits from public.
2 No issue of shares on discount .
3 Provides for a single forum for M&As.
4 Investors can claim dividend or security even after 7 years .
5 Investor education and protection fund will be administered by a statutory authority.
6 Taking care of small cos, the bill proposes a new entity in the form of oneperson company.
7 Proposes stringent regime for misuse of ‘not-for-profit’ cos.
8 No restrictions on number of subsidiaries. Wider choice on number of partners in a partnership firm.
9 Seeks consolidation of financial statements of subsidiaries with those of holding cos mandatory 10 Provides special courts to deal with offences and scrapping of minimum paid-up cap requirement.
11 Regulation of insolvency, winding up and liquidation made effective .