Amendments in The Indian Companies Act of 1956
In an attempt to provide boost to the economic growth, Indian Government has proposed amendments in The Indian Companies Act, 1956 to incorporate the latest trends of the corporate world and to incorporate the changes which can provide boost to the corporate sector in the economic growth of the country. A draft bill seeking amendments in The Companies Act, 1956 was introduced and the same was passed by the upper house of the Parliament i.e. Rajya Sabha and several changes were accepted vide the proposed amendments in The Companies Act,1956. The salient features of the amendment bill are introduction of new concepts and laws which are in conformity of the recent trend in the corporate world, the deletion of the obsolete laws and compliances which have become unproductive and redundant from the point of view of legal utility. It is however seen that several requirements related to the e-commerce and e-trade have not been incorporated or proposed which are also crucial and essential for the corporate sector.
The Salient features of the Companies Bill 2011 are as follows:
- Proposed amendment in Clause 2 of The Companies Act, 1956: Vide this proposed amendment “Whole Time Director” has been included in the definition of the “Key managerial personnel”
- The Proposed amendment in Clause 36: This clause is being amended to curb major sources of corporate delinquency accordingly Clause 36 ( c ) has been amended to include punishment for falsely inducing a person to enter into an agreement with bank or financial institution with a view to obtain credit from the bank.
- Proposed amendment in Clause 42 of The Companies Act, 1956: The term ‘private placement’ has been defined to bring clarity.
- Proposed amendment in Clause 61 of The Companies Act, 1956: It has been proposed that approval of the Tribunal shall be mandatory for the consolidation and division of the share capital of the company only in the case voting percentage of shareholders changes consequent on such consolidation.
- Proposed Amendment in Clause 135: The concept of Corporate Social Responsibility (CRS) is being introduced by way of the Section 135 and the proposed amended Section 135 of The Companies Act reads as under:
“The Board of every company referred to in sub-section (1),shall ensure that the company spends in every financial year, at least two per cent of the average net profits of the company made during the threeimmediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.”
The said clause is also being amended to make it necessary that the company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility(CSR) activities. The approach to ‘implement or cite reasons for non implementation’ retained.
- Proposed amendment in Clause 139 of The Companies Act, 1956: It has been proposed that the appointment of the auditors of the company for five years shall be subject to ratification by the members at every Annual General Meeting (AGM).
- Proposed amendment in Clause 139: The proposal relates to the voluntary rotation of auditing partner of an audit firm modified to provide that members may rotate the partner ‘at such interval as may be resolved by members’ instead of ‘every year’ proposed in the clause earlier.
- Proposed amendment in Clause 141 of The Companies Act, 1956 proposes that the maximum number of companies in which a person can be director is 20.
- The Proposed amendment in Clause 143 of The Companies Act: Provisions relating to audit of Government Companies by Comptroller and Auditor General of India (C&AG) modified to enable C&AG to perform such audit more effectively and comprehensively. This amendment will lead to more and effective responsibility of the Government Companies.
- Proposed amendment in Clause 144 of The Companies Act: Makes provisions relating to restriction on non audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.
- Proposed amendment in Clause 152 of The Companies Act, 1956: The proposal is for the clarification included in the Bill to make a provision that ‘Independent Directors’ shall be excluded for the purpose of computing ‘one third of retiring Directors’. This would bring harmonization between provisions of Clause 149(12) and rotational norms provided in Clause 152.
- Proposed amendment in Clause 186 of The Companies Act: To provide that the rate of interest on inter corporate loans will be the rates as determined by the Government or the prevailing rate of interest on Government Securities.
- Proposed amendment in Clause 203: This proposed amendment in The Companies Act is for the separation of the office of the Chairman and The Managing Director modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as chairman as well as MD.
- Proposed amendment in Clause 147 and 245 of The Companies Act, 1956: The proposed amendment is regarding the extent of criminal liability of the auditors who have conducted the audit of the company. The proposed amendment emphasizes on the liability in respect of the damages to be paid by the auditor under the orders of the court which is used for the payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose.
- Proposed amendment in Clause 470 of The Companies Act, 1956: The proposal is in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government up to ‘five years’ (after enactment of the legislation) instead of earlier up to ‘three years’. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems.
Amendments in The Indian Companies Act of 1956 are thus bound to get the benefits of the recent changes as proposed.