New Delhi: The government on Monday introduced the Companies Bill, 2009, in the Lok Sabha, or lower house of Parliament. When enacted, this will bring about significant changes in the way business is done in India, make it easier to start and close businesses, and protect shareholders.
“The main objective is to delink the procedural aspects (of company law regulations) from the substantive law and provide greater flexibility in rule making to enable adaptation to the changing economic and technical environment,” said a statement issued by the ministry of corporate affairs, or MCA. The statement added that the new Bill would not have provisions in the older legislation that had become redundant.
While the Bill was introduced in the Lok Sabha in October, it could not be taken any further. The country went to the polls in May and the Bill lapsed.
Adaptability focus: Minister of state for corporate affairs Salman Khursheed. The Bill would also allow the creation of one-person firms. Sunil Saxena / Hindustan Times
“The new Bill is same as that was introduced last year and no new changes have been made,” said an official at MCA who did not want to be identified.
Work on the new Bill, which will replace a 53-year-old law, began five years ago.
The Bill, which seeks to make firms and their promoters more accountable by making them responsible for their behaviour and actions, will affect around 750,000 firms and significantly more individuals.
Among the provisions in the Bill is one related to the creation of one-person firms, allowing an entrepreneur to set up his own company and be liable only for his actions. Currently, at least two people are required to open a company, even if it is a partnership.
The Bill also seeks to make promoters of firms more responsible by prohibiting insider trading—thus far barred only by the stock market regulator but not by the Companies Act—and bars them from raising money from the public without getting requisite approvals.
The Bill also would make it compulsory for directors of companies to obtain a director identification number from the ministry. This is the equivalent of the permanent account number used by the income-tax department, and the ministry is hoping to use this to check frauds.
The Bill hopes to empower shareholders by allowing them to initiate class action suits against promoters, and accelerate mergers and the speedy incorporation and winding up of companies.
“Today, when you do business with any international company, the first thing they ask is about exit laws. In India, to wind up a company can take a minimum of two years, which is a fairly long period. I would say that an initiative to streamline the winding up process would be a step in the right direction. Besides, if gaps still exist, I hope that they are taken care of by subordinate rules, which the government can frame from time to time,” said Akil Hirani, managing partner of law firm Majmudar and Co. The Bill talks about two kinds of winding up process—voluntary and by a tribunal—with the latter being more time-consuming.
The Bill also seeks to enlarge the number of partners in partnership firms from 20 to 100—a move that will help, among others, international audit firms that currently work through multiple firms to overcome the constraint.
The Bill also presents “a separate framework for enabling fair valuations of companies’ assets and networth for purposes of mergers, amalgamation is also being worked out for which independent valuers will be created”, said a second MCA official who too did not want to be identified.
The Bill is largely based on recommendations made by an expert committee headed by J.J. Irani, director, Tata Sons Ltd, the holding company of the Tata group.