New Delhi: The government is giving final touches to the draft Companies Bill, which will ensure better disclosures, penalize non-compliance with stiff penalties, stimulate entrepreneurship by permitting a one person company and, empower small shareholders by allowing class action suits.
“The Bill is ready from the ministry’s side and last-minute proposals that are being sent from other ministries are being added on a daily basis, though by and large, most ministries have sent their recommendations. We will be able to place the Bill before the cabinet in two-three weeks,” said a senior official at the ministry of corporate affairs, who did not wish to be identified.
Once the cabinet approves the Bill, which will replace the existing Companies Act, 1956, it will be put before Parliament in the budget session that starts in late February.
The new Act, the official said, will bring about wide-ranging changes starting from the way companies are registered. It is also expected to spell out issues related to corporate governance at the management and board level and may prescribe that one third of the board of publicly listed companies be independent—this is not a statutory norm under the Act.
The new Bill is also expected to focus on investor protection, set out a time-boundprocess of liquidation of companies and institute stringent compliance norms for companies where larger publicinterest is involved, the official added.
Among the investor protection measures that the Bill will introduce are class action suits, through which minority shareholders can challenge the company management as a group.
Government officials say that since such suits will now be part of the new Act, the courts will take faster cognizance of investor complaint.
All these provisions are part of recommendations made by the Expert Committee on Company Law, also called the Irani committee, which was chaired by Jamshed J. Irani, director, Tata Sons Ltd, and submitted its report in 2005.
“We are also hoping that a time-bound process of liquidation and restructuring as recommended by the Irani committee is accepted,” said Preeti Malhotra, president of the Institute of Companies Secretaries of India.
“The new Act will be more industry-friendly, lean and considerably dejargonized. Besides, the provisions will have clarity and would be considerably easy to interpret even by lay persons,” the official said.
However, not everybody is sure the new Act will be all this. Attempts to make the Act lean could mean leaving out a lot of provisions, said one expert, a chartered accountant who is a council member of the Institute of Chartered Accountants of India, the apex body of chartered accountants in the country.
The ministry may try and make up for the fact that these provisions are not there through notifications.
“There is a high chance that in this process companies may fall prey to interpretations made by the ministry on various provisions,” added the accountant, who did not wish to be identified.
“The government has been talking about amending the Act for over a decade but has not been successful because it is not easy to revise the whole gamut of the Act,” he added.
Ministry officials maintain that they are prepared for the changes this time.