Home General Knowledge GK SPECIAL TOPIC : COMPANIES BILL 2012
GK SPECIAL TOPIC : COMPANIES BILL 2012
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Wednesday, 09 April 2014 05:21


GK SPECIAL TOPIC

 

COMPANIES BILL 2012

The Parliament has passed the historic Companies Bill 2012.  The new Companies Bill, on its enactment, will allow the country to have a modern legislation for growth and regulation of corporate sector in India. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally.

The new law will facilitate business-friendly corporate regulation, improve corporate governance norms, enhance accountability on the part of corporates/ auditors, raise levels of transparency and protect interests of investors, particularly small investors.

The salient features of the new Companies law are: Business friendly corporate Regulation/ pro-business initiatives; e-Governance Initiatives; Good Corporate Governance and CSR; Enhanced Disclosure norms; Enhanced accountability of Management; Stricter enforcement; Audit accountability; Protection for minority shareholders; Investor protection and activism; Better framework for insolvency regulation; and Institutional structure.

Important features of the Companies Bill, 2012 are:

A. The new rules make the earmarking of funds by companies for corporate social responsibility (CSR) spending mandatory. Companies are required to spend at least 2 per cent of their net profit on CSR. The companies will also have to give preference to the local areas of their operation for such spending. If they are unable to meet CSR norms, they will have to give explanations and may even face penalty.

B. To help in curbing a major source of corporate delinquency, the Bill introduces punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities.

C. The new legislation has more provisions to guard the interests of employees. It mandates payment of two years' salary to employees in case a company shuts operations.

D. The appointment of auditors for five years shall be subject to ratification by members at every annual general meeting. Also, the limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20.

E. Provisions in respect of vigil mechanism (whistle blowing) proposed to enable a company to evolve a process to encourage ethical corporate behavior, while rewarding employees for their integrity and for providing valuable information to the management on deviant practices. (Clause 177 (9) and 177 (10));

F. Stricter and more accountable role for auditor being retained. Provisions relating to prohibiting auditor from performing non-audit services revised to ensure independence and accountability of auditor.

G. National Advisory Committee on Accounting and Auditing Standards (NACAAS) proposed to be renamed as National Financial Reporting Authority (NFRA) with a mandate to ensure monitoring and compliance of accounting and auditing standards and to oversee quality of service of professionals associated with compliance.

H. Simplified procedure (through confirmation by the  Central Government), laid down for compromise or arrangement including for merger or amalgamation of holding companies  and wholly owned subsidiary, between two or more small companies and for such other class or classes of companies as may be prescribed. This would result into faster decisions on approvals for mergers and amalgamations resulting effective restructuring in companies and growth in the economy. For other companies, such matters would be approved by Tribunal.

I. The maximum number of directors in a private company has been increased from 12 to 15, which can be increased further by special resolution.

J. The financial year of any company can end only on March 31 and the only exception is for companies which are holding/subsidiary of a foreign entity requiring consolidation outside India.

K. The Bill has a provision that keeps tabs on exorbitant remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as employees.




 

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