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Saturday, September 20, 2008
COMPANIES BILL 2008
PRESS RELEASE
Sub: The Companies Bill, 2008
The Ministry of Corporate Affairs took up a comprehensive
revision of the Companies Act, 1956 (the Act) in 2004 keeping in view
that not only had the number of companies in India expanded from
about 30,000 in 1956 to nearly 7 lakhs, Indian companies were also
mobilizing resources at a scale unimaginable even a decade ago,
continuously entering into and bringing new activities into the fold of
the Indian economy. In doing so, they were emerging internationally as
efficient providers of a wide range of goods and services while
increasing employment opportunities at home. At the same time, the
increasing number of options and avenues for international business,
trade and capital flows had imposed a requirement not only for
harnessing entrepreneurial and economic resources efficiently but also
to be competitive in attracting investment for growth. These
developments necessitated modernization of the regulatory structure
for the corporate sector in a comprehensive manner.
2. Earlier, a Bill called Companies (Amendment) Bill, 2003 had been
introduced by M/o Corporate Affairs (MCA) (then Department of
Company Affairs) in the Rajya Sabha on 7.5.2003. Later on, a large
number of changes were found to be necessary in the Bill. A decision
was, therefore, taken to carry out a comprehensive review of the
Companies Act, 1956 and to introduce a new Companies Bill for the
consideration of the Parliament.
3. The review and redrafting of the Companies Act, 1956 was taken
up by the Ministry of Corporate Affairs on the basis of a detailed
consultative process. A `Concept Paper on new Company Law’ was
placed on the website of the Ministry on 4th August, 2004. The inputs
received were put to a detailed examination in the Ministry. The
Government also constituted an Expert Committee on Company Law
under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise
on new Companies Bill. The Committee submitted its report to the
Government on 31st May 2005. Detailed consultations were also taken
up with various Ministries, Departments and Government Regulators.
The Bill was thereafter drafted in consultation with the Legislative
Department of the Central Government.
4. The Companies Bill, 2008 seeks to enable the corporate sector in
India to operate in a regulatory environment of best international
practices that fosters entrepreneurship, investment and growth and
provides for :-
1
(i) The basic principles for all aspects of internal governance
of corporate entities and a framework for their regulation,
irrespective of their area of operation, from incorporation to
liquidation and winding up, in a single, comprehensive, legal
framework administered by the Central Government. In doing
so, the Bill also harmonizes the Company law framework with
the imperative of specialized sectoral regulation
(ii) Articulation of shareholders democracy with
protection of the rights of minority stakeholders,
responsible self-regulation with disclosures and
accountability, substitution of government control over
internal corporate processes and decisions by
shareholder control. It also provides for shares with
differential voting rights to be done away with and valuation of
non-cash considerations for allotment of shares through
independent valuers.
(iii) Easy transition of companies operating under the
Companies Act, 1956, to the new framework as also from one
type of company to another.
(iv) A new entity in the form of One-Person Company
(OPC) while empowering Government to provide a simpler
compliance regime for small companies. Retains the concept of
Producer Companies, while providing a more stringent regime
for not-for–profit companies to check misuse. No restriction
proposed on the number of subsidiary companies that a
company may have, subject to disclosure in respect of their
relationship and transactions/dealings between them.
(v) Application of the successful e-Governance initiative of the
Ministry of Corporate Affairs (MCA-21) to all the processes
involved in meeting compliance obligations. Company processes,
also to be enabled to be carried out through electronic mode.
The proposed e-Governance regime is intended to provide for
ease of operation for filing and access to corporate data over the
internet to all stakeholders, on round the clock basis.
(vi) Speedy incorporation process, with detailed declarations/
disclosures about the promoters, directors etc. at the time of
incorporation itself. Every company director would be required to
acquire a unique Directors identification number.
(vii) Facilitates joint ventures and relaxes restrictions
limiting the number of partners in entities such as
partnership firms, banking companies etc. to a maximum 100
with no ceiling as to professions regulated by Special Acts.
2
(viii) Duties and liabilities of the directors and for every
company to have at least one director resident in India. The Bill
also provides for independent directors to be appointed on the
Boards of such companies as may be prescribed, along with
attributes determining independence. The requirement to
appoint independent directors, where applicable, is a minimum
of 33% of the total number of directors.
(ix) Statutory recognition to audit, remuneration and
stakeholders grievances committees of the Board and recognizes
the Chief Executive Officer (CEO), the Chief Financial Officer
(CFO) and the Company Secretary as Key Managerial Personnel
(KMP).
(x) Companies not to be allowed to raise deposits from the
public except on the basis of permission available to them
through other Special Acts. The Bill recognizes insider trading by
company directors/KMPs as an offence with criminal liability.
(xi) Recognition of both accounting and auditing
standards. The role, rights and duties of the auditors defined as
to maintain integrity and independence of the audit process.
Consolidation of financial statements of subsidiaries with those
of holding companies is proposed to be made mandatory.
(xii) A single forum for approval of mergers and
acquisitions, along with concept of deemed approval in certain
situations.
(xiii) A separate framework for enabling fair valuations in
companies for various purposes. Appointment of valuers is
proposed to be made by audit committees.
(xiv) Claim of an investor over a dividend or a security not
claimed for more than a period of seven years not being
extinguished, and Investor Education and Protection Fund (IEPF)
to be administered by a statutory Authority.
(xv) Shareholders Associations/Group of Shareholders to be
enabled to take legal action in case of any fraudulent action on
the part of company and to take part in investor protection
activities and ‘Class Action Suits’.
(xvi) A revised framework for regulation of insolvency,
including rehabilitation, winding up and liquidation of companies
with the process to be completed in a time bound manner.
Incorporates international best practices based on the models
3
suggested by the United Nations Commission on International
Trade Law (UNCITRAL).
(xvii) Consolidation of fora for dealing with rehabilitation of
companies, their liquidation and winding up in the single forum
of National Company Law Tribunal with appeal to National
Company Law Appellate Tribunal. The nature of the
Rehabilitation and Revival Fund proposed in the Companies
(Second Amendment) Act, 2002 to be replaced by Insolvency
Fund with voluntary contributions linked to entitlements to draw
money in a situation of insolvency.
(xviii) A more effective regime for inspections and
investigations of companies while laying down the maximum
as well as minimum quantum of penalty for each offence
with suitable deterrence for repeat offences. Company is
identified as a separate entity for imposition of monetary
penalties from the officers in default. In case of fraudulent
activities/actions, provisions for recovery and disgorgement have
been included.
(xix) Levy of additional fee in a non-discretionary manner for
procedural offences, such as late filing of statutory documents,
to be enabled through rules. Defaults of procedural nature to be
penalized by levy of monetary penalties by the Registrars of
Companies. The appeals against such orders of Registrars of
Companies to lie with suitably designated higher authorities.
(xx) Special Courts to deal with offences under the Bill.
Company matters such as mergers and amalgamations,
reduction of capital, insolvency including rehabilitation,
liquidations and winding up are proposed to be addressed by the
National Company Law Tribunal/ National Company Law
Appellate Tribunal.
* * * * * * * *
4
Sub: The Companies Bill, 2008
The Ministry of Corporate Affairs took up a comprehensive
revision of the Companies Act, 1956 (the Act) in 2004 keeping in view
that not only had the number of companies in India expanded from
about 30,000 in 1956 to nearly 7 lakhs, Indian companies were also
mobilizing resources at a scale unimaginable even a decade ago,
continuously entering into and bringing new activities into the fold of
the Indian economy. In doing so, they were emerging internationally as
efficient providers of a wide range of goods and services while
increasing employment opportunities at home. At the same time, the
increasing number of options and avenues for international business,
trade and capital flows had imposed a requirement not only for
harnessing entrepreneurial and economic resources efficiently but also
to be competitive in attracting investment for growth. These
developments necessitated modernization of the regulatory structure
for the corporate sector in a comprehensive manner.
2. Earlier, a Bill called Companies (Amendment) Bill, 2003 had been
introduced by M/o Corporate Affairs (MCA) (then Department of
Company Affairs) in the Rajya Sabha on 7.5.2003. Later on, a large
number of changes were found to be necessary in the Bill. A decision
was, therefore, taken to carry out a comprehensive review of the
Companies Act, 1956 and to introduce a new Companies Bill for the
consideration of the Parliament.
3. The review and redrafting of the Companies Act, 1956 was taken
up by the Ministry of Corporate Affairs on the basis of a detailed
consultative process. A `Concept Paper on new Company Law’ was
placed on the website of the Ministry on 4th August, 2004. The inputs
received were put to a detailed examination in the Ministry. The
Government also constituted an Expert Committee on Company Law
under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise
on new Companies Bill. The Committee submitted its report to the
Government on 31st May 2005. Detailed consultations were also taken
up with various Ministries, Departments and Government Regulators.
The Bill was thereafter drafted in consultation with the Legislative
Department of the Central Government.
4. The Companies Bill, 2008 seeks to enable the corporate sector in
India to operate in a regulatory environment of best international
practices that fosters entrepreneurship, investment and growth and
provides for :-
1
(i) The basic principles for all aspects of internal governance
of corporate entities and a framework for their regulation,
irrespective of their area of operation, from incorporation to
liquidation and winding up, in a single, comprehensive, legal
framework administered by the Central Government. In doing
so, the Bill also harmonizes the Company law framework with
the imperative of specialized sectoral regulation
(ii) Articulation of shareholders democracy with
protection of the rights of minority stakeholders,
responsible self-regulation with disclosures and
accountability, substitution of government control over
internal corporate processes and decisions by
shareholder control. It also provides for shares with
differential voting rights to be done away with and valuation of
non-cash considerations for allotment of shares through
independent valuers.
(iii) Easy transition of companies operating under the
Companies Act, 1956, to the new framework as also from one
type of company to another.
(iv) A new entity in the form of One-Person Company
(OPC) while empowering Government to provide a simpler
compliance regime for small companies. Retains the concept of
Producer Companies, while providing a more stringent regime
for not-for–profit companies to check misuse. No restriction
proposed on the number of subsidiary companies that a
company may have, subject to disclosure in respect of their
relationship and transactions/dealings between them.
(v) Application of the successful e-Governance initiative of the
Ministry of Corporate Affairs (MCA-21) to all the processes
involved in meeting compliance obligations. Company processes,
also to be enabled to be carried out through electronic mode.
The proposed e-Governance regime is intended to provide for
ease of operation for filing and access to corporate data over the
internet to all stakeholders, on round the clock basis.
(vi) Speedy incorporation process, with detailed declarations/
disclosures about the promoters, directors etc. at the time of
incorporation itself. Every company director would be required to
acquire a unique Directors identification number.
(vii) Facilitates joint ventures and relaxes restrictions
limiting the number of partners in entities such as
partnership firms, banking companies etc. to a maximum 100
with no ceiling as to professions regulated by Special Acts.
2
(viii) Duties and liabilities of the directors and for every
company to have at least one director resident in India. The Bill
also provides for independent directors to be appointed on the
Boards of such companies as may be prescribed, along with
attributes determining independence. The requirement to
appoint independent directors, where applicable, is a minimum
of 33% of the total number of directors.
(ix) Statutory recognition to audit, remuneration and
stakeholders grievances committees of the Board and recognizes
the Chief Executive Officer (CEO), the Chief Financial Officer
(CFO) and the Company Secretary as Key Managerial Personnel
(KMP).
(x) Companies not to be allowed to raise deposits from the
public except on the basis of permission available to them
through other Special Acts. The Bill recognizes insider trading by
company directors/KMPs as an offence with criminal liability.
(xi) Recognition of both accounting and auditing
standards. The role, rights and duties of the auditors defined as
to maintain integrity and independence of the audit process.
Consolidation of financial statements of subsidiaries with those
of holding companies is proposed to be made mandatory.
(xii) A single forum for approval of mergers and
acquisitions, along with concept of deemed approval in certain
situations.
(xiii) A separate framework for enabling fair valuations in
companies for various purposes. Appointment of valuers is
proposed to be made by audit committees.
(xiv) Claim of an investor over a dividend or a security not
claimed for more than a period of seven years not being
extinguished, and Investor Education and Protection Fund (IEPF)
to be administered by a statutory Authority.
(xv) Shareholders Associations/Group of Shareholders to be
enabled to take legal action in case of any fraudulent action on
the part of company and to take part in investor protection
activities and ‘Class Action Suits’.
(xvi) A revised framework for regulation of insolvency,
including rehabilitation, winding up and liquidation of companies
with the process to be completed in a time bound manner.
Incorporates international best practices based on the models
3
suggested by the United Nations Commission on International
Trade Law (UNCITRAL).
(xvii) Consolidation of fora for dealing with rehabilitation of
companies, their liquidation and winding up in the single forum
of National Company Law Tribunal with appeal to National
Company Law Appellate Tribunal. The nature of the
Rehabilitation and Revival Fund proposed in the Companies
(Second Amendment) Act, 2002 to be replaced by Insolvency
Fund with voluntary contributions linked to entitlements to draw
money in a situation of insolvency.
(xviii) A more effective regime for inspections and
investigations of companies while laying down the maximum
as well as minimum quantum of penalty for each offence
with suitable deterrence for repeat offences. Company is
identified as a separate entity for imposition of monetary
penalties from the officers in default. In case of fraudulent
activities/actions, provisions for recovery and disgorgement have
been included.
(xix) Levy of additional fee in a non-discretionary manner for
procedural offences, such as late filing of statutory documents,
to be enabled through rules. Defaults of procedural nature to be
penalized by levy of monetary penalties by the Registrars of
Companies. The appeals against such orders of Registrars of
Companies to lie with suitably designated higher authorities.
(xx) Special Courts to deal with offences under the Bill.
Company matters such as mergers and amalgamations,
reduction of capital, insolvency including rehabilitation,
liquidations and winding up are proposed to be addressed by the
National Company Law Tribunal/ National Company Law
Appellate Tribunal.
* * * * * * * *
4
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