The Parliament of India is set to witness the introduction of amendments to the Companies Act, a brainchild of the Ministry of Corporate Affairs. This decision comes after insightful feedback from professionals and experts on recommendations by the Company Law Committee. The report was submitted to the finance and corporate affairs minister in April 2022.
The Aim of these Amendments
The major focus of these amendments is to enhance corporate governance. This enhancement seeks to reflect particularly in the appointment procedures for board positions and dealing with resignations from auditors and top executives. The objective is to ensure that independent directors maintain their independence, and companies become more transparent about instances of statutory auditors expressing adverse remarks or qualifications on financial statements, or even resigning their audit assignments.
Protection of Auditor Independence
Furthermore, to protect the independence of statutory auditors, several modifications to the law are proposed, including mandatory joint audits for certain types of companies. The intent behind these changes is to fortify the gatekeepers of corporate governance – independent directors and auditors. By infusing more transparency, it aims to make company affairs more accessible to scrutiny.
Improving Ease of Doing Business
Additionally, these amendments will allow companies to issue fractional shares and discounted shares. As per the current legal framework under the Companies Act, the issuance of fractional shares is prohibited. However, these changes will enable retail investors to access high-value shares. Discounted shares will offer a lifeline for distressed companies by allowing them to convert debt into equity.
Background of Indian Companies Act
Originally enacted in 1956, the Indian Companies Act sets out the responsibilities of companies, their executive directors, and secretaries. In 2013, the Indian Companies Act 1956 was amended, introducing the Indian Companies Act 2013. The Companies (Amendment) Bill, 2020 was another significant move by the Parliament of India that sought to decriminalise various compoundable offences and promote ease of doing business in the country.
Proposed Amendments
The proposed amendments also include reductions in penalties for certain offences, a decrease in the timeline for rights issues, relaxation in corporate social responsibility (CSR) compliance requirements, and creation of separate benches at the National Company Law Appellate Tribunal (NCLAT).
Key Features of the Companies Act of 2013
The Act regulates the incorporation of a company, responsibilities of a company, directors, and dissolution of a company. Earlier, private companies could have up to 50 members, but now the limit has been increased to 200 members, thanks to the Companies Act 2013. It also includes a new term, ‘one-person company’.