Saturday, June 6, 2015

Committee to Review the Companies Act

Although the Companies Act, 2013 is brand new and yet to be brought into force in its entirety, there is already a lot of discussion about the need to reevaluate the legislation. The Government has taken initial steps to address some of the issues by way of the Companies (Amendment) Act, 2015. However, as we have previously noted, the amendments are not very significant and are mostly procedural in nature.

In this background, the Government has now appointed a Companies Law Committee under the leadership of the Secretary, Ministry of Corporate Affairs. The Committee consists of members from the industry as well as professional bodies. Although it comprises in-house counsel and a retired High Court judge, the membership does not include external lawyers. In any event, the Committee does possess the power to co-opt others, and we might likely see some additional expertise being inducted into the Committee.

The terms of reference of the Committee are two-fold. First, it is to “make recommendations to the Government on issues arising from the implementation of the Companies Act, 2013”. The scope of the Committee on this account is wide as well as narrow. It is wide in that there are no specific areas identified and the Committee could very well look at all aspects that need consideration. At the same time, the mandate seems to be only to look at “issues arising from the implementation” of the legislation. Hence, it is not clear whether the Committee can suggest reforms (especially those that are substantial in nature) for the future. The tenor of the terms of the reference imply the need to preserve stability and continuity now that the Companies Act, 2013 is already in place after several years in the making.

The second aspect is for the Committee “to examine the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on CSR, the Law Commission and the other agencies, while undertaking” the role indicated in the preceding paragraph. Hence, this Committee is intended to be consolidating body not just to examine the Companies Act on a standalone basis but also to incorporate the work that has been carried out other Committees, including the Bankruptcy Law Reforms Committee, which has made recommendations for amendments to the Companies Act. I add to this list the changes identified by the Supreme Court on matters relating to the National Company Law Tribunal. That might explain the rather unusual usage of “Companies Law” in plural in the title of the Committee.

The Committee is to submit its recommendations within six months from the date of its first meeting. Hence, we are likely to witness changes to the implementation of the Companies Act, 2013 in due course, or even substantive reforms. This indicates that the company law reforms process is likely to be an ongoing one. Despite the wholesale reform that resulted in the 2013 Act, either the needs have altered or several interest groups remain dissatisfied with its dispensation. As I note in a recent paper, the Companies Act, 1956 was amended nearly 30 times in its lifetime of 57 years, averaging one set of amendments nearly every two years. At the present rate, the new Companies Act is all set to surpass the frequency of legislative change. And, that is not including all the rulemaking powers exercised by the Government, which occur ever so often.

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