Last month, the Companies Law Committee (CLC) had submitted its report recommending certain reforms to the Companies Act, 2013. Suggestions were invited from the public through a brief consultation process. Based on these recommendations, the Government has now introduced the Companies (Amendment) Bill, 2016 in the Lok Sabha.
The Statement of Objects and Reasons set out the rationale for the amendments as well as a summary of the changes proposed:
4. The proposed changes are broadly aimed at addressing difficulties in implementation owing to stringency of compliance requirements; facilitating ease of doing business in order to promote growth with employment; harmonisation with accounting standards, the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the regulations made thereunder; rectifying omissions and inconsistencies in the Act, and carrying out amendments in the provisions relating to qualifications and selection of members of the National Company Law Tribunal and the National Company Law Appellate Tribunal in accordance with the directions of the Supreme Court.
5. The Companies (Amendment) Bill, 2016, inter alia , proposes the following, namely:—
(a) simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;
(b) allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;
(c) provisions relating to forward dealing and insider trading to be omitted from the Act;
(d) requirement of approval of the Central Government for Managerial remuneration above prescribed limits to be replaced by approval through special resolution by shareholders;
(e) a company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;
(f) remove restrictions on layers of subsidiaries and investment companies;
(g) allow for exempting class of foreign companies from registering and compliance regime under the Act;
(h) align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;
(i) test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;
(j) disclosures in the prospectus required under the Companies Act and the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;
(k) provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;
(l) removal of requirement for annual ratification of appointment or continuance of auditor;
(m) amend provisions relating to Corporate Social Responsibility to bring greater clarity.
These changes are as a result of representations made by various stakeholders regarding certain unduly stringent provisions that exist in the Companies Act, 2013. Such a reconsideration has been required even thought the Act has not yet become fully effective, with several provisions yet to be notified. Those provisions cover matters pertaining to the National Company Law Tribunal and the National Company Law Appellate Tribunal. The Statement of Objects and Reasons also state that the process for the establishment of these bodies “is at its final stage”.
Along with these reforms as they may be enacted by Parliament, the notification of the remaining provisions of the Companies Act, 2013 is likely to introduce significant changes in the way companies are regulated in India.