Companies Bill Back on the Anvil

In July this year, the Standing Committee
on Finance presented its report on the Companies Bill, 2011 suggesting some
changes. The recommendations of the Committee have been discussed here.
After taking into account the Standing
Committee’s views, the Cabinet yesterday approved certain amendments to the
Bill, which have been set out in a press release (accessible on the PIB website).
From the salient features of the
changes set out in the press release, none of the changes seem very significant
in the overall scheme of things, although some may be noted. In the provision
relating to corporate social responsibility (CSR), the words “make every
endeavour to” has been omitted in clause 135(5) of the Bill. Although this may
suggest that CSR may therefore become mandatory, that is not the case. A
proviso to the clause (which has not been affected) states that if the company
fails to make the required CSR spending, it shall specify the reasons for the
same. In other words, this continues the “comply-or-explain” approach, with no
real adverse consequences for failing to spend on CSR. The change appears to be
semantic in nature, and offers cold comfort to the advocates of mandatory CSR,
whose case appears to have been strenuously taken up by the Standing Committee.
The overwhelming view is for voluntary CSR, and understandably so.
Several changes have been made in
the Bill in the provisions relating to audit and auditors, including
restrictions on the provision of non-audit services, the criminal liability of
the auditors, and the maximum number of companies in which the auditor can be
appointed.
The term “private placement” is
stated to have received further clarification. As previously discussed, this
aspect of company law has received greater scrunity due to the events
surrounding the Sahara case.
Several other clarificatory changes
have been made in the Bill. These will require further analysis once the text
of the amendments become available.

Finally, the Press Release contains an admission
of sorts regarding the delay in revamping company law. It states: “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” [emphasis
added]. While the nature of differences and amendments to the Bill seem to be
narrowing during each round, the elongated company law reform process is set to
continue until both Houses of Parliament pass the new law and it receives the assent
of the President.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • I hope the parliament finds some time to meaningfully discuss the bill and pass it. I was keenly awaiting to see if the government had accepted SEBI's recommendation to include a provision to restrain "interested" shareholders voting rights at general meetings where they stood to benefit from a proposed resolution. Although SEBI's initiative was belated and even then did not meet this ethical requirement fully, I thought it was at least a beginning, considering such a recommendation was made in 2000 by a government committee of which I was privileged to be associated as a drafting member. I am disappointed to see no mention of this in the press briefing. I hope it was an omission and the amended bill will have something about it; on the other hand, it might be just my wishful thinking!
    Prof Bala

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