Companies (Amendment) Bill, 2016 Introduced in Parliament

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.

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.

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