The freshly minted
Companies Act, 2013 (the “2013 Act”), which is yet to take effect in full, is
already in the process of undergoing change. Late last year, the NDA Government
introduced amendments to the legislation in the form of the Companies
(Amendment) Bill, 2014 (the “Bill”). A copy of the Bill as introduced in
Parliament is available here,
although the Government has moved further amendments as set out here. The
Bill had already been approved by the Lok Sabha on December 17, 2014 and was
approved by the Rajya Sabha yesterday.
Companies Act, 2013 (the “2013 Act”), which is yet to take effect in full, is
already in the process of undergoing change. Late last year, the NDA Government
introduced amendments to the legislation in the form of the Companies
(Amendment) Bill, 2014 (the “Bill”). A copy of the Bill as introduced in
Parliament is available here,
although the Government has moved further amendments as set out here. The
Bill had already been approved by the Lok Sabha on December 17, 2014 and was
approved by the Rajya Sabha yesterday.
The changes were
occasioned on account of at least three stated reasons: (i) for the ease of
doing business; (ii) to meet corporate demand and address problems faced by
stakeholders; and (iii) removal of inadvertent errors or discrepancies. The nature
of the changes proposed in the Bill has already been discussed extensively here
and here.
occasioned on account of at least three stated reasons: (i) for the ease of
doing business; (ii) to meet corporate demand and address problems faced by
stakeholders; and (iii) removal of inadvertent errors or discrepancies. The nature
of the changes proposed in the Bill has already been discussed extensively here
and here.
At an overall
level, the Bill seeks to undo some of the rigidities of the 2013 Act. It has
been found that while the 2013 Act enhances corporate governance and compliance
requirements in the interests of the investors, it also imposes onerous
obligations on companies thereby increasing the costs of doing business. This
apparently does not augur well with the Government’s move towards enhancing the
ease of doing business with a view to attracting higher levels of foreign
investment especially given the express thrust of the “Make in India” policy.
Moreover, in order to improve India’s ranking in the World Bank Doing Business
report, measures must be seen to be taken. These drivers seem to be behind the
Bill.
level, the Bill seeks to undo some of the rigidities of the 2013 Act. It has
been found that while the 2013 Act enhances corporate governance and compliance
requirements in the interests of the investors, it also imposes onerous
obligations on companies thereby increasing the costs of doing business. This
apparently does not augur well with the Government’s move towards enhancing the
ease of doing business with a view to attracting higher levels of foreign
investment especially given the express thrust of the “Make in India” policy.
Moreover, in order to improve India’s ranking in the World Bank Doing Business
report, measures must be seen to be taken. These drivers seem to be behind the
Bill.
While the Bill
does address several aspects (as detailed in the links above), they are
arguably not all that material. It does help that requirements such as minimum
paid-up capital are being done away with and those such as common seal are
being made optional. However, there are other somewhat archaic concepts that
remain untouched, including the requirement of object clause (leading to the ultra vires doctrine), authorised
capital and par value of shares. Many countries have progressively done away
with these requirements as they no longer serve the intended purpose, but the
2013 Act remains wedded to them. It is perhaps time to reconsider some of these
as well.
does address several aspects (as detailed in the links above), they are
arguably not all that material. It does help that requirements such as minimum
paid-up capital are being done away with and those such as common seal are
being made optional. However, there are other somewhat archaic concepts that
remain untouched, including the requirement of object clause (leading to the ultra vires doctrine), authorised
capital and par value of shares. Many countries have progressively done away
with these requirements as they no longer serve the intended purpose, but the
2013 Act remains wedded to them. It is perhaps time to reconsider some of these
as well.
The most
significant change, in my view, if the softening of the rules pertaining to
related party transactions. Of course, while businesses may heave a sigh of
relief, those arguing for greater minority protection may resent the move. Most
other changes are rather procedural, although some of them may be material.
significant change, in my view, if the softening of the rules pertaining to
related party transactions. Of course, while businesses may heave a sigh of
relief, those arguing for greater minority protection may resent the move. Most
other changes are rather procedural, although some of them may be material.
In all, once the
President provides his assent, the amendment will become law, but it is
unlikely to make any significant impact on the ground, except on some specific
matters such as related party transactions.
President provides his assent, the amendment will become law, but it is
unlikely to make any significant impact on the ground, except on some specific
matters such as related party transactions.
