Here comes Cos. Act Amendment - But where are we on implementation?
Vivek Sadhale (Co-Founder, LegaLogic Consulting)
Vikas Agarwal (Co-Founder, LegaLogic Consulting)
Evolving but stable regulatory regime is a hallmark of matured governance. We are witnessing turbulent weather, especially on regulatory regime.
About a year back, industry and professionals were upbeat to see new Companies Act, 2013, to overhaul old Companies Act, 1956. The idea was to put India on the global map and to ensure ease of doing business.
Much water has passed since. We have had a change in regime at the Centre. India has fallen in the ranking for ease of doing business.
New regime wants the glory back. We all want it back as well.
Companies Act, 2013
The Companies Act, 2013 (the Act) had introduced significant changes in the provisions relating to governance, e-management, compliance and enforcement, disclosure norms, auditors and mergers and acquisitions. Also, modern concepts such as one-person company, small companies, dormant company, class action suits, registered valuers and corporate social responsibility were added. Indeed a good attempt.
However, the implementation of theAct was made in haste. The stakeholders did not get enough time to react.
Issues faced by industry
The provisions of the Act were gradually implemented, and the stakeholders, including industry chambers, raised serious concerns over several provisions of the Act; owing to hassles in implementation of the core objective of the 2013 Act i.e. ease of doing business. Since the notification of the Act, there have been concerns raised by company law experts, industry chambers as well as by companies, with respect to the rules that have been formulated.
Further, one highlight of the Act and the Rules thereunder, pertaining to mandatory Corporate Social Responsibility led to the clarification by the Ministry of Corporate Affairs. Rules pertaining to raising funds by certain companies has also drawn attention of the elements of the industry.
Many clarifications followed and followed. It was a right time for the new government to consider Amendment to the Act. So early in its time, but necessary to help industry and also to ensure ease of doing business.
With the vision of Hon’ble Prime Minister Narendra Modi of pushing India to the top 50 countries on the \"Ease of Doing Business\" ranking, the Amendment Bill has more focus to curb the practical difficulties in implementation of provisions of the 2013 Act and to cater the Ease of Doing Business for the stakeholders.
Amendment Billand effect on business
The Companies (Amendment) Bill 2014, introduced by Finance Minister ArunJaitley, and passed by Lok Sabha on December 17, 2014, proposes as many as 14 changes.
The proposed amendment has made the adoption of common seal optional which is a welcome move in the era of digital/electronic record maintenance. Common seal is done way with in many countries, and seems to be the right step, even though a small one.
The requirement of minimum capital for private and public company is proposed to be omitted which will provide an impetus to the startups to enter into the organized structure of a company rather than to opt for unorganized structure in the form of proprietary or partnership firms. Operating as a private/public limited company often gives suppliers and customers a sense of confidence in a business. Larger organizations, in particular, will prefer dealing with corporates than proprietorship/partnership firms.
The Industry did not like the requirement of special resolution of members for the related party transactions, and accordingly the Amendment Bill provides a resource to ordinary resolution as an approval mechanism of related party transactions by non-related shareholders. Further, to align with SEBI policy and facilitate the ease of doing business, it is proposed to empower the Audit Committee to give omnibus approvals for related party transactions on an annual basis.
The Amendment Bill also attempted to correct inadvertent drafting anomalies:
· prescription of specific punishment for deposits accepted;
· included provision for writing off past losses/depreciation before declaring dividend for the year;
· rectifying the requirement of transfer of equity shares to the IEPF, for which unclaimed/unpaid dividend has accumulatedfor a continuous period of seven years;
· Exemptions under section 185 for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries are proposed to be included in the Act as a matter of abundant caution;
· Winding Up cases to be heard by a 2-member Bench instead of a 3-member Bench.
Further, the Amendment attempts to implement some of the demands of the Industry by prohibiting the public inspection of Board resolutions filed in the Registry and by prescribing the threshold beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee).
Conclusion:
Self-governance is the right way of empowering industry. Procedures need to be eased. Government should be in the business of governance. Law needs to provide stability.
National Company Law Tribunal needs to start functioning. Incorporating companies should become easy. Paper work should reduce. We do not discount more changes and amendments. Which is all fine.
What is more important is - India needs to catch up in implementation of enacted laws. Law is good only when implemented. Professionals have a duty here. Government has bigger duty. Investors should not lose money. We need predictability and transparency in enforcement. We need wrongdoers to be punished quickly and heavily.
The world is looking at us. India is slated for really a big time. Any one listening?