30 August 2008
It provides for appointment of 33% independent directorsProposes new entity in the form of one-person company
NEW DELHI: The Union Cabinet on Friday paved the way for parliamentary approval of a new Companies Bill that seeks to provide for far-reaching changes in the country’s regulatory environment for operation of corporate entities while limiting the Government’s role and empowering shareholders. The Companies Bill, 2008, is to be introduced in the coming session of Parliament in October and replace the Companies Act, 1956, once enacted. Briefing newspersons after the Cabinet meeting, Science and Technology Minister Kapil Sibal pointed out that the existing Companies Act “was not in tune with the times” and wholesale refurbishments were necessary in view of the changing economic and commercial environment, both nationally and globally. “This is a far-reaching bill. It will revolutionise the whole Companies Act,” he said. Among the salient features of the new Bill, it provides for appointment of a minimum of 33 per cent independent directors on the board of companies and places restrictions on corporate entities in raising deposits from the public. For one, it prohibits the issue of shares at discounts to stop the current practice by some promoters of issuing shares to themselves at a discount. Besides, the proposed legislation recognises the chief executive officer (CEO), chief financial officer (CFO) and company secretary as “key managerial personnel” and provides for a single forum for mergers and acquisitions.
Shareholder interest
To protect the interests of shareholders, the new Bill seeks to ensure that the right of investors over dividend or security lying unclaimed for more than seven years is not taken away. In this regard, the investor education and protection fund is to be administered by a statutory authority. The new Bill seeks to put in place a more effective regime by providing for inspections and investigations while including provisions of recovery and disgorgement. On the issue of limiting the Government’s role, Corporate Affairs Ministry Joint Secretary Jitesh Khosla said: “The new Bill replaces the Government’s intervention by shareholders’ control. It demands greater disclosures.” As for the interests of small companies, the Bill has proposed a new entity in the form of one-person company and empowers the Government to simplify the compliance regime for them. Alongside, it provides a wider choice on the number of partners in a partnership firm and others, including banking companies with a maximum limit of 100.
Restrictions on subsidiaries
Among some of the other provisions of the Bill, while companies will not have any restrictions on the number of subsidiaries, it proposes to make the consolidation of financial statements of subsidiaries with those of holding companies mandatory.
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