The government yesterday approved the introduction of a new single, comprehensive law to govern the Indian corporate sector.
The Bill, that seeks to provide for far-reaching changes in the country's regulatory environment for the corporate sector, while limiting the government's role and empowering shareholders, is expected to be tabled in Parliament during the upcoming October session. The Companies Bill, 2008 is scheduled to 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.
The proposed law has been five years in the making. In 2004, the ministry of corporate affairs started a comprehensive revamp of the Companies Act, 1956.
Earlier, a Companies (Amendment) Bill, 2003 had been introduced in the Rajya Sabha. After opposition from sections of corporate India in 2004, the ministry of company affairs constituted a committee headed J J Irani to examine the proposals.
In its present form, the Bill incorporates suggestions of the Irani committee including those aimed at simplifying the compliance regime.
The Irani committee report had given a fillip to entrepreneurship with the concept of a single-person company and also suggested provisions to help companies raise long-term capital without affecting voting rights of existing shareholders.
The Irani committee to advice on the amendment to the Companies Act, 1956, has recommended that listed public companies and companies accepting public deposits need not reserve half the seats on their boards for independent directors.
For instance, the Bill does away with the criteria of minimum paid-up capital to start a company, provides for appointment of minimum 33 per cent independent directors on board, and allows a single person to set up a company to encourage start-ups and entrepreneurship.
''However, any ruling by regulators like the Securities and Exchange Board of India will override the provisions of the Companies Bill,'' corporate affairs minister Prem Chand Gupta told reporters.
Currently, Clause 49 of SEBI's listing agreement states that 50 per cent of the Board has to comprise independent directors if it is headed by an executive chairman and 33 per cent for a non-executive chairman. (See: One third of board should comprise independent directors: JJ Irani report)
The committee has said that a third of the total number of directors as independent directors should be "adequate" for a company having significant public interest, irrespective of whether the chairman is executive or non-executive, independent or not.
Currently, entrepreneurs find it difficult to start new ventures in the form of companies as the law asks them to have partners. The Bill also restricts corporations from issuing shares at a discount to prevent promoters from accumulating stake at a lower price.
It proposes relaxation in restrictions limiting the number of partners in entities such as partnership firms and banking companies to a maximum 100, with a ceiling on professions regulated by Special Acts.
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.
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 Bill seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that fosters entrepreneurship, investment, and growth,'' Sibal added. ''It recognises insider trading by company directors as an offence with criminal liability.''
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, joint secretary Jitesh Khosla of the corporate affairs ministry said, ''The new Bill replaces the government's intervention by shareholders' control. It demands greater disclosures.''