Govt plans ordinance to amend Companies Act to cover governance issues
10 October 2018
The government is expected to issue an ordinance to bring in changes related to corporate governance issues in the Companies Act as per the recommendations of a committee headed by corporate affairs secretary Injeti Srinivas.
An informal Group of Ministers headed by finance minister Arun Jaitley met on Tuesday to discuss the recommendations of the committee that included ways to curb shell companies, de-clogging the National Company Law Tribunal and capping the remuneration of independent directors.
Besides the finance minister, the group of ministers includes law minister Ravi Shankar Prasad, railway minister Piyush Goyal, commerce and industry minister Suresh Prabhu and minister of state for corporate affairs PP Chaudhry.
While the key recommendation relates to clogging of the business environment by shell companies, the committee’s report takes into consideration various issues such as declaration of commencement of business, maintenance of a registered office, protection of depositors’ interest, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors.
Shell companies are formed to launder money. However, since there is no clear definition of a shell company under the Company Law, the committee has recommended re-introduction of declaration of commencement of business provision.
Other recommendations include imposition of a cap on independent directors’ remuneration, set as a percentage of the company’s income, to prevent any ma terial pecuniary relationship. This has been done so as not to impair his/her independence on the board, and holding of directorships beyond permissible limits to trigger disqualification of such directors.
The committee suggested a reduction in the time-limit for filing documents related to creation, modification and satisfaction of charges and stringent penal provisions for non-reporting.
Once a company obtains restrictions under Section 90 (7) relating to significant beneficial ownership, in respect of shares whose ownership remains undetermined, such shares should be transferred to the Investor Education and Protection Fund if the rightful owner does not claim ownership within a year, it said.
The committee undertook an analysis of all penal provisions, which were broken down into eight categories based on the nature of offences. It recommended that the existing rigour of the law should continue for serious offences covering six categories. Lapses that are technical or procedural in nature, which fall under two categories, may be shifted to an in-house adjudication process.
The report also makes recommendations for de-clogging the National Company Law Tribunal through a significant reduction in compounding cases before the Tribunal.