Mumbai: The government today introduced the Companies Bill, 2008, in the Lok Sabha that seeks to do away with a number of obsolete provisions regarding setting up winding up of companies

 Once approved by Parliament, Companies Bill, 2008, will replace the existing Companies Act, which was enacted in 1956.

The new Companies Bill, 2008, introduced in the Lok Sabha today by minister of corporate affairs Prem Chand Gupta, seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that foster entrepreneurship, investment and growth, a government release said.

The bill seeks to reinforce shareholder democracy, facilitate e-governance in company processes and recognises the liability of boards, directors and senior management personnel of companies while providing for a new scheme for penalties and punishment for non-compliance or violation of the law.

The bill seeks to harmonise corporate regulation with action by sectoral regulators, incorporates a new framework for mergers and amalgamations of companies and provides an extensive Insolvency Code based on the latest principles recommended by the United Nations Commission on International Trade Law (UNCITRAL).

Among other things, the Bill aims to harmonise the Company Law framework with the sectoral regulations, by prescribing the basic principles for all aspects of internal governance of corporate entities and a framework for their regulation, irrespective of their area of operation - from incorporation to liquidation and winding up - in a single, comprehensive, legal framework to be administered by the central government;

Reduction of government control over internal corporate processes through articulation of shareholder democracy with protection of the rights of minority stakeholders with responsible self-regulation and adequate disclosures and accountability;

Allowing greater freedom with regard to the numbers and layers of subsidiary companies that a company may have, subject to disclosures in respect of their relationship and transactions or dealings between them through easy transition of companies operating under the Companies Act, 1956, to the new framework as also from one type of company to another;

Retention of the concept of producer companies, while providing a more stringent regime for companies with charitable objects to check misuse through the creation of a  new entity in the form of One-Person Company (OPC) while empowering government to provide a simpler compliance regime for small companies;
 
Shifting of company processes to the electronic mode through application of the successful e-Governance initiative of the ministry of corporate affairs (MCA-21) to all the processes involved in meeting compliance obligations;

Making mandatory the acquisition of a unique Director Identification Number (DIN) with detailed declarations and disclosures about the promoters, directors etc, at the time of incorporation itself for speedy incorporation process;

Relaxation of restrictions limiting the number of partners in entities such as partnership firms, banking companies etc, to a maximum 100, with no ceiling as to professional associations regulated by Special Acts;

Make it mandatory for every company to have at least one director resident in India and define duties and liabilities of the directors, the Bill also provides for independent directors to be appointed on the boards of such companies as may be prescribed, along with attributes determining independence.

The requirement to appoint independent directors, where applicable, to listed public companies is a minimum of one-third of the total number of directors. For other public companies, the requirement and number may be prescribed through rules;

Statutory recognition to audit, remuneration and stakeholders relationship committees of the board and the chief executive officer (CEO), the chief financial officer (CFO) and the company secretary to be as key managerial personnel (KMP); 

Makes insider trading by company directors or 'key managerial personnel' an offense with criminal liability, and prohibits companies from raising deposits from the public except on the basis of permission available to them through other Special Acts. 

Makes consolidation of financial statements of subsidiaries with those of holding companies to be mandatory through  recognition of both accounting and auditing standards. The role, rights and duties of the auditors are defined so as to maintain integrity and independence of the audit process; 

Introduces the concept of deemed approval in certain situations with the creation of a single forum for approval of mergers and acquisitions along with a shorter merger process for holding and wholly owned subsidiary companies or between two or more small companies as well as recognition of cross border mergers;

Appointment of valuers by audit committee or in its absence by the board of directors for creating a framework for enabling fair valuations in companies for various purposes;
 
Creation of an 'investor education and protection fund' (IEPF) to be administered by a statutory authority, which would handle claim of an investor over a dividend or a benefit from a security not claimed for more than a period of seven years not to be extinguished, and enabling shareholder associations or group of shareholders to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and 'Class Action Suits';

A revised framework for regulation of insolvency, including rehabilitation, liquidation and winding up of companies and the process to be completed in a time bound manner; 

Consolidation of fora for dealing with rehabilitation of companies, their liquidation and winding up in the single forum of National Company Law Tribunal with appeal to National Company Law Appellate Tribunal with suitable transitional provisions.

The nature of the Rehabilitation and Revival Fund proposed in the Companies (Second Amendment) Act, 2002 to be replaced by Rehabilitation and Insolvency Fund with voluntary contributions linked to entitlements to draw money in a situation of insolvency; 

Creating a more effective regime for inspections and investigations of companies while laying down the maximum as well as minimum quantum of penalty for each offense with suitable deterrence for repeated defaults.  Company is identified as a separate entity for imposition of monetary penalties from the officers in default.  In case of fraudulent activities, provisions for recovery and disgorgement have been included; 

Levy of additional fee in a non-discretionary manner for procedural non-compliance, such as late filing of statutory documents, to be enabled through rules.  Defaults of procedural nature to be penalised by levy of monetary penalties by the adjudicating officers not below the level of Registrars. The appeals against orders of adjudicating officers to lie with suitably designated higher authorities;

The bill also provides for setting up of 'special courts' to deal with offenses.  Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be dealt with by the National Company Law Tribunal.

The bill was introduced amid objections raised by CPI (M) member Kalahari Ramakrishna who said that copies of the 250-page bill were given to MPs early in the morning today, giving them no time to sift through the provisions of the bill.