Lok Sabha approves dilution of punitive provisions in Companies Act
17 December 2014
The Lok Sabha today approved a slew of changes to the Companies Act, 2013, seeking to remove "oppressive provisions" in the Act to make it investor-friendly, as the government strives to make doing business in India not just easy but attractive as well.
The amended Companies Act would ensure investors more leeway in areas such as related party transactions, inter-corporate loans, and fraud reporting, where corporates have been struggling to balance compliance with the new requirements without hampering business interests.
Some of these amendments will provide the necessary relief to corporates, and also bring certainty to certain other relaxations that were earlier provided through the rules accompanying the Act.
In particular the new rule that requires only a simple majority to pass resolutions on related party transactions would come as a great relief to corporates, apart from other reliefs through exemption of transactions with wholly-owned subsidiaries from shareholder approval process and also permitting the audit committee to provide omnibus approvals for recurring transactions with related parties.
Piloting the bill, finance minister Arun Jaitley said the "oppressive provisions" have been removed from the Companies Act 2013 as it was felt "nobody will come here to set up business if such an environment persists."
The Companies Act (Amendment) Bill, 2014, was passed by voice vote amidst uproar by Congress members of the House who wanted the legislation to be referred to the Standing Committee, which was not accepted by the chair.
Congress leader Mallikarjun Kharge said the government in "its hurry", was doing away with the traditional practice of referring important bills to Standing Committee.
Jaitley, while winding up the debate, said the amendments will do away with draconian Prevention of Terrorism Act (POTA)-type provisions, which had made it impossible for an accused in the violation of provisions of Companies Act to get bail.
"We are easing the environment for doing business," he said.
Industry chambers and businesses had pointed to the threat of tough action for offences that do not necessarily amount to willful fraud as a deterrent to doing business and had sought a reconsideration of the provisions.
"There were some (provisions) which was oversight and there were some which were left out and there were some which came in as part of this thinking that we must make doing business extremely difficult," Jaitley said.
However, the amendments to the Companies Act also include provision for severe punishment for those raising illegal deposits from the public - a fallout of the Saradha scam in which lakhs of small investors were duped.