04 August 2009
The government today re-introduced Companies Bill in the Lok Sabha to replace a 52-year-old law and simplify regulations dealing with formation, mergers and acquisitions and winding up of companies.
The Companies Bill, 2008, which lapsed with the dissolution of the 14th Lok Sabha, was reintroduced by the Corporate Affairs Minister Salman Khurshid in the Lower House amid din. Besides other things, the new Bill will be shorter and will try to harmonise the company law framework with sectoral regulations.
The proposed Bill will have 480 sections compared to over 600 sections in the Companies Act, 1956 in addition to providing for greater shareholder democracy and less government intervention.
The new legislation will try to promote shareholders democracy with protection of rights of minority shareholders, responsible self-regulation with adequate disclosure and accountability and lesser government control over internal corporate processes, said the statement of objects and reasons of the new Bill.
It will also make it mandatory for listed companies to have 33 per cent independent directors and provides for formation of One Person Company (OPC), while empowering the government to provide a simpler compliance regime for small companies.
The Bill also proposes to make stringent provisions for companies seeking to raise money from the public. They would not be allowed to raise deposits from the public without obtaining permission from the relevant regulator. There will be a single forum for approval of mergers and acquisitions, whether domestic or with foreign entities.
Also the procedure for merger of holding and wholly-owned subsidiaries would be shortened. The Bill also seeks to prohibit insider trading by company directors or key managerial personnel. Such activities will be treated as a criminal offence.
Under the proposed norms, every company director would be required to acquire a unique Director Identification Number, a provision which would check the menace of vanishing companies.
The Bill also provides for a framework for enabling fair valuations of companies for various purposes and strengthening Investor Education and Protection Fund.