The Rajya Sabha has passed unanimously the Companies (Amendment) Bill, 2014, which seeks to simplify stringent bail provisions in cases of fraud and to ensure severe punishment for illegal money pooling activities, among other things.
The proposed changes in the regulatory framework are seen as part of the Narendra Modi-led government's efforts to make it easier for corporates to do business in the country.
It may be noted that, in the "Ease of Doing Business" report by the World Bank in October last year, India was ranked very low at 142nd position among 189 countries.
The changes in various provisions of the new Companies Act, 2013, which came into force with effect from April 1, 2014, were passed by the Lok Sabha in December last year. The bill will now be reviewed by an expert committee for further improvements.
“A broad-based committee will continue to go into this question for the next few months as to where the shoe pinches, and this may not be the last amendments which we are bringing in,” Finance Minister Arun Jaitley said, while replying to the debate on the bill.
The expert committee would comprise representatives of bodies of company secretaries, industry chambers, chartered accountants and officials that will look into the discrepancies and suggest changes accordingly, he said.
The amendments were introduced to the bill to address concerns raised by stakeholders.
The major concerns raised by the stakeholders included protecting confidentiality of board resolutions, as well as the provision of auditors being required to report suspected frauds at the companies audited by them, apart from utilisation of unclaimed dividends.
Among others, under the new norms, frauds beyond a certain threshold would need to be mandatorily reported by the auditors to the government, while cases below this threshold will be reported to the audit committee of the company’s board.
“Except in various issues of serious frauds, normal CrPC (Criminal Procedure Code) provisions... would apply,” Jaitley said.
Provision for writing off past losses/depreciation before declaring dividend for the year is also included. Besides, winding up cases will be heard by a two-member Bench instead of a three-member Bench.
The new norms have also exempted the corporates from the need of obtaining approvals of shareholders in the case of related party transactions valued lower than Rs 100 or 10 per cent of net worth.
Another amendment exempts related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders.
Moreover, loans given by a company to wholly-owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries, have also been exempted from the purview of related party transactions.
Under the new norms, the paid-up capital criteria has been scrapped, as against the previous system wherein the companies with a paid up capital of Rs 10 crore or more were required to get shareholders' nod through a special resolution in case of related party transactions.
Besides, threshold limits for various transactions for getting shareholders’ nod have now been stipulated.
The Companies Act, 2013 was notified on August 29, 2013. The new law replaced around six-decade-old Companies Act, 1956. The bill was passed by former UPA government and the Modi-led government had indicated several times that some necessary changes will be made in the bill to address the concerns raised by various stakeholders including corporates.