The Companies Act, 2013: Some Reflections
Vandana Mahalwar
Assistant Professor, Faculty of Law, University of Delhi, Delhi
*Corresponding Author E-mail:
Abstract:
Economy of a nation depends on the acceleration in the economic activity of the country. Economic activity of a country, though influenced by a large number of causes, primarily hinges upon the growth of corporate sector regulated by a well knit corporate law. Our corporate law was hitherto contained mainly in the Companies Act, 1956, supplemented by many more legislations such as Securities Contract Regulation Act 1956, Securities Exchange Board of India Act, Depositiories Act etc. The Companies Act 1956 was very aptly enacted after a long deliberation on the study of various corporate laws of the world. It catered to the needs of our growing economy for a very long time and helped India grow from scratch to an economic power to be reckoned and recognised by the world. Though it did not fault the economy, changing global scenario of the corporate world necessitated the simplification, improvement and induction of new concepts in abridged legislation in juxtaposition to the voluminous Companies Act 1956.
The Companies Act 20131 got assent of the President of India on 29 August 2013, notified and enforced partially in September 2013. It contains only 470 sections against 568 sections in the erstwhile Companies Act 1956. Companies Act 2013 is forward looking in its approach, empowers the Central govt. to make rules and punish the violators of law.2 Sections 2(62) of this defines and introduces a new concept of one person company, besides defining “Promoter”. Provisions have been incorporated for rewarding the employees of Company for their integrity. It also enables the Company to evolve a process to encourage ethical corporate behaviour of persons, which will pave the way for a vigil mechanism in the company. In addition to the concept of ‘Independent Directors’, provision for their tenure, liability etc. has also been incorporated. 3 To bring more independence in the functioning of Board and for protection of minority shareholders, there shall be various Committees of the Board, having independent Directors. Another concept of Corporate Social responsibility has been introduced and there shall be a CSR Committee for the purpose.
Every company with net worth of rupees 500 crores a net profit of Rs. 5 crores, or more during a financial year, will spend atleast two percent of its average profits made during the preceding three years.4 To bring in more transparency and strengthen the democratic functioning of corporate sector detailed additional disclosure norms have been introduced. At least one woman director has been made compulsory for certain companies.5 Board may have a director representative of small shareholders also. Shareholders have been given on option to exit in case of dissent to change in the objects. Specific disclosure shall have to be made regarding the effect of merger on various stakeholders in the company and the Tribunal has been empowered to provide for exit offer to the dissenting shareholders in case of compromise or arrangements.
In view of protection to the investors, Central Govt. has been empowered to regulate the permission of use of proxies. Acceptance of deposits from public deposits has been subjected to more stringent measures. Class action suits provisions have been revised so as to provide the minimum number of persons, who may apply for such suits. For facilitating mergers and acquisitions, a simplified procedure has been laid down, which will accelerate the process of approval for mergers and amalgamations and consequently boost up the economy. If company is incorporated on false or incorrect information or by suppressing material fact, the Tribunal has the power to cancel the registration and direct the removal of company’s name from the register of companies. 6 Giving misleading statement or concealment of information in the prospectus may attract filing of suit. 7
Rotation of auditors for the listed companies and certain class of companies has been made mandatory after every 5 years where auditor is individual and 10 years where auditor is a CA firm. 8 Limited liability partners may be appointed as auditors.9 Stringent provisions have been incorporated to prevent insider trading. 10 Legal safeguards against oppression and miss management in Companies have been enshrined in Sections 241 to 246. A legal recourse for revival or rehabilitation of sick companies has been provided now. 11 Companies Act 2013 has certain new chapters such as Registered valuers, 12 Government Companies13, Nidhis14 ,National Company Law Tribunal and Applettate Tribunal. 15 Special courts. 16 Nidhi is a company which is incorporated as Nidhi, with the object of cultivating the habit of thrift and saving among its members. Special courts are to be established by the Central Govt. in consultation with the Chief Justice of the High Court, within whose jurisdiction the judge is to be appointed. Special courts shall have the power to conduct summary proceedings for the offences punishable with imprisonment for a term not exceeding three years. A company can now be registered for a future project to hold an asset or intellectual property without having any significant accounting transaction. Such company may make an application to the registrar for obtaining the status of dormant or inactive company. 17 Filing, maintenance and allowing inspection of documents by the companies in electronic form has now been allowed for the first time in order to keep pace with the era of technology. 18 Their shall be a National financial Reporting Authority for ensuring monitoring the compliance of accounting and auditing standards and to oversee the quality of service of professionals associated with compliance. This authority shall consider the international financial reporting standards and other internationally accepted accounting and auditing polices and standards while making recommendations on such matters to the Central govt. It is legitimately expected that this will improve the competitiveness of our companies with other companies.19
The Act provides limits on the remuneration of managerial persons. These provisions regulate the fixation of remuneration in various situations like absence or inadequacy of profits.20 The central govt. has been empowered to maintain a panel of experts to be called as the mediation and conciliation panel consisting of such number of experts having such qualifications as may be prescribed for mediation between the parties during the pendency of any proceedings before Central Govt. or the Tribunal or the Appellate Tribunal. 21 “Serious Fraud Investigation Office” is another statutory agency equipped with the powers to handle the cases of fraud.22 Thus the Companies Act 2013 has provided many new provisions with the hopes to bring changes in the corporate world with a positive impact on the national economy and participation of the corporate stakeholders in the economic activity.
References:
1. No. 13 of 2013
2. Section 469 , The Companies Act, 2013
3. Section 149 , The Companies Act, 2013
4. Section 135, The Companies Act, 2013
5. Section 149, The Companies Act , 2013
6. Section 7, The Companies Act, 2013
7. Section 37, The Companies Act, 2013
8. Section 139, The Companies Act, 2013
9. Section 141, The Companies Act, 2013
10. Section 195, The Companies Act, 2013
11. Sections 253, 269, The Companies Act, 2013
12. Section 247, Chapter XVII ,The Companies Act, 2013
13. Section 394-395, Chapter XXIII, The Companies Act, 2013
14. Section 406, Chapter XXVI, The Companies Act, 2013
15. Section 407-434, Chapter XXVII, The Companies Act, 2013
16. Section 435-446, Chapter XXVIII, The Companies Act, 2013
17. Section 455, The Companies Act, 2013
18. Chapter XXIV, The Companies Act, 2013
19. Section 143, The Companies Act, 2013
20. Section 197, The Companies Act, 2013
21. Section 442, The Companies Act, 2013
22. Section 211-212, The Companies Act, 2013
Received on 02.11.2013 Modified on 10.11.2013
Accepted on 25.11.2013 © A&V Publication all right reserved
Int. J. Rev. & Res. Social Sci. 1(2): Oct. - Dec. 2013; Page 34-35