Amendments to the Companies Act

• 21 May 2022

For Prelims: Companies Act, 2013, Company Law Committee

For Mains: Proposed Amendments to Companies Act

Why in News?

The Ministry of Corporate Affairs is set to introduce amendments to the Companies Act in the winter session of Parliament.

• The ministry has received feedback from experts and professionals on these recommendations made by the Company Law Committee that gave its Report in April 2022 to the finance and corporate affairs minister.

What are the Key Proposals?

• It is expected to raise the bar on corporate governance, especially in hiring for board positions and handling resignations of auditors and top executives.
• The key proposals seek to ensure that independent directors are truly independent, and companies are more open about instances of statutory auditors making adverse remarks or qualifications on the financial statements or even quitting their audit assignment.
• It seeks to protect the independence of the statutory auditors by making several changes to the law, including mandatory joint audits for certain types of companies.
• The idea of the proposed changes to the Companies Act is to strengthen the gatekeepers of good governance(Corporate governance)—independent directors and auditors—infuse more transparency into company affairs and allow companies to issue fractional shares and discounted shares as part of efforts to improve ease of doing business.
  • The issue of fractional shares, a practice currently prohibited under the Companies Act, will help retail investors access high-value shares, while discounted shares will allow a company in distress to convert debt to equity.
• Some of the past bankruptcies in the corporate sector, particularly those involving large non-bank financial companies facing serious financial difficulties, have prompted the government to consider some of these changes.

What is the Indian Companies Act?

• Indian Companies Act is an Act of the Parliament which was enacted in 1956. It enables the companies to be formed by registration, sets out the responsibilities of companies, their executive director and secretaries.
• In 2013, the Government amended the Indian Companies Act 1956 and added a new Act called as Indian Companies Act 2013.
  • The Companies Act, 1956 was replaced partially by the Indian Companies Act 2013.
  • It became an act and finally it came into force in September 2013.
• In 2020, the Parliament of India passed the Companies (Amendment) Bill, 2020 to further amend the Companies Act and decriminalise various compoundable offences as well as promote ease of doing business in the country.
  • Reduction in penalties for certain offences as well as in timeline for rights issues, relaxation in corporate social responsibility (CSR) compliance requirements and creation of separate benches at the National Company Law Appellate Tribunal (NCLAT) are among the proposed changes too.

What are the Features of the Companies Act of 2013

• It regulates incorporation of a company, responsibilities of a company, directors, and dissolution of a company.
• It is divided into 29 chapters which containing 470 sections as against 658 Sections in the former Companies Act, 1956 and has 7 schedules.
• It provides a maximum of 200 members, earlier the private companies the maximum number of members were 50.
• A new term of ‘one-person company’ is included in this act.

Source: MINT