COMPANIES BILL 2011 - IN LINE WITH CHANGING TIMES

By Ruma Dubey

Old is gold but does that mean, we continue to store our shoes and clothes of 50 years ago? As our life changes, so do the needs and we outgrow a lot of things of the past. But holding on to them, creates only clutter and confusion.

So it’s a brilliant thing that the Parliament yesterday passed the Companies Bill, 2011. India Inc still follows rules of 1956, an era when there was no internet, no mobile phones and definitely, no social networks. So much has changed since then and it makes perfect sense to know that we now have a Bill which is not pertinent, more current with the times.  At that time, there were only 30,000 registered companies and today there are 8,50,000 registered companies and that brings the entire change into perspective.

The Bill was first introduced in the Parliament on 14th Dec 2011 after having withdrawn the Companies Bill 2009. But it has taken seven years and more for this Bill to have come this far. Yesterday, amidst the Banking Amendment Bill, the passing of this Bill was lost. But this Bill too, like the Banking Bill, has far reaching consequences.  The Bill will now be

Let us take a quick look at some of the aspects of the Bill which are significant for India Inc.

• It has 470 clauses compared to 658 sections in Companies Act, 1956.
• Introduction of a New Corporate Responsibility Framework for bringing stricter corporate governance – to set aside 2% of the average profits reported in the preceding 3 years to spend on corporate responsibility activities like investor education and human development in rural areas. If the company does not spend money on CSR, it needs to disclose the reasons.
• Insider trading will now be treated as a criminal offence and is subject to severe punishment.
• Financial year of a company can end only on 31st March and only companies which are holding/subsidiary companies of foreign entity can have a different year ending, subject to approval from the Tribunal.
• Compulsory rotation of individual auditors every five years and of audit firm every 10 years.
• Auditors can serve only upto 20 companies.
• Maximum number of members which a private company can have is increased from 50 to 200.
• Concept of One Person Company has been introduced and the said company will be formed as a private limited company. 
• Along with accounting standards, auditing standards have also been made mandatory.
• Books of accounts, documents, records, register or minutes of meetings can now be kept in electronic form too.
• Maximum number of directors increased to 15 from 12 and certain prescribed class or classes of companies should have at least one woman director.
• Proposal to introduce class action suits to empower the shareholders and investors who can now sue a company for any mismanagement, illegal conduct  and claim damages.
• Powers being conferred upon Serious Fraud Investigation Office wherein it can conduct searches and seizures on the premise of a fraudulent company.
• Remuneration of a director of a company should not be more than 5% of the net profit.

Overall, this new Bill is more in line with the new global environment we today work in. Making companies more responsible – socially, morally and financially is a good thing so if many factions of India Inc crib, you can be assured that the Bill is in the right direction. The Bill protects the minority shareholders much better and makes the independent directors more responsible.

This is truly a step in the right direction and it is after a long time that the UPA govt deserves some amount of praise, albeit grudgingly!