the rules are formed but said that nevertheless, “it is a step in the right direction”. “On the M&A front, the new Act has several progressive features and is more transparency-driven. It permits both inbound and outbound mergers. It would also help group reorganisation, as it provides for direct merger as well as a more robust process for considering merger. Even deal-making will be smoothened as inter-se shareholder rights have been specifically recognised as enforceable,” Shah added.
The new law with a slew of new provisions will have a major impact on India Inc going forward. For instance, companies will have to make investment through only two layers of investment companies under the new Bill. The Bill enhances the role of independent directors, who will be required to provide independent judgment on issues of strategy, performance, risk management, resources, key appointments and standards of conduct. They will also be required to scrutinise management performance and must satisfy themselves on the integrity of financial information.
Also, it mandates compulsory rotation of individual auditors every five years and caps the number of audits a company or an individual does to 20. These are new provisions which were not part of existing company laws. Under the new legislation, auditors will be required to report any offence involving fraud to the central government. If they don't, there will be a penalty of Rs 1 lakh-25 lakh.
The legislation spells out several new provisions including the concept of 'One Person' company, increases the cap on number of members in a private company to 200 from 50 and lays down conditions on private placement including a cap of single private with up to 50 persons in one financial year. It also spells out the minimum number of directors on the board of directors for public and private companies. In case of a public company, there will be a minimum of three directors. For private companies, at least two members are mandatory. In certain classes of companies – which will be specified in the rules – at least one woman director will be mandatory as per the new Companies Bill, 2012. The new Bill also caps the number of directorships a person can hold in companies to 20 of which not more than 10 will be public companies.
The new Bill also allows companies to change the object of fund-raising after shareholder approval through a special resolution