98 sections in September, 2013, which did not require any rules. Then in February-end, MCA notified the sections dealing with Corporate Social Responsibility (CSR), which makes it mandatory for a certain class of companies to set aside at least 2% of their average net profit towards CSR projects.
The Companies Act, 2013, was passed by Parliament and approved by the President in August. Once fully enforced, it will replace the current Companies Act, 1956.
The new companies law has a host of important provisions. For instance, companies will have to make investment through only two layers of investment companies under the new law. The Act 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’s performance and will need to 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 that were not a part of the current company laws. Under the new laws, auditors will now be required to report any offence involving fraud to the central government. If they don’t, the new law provides for a penalty of R1 lakh-25 lakh for non-compliance. It also introduces the concept of class action suites for the first time.
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 on the board. In certain class of companies, which will be specified in the rules, at least one women director will be mandatory. The new law also caps the number of directorship, a person can hold in companies to 20 of which not more than 10 will be public companies.