'The term fraud has been specifically defined in the Companies Bill, 2012'

Aug 12 2013, 13:00 IST
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SummaryOn Thursday, Parliament approved the Companies Bill, 2012, which will replace the 58-year-old Companies Act, 1956.

What are the fresh regulations that firms will need to comply under the new Companies bill?

Private companies will, now, be subject to more compliances. From now, shareholdersí approval will be required for preferential allotment of shares. The firm can issue only equity and preference shares and all members will have voting rights, which will be proportionate to the share of the paid-up equity capital. Also, the firm wonít be able to commence business unless a prescribed declaration is filed with RoC and directorís consent will be required prior to appointment. Loans to directors and their affiliated persons

and inter-corporate loan, guarantee and investments are now subject to stringent conditions.

Please explain the class action lawsuit provisions?

CPC, 1908 (Order I Rule 8) already provides for class action, but it isnít popular. This is now provided specifically under Companies Bill, 2012, under the heading Prevention of Oppression and Mismanagement. The right is available to both members and depositors. An application must be filed with NCLT, for example, to claim damages or compensation against the company, its directors, auditors including audit firms, expert or advisor or consultant. The failure to comply with NCLTís order will result in monetary penalty and imprisonment. However, banking companies are not covered under class action. Frivolous applications, if any, made by the group of shareholders or depositors, will be rejected and the applicant can be asked to pay up to Rs 1 lakh.

Will there be any major changes for PSUs?

There will be no change in the meaning of a government company. The Central Government, pursuant to its power under Section 620 of the Companies Act, 1956, has extended a lot of exemptions to such companies from provisions of the Companies Act, 1956. The exemptions will continue.

The push for the new bill gained momentum post the Satyam scam in 2009. How does the new bill help in curbing corporate fraud?

The term fraud has been specifically defined to include any act, omission, concealment of any fact or abuse of position committed with an intent to deceive, to gain undue advantage from, or to injure the interests of the company or its shareholders or its creditors or any other person. A person found guilty of fraud will receive imprisonment for a term of 6 months to 10 years and a monetary fine of up to 3 times the amount involved in fraud will be imposed. In case where fraud involves public interest, the minimum imprisonment is 3 years. In cases where deposits are accepted with an intent to defraud the depositors or for any fraudulent purpose, every officer responsible for acceptance of such deposit will be personally responsible without any limitation of liability, in addition to the penalties. Also the, whistle blower policy is applicable in listed companies as part of corporate governance norms but is a non-mandatory requirement. The Whistle Blowers Protection Bill is still pending but that will be applicable to corruption, misuse of power, or criminal offence by a public servant.

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