The Cabinet on Thursday gave its nod to introduce the Companies Bill in the ongoing Winter Session.
The Bill has already been vetted by the parliamentary standing committee. The Bill could pave the way for replacement of the 55-year-old Companies Act, the salient features of which would be greater shareholder democracy, enhanced disclosures and less intrusive regulation.
Recognition of the concept of corporate social responsibility is another highlight of the Bill.
Efforts to make comprehensive changes in the extent Act have been on for more than a decade now, with both NDA and UPA governments involved in the exercise, along with high-level committees like the one headed by JJ Irani.
The Bill was first introduced in Parliament (Lok Sabha) in 2008 but it got lapsed owing to the general elections that year and was re-introduced by UPA-II government in August 2009.
The Satyam saga had brought to light the deep nexus between company promoters and their auditors. Sources say that the Bill has addressed this issue by making rotation of auditors every four years compulsory. The Bill has also laid a lot of emphasis on ensuring the ?independent? character of the institution of independent directors which was another casualty in the scam. It has set a 10-year cap on independent directors on board of companies.
As reported by FE in recent weeks, other key changes introduced includes restricting layer of subsidiaries in financial holding companies to just two, empowering creditors to order financial restructuring of borrower company if the latter witnesses even a partial decline in net worth and increasing limits on private placement to 1,000 persons in line with the existing public issue norm.
? In the recent past, the government has taken three key decisions that bring out its commitment to reforms ? the draft telecom policy, the new manufacturing policy and deliberations over FDI in multi-brand retail and now, the companies Bill,? said Mukesh Butani, partner, BMR Advisors.
Aiming a regime marked by shareholder activism, the government envisages empowering shareholders by giving them the tool to file class action suits against the promoters even when they get wind of any financial malfeasance.
The Bill would mandate single management-owned companies to seek shareholder approval before routing funds from one subsidiary to the other. It would also be binding upon new promoters to give exit option to minority shareholders once they take over a new firm.
? The passing of the Bill by the parliament is the need of the hour. A 55-year old Act cannot represent the changed business environment today. For the longest time we have been using the old law with minor changes. This cannot be a lasting solution,? said managing partner of Corporate Professionals Pavan K Vijay.
Head (accounting advisory services) at KPMG Jamil Khatri said that the clearance has given assurance to the corporate sector that the government is keen to pass key legislation in the winter session of parliament.
Corporate affairs minister Veerappa Moily has recently told FE in an interview that the task of piloting a bill is a challenge since it has to be futuristic also. The finance and corporate affairs ministries have also ironed out their differences over market regulator’s Sebi’s jurisdiction with respect to the Companies Act.