Having gone through this ordeal of amendments, what is now expected is some tighter norms on related party transactions and gearing up for new generation start-up companies getting listed where promoted do not hold majority.
By Makarand Joshi
After eight years of promulgating the new companies act in 2013 and several amendments and notifications, the Indian corporate universe will now have to gear up for effective operative compliance or face stringent system driven enforcement from the regulator. Close coordination between various departments like Indirect Tax- Direct Tax- MCA-SEBI coupled with the proposed use of artificial intelligence which is envisaged in version 3 initiatives of MCA, would mean that compliance professionals will have to offer their undivided attention while submitting details or gear up to face scrutiny, which will now become faceless.
With four amendments in act itself and over 530 notifications and circulars since its promulgation, the new companies act has prepared the necessary ground for basic sanitation to ensure good governance at India Inc. This journey started with introduction of Insolvency and Bankruptcy Code (IBC) that unearthed some inherent weakness in the Indian corporate world. This was followed by amendment to the Benami Property Law followed by demonetisation in the year 2016 that sanitized the bad loans and unaccounted money in the financial ecosystem.
Then ILFS shattered entire fiancé world in year 2017 and that raised serious doubt about role of Statutory Auditors, Independent Directors, disclosures etc. that paved way for independent regulator for auditors – NFRA, stringent rotation norms for auditors by RBI, formal test of Independent Directors, concept of identifying ultimate owner behind non-individual shareholding (SBO) etc. Simply put, not only every fiduciary position (like Auditors/ Directors/ KMP) is now over-lapped with a super boss like NFRA/ Databank of ID/ MCA etc, but they are also at risk of personal liability and disrepute under the lens of the law. Board rooms of India Inc. were scared, particularly those governed by good promoters and independent directors, who were reluctant to accept directorship and form companies.
Realizing this, in a bid to give comfort to good governed companies, the government then decriminalised offences, which were routine non-compliance and monetary penalty was considered good enough without prosecution. In the past two years, over 100 such non-compliances under the Companies Act 2013 have been decriminalised.
Having gone through this ordeal of amendments, what is now expected is some tighter norms on related party transactions and gearing up for new generation start-up companies getting listed where promoted do not hold majority. Apart from these, there may not be any major substantive change in corporate laws, however, the onus is now on compliance officials to ensure that the details submitted to each regulator is reconcilable with that of others. It would warrant very serious attention on details while making submissions to regulators with strong backing of legal interpretations. Since provisions will be under adjudicate powers of MCA, bringing so much objective approach while interpreting and implementing corporate law is a challenge in itself in days to come!
(The author is a qualified company secretary and runs a corporate compliance firm.)