Companies Bill, 2008 Introduced in Lok Sabha 

BILL INTENDS TO MODERNIZE STRUCTURE FOR CORPORATE REGULATION

IN THE COUNTRY
 The much-awaited Companies Bill, 2008 has been introduced in the LokSabha. Minister of
Corporate Affairs, Shri Prem Chand Gupta introduce the Bill to consolidate and amend the law relating to
companies. Two days ago, i.e., on 21.10.2008 Shri Gupta had withdrawn the Companies
(Amendment) BIll, 2003 which was introduced in the Rajya Sabha on 7.5.2003 as the said Bill was not in
tune with the present day requirements of corporates in India.

The Companies Bill, 2008 is intended to modernize the structure for corporate regulation
in India and represents a major reform statement by the Government to promote the development of the
Indian corporate sector through enlightened regulation.

            The comprehensive revision of the Companies Act, 1956 was taken up by the Ministry since not
only had the number of companies in India expanded from about 30,000 in 1956 to above 7 lakhs today,
the Indian corporate sector had also transformed itself in a manner that was unimaginable even a decade
ago.  Today, Indian companies have expanded and grown into global entities, continuously entering into
and bringing new activities into the fold of the Indian economy. In doing so, they are emerging
internationally as efficient providers of a wide range of goods and services while increasing employment
opportunities at home.

            At the same time, there is a requirement to enable corporate regulation in an effective and
efficient manner with reasonable costs of compliance so that Indian companies are competitive in
attracting investment for growth.

The review and redrafting of the Companies Act, 1956 was taken up by the Ministry of Corporate
Affairs on the basis of a detailed consultative process.  A`Concept Paper on new Company Law’ was
placed on the website of the Ministry on4 th August, 2004.  The inputs received were put to a detailed
examination in the Ministry. The Government also constituted an Expert Committee on Company Law
under the Chairmanship of Dr. J.J. Irani on 2nd December 2004 to advise on new Companies Bill. The
Committee submitted its report to the Government on 31st May 2005. Detailed consultations were also
taken up with various Ministries, Departments and Regulators.  The Bill was thereafter drafted in
consultation with the Legislative Department of the Central Government.

The Companies Bill, 2008 seeks to enable the corporate sector in India to operate in a regulatory
environment of best international practices that foster entrepreneurship, investment and growth.

The Bill reinforces shareholders democracy, facilitates e-Governance in company processes,

recognizes the liability of Boards, directors and senior management personnel of companies, provides
for a new scheme for penalties and punishment for non compliance or violation of the
law, harmonizes corporate regulation with action by sectoral regulators, incorporates a new
framework for mergers and amalgamations of companies and provides an extensive Insolvency
Code based on the latest principles recommended by the United Nations Commission on International
Trade Law (UNCITRAL).

 Briefly, the Bill provides for  :-

(i)         The basic principles for all aspects of internal governance of corporate entities and a framework
for their regulation, irrespective of their area of operation, from incorporation to liquidation and winding
up, in a single, comprehensive, legal framework to be administered by the Central Government. In
doing so, the Bill also seeks to harmonise the Company law framework with the sectoral regulation;
(ii)         articulation of shareholders democracy with protection of the rights of minority stakeholders,
responsible self-regulation with adequate disclosures and accountability. Reduction of Government
control over internal corporate processes;

(iii)        easy transition of companies operating under the Companies Act, 1956, to the new framework
as also from one type of company to another.  Freedom with regard to the numbers and layers of
subsidiary companies that a company may have, subject to disclosures in respect of their relationship
and transactions or dealings between them;

(iv)        a new entity in the form of One-Person Company (OPC) while empowering Government to
provide a simpler compliance regime for small companies.  Retention of the concept of Producer
Companies, while providing a more stringent regime for companies with charitable objects to check
misuse; 

(v)         application of the successful e-Governance initiative of the Ministry of Corporate Affairs (MCA-

21) to all the processes involved in meeting compliance obligations. Company processes may also be
carried out through electronic mode;

(vi)        speedy incorporation process, with detailed declarations and disclosures about the promoters,

directors etc., at the time of incorporation itself. Every company director would be required to acquire a
unique Director Identification number (DIN);

(vii)       relaxation of restrictions limiting the number of partners in entities such as partnership firms,
banking companies etc., to a maximum 100, with no ceiling as to professional associations regulated by
Special Acts;

 (viii)      duties and liabilities of the directors and every company to have at least one director resident
in India.  The Bill also provides for independent directors to be appointed on the Boards of such
companies as may be prescribed, along with attributes determining independence. The requirement to
appoint independent directors, where applicable, to listed public companies is a minimum of one-
thirdof the total number of directors. For other public companies, the requirement and number may be
prescribed through rules;

(ix)        statutory recognition to audit, remuneration and stakeholders relationship committees of the

Board and the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Company
Secretary to be as Key Managerial Personnel(KMP); 

(x)        companies not to be allowed to raise deposits from the public excepton the basis of

permission available to them through other Special Acts.  The Bill prohibits insider trading by company
directors or Key Managerial Personnel and declares it as an offence with criminal liability; 

(xi)  recognition of both accounting and auditing standards. The role, rights and duties of the auditors
defined so as to maintain integrity and independence of the audit process.  Consolidation of financial
statements of subsidiaries with those of holding companies is proposed to be made mandatory; 

(xii)        a single forum for approval of mergers and acquisitions along with a shorter merger process
for holding and wholly owned subsidiary companies or between two or more small companies as well as
recognition of cross border mergers. Concept of deemed approval also provided in certain situations; 

(xiii)       a framework for enabling fair valuations in companies for various purposes. Appointment

of valuers is proposed to be made by audit committee or in its absence by the Board of Directors; 
(xiv)  claim of an investor over a dividend or a benefit from a security not claimed for more than a period
of seven years not to be extinguished, and Investor Education and Protection Fund (IEPF) to be
administered by a statutory authority;

(xv)       shareholders associations or group of shareholders to be enabled to take legal action in case of

any fraudulent action on the part of company and to take part in investor protection activities and ‘Class
Action Suits’;

(xvi)      a revised framework for regulation of insolvency, including rehabilitation, liquidation and

winding up of companies and the process to be completed in a time bound manner; 

(xvii)      consolidation of fora for dealing with rehabilitation of companies, their liquidation and winding up

in the single forum of National Company Law Tribunal with appeal to National Company Law Appellate
Tribunal with suitable transitional provisions. The nature of the Rehabilitation and Revival Fund proposed
in the Companies (Second Amendment) Act, 2002 to be replaced by Rehabilitation and Insolvency
Fund with voluntary contributions linked to entitlements to draw money in a situation of insolvency; 

(xviii)   a more effective regime for inspections and investigations of companies while laying down
the maximum as well as minimum quantum of penalty for each offence with suitable deterrence for
repeated defaults.  Company is identified as a separate entity for imposition of monetary penalties from
the officers in default.  In case of fraudulent activities, provisions for recovery and disgorgementhave
been included; 

(xix)      levy of additional fee in a non-discretionary manner for procedural non-compliance, such as late
filing of statutory documents, to be enabled through rules. Defaults of procedural nature to
be penalised by levy of monetary penalties by the adjudicating officers not below the level of
Registrars. The appeals against orders of adjudicating officers to lie with suitably designated higher
authorities;

(xx)       Special Courts to deal with offences under the Bill.  Company matters such as mergers and
amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are
proposed to be dealt with by the National Company Law Tribunal.

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KKP

(Release ID :44114)

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