The Companies (Amendment) Bill, 2016 introduced in Loksabha
Statement of Objects and Reasons of the proposed “Companies (Amendment) Bill, 2016” as introduced in Loksabha on 16th March 2016, are as under:
The Companies Act, 2013 (the Act) was enacted to consolidate and amend the Laws relating to companies. Out of 470 sections of the Act, 284 sections have been brought into force so far. The process for establishment of the National Company Law Tribunal and National Company Law Appellate Tribunal is at its final stage. After the constitution of these Tribunals, most of the remaining 186 sections of the Act shall also be brought into force.
2. The Act introduced significant changes related to disclosures to stakeholders, accountability of directors, auditors and key managerial personnel, investor protection and corporate governance. However, Government received number of representations from industry Chambers, Professional Institutes, legal experts and Ministries/Departments regarding difficulties faced in compliance of certain provisions. Amendments of the Act were carried out through the Companies (Amendment) Act, 2015 to address the immediate difficulties arising out of the initial experience of the working of the Act, and to facilitate “ease of doing business”. During the consideration of the Companies (Amendment) Bill, 2015 in the Rajya Sabha, views were expressed that more amendments would be required. A Companies Law Committee (the Committee) was, therefore, constituted consisting of representatives from the industry, professional institutes of chartered accountants, cost accountants and company secretaries, and a former High Court Judge under the chairmanship of Secretary, Ministry of Corporate Affairs, to examine the need for further amendments.
3. The Committee had invited suggestions from all stakeholders and thereafter held broad based consultations on the suggestions received. The Committee submitted its report to the Government on the 1st February, 2016 which was put in public domain for comments. Based on the report and comments received from the stakeholders and Ministries/ Departments, it has been decided to amend the Companies Act, 2013.
4. The proposed changes are broadly aimed at addressing difficulties in implementation owing to stringency of compliance requirements; facilitating ease of doing business in order to promote growth with employment; harmonisation with accounting standards, the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder, and the Reserve Bank of India Act, 1934 and the regulations made thereunder; rectifying omissions and inconsistencies in the Act, and carrying out amendments in the provisions relating to qualifications and selection of members of the National Company Law Tribunal and the National Company Law Appellate Tribunal in accordance with the directions of the Supreme Court.
5. The Companies (Amendment) Bill, 2016, inter alia, proposes the following, namely:—
(a) simplification of the private placement process by doing away with separate offer letter, by making filing of details or records of applicants to be part of return of allotment only, and reducing number of filings to Registrar;
(b) allow unrestricted object clause in the Memorandum of Association dispensing with detailed listing of objects, self-declarations to replace affidavits from subscribers to memorandum and first directors;
(c) provisions relating to forward dealing and insider trading to be omitted from the Act;
(d) requirement of approval of the Central Government for Managerial remuneration above prescribed limits to be replaced by approval through special resolution by shareholders;
(e) a company may give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirement;
(f) remove restrictions on layers of subsidiaries and investment companies;
(g) allow for exempting class of foreign companies from registering and compliance regime under the Act;
(h) align prescription for companies to have Audit Committee and Nomination and Remuneration Committee with that of Independent Directors;
(i) test of materiality to be introduced for pecuniary interest for testing independence of Independent Directors;
(j) disclosures in the prospectus required under the Companies Act and the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder to be aligned by omitting prescriptions in the Companies Act and allowing these prescriptions to be made by the Securities and Exchange Board of India in consultation with the Central Government;
(k) provide for maintenance of register of significant beneficial owners by a company, and filing of returns in this regard to the Registrar;
(l) removal of requirement for annual ratification of appointment or continuance of auditor;
(m) amend provisions relating to Corporate Social Responsibility to bring greater clarity.