Cabinet approves Company Bill, 2008

The much awaited Company Bill (The Company Bill, 2008) has been approved by the Union Cabinet on August 29, 2008. This is now scheduled to be tabled in the Parliament in October, 2008 and proposes to replace the existing Companies Act 1956. Until such time that the Company Bill 2008 is approved by the Parliament, the existing provisions of the Companies Act, 1956, will continue to apply.
 
While substantially reducing the existing 800 plus provisions, the Company Bill, 2008 seeks to introduce changes which would enable the Indian corporate sector foster entrepreneurship, investment and growth.
 
The highlights of the proposed amendments have been summarised in this alert. 

The ensuing table provides a summary of some significant changes which have been proposed, while drawing a comparison with the existing provisions in the Companies Act, 1956.  

(Existing Provisions) 
(Revised Provisions)

· a few internal corporate processes (such as appointment of managerial personnel and remuneration thereof) are controlled by the Central Government (Existing Provisions) 
· such powers will now be exercised by the shareholders (Revised Provisions)

· one person company is not allowed (Existing Provisions) 
· one person company is allowed (Revised Provisions)

· companies, associations and partnerships of more than 10 people (for banking companies the minimum limit is 20) must be registered  (Existing Provisions) 
· companies, associations and partnerships of more than 100 people could be registered and no ceiling as far as professions regulated by specific enactments are concerned.(Revised Provisions)

· there are no provisions for the appointment of independent directors; however SEBI governs these for listed companies (Existing Provisions) 
· 33% of the directors should be independent (Revised Provisions)

· all the directors of a company can be foreign directors (Existing Provisions) 
· at least one director has to be Indian(Revised Provisions)

· companies are allowed to raise deposits from the public  (Existing Provisions) 
· companies are not allowed to raise deposits from the public, except for deposits raised through other specific enactments(Revised Provisions)

· insider trading regulations are governed by SEBI (Existing Provisions) 
· insider trading by company personnel is recognized as a criminal liability (Revised Provisions)

· unlike accounting standards, there is no specific recognition of auditing standards (Existing Provisions) 
· recognition is provided to both-auditing and accounting standards (Revised Provisions)

· no compulsory consolidation; except for listed companies which are governed by SEBI (Existing Provisions) 
· consolidation of financial statements is mandatory(Revised Provisions)

· there are different forums for mergers & approvals (Existing Provisions) 
· there is a single forum for mergers and acquisitions(Revised Provisions)

· claim/s of investor/s for dividend etc; after seven years are extinguished (Existing Provisions) 
· claim/s of investor/s for dividend etc are not extinguished and Investors Education and Protection Fund now being administered by a Stat Authority  (Revised Provisions)

· no shareholder's association can take legal action against fraudulent action by companies (Existing Provisions) 
· shareholder's association/s can be enabled to take legal action against fraudulent action by companies(Revised Provisions)

· company is not identified as a separate entity from the officers in default, for imposition of monetary penalties (Existing Provisions) 
· company is recognized as separate identity from the officers in default, for imposition of monetary penalties(Revised Provisions)

· the levy of additional fee for procedural offences is incorporated in various sections and these vary, as per the discretion of the Registrar of Companies (Existing Provisions) 
· the levy of additional fee for procedural offences is enabled through various rules and these are non-discretional in nature(Revised Provisions)

· there are no special courts for offences in relation to amalgamations and mergers, reduction of capital, insolvency etc. (Existing Provisions) 
· special courts to deal with such offences. (Revised Provisions)


  

In addition, the following significant provisions have been proposed: 

  
 
· a single, comprehensive, legal framework administered by the Central Government for all aspects of internal governance of corporate entities 

· an easy transition of companies to the new framework and from one type of company to another 

· statutory recognition to audit, remuneration and stakeholders grievances committees of the 

Board and the Chief Executive Officer, the Chief Financial Officer and the Company Secretary being recognised as Key Managerial Personnel 

· a separate framework for enabling fair valuations in companies for various purposes; and the appointment of valuers in this respect, by audit committees 

· a revised framework for regulation of insolvency, including rehabilitation, winding up etc, in a time bound manner 

· a more effective regime for inspections and investigations of companies for levy of penalties 







 

  


Disclaimer

The information provided in this alert has been collated from publicly available sources and should not be constituted as an opinion or used as a substitute for professional advice. Additional information relating to the Companies Bill 2008 can be accessed from the link below:

http://pib.nic.in/release/release.asp?relid=42067