[Note: Author and Contributor of this blog post is Risabh A. Gupta, 3rd Year Student, B.B.A. LL.B. (Hons.), National Law University, Odisha. He can be contacted at rishabh.a.09@gmail.com]
The much awaited Companies Bill, 2012 has been
finally approved by Rajya Sabha on 8th August, 2013. The bill was
passed in Lok Sabha in December 2012 after detailed deliberations and
discussions. It is now on the verge of becoming an act post presidential assent
and notification in the Gazette of India.
The new Companies Bill, 2012, once effective, would
replace the fifty-six year old legislation, the Companies Act, 1956, the
primary legislation for incorporation, governance and operation of the
corporate bodies in India. Further, the Bill envisages to create a simplified
and effective framework for regulation and functioning of corporate bodies in
India.
The new companies Bill, 2012 is a very welcome step
as it has brought in numerous positive steps in streamlining the overall
framework pertaining to corporate law. While the existing Companies Act, 1956
has 658 sections, the new Companies Bill, 2012 would have 470 clauses which are
divided into twenty-three (23) chapters and has seven (7) schedules. Thus, in
this post, an overview of the important and substantial changes as well as
introduction of new provisions would be discussed like One-Person Company, new
compliance regime for private companies, Corporate Social Responsibility,
Mergers & Acquisitions (M&A), Corporate Governance and Class Action
Suits.
1.
MERGERS &ACQUISITIONS (M&A)
Numerous changes have been proposed in the new
Companies Bill, 2012 to make the procedure for mergers and amalgamations
(M&A) simpler and efficient. The approval of the National Company Law
Tribunal (NCLT) for the fast-track mergers has been done away with in the new
bill if it is a merger between two small companies, between a holding and
subsidiary company, or between any other companies as may be prescribed.
Further, the new Companies Bill, 2012 says any
contract or arrangement between two or more persons on transfer of securities
shall be enforceable as a contract. Private equity (PE) investors, who until
now have been unable to enforce strict conditions in their agreements with
promoters, will be able to use clauses such as 'tag along' and 'drag along'
mentioned in the shareholder agreement. A 'tag along' clause helps protect a
minority shareholder as he can sell his stake along with the majority
shareholder, while a 'drag along' clause gives right to a majority shareholder
to force a minority shareholder to sell stake[1].
The new law also allows an Indian company to merge
with a foreign company, making cross-border mergers and acquisitions easier.
Earlier, only foreign companies were allowed to merge with Indian companies.
Also, the bill will make it easier for promoters to restructure, merge or
acquire companies because only those shareholders who own more than 10% stake
or have more than 5% of the total debt will have the power to oppose any scheme
of arrangement[2].
2.
ONE-PERSON
COMPANY
The new Companies Bill, 2012 has, for the first
time, introduced the concept of “One-Person Company”. This is basically a
special type of private company. Clause 2(62) of the new Companies Bill defines
one person company as a company in which only one person is a member. These
companies have been granted the flexibility of having only one director.
Further, exemptions have been given to these companies in relation to filing
and holding of meeting. For instance, clause 122(4) of the Bill, 2012 provides
that if there is only one director then a board resolution which, in ordinary
course of things, needs to be passed can just be entered in the minutes of the
book of the company, without holding a physical board meeting.
3.
PRIVATE
COMPANIES
The new Companies Bill, 2012 has trimmed down the exemptions
which have been granted to private companies under the Companies Act, 1956.
Clause 62 of the new Companies Bill has made special resolution a mandatory
prerequisite for a preferential allotment in a private company. In contrast to
this, under Section 81(1A) of the Companies Act, 1956, only public companies
were mandatorily required to pass a special resolution for further issue of
capital in the form of preferential allotment of shares
.
4.
CORPORATE
SOCIAL RESPONSIBILITY
The new Companies Bill, 2012 has made the Corporate
Social Responsibility (CSR) activities mandatory for the corporate bodies. Now,
the Companies would be required to spend at least two percent (2%) of the
average net profits of three preceding financial years in one financial year.
Further, Clause 135 of the new bill lays down the criteria for compliance with
CSR activities to every company with-
i.
A net worth of Rupees five hundred (500)
crores or more, or
ii.
A turnover of Rupees one thousand crore
(1000) or more; or
iii.
A net profit of Rupees five crore or
more, during any financial year
Further, such companies have to be mandatorily
constitute a separate Corporate Social Responsibility board committee
consisting of three or more directors, out of which at least one director
should be an independent director.
5.
CORPORATE
GOVERNANCE
In the backdrop of recent corporate scams like
Reebok Scam and the Satyam Scam, the new Companies Bill, 2012 has tried to
bring in stringent standards of corporate governance norms. The term
‘independent director’ has defined for the first time in the Companies Bill,
2012. Various qualifications and standards have also been prescribed in the
Bill. Further, independent directors should make up at least two-thirds of the
board of directors of every listed company.
But curiously enough, independent directors would
not incur any liability in the case of a fraudulent act (unless of course it
has been done with their knowledge). In my opinion, such a provision would
prove to very difficult in attracting the right kind of talent to these posts
for the reason that they would be assured that there is no liability unless
they have willfully taken part.
6.
CLASS
ACTION SUITS
A class
action suit is one where a number of persons having same claims can initiate a
legal proceeding and sue a corporate body. Clause 245 of the new Companies
Bill, 2012 brings in such provision. Thus, a class action suit can be filed
against a company, its directors, its auditors or other concerned parties by a
particular number of members if they think that the affairs of the company is
prejudicial and detrimental to their interest.
There are many more substantial amendments which are
proposed in the new Companies Bill. Thus, the new provisions would make the
corporate bodies more accountable to all the stakeholders concerned and at the
same time making these corporate bodies run effectively and efficiently.
[1] http://articles.economictimes.indiatimes.com/2013-08-16/news/41417534_1_pe-investors-private-equity-investors-shareholder, last visited on 19/08/2013 at
5:07 AM
[2] Ibid
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