Companies Act: Never-Ending Changes

The process of fine tuning the Companies Act, 2013 seems to have no end. The current law, which was under works for over a decade, was passed by Parliament in August 2013 after incorporating over 200 changes suggested over a period of at least five years since 2008. But the process to make a "perfect" law seems to be never ending. Now based on a government-appointed panel's report, around 100-odd amendments to the existing Companies Act of 2013 are under discussion. The aim is to make it easier for companies to do business in India (which was always the case), including for simpler laws for incorporating a company and for raising funds, as also for insider trading and dealings with top executives.

But the current Companies Act, 2013 itself underwent over a dozen round of changes after its was passed by the Parliament. Sometimes the changes were suggested and incorporated to the rules, other times it was against particular clauses. Then there were hundreds of changes while it was transforming from a Bill to the law between 2008 and 2013, with each round of changes coming in with multiple amendments. The Parliamentary Standing Committee under the former finance minister Yashwant Sinha (when BJP was in the opposition) at various stages had suggested over 170 amendments in their report. In August 2010 when the panel had submitted its report, the Centre (UPA Government) had agreed to incorporate 157 of the 178 amendments. But the government then brought 22 new changes to the Bill so the matter once again went back to the Parliamentary panel. Also, there have been several versions of the Companies Bill since 2008.

2016 Review
Now in 2016, three years after the new law came into existence and around two years since it was implemented from April 1, 2014, the Ministry of Corporate Affairs has once again decided to launch a public consultation process on the suggested changes. It has invited comments from all concerned stakeholders till February 15 in this regard. The ministry had constituted the Companies Law Committee in June 2015 for examining and making recommendations on the issues arising out of implementation of the Companies Act, 2013. It should be noted that the current laws were framed on the suggestions made by a standing committee headed by BJP member and widely supported by India Inc in 2013. Now the companies want more changes.

This time around the government panel has proposed changes in 78 sections of the Companies Act, 2013, which along with consequential changes, would result in about 100 amendments to the Act. Then around 50 amendments to the rules have also been proposed. The recommendations cover significant areas of the Act, including definitions, raising of capital, accounts and audit, corporate governance, managerial remuneration, companies incorporated outside India and offences/penalties.

The panel said that its endeavour has been to address difficulties and challenges expressed by various stakeholders and also to further the Narendra Modi government's objective of improving ease of doing business, encouraging start-ups and the need for harmonising various laws. The suggestions also include measures to bring in greater clarity in the Act and Rules and harmonising the various provisions thereof while making its recommendations.

Changes have been suggested for easier regulations for shareholders' approval to the managerial remuneration. It has also been suggested to change definition of associate company and subsidiary company to ensure that "equity share capital" is the basis for deciding holding-subsidiary relationship rather than "both equity and preference share capital".

The panel further said that private placement process be substantially simplified, while doing away with separate offer letter and reducing the number of filings to Register. It also suggests making valuation details public. Another suggestion relates to making incorporation process easier and allowing greater flexibility to companies.

2014 Review
The process of amending the laws based on plea filed by companies has been going on since the NDA government came in power. On June 24, 2014, the Ministry of Corporate Affairs came out with a draft notification which exempted unlisted private companies from the 13 sections of the Companies Act, 2013. The ministry proposed that the sections relating to acceptance of deposits shall not be applied on private companies with 50 members or less.

Then MCA got over 1.000 suggestions by July 01, 2014 where a large number of unlisted private companies sought relief from the stringent provisions of the new company laws. Back then some of the suggestions said no conditions should be imposed on private companies for accepting deposits. The new law bars private companies from accepting deposits or raising funds from its members. One of the suggestions submitted to the ministry said the exemptions should include allowing fund raising from members and allowing preferential issue of shares for private companies without valuation from registered valuers. Companies also sought exemptions from rotation of auditors on all class of private unlisted companies back then.

The ministry, which was reviewing the new Companies Act, 2013, back in 2014 had sought comments from stakeholders by July 1 that year on the proposed exemptions. Fast forward to 2016 and the same process is still in the works.