Companies (Amendment) Bill, 2016: A focus towards 'Ease of Doing Business' in India

Companies (Amendment) Bill, 2016: A focus towards 'Ease of Doing Business' in India

The Companies Act, 2013 ("the Act") considered to be one of the significant legal reforms in India, aims to bring Indian Company Law in line with global standards, and focuses on governance and ease of doing business in India.

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Anup Vijay Kulkarni
  • Jun 1, 2016,
  • Updated Jun 1, 2016 7:37 PM IST
Anup Vijay Kulkarni
The Companies Act, 2013 ("the Act") considered to be one of the significant legal reforms in India, aims to bring Indian Company Law in line with global standards, and focuses on governance and ease of doing business in India. The Act may further undergo substantial changes as proposed in the Companies (Amendment) Bill, 2016 (the "Bill") introduced by Union Finance Minister Arun Jaitely in Lok Sabha on March 16, 2016.

The Act incorporated the recommendations of high powered committees such as the Dr. Irani Committee, Vepa Kamesan Committee, etc. This large piece of legislation comprising 29 chapters, 470 sections and seven schedules is being rolled out in a phased manner. Of the total 470 sections, 282 have already been notified. It is expected that the remaining provisions will also be notified soon. Most of the remaining provisions are sections related to proceedings before NCLT and NCLAT. NCLT and NCLAT are soon going to be a reality and so will be the sections dealing with them.

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The new Act mostly treats a private limited company on par with a public limited company, the differences between the two being almost negligible. However, considering the technical and practical difficulties faced by the companies, the Ministry of Corporate Affairs ("Ministry") by virtue of provisions of section 470 of the Act - 'Power to Remove Difficulties' - has issued numerous circulars and has clarified various grey areas of the Act.

In spite of many circulars, there are many grey areas that require immediate attention by the Ministry - especially why small and mid-sized private limited companies are required to comply with the provisions of the Act as if they are large corporations. Questions like these have been discussed threadbare by various stakeholders in various professional fora. However, even then there was lack of clarity, which led to numerous representations being made to the Ministry by the corporations, stakeholders and professional bodies.

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Considering the need for an amendment to the Act, the Ministry vide its notification dated June 05, 2015 exempted private limited companies from complying with certain provisions of the Act. The exemption notification has resolved many technical and practical issues that were faced by private limited companies, and has catalysed various business models and strategies. However, the said notification was in the form of a temporary relief and is limited to only the private limited companies. So, the question is: what about the other troubling issues?

The Ministry encountered further challenges, including difficulties in implementation faced by companies, which adversely affected their businesses. To overcome such issues, the Ministry had set up a Companies Law Committee (the "Committee") on June 04, 2015. The role and responsibility of the Committee was to make recommendations to the government on the issues arising from the implementation of the Act, as well as on the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on Corporate Social Responsibility (CSR), the Law Commission and other agencies.

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For the purposes of the Committee, various institutes such as industry chambers, professional fora and experts immensely participated and made contributions. The Committee also approached Comptroller and Auditor General, Competition Commission of India, National Housing Bank, Telecom Regulatory Authority of India, Central Electricity Regulatory Commission, Reserve Bank of India and Insurance Regulatory Development Authority for their suggestions. Considering the difficulties and challenges expressed by various corporations and their stakeholders and by the regulators, the Committee has taken a holistic and comprehensive view making requisite suggestions for the amendments to the Act and to the Rules made thereunder.

On February 01, 2016 the Committee had submitted a detailed report to Jaitley, suggesting amendments in certain definitions, sections, sub-section and the rules made thereunder.

Following are some key amendments as suggested by the Committee:

 

Anup Vijay Kulkarni
The Companies Act, 2013 ("the Act") considered to be one of the significant legal reforms in India, aims to bring Indian Company Law in line with global standards, and focuses on governance and ease of doing business in India. The Act may further undergo substantial changes as proposed in the Companies (Amendment) Bill, 2016 (the "Bill") introduced by Union Finance Minister Arun Jaitely in Lok Sabha on March 16, 2016.

The Act incorporated the recommendations of high powered committees such as the Dr. Irani Committee, Vepa Kamesan Committee, etc. This large piece of legislation comprising 29 chapters, 470 sections and seven schedules is being rolled out in a phased manner. Of the total 470 sections, 282 have already been notified. It is expected that the remaining provisions will also be notified soon. Most of the remaining provisions are sections related to proceedings before NCLT and NCLAT. NCLT and NCLAT are soon going to be a reality and so will be the sections dealing with them.

Advertisement

The new Act mostly treats a private limited company on par with a public limited company, the differences between the two being almost negligible. However, considering the technical and practical difficulties faced by the companies, the Ministry of Corporate Affairs ("Ministry") by virtue of provisions of section 470 of the Act - 'Power to Remove Difficulties' - has issued numerous circulars and has clarified various grey areas of the Act.

In spite of many circulars, there are many grey areas that require immediate attention by the Ministry - especially why small and mid-sized private limited companies are required to comply with the provisions of the Act as if they are large corporations. Questions like these have been discussed threadbare by various stakeholders in various professional fora. However, even then there was lack of clarity, which led to numerous representations being made to the Ministry by the corporations, stakeholders and professional bodies.

Advertisement

Considering the need for an amendment to the Act, the Ministry vide its notification dated June 05, 2015 exempted private limited companies from complying with certain provisions of the Act. The exemption notification has resolved many technical and practical issues that were faced by private limited companies, and has catalysed various business models and strategies. However, the said notification was in the form of a temporary relief and is limited to only the private limited companies. So, the question is: what about the other troubling issues?

The Ministry encountered further challenges, including difficulties in implementation faced by companies, which adversely affected their businesses. To overcome such issues, the Ministry had set up a Companies Law Committee (the "Committee") on June 04, 2015. The role and responsibility of the Committee was to make recommendations to the government on the issues arising from the implementation of the Act, as well as on the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on Corporate Social Responsibility (CSR), the Law Commission and other agencies.

Advertisement

For the purposes of the Committee, various institutes such as industry chambers, professional fora and experts immensely participated and made contributions. The Committee also approached Comptroller and Auditor General, Competition Commission of India, National Housing Bank, Telecom Regulatory Authority of India, Central Electricity Regulatory Commission, Reserve Bank of India and Insurance Regulatory Development Authority for their suggestions. Considering the difficulties and challenges expressed by various corporations and their stakeholders and by the regulators, the Committee has taken a holistic and comprehensive view making requisite suggestions for the amendments to the Act and to the Rules made thereunder.

On February 01, 2016 the Committee had submitted a detailed report to Jaitley, suggesting amendments in certain definitions, sections, sub-section and the rules made thereunder.

Following are some key amendments as suggested by the Committee:

 

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