The Rajya Sabha passed the Companies Bill, 2012, on Thursday by a voice vote, paving the way for replacing the Companies Act, 1956, with a new legislation more in sync with the requirements of the corporate world in a globalised environment. The new law will be marked by greater focus on shareholder democracy, need for more corporate disclosures and less intrusive regulations. Several provisions have been introduced to ease corporate decision-making and improve governance.
It is now mandatory for certain classes of companies to spend at least 2% of their average profits in the last three years on corporate social responsibility activities. It also introduces the concept of class action suits.
The Bill, passed by the Lok Sabha on December 18, will now go for President's assent. The new law will be called the Companies Act, 2013.
But the long wait by corporates, CAs and lawyers is not over yet. The fine print of the clauses will be defined by rules that the corporate affairs ministry will frame now. “Almost all relevant clauses need to have rules, which the MCA would now put on its website to seek comments from stakeholders. Until the rules are formulated, the Act will not get operationalised,” said Harinderjit Singh, partner, Price Waterhouse.
The government has reduced the number of clauses in the Bill to around 470 from the earlier 650. Much of the Act will be governed by rules. The idea is that each time the government wants to make rule changes, it won't not need to go through the Parliament but can do it through an executive decision.
What this means is that until the rules are framed regarding CSR, auditor rotation, corporate governance issues, National Company Law Tribunal etc, stakeholders will not know how the fine print would work, who will be exempted and who will be covered. “For instance, we would not know unless the rules are made whether public limited companies would be exempted from mandatory rotation of auditors or not,” Singh said.
Pointing to another such instance, he said: “One of the important things the Bill does is to take away the power of high courts to approve mergers and acquisitions and bestow it on the National Company Law Tribunal. But the composition of this Tribunal, how would it work etc can be known only once the rules are made.”
Amrish Shah, transaction tax leader, Ernst & Young agreed that a lot will become clear once