Lok Sabha today took up for consideration the Companies Bill which seeks to further improve corporate governance, with the government saying that the proposed legislation was aimed at protecting the interest of small investors and making India an attractive destination.
Moving the bill for consideration, Corporate Affairs Minister Sachin Pilot said the proposed legislation had been finalised after studies on corporate governance in France and Indonesia.
Under the new law for companies, the corporate social responsibility (CSR) spending would be the responsibility of companies like their tax liabilities, he said.
He also talked about provision to keep a tab on exorbitant remunerations for the board of directors and other executives of the companies to protect the interest of shareholders and workmen.
Pilot also informed the House the that there would be enough provisions to deal with fly by night companies to protect the interest of small investors.
About safeguard for workmen in the legislation, he said the new law mandates payment of two years' salary to employees in companies which wind up. This liability would be overriding.
He said people would look at India as a safe investment destination once the new law came into force.
Pilot said that private companies, which maximising their growth, have responsibility towards society besides equitable and sustainable growth of the country.
Under the bill CSR spending would become compulsory for companies that meet certain criteria.
Firms having Rs 5 crore or more profits in the last three years have to spend on CSR activities.
One of the major proposals is that companies have to mandatorily spend two per cent of their average net profit for CSR activities.
The changes, once in place, would amend the Companies Bill that has been in force since 1956.
If companies are unable to meet CSR norms, they will have to give explanations. In case, the companies are not able to do the same, they have to disclose reasons in their books. Otherwise, they would face action, including penalty.
The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors.
There are proposals for annual ratification of appointment of auditors for five years and introduction of a new clause related to offence of falsely inducing banks for obtaining credit.
First introduced in August 2008, the Bill was withdrawn as the Lok Sabha was dissolved. It was again introduced in Parliament in 2009 and sent to the Standing Committee, which presented its report in August 2010.
Participating in the discussions on Companies Bill, Sanjay Nirupam (Congress) said there should be more clarity on implementing CSR activities by companies.
He noted that intentions of the Serious Fraud Investigation Office (SFIO) should be checked so as to ensure there is no misuse.
Citing the fraud that had come to light at erstwhile Satyam Computer Services, Nirupam wondered why no action has been taken against auditing firm PwC, which had done auditing work for that entity.
Echoing similar views, TMC's Saugata Roy said the government has not imposed any restrictions on PwC following the Satyam fraud even though Satyam's then chairman Ramalinga Raju was punished.
"Corporate governance remains weak in our country," he said.
Shailendra Kumar (SP) emphasised that companies should take care of the interests of labourers and employees.