The lower house of Indian Parliament, Lok Sabha Wednesday passed the Companies (Amendment) Bill, 2014 with 14 amendments. Corporate Affairs Minister Arun Jaitley told the house that some of the original provisions were only posing hurdles to doing business in the country. He said, “..(previously) A terrorist can get bail, but a company official cannot“, and added; “Are we trying to induce or scare investors,”.
“The object of these amendments is solely to ease the process of doing business in India. None of them have any ulterior motive,” Jaitley, who also holds the Finance portfolio, said replying to the debate on amending the Companies Act, 2013.
“Some of its provisions would have made doing business in India extremely difficult and the investment environment in the country would be disrupted by such a law,” Mr. Jaitley added.
The amendments to the Companies Act are designed to address some issues raised by stakeholders. These amendments include:
Confidentiality of Board Meetings
Among the major concerns of stakeholders were protecting confidentiality of board resolutions. The new amendments prohibit public disclosure of decisions made inside a Board meeting. Citing the provision on the public scrutiny of board resolutions, Jaitley said that nowhere in the world was such a practice being followed. “A company deciding in its board on its next model, a new product trademark or the funding mechanism would not like such matters to be known to competitors,” Jaitley said.
Approvals made easy
Stakeholders were also concerned that stringent regulations for related party transactions, or those transactions between the company and another in which a board member or members are interested, could hurt routine business activity. The amendment also exempts corporates from the need to get shareholders’ nod in the case of related party transactions valued lower than Rs.100 crore or 10 percent of net worth.
Under the old system, shareholders’ permission through a special resolution was required in case of related party transactions for all firms with a paid up capital of Rs.10 crore or more.
Requirement of Paid Capital Removed
Earlier, paid up capital of Rs 1 lakh was required for a new private company and Rs 5 lakh for private company, which has been now removed. It is really a great move to support Small and Medium Enterprises.
Defaulting Company Laws
Officers and employees of the defaulting company, who encouraged and promoted financial scams can now face fine upto Rs 2 crore, with a minimum threshold of Rs 25 lakh and/or prison upto 7 years. And the Director and Founder of such frauds would be fined under Section 447 of the Act, and can be poisoned upto 10 years along with a fine “which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud”.
Errors related with drafting rectified
There were several drafting errors in the original bill, such as unclaimed shares and dividend. Unclaimed dividend for 7 years is automatically transferred into a investor-protection fund but unclaimed shares does not. From now on, all unclaimed financial assets will be transferred to the investor-protection fund.
A special section 76A Introduced
76A has been introduced in the bill, which empowers the Government to slap fine upto Rs 10 crore on defaulting companies which raise money from the public and then disappear. In the wake of recent scams such as Saradha Finance in West Bengal and Sahara, this new regulation was indeed required. In any case, the new law states that the fine would not be less than Rs 1 crore in any case. The new amendment states: “in addition to the payment of the amount of deposit or part thereof and the interest due”.
This is a good move to create the business environment for MNCs as well as for Small and medium Enterprises. Where WTO gave low ranking to India for business environment, Government has started working on the ease of business environment in India.