New Delhi, Aug. 8: The Rajya Sabha today passed a legislation overhauling the Companies Act of 1956 that seeks to strengthen accounting standards and shareholder rights.
Terming the passage of the legislation as a “historic feat”, corporate affairs minister Sachin Pilot said, “The focus of the bill is to enhance transparency and ensure fewer regulations, self reporting and disclosure. It will outline positivity in the economy. The bill will give impetus to the growth momentum.”
“This was long time coming. The new law brings our corporate law closer to global standards and will go a long way in improving how business is done,” Dinesh Kanabar, deputy CEO of KPMG, said.
The Companies Bill 2012, which will replace the nearly 50-year-old Companies Act, was passed in the Rajya Sabha by a voice vote. The Lok Sabha had given its assent in December last year. The bill will now be sent to President Pranab Mukherjee for his assent, after which it will become a law.
The draft bill was first introduced in 2008 and again in December last year. Its passage was cleared after the government accepted most of the recommendations made by a standing committee led by former finance minister and BJP leader Yashwant Sinha.
“The bill deals with a gamut of corporate governance issues with respect to appointment, reappointment and qualifications of independent directors, which were otherwise being dealt with under Sebi’s clause 49. I would have liked to see greater clarity with respect to the protection of independent directors,” said Mukesh Butani, chairman, BMR Advisors.
Butani said the rule of having independent directors to oversee the interests of shareholders and governance should be distinguished from the day-to-day operational or management issues.
The act also provides for a corporate social responsibility clause, which has elicited a mixed response.
The act makes it mandatory for a board to have at least one-third independent directors, with every such board member allowed a maximum of two terms of five years each. It further requires independent directors to not have any monetary transaction with the company of a value equivalent to or more than 10 per cent of revenue.
The new legislation has been pruned down to around 470 clauses, compared with 700 sections in the older law.
Several changes have been introduced to promote transparency in investments and strengthening the rights of minority shareholders, making it tough for companies to hide illegal transactions.
WHAT TO EXPECT
• Clarity in role of independent director
• Transparency rules
• Minority shareholder rights beefed up
• Tough norms on
• More power to SFIO
• Insider trading treated
as criminal act