It might be tempting to consider the passage of the companies bill, 2012 by the Rajya Sabha earlier this month as the end of a long process that lasted 18 years (the first complete redraft of this legislation was the Companies Act 1995), but it is really just the beginning. Many have called the new Act, with its 29 chapters, 470 clauses and seven schedules but covering only 309 pages, a model of clarity and brevity, a piece of legislation that is contemporaneous and appropriate for the 21st century; others have been less than happy with many of the provisions in the new Act. The Act enhanced investor protection improved minority rights made fundamental changes in corporate governance including delineating the auditors responsibility more widely defined a number of new concepts and terms, improved the ease of doing business such as the concept of a one-person company and sought to make companies more socially responsible. The new law also forces better corporate behaviour; creditors can apply to have a firm declared sick for non-payment of dues, for instance. The option of class action suits against promoters despite the concern that many have about its possible abuse for frivolous reasons is also likely to make business owners more careful.
But an overhaul of legislation also requires several supporting measures; proper subordinate legislation, or rules that regulatory agencies and the government will have to frame under different sections under the law, will be an important ingredient for good implementation and enforcement. Company chiefs have pointed to the requirement for setting aside 2 per cent of after tax profits for CSR activities as an instance where clarity on what constitutes socially responsible activity is absolutely necessary. Non-governmental organizations are worried that letting companies decide what qualifies as CSR could be counter-productive, or even pointless. For CSR to be meaningful, it is essential that the rules be framed in a manner that persuades companies to think of it as a commitment, rather than an accounting problem. The new law will also bring about a sea change in the auditing profession: what the future holds for small auditing firms which make up the vast majority is unclear and perhaps needs to be dealt with quickly. Yes, the new companies bill, 2012 is shorter than its predecessor, clearer, perhaps even sweeter (as in more palatable). The real work, however of framing new rules that should be just as short and clear begins now.