Rajya Sabha passes Companies Bill 2012
Rajya Sabha has passed the Companies Bill 2012 in order to replace the outdated Companies Act, 1956. Both the houses of Parliament have passed the Bill and before it becomes law it will go to President Pranab Mukherjee for his assent. The existing statute for regulation of companies in the country, viz. the Companies Act, 1956 had been under consideration for quite long for comprehensive revision in view of the changing economic and commercial environment nationally as well as internationally.
The Companies Act of 1956 replaced the first Companies Act that was created in 1919 (the pre-independent India). The Act of 1956 has been amended 25 times in all these years since its formation.
Key features of Companies Bill 2012:
- Spending of funds by companies for Corporate Social Responsibility (CSR) will be mandatory. Companies are required to spend at least 2 % of their net profit on CSR. The companies will also have to give preference to the local areas of their operation.
- If the companies are unable to meet CSR norms, they will have to give explanations and may even face penalty.
- The amended legislation will help to control major source of corporate law-breaking for falsely inducing a person to enter into any agreement with bank or financial institution with a view to get credit facilities.
- With view of interests of employees, company will have to pay 2 years’ salary to employees in case it shuts operations.
- The appointment of auditors for five years shall be subject to ratification by members at every annual general meeting.
- The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as 20.
- The maximum number of directors in a private company has been increased from 12 to 15 and which can be increased further by special resolution.
- The financial year of any company can end only on March 31 and the only exception is for companies which are holding subsidiary of a foreign entity requiring consolidation outside India.
- It makes auditors subject to criminal liability if they consciously or carelessly omit certain information from their reports.
- It has a stipulation that keeps a check on very expensive remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as employees.
- The amended legislation also limits the number of companies an auditor can serve to 20 besides bringing more clarity on criminal liability of auditors.
- The proposed legislation would ensure setting up of special courts for speedy trial and stronger steps for transparent corporate governance practices and curb corporate misdoings.