The Companies Bill,
2011, which was passed by the Lok Sabha yesterday, on its enactment will
allow the country to have a modern legislation for growth and regulation
of corporate sector in India. 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. In view of various reformatory and contemporary
provisions proposed in the Companies Bill, 2011, together with omission
of existing unwanted and obsolete compliance requirements, the companies
in the country will be able to comply with the requirements of the
proposed Companies Act in a better and more effective manner.
The Salient features of the Companies Bill 2011 are as follows:
1. (Amendment in Clause 135): In the Section on Corporate Social
Responsibility (Section135), which is being introduced as a statutory
provision for the first time, the words ‘make every endeavour to’ have
been omitted from its Sub-clause (5). So that the first para of
Sub-clause (5) of Clause 135 now reads as follows: “The Board of every
company referred to in sub-section (1), shall ensure that the company
spends in every financial year, at least two per cent of the average net
profits of the company made during the three immediately preceding
financial years, in pursuance of its Corporate Social Responsibility
Such clause is also amended to provide that the company shall give
preference to local areas where it operates, for spending amount
earmarked for Corporate Social Responsibility (CSR) activities. The
approach to ‘implement or cite reasons for non implementation’ retained.
2. (Amendment in Clause 36): To help in curbing a major source of
corporate delinquency, Clause 36 (c) amended, to also include punishment
for falsely inducing a person to enter into any agreement with bank or
financial institution, with a view to obtaining credit facilities.
3. (Amendment in Clause 143): Provisions relating to audit of Government
Companies by Comptroller and Auditor General of India (C&AG) modified to
enable C&AG to perform such audit more effectively.
4. (Amendment in Clause 186): Clause 186 amended to provide that the
rate of interest on inter corporate loans will be the prevailing rate of
interest on dated Government Securities.
5. (Amendment in Clause 144): Provisions relating to restrictions on non
audit services modified to provide that such restrictions shall not
apply to associate companies and further to provide for transitional
period for complying with such provisions.
6. (Amendment in Clause 203): Provisions relating to separation of
office of Chairman and Managing Director (MD) modified to allow, in
certain cases, a class of companies having multiple business and
separate divisional MDs to appoint same person as chairman as well as
7. (Amendments in Clause 147 and 245): Provisions relating to extent of
criminal liability of auditors - particularly in case of partners of an
audit firm - reviewed to bring clarity. Further, to ensure that the
liability in respect of damages paid by auditor, as per the order of the
Court, (in case of conviction under Clause 147) is promptly used for
payment to affected parties including tax authorities, Central
Government has been empowered to specify any statutory body/authority
for such purpose.
8. (Amendment in Clause 141): The limit in respect of maximum number of
companies in which a person may be appointed as auditor has been
proposed as twenty companies.
9. (Amendment in Clause 139): Appointment of auditors for five years
shall be subject to ratification by members at every Annual General
10. (Amendment in Clause 139): Provisions relating to voluntary rotation
of auditing partner (in case of an audit firm) modified to provide that
members may rotate the partner ‘at such interval as may be resolved by
members’ instead of ‘every year’ proposed in the clause earlier.
11. (Amendment in Clause 2): ‘Whole-time director’ has been included in
the definition of the term ‘key managerial personnel’.
12. (Amendment in Clause 42): The term ‘private placement’ has been
defined to bring clarity.
13. (Amendment in Clause 61): Approval of the Tribunal shall be required
for consolidation and division of share capital only if the voting
percentage of shareholders changes consequent on such consolidation.
14. (Amendment in Clause 152): Clarification included in the Bill to
provide that ‘Independent Directors’ shall be excluded for the purpose
of computing ‘one third of retiring Directors’. This would bring
harmonisation between provisions of Clause 149(12) and rotational norms
provided in Clause 152.
15. (Amendment in Clause 470): Provisions in respect of removal of
difficulty modified to provide that the power to remove difficulties may
be exercised by the Central Government up to ‘five years’ (after
enactment of the legislation) instead of earlier up to ‘three years’.
This is considered necessary to avoid serious hardship and dislocation
since many provisions of the Bill involve transition from pre-existing
arrangements to new systems.