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 Companies Act, 2013

  

  Companies Act, 2013

The new Companies Bill is a landmark in the history of Corporate India. The Bill, awaiting the President’s approval, will be formally promulgated as the Companies Act, 2013, replacing the Companies Act, 1956. The 1956 Act was passed in the first decade in  India; the business landscape has changed radically the last 60 years. The new Act stipulates at least one woman director’s appointment on the Board of a company.

The new Bill mandates that one-third of a company’s Board must now comprise independents, with no financial interest in the company. This will  curb nepotism in many Boards. The most challenging aspects of the new Bill is the proposal for companies to set aside a percentage of their profits for CSR activities. The new Bill elevates the role of the company secretary to management level. The new Bill will lead to many aspiring students taking up company secretaryship as a career choice.

Here are the main issues that will make  the success of the new law.



 

1: Independent directors:  The provision to make companies have one-third of their board members as independent directors is fine in principle. Independent directors (IDs) are also more stringently defined, and their tenures will be limited to two terms adding up to 10 years. IDs can also hold a maximum of 20 directorships.
 2: Corporate social responsibility:  Sure, the Bill does not make 2 percent spending on CSR mandatory, but it comes close. The only obligation is to earmark the funds, form a committee, formulate a CSR policy, and spend the cash. If you don’t spend the money, you have to explain why in the annual report.
 3: Excessive bureaucracy:  In order to make directors accountable, the new Companies Bill mandates that every director shall register himself or herself with the government and obtain a Director Identification Number (DIN). Like the UID, which is supposed to give every Indian resident a unique identity and prevent fraud, the DIN will enable the government to monitor the number of directorships any person holds and also his track record.
 4: Women directors:  It is important for corporate boards to ensure gender diversity, but before that happens, a supply of women eligible for board positions needs to be created. According to GMI Ratings’ Women on Boards Survey 2013, even on the world’s best-known companies, women account for only 11 percent of total directorships.  
 5: Class action suits.  Perhaps the best new provision in the Companies Bill is the enabling of tort action and class action suits.

   

 

  

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