Dec 15, 2011

COMPANIES BILL 2011 : Cleared by Cabinet - Introduced in Lok Sabha (download pdf copy)

Click here to download COMPANIES BILL 2011 (pdf)

The Companies Bill, 2011 proposing to make make companies more accountable was introduced in the Lok Sabha on Wednesday December 14, 2011 by the Minister for Corporate Affairs Mr. Veerappa Moily to replace 55- year-old legislation—the Companies Act, 1956. This bill will ensure proper accountability for those incorporating a company and directors on the board, by framing additional disclosure norms.

The new regulations, if cleared by both houses of parliament, will apply to more than 800,000 companies registered in India.

Industry lobby, Federation of Indian Chambers of Commerce and Industry (Ficci) said the Bill is a step in the right direction. “The structure of the Bill is contemporary, sound and visionary rather than just an attempt to address shortcomings,” said Sidharth Birla, chairman, Ficci Corporate Law Committee.

The Bill was first introduced in the Lok Sabha in 2008 but lapsed after the House was dissolved on account of the general election.

It proposes to introduce the concept of class action suits for the first time in India. That would empower investors to sue a company for 'oppression and mismanagement' and claim damages.

Among other things, it also proposes to tighten the laws for raising money from the public.

The Bill also seeks to prohibit insider trading by company directors or key managerial personnel by treating such activities as a criminal offence.


The Bill proposes to strengthen the Serious Fraud Investigation Office, a multi disciplinary body constituted by chartered accountants, company secretaries, revenue and corporate law officials.

It will also introduce concepts that are new to India, including the one-person company and class-action suits. The proposed regulation will also make it easier to start and shut companies.


The Bill proposes that companies should earmark 2 per cent of the average profit of the preceding three years for corporate social responsibility (CSR) activities, and make a disclosure to shareholders about the policy adopted in the process.

The original Companies Act was enacted way back in 1956 and has been in operation ever since.

In view of changes in the national and international economic environment and growth in the economy, the need was felt to enact a new law, it said.

The Companies Bill 2009 was then introduced in Parliament and sent to the Standing Committee, which presented its report in August 2010. A large number of recommendations were made by it and suggestions came in from several stakeholders.

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COMPANIES BILL TABLED IN LOK SABHA, FINALLY

The long awaited companies bill, which will overhaul the country's corporate law to strengthen governance and increase transparency, was tabled in the Lok Sabha on Wednesday. Through its 470 provisions, the new law proposes to make it mandatory for firms to maintain their documents in electronic format, introduces the concept of e-governance, asks big companies to set aside funds for corporate social activity and suggests rotation of auditors. Corporate affairs minister M Veerappa Moily was confident that the bill would be passed in the current session. "If not this session, then it will be enacted in the budget session, "he said. The bill has already been vetted by Parliaments standing committee on finance, headed by BJP leader and former finance minister Yashwant Sinha. The new law seeks to ensure greater accountability thorough additional disclosure norms, facilitate raising of capital, mergers and acquisition and protection of investors and minority shareholders, the statement on objects and reasons of the bill said. The Companies Act was enacted first in 1956. The amendment bill was introduced way back in 2008 but due to the dissolution of the 14th Lok Sabha was referred to the Parliamentary Standing Committee in 2009. After incorporating several recommendations, it was decided to introduce the bill again as the Companies Bill 2011. The bill provides for at least one woman director on the board of companies. It also recommends setting up of a corporate social responsibility (CSR) committee to ensure that companies with net worth above.Rs.500 crore set aside 2% of the average net profit in previous three years for CSR activities. Further, it has spelt out fixed term of four years for auditors and five years for independent directors, who must constitute one-third of the total directors. This is to ensure transparency in the internal workings of companies in order to avoid any future Satyam like scams, a source at the ministry said. The bill has put in place several provisions for strengthening of the Serious Fraud Investigation Office (SFIO) such as the power of arrest. But it has refrained from giving it suo moto powers such as those enjoyed by the Competition Commission of India. SFIO can act only when someone lodges a complaint or initiates an enquiry. The new bill prohibits insider trading by any director as well as key managerial personnel. It also bars offering any stock option to the independent directors on board of a company. - www.economictimes.indiatimes.com

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