In July this year, the Standing Committee on Finance presented its report on the Companies Bill, 2011 suggesting some changes. The recommendations of the Committee have been discussed here.
After taking into account the Standing Committee’s views, the Cabinet yesterday approved certain amendments to the Bill, which have been set out in a press release (accessible on the PIB website).
From the salient features of the changes set out in the press release, none of the changes seem very significant in the overall scheme of things, although some may be noted. In the provision relating to corporate social responsibility (CSR), the words “make every endeavour to” has been omitted in clause 135(5) of the Bill. Although this may suggest that CSR may therefore become mandatory, that is not the case. A proviso to the clause (which has not been affected) states that if the company fails to make the required CSR spending, it shall specify the reasons for the same. In other words, this continues the “comply-or-explain” approach, with no real adverse consequences for failing to spend on CSR. The change appears to be semantic in nature, and offers cold comfort to the advocates of mandatory CSR, whose case appears to have been strenuously taken up by the Standing Committee. The overwhelming view is for voluntary CSR, and understandably so.
Several changes have been made in the Bill in the provisions relating to audit and auditors, including restrictions on the provision of non-audit services, the criminal liability of the auditors, and the maximum number of companies in which the auditor can be appointed.
The term “private placement” is stated to have received further clarification. As previously discussed, this aspect of company law has received greater scrunity due to the events surrounding the Sahara case.
Several other clarificatory changes have been made in the Bill. These will require further analysis once the text of the amendments become available.
Finally, the Press Release contains an admission of sorts regarding the delay in revamping company law. It states: “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” [emphasis added]. While the nature of differences and amendments to the Bill seem to be narrowing during each round, the elongated company law reform process is set to continue until both Houses of Parliament pass the new law and it receives the assent of the President.