Lok Sabha passes revised Companies Bill, to improve governance and transparency in India Inc

The Lok Sabha today passed the revised Companies Bill, which had been hanging fire since it was first introduced in the House in August 2008.

During the debate over the Bill in the Lower House today, the government re-emphasised that the aim is to protect the interest of employees and small investors, besides encouraging companies to undertake social welfare of their own will.

Corporate Affairs Minister Sachin Pilot said special courts would be set up for speedy trials, a move that comes as an assurance to investors that cases related to their disputes with firms will not linger on.

Underlining the need for such a law, Mr. Pilot said India is now the first country to mandate corporate social responsibility (CSR) through a statutory provision.

The Union Cabinet had cleared the Bill in October, saying it would serve the interests of “corporates, investors and other stakeholders” better.

The changes, once in place, would amend the existing Companies Law that has been in force since 1956.

Here are five salient features of the Bill.

1. New rules make earmarking of funds by companies for corporate social responsibility (CSR) spend mandatory. The CSR spending would be the responsibility of companies. However, the revised Bill, with 470 clauses, seeks to make CSR spending compulsory only for companies that meet a certain criteria -  Firms having Rs 5 crore or more profits in the last three years have to spend on CSR activities. If companies are unable to meet CSR norms, they will have to give explanations. In case, the companies are not able to do the same, they will have to disclose reasons in their books for the same. Otherwise, they would face action, including penalty.

2. The new legislation has more provisions to guard interests of employees. It mandates payment of two years' salary to employees in case a company shuts operations.

3. There are provisions for annual ratification of appointment of auditors for five years, besides limiting the number of companies an auditor can serve to 20.

4. The new Bill also has a provision that keeps tabs on exorbitant remunerations for the board of directors and other executives of the companies. This will protect the interest of shareholders as well as employees.

5. The new provisions bring the law on the subject of corporate functioning and regulation in tune with the global best practices so that there is further improvement in corporate governance in the country through enhanced accountability and transparency.