Companies (Amendment) Bill, 2017

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TOPIC: General Studies 2

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

The Companies (Amendment) Bill, 2017 which seeks to bring about major changes in the Companies Act, 2013, was passed by RS. The bill, which was adopted by the Lok Sabha in July, will now have to receive the assent of the President to become law. The amendment seeks to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business in the country. The bill is amongst the reforms that act towards targeted ease of doing business in India where ranking of India has already improved by 30 points according to WB report. The government now strives to make India an attractive destination for investments.

Addressing the difficulties, i.e. the stringent compliances that were there in the initial draft of the bill in 2013, have been now removed. This bill now has made some practical changes keeping into account the problems faced by corporates and plugging loopholes. Ease of doing business is not only about everything being simplified but everything should be clear.

Some major changes are:

• Simplification of the private placement process
• Rationalization of provisions related to loans to directors
• Aligning disclosure requirements in the prospectus with the regulations made by SEBI
• Stringent penalties in case of non-filing of balance sheet and annual return every year
• Wholly Owned Subsidiary (WOS) of foreign company can hold EGM outside India whereas Annual General meeting of unlisted company can be held anywhere in India. Thus, ease of doing business is being promoted.

One of the impediments of doing business in India has always been India’s low performance in contract relation and enforcement. That in mind, government has brought in harmonization between companies act, SEBI, RBI rules and regulation.

Employment generation is going to be boosted with contract business going to be biggest beneficiary. The act aims to usher into corporate governance regime, plug the loopholes in forms of defaulters and allow foreign investors to look at India as a destination to do business.

Companies are now required to give preceding years’ annual average net profit towards CSR instead of preceding three years’ annual average.

The penalties and the prosecution has been brought down as earlier they were too stringent and hence detrimental to business. The rules had been more stringent in terms of filing of financial returns. At the same time, certain penalties which were disproportional- for a minor technical inconsistency, there were huge penalties which have now gone. With such changes, the budding entrepreneurs have been given room to establish themselves.

How helpful to entrepreneurs?

Small businesses need more help, easier laws to comply with. It cannot comply with stringent and complicated laws with respect to small size of their business as too much burden is not beneficial for their flourishment.

Definition of small business is going to create changes. The new Companies bill recognizes all sizes and types of companies existing. There are less court appointments due to simplified compliances. Also, self attestation has made great difference in saving time of businessmen as well as government. Sweat Equity Shares can be issued at any time. Currently it can be issued after one year from commencement of business.

Relaxation has been given under Sec 185 (primarily deals with the subject of person to whom company cannot give loan) Sec 186 (enlists the exceptions and specifies the limits up to which a company can give loan), in company loans and deposits.

Conclusion

The main aim was that in name of control, the business should not be suffocated. Corporate governance strengthened with government support ensures business to flourish in an enabling environment.

Connecting the dots:

• A strong corporate governance ensures increase in employment generation. Discuss.