Cabinet clears 14 changes to Companies Act

The amendments include replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related-party transactions by minority shareholders.

The Cabinet on Tuesday cleared 14 changes in the Companies Act, 2013, paving the way for tabling the amendments in the ongoing session of Parliament.

The move is aimed at making it easier to do business in India, which is placed at 142 among 189 countries in the recent World Bank report, and addressing concerns raised by India Inc regarding the Act, which was enforced just this financial year.

The amendments include replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related-party transactions by minority shareholders.

This means that the companies only need to have the consent of 50 per cent of the minority shareholders present instead of the 75 per cent, which is prescribed in the current law.

Recently, a special resolution moved by liquor maker United Spirits through postal ballot to approve four related party transactions was defeated by minority shareholders, as per the provisions of the existing Act.

Against the 75 per cent favourable votes required, the resolution garnered only 70.2 per cent votes.

The proposed amendments, if enforced by now, would have helped the resolution sail through.

The new amendment also empowers the Audit Committee to give omnibus approvals for related party transactions on annual basis. The statement said that this is in line with the Sebi policy and to increase the ease of doing business.

Heeding to the corporate demand, the new amendment also proposes to exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of minority shareholders’ approval.

The amendments also include a new provision which prohibits the public inspection of the board resolutions filed with the Registrar of Companies, according to an official statement.

Company professionals have been complaining to the ministry of corporate affairs that board resolutions, if made public, would reveal the company strategy, helping the competitor inadvertently.

The Cabinet also approved an amendment to ensure that frauds, which are only beyond a certain threshold, would need to be mandatorily reported by the auditors to the government.

Any such fraud, which is above the threshold, will also need to be disclosed in the board report.

In the current Act, there is no such threshold, which means that auditor has to report even a small fraud of a thousand rupees to the ministry.

In order to restrain companies from raising illegal deposits, the Cabinet has also okayed provisions prescribing specific punishment for deposits accepted under the new Act.

“This was left out in the Act inadvertently,” said the government in the statement.

The new Companies Act, which came into force with effect from April 1 with some provisions yet to become operational, has faced stiff criticism from various quarters for many provisions.

The Companies Act, 2013, was notified in August last year by the previous United Progressive Alliance government. Out of 470 sections in the Act, 283 sections and 22 sets of rules corresponding to such sections have so far been brought into force. This means that around 40 per cent of the Act is yet to be enforced.

The new government has been indicating for quite some time that it would bring in necessary changes to address concerns raised by various stakeholders including corporates.

The Companies (Amendment) Bill, 2014 would now go to the Parliament to bring into effect necessary amendments to the existing Act. Sources said it is likely to be tabled in the current session.

OTHER CABINET DECISIONS

• Regional rural banks (RRBs): Amendments to RRBs Act, 1976, to enhance capital base of RRBs cleared  
• Death penalty for hijackers: Bill seeking stringent punishment for hijackers -- Anti-Hijacking Bill, 2014 -- approved
• Coal block auction: Bill to replace the Coal Mines (Special Provisions) Ordinance, 2014, cleared; likely to be brought before Parliament in winter session
• Prisoner transfer: Treaty on transfer of prisoners between India and Qatar to be signed
• Climate change talks: India’s stand at climate change meet gets nod
• Minimum support price: CCEA increases MSP of milling copra for 2015 season by Rs 300 to Rs 5,550 a quintal     

Source: Agencies  

Image: Parliament House; Photograph: Reuters