Companies Bill 2009

Couple of my friends have indicated that my attempts at blogging were the closest to blogging disasters which they had ever seen.....and that my blogs were typically an accountant's blog....dreary....(thank god they did not mean fudged!!! )....so with great hesitation i post this one as even by my elated standards of drearyness...this is the dreariest of them all......The following is a compilation of various articles which i have come across on the Companies Bill 2009 arranged in an apparently orderly fashion. The bill presently has been placed before the Lok Sabha and has been referred to a standing committee of the parliament:

• NEW CONCEPTS INTRODUCED BY THE COMPANIES BILL 2009
  ‘One-Person’ Company
  The present Act has the concept of a private limited and a public limited company, and a private limited company needs to have at least 2 members. For the first time, the concept of a “one-person company”, or OPC, has been introduced in the Bill, and the intent in apparently to permit entrepreneurship of a single individual to obtain the benefit of a corporate form of organization. This will especially benefit individual professionals who wish to function individually as professionals and yet want the benefit of limited liability. Some other features on the Bill on this aspect are:
  
  · Requirement to mention in memorandum the name of the person who shall become member of the Company in the event of the subscriber’s death, disablement, or otherwise.
  
  · Duty of the member of a OPC to intimate the Registrar of Companies of a change in the name of the member of the Company.
  · Indicators in the bill that the regulatory regime for OPCs shall be less stringent as compared to other companies
  
  Registered Valuers
  The concept of registered valuers has been introduced and used in the Bill in the context of a preferential allotment of shares and in case of a merger or demerger valuation, as indeed in relation to certain aspects of sick companies.
  
  Mergers and demergers
  Under the Companies Act, 1956 the provisions that deal with the compromises and arrangements (primarily refers to mergers and demergers but may also mean internal reconstruction) require high court approvals consequently leading to delays specifically in cases where the companies under merger are located in different states. The Bill has introduced a concept of National Company Law Tribunal (NCLT) whose objectives include regulation of merger and demerger schemes. NCLT being a specialized body dealing with company law issues may result in reduction in the time lag presently involved in disposal of company law issues. Possibility of delays as a result of objections from small shareholders/creditors has been reduced. A threshold for raising objections has been introduced at 10% for shareholders and 5% for creditors. Although this may appear to be against the interest of the minority shareholders , it will prevent frivolous objections and needless delays.
  
  Small Companies
  Based on recommendations of the JJ Irani Committee Report (JJICR), the concept of small companies has been introduced in the Bill and has been defined as a company other than a public company:
  
  (i) Whose paid up capital does not exceed a prescribed limit (not exceeding Rs. 5 crores)
  (ii) Whose turnover does not exceed a prescribed amount (not exceeding Rs. 20 crores)
  Specific reference in the Bill to small companies has been made in the section dealing with mergers and demergers where small companies have been exempted from approaching the NCLT for approvals. The scheme only needs to be approved in the general meeting and notices are required to be issued to the Registrar of Companies (ROC) and official liquidator. If the ROC or official liquidator has any objection, they may file an application to the NCLT and seek its approval.
  
  Governance provisions
  The Bill specifically provides that the directors’ participation in a board meeting may be through video conferencing or such other electronic means as may be prescribed, except that certain matters cannot be dealt with through such means.
  The Bill also provides for voting by shareholders through electronic means. Although electronic means has not been defined in the Act, Information Technology Act, 2000 seems to indicate e mail voting is possible. The detail of the methods of voting through electronic means is awaited and is expected to be introduced through rules to be specifically issued in this regard.
  
  Penal Provisions
  Stringent penal provisions for non compliance by auditors have been introduced. Presently, penal amounts on auditors prescribed in the Companies Act, 1956 are minimal viz. two years imprisonment or Rs. 50,000 fine or both. The Bill incorporates penal provisions which require an auditor to be subject to conviction, refund of remuneration to the Company or to be liable to pay damages to the Company or any other person on losses arising out of incorrect or misleading statements of particulars made in the audit report. The Bill provides for a fine of Rs. 25 lakhs plus a prison term of 3 years and additionally the Bill has deemed such offences as non compoundable
  In case of companies fraudulently luring persons in IPOs, under the existing act, the fine is Rs. 1 lakhs and the offence is compoundable. The Bill provides for three years of imprisonment plus a fine ranging between Rs. 1 lakh and Rs. 50 lakhs. Further, the offence has been deemed as non compoundable.
  For repeat offenders, the amount of fine leviable will be twice the amount of fine levied at the time of first offence and in case of fraudulent activities/actions, provisions for recovery and disgorgement have been included.
  It may be relevant to note that there is a definition of officer in default which provides adequate protection to independent directors.
  
  Delegated Legislation
  Delegated legislation (also referred to as secondary legislation or subordinate legislation) is law made by an executive authority under powers given to them by primary legislation in order to implement and administer the requirements of that primary legislation. It is law made by a person or body other than the legislature but with the legislature's authority. There are approximately 275 provisions providing for delegated legislations ; 35 of these are relatively substantive approvals, such as the ability to prescribe the financial format of financial statements, model articles for the company, rules for issuing “sweat equity” shares, rules for buy back of securities, depreciation rates etc. While such delegated legislations indicate the inherent flexibility in the Act, it could also result in government tinkering with substantive approvals.
  
  
  POSSIBLE ISSUES ARISING OUT OF THE BILL IN ITS PRESENT FORM
  · Section demanding the registration of valuers results in all the partners of a partnership firm of valuers to be registered. This may not be practically possible to implement.
  · Disqualification of corporate entities from being eligible to do valuations may result in entities which have the necessary expertise such as investment banks from being eligible to complete the valuations
  · The Bill proposes a cap on the fees for valuation assignments. This represents a potential issue as a very restrictive cap may result in the warding away good quality valuers
  · The Bill does not appear to make a distinction between preferential allotment by listed entities and unlisted companies. This may result in regulatory overlapping since the listed entities are required to value the preferential allotments as per the guidelines issued by SEBI in this regard
  · In the context of mergers and demergers, the Bill refers to a valuation report to be sent along with the notice of a meeting of auditors and shareholders proposed to be called in pursuance of an order by NCLT. Clarification in this regard is required since circulation of a full scale valuation report to entire world may not be advisable
  · Replication of concepts from Clause 49 of the listing agreement is not the same
  · Complete prohibition of trading in equity shares of the Company by key managerial personnel impractical in view of shares being held by such persons by virtue of ESOPs being issued to such persons or by virtue of such persons being part of the promoter group
  · Use of securities premium for writing off of expenses in relation to issue of debentures and shares as presently permitted by Companies Act, 1956 not yet addressed
  · Failure to prevent courts (NCLT in the bill) prescribing manner of accounting in case of scheme of arrangements
  · Although the bill permits Indian companies to merge with foreign companies, the foreign company in question is required by the Bill to have a place of business in India