1. The Companies Bill, 2008 has been introduced in the Lok Sabha to consolidate and amend the law relating to companies. Once approved, it will replace the Companies Act, 1956. It is intended to renovate the configuration of corporate regulation in India. It is likely to open up new vistas for foreign investment in India and reduce obstacles in doing business.

2. The Companies (Amendment) Bill, 2003 which was introduced in the Rajya Sabha in May, 2003 has been withdrawn as it was not in sink with the present day requirements of the corporates in India. ________________________________ The Companies Bill, 2008 is intended to develop the Indian corporate sector through enlightened regulation. The new Bill is much leaner with the number of provisions— norms related to different aspects of doing business—being halved to 400.

3. Views of Minister of Corporate Affairs Mr. Prem Chand Gupta after introducing the Bill- “Self-regulation, shareholders’ democracy and minimal interference by the government, in other words, reducing approvals needed from the government, besides huge penalties for non- compliance are some of the main features of the proposed Bill.”

4. In what manner has the Indian corporate scenario changed since 1956 till date? 1956 Firms totalled just 30,000 Narrow and limited area of working sectors Very few multinational firms were prevalent Very less employment prospects, agriculture was too predominant Present picture Over 7,00,000 companies Far more complex and liberalized scenario Many companies are global entities Increasing employment avenues in India in every sector

5. Compliance before commencement of new business 1956 Act The Company shall not at any time commence any business out of other objects of its Memorandum of Association unless the provisions of sub-section 2(B) of Section 149 of the Act have been duly complied with by it. 2008 Bill Provisions relating to certificate of commencement of business dispensed with. Only declaration is required by public company [Clause 10].

6. Documents to be filed at the time of incorporation According to Section 33 of the Companies Act, 1956, documents to be incorporated at the time of incorporation should contain name of first directors, their Director Identification Number, address, etc., with their consent and particulars of interest. Also the memorandum and articles should be printed. Provision of ‘printing’ of memorandum and articles has been dispensed with in the Companies Bill, 2008. A company can re-register itself with change in memorandum and articles.

7. Number of directors in the company The Companies Act, 1956 Minimum of three directors for a public company, two for a private company, and one for a One Person Company. No provision for the maximum number of directors. The Companies Bill, 2008 Minimum requirements remain intact. Maximum of twelve directors, excluding the directors nominated by the lending institutions. At least one of the directors should be a person ordinarily resident in India (not less than 182 days in a calendar year).

8. Number of Partners in a Partnership Firm The Companies Act, 1956 Maximum of 20 partners The Companies Bill, 2008 Number of partners increased to 100 offering scope for increasing their business considerably This will further facilitate limited liability partnership firms (Llp), the Bill for which is already in the Parliament.

9. An auditor appointed to audit accounts of company shall not undertake following services [Clause 127 of Companies Bill, 2008] (new provision)  Accounting and book keeping service  Internal audit  Design and implementation of any financial information system  Actuarial services  Investment advisory services  Investment banking services  Rendering of outsourced financial services  Management services Auditor can render additional services as approved by Board or Audit Committee.

10. Share Capital status in the new Bill Concept of shares with differential rights eliminated. Provisions relating to register and index of member continue. This is a new provision of the Bill. A suit may be filed or any action may be taken by any person, group of persons or association of persons who have been affected by misleading statement or inclusion or omission of any matter in prospectus or by fraudulently inducing persons to invest money [Clause 32 of Companies Bill, 2008]. Thus, class action is now permissible.

11. KEY MANAGERIAL POSITIONS The Companies Bill, 2008, has narrowed the definition for officers in default in listed companies to three key managerial positions--the company secretary, the chief financial officer and the chief executive officer. This is a major departure from the current definition in Sec. 5, Companies act, 1956, that includes the managing director, the whole time directors, the manager, the secretary and "any person in accordance with whose directions or instructions the board of directors of the company is accustomed to act".

12. DUTIES OF DIRECTOR [CLAUSE 147] (new Clause) i.Act in accordance with the company's articles. ii.Act in good faith and in the best interest of the company. iii.Exercise his duties with due and reasonable care, skill and diligence. iv.Shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with die interest of the company. v.Shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. vi.Shall not assign his office and any assignment so made shall be void. Any director who contravenes the provisions of this section shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees: [Clause 147(7)]. If he is found guilty of making any undue gain either to himself or to his relatives, partners or associates he shall also be liable to pay an amount equal to that gain to the company [Clause 147(7)]

13. Provision of “Independent Director” under The Companies Bill, 2008 An independent director means a non-executive director of the company, other than a nominee director, who is a person of integrity and possesses relevant expertise and experience. The requirement to appoint independent directors, where applicable, to listed companies is a minimum of one-third of the total number of directors. For other public companies, the requirement and number may be prescribed through rules. An independent director shall not be entitled to any remuneration, other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit-related commission and stock options as may be approved by its members.

14. Transactions of Director Companies Act, 1956 All the transactions regarding the shares and debentures by the director have to be recorded in the register with the director’s details. Companies Bill, 2008 A return containing the particulars of the directors and KMP shall be filed with the Registrar within thirty days from the appointment of every director and KMP, and within thirty days of any change taking place.

15. Registers of directors and key managerial personnel (KMP) and their shareholding Companies Act, 1956 Every company shall keep a register showing the details of the director of the company. Companies Bill, 2008 In addition to the director the details of the KMP i.e. the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), ant the Company Secretary (CS), are also to be recorded in the register.

16. CONCEPT OF “ONE PERSON COMPANY” The Companies Act, 1956 At least two people are needed to start a company. The Companies Bill, 2008 To enable an individual to start and manage his or her own enterprise, a provision of “one person company” has been introduced in the Bill [Clause 2(zzk)]. Memorandum has to prescribe name of person who will be member in event of death or disability of the one member [Clause 3(1)]. It will have name OPC Ltd. at the end of name.

17. Prohibition of insider trading of securities (clause 173 of the Companies Bill, 2008) No director or KMP either on his behalf or on behalf of any other person, deal in securities of a company, or counsel about, procure or communicate, directly or indirectly, any non-public price-sensitive information to any person: If any director or key managerial personnel contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but which may extend to one crore rupees, or with both. The Companies Act, 1956 doesn’t relate or enumerate any provision to the trading of securities by company directors or KMP.

18. Rehabilitation, Revival and Liquidation (Clause 244- Companies Bill, 2008) (a)A fund shall be formed for rehabilitation, revival and liquidation of sick companies. (b)Any amounts given as grants by the Central Government, income from any other source, any income from investment of the amount, or any amount deposited by the companies as contribution, shall be credited to the Rehabilitation and Insolvency Fund. (c)A company that has contributed any amount to the Rehabilitation and Insolvency Fund may make an appliance to the Tribunal for extraction of funds not exceeding the amount contributed by it, for making payments to workmen, protecting the resources of the company or meeting the incidental expenses during proceedings. (d)The fund shall be managed by an independent administrator to be appointed by the Central Government in any manner as may be prescribed.

19. LEVY OF CESS Changes made by Companies Amendment Acts 2002 Levy of Cess on all companies. Cess not to be less than 0.005% but not more than 0.1% on the value of turnover or its annual gross receipts, whichever is higher. The Cess will be transferred to ‘Rehabilitation and Revival Fund’ with sanction of Parliament, and will be utilized for making interim payments to workmen, and revival and rehabilitation of sick company. Status of Cess in Companies Bill, 2008 The Bill does not contain any provision of compulsory Cess.

20. Public Deposits and Charges Section 58, Companies Act, 1956 A prospectus inviting persons to subscribe for shares in or debentures of a company and including a statement purporting to be made by an expert shall not be issued, unless - (a) he has given his written consent to the issue thereof with the statement included in the form and context in which it is included, and has not withdrawn such consent before the delivery of a copy of the prospectus for registration; and (b) a statement that he has given and has not withdrawn his consent as aforesaid appears in the prospectus. The Companies Bill, 2008 A company (other than NBFC, banking company, etc.) can accept deposits only from members. Acceptance of deposits from public is prohibited except by NBFC and baking company [Clause 66]. New Provisions If deposits accepted before the new Act are not repaid within one year, officer concerned will be personally liable [Clause 68]. If company fails to register a charge, person in whose favour charge is charge may apply to ROC for registration of charge [Clause 70].

21. Elimination of some unnecessary formalities Provisions relating to certificate of commencement of business dispensed with. Only declaration required by public company [Clause 10 of Companies Bill, 2008] No provision relating to statutory meeting and statutory report Incorporation of company Documents to be filed at the time of incorporation should contain name of first directors, their DIN, address etc, with their consent and particulars of interest [Clause 7(f) of Companies Bill, 2008] Provision of ‘printing’ of memorandum and articles dispensed with. Change of registered office outside city by only special resolution. No permission required [Clause 11 of Companies Bill, 2008]. However, change outside State will require approval of Central Government [Clause 12(4) of Companies Bill, 2008] Company can re-register itself with change in memorandum and articles [Clause 17 of Companies Bill, 2008]Share capital Concept of shares with differential rights eliminated. Provisions relating to register and index of members continue. A suit may be filed or any action may be taken by any person, group of persons or association of persons who have been affected by misleading statement or inclusion or omission of any matter in prospectus or by fraudulently inducing persons to invest money [Clause 32 of Companies Bill, 2008] Thus, class action is now permissible.