Corporate Affairs

Highlights of the Bill

  • The Bill shifts the onus of regulation and oversight over management away from the government and towards shareholders.  It provides for stricter standards of approval by shareholders over some types of management decisions. 
  • The Bill allows for certain types of companies to be subject to a less stringent regulatory framework.
  • It seeks to strengthen corporate governance by including new provisions related to independent directors and auditors.
  • It gives greater powers to creditors to supervise a rescue plan and restrict the powers of management in the rehabilitation of a sick company.
  • The Bill establishes a National Company Law Tribunal to administer provisions with respect to company law.  It increases penalties and provides for special courts to try offences under the Act. 
  • Shareholders and creditors can file class action suits against the company for breaching provisions of any Act.  

Key Issues and Analysis

  • The composition and powers of the National Company Law Tribunal are similar to those introduced by a 2002 amendment to the Companies Act.  The constitutional validity of that amendment is being examined by the Supreme Court. 
  • The Bill permits certain financial relationships between independent directors and the company, which can lead to conflicts of interest.
  • Some provisions in the Bill, such as those covering independent directors and the delisting of companies, conflict with provisions under the SEBI Act and its regulations.
  • The Bill provides for a number of issues currently specified in the Act, to be specified by the government in the rules.  The government has not issued draft rules to the Bill so the impact of any possible change cannot be estimated.
  • Fines have been increased and the range of offences which are punishable by imprisonment has been widened.  The Bill does not require proof of intent to commit an offence as a condition for criminal prosecution.  This differs from the recommendation of the Irani Committee.

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