Union cabinet approves revised Companies bill

With an aim to serve interests of shareholders in a better way, the Union cabinet has approved various amendments to Companies Act 2011, which includes changes related to spending on CSR activities. The amended Companies Bill, which might come in force by the winter session of Parliament, has restricted the maximum number of companies an auditor can serve to 20 and also proposed for give more clarity on criminal liability of auditors.

The amendment proposal after its initial consideration in April, 2012 was referred to a Group of Ministers to examine in detail, with particular reference to jurisdiction of sectoral regulators on Competition related issues and if approved it will replace the archaic Companies Act, 1956.

The proposal has also recommended to control managerial compensation, to ensure accountability of independent directors, to give more teeth to the serious fraud investigation officer and  to ensure mandatory rotation of auditors in every five years, besides introducing class action suits, which are lawsuits brought by a group of individuals, all having the same complaints. The provisions relating to restrictions on non-audit services too have been modified in the Bill to ensure that such restrictions shall not apply to associate companies. It also gives a transitional period for complying with such provision.

The centre has affirmed that the legislation will help make the corporate sector more transparent, efficient and responsible, though some experts feel that some of its provisions might hit corporates hard, one of which includes the requirement of mandatorily spending about 2% of a company’s average profits in the last three years on corporate social responsibility (CSR). As per the amendments approved by the Union Cabinet, the companies would also have to give preference to the local areas of their operation for such spending.