Companies act

Topics: Government of India, Lok Sabha, Audit Pages: 5 (1519 words) Published: February 25, 2014
 Business Ethics

Provisions in company act 2013 with respect to CSR and Corporate Governance

Provisions in company act 2013 with respect to CSR and Corporate Governance

The long-awaited Companies Bill 2013 got its assent in the Lok Sabha on 18 December 2012 and in the Rajya Sabha on 8 August 2013. After having obtained the assent of the President of India on 29 August 2013, it has now become the much awaited Companies Act, 2013 (2013 Act). An attempt has been made to reduce the content of the substantive portion of the related law in the Companies Act, 2013 as compared to the Companies Act, 1956 (1956 Act). In the process, much of the aforesaid content has been left, ‘to be prescribed’, in the Rules (340+) which are yet to be finalised and notified. As of the date of this publication, 99 sections have been notified and a few circulars have been issued clarifying the applicability of these. The 2013 Act introduces significant changes in the provisions related to governance, e-management, compliance and enforcement, disclosure norms, auditors and mergers and acquisitions. Also, new concepts such as one-person company, small companies, dormant company, class action suits, registered valuers and corporate social responsibility have been included. India has recently witnessed a series of corruption and bribery scandals – from the allocation of telecom licenses and coal blocks to the more recent allegations of kick-backs in a multi-million dollar helicopter procurement contract.This has not only dampened investor sentiment but has also raised questions about India’s status as a leading developing economy. One of the reasons most frequently put forward for the level of corruption and bribery in India is its legal and regulatory regime. Some of the key laws date back more than 50 years and have not kept pace with the changing contours of the economy. In addition, enforcement through the court system takes many years and, therefore, is not perceived to act as a deterrent to wrongdoing. As a result of the constant media attention on corruption and activism displayed by the higher judiciary, the government is taking steps toward reform. One such significant reform, which goes to the core of corporate governance issues, is India’s new companies law. On August 30, 2013, India enacted the Companies Act, 20131 (the “New Act”), which has replaced the more than 50-year old Companies Act, 1956. Not all the provisions of the New Act will come into force immediately as a number of them require the Government of India to draft rules and regulations for their implementation. These rules will be drafted in the coming months in consultation with stakeholders. The New Act is seen as an important step in bringing Indian company law closer to global standards and in improving the ease and efficiency of doing business in India. It touches on areas such as corporate governance, corporate social responsibility, auditor rotation and investor protection, all in an attempt to strengthen internal controls. When the New Act is fully implemented, it will have a direct bearing on the way companies are governed in India – improving corporate governance in a manner that, it is hoped, will reduce misconduct at and by Indian companies. The New Act holds out the possibility of reducing the risk of corrupt practices, although in some ways it also potentially increases such risks in certain respects. The principal risk in this regard arises out of newly mandated Corporate Social Responsibility (“CSR”) programs.

The main features of the new law in this regard are set out below. Corporate Governance and Corporate Social Responsibility
Public companies will now be required to have independent directors on their boards, with publicly listed companies required to have at least one-third independent directors. Such directors may not be given any stock options and they cannot serve more than two five-year...
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