Protection to minority shareholders, concept of class action suit, cap on layers of subsidiaries a company can have, at least one woman director on board, concept of corporate social responsibility, and rotation of auditors are some of the new features in the revamped Companies Bill.
After much deliberation among stakeholders, the Companies Bill, 2011, was introduced in Parliament on Wednesday by the Corporate Affairs Minister, Mr Veerappa Moily. This Bill was introduced after the earlier 2009 Companies Bill was withdrawn.
The new Bill mandates two per cent of average net profits of preceding three years to be spent on corporate social responsibility activities with disclosure norms stating reasons on failure of implementation.
It further stipulates that constitution of a CSR committee by companies having net worth of Rs 500 crore or more, turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year. The committee should consist of three or more directors, with at least one independent director. A CSR policy would be formulated and monitored by the committee and put on the company's Web site.
The Board would be responsible for its implementation.
Listed public companies need to appoint at least one-third of the total number of directors as independent directors. It also empowers the Government to prescribe the minimum number of independent directors in case of any class or classes of public companies. An independent director cannot get stock options but may get payment of fees and profit linked commission subject to limit specified in the Bill/Rules.
The definition of ‘promoter' has been included along with his liability in certain cases. Provisions in respect of vigil mechanism (whistle blowing) have been proposed.
The Bill also proposes putting a cap on the number of investment arms a company can have. A company shall unless otherwise prescribed, make investment through not more than two layers of investment companies, according to the Bill.
The provisions for class action suits have been revised to provide minimum number of persons who may apply for such suits. Safeguards against misuse of these provisions have also been included.
Apart from these, the Bill envisages additional disclosure norms, managerial remuneration limits, National Company Law Tribunal, mediation and conciliation panel and statutory status to Serious Fraud Investigation Office.
Mr Sidharth Birla, Chairman, FICCI Corporate Law Committee, welcomed the innovation for smaller businesses in the form of one-person companies.
“The introduction of Key Management Personnel for enhanced as well as a true reflection of accountability has been brought in,” he said adding that the new Bill seemed more supportive than intrusive.