Piecemeal legislation

If ever there was a contest to identify Acts that have been legislated and amended the most, the Indian Income Act of 1961 and the Companies Act, 1956, would find a place at the very top. The reason for multiple amendments could be the nature of the legislations — one is to levy, manage and collect taxes on income from the teeming millions and the other to regulate the functioning of companies.

After endless delays, a new Companies Act was enacted in 2013 — which was an attempt at ushering in a Gen-next regulation in India. In a deviation from the normal practice, the rules to complement the Act were introduced in instalments and, in some instances, seemed to score over the provisions of the Act.

Thanks to a few shockingly draconian provisions (such as Section 447 of Companies Act, 2013), corporate India, their consultants, and chambers of commerce commenced a campaign against problematic provisions.

The new government promised to look into the requests.

The Companies Amendment Bill, 2014, introduced in Parliament recently, is the government’s response to those requests. It has tinkered in 14 areas with the core area of focus being ease of doing business.

These include prohibiting public inspection of Board resolutions filed in the Registry, including a provision for writing off past losses/depreciation before declaring dividend for the year, and enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Centre.

Below the threshold, it will be reported to the audit committee. The amendment also mandates that disclosures for frauds reported to the audit committee are also to be made in the board’s report.

The proposals talk about empowering audit committees to give omnibus approvals for related party transactions on an annual basis. An ordinary resolution (and not a special resolution as is the present position) for approval of related party transactions is mandated under the new law.

The government has thought it fit to restrict bails only for offences relating to fraud under section 447. The proposed amendments conclude with provisions stating that winding up cases will be heard by a two-member bench instead of a three-member bench and special courts to try only offences carrying imprisonment of two years or more.

Any proposals that seek to reduce onerous provisions in legislation are welcome. The government appears to have developed a penchant for ensuring that some action takes place fast without looking at the big picture. This approach would work well for legislations that are relatively minor.

We are in a time when banks appear to have adopted the motto “Have money but will not lend”. Corporate India would look upon legislations such as the Companies Act to provide them ways to raise money through deposits and inter-company transactions.

There are provisions in the Companies Act, 2013 on this, but one look at the details are enough to deter rather then encourage an entity from opting for this route.

The government should be wary of continuing with this piecemeal style of legislation into GST and the amendments to the Income-Tax Act.

The writer is a chartered accountant