Companies Bill, 2012: Big 6 Changes

India is just one signature away from a brand new Company Law.

It comes 57 years after the previous one, has spent 4 years in drafting, four years in Parliament and contains 470 sections, with over 370 yet-to-be-notified rules. One-man companies, small companies, dormant companies, RoFR validity, new private placement rules, new subsidiary threshold, only two layers of investment subsidiaries, restrictions of inter-corporate loans and investments, mergers of Indian companies with foreign companies, no treasury stock, further safeguards in related party transactions, a definition for fraud,  new rules for winding up, national company law tribunals – no doubt this law brings many important changes and we will discuss them in detail once the rules are out.
But today I’m going to focus on the big bang changes brought in by India’s new Company Law! Here are the big 6! Independent Directors Defined!
Independent directors have been recognised by company law for the very first time. Their identities have been defined, remuneration restricted, liabilities limited, separate meetings provided for and duties detailed in a 4 page code of conduct- that, ladies and gentlemen is called an entry with a bang! Rotation of Independent Directors & Auditors
And yes, independent directors have to be rotated as is also applicable to audit firms. India is probably the first country in the world to mandate rotation of independent directors. But the list of countries requiring audit firm rotation extends to 30 including Italy, Brazil, China, Turkey and Netherlands. Rotation then is the new governance Brahmastra! National Financial Reporting Authority
But that’s not the only change facing chartered accountants and auditors. The bigger one is the creation of a national financial reporting authority that will take over from NACAS the job of standard setting and will also enforce compliance with accounting and auditing standards as well as professional conduct standards thereby diminishing the power of ICAI. Will this be India’s version of an audit super regulator? Dissentors' Exit
Dissenting minority shareholders find several mentions in the Companies Bill. Whether its the alteration of memorandums or a change in prospectus terms or compromises arrangements and amalgamations – dissenting minority shareholders have to be provided an exit by none other than the company promoter or controlling shareholder. Say hurrah for minority protection but also be prepared for minority blackmail! Class Action
More power to the minority – class action suits are here! Shareholders and depositors can now sue not only the company and its directors but also its auditors, expert advisors and consultants for mis-management and claim damages, compensation or any other suitable action! let’s hope the slow moving wheels of justice don’t make this a class inaction! Mandatory CSR
The final entry on my list is CSR. India is probably the first country to require by law that companies spend a defined portion of their profits on fulfilling social responsibilities. Noble intentions or bureaucratic nightmare – I don’t know! But its a comply or explain clause and that softens the blow.