K.R. Srivats | New Delhi, June 10 |
Amendments expected to be moved in the monsoon session of Parliament
The Corporate Affairs Ministry (MCA) has commenced work on drafting the legislative changes required in the Companies Act 2013 to usher in certain modern concepts, expedite corporate processes, improve compliance requirements and remove ambiguities from existing provisions as suggested by the Company Law Committee (CLC) in its third report submitted in March this year.
“We are looking into the legislative changes that are necessary. We are working on the recommendations made by the Company Law Committee,” Rajesh Verma, Secretary, Ministry of Corporate Affairs, told BusinessLine on the sidelines of an Azadi Ka Amrit Mahotsav event.
Indications are that the amendments would be moved by the government in upcoming monsoon session of Parliament.
In its 95-page report, the CLC, which is chaired by Rajesh Verma, had in all made 24 major recommendations.
The CLC recommendations include recognising Special Purpose Acquisition Companies (SPACs) and allowing such companies, which are incorporated in India, to list on permitted exchanges.
The CLC has also proposed introduction of concept of fractional shares in Companies Act 2013. Currently, Companies Act 2013 prohibits holding of shares in fraction. The CLC has, however, recommended fractional shares only for fresh issue of shares by the company in dematerialised form and not in respect of those cases where fractional shares arise due to any corporate action.
The CLC has also suggested that Companies Act 2013 be amended for allowing issuance of Restricted stock units (RSUs) and Stock Appreciation rights (SARs). Till date Companies Act 2013 was silent on regulatory norms with respect to RSUs and SARs which may lead to regulatory gaps and arbitrage.
The Committee had suggested to bring specific provisions under the Companies Act 2013 on RSUs and SARs. Also, it had recommended that annual omnibus approval by the shareholders be allowed in order to avoid hardships and better manage timelines. Recognition of SARs and RSUs under Companies Act 2013 is expected to pave the path for its successful issuance by introducing specific regulatory provisions which will leave no ambiguity in interpretation and operation of such schemes. Apart from ESOPs, companies also resort to RSUs and SARs.
The CLC third report had called for review of the provisions concerning the resignation of auditors. It had also recommended that obligations of a resigning auditor as prescribed in the UK Companies Act 2006 be “borrowed” for Indian legislation purposes.
The CLC had particularly noted that there is a need for a resigning auditor to assure the shareholders and other stakeholders that, in her opinion, there is nothing in the company’s accounts that need to be brought to their notice, and that her resignation is an independent
Mandate joint audits
The CLC had also suggested that Companies Act 2013 be amended to enable the Central government to mandate joint audits for such class or class of companies as may be prescribed by the government. In the case of a joint audit, the provisions concerning the extent of liability of individual auditors should also be prescribed in the Companies Act 2013, the CLC had recommended.
It maybe recalled that CLC was set up in September 2019 to make recommendations to the government inter alia on changes aimed at facilitating and promoting greater ease of doing business in India and effective implementation of the Companies Act, 2013, the Limited Liability Partnership Act, 2008 and the Rules.
The CLC has recommended an amendment to the Companies Act (Section 144) to enable the Central government to prescribe a differential list of prohibitions on availing non-audit services or total prohibition of the same for such class or classes of companies where public interest is inherent, as may be prescribed.
The Committee was of the opinion that differing classes of companies may be permitted to avail differing non-audit services from their auditors.