Passage of the new Companies Bill, with as many as 470 clauses, will unfold various new provisions for the corporate sector. While the rules, yet to be notified, will depict the exact impact, the amendments have already started creating ripples.
While companies are worried about the mandatory spending on corporate social responsibility (CSR), the auditing community is complaining of over-regulation.
In CSR-related provisions, the government has made it mandatory for every company to constitute a committee of the board of directors if it has a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year. This panel must ensure the two per cent mandatory expenditure on such activities is properly spent. If a company fails to provide or spend the amount, the board is required to specify why.
According to Deloitte Haskins & Sells’ managing partner-audit, N Venkatram, the intent behind the new legislation is good and it aims to bring rigour in the financial accounting system. “However, the execution would be significant,” he said.
Industry and Companies Act experts are awaiting the new law’s rules. “The devil is going to be in the rules,” says Harinderjit Singh, partner, PricewaterhouseCoopers. The law which has been passed does not come into effect unless the rules are also notified.” The government, he said, would be required to build a consensus on the rules with industry officials and other stakeholders.
The amended legislation, with 470 clauses, introduces various definitions, such as that of associate company, small company, promoter, chief financial officer, chief executive, etc. It also introduces the uniform financial year (April-March) for all companies and exceptions to this can be made only with the approval from the National Company Law Tribunal for companies complying with certain specified conditions.
The new rules, to be notified by the ministry of corporate affairs, will put in place a detailed mechanism and prescribe specific penalties for defaulters of the new Companies law approved by the Lok Sabha on Tuesday.
Both corporates, as well as experts of the Companies Act, are awaiting these rules as it would bring more clarity, particularly to new clauses introduced.
“The devil is going to be in rules,” says says Harinderjit Singh, Partner, PricewaterhouseCoopers. “The law which has been passed does not come into effect unless the rules are also notified. So, these rules assume significance”.
According to Singh, the government would also be required to build consensus on the rules with industry officials and other stakeholders.
Agrees Corporate Professionals Managing Director Pavan Kumar Vijay. “A substantial part of the law will be in the form of rules, to be prescribed separately in due course,” Vijay said.
The government is empowered to notify different provisions of the Act at different points of time.
The amended legislation, with 470 clauses, introduces various new definitions such as that of Associate Company, Small Company, Promoter, Chief Financial Officer, Chief Executive Officer etc. It also introduces uniform financial year (April-March) for all companies and exceptions to this can be made only with the approval from the National Company Law Tribunal for companies complying with certain specified conditions.
FICCI President Naina Lal Kidwai said “The Bill intends to simplify regulations, bring greater clarity, accountability and oversight in managing businesses and balance various stakeholder interests including encouraging greater social responsibility by profitable corporates”.
The amendments, to the Bill that has been in force since 1956, was first introduced in August 2008. However, it was withdrawn as the Lok Sabha was dissolved. . It was again introduced in Parliament in 2009 and sent to the Standing Committee, which presented its report in August 2010. Notably, unlike most Bills, the Bill was referred to the Standing Committee twice. The revised Bill 2011 was again referred to the committee as certain new provisions were included.