MCA notifies a part of company law

New sections relating to private placement, insider trading, fraud to come into effect early

The Ministry of Corporate Affairs (MCA) has notified 98 sections of the new Companies Act, it said in a press note on Thursday.

The notified sections will come into effect from September 12.

"These are independent sections, which do not require the publication of rules. Currently, the ministry is going through the process of receiving suggestions on draft rules," said Pawan Kumar Vijay, managing director of advisory firm Corporate Professionals.

The new Companies Act will have 470 sections. Other sections will come into effect after the rule-making process is completed.

The Companies Bill, 2013, was cleared by the Rajya Sabha during the monsoon session and has since received the Presidential nod.

This early notification is expected to include several provisions relating to several concepts, which are being introduced for the first time. The sections to be notified in the first tranche will include one that deals with private placement and public issue. The Companies Act, 1956, did not define the concept of private placement, leading to a major legal battle between market regulator Securities and Exchange Board of India (Sebi) and Sahara India Parivar.

Another controversial section that will debut is the one relating to insider trading. This provision is likely to create some friction between the MCA and Sebi, which has so far been regulating insider trading in the stock market under its own regulations.

The notification is also likely to include provisions relating to maximum number of persons in a private limited company, which is being increased from 50 to 200 and other sections relating to penal provisions for fraud in the company.

The provisions relating to fraud found their way into the new companies law following the lacuna found while dealing with Rs 8,200 crore Satyam Computer scam in 2009. The provision containing the definition of "associate companies" is also likely to come into effect in the first tranche. The definition of associate companies, which includes even preference shares for determining the association, is likely to have far-reaching consequences, experts said.