Companies Act needs further amendments: Report

It also explores the challenges companies are facing because of regulatory reforms

Though there have been improvements in financial and non-financial disclosures, assessment of related party transactions and effectiveness of boards as well as independent directors post reforms introduced by the Companies Act, 2013 and Sebi listing regulations but further amendments are required in the act, a report stated here on Wednesday.

However, the 'Corporate Governance in India@2016: Where do we stand?', released by Federation of Indian Chambers of Commerce and Industry (Ficci), also points out that the upturn is not uniform across companies and quantum of benefits realised differs across unlisted and small and large listed companies.

The report, also exploring the challenges companies are facing because of regulatory reforms, noted that all companies, big and small, are challenged by greater focus on compliance, not only due to increased costs but also because directors are getting distracted from their core strategic and business functions and focussing more on compliance functions.

Companies thus believe that the compliance requirements have turned into a burden, rather than an opportunity for improvement and growth, which was the legislative intent, it added.

"The survey suggests that though many of the legal provisions are good in form, they have multiplied the compliance burden for companies. The need is to draw a balance between the need for higher reforms with the costs involved," said A Didar Singh, secretary general, Ficci.

Noting its purpose was to highlight the course correction needed, the report said the proposed changes would further facilitate the implementation of the law and help realise the effectiveness of the governance framework.

Based on the responses received, the report suggested further changes that need to be incorporated in the legislation. These include removing the requirement of board's certificate on the adequacy and effectiveness of internal financial control, constitution of Audit and Nomination & Remuneration Committee by unlisted companies, bringing down the quantum of penalties for errors of disclosure among many others.