Government considering changes to Companies Act

Ahead of the winter session of parliament beginning Monday, the corporate affairs ministry has drafted a note for cabinet approval to amend the Companies Act passed during the previous UPA government.

The ministry has had extensive consultations with stakeholders on the Companies Act, 2013, which came into effect from April 1 this year.

An official source told IANS here that the government is looking to amend some provisions of the new law, including those pertaining to related party transactions.

Related party transactions are those business transactions between the company and another in which a board member or members are interested.

Stakeholders are concerned, for instance, that stringent regulations for related party transactions could hurt routine business activity.

Some other concerns relate to the provision of auditors being required to report suspected frauds at the companies audited by them, and introducing amendments to protect confidentiality of board resolutions, the source added.

The new Companies Act exempts corporates from the need to get shareholders' nod in the case of related party transactions valued lower than Rs.100 crore or 10 percent of net worth.

Under the old system, shareholders' permission through a special resolution was required in case of related party transactions for all firms with a paid up capital of Rs.10 crore or more.

Under the new norms, the paid-up capital criteria has been scrapped while threshold limits for various transactions for getting shareholders' nod has now been stipulated.

Also under the new act, in case the statutory auditor believes an offence involving fraud is being or has been committed against the company by its officers or employees, it has to be reported to the government within 60 days of coming to know about it.

Commerce Minister Nirmala Sitharaman earlier said the new Companies Act was creating some problems and the government was consulting with industry on making certain changes.