New companis act to strengthen corporate governance

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Corporate GovernanceNEW DELHI: India will soon replace the 56-year-old Companies Act with a new legislation aimed at improving corporate governance and checking frauds in boardrooms.

The revised bill, being piloted by the ministry of corporate affairs, is expected to be taken up by the Cabinet next week. Among other things, it also proposes to enhance corporate social responsibility (CSR) by mandating a 2% levy on large companies.

But the key focus is on ensuring that companies adopt good practices that are proposed to be facilitated by induction of independent directors who follow a Code of Conduct.

So far, only listed companies have to appoint independent directors but with the new legislation, the norms would be applicable to all corporate houses, something that India Inc has been resisting just like the CSR levy.

Besides, the new bill will contain provisions related to various board-level committees such as audit committees, audit and remuneration panel and stakeholder relationship committee.
While a new legislation has been the pipeline for several years, the government finally got cracking after the Rs 7,000 crore Satyam scam.

To check against such activities in the future, the new Companies Bill proposes more effective regulation of related party transactions as well as through checks on diversion of funds through subsidiary and associate companies. The government was also toying with the idea of putting curbs on the number of layers of subsidiaries that a company can have.

There are checks on auditors too with the proposed legislation mandating rotation of auditors after a stipulated period of time. Even investors are proposed to be empowered by the law allowing them to file class-action suits against the activities of errant companies and their management. Further, the Investor Education and Protection Fund is being strengthened to empower investors.

To guard against frauds, the new Companies Act is going to turn the Serious Frauds Investigation Office into a statutory body with more powers for investigations. The investigation report of SFIO – a multi-disciplinary body – filed in a court for framing charges will be treated as a report filed by a police officer under the Code of Criminal Procedure, the ministry of corporate affairs has proposed. SFIO that was set up nearly a decade ago will have powers to arrest individuals for certain offences.

(Times News Network)

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