New Companies Bill may retain contentious provisions


NEW DELHI: The government is likely to retain various contentious provisions in the new Companies Bill, like fixed term for independent directors and rotation of auditors every five years, despite concerns raised by industry

In the final draft of Companies Bill 2011, the Corporate Affairs Ministry is learnt to have fixed the term for independent directors to six consecutive years, while the company beyond specific amount of paid-up capital will be required to have at least one-third of the total number of directors as independent directors.

“Even in the case of rotation of audit firms and partners, we have retained the original stipulation which disallows any company to appoint or re-appoint an individual or a firm as auditor for more than five consecutive years,” an official source told PTI.

Although the provision for rotation of auditors was approved by the Parliamentary Standing Committee on Finance that had earlier scrutinised the Bill, it did not find favour with the industry, which said the rotation of audit firms would not serve any purpose.

“We feel rotation of auditors may not be the most efficient way to strengthen auditor independence and improve audit quality It may, in fact, reduce the effectiveness of audit as the new auditor will need time to become familiarised with and understand the business of the company,” industry body CII had said

However, meeting the industry demands, the government has removed the proposed cap on subsidiaries for a manufacturing company, but keeping the same for its investment arms

This means, a manufacturing company can have more than one subsidiary while the investment arm will be restricted to create only one subsidiary

The industry has been asking the government not to do away with the pyramid structure as it was essential for growth of business and diversification into different areas

The Companies Bill 2009, which will replace a half-a-century old Act, is expected to be brought before Parliament for consideration and passage in the the ongoing session, after it got the Union Cabinet’s nod

If passed, the bill will protect the rights of minority shareholders, bring about responsible self-regulation with adequate disclosure and accountability, and lesser government control over internal corporate processes

The Companies Bill (2008); which lapsed with the dissolution of the 14th Lok Sabha, was reintroduced in the Lok Sabha in August 2009

Subsequently, in August 2010 the Parliamentary Standing Committee on Finance gave its report after examining the provisions of the law.


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