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India: Government to modify Companies Act for better management

November 26, 2018

www.nclt.gov.in

India is a growing economy where development is attributable to number of factors such as availability of land, labour, raw materials, cost effective incentivizing schemes promoting commercial development in the country. With a view to carry out business operations, the entrepreneurs may opt for any of the available corporate vehicles such as proprietorship, partnership, limited liability partnership, etc. One of such medium to transact business is via setting up of a company.

Legal Light

The Government enforced the Companies Act, 2013 (hereinafter referred to as the “Act”) in order to monitor the affairs of the companies in India. The Act states the provisions regarding incorporation, obligations, liabilities, management of a company thereby ascertaining proper regulation thereof.

Upcoming Ordinance

The Government is in the process of introducing amendments to the Act by the promulgation of an ordinance in the said regard with the objective to ensure efficient adherence to the prevalent laws as well as facilitating the doing business within the country.[1] Some of the aspects aimed at being covered under the said ordinance as stated below:

  • Expediting the process of insolvency resolution: referring routine matters such as conversions to privately-held from publicly held companies to regional directors.
  • Unclogging of NCLT: To administer the legal affairs in respect to a company, the Government has provided for the National Company Law Tribunal (also referred to as the “NCLT”) which has been established for resolution of civil as well as criminal disputes thereto. Setting up an e-adjudication mechanism to deal with minor offences, which will free up the already overburdened NCLT and special courts.
  • Easing penal provisions: Reduction in the number of offences requiring the assistance of Court and increasing their settlement via an in-house mechanism.
  • Curbing Shell companies: Shell companies are the non-trading entities incorporated under the multiple layers of subsidiary companies which be used as device to effectuate illegal transactions such as tax evasion, money laundering etc. Recommendations are being made to restrict the number of shell companies. Measures in the said regard also include e-introduction of declaration of commencement of business provision.
  • Better Corporate Governance: The strategies likely to be considered for the purpose of adequate corporate governance include are imposition of a cap on independent directors’ remuneration, minimum time-limit for filing documents, terms for director disqualification, stringent penalties, etc.

Fostering better compliance for effective management of the company’s affairs, the Government shall be bringing up the modifications in the exiting Act soon.

[1]https://economictimes.indiatimes.com/news/economy/policy/ordinance-to-alter-companies-act/articleshow/66142326.cms;https://www.thehindubusinessline.com/economy/policy/govt-mulls-ordinance-to-tweak-companies-act-to-cover-governance-issues/article25172201.ece?utm_source=boomtrain-floating-widget&utm_medium=website

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