Company Law Committee proposes radical changes in Companies Act, 2013

The report of the Company Law Committee (2022) (CLC-2022) has recommended crucial changes to the Companies Act, 2013. The proposed changes include recognizing new concepts, fastening the corporate processes, improving compliance requirements, and removing ambiguities from existing provisions. The CLC-2022 also proposes changes to the Limited Liability Act, 2008 to enable producer organizations to incorporate under the Limited Liability Partnership Act, 2008.

The Committee sought to insert enabling provisions under CA-13 for expressly recognizing various practices such as Stock Appreciation Rights (“SAR”), Restricted Stock Units (“RSU”), Special Purpose Acquisition Companies, etc.

Further, the Committee also deliberated upon several proposals striving for structural changes to the framework under CA-13 and streamlining the process for audits, mergers, and restoration of struck-off companies, amongst others.

All these changes are aimed at facilitating and promoting greater ease of doing business in India and effective implementation of the Companies Act, 2013, the Limited Liability Partnership Act, 2008, and the Rules made thereunder.

The Report proposes amendments to bring Indian company law in tune with globally recognised best practices and improve ease of living for corporates and stakeholders. The recommendations of the Committee regarding the Companies Act, 2013, are summarised hereunder:

1. Allowing certain companies to revert to the financial year followed in India;

2. Facilitating certain companies to communicate with their members in only electronic form;

3. Recognising issuance and holding of fractional shares, Restricted Stock Units and Stock Appreciation Rights;

4. Easing the requirement of raising capital in distressed companies;

5. Replacing the requirement of furnishing affidavits with the filing of self-certification/ declaration;

6. Clarifying the inclusion of ‘free reserves’ while determining the limit for buying back of a company’s equity shares;

7. Prohibiting companies from recording trusts on their register of members;

8. Allowing companies to hold general meetings in virtual, physical or hybrid modes;

9. Creating an electronic platform for maintenance of statutory registers by companies;

10. Clarifying provisions relating to Investor Education and Protection Fund;

11. Strengthening the National Financial Reporting Authority;

12. Reviewing and strengthening the audit framework and introducing mechanisms to ensure the independence of auditors;

13. Standardising the manner for auditors to provide qualifications;

14. Recognising and providing an enabling framework for the constitution of Risk Management Committees;

15. Clarifying the tenure of independent directors;

16. Revising provisions relating to the disqualification and vacation of the office of directors;

17. Clarifying the procedure for the resignation of key managerial personnel;

18. Strengthening the provisions relating to mergers and amalgamations;

19. Easing the restoration of struck off companies by enabling the Regional Director to allow restoration of names of companies in certain instances;

20. Recognising Special Purpose Acquisition Companies and allowing such companies, which are incorporated in India, to list on permitted exchanges;

21. Prohibiting the conversion of co-operative societies into a company;

22. Modernising enforcement and adjudication activities through electronic mode;

23. Strengthening the incorporation and governance framework for Nidhis;

24. Removing ambiguities from present provisions under the Companies Act, 2013 through changes of drafting & consequential nature.

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