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Historical Preview of new Act
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As the name suggest , read the history behind the process of revamping the entire company law of the country
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- The Companies Act, 1956 (hereinafter referred to as the Act), was enacted with the object to consolidate and amend the law relating to companies and certain other associations. Simultaneously, Companies Act, 1913, then in force, was repealed.
- Many changes have taken place in the national and international economic environment since the enactment of the said Act. This has made the economy more diverse, complex and dynamic. In this milieu, the corporate form of organization is increasingly emerging as the preferred vehicle for economic and commercial activity and has contributed significantly to the growth of the Indian economy and the emergence of service, information and knowledge-based enterprises. The number of companies has expanded from 30,000 in 1956 to nearly 8 lakh companies functioning as of date. Companies are now mobilising resources at a scale unimaginable even a decade ago, continuously entering into and bringing new activities into the fold of the Indian economy, exporting a wide range of goods and services and providing increasing employment opportunities.
- The expansion and growth of the Indian economy has also generated considerable interest in the international investing community. However, there is a need for sustaining growth in a globalised and competitive environment. The increasing options and avenues for international business, trade and capital flows have made it imperative for the growing Indian economy to note only to harness its entrepreneurial and economic resources efficiently but also to be competitive in attracting investment to sustain the impressive growth recorded by it in recent years. Many investors are also looking towards the statutory and regulatory framework for the corporate sector in the country while deciding on their investment options. Modernisation of corporate regulation, governing various aspects of setting up of enterprises, structures for sharing of risk and reward, their governance and accountability to stakeholders, financial procedures and responsibility for disclosures, procedures for rehabilitation, liquidation and winding up is, therefore, critical to the perceptions of investors and determining their business and investment decisions.
- In the background of the above developments and recognising that the competitive and technology driven business environment today require the corporate entities to be provided greater autonomy of operation and innovation with reasonable process requirements and compliance costs, a need was felt to help sustain the growth of the Indian corporate sector by enabling a new legal framework that would be compact, amenable to clear interpretation, and respond in a timely and appropriate manner to meet the requirements of ever evolving economic activities and business models, while fostering a positive environment for investment and growth. In addition, there is also a need to avoid overlapping and conflicts of jurisdiction in the area of sectoral regulations. Therefore piecemeal re-engineering of the corporate regulatory framework was not considered adequate to enable the systemic changes required. Hence, a comprehensive review of the Companies Act, 1956, and introduction of a revised statutory framework in the form of a new Companies Bill has been considered essential to achieve the desired reform.
- In the above backdrop, the review of the Companies Act, 1956 and drafting of a new Companies Bill was taken up by the Government on the basis of a detailed consultative process. A 'Concept Paper on new Company Law' was placed on the website of the Ministry on 4th August, 2004. The inputs received were put to a detailed examination in the Ministry. The Government also constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani on 2nd December, 2004 to make recommendations in respect of new Company Law. The Committee included representatives from concerned Departments and Ministries, Professional Institutes and trade bodies and individual experts as members or special invitees. The Committee deliberated extensively on various issues and submitted its report to the Government on 31st May, 2005. After considering the report of the Committee and other inputs received from time-to-time, the Government took up the exercise of comprehensive review of the Companies Act, 1956. Broadly the objective of the review was to—
- retain essential features of the existing framework, segregate substantive law from the procedures to enable a clear framework for good corporate governance that addresses the concerns of all stakeholders equitably;
- revise the law so as to enable a compact statute that is amenable to easy understanding and interpretation;
- enable greater flexibility in procedural aspects so that with the change of time the procedural framework, to be prescribed through rules, may be amended without amendment of the substantive enactment;
- establish a climate that encourages setting up of businesses and their growth while enabling measures to protect the interests of stakeholders and investors, including small investors, through legal basis for sound corporate governance practices and effective enforcement;
- provide a framework for responsible self-regulation through determination of corporate matters through decisions by shareholders, in the background of clear accountability for such decisions, obviating the need for a regime based on Government approvals;
- address the practical concerns of small businesses so that people may deal with and invest in companies with confidence, promote international competitiveness of Indian businesses and provide them with the flexibility to meet the challenges of the global economy;
- incorporate international practices based on the models suggested by the United Nations Commission on International Trade Law (UNCITRAL); and
- provide for a reasonable and appropriate framework for enforcement of the law that enables proper investigation and imposition of appropriate sanctions comprising of penalties for non-compliance and punishment for violation of the law and for fraudulent conduct, keeping in view the experience resulting from past stock market scams and concerns expressed by Joint Parliamentary Committees thereon.
- Finally, a comprehensively revised Bill, the Companies Bill, 2008 was prepared in consultation with Ministry of Law and was introduced in the Lok Sabha on 23rd October, 2008 in the 14th Lok Sabha and was subsequently referred to the Department related Parliamentary Standing Committee on Finance for examination and report. However, before the said Committee could present its report, 14th Lok Sabha was dissolved and the Companies Bill, 2008 lapsed as per clause (5) of article 107 of the Constitution of India. In view of this, it is proposed to introduce the Companies Bill, 2009.
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