Companies Act tweaks to raise bar

Gireesh Chandra Prasad

THE KEY PROPOSALS SEEK TO ENSURE THAT INDEPENDENT DIRECTORS ARE TRULY INDEPENDENT

NEW DELHI: The government is set to introduce amendments to the Companies Act in the winter session of Parliament to raise the bar on corporate governance, especially in hiring for board positions and handling resignations of auditors and top executives, said a person familiar with the development.

Earlier this week, the ministry of corporate affairs concluded a month-long public consultation on the matter and is now working on the proposed amendments and a draft bill.

The key proposals seek to ensure that independent directors are truly independent, and companies are more open about instances of statutory auditors making adverse remarks or qualifications on the financial statements or even quitting their audit assignment. The proposals also seek to protect the independence of the statutory auditors by making several changes to the law, including mandatory joint audits for certain types of companies.

The ministry has received feedback from experts and professionals on these recommendations made by the Company Law Committee that gave its report last month to finance and corporate affairs minister Nirmala Sitharaman.

“Some of the suggestions received during the public consultation are extensive. Given that the monsoon session is a short one and several sections in the Companies Act need amendment, the earliest opportunity to amend the law to raise the bar on corporate governance is the winter session,” the person said on the condition of anonymity. The ministry is currently working on two other bills to amend the Competition Act and the Insolvency and Bankruptcy Code (IBC), which are likely to be tabled in the coming monsoon session of Parliament.

The idea of the proposed changes to the Companies Act is to strengthen the gatekeepers of good governance—independent directors and auditors—infuse more transparency into company affairs and allow companies to issue fractional shares and discounted shares as part of efforts to improve ease of doing business.

The issue of fractional shares, a practice currently prohibited under the Companies Act, will help retail investors access highvalue shares, while the discounted shares will allow a company in distress to convert debt to equity.

Some of the past failures in the corporate sector, especially involving large non-banking financial companies that faced severe financial stress, have prompted the government to contemplate some of these changes.