Companies Act 2013, IS IT ABSOLUTE

The Companies Act 2013 was passed, having superfluity of anticipation pro bringing in reformation in corporate legislation. Now the question is, has the modified act done justice to those anticipations? To give a short over view, The Companies Act, 2013 consists of 470 sections, 7 Schedules and 29 chapters. It is undoubtedly much apt and precise than its precursor i.e. The Companies Act, 1956 which comprised 658 Sections and 15 Schedules. Though the 2013 Act is short and precise, the execution of majority of its sections was done through the rules framed under it. As a result, there are currently 22 rules complementing the Act, which actually brought the Act into subsistence and made it workable. The implementation of The Act was done in two phases. Firstly, on 12th September 2013, 282 sections and certain rules were enforced and the remaining sections and rules were enforced from 1st April, 2014.

In the Old Act there were certain ambiguous and vague provisions in the previous Act, which had varied interpretations and the rules that complemented the Act to some extent amended the Act. These led to operational difficulty and along with it, the Ministry of Corporate Affairs (MCA) issued and came out with various notifications and clarifications for interpreting the same, such as the applicability of Sec. 185 and 186 in respect of loans and advances to employees, Corporate Social Responsibility and Sec. 135. The Government received various representations from its stakeholders regarding difficulty in practical implementation of the Act. It was high time a new Act had to be introduced, hence the birth of The Companies Act, 2013.

The 2013 Act introduced significant changes in the provisions related to compliance and enforcement, disclosure norms, auditors, mergers and acquisitions. The Act introduced new concepts such as dormant company, one-person company, small company; class action suits and corporate social responsibility (CSR). The 2013 Act has introduced several new concepts and had also tried to streamline many of the requirements by introducing new definitions. The question was that were these amendments absolute?

The Companies Act, 2013 had done away with the leisure provided to the private companies in several provisions. The concept of “not applicable to private company” was no more in existence in the Act of 2013. Such a move in the Companies Act of 2013 had taken away certain privileges enjoyed by private companies. Also the compliance requirement of Companies had been increased. The Directors were hitherto enjoying certain delight from the application of certain provisions which were now withdrawn. Further, the Companies Act, 2013 had mandated certain new requirement like that of internal audit to both public and private companies.

Therefore it had become difficult for the Private Company to continue and it almost becomes impossible for individuals wishing to incorporate new Companies. The Act of 2013 in a way was divergent of the Make in India initiative taken up by Hon’ble Prime Minister Mr. Narendra Modi. The new Company law was throbbing for the youth as it did not bring in much scope for fresh start ups. Although it allows a single-person company to be set up, when required to draw in fresh investment, it will be forced, for all practical purposes, to become a multi-share-holder Company. However small it is, it will have to meet full secretarial Standards. There is every reason to make compliance with the full regalia of regulation conditional on crossing a defined doorsill.

Section 185 made it hard for owner of a clutch of privately-held Companies to shuffle capital amongst the companies. This produced inflexibility while advancing on public interest. Similarly gauche attempts to prevent mischief in related party transactions made life complex in other Cases, too. Such legal requirements could rightfully be associated with dictatorship, not for providing ease of doing business in the country. Young, dynamic and ambitious Indians are worthy of lot more. However after the notification dated 5th June, 2015 several Exemptions have been provided to Private Limited Companies. Post all the exemptions, status of Private Limited Companies under Companies Act, 2013 is now more or less in association to the Status in Companies Act, 1956.

The Ministry of Corporate Affairs, Government of India issued the final notifications under Section 462 of the Companies Act, 2013 (Act), which provide exemptions under various provisions of the Act to Private Companies and has basically eliminated Hurdles in the path of incorporation of Small Companies, giving a good opportunity for young entrepreneurs to prosper/ flourish in the country as well as providing lucrative benefits for many Foreign Investors.

This initiative on the part of the government impelled to improve India’s ranking on the globally tracked parameter of ease of doing business. In the beginning of 2015 The World Bank had ranked India 149 out of 189 Countries in the category of Ease of Doing business cadre but with the new Amendments in the Company Law and fruitful efforts made by our Prime Minister, India has climbed up to the rank of 130. The BJP Government lead by Prime Minister Narendra Modi now targets to get India in the top 50 mark. Looking at the trend, that target does not seem quite farfetched. The Exemptions provided to the Private Companies is proving to be one of the most effective step.

The amendment seeks to remove the ambiguity in the Act and provides for ease in carrying out business and aims at restoring investor confidence. The basic urge for the amendment arose due to inability in practical implementation of the Companies Act and the subsequent notices, circulars and clarifications issued by the Ministry of Corporate Affairs. However, there are still various areas, which are still ambiguous, and on which, clarity and improvements are required.

Even after bearing in mind the notifications, it is quite evident that there is still scope for further amendments, improvements and clarity on the applicability of the Companies Act so that it can be implemented in a better manner. If this prevails, then the Ministry, from time to time, will have to come out with clarifications, notifications and circulars for implementing the Companies Act. Simultaneously, care should also be taken to ensure that harsh and severe penalty and difficulty in practical applicability does not hinder the ease and prospect of conducting business.