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Six expert panels to review Companies Act 2013

Economic Times:  October, 2015

New Delhi: The government is setting the ground for another overhaul of the Companies Act 2013 to make it easier for corporates to do business in the country, a senior government official said. The corporate affairs ministry has formed six expert panels to work on more amendments to the Act on top of 16 amendments that parliament cleared earlier this year as India Inc still considers the legislature 'too harsh', the official said on condition of anonymity. "Groups consisting of sectoral experts have been formed to work on amendments and clarifications related to their subject. 

They will go through all recommendations made by industry bodies on their dedicated chapters and finalise the contours of orders on removing difficulty, clarifications and amendments," the government official told ET. 

The panels will look into easing the provisions of registry and incorporation, raising of funds, corporate governance and management, accounts and auditing, penalty, and setting up of National Company Law Tribunal (NCLT). 

The government has set an internal target of completing this exercise by the end of the current fiscal, after which it would introduce a bill in Parliament. 

Earlier this year, corporate affairs ministry had called for suggestions to improve the Companies Act, 2013. According to experts, there are about 50 provisions in the Companies Act, 2013, which are hurting corporate India. They are mostly related to inter-corporate loans, related party transactions, consolidated financial statements, and strict penalties and imprisonment. 

The industry has sought relaxation in related party transactions (RPT), easing of inter-corporate loans, exemption for private companies from rotation of auditors, clarification that related party also includes holding and subsidiary incorporated outside India, and exemption of loans to all subsidiaries even if not wholly owned. 

"The government should exempt transactions in the ordinary course of business and at arm's length basis from audit committee approval requirements. Related party transactions between holding company and wholly owned subsidiaries should be eased," said Jamil Khatri, partner at KPMG in India. The Act currently has provision for imprisonment of up to ten years in case of serious frauds which some experts said needs to be rationalised. The government also has to distinguish between wilful offences and administrative defaults and others, they said. According to the government official, the panels will study around 1,600 suggestions received on easing of Companies Act, 2013, which has more than 450 sections. As of now, 60% of these sections are currently operational and the rest would be made operational after the government constitutes the National Company Law Tribunal. 

One of the panels will also look into remuneration of independent directors. At present, independent directors can get sitting fees and profit-related commission. But in case of loss-making companies or those with inadequate profit, commission can't be paid to independent directors. India Inc has demanded that managerial remuneration for non-executive directors also needs to be exempted. Under the new Act, a listed company needs at least one third of its board to consist of independent directors .