New Companies Bill mulls strict steps to stem frauds

It recognises insider trading as an offence with criminal liability

New Companies Bill mulls strict steps to stem frauds


The Companies Bill, 2009 while on one hand seeks to simplify regulations dealing with formation, mergers and acquisitions and winding up of companies, it proposes stringent measures to curb frauds in companies.

The Companies Bill, 2009, which seeks to repeal the Companies Act, 1956 because of its comprehensive nature of legislation, was reintroduced by the Corporate Affairs Minister Salman Khurshid as the Companies Bill, 2008 lapsed with the dissolution of the 14th Lok Sabha. The Companies Bill, 2009 proposes to further empower the government to order investigation into affairs of any company accused of irregularities.

Investigating powers
As per the Bill the government can even investigate into affairs of a company in the “public interest.”

Besides, the government can probe into affairs of a company on the basis of report of Registrar, Company Affairs or competent Inspector appointed by the government.
The government can order probe into affairs of a company on the basis of special resolution passed by a company that the affairs of the company ought to be investigated. 

Further broadening the scope of investigation the Bill also envisages the provisions relating to chapter of inspection, inquiry and investigations will also be applicable to foreign companies operating in the country. Further broadening scope to prevent fraud in companies the Bill proposes that shareholders associations and group of shareholders will be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and ‘Class Action Suits.’

Recognising the need for further tightening of both accounting and auditing standards, the Bill seeks to define the role, rights and duties of auditors to maintain integrity and independence of the audit process. Besides, consolidation of financial statements of subsidiaries with those of holding companies is proposed to be made mandatory. 

While the Bill proposes to make it mandatory for listed companies to have 33 per cent Independent Directors it stipulates that at the time of incorporation the company must provide detailed declarations and disclosures about the promoters and directors.

Identification number
Significantly, the Bill proposes that every company director would be required to acquire a unique Director Identification Number. This provision will check the menace of vanishing companies. In a bid to curb misuse of funds the Bill proposes that companies will not be allowed to raise deposits from the public except on the basis of permission available to them through other Special Acts. 

The Bill also recognises insider trading by company directors or Key Managerial Personnel (KMP) as an offence with criminal liability.

In view of changing scenario in the corporate world due to increasing incidence of acquisitions and mergers the Bill proposes that there will be a single forum for approval of mergers and acquisitions, whether domestic or with foreign entities.

Also the procedure for merger of holding and wholly-owned subsidiaries would be shortened.

The Bill also provides for formation of One Person Company (OPC), while empowering the government to provide a simpler compliance regime for small companies.

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