The object of this Bill is to amend and consolidate the law relating to Companies. The last major amendment of the Indian Companies Act, 1913 (7 of 1913) was undertaken in 1936 when the Indian Companies (Amendment) Act, 1936 (22 of 1936) was passed. At the end of World War II the need was felt for a further extensive revision of the Companies Act. Apart from the experience gained on the actual working of the Amendment Act of 1936, which disclosed the necessity for an early amendment of some of its provisions, many changes had taken place in the intervening years in the organisation and management of Joint Stock Companies, and over a wide sector that was dominated by new elements in trade and industry, the character of company management had also materially altered. Further, at the end of the War, the Company Law Amendment Committee in the United Kingdom, more familiarly known as the Cohen Committee, had submitted its report after a laborious enquiry spread over two years. This report recommended several far reaching changes in the English Companies Act, 1929. As the Indian Company Law had been always largely based on the prevailing English Law, the then Government felt that the time was ripe for a further review of the Indian Companies Act. A good deal of exploratory work was done between 1946 and 1950. Two distinguished company lawyers were successively appointed to advise Government on the broad lines on which the Indian Companies Act should be revised. The recommendations of these two lawyers were further examined in the then Ministry of Commerce, and certain tentative departmental views which emerged were circulated in a memorandum to the general public for eliciting opinion on them. Many representations on this memorandum were duly received from trade and industrial organisations, learned bodies, associations, State Governments and the general public. At the end of 1950, the Government of India appointed a Committee under the Chairmanship of Shri C.H. Bhabha to go into the entire question of the revision of the Indian Companies Act, with particular reference to its bearing on the development of Indian trade and industry. This Committee examined a large number of witnesses in different parts of the country and submitted its report in March, 1952. The report was circulated to all State Governments, Chambers of Commerce, many trade associations and several learned bodies for an expression of their views on the recommendations contained in it. A special officer was also appointed in the Department of Economic Affairs at the same time to examine the report and, on the basis of the views expressed by these organised trade and other associations and the general public to submit proposals to Government for the revision of the Indian Companies Act.2. The present Bill is based largely on the recommendations of the Company Law Committee modified in a few particulars by the views expressed on these recommendations. The main principles underlying these recommendations are as follows:-(i) the provisions of the law both in regard to the formation and management of joint stock companies should be such as would ensure the maintenance of a minimum standard of good behaviour in company promotion and management without imposing needlessly irksome or rigid rules which may hamper legitimate business or affect initiative or enterprise;(ii) the law should provide for the fullest possible disclosure in prospectuses or statements in lieu of prospectuses issued, both before and after a company is formed, and failure to make such disclosure should be visited with effective penalties;(iii) company accounts should be prepared in such a way as to disclose all facts which are material to a full understanding of the manner in which companies are worked;(iv) company meetings should be called and conducted in such way as to ensure that shareholders receive all reasonable facilities for exercising an intelligent judgment on the activities of the management;(v) the provisions for investigation into the affairs of a company should be so designed as to enable an appropriate authority to intervene in its affairs not merely when an offence has been committed, but also when it is established that the affairs of a company are being managed in a manner prejudicial to the shareholders of the company or oppressive to any substantial portion of them or when such investigation is otherwise necessary in the public interest;(vi) the law should also provide for the establishment of an appropriate authority not merely for enforcing the provisions of the Companies Act or for carrying out the investigations which may be necessary under it, but also for generally overseeing the administration of the Act and for exercising in the public interest that reserve authority which must necessarily vest in some organ of Government.The provisions of the Bill in its different parts follow largely from the above principles.The major changes in the present Indian Companies Act which the Bill introduces thus relate to the following topics:-(a) the promotion and formation of companies (clauses 50 to 74);(b) the capital structure of companies (clauses 79 to 83);(c) company meetings and procedure (clauses 158 to 189);(d) the presentation of company accounts, their audit, and the powers and duties of auditors (clauses 195 to 218);(e) the inspection and investigation of the affairs of companies (clauses 219 to 235);(f) the constitution of Boards of Directors, and the powers and duties of Directors; Managing Directors and Managers (clauses 236 to 306);(g) the appointment of managing agents, terms and conditions of their service, their remuneration, the powers of managing agents vis-a-vis Directors, and the activities of managing agents in regard to borrowings, loans, contracts, sales and purchases (clauses 307 to 359);(h) the administration of company law.Most of the new provisions contained in the Bill on all these points are self-explanatory, and in the case of almost all these provisions the relevant notes on clauses have indicated the recommendations of the Company Law Committee on which they are based.3. As has been already mentioned, in a few particulars, the provisions of the Bill have deviated from the recommendations of the Company Law Committee. These deviations are, however, of a minor nature, and the notes on clauses have duly indicated and explained them. There is, however, one important deviation from the recommendations of the Company Law Committee which needs special mention. The Company Law Committee devoted a good deal of space in its report to problems of organisation and administration, and recommended that the Central Government should not only resume its responsibility for the administration of joint stock companies which, it had delegated to the State Governments, but that a statutory authority at the Centre, to be called "Corporate investment and Administration Commission", should be set up under the new Act for the administration of the company law as well as for the discharge of other related functions, e.g., capital issue control and regulation of stock exchanges when a Central measure for this latter purpose was passed. Action has already been taken on the first recommendation of the Company Law Committee. The State Governments have been addressed regarding the intention of the Central Government to resume its powers under the Indian Companies Act and the constitution of a Central Organisation under the administrative control of the Department of Economic Affairs, has been sanctioned. It is, however, proposed that the question of conferring statutory status on this Organisation if so necessary be considered after this Central Organisation has been set up and functioned for a reasonable period. For the present therefore, the duties and responsibilities which the Company Law Committee visualised for the statutory authority would be 'carried on by the new departmental organisation.In the light of the recent experience of the Central Government, provision has also been made in the Bill in respect of one or two matters which were not covered by the recommendations of the Company Law Committee but which are considered to be of sufficient importance to the working of joint stock companies in future to justify the making of special provisions in regard to them (e.g., clause 366). The notes on the relevant clauses will explain the reasons for these provisions.4. It is necessary to draw attention in this context to two other recommendations of the Company Law Committee which have affected the structure of the Bill. In the Indian Companies (Amendment) Act, 1951 (52 of 1951), certain special powers were conferred on Courts of law and the Central Government. While the powers conferred on the Courts by section 7 of that Act were based largely on the provisions of section 210 of the English Companies Act, 1948, the other powers conferred on the Central Government were of a quasi-administrative nature to be exercised on the recommendations of an Advisory Commission provided for under section 8 of the Amendment Act. The Company Law Committee recommended that if and when the Indian Companies Act was comprehensively revised on the lines of its recommendations, Government should consider the desirability of repealing sections 2, 3, 4, 5, 6 and 8 of the Amendment Act of 1951 containing these quasi-administrative powers. While it is not proposed to retain indefinitely these special powers, which the Central Government assumed in 1951, it is considered that it will not be expedient for the Central Government in the present circumstances of company management in this country, to divest itself of these powers till experience of the working of the new Act has shown that these special powers are no longer necessary. Clause 598 of the Bill, therefore, proposes the retention of these powers for a period of three years from the commencement of the new Act. The provision of sections 2, 3, 4, 6 and 8 of the Amendment Act of 1951, which have been incorporated in the present Indian Companies Act as sections 86-J, 87-AA, 87-B [second proviso to clause (c)], 87-BB, 87-CC and 289-B have, therefore, been relegated to a Schedule (Schedule XI) attached to this Bill. Section 7 of the Amendment Act, which it is proposed to incorporate permanently in the Companies Act has been retained as clauses 367 to 377. The notes on these clauses explain these structural changes.In regard to Table A in the present Act, the Company Law Committee recommended that having regard to the importance of the provisions contained in the compulsory regulations of this Table, it was desirable that they should be inserted as independent sections in the Act itself. The acceptance of this recommendation has involved the transfer to the body of the Bill of many of the provisions hitherto included in Table A. Further, in order to avoid unnecessary duplication those regulations in Table A which merely draw attention to the relevant provisions of the Act have been omitted. In the result the new Table A has been considerably abridged. The notes on clauses relating to this Table explain these structural alterations.5. Advantage has been taken of the opportunity offered for the consolidation of the Act for the first time since 1913 to rearrange its different parts in a more logical order. The general principle has been to arrange the different parts of the Act in such a way that they follow, as far as possible, the chronological sequence in the formation, growth and decay of companies. Thus, for example, it has been felt that the provisions of the Act which relate to the formation of companies should precede those relating to their management. The re-arrangement of matter which has followed as a consequence of this decision has entailed considerable changes in the structure of the present Act. It is, however, felt that these changes will eventually result in a better understanding and appreciation of the scheme of the Indian Companies Act.There is one matter which the Committee would emphasize. The Bill confers very wide powers on the Central Government, the exercise of which will involve the taking of decisions at the highest level in the Ministry concerned. The Joint Committee consider that it is of the utmost importance that Governments should create a full-fledged Department under the appropriate Ministry, functioning directly under the Minister concerned, for the administration of the Companies Act and the discharge of the other related functions:'- J.C.R. - Gazette of India, 1955, Pt. II, Section 2, Extra., page 241/29.Act 65 of 1960.- "The object of this Bill is to amend the Companies Act, 1956. The Act had been in force for about a year when Government decided that the defects and deficiencies in its working should be examined by a Committee. Accordingly, in May, 1957, the Government appointed a Committee under the Chairmanship of Shri A.V. Visvanatha Sastri, a former Judge of the Madras High Court, to examine the structure of the Act as well as its contents with a view not only to removing its defects and deficiencies but also ensuring better fulfilment of the purposes underlying the Act. In November, 1957, the Committee submitted its report, which the Government published and placed before both Houses of Parliament in December, 1957.2. The present Bill is based largely on the recommendations of the Committee, although in some particulars they have been modified partly in the light of the experience of the working of the Act gained since the submission of the Report and partly by the views expressed on these recommendations by Chambers of Commerce and others. The amendments of the Companies Act, as included in the Bill, fall under the following heads,(i) amendments considered necessary to overcome practical difficulties experienced in course of the working of the Act;(ii) amendments of a clarificatory nature, designed to remove drafting defects and obscurities which have caused difficulty in the interpretation of the Statute; and(iii) amendments considered necessary to ensure the better fulfilment of the purposes of the Act and to remove lacuna in the existing provisions." - Gaz. of Ind., 1-5-1959, Pt. II, Section 2, Extra., page 502.Act 43 of 1962.- Section 293(1)(e) of the Companies Act, 1956, provides that the Board of Directors of a public company or of a private company, which is a subsidiary of a public company, may contribute to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amount not exceeding in aggregate, in any financial year, rupees twenty-five thousand or five per cent, of its average net profits during the three financial years immediately preceding, whichever is greater. If the Board wishes to exceed this limit, it must obtain the consent of the company in general meeting. The general meeting of a company can be called by giving not less than 21 days' clear notice. Thus, the convening and holding of a general meeting of a public company necessarily entails time and expense.2. Although the above-mentioned restrictions regarding contributions to charitable or other funds are not applicable to the private companies which are not subsidiary of public companies, it may not be possible for many such companies to make such contributions in view of the provisions of their memorandum or articles of association.3. It was felt that companies may like to make generous contributions to the National Defence Fund which has recently been created by the Government to meet the emergency which has arisen as a result of China's aggression against India, uninhibited by the limits and conditions imposed by section 293(1)(e) of the Companies Act, 1956, or by their memorandum or articles of association. Hence, an Ordinance, namely, the Companies (Amendment) Ordinance, 1962, was promulgated by the President on the 3rd November, 1962, authorizing the Board of Directors of companies themselves to make contributions to the National Defence Fund or any other Fund approved by the Central Government for the purpose of national defence, without any limit and without obtaining the sanction of the company in general meeting.4. The present Bill seeks to replace the aforesaid Ordinance with the addition of a provision for the disclosure in the profit and loss account of a company of the amounts of contributions made to the National Defence Fund or to any other Fund approved for the purpose of National Defence by the Central Government. - Gazette of India, 13-11-1962, Pt. II, Section 2, Ext., P. 820.Act 53 of 1963.- In order to facilitate quick action against persons involved in cases of fraud, misfeasance and other such malpractices and irregularities in the management of companies, it is considered necessary to set up a Tribunal whose findings would enable the Central Government to remove such persons from positions of managerial authority in any company. This Tribunal will also be empowered to hear certain applications under section 203 and sections 397 and 398 of the Companies Act, as these relate to matters of a similar nature. The scope of sections 397 and 398 and other related sections is being enlarged to provide for the entertainment of applications on grounds of public interest as well besides those stated therein. This Tribunal will also be empowered to exercise the powers and functions of the court under such sections of the Companies Act as the Central Government may, from time to time, notify.In order to prevent the use of voting rights attached to shares held by trusts for the advancement of personal interests of the donors, it is considered necessary to regulate the exercise of such rights in suitable cases. For this purpose, it is proposed to empower the Central Government to appoint a person to exercise voting rights in respect of trusts with significant share holding, when necessary with a view to securing proper management of the company in the interests of the shareholders.In cases where Government has advanced a loan to a company, it is considered necessary that Government should have the power to direct the conversion of such a loan into shares of that company on fair and equitable terms. Where the loan agreement provides for such conversion, it is proposed to dispense with the procedure prescribed under section 81 of the Companies Act in regard to such conversion of loans given by Government and specified financial institutions. Section 81 is proposed to be amended accordingly.Further, it is considered desirable, for the better and convenient administration of the Companies Act, to set up a Board to which will be entrusted most of the powers and functions of the Central Government under the Companies Act or other laws. The Board will function subject to the control of the Central Government in all matters.The Bill seeks to amend the Companies Act to give effect to the above proposals. - Gazette of India, 26-11-1963, Pt. II, Section 2, Ext, P. 821.Act 32 of 1964.- Investigations of the affairs, true ownership and other related matters, of companies cannot be effectively conducted unless there is full disclosure by their employees of factual information in regan to various matters to be scrutinised by the Inspector appointed by the Central Government. In order to give to the employees of the affected companies temporal) protection against victimisation in such cases it has beet considered necessary to make a suitable provision in the Companies Act that no company can discharge or take any other action against any of its employees during the investigation of its affairs and true ownership, etc., by Inspectors or during the pendency of proceedings against any of its managerial personnel before the Tribunal, unless it has given previous intimation to the Company Law Board of the proposed action against the employees and the Company Law Board has not raised any objection to such action.As it was apprehended that some of the companies whose affairs were under investigation might take action against their employees if they disclosed full information to the Inspectors, the amendment of the Companies Act on the lines indicated above was considered be a matter of extreme urgency and the Companies (Amendment) Ordinance, 1964 was therefore, promulgated by the President on the 5th July, 1964. The present Bill seeks to replace the said Ordinance without modification in the provisions thereof. - Gazette of India 7-9-1964, Pt. II, Section 2, Ext., P. 439.Act 31 of 1965.- In pursuance of its terms of reference, the Commission of Inquiry on the administration of Dalmia-Jain Companies made certain recommendations for the amendment of the Companies Act view to prevent in future malpractices of the nature observed by it, and also to ensure due and proper administration of the funds and assets of companies in the interest of the investing public. Later, at the instance of government, a Committee consisting of Shri C.K. Daphtary and Shri A.V. Visvanatha Sastri examined the recommendations of the Commission of Inquiry and made suggestions of its own for amending the said Act. The Bill, inter alia, seeks to implement the recommendation of the Commission of Inquiry and the Daphtary-Sastri Committee.2. Opportunity is also being taken (i) to strengthen the provisions relating to investigation into the affairs of companies and to provide for more effective audit in dealing with cases of dishonesty and fraud in the corporate sector, and (ii) to simplify some of the procedural requirements which are at present burdensome companies without being of corresponding advantage the Government.3. The notes on clauses explain the provisions of Bill. - Gazette of India, 21-9-1964, Pt. II, Section 2, Ext., P. 622Act 34 of 1966.- The Vivian Bose Commission of Inquiry had recommended inter alia that inter-company loans should rank at par with inter-company inves and should be subject to thesame restrictions as the latter. This recommendation was sought to be given effect to by amending section 370 of the Companies Act by section 46 of the Companies (Amendment) Act, 1965. It has, however, been noticed that the restrictions placed by this amendment would equally apply in respect of guarantees given and securities provided by certain classes of companies viz.: financial institutions, insurance companies and private companies simpliciter, and would, therefore, act as a serious hindrance to their normal functioning, Since loans given by such companies have already been exempted from the scope of the restriction, it has been decided to afford similar exemption to guarantees given and securities provided by such companies.2. Opportunity is also being taken to make a consequential amendment to sub-section (1-A) of section 240 on the lines of similar amendments made to clause (a) of sub-section (1) and clause (a) of sub-section (3) of that section by the Companies (Amendment) Act, 1965.3. The Bill seeks to achieve the above objects - Gazette of India, 22-11-1965, Pt. II, Section 2, Ext., P. 1127.Act 17 of 1969.- On the 1st December, 1967, an assurance was given to the Lok Sabha that Government would bring forward during the next following buds session of Parliament a Bill to ban contributions by companies to any political party, or for any political purpose to any individual or body and to abolish the system of management of companies by managing agents. The Bill seeks to fulfil the assurance. It also seeks to abolish simultaneously the system of management of companies by secretaries and treasurers which is akin to the system of management of companies by managing agents.2. The property of companies making contributions to any political party, or for any political purpose to any individual or body has for some time been the subject of discussion both inside and outside the Parliament. A view has been expressed that such contributions have a tendency to corrupt political life and to adversely affect healthy growth of democracy in the country and it has been gaining ground with the passage of time. It is, therefore, proposed to ban such contributions.';3. Section 324 of the Companies Act, 1956 empowers the Central Government to notify that companies engaged in specified classes of industry or business shall not have managing agents. Under the Rules framed thereunder, Government appointed the Managing Agency Enquiry Committee to enquire into the desirability of applying the said provisions to companies engaged in established industries or any other industry or business as may be deemed fit by the Committee. In pursuance of the Report of the Committee submitted on the 16th March, 1966, Government issued a notification to the effect that the term of office of a managing agent of any company in the specified industries shall expire at the end of three years from the 2nd April, 1967.The Monopolies Inquiry Commission observed that the system of managing agencies was one of the most important causes which hastened the process of concentration of economic power in India.Taking all the factors into consideration, it is proposed to abolish the system of management of companies by managing agents altogether at the same time as in the case of specified industries referred to above.4. The Managing Agency Enquiry Committee observed that, at one time, the institution of secretaries and treasurers was thought of as a suitable alternative to the managing agency system but for all practical purposes secretaries and treasurers exist only in those cases where managing agents already in existence had to shed some of the managed companies in view of the limit of ten on the total number of companies that a managing agent can manage. The Committee did not see any particular gain in such a change. Secretaries and treasurers can be given all the powers and privileges of a managing agent except that they (i.e. the former) cannot appoint their representative on the Board of Directors of the managed company, and cannot draw more than 7-1/2 per cent, as their commission while the managing agents can draw up to 10 per cent, of the net profit. It would thus be obvious that no useful purpose would be served by abolishing the managing agency system alone if the resultant void is to be filled up by the secretaries and treasurers. Hence the Government proposes to abolish the system of management of companies by secretaries and treasurers simultaneously with the abolition of the system of management of companies by managing agents. - Gaz. of Ind., 10-5-1968, Pt. II, Section 2, Ext., P. 699.Act 41 of 1974.- "The present Bill seeks to meet cases of such abuse or distortion of the system which have, of late assumed comparatively serious proportions. It further represents an instalment of the remedial measures under contemplation as a result of the process of comprehensive review of the working of the Act which has been undertaken by the Government, in the light of the report of the Administrative Reforms Commission and its concerned working group and in the light of various suggestions, received by the Governments from diverse quarters from time to time for the amendment of the Act" - Gazette of India, 11-8-1972, Pt. II, Section 2, Ext., p. 709. For salient features of the Amending Act 41 of 1974 - See Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India, Press Note dt. 15-1-1975.Act 46 of 1977.- "In the Companies Act, 1956, Section 58A relating to acceptance of deposits was inserted by the Companies (Amendment) Act, 1974, which came into force on the 1st February, 1975. Prior to the coming into force of this section, acceptance of deposits by companies was regulated by the directions issued by the Reserve Bank of India under Chapter III-B the Reserve Bank of India Act, 1934, Clause (a) of sub-section (3) of Section 58A provides that every deposit accepted by a company at any time before the commencement of the said Amendment Act of 1974, shall, if it is not renewed by a company in accordance with the provisions of that section, be repaid in accordance with the terms of such deposit. Clause (c) of that sub-section provides that any deposit received by a company in contravention of the aforesaid directions of the Reserve Bank shall be repaid in full on or before 1-4-1975. Sub-section (5) of that section provides for penalty for contravention of the provisions of the subsection. A review of the cases of contraventions shows that sometimes they are due to circumstances beyond the control of the companies, namely, strikes, riots, power-cuts, recession, etc. Sub-section (7) of Section 58-A empowers the Central Government to give total exemption to a company from provisions of the section after consulting the Reserve Bank of India. There is, however, no power to grant partial relaxation like extension of time in deserving cases for the repayment of deposits. A study group constituted by the Reserve Bank of India under the Chairmanship of Shri James S. Raj recommended that Section 58A of the Act may be suitably amended to grant extension of time to.comply with or to exempt any company from the provisions of that section. It is proposed to accept the recommendation and amend Section 58A suitably.In the State of Bombay v. Bandhan Ram Bhandari (AIR 1961 SC 186), the question arose as to whether the company and its officers are liable to be prosecuted under the 1913 Act for not laying the balance-sheet and the profit and loss account before the Company in annual general meeting, where the annual general meeting was not held. In that case, the Supreme Court took the view that a person charged with an offence could not rely on his own default as a defence to the charge. If he was responsible for not calling the annual general meeting, he could not be heard to say in his defence to the charge that as the general meeting was not held, the balance sheet and the profit and loss account could not be laid before the company in annual general meeting. A different view has, however, been taken on the point by the Supreme Court in the case of State of Andhra Pradesh v. A.P. Provincial Potteries Ltd. (AIR 1973 SC 2429).Persons in charge of the management of some of the companies sometimes omit to convene the annual general meeting of the company and by such omission keep the shareholders as well as the creditors of the company in the dark about the affairs of the company and its financial condition. Further, by such omission, they also evade the necessity of filing the balance sheet and profit and loss account with the Registrar of Companies. When a document is filed with the Registrar of Companies, it is open to any shareholder or creditor to inspect such document and to obtain a copy thereof. In the circumstances, it is absolutely essential that even where the annual general meeting of the company has not been held, the balance-sheet and profit and loss account should be filed with the Registrar of Companies to enable the share-holders and other persons to find out, from inspection of the said documents, the affairs of the company and its financial condition. The Bill seeks to amend Section 220 to achieve the said object.Under Section 293 of the Companies Act, 1956, a company is empowered to make donations for charitable purposes up to five per cent of its average net profits during the preceding three years or up to Rs. 25,000 whichever is greater. The ceiling of Rs. 25,000 was fixed long ago and it is felt that in the present context, the said ceiling should be raised to Rs. 50,000. The Bill seeks to amend Section 293. Section 620 of the Companies Act, 1956, empowers the Central Government to modify, by notification, any of the provisions of the said Act in its application to a particular Government Company or to Government Companies in general. Every notification proposing to make such modification is required to be placed, in draft, before each House of Parliament for a period of not less than 30 days while it is in session. Since the said period of 30 days cannot, sometimes, be completed in one session, it is necessary to amend the section to permit the period of 30 days to be completed in one session or in two or more successive sessions. The Bill seeks to amend Section 620 to achieve the said object.Other amendments included in the Bill are of a con sequential or formal nature" - S.O.R. - Gazette of India, 24-11-1977, Pt. II, Section 2, Ext., P. 738.Act 35 of 1985.- At present under section 293A of the Companies Act, there is a blanket ban on political contributions by companies. In his Budget speech, the Finance Minister has made an announcement that with a view to permitting the corporate sector to play a legitimate role within the defined norms in the functioning of our democracy, necessary legislation would be, undertaken to allow companies to make contributions to political parties from out of their profits. For this purpose, it is proposed to substitute (vide clause 2 of the Bill) a new section for section 293A of the Companies Act. The new section seeks to continue the existing blanket ban against political contributions in the case of Governed companies and companies which have been in existence for less than three financial years. The new section seeks to permit any other company to make political contributions not exceeding five per cent of its average net profits if a resolution authorising such contributions is passed at a meeting of the Board of Directors. The new section also seeks to impose an obligation on every company to disclose in its profit and loss account any amounts amounts contributed by it to any political party or for any political purpose. Under the new section, if a company makes any political contribution in contravention of the provisions thereof, the company would be liable to fine which may extend to three times the amount contributed. Further, every officer of the company in default, would be liable to imprisonment for a term may extend to three years and also to fine.2. Another announcement made by the Finance Minister in his Budget speech relates to the decision of Government to introduce necessary legislation so legitimate dues of workers rank pari passu with secured creditors in the event of closure of the company and a even the dues to Government. The resources of companies constitute a major segment of the material resources of the community and common good demands that the ownership and control of the resources of every company are so distributed that in the unfortunate event of its liquidation, workers, whose labour and effort constitute an invisible but easily perceivable part of the capital of the company are not deprived of their legitimate right to participate in the product of their labour and effort. It is accordingly proposed to amend sections 529 and 530 of the Companies Act and also to incorporate a new section in the Act, namely section 529A (vide clauses 4, 5 and 6 of the Bill)3. Section 396 of the Companies Act empowers the Central Government to order amalgamation of companies in public interest. The Committee on Subordinate Legislation (Seventh Lok Sabha) have recommended that the Company Law Board should be empowered to reassess compensation on appeal from the order of the prescribed authority assessing the compensation payable under an order of amalgamation under this section. The Committee have also recommended that the order of amalgamation itself may provide for the continuation of any pending legal proceedings by and against the transferee company on the lines of the existing provisions of section 394 of the Act under which the High Court orders amalgamation. Section 396 of the Act is proposed to be amended suitably to give effect to these recommendations (vide clause 3 of the Bill.).4. The Bill seeks to achieve the above objects. - Gazette of India, 9-5-1985, Pt. II, Section 2, Ext., P. 6 (No. 24).Act 31 of 1988.- Government has in the light of the recommendations made by the Expert Committee (Sachar Committee) and in the light of the experience gained in the administration of the Companies Act, 1956, over the last few years, felt it necessary to bring certain amendments to that Act.2. The salient features of the amendments are :-(a) the setting up of an independent Company Law Board to exercise such judicial and quasi-judicial functions as are presently being exercised either by the Court or the Central Government and are proposed to be transferred to that Board;(b) compounding of offences punishable with fine;(c) dispensing with Government approval for managerial appointments and remuneration subject to the fulfilment of certain statutory guidelines which are proposed to be incorporated in the Act itself;(d) de-linking of the rates of depreciation from the rates specified under the Income-tax Act and laying down the rates of depreciation in the Act itself to reflect the true and fair view of the state of affairs of the company;(e) protecting the interests of the investors by providing for intervention by the company Law Board against non-repayment of public deposits; compulsory redemption of preference shares in cer tain cases, requiring companies to disclose reasons for refusal to register transfer of shares; and protecting the rights of the transferee pending mutation of his name in the register of members; and also compulsory listing of all public issues;(f) reducing unnecessary cost or burden by requiring companies to attach only an abridged form of prospectus to the application form and only an abridged version of balance sheet and auditors' report to members and also by requiring companies to hold a poll in general meeting only at the instance of the shareholders having some minimum stake in the company; and further requiring companies to file full annual return only once in six years;(g) provision for disclosure of information relating to conservation of energy, technology absorption, foreign exchange earnings and outgo as well as particulars of employees having some minimum stake in the company and drawing remuneration in excess of that drawn by managerial personnel.3. The proposals also include provisions to plug loopholes and remove some lacunae which have come to surface in the working of the Act. It is also proposed to streamline some of the existing provisions for better working and administration of the Act. Certain consequential and incidental changes are also sought to be made. The Bill seeks to achieve the above objectives.4. The Notes on clauses explain in detail the provisions of the Bill. - Gazette of India, 31-8-1987, Pt. II, Section 2, Ext., P. 39 (No. 45).Act 5 of 1997.- In 1977, Government appointed a Committee for the amendment of the Companies Act. 1956 and the Monopolies and Restrictive Trade Practices Act, 1969, popularly known as the Sachar Committee. Some of the recommendations of the Sachar Committee led to the Companies (Amendment) Acts of 1985 and 1988. However, while considering the proposals which led to the enactment of the Companies (Amendment) Act, 1988, a decision was taken by Government for a comprehensive review of the existing law.2. Accordingly, the Companies Bill, 1993 was introduced in the Rajya Sabha on 14th May, 1993. The Bill has not yet been taken up for consideration. In view of suggestions from the different forums the Government feels that the Bill would require comprehensive revision keeping in view the changes which have taken place in the capital market, operation of corporate sector and liberalisation policies. For this purpose and having due regard to the statement made on 22nd July, 1996 in Parliament, the Government has set up a working group to revise the Act. Since, this process would take a considerable time to complete its work, it is felt that some changes in the Companies Act are imminent, therefore, it is proposed to amend the Act, inter alia, as follows, namely :(i) to provide protection to the depositors;(ii) to provide protection to employees' interest in case of winding up of a company;(iii) to simplify some procedural and legal requirements in the interest of corporate sector.3. The Bill seeks to achieve the above objectives. - Gazette of India, 10-9-1996, Pt. II-Section 2, Ext., P. 5 (No. 23).Act 21 of 1999.- The Companies Act, 1956 has been in force for more than four decades and the economy has undergone considerable changes since its introduction. Further, the law relating to Corporate Sector has been undergoing changes in other countries taking into account recent developments in the field of corporate law and practices. Taking into consideration these developments and on the basis of a report prepared by a Wording Group constituted in 1996, the Companies Bill, 1977 was introduced in Rajya Sabha on 14th August, 1997 to replace Companies Act, 1956. The Companies Bill, 1997 stands referred to Department related-Standing Committee on Home Affairs and the report of the Standing Committee is awaited.2. In view of the urgency felt by the Government in this regard and as Parliament was not in Session, the President promulgated the Companies (Amendment) Ordinance, 1998 (19 of 1998) on the 31st October, 1998. It is proposed to replace the Companies (Amendment) Ordinance, 1998 by a Bill which, inter alia provides for the following matters :(a) to declare Infrastructure Development Finance Company Limited as public financial institution;(b) to provide for nominated facility to the holders of shares, debentures and fixed deposit holders;(c) allowing the companies to buy-back their shares subject to certain safeguards;(d) to provide for transfer of certain sums to the capital redemption reserve account when a company purchases its own share out of free reserve;(e) to provide for issue of sweat equity subject to fulfilment of certain conditions;(f) to provide for establishment of Investors Education and Protection Fund;(g) to provide for constitution of National Advisory Committee on accounting standard;(h) to provide for compliance of accounting standards by a company in preparation of profit and loss account and balance-sheet; and(i) to permit the companies to make inter-corporate investments and loans subject to fulfilment of certain conditions without prior approval of the Central Government.3. The corporate sector is going through difficult times. The capital market is also at low ebb, which requires immediate morale boosting efforts on the part of the Government to promote investors' confidence. Be sides, the economy needs certain impetus for promoting inter-corporate investments considering slow flow of funds in new investments. In order to overcome these adverse conditions faced by the corporate sector, it was felt that the company should be permitted to buy-back their own shares, to make investments or loans freely without prior approval of the Central Government, to provide for nomination facility to the holders of shares, deposits and debentures and also to make provision in law for establishment of Investors Education and Protection Fund broadly on the line of provisions contained in the Companies Bill, 1997.4. In the present Bill, as compared to the Ordinance promulgated, some further changes have been made in order to make some of the legal provisions more simple, practical and specific and to remove ambiguity in respect of some other provisions. Broadly, the changes are as follows :(a) buy-back of shares has been restricted to twenty-five per cent. of the paid-up capital and the funds used for this purpose are not to exceed twenty-five per cent. of the paid-up capital and free reserves. Free reserves have been defined for the purpose of buy-back;(b) restriction of twenty-four months, after the buy-back, for further issue of securities will apply only in respect of issue of the same security. The Company will have no restriction to issue other securities during this period;(c) prior approval of financial institutions in case of investment/loan/guarantee up to sixty per cent. of the net worth will not be required if there is no default in repayment of loan/interest to public financial institutions;(d) company shall not be allowed to make any inter-corporate investment if there is a default in repayment of deposits or interest thereon. Restrictions on Inter corporate Investment will also not apply in case of wholly owned subsidiary companies or companies established with object of financing industrial enterprises and for subscribing to right shares;(e) in case of corporate guarantee, the companies would be permitted to obtain ex-post-facto approval of the shareholders within a specified period;(f) the powers to the Board of Directors to decline or to suspend registration of shares in case of a nominee have been withdrawn;(g) for transfer of unclaimed funds from company to Investor Protection Fund, the period has been increased from five years to seven years and thereafter no claim to be entertained;(h) for issue of sweat equity, a special resolution has been provided instead of ordinary resolution.5. The Bill seeks to replace the said Ordinance. - Gazette of India, 22-12-1998, Pt. II - Section 2, Ext., P. 16 (No. 50).Act 53 of 2000.- The Government introduced a comprehensive Companies Bill, 1997 in Rajya Sabha on 14-8-1997 and the same was referred to Standing Committee of Parliament for examination and report thereon. The process of examination, however, is not yet over and is still to take some more time. The passing of this Bill is thus likely to be delayed further. It is however considered desirable by the Government that some more important changes in the Companies Act, 1956 are brought out in order to provide immediately certain measures for good corporate governance and for protection of investors. These measures are as follows :(i) to provide a minimum paid-up capital of Rs. 1 lakh for private companies and Rs. 5 lakh for public companies;(ii) to delete provisions relating to deemed public companies;(iii) to reduce the period for disbursing dividend/interim dividend to shareholders from 42 days to 30 days;(iv) to request the companies to inform Company Law Board within sixty days if the company fails to make repayment of deposits on maturity to small deposit holders and the Company Law Board would be enabled to consider these defaults reported by companies and make an order within thirty days which the company shall be bound to comply with. A company which fails to report or comply with the order of the Company Law Board shall be punishable for imprisonment which may extend to three years and shall also be liable to fine or a fine of not less than Rs. 500 per day during which such default continues;(v) to provide that the Securities and Exchange Board of India be entrusted with powers with regard to all matters relating to public issues and transfers including power to prosecute defaulting companies and their directors;(vi) to include a Directors' Responsibility Statement in the Board's report to highlight the accountability of directors in good corporate governance;(vii) to provide that public listed companies with paid-up capital of Rs. 5 crores or more shall be required to set up an Audit Committee of the Board of Directors as a measure for better corporate governance;(viii) to require companies with paid-up capital of Rs. 10 lakh or more and which do not have whole-time Secretary in their employment to submit a Secretarial Compliance Certificate from Company Secretary in whole-time practice;(ix) to delete the provisions for appointment of public trustee by Central Government with a view to enabling the Trust to directly exercise the voting power;(x) to provide that any offer of shares or debentures to more than 50 persons shall be treated as public issue with suitable modification in the case of public financial institutions and non-banking financial companies;(xi) to prescribe voting through postal ballot in case of only important items with effect from such date as may be notified by the Government to ensure good corporate governance;(xii) to empower Regional Director to allow change of registered office of companies from jurisdiction of one Registrar of Companies to another Registrar of Companies within the same State;(xiii) to employer the Comptroller and Auditor-General of India to appoint the auditors in respect of Government Companies and also to provide that shareholders of such companies will fix their remuneration in annual general meeting;(xiv) To provide that in case of a public company which does not file annual accounts and annual returns continuously for three years, the directors of such company will be debarred from becoming the director of other public companies for five years. Similarly, in case of any public company which fails to repay its depositors on maturity of deposit amount/debentures, dividend and interest on deposits/debentures on due dates, the whole-time directors of defaulting companies as on such date will be debarred from becoming a director of any other public company for a period of five years;(xv) to provide that for purpose of managerial remuneration, the amount of depreciation will be the same as provided in Profit and Loss Account of the Company;(xvi) to provide that no person can hold office of director in more than fifteen companies at a time;(xvii) to provide for appointment of one director as a nominee of small shareholders who constitute a minimum of 1000 in number and having shares of not more than Rs. 20,000 with effect from the date to be specified and subject to such other conditions as may be prescribed by the Central Government;(xviii) to provide penal provisions for increased fine for offences under the Act;(xix) to provide that a shareholder of the company be disqualified for appointment as auditor of the company;(xx) to delete the provisions relating to managing agents, secretaries and treasurers as they have become redundant after abolition of the system of managing agent, secretaries and treasurers;(xxi) to provide that private limited companies shall be excluded in reckoning the number of companies which an auditor can audit.
