Companies are defined as the business organisation formed by a group of individuals for the purpose to gain profit and are considered as one of the important sources of economic development of the country. Thus, it becomes necessary to enact rules and regulations in order to govern the smooth functioning of companies in the country and also the companies that are working outside the country. In India the concept of company legislation was originated from the British time. Today the companies in India are governed by the COMPANIES ACT, 2013.
Table of Contents
History Of The Company Legislation
Company law is also referred to as corporate law which according to the business dictionary is defined as, “legislation under which the formation, registration or incorporation, governance and dissolution of a firm is administered and controlled”. In India the company law evolved because of the Britishers, and their footsteps were followed by India while enacting the company law legislation. In 1850, the first company legislation was enacted by the Indian legislation and it was for the registration of a joint stock company. This first enactment was inspired by the English Companies Act, 1844. After seven years in 1857, an amendment was made in the 1850 Act and the concept of limited liability was introduced but with some limitations. However, in 1858 those limitations were removed and limited liability was introduced for the banking companies also. Again in 1866, an amendment was made relating to the laws of regulation, incorporation and winding up of the companies and other associations. Further in 1882, company law was again amended till the passing of 1913 Act which was amended several times from 1913-1946 and finally the Companies Act of 1956 was enacted which was followed by the companies for a longer period of time and was considered as the largest piece of the legislation.
Changes Brought By The Companies Legislation,1956
The Act of 1956 was introduced under the recommendations of H.C.Bhaba Committee. This Act gives the overview about the whole procedure of the company including its fee procedure, name, constitution, management of the company, administration of the company including the managerial persons of the company and the winding off and liquidation of the company.
- The Act of 1956 gives the Central Government power to compel any company to change their name if their existing name is considered as undesirable by the government.[1]
- In Act of 1956 only two types of share capital has been organised that is equity share capital and preference share capital.[2]
- The act provide statutory right to the transferor and transferee to appeal to the central government in case company refuse to effect the transfer of shares.[3]
- Under the Act of 1956 Central government has given the power to constitute Advisory Committee for the purpose of advising company and Company Law Board on the matters arising out of the Administration of the Act.
- The Act of 1956 enables a person to be the Director of more than 20 countries at one time.
The Companies Act, 1956 has been amended several times after it was enacted and new changes were brought in it. After the Act of 1956 the Companies (Amendment) Act, 1988 was of great importance as it introduced drastic change in the companies law of India.
- This Act made compounding of offences punishable with fine
- The independent Company Law Board was established with such judicial and quasi judicial powers as exercised by the Courts of law and the Central Government.
- Managerial appointments and remuneration subject to the fulfillment of guidelines provided in the act itself needs the government approval.
Further amendments were made to the Act of 1956 in 1999, 2000,2001 and 2002 introducing minor changes in the Act and finally the Companies(Amendment)Act, 2013 was introduced which is currently applicable in India.
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Companies (Amendment) Act, 2013
The Government of India introduced a new Company Law Bill on 18th of December 2012 and after the approval of both houses, the bill received the assent of the President of India on 29th of August 2013 and a new Act of Companies Act, 2013 came into force repealing the old Act of 1956.
The Act 2013 brought many changes to the old Act of 1956, the Act of 2013 was introduced with the object of improving the process of business and improving corporate governance by making companies more accountable.
- The Act of 2013 introduced the concept of ONE PERSON COMPANY, making it possible for a single person to start a company.It means a “company which has only one person as a member shall be eligible to incorporate a one person company”. [4]
- The Act of 2013 makes directors, promoters etc personally liable for misstatement of prospectus.
- It provides that every company should have at-least one director resident in India, who has stayed for a period of not less than 182 days in the previous calendar year.[5]
- Act of 2013 has reduced the time period from 30 days to 15 days for the notice to the Registrar of Companies with regard to change of registration office.
- It increased the maximum number of directors for public companies from 12 to 15.
- Act of 2013 provides the appointment of independent directors for the companies as such prescribed.
- Act of 2013 makes the approval of the Tribunal necessary for the conversion of a public limited company into a private limited company.
- Act of 2013 provides the penal provision with respect to the company secretary for fraudulent certification of annual returns from 50,000/- to 5,00,000/-.
- It intouced voting by electronic means by the members of the company.
- It makes provisions for merger or amalgamation of a company with a foreign company.[6]
- Serious Fund Investigation Office has given the power under the new Act of 2013 to investigate into the affairs of the company.[7]
- The appointment of certain committees of director for listed and other classes of companies was made mandatory under the new Act of 2013.[8]
- Video conference by electronic means in the Board of Directors Meeting was made under the Act of 2013.
- Provisions for establishment of the special courts to try offences was made under the Act of 2013.[9]
These are the important provisions that are added in the new Act of 2013 beside these new additions many provisions of the old Act of 1956 was also discarded by the new act like statement in lieu of prospectus, share warrants, share qualification, special audit, public trustee etc.
The Companies Act, 2013 creates a flexibility in the maintenance of companies and raises the standards of corporate governance and in order to maintain the corporate social responsibility, which is the reflection of corporate culture it became the need of the time to introduce the new act for guiding the companies.
Companies ( Amendment ) Act, 2020
The Act was passed by the Lok Sabha on 19 th September,2020 and by the Rajya Sabha on 22nd September, 2020. The Amendment Act of 2020 received the assent of the President on 28 September, 2020 and is operative since that date.The new act makes various amendments to corporate laws (Act 2013). This new Act decriminalizes various non compoundable offences in case of frauds, and almost 48 sections have amended to decriminalize the fraud. Besides this other major changes are also introduced by the Act.
Corporate Social Responsibility:
The Act provides that the companies having CSR spending obligation upto fifty lakh shall not be required to constitute CSR committee.
Changes In Penal Provisions
It removes the penalty, imprisonment for 9 offences with orders of National Company Law Tribunal and also reduces the amount of fine imposed in certain cases. Further it removes the imprisonment of three years applicable to a company for buying back its shares without complying with the Companies Act, 2013.
Managerial Remuneration
The Act 2020 makes special provisions for payment of remuneration to executive directors, if the company has inadequate or no profits in a year.
Producer Companies
A new chapter in the Act of 2020 is added with respect to the producer companies, excluding the provisions on membership, meeting and maintenance of accounts.
Benches Of NCLT
It also provides provisions for the establishment of the National Company Law Appellate Tribunal to decrease the pendency of the cases.
Exclusion Of Companies
The Act empowers the central government to exclude certain companies from the definition of listed companies but with the consultation of SEBI.
Listing In Foreign Jurisdiction
It allows direct listing of securities by Indian Companies in permissible foreign jurisdiction as per rules to be prescribed.
The main object behind the Amendment , 2020 is to decriminalize certain offences and to bring an ease and smooth working of the business world.
Conclusion
Hence, to conclude, this article focuses on the changes that were made in company law since the British rule. As we are living in the society that is developing and adopting new things every day so it is the need to keep the company law flexible, so that companies can meet the pace of the growing world as they are the source through which a country generates its economy. Thus it’s important for them to run smoothly and in a controlled manner and so these amendments are of great importance and it is quite clear that the company law in India will witness many changes and amendments in future too in order to make the companies work efficiently in all the circumstances and changes.
References
[1] Companies (Amendment) Act ,1956, s. 20.
[2] Companies (Amendment) Act 1956, s. 86.
[3] Companies (Amendment) Act, 1956, s. 111.
[4] Companies (Amendment) Act, 2013, s. 2(62).
[5] Companies (Amendment) Act, 2013, s. 149.
[6] Companies (Amendment) Act, 2013, s. 234.
[7]Companies (Amendment) Act, 2013, s. 211.
[8] Companies (Amendment) Act, 2013, s. 178.
[9] Companies (Amendments) Act, 2013, s. 435.
BY NAVDEEP KAUR | APG SHIMLA UNIVERSITY