The Union Cabinet of India on 4th October, 2012 has approved various proposals to make official amendments in Competition Act, 2002, Companies Bill, 2011 and the Forward Contracts [Regulation] Amendment Bill, 2010.
Competition Act, 2002
Section 5 and 6 of the Competition Act currently deals with combinations and their regulation. The initial considerations for the proposal were made in April, 2012 when it was referred to a Group of inisters for examination in detail having particular reference to jurisdiction of sectoral regulators on Competition related issues. Initially various sectors and ministries opposed to the jurisdiction of the Competition Commission of India [CCI] cutting across the sectors in combinations. According to them sectors like Finance and Telecom had their own regulators to watch and the amendment would lead to a conflict between the CCI and such regulators.
The major amendments approved by the Cabinet include changing the definition of “Turnover” and “Group” reducing the overall limit of finalization of combination from 210 days to 180 days and insertion of a new section 5A enabling the Central Government to lay down, in consultation with the Competition Commission of India, different thresholds for any class or classes of enterprises for the purpose of examining acquisitions, procedural aspects in working of the Commission.
Few other amendments relate to procedural aspects in the Working of the Commission.
After the said amendment receives a nod from the Parliament, Mergers and Acquisitions across all the sectors will need to get a clearance from the CCI. All voluntary mergers across all sectors would come under the ambit of the approval from the CCI; however certain exemptions still have to be notified by the Government.
Companies Bill, 2011
The existing law for the regulation of companies in the country is the Companies Act, 1956 which is under consideration for quite long for comprehensive revision in view of the altering economic and commercial surroundings countrywide as well as worldwide.
In view of various reformatory and modern provisions, the Companies Bill, 2011 was introduced in the Lok Sabha on 14th December, 2011 and was considered by the Parliamentary Standing Committee on Finance which submitted its report to the Honourable Speaker, Lok Sabha on 26th June, 2012. The report was laid in Parliament on 13th August 2012. Keeping in view the recommendations made by such Committee it was decided to make certain modifications in the Companies Bill, 2011 through official amendments.
With a view to cope up with the developments taking place nationally as well as internationally, and with the intent to modernize the structure for corporate regulation in India and also to promote the development of the Indian corporate sector through enlightened regulation and good corporate governance practices, a decision has been taken to revise the existing Companies Act, 1956 comprehensively.
The Salient features of amendments approved by the Cabinet are as follows:
- The words `make every endeavor to’ has been omitted from Clause 135(5). Such clause is also amended to provide that the company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.
- To help in curbing a major source of corporate delinquency, Clause 36 (c) amended, to also include punishment for falsely inducing a person to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities.
- Provisions relating to audit of Government Companies by Comptroller and Auditor General of India (C&AG) modified to enable C&AG to perform such audit more effectively.
- Clause 186 amended to provide that the rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities.
- Provisions relating to restrictions on non audit services modified to provide that such restrictions shall not apply to associate companies and further to provide for transitional period for complying with such provisions.
- Provisions relating to separation of office of Chairman and Managing Director (MD) modified to allow, in certain cases, a class of companies having multiple business and separate divisional MDs to appoint same person as `chairman as well as MD’.
- Provisions relating to extent of criminal liability of auditors particularly in case of partners of an audit firm reviewed to bring clarity. Further, to ensure that the liability in respect of damages paid by auditor, as per the order of the Court, (in case of conviction under Clause 147) is promptly used for payment to affected parties including tax authorities, Central Government has been empowered to specify any statutory body/authority for such purpose.
- The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies.
- Appointment of auditors for five years shall be subject to ratification by members at every Annual General Meeting.
- Provisions relating to voluntary rotation of auditing partner (in case of an audit firm) modified to provide that members may rotate the partner `at such interval as may be resolved by embers’ instead of `every year` proposed in the clause earlier.
- `Whole-time director’ has been included in the definition of the term `key managerial personnel’.
- The term `private placement` has been defined to bring clarity.
- Approval of the Tribunal shall be required for consolidation and division of share capital only if the voting percentage of shareholders changes consequent on such consolidation.
- Clarification included in the Bill to provide that `Independent Directors` shall be excluded for the purpose of computing `one third of retiring Directors`. This would bring harmonisation between provisions of Clause 149(12) and rotational norms provided in clause 152.
- Provisions in respect of removal of difficulty modified to provide that the power to remove difficulties may be exercised by the Central Government upto `five years` (after enactment of the legislation) in stead of earlier upto `three years`. This is considered necessary to avoid serious hardship and dislocation since many provisions of the Bill involve transition from pre-existing arrangements to new systems.
Forward Contracts [Regulation] Amendment Bill, 2010
The current Forward Contracts (Regulation) Act provides for the regulation of commodity futures markets in India and the establishment of the Forward Markets Commission (FMC).
Although the markets have been relaxed with effect from April, 2003 and contemporary institutional structures are in the process of development, yet the market regulator, FMC is largely operating in its conventional set-up.
Therefore, in order to meet the requirements of the changing environment and amend further the Forward Contracts (Regulation) Act, the Bill, 2010 was introduced in the Lok Sabha on 6.12.2010. The Bill, 2010 went through examination by the Parliamentary Standing Committee of the Ministry of Consumer Affairs, Food & Public Distribution which submitted its 15th Report on 22nd December, 2011, which has now received the cabinet’s approval.
After the said Bill receives a nod from the Parliament, the FMC, as a regulator will get autonomy and power to control the market more efficiently. There shall be new products like `options’ which will be allowed in the commodity market, benefiting various stakeholders including farmers to take benefit of `price discovery and `price risk management’. The Bill would further enhance public accountability of the Regulator by providing for an Appellate Authority.
Further amendments and recommendations of the Committee which have been approved by the cabinet include, definition of the "Commodity Derivative" in Clause 3, establishment and constitution of Forward Markets Commission in Clause 4, term of office of the Chairman and every other whole time members in Clause 5, accounts and audit in Clause 9, penalties for contravention of certain provisions of Chapter IV in Clause 25 of the Bill, 2010. The amendment in Clause 25 will require consequential amendment in Clause 26, which is also proposed to be included in the official amendments.