Companies Act, 2013: contemporary, to raise the governance bar: Experts

Jalandhar, May 29, 2014 : “The Companies Act 2013 (the 2013 Act), becoming a law this August 2013, is a big step forward in corporate reforms. It is contemporary and takes into cognizance the economic environment in which the industry operates”, said Dr. Raj Singh, Registrar of Companies, Chandigarh and Shimla while delivering the inaugural address during workshop on “The Companies Act 2013: Helping Raise the Bar on Governance” organised by PHD Chamber of Commerce and Industry, in association with KPMG, at PHD House, Chandigarh on Wednesday.

Citing the earlier Companies Act to be too old, and indicating at the need for a fresh legislation, Singh said, “In a changing economy, economic laws cannot remain static.”

The focus, said Singh, on governance and investor protection is the most important aspect of this act and many changes in this Act are aligned to international requirements and practices.

Earlier speaking on the occasion, Director, PHD Chamber of Commerce and Industry, Dalip Sharma said, “As companies look to implement this 2013 Act, they would be required to focus their efforts on better governance, processes and controls, some of which would also require a significant change in the mindset of those involved.”

This is a big step in the right direction for the Indian corporate sector to raise the bar on governance, added Sharma.

Delving into the details of the Act, Pravin Tulsyan from KPMG said, “The changes address six critical themes, focusing on raising the bar on governance, each targeted at a different stakeholder community. The themes are rigour on increased reporting framework, higher auditor accountability, easing restructuring of companies, enhanced responsibility on board of directors, independent directors, audit committee, and key management personnel, push on inclusive agenda (CSR) and emphasis on investor protection.”

“The 2013 Act has done away with many redundant provisions in the earlier Act, and also appears to be more concise than the 1956 Act with only 470 sections. However, the extent of subordinated legislation in the 2013 Act is almost unprecedented almost 300 of the 470 sections require additional rule making for them to be made operative”, informed Tulsyan.

Kaushal Kishore, another expert from KPMG said, “The 2013 Act is a major step forward in corporate reforms and is the culmination of several years of effort to enact a new legislation governing companies that is contemporary and appreciates the current economic environment in which companies operate.”

“The most significant aspect of the 2013 Act”, said Kishore, “is the focus on governance and investor protection, clearly a response to some of the more recent events in the Indian corporate sector starting with a large accounting scam that came to light in January 2009. It also incorporates several changes that are aligned to international requirements and practices.”

On the whole, the experts opined that it is a legislation that has a significant number of provisions aimed at either reducing conflicts of interests of or to induce affirmative action by the various stakeholders and parties involved in the corporate ecosystem, together with a significant focus on fraud deterrence.

The experts observed that the Act has brought in several new features around CSR, nominations of women in the Board of Directors, Penalties for frauds & non-compliance, Rotation of Auditors, Rotation of independent Directors, Compulsory Reporting of internal financial controls, Related Party Transactions and many more.