changes in the national and international corporate environment
In view of changes in the national and international corporate environment and growth of economy of our developing country, the Central Government decided to repeal the Companies Act, 1956 after a long journey discussions and enact a new legislation to provide for new provisions, to meet the changed national and international, economic environment and further accelerate the expansion and growth of our economy. Further to achieve this purpose a Bill, namely, the Companies Bill 2011 was introduced by way of corporate Affairs Minister, Mr Veerappa Moily on 4th December, 2011 (Wednesday) in the LokSabha. That particular Bill has some specific aims like modernization of corporate regulations, concept of E-governance, Nidhis Fund (chapter 26), National Company Law Tribunal & Appellate Tribunal under chapter 27,Definition of KPM ,clause 2(51), entrenchment provision etc.
The companies Act 1956 have total VII Chapters & 658 sections which are divided under 13 Part and 15 schedulesand this companies act 1956 aims was to protect the interests of a large number of shareholders, to safeguard the interests of creditors, to help the attainment of the ultimate ends of social and economic policy of the Government etc.
In comparison to companies’act1956, the new Bill which is known as the company Bill 2011 has 470 clauses and 7 schedules with the aim of achieving economic growth of country and recognized the corporate responsibility etc. Further some provisions like several corporate governance and disclosure norms are included in the Bill to avoid recurrence of corporate scandals such as the alleged accounting fraud by the promoters of the erstwhile Satyam Computer in 2009.
some other key points of this Bill 2011 are as mandatory rotation of auditors and audit firms, regulation of related-party transactions, protection of minority shareholders, provision for class action suits, enhancement of penalties and a mandatory slot for a woman director on company boards are all new proposals included in the Bill.
Comparison between companies act 1956 & companies bill 2011-
One Person Company
Under the companies’ act 1956 -There is no provision for one Person Company. It means a single person cannot be incorporate a company because In this act minimum 2 members are required for private company and minimum 7 members are required for public company as per section 3. But now in company bill 2011 for the first time, seeks to introduce the concept of One-person Company as one more form of business organization. It is defined as a company which has only one person as a member. Clause 2(62) of the Bill provides for incorporation of One Person Company for any lawful purpose and it enjoys limited liability as applicable to other types of companies. However, the Memorandum of such a company should indicate the name of the person who shall, in the event of the subscribers’ death, disability or otherwise becomes the member of the company. Under this Bill One Person Company is not required to hold Annual General Meeting, maintenance of books of accounts and audit of accounts etc.
Duties of Director
The companies act 1956 does not define the duties of directors Although, the judiciary has attempted to define Directors ‘ duties as fiduciary in nature emanating from the position they occupy as special trustees and agents of a company.
One of the important duties of directors is the obligation to act with care, skill and diligence in relation to the affairs of a company and the degree of care expected of them is that of a person of ordinary prudence and to avoid conflict of interest with the company.
In current Bill 2011 specific clause 166 dealswith the director’s duties which are as follows-
• TO act in accordance with the articles of the company
• Act in good faith in order to promote the objects of the company for the benefit of its members
• Exercise duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
• The director must not involved in the situation in which his and the companies interest conflict.
• Not to achieve or attempt to achieve any undue gain or advantage to himself or to his relatives , partners or associates
• Not to assign the office and assignment so made is void. Contravention of any of the duty is punishable with fine.
The clause also provides that if any director of the company contravenes the provisions of these sectors, such director shall be punishable with fine which shall not less than Rs 1 lacks but may extend to Rs 5 lacks.