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Published : February 19, 2013 | Author : shashanktyagi
Category : Company Law | Total Views : 5022 | Rating :

shashank tyagi GNLU Gandhinagar LL.M. UGC-NET Dec2011

A Comparative Study on Companies Act 1956 & Company Bill 2011

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 act1956 & 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.

Board Meeting by Video Conferencing
The directors are required to be present physically in board meetings. This is pursuant to section 285 of the companies act 1956 which mandates holding of board meetings at least once in every three months and four such meetings are to be held in a year for deliberating and deciding on major policy matters of a company. There has been persistent demand from trade and industry organizations, to permit the companies to hold their board meetings through video conferencing by making use of latest technology available in our country.

Under clause 173(2) of company Bill 2011 deals with the participation of directors in a board meeting may be in person or through video conferencing or other electronic means as may be prescribed. Such a system should be capable of recording and recognizing the participation of directors and storing the proceedings of such meetings.

However the central Government has reserved to itself the power to specify by notification the matters which should not be dealt with in a meeting video conferencing or other electronic means i.e. the matters which will have to be transacted only at a meeting of the board.

Company Liquidators
Under the Companies Act, 1956 no such provision of Company Liquidator but in the Companies Bill, 2011 Clause 275 provides that company secretary recognized to be included in the panel maintained by the Central Government for appointment as company liquidator who shall be appointed by the Tribunal at the time of the order of winding up.

Entrenchment Provision
Entrenchment provision means a provision to the effect that certain provision of the article of association can only be amended if and only if certain procedure are followed which are more restrictive than a special resolution. This is new concept which is presented in new company bill2011 under clause 5(3).

Key Managerial Personnel
Under clause 203(1) First time the concept of key managerial personnel introduces. The Managing Director, Chief Executive Officer or Manager and in their absence a whole time director and a company secretary. Unless the article of the company provides otherwise, an individual shall not be the chair person of the company as well as the managerial director or CEO at the same lime. Further, clause 2(51) describe the definition of Key Managerial Personnel every company secretary being the KMP shall be appointed by a resolution of the board which shall consist of the terms and conditions including the remuneration,if any vacancy in the office of KMP in created the same shall be filled by the board at the board meeting with in the period of six months from the date of vacancy under clause 203(3)&(4).

If the company does not appoint company secretary, the penalty proposed –
• A company – Rs 1 lacks which may extend to Rs 5 lacks
• On every director & KMP who is in default – Rs 50,000 and Rs1000 per day if contravention continues.

The company bill 2011, first time introduces the concept of independent director under clause 149 that –
• All listed companies are required to appoint independent directors.
• Such other public company as may be prescribed by the central government shall also be required to appoint independent directors
• At least 1/3 rd of the board should comprises of the independent directors.
• Nominee director appointed by any institution or by government to represent its shareholding shall not be deemed to be independent directors.
• Duty an independent director can be appointed as alternate director to the independent director.
• Independent directors shall abide by the code provided in schedule 4 to the bill.
• Independent director hold the office upto 2 consecutive terms. One terms is upto 5 consecutive years.

Inspection, enquiry and investigation
It is a new clause added in this company bill 2011 that where in connection with inquiry or investigation into the affairs of the company or on reference of the central government or on complaint by specified number of members or creditors that the transfer of the property , transfer or disposal of funds , properties or assets is likely to take place which is prejudicial to the interest of the company , then the tribunal may order for freezing of such transfer, removal or disposal of assets for the period of 3 years under clause 221 of the companies bill 2011.

Corporate social responsibility
Chapter XVIII, clause135describe the corporate social responsibility which has having followed by any company if –
• Net Worth of Rs 500 corars or more during a financial years
• Turnover of Rs 1000 corars or more during a financial year
• Net profit of Rs 5 corars or more during financial years

Shall constitute a corporate social responsibility committee of the board consisting of 3 or more directors out of which one shall be an independent director.
In every financial year the company shall spend at least 2% of average net profit of the company made during the 3 immediately preceding financial year.

Women Director
As per chapter 17, clause 149 of company Bill 2011 denotes that at least one women director being made mandatory in the prescribed class or classes of companies although the concept of women director is not define under companies act.

Conclusion & suggestion
After this comparative study, the researcher analysis that the company Bill 2011 have many new provisions which required for corporate imaging field compare to companies Act 1956 .As well as have some criticism also like regarding mandatory appointment of company secretary in certain sized companies is sought to be justified on the plea that there is no such provision for the other professionals. Further according to researcher view that there should be prescribe basic educational and professional or we can say the management qualification for company directors, there is no clear definition of basic duties and responsibilities of key managerial personnel leaving details to be compulsorily added by the boards of companies.

The bill seeks to reduce government intervention in the affairs of company by removing controls and approvals but the companies and the directors are expected to function strictly in accordance with the regulatory framework. Another it remains to be seen how the independent directors will discharge their fiduciary responsibility in the context of satyam fiasco. A few changes in the manner of appointment of independent directors are required to ensure and protect the independence of independent director come.

• Sunil Seth & Atul Dua “Joint Ventures & Mergers and Acuisitions in India” published by Lexis Nexis Butterworths, India.
• H.C.Johari “The Companies Act 1956 Vol-2 publisher: kamal law House ,K.S.Roy Road Kolkata.
• N.K.Jain “Company Law – Law and Practice : Deep & Deep Publication Pvt.Ltd.” New Delhi.
• H.K. Saharay “Company Law :Fifth Edition: Universal Law Publication co.”
• Avatar Singh “ Introduction to company Law : 10th Edition Published by Eastern law company , Lucknow.
• http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf
• http://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf

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Article Comments

Posted by jaydip on July 06, 2013
how to open a private IT company or buisness in india and in limited
amount of money

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