India: Companies Bill introduced in the Lok Sabha

The Companies Bill was introduced in the Lok Sabha earlier this week. A copy of the Bill is available here (pdf) and it is accompanied by a document containing corrigenda (here, doc). The Bill is wide-ranging, covering core company law matters, insolvency and governance provisions which are often found in codes of best practice.

A good indication of the Bill's breadth is provided by the following brief review.  Clause 144 imposes a restriction on auditors performing certain non-audit services (there was no such restriction in the earlier Act).  Clause 165 imposes a restriction on the number of directorships that one person may hold. Clause 166, a new provision, is titled 'Directors' duties' and subsection (2) contains this duty which is not that easy to interpret: "A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment".

The requirement for listed companies to have an Audit Committee is contained in Clause 177. A similar requirement for Nomination and Remuneration Committees is contained in Clause 178, a new provision, which also sets out the requirements for a Stakeholders Relationship Committee. Under Clause 135, certain companies will be required to form a Corporate Social Responsibility Committee for the purposes of formulating a CSR policy. Subsection (4) of this Clauses provides that the Board "shall make every endeavour to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy".

Clause 197 imposes limits on the total remuneration that may be paid to the directors, with reference to the company's net profits. An oppression remedy is provided for shareholders in Clause 241 but its scope is wide because a shareholder is given the right to complain not just about conduct prejudicial or oppressive to him but also where the company's affairs are being conducted in a manner that is prejudicial to the public interest. However, as Clause 244 explains, the right to apply under Clause 241 is not one available to each individual shareholder because, as Clause 244 explains, in companies having a share capital, an application must be made by 100 or more shareholders or at least one tenth of the total number of shareholders.