The Cabinet on Thursday approved the Companies Bill, 2011, which aims to update corporate laws in the country and introduce modern concepts like mandatory corporate social responsibility (CSR) and class action suits. Following Cabinet clearance, it is now likely to be taken up for consideration and passage in the ongoing Winter Session of Parliament. The Bill, which was originally introduced in the Lok Sabha in 2008, lapsed because of the change of government, it was reintroduced in August 2009.
To replace the existing half-a-century-old Companies Act, the Bill has undergone several modifications in view of the Rs14,000 crore Satyam accounting fraud.
Besides strengthening the provisions to check fraud, the Bill has introduced ideas like mandatory CSR, class action suits and a fixed term for independent directors, rotation of auditors etc.
Among other things, it also proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence.
Further, it has proposed that companies should earmark 2% of their average profits of the preceding three years for CSR activities and make a disclosure to shareholders about the policy adopted in the process.
In addition, the Bill seeks to give more teeth to the Serious Fraud Investigation Office (SFIO) by providing it statutory recognition and endowing it with more powers.
The new law would strengthen the concept of shareholders™ democracy and offer protection of the rights of minority stakeholders. It also proposes to introduce responsible self-regulation replete with disclosures and accountability.
