The Ministry of Company Affairs is now functioning under
a Cabinet Minister, after its up-gradation with effect from January
29, 2006. The Ministry is continuing its initiatives to meet the expectations
of the corporate sector and its stakeholders in the changing national
and global business environment.
The Ministry is constantly working towards improvement in
the legislative framework and administrative set up to enable easy
incorporation and exit of the companies, convenient compliance of
regulations with transparency and accountability in corporate governance.
Comprehensive Amendment to the
Companies Act
An Expert
Committee, headed by Dr.JJ Irani, has been constituted to evolve
a Simplified Compact Law, which takes into account the changes in
national and international business environment, enables adoption
of internationally accepted best practices and provides adequate
flexibility to respond to the future changes.
Based on the recommendations of the Expert Committee, and
after an extensive consultative process, the shape of the new Company
Law has now emerged. The
Ministry is in the process of drafting the legislation.
Implementation of MCA21 e-Governance Project
An ambitious MCA 21 Project as a Mission Mode Project under
the National e-Governance Plan has been drawn.
MCA 21 envisages electronic filing of compliance related
documents in an inter-active paperless mode, through a dedicated
portal on the Internet. The Project will facilitate the companies in
their compliance of the provisions of the Companies Act, and also
empower the stakeholders by providing them access to the corporate
data in a convenient, user-friendly mode.
The Project contract, under Build, Own, Operate
and Transfer (BOOT) model, was signed with Tata Consultancy
Services on March 1, 2005, and the first pilot launch of MCA 21
took place at Coimbatore on February 18, 2006. Hon’ble Prime Minister
of India launched the Project at Delhi on March 18, 2006, and 12
out of 20 Registrar Of Companies (ROC) locations have been covered
so far under the project.
Under Phase-II of the e-Governance Project, the Government
plans to computerise the domain of Official Liquidators, work for
which has already been initiated.
With the completion of Phase-II of the e-Governance Project
along with other steps being taken up, the process of liquidation
of companies, which now generally takes over 10 years, would get
significantly speeded up.
Reforms
relating to the Professional Institutes - ICAI, ICSI and ICWAI
In the light of the growing
contribution of the Services Sector to the national economy as well
as the global opportunities this sector offers today, it was felt
necessary to equip the company secretaries, chartered accountants
and cost and works accountants, who cater to the needs of the corporate
sector, to face competition from global players in the international
market. Realising the need to amend the enactments
governing these three professions with the objective of providing
more autonomy to these institutes while making them more accountable,
the Government introduced Amendment Bills in Parliament in the winter
session of 2005, which were passed by both the Houses. After getting
the Presidential assent, the amendments have now become part of
the relevant Acts. Some of the major changes introduced through these amendments are:
Ř
Streamlining the disciplinary mechanism
in the institutes, including creation of an Appellate Authority
to hear appeals in order to bring better accountability, transparency
and credibility of the professions
Ř
Provision of a Quality Review Board
to review the quality of services provided by the professionals
and making recommendations for improvement
Ř
Enabling provisions to form multi-disciplinary
firms and offer multi-professional services in a competitive and
commercial manner
Amendments to the Competition Act, 2002
India has responded to the current world trend of globalisation by opening
its economy, removing controls and moving to a more liberal regime.
As a natural corollary, it was felt that the Indian market
should be geared to face competition, from within the country and
outside. While competition
in the market has significant benefits increased economic efficiency
and consumer welfare, there is need to guard against market failures. The common market failures arise out of anti-competitive
agreements, like cartel formation; abuse of dominant position like
predatory pricing; vertical restraints like exclusive supply or
distribution arrangements; and mergers to exercise monopoly power. With a view to prohibiting and regulating such
action, the Government enacted the Competition Act, 2002, and the
Competition Commission of India (CCI) was set-up. This would ultimately
replace the Monopolies and Restrictive Trade Practices Commission
(MRTPC).
The Competition Act, 2002, was challenged in the Supreme Court by way of
a Public Interest Litigation (PIL) Petition.
In the light of the judgement of the Supreme Court, the Government
had introduced an Amendment Bill to the existing Competition Act
in Parliament in the Budget Session of 2006. Pending the amendments,
the CCI is actively engaged in the advocacy and capacity building
functions.
Limited Liability Partnership Law
In view of the increasing
role of services sector in the national economy, the wide range
of disciplines in which such services can be offered and the growing
number of professionals, a need has been recognised for a new corporate
form, which will enable professional expertise to organise and provide
a range of services to the corporate sector in a comprehensive and
efficient manner.
In India, businesses mainly
operate as companies, sole proprietorships and partnerships. Each
of these is subject to different regulatory and tax regimes reflecting
their organisation and ownership. Introducing Limited Liability
Partnerships (LLPs), as a new business structure, would fill the
gap between business firms such as sole proprietorship and partnership,
which are generally unregulated and Limited Liability Companies
which are governed by the Companies Act, 1956. In addition to an
alternative business structure, LLPs would also foster the growth
of the services sector. The regime of limited liability partnership
will provide a platform to small and medium enterprises and professional
firms of Company Secretaries, Chartered Accountants, Advocates etc.
to conduct their business/profession efficiently which would in
turn increase their global competitiveness.
As a first step in such
consultative process, the Ministry placed a Concept Paper on LLP
Law in the legislative model, along with explanatory notes on chapters,
for viewing on the electronic media so that all interested may not
only express their opinions on the concepts involved but also suggest
formulations, by December 31, 2005, for the consideration of the
Ministry on various aspects of LLP Law. Comments and suggestions
received from different quarters are being examined. The Bill in
this regard is being drafted.
Measures against Vanishing Companies
The Government is continuing its efforts to bring to book
the companies, which raised money from the capital market and subsequently
vanished. With the efforts of the Ministry, out of 229
companies identified as vanishing companies, 115 companies have
been traced and FIRs have already been lodged in 100 cases out of
these. It is expected that such concerted action would
deter similar activities by unscrupulous operators in future.
Investor Education and Protection
Investor Protection has been a focus area and a number of
measures have been taken in this direction.
The Ministry has provided a facility to the investor to lodge
their grievances on the Ministry’s Website and such grievances are
taken up for redressal through the Office of Registrar of Companies.
In case of companies, where a large number of investors have
filed complaints, the Ministry has been getting inspections conducted
u/s 209 of the Companies Act and taking appropriate punitive action
against the defaulting companies.
At the same time, measures have been taken to create awareness
amongst the investors so that they can protect their interests while
investing in specific instruments of the security market.
The Investor Education and Protection Fund set up by the
Ministry, has been conducting awareness programme through media
campaigns and training sessions all over the country. To caution
the investors against the activities of companies involved in economic
offence, the Ministry has also launched a Website www.watchoutinvestor.com,
which is the National Registry of Economic defaulters.
Corporate Governance
One of the main objectives has been to promote efficient,
transparent and accountable form of corporate governance in the
Indian corporate sector. To achieve this objective, while a number
of initiatives on e-Governance and legislative fronts, it has also
set up the National Foundation for Corporate Governance to provide
a platform for deliberations on issues relating to good corporate
governance and to sensitise corporate leaders on the importance
of good corporate governance, self-regulation and directorial responsibilities. A website of the Foundation has been launched,
which is expected to serve as a medium for exchange of views between
various stakeholders and help in formulation of policies for better
corporate governance.
National Accounting
Standards
The Standards of Accounting, which are required to be followed
by the companies for preparation of their accounts, have been notified
from time to time by the Institute of Chartered Accountants of India.
In order to bring the standards fully in line with the international
best practices, the Ministry had asked the National Advisory Committee
on Accounting Standards (NACAS) to examine the existing standards
and suggest suitable modifications. It was also asked to look into
possible difficulties, which certain class of companies, especially
the small and medium enterprises, may face in following the standards.
The NACAS have submitted their recommendations, which are being
examined.
Serious Fraud Investigation Office
The Serious Fraud Investigation Office was set up in July
2003, under the Ministry. This
Office has completed investigations in12 out 23 cases referred by
the Central Government u/s 235/237 of the Companies Act 1956.
These cases involved serious violations of the provisions
of the Companies Act and a number of other related commercial statutes.
Based on the investigation reports of the SFIO, the Government
has ordered legal action in 9 cases.
Streamlining the Prosecution Mechanism
under the Companies Act, 1956 (Vaish Committee)
Over 50,000
prosecution cases, arising out of administration of the Companies
Act, are pending in various courts. Many of these cases are on account
of violation of technical nature. While these cases are pending
on an average for 5 to 7 years, the penalty at the end of the proceeding
averages to Rs 2,000. In order to tackle this issue, an Expert Group
was constituted in May 2005, under the Chairmanship of Shri OP Vaish,
Senior Advocate, to examine issues relating to streamlining the
prosecution mechanism under the Companies Act, 1956. The Group submitted its report on in October
2005. The recommendations
of the Expert Group have been examined and are under implementation.
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