Tapan Ray Panel to Review Companies Law

Reviewing Companies Law to make smoother transition from earlier law

  • Aimed to review the 2013 Company Law, the Tapan Ray panel proposed over 2000 suggestions and recommendations
  • Recommendations are aimed at making the transition from Companies Act 1956 to Companies Act 2013 easier, improve Ease of Doing Business and provide better environment to start-ups

Major recommendations:

  • As per 2013 law, a public sector company is required to seek approval from central government should it want to give total managerial remuneration which exceeds 11% of net profit. The panel has recommended doing away with the provision
  • Harmonizing disclosure standards between SEBI and Companies Act
  • The independent director should not have any kind of pecuniary relationship with the company
  • Defining a ‘subsidiary company‘ in terms of voting rights of the holding company instead of ‘total share capital’ of the holding company.
  • Removal of provision under Section 2(87), which prohibited the companies to not have more than two levels of subsidiaries
  • Establishment of an independent body, National Financial Reporting Authority (NFRA), to provide for matters relating to accounting and auditing standards. It is being seen as a major jolt to the Institute of Chartered Accountants of India (ICAI)
  • Allowing start-ups to issue 50% of the paid capital as sweat equity against existing norms of 25 %
  • Allowing start-ups to issue employee stock ownership plan (ESOP) to promoters who are working as employees or employee directors or whole-time directors
  • Only those frauds which involve Rs 10 lakh or above, or one per cent of the company’s turnover, whichever is lower, may be punishable under Section 447 of the companies act

Background:

  • The enactment of the Companies Act, 2013 is considered to be one of the most significant legal reforms in India in the recent past, aimed at bringing Indian company law in tune with global standards
  • The Act introduced significant changes in the company law in India, especially in relation to accountability, disclosures, investor protection and corporate governance
  • In view of the extent and scope of changes, the stakeholders took some time to come to terms with the new regime with the new provisions, and encountered some difficulties in the process
  • Several representations were made to the Government on the practical difficulties faced during implementation
  • Though a few immediate amendments were made in May, 2015, the Government continued to receive representations that the Act needed further review

The Committee was thus constituted to-

  • Make recommendations on issues arising from the implementation of the Companies Act, 2013
  • Examine the recommendations received from the Bankruptcy Law Reforms Committee, the High Level Committee on Corporate Social Responsibility, the Law Commission of India and other agencies

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