Govt mulls updating Companies Act

The purpose is to simplify the laws.

The government is mulling  altering various sections of the Companies Act in a bid to simplify the law that came into force in 2013, according to media reports. The reports said the ministry of corporate affairs is actively considering the changes. These include fasttracking mergers and acquisitions, doubling the penalty for repeat offences, increasing remuneration of independent directors and prohibiting Section 8 companies, or companies formed with charitable objects, from converting into commercial companies.  
 
Besides, the ministry also proposes to shift various offences that are essentially procedural and technical lapses, to in­house adjudication mechanism, media reports quoted a senior government official as saying.  
 
Further, the changes proposed include doubling the amount of penalty if the same default is committed again within three years of imposition of the penalty. Experts feel this move will act as a deterrent. 
 
These changes seem to be directed at simplify the law. The proposal also includes hiking the maximum remuneration of an independent director from a company to up to 25 per cent of his total income. Currently, the law caps pecuniary relationship at 10% of the income. This includes sitting fee and commission.  
 
In fact, this remuneration was approved as recently as June this year through a change in the provisions under Section 149 of the Act to enhance availability of independent directors. Earlier rules had imposed a blanket ban on pecuniary relationship, other than sitting fee and commission, between a company and its independent directors. This was done to ensure  complete independence.  
 
The government is also looking at disallowing Section 8 companies to convert into commercial companies, which at present is permitted. The government is looking at omitting provision under Section 8 companies, which get several tax exemptions, from getting converted into a commercial company.  
 
Notably, Section 8 of the Act permits formulation of companies for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object, provided the profits, if any, or other income is applied for promoting only the objectives of the company and no dividend is paid to its members.  
 
The reason for change in this provision is that Section 8 companies enjoy several exemptions and benefits not only under the Companies Act but also under other laws, and therefore, such companies should not be allowed to convert into a commercial company, said the report.
 
Source: ET

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