Ushering in a stronger framework under the new law to govern companies, the government today notified more rules covering areas such as independent directors and transactions among related parties. The regulations aim to strengthen the overall functioning of companies as well as protect the interest of investors.
Notification of rules for another 10 chapters under the Companies Act 2013 paves the way for most of the provisions to come into effect from April 1, a time-frame which some quarters feel could pose challenges for India Inc.
Most companies will now be required to have at least one woman and two independent directors, keep a register of beneficial investments and entities - including those taking money from the public, and establish a vigil mechanism to address grievances of directors and employees.
Besides, the definition of related party now covers directors and key managerial personnel with respect to the company and its holding entity.
As per the rules for the 10 chapters notified by the Corporate Affairs Ministry on Thursday, companies are barred from issuing any shares with differential voting rights, if they have defaulted on repayment of loans from banks and public financial institutions, among others.
Also, e-voting has been made compulsory for listed firms and other entities with at least 1,000 shareholders. Consultancy firm KPMG's India Partner and Head of Accounting Advisory Services Sai Venkateshwaran said the ministry has made several changes to final rules especially in rationalising the limits for compliance with various sections.
For instance, the definition of related parties, senior management and functional heads has been removed while that of relatives has been relaxed from 15 to less than 10. Dolphy D'souza, partner in a member firm of Ernst & Young Global said the final rules have removed considerable burden.
Industry body Ficci's President Sidharth Birla said that one of the biggest challenges for India Inc at this stage would be compliance with the new law.
Rules related to registration of charges, management and administration, declaration and payment of dividend , meetings of board and its powers, appointment and qualification of directors, and accounts have been notified.
Also rules for chapters related to incorporation, prospectus and allotment of securities, share capital and debentures, and specification of definition details have been notified, as per notifications dated March 27.
"Considering the immediate effective date of April 1, 2014, timelines to ensure compliance is expected to be a concern for the corporates. What will now be interesting to see is how soon are the other related rules notified and become effective, and whether they provide any additional transition time," Yogesh Sharma, Partner, Assurance at consultancy firm Grant Thornton India LLP said.
The voluminous legislation is spread across 29 chapters, 7 schedules and 470 sections.
On Wednesday, the ministry had notified more than 180 sections of the new Companies Act. All the schedules of the new law have already been notified.
Late last month, the ministry notified rules for CSR (Corporate Social Responsibility) spending. Under the legislation, certain class of companies have to shell out at least 2 per cent of their 3-year annual average net profit towards social welfare activities.
Notifications related to National Financial Reporting Authority (NFRA), Investor and Education Protection Fund, sick companies, special courts and National Company Law Tribunal (NCLT) and certain other provisions are not expected immediately.
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