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Lok Sabha passes Companies Amendment Bill

The Lok Sabha today passed by a voice vote the Companies (Amendment) Bill, 1998, repealing the Companies (Amendment) Ordinance.

The bill is intended to further amend the Companies Act, 1956.

Introducing the bill, minister for law, justice and company Affairs, Thambi Durai, said the government had no intention to bypass Parliament in issuing the ordinance. He said this was necessitated by representations received from various organisations.

He said the matter had been before the standing committee.

The minister said the suggestions made by the members would be seriously considered. In this connection, he said a member had stated that some new companies have emerged which had collected large funds.

Whenever the ministry receives a complaint, it would take action against errant companies, the minister added.

The minister said he wanted the investors to be provided nomination facility for fixed deposits. He said that the corporate sector should be allowed to reinvest in subsidiaries.

The bill allows companies to buyback their shares subject to certain safeguards.

It also permits the companies to make inter-corporate investments and loans subject to fulfillment of certain conditions without prior approval of the Central government.

The bill provides for constitution of a National Advisory Committee on Accounting Standards. This in turn will provide for compliance of accounting standards by a company in preparation of profit and loss account and balance sheet. There is provision for investors' education and protection fund.

Nomination facility to the holders of shares, debentures and fixed deposit holders, and declaration of Infrastructure Development Finance Company Limited are the other provisions of the bill.

The bill entails issuing sweat equity subject to fulfillment of certain conditions under the bill. There is also possibility of transfer of certain sums to the Capital Redemption Reserve Account when a company purchases its own shares out of free reserve.

According to the statement of objects and reasons of the bill, the corporate sector is going through difficult times. The capital market is also at low ebb, which requires immediate morale-boosting effort on part of the government to promote investors' confidence. Besides, the economy needs certain impetus for promoting inter-corporate investments considering slow flow of funds in new investments.

The Companies Act 1956 has been in force for more than four decades and the economy has undergone considerable changes since its introduction.

Further, the law relating to corporate sector has been undergoing changes in other countries taking into account recent developments in corporate law and practice.

Taking into consideration these developments and on the basis of a report prepared by a working group constituted in 1996, the Companies Bill 1997 was introduced in the Rajya Sabha on August 14, 1997 to replace the Companies Act 1956.

The Companies Bill 1997 stands referred to standing committee on home affairs and the report of the committee is awaited.

UNI

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