Recommendations of the report of the Standing Committee on Finance, on 

the Companies Bill, 2009 
 

Nidhi Bothra 
nidhi@vinodkothari.com  

The 21st Report of the Standing Committee on Finance, on the Companies Bill, 2009, presented
in Fifteenth Lok Sabha session on 31st August, 2010 had much to offer. Chaired by Sri Yashwant
Sinha the Committee gave several recommendations on the Bill with its 28 Chapters and 426
Clauses in light of the suggestions, memorandums received by various regulatory bodies and
institutions like SEBI, RBI, ICAI, ICSI, ICWAI, FICCI and so on.

The Bill seeks to codify a new law to regulate companies and other corporate entities in the
country and repeal the existing Companies Act, 1956. The need for the change was felt in the
light of the changes in the economic scenario both domestically and internationally in the past
couple of decades. The tone of the Bill and the focus of the Committee was to bring about such
changes that would be in consonance with the national and international economic changes and
to remove the redundant provisions making the act more compact, easing out the procedural
requirements and regrouping the scattered provisions; yet remaining stringent on grounds of
good corporate governance and protection of the interest of the investors and public at large.

Few of the recommendations of the standing committee’ report are:

1. The voluntary Corporate Governance Guidelines 2009, issued by the Ministry of

Corporate Affairs should be made mandatory for the listed companies and to be
appropriately included in the Bill keeping it voluntary for unlisted companies.

2. The recommendations of the two Joint Parliamentary Committee reports that were
incorporated in the Companies (Amendment) Act, 2000 also find place in the Companies
Bill, 2009. This means that the penalties with regard to inter-corporate loans and
investments would increase, Ministry to frame necessary rules for inter corporate loans
and investments, serious offences would be non-compoundable and to be adjudicated by
Special Courts. Central Government can order investigation against a company directly
without the inquiry and the report of the Registrar u/s 234 as is required, Special provision
for freezing of assets of a company under investigation, Audit Committee to be mandatory,
statutory fillings become more stringent.

3. The Committee recommends that IFRS convergence to find place appropriately in the
Bill to harmonize the accounting standards.
4. Investor Education and Protection Fund is to be administered by a statutory body and the
Committee recommends that the fund should be utilized for providing immediate relief to
the small investors, who have suffered losses due to corporate defaults. Recognised
Investors Associations should also be empowered to file class action suits and also
complaints to Central Government/Tribunal on behalf of a prescribed number of
shareholders. The procedure prescribed for immediate relief / compensation to small
investors should also be made simpler and quicker. IEPF to refund the dividend claims of
the investors even after 7 years. This claim does not get extinguished however company’s
obligation to transfer to IEPF remains.

5. Concept of Independent Directors came under scanner after the Satyam scam and after a
lot of deliberation the Committee recommended that as the institution of Independent
Directors is critical instrument for ensuring good corporate governance the appointment
of Independent Directors should be done with utmost care and that the government
should lay down rules for the appointment, qualification, extent of independence, role,
responsibilities and liabilities. The Ministry is also contemplating on keeping the
appointment of Independent Directors should be independent of the management of the
Company.

6. As the Bill, sought to reduce the jurisdiction of SEBI, the Committee considered the view
that the designated jurisdiction of the regulators like SEBI, RBI should be articulately
appropriated in the Bill and the Ministry is to ensure that there is no conflict or overlap of
jurisdiction in the governing statutes and the rules framed thereunder. The Bill should be
articulate and explicit about the overriding effect the special statues whenever there is
conflict with the provisions of the Bill and in respect of the matters where the Special Act
is silent, the provisions of the Bill to be applicable.

7. National Advisory Committee on Accounting Standards (NACAS) role to be expanded in

the Companies Bill, 2009 and to make recommendations to the Central Government for
both accounting and auditing standards. The Committee recommends sufficient mandate
to be given to oversee the accounting and the auditing standards and to review the quality
of the audits undertaken.

8. The instrument of public deposits as a source of capital for companies should not be
discouraged in law, while deterrent provisions should be brought against defaulting
companies.

9. To bring Corporate Social Responsibility (CSR) in the statute itself, the Committee feel that
separate disclosures required to be made by Companies in their Annual Report by way of CSR
statement indicating the company policy as well as the specific steps taken thereunder will be a
sufficient check on non-compliance.
 10. In the light of availability of postal and electronic ballot, the Committee suggests that the
existing concept of proxies may be done away with and there should be a requirement for
higher quorum for meetings than five members personally present to a reasonable
percentage.

Other recommendations are:

• Key Managerial Personnel to include Whole Time Directors even if the company has a
managing director or manager.

• Promoters to form a part of officers in default and persons advising the board in
professional capacity to be excluded.

• The amount capitalized on issue of bonus shares and shares against consideration other
than cash and other arrangements to also form a part of paid up capital under the
definition.

• As the Companies Bill proposes for introduction of small companies and One Person
Companies the capitalization threshold limit to be higher than existing for private and
public companies.

• Director and Key Managerial Personnel to be included in the definition of ‘related party.’

• With the view to prevention of diversion of funds and to keep the rules for inter corporate
investments stringent, it is being proposed that the definition of subsidiary company to
include subsidiary company to be company in which the holding company holds voting
power through two or more subsidiary companies and also provide for circumstances
wherein a company shall be deemed to control the composition of the Board of Directors
of another company

• To ensure greater accountability, the Committee recommends that the compliance

certificate to be given both by the professional as well as by Director/Manager/Secretary
of the Company.

• Process of conversion of company from one form to the other to be made easier.

• Statutory filings become stringent with regard to annual returns, directors changes,
registered office address change etc.

• Disclosures in the prospectus at the time of public issue is provided for in the Bill

• Statutory Auditors: Auditing standards to be notified in the Bill. Auditors report on the
Internal financial controls of listed companies, Non compliance by auditor may result in
Civil and Criminal liability, Compliance with AS made mandatory.
 • Directors: Appointment of Independent Director to remain independent of the company’s
management, Insider Trading a criminal offence, Restrictions on non cash transactions
involving Directors, Non executive director finds definition in the Bill, Bill explicitly to
mention the duties of the Directors.

• Incorporating a company would be made easier, insider trading would be a criminal

offence, transition of companies from one form to another, new one person company with
simpler compliance regime.

In the light of the recommendations of the Committee, we are yet to see how the
recommendations are reviewed by the Ministry.