Company Law

The Companies Act, 1956 constitutes the Company Law in India. It came into force with effect
from 1st April, 1956. It is a consolidating Act which presents the whole body of the company law
in a complete form and repeals earlier Companies Act and subsequent amendments. It contains
658 sections and XV schedules and numerous forms. Company Law is fast developing in order
to protect joint stock companies. Company Law is not a field of legislation in which finality is to
be expected, as the law falls to be applied to a growing and changing subject matter and growing
uses of the company system as an instrument of business and finance and the possibilities of
abuse inherent in that system.

Amendment: The latest amendment in Companies Act came into force in 2006 and the Act
was renamed as “The Companies (Amendment) Act, 2006. This Amendment Act received the
assent of the President of India on 29th May, 2006 and was notified in the Gazette of India
Extraordinary dated 30th May, 2006. The amending Act is being brought into effect by stages.
The provisions of newly inserted sections 610B to 610E relating to filling of various returns and
statutory documents through electronic mode have been made effective from 16th September,
2006. The provisions of newly inserted sections 266A to 266G relating to Director’s
identification Number (DIN) have been made effective from 1st November, 2006.

The Company Bill, 2011 has been introduced in Parliament on 14th December, 2011. The Bill
seeks to replace the present Companies Act, 1956. It proposes comprehensive revision of the
existing Act with a view to make it simpler, clearer, and leaner and user friendly by reducing
number of sections. The main emphasis of Bill is on adequate disclosures and accountability to
ensure that management and auditors do not take shareholders and other investors for a ride. The
bill provides for greater shareholder democracy and less government intervention in the affairs of
a company by removing controls and approvals.

Main objectives of Company law are:

1. To protect the interest of shareholders.

2. To safeguard interest of creditors.

3. To help the development of companies in India on healthy lines.

4. To help the attainment of ultimate ends of the social and economic policy of the government.

5. To equip the government with necessary powers to intervene directly into affairs of a
company in public interest.

Special features of Companies Act are:

1. It provides more stringent provisions relating to the company promoters and company
management.

2. It provides elaborate provisions relating to the form and contents of a prospectus,

maintenance of accounts by companies, reduction of share capital, etc.

3. This Act recognizes the institution of ‘Government Companies’ (in which government holds
at least 51% share capital) and makes special provisions for them.

4. The Act also provides measures calculated to disintegrate the concentration of economic
power and wealth which affect the public interest adversely.

5. It gives extensive powers to the Central Government and the Company Law Board to
intervene directly in affairs of a company in public interest, in recognition of the fact that a
public company should be regarded as a national asset and not as something of exclusive concern
to the shareholders or the directors.

The Companies (Amendment) Act, 2017 introduces several amendments to the Companies Act
2013, realigning provisions to improve corporate governance and ease of doing business in India
while continuing to strengthen compliance and investor protection.

One of the most significant legal reforms in recent times is the enactment of the Companies Act,
2013 (2013 Act) which overhauled the erstwhile Companies Act, 1956 (1956 Act). Though the
2013 Act was a step in the right direction as it introduced significant changes in areas of
disclosures, investor protection, corporate governance, etc., there were multiple instances of
conflicts and overreach within the legislation leading to difficulties in its implementation. In fact,
since its enactment, more than 100 amendments have been made to the 2013 Act.

Accordingly, the Companies Law Committee (CLC) was constituted in June 2015 with the
mandate of making recommendations to resolve issues arising from the implementation of the
2013 Act. Based on the recommendations of the report of the CLC, the Government introduced
the Companies (Amendment) Bill, 2016 (Bill) in the Lok Sabha on 16 March 2016 which was
passed by the Lok Sabha on 27 July 2017 and by the Rajya Sabha on 19 December 2017. The
Companies (Amendment) Act, 2017 (Amendment Act) received the assent of the President on 3
January 2018, but different provisions of the Amendment Act will be brought into force on
different dates by the Central Government. Proposing a slew of changes, the Amendment Act
seeks to realign many provisions to ease corporate governance and doing business in India while
continuing to strengthen compliance and investor protection.

In this newsletter, we analyse some of the key changes effected by the Amendment Act and their
impact on corporate India: