The Company Law Committee presented its Report (“CLC Report”) to the Ministry of Corporate Affairs on 21st March 2022, making recommendations to the Government of India on, inter alia, changes aimed at facilitating and promoting greater ease of doing business in India and effective implementation of the Companies Act, 2013, the Limited Liability Partnership Act, 2008 (“LLP Act”) and the Rules made thereunder.
The CLC Report recommends various changes to the Companies Act, 2013 to recognise new concepts, expedite corporate processes, improve compliance requirements, and remove ambiguities from existing provisions. The CLC Report also includes recommendations to enable producer organisations to incorporate under the LLP Act, 2008.
The main recommendations in the CLC Report, regarding the Companies Act, 2013 and the LLP Act are as follows:
- Allowing certain companies to revert to the financial year followed in India;
- Facilitating certain companies to communicate with their members in only electronic form;
- Recognising issuance and holding of fractional shares, Restricted Stock Units and Stock Appreciation Rights;
- Easing the requirement of raising capital in distressed companies;
- Replacing the requirement of furnishing affidavits with the filing of self-certification/ declaration;
- Clarifying the inclusion of ‘free reserves’ while determining the limit for buying back of a company’s equity shares;
- Prohibiting companies from recording trusts on their register of members;
- Allowing companies to hold general meetings in virtual, physical or hybrid modes;
- Creating an electronic platform for maintenance of statutory registers by companies;
- Clarifying provisions relating to Investor Education and Protection Fund;
- Strengthening the National Financial Reporting Authority;
- Reviewing and strengthening the audit framework and introducing mechanisms to ensure the independence of auditors;
- Standardising the manner for auditors to provide qualifications;
- Recognising and providing an enabling framework for the constitution of Risk Management Committees;
- Clarifying the tenure of independent directors;
- Revising provisions relating to the disqualification and vacation of the office of directors;
- Clarifying the procedure for the resignation of key managerial personnel;
- Strengthening the provisions relating to mergers and amalgamations;
- Easing the restoration of struck off companies by enabling the Regional Director to allow restoration of names of companies in certain instances;
- Recognising Special Purpose Acquisition Companies and allowing such companies, which are incorporated in India, to list on permitted exchanges;
- Prohibiting the conversion of co-operative societies into a company;
- Modernising enforcement and adjudication activities through electronic mode;
- Strengthening the incorporation and governance framework for Nidhis;
- Removing ambiguities from present provisions under the Companies Act, 2013 through changes of drafting & consequential nature.
- Enabling the incorporation of Producer Limited Liability Partnerships under the LLP Act to ease incorporation and compliance requirements for producer organisations.
The stated intent of the CLC Report, to foster ease of doing business, digitisation and improve compliance requirements, are laudable. The recommendations including the proposal to allow companies, which cease to be associated with a foreign entity, to revert to the Financial Year followed under the Companies Act, 2013, replacing affidavits with self-declaration, holding general meetings through the use of technology are few among many suggestions that speaks to the intent to rationalise compliance requirements. However, the final decision to accept/ suitably amend the recommendations rests with the Government of India.