New companies Bill was finally passed in the Rajya Sabha today, which makes it mandatory for profit companies to spend on activities related to corporate social responsibility (CSR).
The new law, India may become the first country, corporate social responsibility (CSR) expenditures by legislative provision.
The Bill will now go to the Presidential consent. The Lok Sabha (lower House of Parliament) cleared the Bill on December 18 last year.
A Bill to strengthen corporate governance, also includes provisions to strengthen the rules for corporate clients, as well as auditing firms and promises to provide equitable and sustainable growth of the national economy.
The new Bill has introduced many changes and concepts that should simplify the rules and bring greater clarity and transparency in the management of the business ...
Introducing the Bill in Parliament, Corporate Affairs Minister Sachin Pilot described as a new era for corporate law and regulation Bill in the Indian economy and said it's a historic moment for the country. "
"After 100 years, this is the second time that the new companies act was legislated," he said.
Industry body FICCI, welcomed passage of the Bill and said this legislation really is a landmark in the history of the company law and will revolutionize the Administration and management of enterprises in the times to come.
The Industry hopes that the work rules, which are expected to put out in the public domain before notification would provide greater clarity on the provisions of the operative part of the Bill, taking into account the legitimate interests of India Inc., "said Naina Lal Kidwai, President of FICCI.
"FICCI expressed the hope that there are no inconsistencies in the various laws, as consistency and certainty in the law helps in effective operation of the business, said Kidwai.
The following are key points of the Bill:
About 193 recommendations were included in a Bill's parliamentary Standing Committee and the passing of this Bill, will be replaced by the companies Act, 1956.Corporate Affairs Minister Sachin Pilot
The proposed legislation will ensure the installation of special courts for speedy trial and stronger steps to transparent corporate governance practices and corporate misdeeds committed running order.
The new law would require companies that meet certain criteria set to spend at least two percent of their average returns over the past three years to corporate social responsibility (CSR) activities. But companies, reporting only Rs 5 crore or more profit in the last three years have to make CSR spend.
The Bill allows companies the freedom to choose work areas for CSR and the mandate of auditor rotation every 5 years gives the process to add credibility.
If the organization fails to comply with the regulations of CSR, they will have to give explanations. Otherwise, they will face action, including executions.
The amended law also limits the number of companies, the Auditor can serve up to 20 besides bringing more clarity about the criminal liability of Auditors.
The new Bill also said that audtiors rotation will take place every five years
The term for independent directors has been fixed at five years, too
The new law will speed the consolidation and mergers
The Bill provides for a class action, which is a key weapon for individual shareholders to take collective action against errant companies
Companies Bill also States that corporates should disclose the difference in salaries of executives and the average worker
The new law provides for payment of salaries to employees for two years in companies that wind operations.
The law also gives more statutory powers of the Government in the investigative arm of the serious fraud investigation office (SFIO) to address corporate fraud.