It is now more than a year since the Companies Act, 2013 (CA 2013) became effective, replacing the nearly six-decade old Companies Act, 1956 (CA 1956). The CA 2013 seeks to strengthen corporate governance framework in Corporate India. The new law is being implemented in phases and a few sections are yet to become effective. The government continues to make amendments to CA 2013 to align it with other regulations like those of SEBI and vice versa. With the changes and implementation happening simultaneously, it is an uphill task for dynamic Indian businesses to keep pace with this fast-changing regulatory landscape.
While CA 2013 is far more concise and has better grouping and aligning of the sections and the rules, as compared to CA 1956, the proper interpretation of the provisions has created obvious challenges for companies and professionals alike. For instance Section 135 (1) of CA 2013 provides that every company meeting the prescribed criteria in “any financial year” is required to have a CSR Committee for the implementation of CSR activities. It indeed was a major challenge on how one should interpret “any financial year” until the clarification was issued by Ministry of Corporate Affairs that it implies any of the three preceding financial years.
While a phased implementation of CA 2013 has given time to companies to develop processes, train resources, alter transactions and adjust organization structures, the lack of detailed transitional provisions in many places has led to a lot of complexity and anxiety.
Further applicability of most of the provisions now to all private Companies which were exempt under CA 1956 has resulted in substantial increase in costs as well as become extremely onerous for compliance.
Similarly in regard to listed Companies, while CA 2013 Act and the SEBI requirements have certainly been aligned to a large extent, there are yet a handful of areas that have to be harmonized. The requirements under the CA 2013 and by SEBI have become stricter than their previous avatars and their compliance will indeed be challenging.
Under CA 2103, Secretarial Audit is now mandatory for all Listed Companies and certain prescribed unlisted companies. The same has been long awaited and it indeed is a very good opportunity for all of us Company Secretaries in Practice but also challenging as the scope of audit requires to report on the compliance of all the laws applicable to the Corporate and does not restrict it to only Company and Securities Laws.
Regardless the challenges, CA 2013 has made good progress in the right direction and few of the recent amendments have brought in relief to some of the onerous provisions relating to deposits, related party transactions, loans to subsidiary companies etc,. We are expecting further amendments to the CA 2013 to be effected soon which will further make CA 2013 more corporate friendly and amicable while ensuring stricter governance and transparency through proper disclosures.
Let us all strive to ensure compliance of CA 2013 in its true letter and spirit as it can go a long way in improving the credibility of Indian companies to the rest of the world.
Wishing everyone a successful and prosperous financial year 2015-16