Companies Bill, 2009 The Impact

Companies Bill, 2009 was introduced to the Parliament of India on the 3rd Day of August, 2009 and at present it is before the departmentally related parliamentary standing committee.
India Inc. has been dealing with the provisions of the Companies Act 1956 for over five decades. The said Act was drafted, debated and implemented for a newly independent, long suppressed, economically weak nation with welfare and nationalistic motive. Over the course of about five decades the original Act has been amended several times. However, over these decades India has also changed from a newly independent, long suppressed, economically weak nation to an open economy with vibrant democracy, large and young consumer base, large English speaking population, large number of skilled and professional manpower and lot of prospects. India has become one of the prime locations for global investment and has the potential to become an even more prospective economy.
India also has mighty competitors like China, Brazil, Russia and others which are also progressing very fast and some are faster than we do.
Our prospects as Indian nationals depend largely on the rate of growth of the Indian Economy or more specifically “on the rate of growth of the India Inc.” Company law of a country plays a major role in the corporate growth of the country. Companies Act, 1956 is the Umbrella Act for India Inc. This Act needs change because it has to ensure a faster rate of growth for India Inc. MSMEs can add a lot of strength to an economy and therefore development of MSMEs is also an important need.
Companies Bill, 2009 contains the following provisions which can have significant impact on the economy.
Encouragement to entrepreneurs
Special provisions for smaller companies
Clear definitions
Greater responsibility of the Board
Speedy redress of grievances
Easy entry and exit route
Standardization of regular processes and policies
Minimum Bottlenecks
Encouragement to entrepreneurs
Companies Bill, 2009 introduces the concepts of One Person Company and Dormant Company.
Under the existing provisions there has to be a minimum of two persons to start any company as there has to be a minimum of two directors and a minimum of two shareholders. Therefore under the existing laws, if a person want to do business in the form of a company, which has greater acceptance in the market than any other form of business, he must be ready to share his control over the business with at-least one person by appointing him as a director in his company and he will also have to share the ownership by accepting at-least one more shareholder. One Person Companies will address this issue. In a One Person Company there can be only one director and one shareholder.
Under the existing laws, once a company is incorporated, all statutory formalities must be complied. Statutory compliances as mandated under the provisions of the Companies Act, 1956 are same for all types of companies, except in very few cases. However, in practical life, when a person starts a new business as an entrepreneur, he faces many a hurdles, such as, problems in arranging finance, getting licenses, land, buyers, distributors and several other problems. A new venture requires some time to come to a steady and comfortable position and this time varies case to case, business to business. There are some defaults like non filing or delayed filing of Annual Accounts and Annual Returns where the Registrar of Companies is empowered to prosecute the defaulting companies and it’s directors and these are criminal prosecutions. There are several instances where genuine entrepreneurs have got entangled into criminal prosecutions and penalties due to non filing or delayed filing of accounts and returns and in many a cases there were genuine problems, which are quite common with business start ups. Companies Bill, 2009 proposes the concept of Dormant Companies. The Ministry of corporate Affairs will designate a company as dormant company on an application having been made by the company seeking dormant status. A dormant company will enjoy a number of relaxations and they can revert to a full fledged company once they apply for it. Dormant Companies can be used for holding patents, trademarks, copyrights, designs, other rights and intellectual properties. Many prospective entrepreneurs, such as, scientists with their research products, artists with their registered artwork, singers with their music compilations, authors with their books can think of starting their own companies to hold these intellectual properties and they can get their company designated as a dormant company. When a dormant company comes to a position to do business as a normal company they can apply to get re-designated as a full fledged company.
The provisions for One Person Company and Dormant Company have the potential to encourage a lot of entrepreneurs to start business in corporate form and will have a very positive impact on Micro and Small companies.
Special provisions for smaller companies
Companies Bill, 2009 has defined a Small Company as a company whose paid up capital to be prescribed but not to exceed Rs 5 crores, turnover to be prescribed but not to exceed Rs 20 crores and which will not include holding co. / subsidiary co. / section 4 co. / company formed under a special act. There are several benefits available to Small Companies in the this bill, such as, simpler provision for mergers.
Clear definitions
The bill attempts to define a number of terms where there were ambiguities, such as Independent Directors, Small Companies etc.
Greater responsibility of the Board
The bill defines the responsibility of the board. It also makes certain stringent but much needed provisions, like making insider trading by directors and key managerial personnel as criminal liability. These are the provisions which will make our law meet global demands.
Easy entry and exit route
Easy entry and exit provisions are important features of a developed economy. This bill makes the process of mergers and acquisitions simpler. The bill also makes modern and simpler provisions for winding up. These provisions will make this law a modern law similar to the laws of other developed nations.
Standardization of regular processes and policy

The bill recognizes the Auditing Standards and Secretarial Standards for the first time. It proposes that companies must follow such auditing standards as may be notified by the Central Government in consultation with the National Advisory Committee on Accounting and Auditing Standards and until such time the standards published by the Institute of Chartered Accountants of India will be the auditing standards. The bill also proposes to make it mandatory for companies to follow such secretarial standards for board and general meetings as may be prescribed.
However it is also in the interest of the industry that a law as important as company law must have the Certainty in law
Certainty in law is extremely important for the society. People must clearly know their position in comparison to the legal requirements to ensure compliance with the law of the land. Certainty in commercial laws is extremely important for the purpose of a proper business decision. Precedence is an important form of law mainly to ensure certainty in law.
Companies Bill, 2009 is shorter in comparison to the Companies Act 1956 but in this bill a large part of the procedural law has been left to future prescriptions, that is, to Rules. It is difficult to make a wholesome understanding of the provisions and their impact, until Rules are published. Company law is different from fiscal laws. Fiscal laws, for instance, tax laws are generally rule based because they have to address to the needs arising out of dynamic changes in fiscal and monetary conditions of the economy. Company law, on the other hand, deals with important business policy decisions of medium and long term nature. Rule making power of the Government is delegated legislation, in other words, bureaucratic procedure, which does not require the sanction of the Parliament of India. Important provisions of company law should have the sanction of the Parliament of India.
Just to quote an example, clause 150 of the Bill provides that a company may remove a director, other than a director appointed by the tribunal, by passing an ordinary resolution and by following such procedure as may be prescribed. The procedure for removal of directors being subject to Rules may not be a good proposition for Joint Ventures, Venture Capital entities and others as the respective parties to these agreements would not be able to fathom the stability of their nominated directors. In the event they will have to make appropriate provisions in the Articles, but, in view of latest High Court decisions, viz related to Section 111A of the Companies Act 1956, these provisions in Articles may not have enough legal strength.
In the Companies Act, 1956 the removal of a director requires a Special Notice and an Ordinary Resolution. While the special notice takes care of the necessary information to the members, the ordinary resolution ensures a democratic majority.
Important provisions, even though procedural in nature, which have potential to impact long term decisions should be specifically mentioned along with the substantive law.