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Cos Act, 2013: 10 Years Long & 5 Days Short!

Published on Thu, Mar 27,2014 | 13:35, Updated at Thu, Mar 27 at 13:47Source : 


By: Menaka Doshi, CNBC TV18

The Government and its bureaucrats gave themselves almost 10 years to craft a new company law but will give companies just 5 days or less to absorb its full effect and comply.  

It is most common (and clichéd) to begin an article with some famous wise, profound or philosophical words. I’m going to do that with some deviation today…

“We recognise that companies and their legal advisers will need to familarise themselves with the Act’s provisions and make proper preparation for full implementation. In particular, where substantive secondary legislation is needed, this needs to be in place in good time before the relevant provisions are commenced.”

Not profound, nor philosophical – just practical! Those are the words of Margaret Hodge, the Minister for Industries and Regions, UK on 28th February, 2006. UK’s new company law - Companies Act, 2006 - received Royal Assent on 8th November, 2006 and was to be implemented in phases over the next 2 years.  At 1300 sections, the Act was nothing short of gargantuan; add to that secondary legislation, transitional provisions and other guidance.  It has been an undoubtedly painful transition for British companies.

But it’s important to note that the implementation schedule was laid out right at the start. The Act was initially scheduled to come into full effect in phases by October 2008. The final phase got delayed by a year as the Ministry needed more time to make necessary changes and so it came into full effect on 1st October, 2009. The delay was announced in late 2007 – almost a year in advance of the earlier deadline.

Here’s what the UK government’s preparedness looked like in 2007.

So why am I boring you with this trivia on a new company law in another land?

Just so that you know that others have been there and done that – and yet India refuses to learn.

As a result – Indian companies have 5 days of notice before the Companies Act, 2013 comes into full effect.  And the final Rules have yet to be published. How did we get here?

• On 4th August 2004 the Ministry of Company Affairs (MCA) placed a concept paper on a new company law on its website.

• On 2nd December 2004 the Ministry of Company Affairs appointed an expert committee – J J Irani Committee – to advise on a new company law.

• On 31st May 2005 the Irani Committee presented its report to the Ministry.

• After including other inputs a new Companies Bill, 2008 was introduced in the Lok Sabha on 23rd October 2008.

• Due to dissolution of the 14th Lok Sabha the Companies Bill, 2008 lapsed.

• On 3rd August 2009 the new Government (UPA 2) introduced the Companies Bill, 2009.

• In September 2009, the Companies Bill, 2009 was referred to the Parliamentary Standing Committee.

• The Standing Committee submitted its report in August 2010.

• The Ministry withdrew the Companies Bill, 2009 in the winter session of 2001 and soon thereafter – on 14th December 2011 it introduced the Companies Bill, 2011.

• On 5th January 2012 the Bill was once again referred to the Parliamentary Standing Committee.

• The second Standing Committee Report was submitted on 26th June 2012.

• Thereafter the Companies Bill languished in Parliament till it was passed by the Lok Sabha on 12th December 2012.

• The Rajya Sabha passed it almost a full year later on 8th August 2013. By now it had been re-titled Companies Bill, 2013.

• On 29th August, 2013 the Companies Act, 2013 received presidential assent and was notified one day later with the first section coming into effect.

Now here’s where the trouble starts…

The novel feature of the Companies Act, 2013 is that it has only 470 sections – a rather slim law that is to be accompanied by more voluminous delegated or secondary legislation – rulemaking in simple English. The Act has more than 300 references to rules.

The first set of draft rules were published for consultation by the Ministry on 9th September 2013.

And then suddenly 3 days later – on 12th September 2013 – the MCA, with no prior notice, notified 98 sections of the Act. Granted that these were sections with no rules attached – yet it was not clear why the Ministry was in such a hurry to force a sudden, piecemeal implementation of the Act, even while all the draft rules were yet to be published.  Companies were stuck between 2 laws, between 1956 and 2013…with no clarity on the timeline for a full transition.

Thereafter 6 sets of draft rules were published through September, October and November. They generated some 30,000 responses and more. Any hope that the MCA would publish final rules by December end were dashed.

As 2013 drew to an end we had a new law, with 99 sections implemented, 371 sections pending and 6 sets of draft rules under consultation.

2014 started with the notification of the CSR section and Rules – to be effective on 1st April 2014. By now it was widely expected, but unconfirmed by the MCA, that the full Act would become effective 1st April 2014 – and yet there was no word on the final Rules.

As April neared there was still no sign of the final Rules nor any word on the implementation of the pending sections. And then suddenly today – on 26th March 2014 – the MCA announced that an additional 183 sections would come into effect on 1st April.  The Ministry has excluded those sections pertaining to NCLT (National Company Law Tribunal) as the Tribunal has yet to be operationalised. Besides it is currently under challenge in the Supreme Court by the Madras Bar Association.

In exactly 5 days, a total of 282 sections of the 470 sections and 7 schedules will be implemented – many of them referencing Rules - but the Rules have yet to be published. They are expected to be published in a day or so – giving companies less than a week to read, comprehend, consult and implement them in order to be fully compliant with the new law.

As on 28th February 2014 India has 9,44,135 active companies. Almost all of them will be impacted by the Companies Act – especially as this Act covers private companies in a way that the 1956 version never did. For instance – in the 2013 Act, the bar on insider trading extends to unlisted private and public companies as no exemption has been provided. The hope was that the Rules would somehow fix this oddity.

Similarly for many sections the Rules could materially change the scope and impact of the section. For instance the definition of ‘related party’ will be decided by the Rules and new company law places several restrictions on related party transactions. So until the final Rules are not published the scope of the related party transaction safeguards will not be known. Nor will companies know how to go about disclosing and approving such RPTs.

(You can get a better idea of Draft Rules highlights here)

A new company law is in itself a sweeping change for business. The Companies Act, 2013 compounds that by its expanded coverage of private companies and its new, unique governance emphasis (desirable but laborious). It is incomprehensible why the Ministry would notify sections that are to be accompanied by Rules, without even publishing the Rules. Thanks to this slap dash implementation and last minute scramble, it’s going to be a torturous few months for India Inc as it scrambles to meet the letter of this new law.

The Government and its bureaucrats gave themselves almost 10 years to craft a new company law but will give companies just 5 days or less to absorb its full effect and comply. 


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