India: Companies Act Suggestions: A Step In Line With The Times

India's Companies Act, 2013, has had a chequered and a sluggish start. While it received presidential assent on 29 August 2013 and appeared in the official gazette the next day, only 98 of its 470 sections were notified on 12 September 2013. A further 183 sections, along with rules implementing the notified sections, were notified into effect on 1 April 2014. Until all the sections are notified, the provisions of the Companies Act, 1956, that do not contradict the notified provisions of the 2013 act will continue to apply.

While the 2013 act is well intentioned, parts do not seem to have been thought through in terms of practical impact. For instance, the move to raise compliance requirements for private limited companies to the same level as public companies received much opprobrium, and was rolled back in 2015 to nearly the same position as in the 1956 act.

Similarly, multiple representations have been made seeking amendments to section 135 of the 2013 act, on "voluntary" corporate social responsibility (CSR). These resulted in the constitution of a high level committee to examine implementation of section 135, which submitted its report in September 2015.

In view of the constant complaints around the implementation of the 2013 act, the government constituted a committee on 4 June 2015 to provide recommendations on issues that have arisen, and to consider the reports of the committees on CSR and bankruptcy law reform, and the Law Commission. This latest committee submitted its report on 1 February and its recommendations to streamline and reform the 2013 act have been received like a breath of fresh air. The report's guiding principles include: (a) balancing the interest of companies, professionals, investors, regulators and other stakeholders; (b) simplifying processes and doing away with unnecessary procedures; (c) providing "greater transparency and disclosures in view of lesser regulatory interference and greater self-regulation"; and (d) clarifying the provisions of the 2013 act.

For starters, the report recommends that in view of the new definition of "charge" (which includes a lien), the charge registration rules incorporate exceptions to the registration of a lien. From a fundraising perspective, to remove the confusion created by the definition of "debenture", which appears to encompass instruments such as commercial papers, the report recommends that, in consultation with the Reserve Bank of India and the Securities and Exchange Board of India (SEBI), the central government should carve out the instruments that they regulate.

Further, as the definition of a "listed company" includes companies that have non-convertible debentures listed but no equity shares listed, the report recommends providing exemptions for such companies. This is of particular importance for companies established as special purpose vehicles, which have not listed any equity shares, and have raised funds by issuing listed non-convertible debentures.

Notably, addressing a common bugbear of Indian corporate groups, the report recommends that loans to a "person in whom director is interested" (sic) may be allowed as long as these are authorized by way of a special resolution. In a similar vein, to facilitate "legitimate business structuring", the report also recommends removing the requirement that companies not have more than two layers.

Significantly, to ease the process of issuance of securities through a private placement, the removal of the requirement to file a "private placement offer letter" with the registrar of companies has been recommended. Further, to protect investors, it is proposed that the application form include disclosures such as the objects of the issue, the number of securities to be issued and the pricing methodology. Another welcome recommendation is that section 42 of the 2013 act be amended to explicitly allow the simultaneous offering of more than one type of security by way of private placement.

From a streamlining perspective, the removal of provisions on insider trading and forward dealing as these are already covered in SEBI's regulations has been recommended. To this extent, the report also recommends aligning prospectus disclosure requirements in the 2013 act with SEBI's prescriptions. Presumably in support of the government's "Make in India" initiative, the report also recommends allowing promoters who are employees or directors to benefit from employee stock options and the raising of sweat equity issuance ceilings from 25% to 50% for startups.

The report is balanced and its recommendations reflect due consideration and deliberation by persons who have actual experience in the day-to-day functioning of Indian companies. Many hope the report will usher in wide-ranging changes to the 2013 act to make it more "business friendly" while simultaneously ensuring that the interests of stakeholders are not compromised.

The report has been placed on the website of the Ministry of Corporate Affairs, and was open for public comments until 15 February. With the time for providing comments being so limited, it is hoped that the government may just choose to accept most (if not all) the recommendations and introduce appropriate amendments.

This article was first published in the March 2016 issue of the India Business Law Journal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions