India: Recommendations Of Companies Law Committee ("CLC"): A Way Forward To The Companies Act, 2013


One of the most prominent legal reforms in India is the enactment of the Companies Act, 2013 ("Act") with the objective of tuning the Indian company law with the global standards. The provisions of the Companies Act, 2013 have been notified in a phased manner as out of 470 sections only 283 have been enforced by April 1, 2014 and the remaining provisions are yet to be notified. Most of the provisions which are still to be notified are dependent upon the establishment of the National Company Law Tribunal ("Tribunal"), which is likely to be notified shortly.

The Act introduced vital changes in the company law in India, especially in relation to accountability, disclosures, investor protection and corporate governance related provisions. However, from the very first day of the enactment of the Act, it has been noted that the amended Act has been weighed down with many drafting errors and containing a range of impractical provisions which are creating lots of obscurity in its implementation. Further, in view of the extent and scope of changes, the stakeholders took some time to come up with the new regime, with the new provisions and stagger upon some difficulties in the process. Further, the plan of the Government for ease of doing business in India would also be adversely affected due to such complexity.

Due to these difficulties the stakeholders made several representations to the Government from time to time with respect to the handy difficulties being faced by them in implementation of the new Act. The Ministry of Corporate Affairs ("MCA") has introduced a few instant amendments in May, 2015, although several representations are still being received by the Government for further assessment of the Act.


Thus, to remove such convolution, the Ministry of Corporate Affairs, vide an office order dated June 4, 2015, constituted the Companies Law Committee ("CLC"/ "Committee") under the chairmanship of the Secretary, Ministry of Corporate Affairs to examine and make recommendations on the issues relating to implementation of the Companies Act, 2013. The representatives from Reserve Bank of India ("RBI") and Securities and Exchange Board of India ("SEBI") have also been co-opted as members of the CLC.

The CLC constituted of a former judge of the Delhi High Court, representatives of the Institute of Chartered Accountants of India, the Institute of Cost Accountants of India, the Institute of Company Secretaries of India and renowned persons in the industry and also coopted representatives from RBI and SEBI as members. They have recommended several changes to the Act for the proper and effective implementation of the Act.


The Committee after considering the suggestions received by it, through public consultation process and from all other stakeholders including professional institutions, chambers of industries, law firms and other regulatory bodies, submitted its report to the MCA on February 1, 2016 recommending changes in the Act and Rules framed therein.

About 100 amendments to the Act have been proposed by the CLC which includes changes in 78 sections and approximately 50 amendments to the Rules as well.

Almost all the significant areas of the Act have been proposed to be changed by the CLC such as definitions, acceptance of deposits, raising of capital, accounts and audit, management and administration, corporate social responsibility, provisions relating to corporate governance and offences & penalties etc. Some of the major changes recommended by the CLC are outlined herein below.

In order to remove ambiguities in the definitions and make them more objective, the CLC recommended modifications in the definitions of various terms used in the Act including but not limited to Associate Company, Debentures, Financial Year, Holding Company, Interested Director, Key managerial personnel, Net worth, Related Party, Small Company, Subsidiary Company and Turnover etc.

To make the process of incorporation simpler and to provide greater flexibility for carrying out business in India, the Committee proposed changes in the provisions relating to incorporation of companies by allowing unrestricted object clause in the memorandum of association and replacing affidavits with self declarations from subscribers to memorandum and first directors. Consequently, changes in various forms related to these provisions would also be anticipated.

The Committee recommended changes with respect to provisions relating to raising of capital by providing simplification of the private placement process, doing away with the requirement of separate offer letter and synchronizing the provisions of the Act with the regulations issued by other sectoral regulators. Such changes would definitely help companies in raising capital slickly.

Apart from this deal with the situation of disqualifications from appointment and vacation of office of director, the Committee recommended that the vacancy of an office should be triggered only where a disqualification is incurred in a personal capacity and a disqualification under Section 164(2) be only applicable to a person who was a director at the time of the noncompliance, and in case of a continuing non-compliance, there should be a period of six months' time allowed for a new Director to make the company compliant.

With the objective of improving transparency and quality of information concerning financial position of the companies, the Committee suggested changes to the provisions relating to accounts and audit and accordingly requirement for annual ratification of appointment/continuance of auditor has been proposed to be removed.

Further, to remove ambiguities in calculation of profits for determination of a company's obligation on corporate social responsibility, the Committee also recommended certain changes viz. the term 'average net profit' to be replaced with the words 'net profit'. In addition to this, it is also proposed that companies are not required to appoint independent directors to have CSR Committee with two or more directors.

For the amplification of corporate governance in the companies by incentivizing individuals to take up positions of responsibility and reducing the cost of compliances, the Committee recommended significant changes in the provisions relating to independent directors, nomination and remuneration committee, audit committee, disclosure of interests, loans and investments, managerial remuneration, insider trading etc. The key changes proposed in this regard inter alia include the requirement of Government approval for managerial remuneration to be omitted, companies may be allowed to give loans to entities in which directors are interested after passing special resolution and adhering to disclosure requirements, provisions relating to forward dealing and insider trading to be omitted from the Act as listed companies are regulated by SEBI, to do away with the requirement for a managerial person to be resident in India for 12 months prior to appointment.

In addition to above, it is worth mentioning other recommendations suggested by the Committee including exclusion of convertible notes raised by startups from the definition of deposits, simplification of the procedure to convert an LLP into a company, allowing start-ups to raise deposits for its initial five years without any upper limits, allowing start-ups to issue ESOPs to promoters working as employees, increasing the limits with regard to sweat equity that can be issued by a company from 25% of paid up capital to 50%, increasing the thresholds for private companies to comply with having an Independent Director, Audit Committee, Nomination & Remuneration Committee and rules regarding availability of names are being made liberal to allow for more innovative names.


The Committee has attempted well to take away the difficulties and challenges being faced by all the stakeholders in implementation of the Act. These recommendations are undoubtedly a welcome move which eventually help in smooth functioning of the Act and accomplish the Government's objective of ease of doing business and encouraging start-ups in India as well. We anticipate that the suggested changes should be finalized and adopted by the Government as soon as possible so that the corporate get relief from the burden of compliances and the Act become more amicable.

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.

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