Faster mergers, e-docs: Company law changes to target global competitiveness

Copyright © HT Digital Streams Limited All rights reserved. One of the proposals is to rework the voting parameters for shareholders to allow faster clearance for mergers between start-ups, unlisted companies and a corporate parent and its wholly-owned subsidiaries. (iStockphoto) Summary Probable changes include a key proposal to speed up certain mergers, facilitate electronic document serving and e-adjudication of offences, and enable administrative recovery of companies struck off the register without the involvement of tribunals. Probable changes include a key proposal to speed up certain mergers, facilitate electronic document service and e-business of violations, and enable administrative recovery of companies struck off the register without the involvement of tribunals, one of the people quoted above said. The measures aim to help Indian companies become globally competitive and raise the country’s ranking in future editions of the World Bank’s Business-Ready Index. One of the proposals is to rework the voting parameters for shareholders to allow faster clearance for mergers between start-ups, unlisted companies and a corporate parent and its wholly-owned subsidiaries. The idea is to ease the current requirement of 90% shareholder approval prescribed under Section 233 of the Companies Act. Physical to digital Another proposal aims to ease the requirement of physical documents. Currently, the law allows documents to be served to the government or shareholders in physical or electronic mode, but if a shareholder asks for a physical copy, the company has to arrange for it at a fee. The amendment aims to make it sufficient for certain classes of companies to serve documents only in electronic format. The amendments could also strengthen the powers of the National Financial Reporting Authority, particularly in taking action against auditors for offenses other than “professional or other misconduct”, for example, not submitting annual returns, the second person added. However, the government is yet to finalize the proposals to allow partnership firms to offer various services such as legal, secretarial, accounting and audit and actuarial services under one roof as the feedback received from public consultation is being examined, the person quoted above said. “An expert committee will examine the feedback and take a view on it,” the person said. Queries emailed to the corporate affairs ministry seeking comment remained unanswered. Finance and corporate affairs minister Nirmala Sitharaman said in her budget speech this year that “a light regulatory framework based on principles and trust will unleash productivity and employment.” The idea is to have a modern, flexible and people-friendly regulatory regime. Some of the changes may be related to upgrading the regulatory framework in the digital age, says Chandrajit Banerjee, director general of Confederation of Indian Industry (CII). “The need to send a notice of at least 21 clear days to hold a general meeting is redundant as information in today’s digital age is quickly disseminated and easily accessible to investors and the public. This can be reduced to seven clear days, which can be considered sufficient to ensure transparency, preparedness of stakeholders and effective governance,” says Banerjee. The rule on printing and sending physical copies of annual reports and financial statements should be optional, Banerjee added. Data Privacy The Act should also address disclosure requirements that compromise individual data privacy as sensitive employee information becomes easily accessible in the public domain upon request by shareholders, Banerjee said. “This increases the risk of poaching and abuse, and poses a significant challenge to Indian companies in managing and retaining talent. Therefore, it is proposed that the requirement to disclose employee compensation be eliminated or significantly relaxed to protect employee privacy and support sustainable talent management,” Banerjee said. Experts believe company law reforms should lift investor sentiment. “Reforms to the Companies Act should aim to unlock India’s entrepreneurial energy by streamlining compliance, speeding up approvals, simplifying governance norms and decriminalizing minor offences,” says Amit Maheshwari, partner tax at AKM Global, a tax and consulting firm. “Strengthening investor protection and improving corporate governance standards will further build trust and transparency in the business ecosystem. By leveraging technology and introducing differentiated compliance frameworks for start-ups and micro, small and medium enterprises, the corporate regime can become more agile and inclusive – promoting innovation and investment across sectors,” Maheshwari said. said. Experts also highlighted the restriction on the appointment of persons as managing director, whole-time director or manager of a company if a fine of ₹1,000 or more has been imposed on him for conviction of specific offences. “It is suggested that the threshold of ₹ 1,000 prescribed in Schedule V may be increased significantly, considering the current situation where most laws have penalties in excess of this threshold,” CII’s Banerjee said. A digitally-enabled, growth-oriented Companies Act – harmonized with tax, insolvency and securities laws – will improve regulatory certainty and ease of doing business, added AKM Global’s Maheshwari. Such forward-looking reforms are essential to maintain India’s economic momentum, deepen investor confidence and strengthen its position as a leading global investment destination, he said. Key takeaways The government is planning amendments to the Companies Act for a business-friendly, digital-friendly environment in the winter session of Parliament. Proposed changes aim to speed up mergers, simplify electronic documents and streamline company recovery processes. Amendments will rework shareholder vote for faster merger clearance, especially for start-ups and subsidiaries. Focus on reducing physical document requirements, strengthening NFRA powers against auditor violations. Experts suggest shortening notice periods, relaxing disclosure rules and significantly raising the threshold for minimum conviction fines. Get all the corporate news and updates on Live Mint. Download the Mint News app to get daily market updates and live business news. more topics #mergers Read Next Story