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Current Events 7 March 2016



7 MARCH 2016



Proposals of the Companies Law Committee – A case of good spring-cleaning

The Companies Law Committee appointed by the Government of India in June 2015 to suggest changes in the Companies Act, 2013 and Rules made thereunder, in the interests of various stakeholders, has submitted its report. On perusal of the report, one gathers an impression that the Committee has endorsed the core of the Companies Act, 2013. Except for a few changes to the Companies Act, 2013, all other proposals, by and large, are clarificatory or correctional in nature.

Generic object clause

The Committee has suggested that Section 4 (1)(c) of the Companies Act, 2013 should be amended to allow companies to have a generic object clause to engage in any lawful activity or business as per the law for the time being in force. This proposal is based on Section 31 of the Companies Act, 2006 of the U.K. In the Indian context, a fundamental change in the business of a company without shareholders’ consent would not at all be in the interests of the investing public. Ease of doing the business should not be at the cost of the investing public. Hence, this proposal should be dropped.


The Committee has suggested that the present prohibition against more than two layers of subsidiaries for investments should be done away with. While the Committee recognises that numerous layers of subsidiaries are created to hide the source of funds so as to siphon off money, the Committee has sought to omit this provision in the Companies Act, 2013 in order not to impede the efficacy of corporate structuring. The Committee has also said that with the new definition of ‘beneficial interest’ relating to ownership of shares in companies, the abuse of various layers of subsidiaries for illicit purposes would be contained.

When India is yet to tackle the humongous problem of black money, any provision in the existing law, which aims at addressing such a problem, albeit in a limited way, should not be done away with unless reasonable experience is gained in administering such a law over a period of 10–15 years. It is true that certain industries like in the infrastructure sector, multiple subsidiaries are required to conduct business.

To address such business needs, the Central Government may be empowered to allow such industries as may be prescribed to have multiple subsidiaries beyond two layers, instead of completely doing away with any prohibition on more than two layers of subsidiaries.

Independent directors

When it comes to independent directors, Section 149 of the Companies Act, 2013 says that an independent director cannot have any pecuniary relationship with the company in which he is appointed as an independent director or with its satellites during the last two financial years or in the current year.

A similar provision in SEBI Regulations for listed companies says that an independent director should not have material pecuniary relationship with a company or with its satellites in the last two financial years or in the current year.

The Committee has suggested that the test of materiality for the purpose of determining whether pecuniary relationship could impact the independence of an individual to be an independent director may be introduced in the law itself. This may perceptibly weaken the institution of independent directors. Therefore, such an amendment in the law is not desirable.

Managing Director-Definition

The definition of a managing director under the Companies Act, 2013 is almost identical with the definition under the Companies Act, 1956. However, unlike under the Companies Act, 1956, under the Companies Act, 2013, the proviso saying that the managing director should be allowed to exercise his powers subject to the superintendence control and direction of the Board of directors, has been omitted.

The Committee has rejected a suggestion to insert the above proviso in the definition of managing director by saying that board’s oversight is implicit in the definition of the managing director itself even without such a proviso.

To reach such an unexplained conclusion in a litigious country like India may be counter productive. It is desirable to restore such a proviso in the definition of the managing director under the Companies Act, 2013.

National Financial Reporting Authority (NFRA)

When it comes to the National Financial Reporting Authority (NFRA), the following views of the Committee are quite appropriate:

“The Committee deliberated in detail on the matter and felt that in view of the critical nature of responsibilities wherein lapses have been seen to cause serious repercussions, the need for an independent body to oversee the profession is a requirement of the day. Major economies of the world have already established such regulatory bodies. The Committee by a majority view recommended that NFRA should be established early. Consultation may, however, be carried out with ICAI with regard to the jurisdiction of NFRA and the ICAI representation on NFRA.”It is highly desirable that NFRA is established at the earliest.

National Company Law Tribunal

As suggested by the Committee, the provisions relating to the constitution of the National Company Law Tribunal and the National Law Appellate Tribunal should be amended to conform to the Supreme Court of India’s order of May, 2015. Otherwise, such a tribunal may become a still born baby.



Pilot phase of eBiz portal may be completed by the year-end


A pilot version of eBiz, a government to business portal, which aims at improving the ease of doing business in India, is expected to be completed by the end of this year. Ministry of Commerce and Industry, in 2013, announced the launch of eBiz, India’s first Government-to-Business (G2B) portal which aims at transforming and developing a conducive business environment in the country. The eBiz portal is among the National e-Governance Plan’s integrated mission mode projects.

The government aims to integrate more than 200 services to the portal within a few years. An objective of the project is to improve India’s ranking in the World Bank’s Doing Business index.

It is being developed with the help of National Institute of Smart Government and IT major Infosys through the Public Private Partnership route. The Department of Industrial Policy and Promotion (DIPP) is the nodal Central government agency for the eBiz project.

What it does?

  • The portal will provide a one-stop shop for providing G2B services to investors and business communities in India. The portal will also help in reducing the delays and complexity in obtaining information and services.
  • Businesses that are already operating in India or planning to start operations can use the portal to obtain licences, approvals, clearances, no objection certificates, permits and even for filing of returns.
  • Once these services pertaining to starting, running and closing down a business – completing the entire lifecycle of a business entity — are integrated to the eBiz portal, it will effectively become a single window clearance mechanism.
  • Businesses and investors will be able to use the services 24X7 online, including for completing e-forms online, uploading them as well as the required documents as attachments, making payments online, submitting the forms online, tracking the status of applications, receiving SMS alerts from the government, obtaining the needed licenses or permits and downloading the certificates and getting approvals.

In the latest ranking India went up 12 places to 130th in a list of 189 countries. The Centre aims to ensure that India is in the top 50 within the next three years.




Bangladesh seeks Teesta water pact with India

After the resolution of the land boundary and maritime issues, Bangladesh is now looking up to India for an “immediate signing” of the Teesta water-sharing accord, which the two governments had agreed over four years ago.  The demand for early signing of the pending deal was made by Foreign Minister A.H. Mahmood Ali and State Minister for Foreign Affairs Shahriar Alam at the recently concluded “India-Bangladesh dialogue”.


It all began when West Bengal started constructing a barrage across the Teesta River. Bangladesh opposed the construction as few regions in the country were dependent only Teesta River water for agriculture.

  • However, after negotiation, an ad-hoc agreement was reached. As per the agreement, 36% of water of the Teesta flows was allocated to Bangladesh, 39% to India and a further 25 % remained unallocated.
  • But even this deal has remained pending for more than 2 decades. After many unsuccessful attempts to reach a consensus on the issue, a new bilateral interim deal was to be signed in 2011 to reach an equitable sharing of the water. But it was once again put on hold as the chief minister of West Bengal Mamata Banerjee opposed the deal.
  • Later, in 2013, an agreement was drafted which allowed for the 50:50 allocation of teesta waters between the countries during the lean season, when the real problems of allocation crop up. However, that was not acceptable.
  • West Bengal has been opposing the treaty fearing that the loss of higher volume of water to the lower riparian would cause problems in the northern region of state, especially during drier months. It is estimated that the Teesta River has a mean annual flow of 60 billion cubic metres but a significant amount of this water flows only during wet season i.e. between June and September, leaving scant flow during the dry season i.e. October to April/May wherein the average flow gets reduced to about 500 million cubic metres (MCM) per month. This creates issues of equitable sharing during lean season.
  • Teesta water is also crucial for Bangladesh, especially in the leanest period from December to March when the water flow often temporarily comes down to less than 1,000 cusecs from 5,000 cusecs.

Teesta River- Key facts:

  • India and Bangladesh share 54 rivers between
  • Teesta originates from Kangse Glacier, Charamu Lake in Sikkim. It flows through the northern parts of West Bengal before entering Bangladesh.
  • It enters Bangladesh, joins Brahmaputra, and ends in Bay of Bengal.
  • After Brahmapurta, Ganges and Meghna; Teesta is the 4th largest river in Bangladesh.
  • The river is a major source of irrigation to the paddy growing greater Rangpur region of Bangladesh.
  • The river forms the border between Sikkim and West Bengal before joining the Brahmaputra as a tributary in Bangladesh.





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