Will the new Companies Law be a boon or a bane for the stakeholders in Business contents and components and techniques

1. Will the new Companies Law be a boon or a
bane for the stakeholders in Business
Presented by
Nagarajan G-PG21257
Chairperson
Dr.M.K.Lodi

2. Will the new Companies Law be a boon or a
bane for the stakeholders in Business
• During the last two decades, changes have taken place in the Indian
economy, in the communication and transportation infrastructure as
well as in the method of commerce, banking, and international trade.
• Liberalization of the economy is the process of changing the terms of
trade between urban and rural, labour and industry, finance and
commerce.
• Keeping all this modernization in view, the government constituted a
committee to enhance and create more opportunities by amending
the existing rules and regulations related to Company Law or
Business Law in India.

3. • Companies in India have been and are governed by a number of
legislations and regulations. The Companies Act, 1956 has been
governing the incorporation and functioning of companies in India
for almost 60 years now. The Companies Act 2013 incorporates a
number of new concepts, makes changes in others and removes
some archaic concepts as well.
• It is interesting to note that the Act liberalizes the provisions of the
Companies Act and takes some cue from international laws. Some
positive aspects of the Act include provisions for investor
protection, improving corporate governance, class action suits,
one person companies, and introduction of severe penalties in
cases of default, among others.

4. • India follows the common law system and has a written
Constitution that provides the framework for the
separation of powers between the legislature, executive
and the judiciary.
• The Constitution has both federal and unitary features.
It provides for the distribution of legislative and
executive powers between the centre and state while
also providing for a unified judiciary.
• The legislative powers are divided between the central
and state legislatures through:

5. • The Union List (which comprises 100 entries, which
include subjects of national significance such as national
defence, taxation, incorporation of companies and
banking).
• The State List (which comprises 61 entries, which include
subjects such as agriculture, land, trade and commerce
with the state territories).
• The Concurrent List (which comprises 52 entries, which
include subjects such as contracts, bankruptcy and
insolvency, trust and trustees, on which both the central
and state level legislatures may legislate; however, in case
of a conflict, the central law prevails).

6. • Additionally, the Constitution also provides for delegated
legislation, allowing the executive to exercise legislative power
in the form of ordinances, rules and regulations.
• Further, the judiciary in India follows a hierarchical structure,
with the Supreme Court at the apex and a High Court in each
state as the highest appellate court.
• The decisions of the Supreme Court are binding on all the High
Courts and other subordinate courts or tribunals.

7. Are there any restrictions on foreign investment, ownership or
control?
• India does not have full capital account convertibility.
• Indian Rupee is not a fully convertible currency and there are
regulations governing foreign investments into India.
• Non-residents investing in India are required to comply with
foreign exchange regulations, specifically the regulations
governing FDI.
• Most aspects of foreign currency transactions with India are
governed under the Foreign Exchange Management Act 1999
(FEMA) and the associated delegated legislations.

8. Are there any restrictions on doing business with certain
countries, jurisdictions, entities, organizations or individuals?
• There are certain restrictions under the FEMA, and the foreign
trade policy of India in respect of the countries as outlined
below:
• With effect from 22 April 2020, an entity of a country, which
shares a land border with India or where the beneficial owner of
an investment into India is situated in or is a citizen of any such
country, can invest only under the government approval route

9. • A citizen of Pakistan or an entity registered/incorporated therein
cannot establish a place of business in India without the prior
approval of the RBI.
• However, a citizen of Bangladesh, Sri Lanka, Afghanistan, Iran, China,
Hong Kong or Macau, or an entity registered/incorporated there,
does not need prior approval of the RBI except for opening a place of
business in the cities/states of Jammu and Kashmir, the North East
region and the Andaman and Nicobar Islands.
• A citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China,
Nepal, Bhutan, Hong Kong or Macau is not permitted to acquire or
transfer immovable property in India without the prior approval of
the RBI.
• However, such citizens can acquire or transfer property by way of
lease, which must not be for more than five years.

10. • A citizen of (or an entity registered in) Bangladesh and Pakistan
can invest in India only under the government approval route.
However, a citizen of or an entity registered in Pakistan cannot
invest in defence, space and atomic energy sectors/activities.
• The import or export of weapons and bullets, to or from Iraq is
prohibited, except for such export to the Government of Iraq
which can be made after securing a "No Objection Certificate"
from the Department of Defence Production.

11. • further, in order to align with the objectives of the Financial Action
Task Force (FATF), an Indian party is prohibited from making any
direct investment in an overseas entity (set up or acquired abroad
directly as a joint venture or wholly owned subsidiary or indirectly
as step down subsidiary) located in the countries identified by the
FATF as "non-cooperative countries and territories" as per the list
available on the FATF website or as notified by the RBI from time to
time.

12. • The exchange control is regulated by the RBI under the FEMA. FEMA as it
stands today encompasses provisions relating to all transactions that have
an international financial implication.
• The general principle for transactions involving foreign exchange is that
transactions which are in the nature of capital account transactions are
restricted unless specifically permitted under the provisions of FEMA.
However, the opposite is true for current account transactions.
• Capital account transactions are transactions which result in the alteration
of the overseas assets or overseas liabilities (including contingent
liabilities) of an Indian resident, or the alteration of Indian assets or
liabilities of a person resident outside India (for example, FDI or overseas
direct investment or external commercial borrowings by an Indian entity).
• These transactions are not permitted unless they are specifically allowed
and the prescribed conditions are satisfied.

13. • Current account transactions are transactions which arise on
account of foreign trade, other current business, services and
short-term banking and credit facilities in the ordinary course of
business.
• The Indian currency is fully convertible (except for certain
specified restrictions) for trade and for current account purposes
(that is, one can freely purchase foreign currency in exchange
for Indian currency for the purposes of settlement of trade and
current account transactions).

14. • FEMA envisages the RBI as having a controlling role in the
management of foreign exchange.
• RBI maintains exchange control primarily by providing special or
general permission for dealing in foreign exchange and specifying
conditions for payment in respect of capital account transactions.
• Further, the Department of Economic Affairs, Ministry of Finance
maintains exchange control by regulating the transfer or issue of
foreign securities to residents in India and Indian securities to
non-residents.
• The accounts of non-resident banks and rupee accounts of non-
residents other than banks are also governed by the RBI.

15. A private company is the most common form of business vehicle
adopted by entities doing business in India.
It has a minimum of two and maximum of 200 members and
contains restrictions in its charter documents regarding the right
to transfer shares in the company.
A private company is prohibited from inviting the public to
subscribe to its securities.
The Companies Act 2013 requires that all companies must have
at least one resident director who stays in India for at least 182
days during the financial year.
A private company also enjoys fewer restrictions and
requirements as compared to a public company.
Private Company

16. Public Company
• A public company must have a minimum of seven members and
there is no restriction on the maximum number of members.
• It can invite the general public to subscribe to its securities and its
securities can be listed on a recognized stock exchange and traded
publicly.
• The securities of a public company are freely transferrable.
However, private arrangements between the shareholders of a
public company restricting the right of transfer are enforceable.

17. Joint Venture
• A foreign investor may collaborate with an Indian partner to
establish a joint venture company in India.
• This can be the preferred option in cases where the percentage
of shares which may be held by a foreign investor are subject to
sectoral caps under the FDI Policy.
• Where FDI is permitted on the 100% automatic route a foreign
investor may also establish a wholly-owned subsidiary (WOS) in
India.

18. Limited Liability Partnership
• A limited liability partnership (LLP) in India is the preferred mode of
incorporation used by private businesses.
• It permits its members to have limited liability and ease of operation
since the internal affairs of the LLP are governed based on the LLP
agreement.
• There are also fewer compliance requirements for an LLP regarding
maintenance of statutory records and corporate filings.
• In order to facilitate doing business in India, the procedure for
incorporation of a company in India requires a single form to be filed
with one regulatory body.
• The incorporation is completed within a timeframe of less than 48
hours after submission of the requisite documents.
• Information with respect to registration in the companies register can
be obtained at the website of the Ministry of Corporate Affairs (MCA)

19. • In 2019, the Ministry of Labour and Employment introduced
four bills (or codes) to consolidate and regulate wages,
industrial relations, social security, and occupational safety,
health and working conditions:
Industrial Relations Code, 2020 (IRC 2020). The IRC 2020
consolidates and subsumes the provisions of the:
• Trade Unions Act 1926;
• Industrial Employment (Standing Orders) Act, 1946;
• Industrial Disputes Act, 1947.

20. • Code on Wages 2019 (Wages Code). The Wages Code consolidates and
subsumes the provisions of the:
• Payment of Wages Act 1936;
• Minimum Wages Act 1948;
• Payment of Bonus Act, 1965;
• Equal Remuneration Act 1976.
• Code on Social Security, 2020 (SSC 2020). The SSC 2020 consolidates and
subsumes the provisions of the:
• Employee's Compensation Act 1923;
• Employees' State Insurance Act 1948;
• Employees' Provident Funds and Miscellaneous Provisions Act 1952;
• Employment Exchanges (Compulsory Notification of Vacancies) Act 1959;
• Maternity Benefit Act 1961;
• Payment of Gratuity Act 1972;

21. • Cine-Workers Welfare Fund Act 1981;
• Building and Other Construction Workers' Welfare Cess Act 1996;
• Unorganised Workers' Social Security Act2008.
• The rules under the IRC Code, Wages Code and SSC 2020 are
expected to be notified into law. Until the time of notification, the
existing labour legislations continue to be applicable, as set out
below:
Industrial Disputes Act 1947. This is the most important labour
legislation in India, and provides for the mechanism of collective
bargaining and dispute resolution between employers and
employees. The statute also contains provisions with respect to
unfair labour practices, strikes, lock-outs, lay-offs, retrenchment,
transfer of undertakings and closure of businesses.

22. • Trade Unions Act 1926. This provides for the registration of trade
unions and sets out the law relating to registered trade unions.
• Employees' Provident Fund and Miscellaneous Provisions Act 1952
(EPF Act).
• This provides for a contributory social security mechanism and
applies to establishments that have at least 20 employees.
• An employee whose basic salary is less than USD200 per month, or
who has an existing provident fund membership based on a
previous employment arrangement, is eligible for benefits under the
the EPF Act.

23. • Employees' State Insurance Act 1948. This statute is applicable
to all factories, industrial and commercial establishments, hotels,
restaurants, cinemas and shops. Employees earning below
USD280 per month are eligible for benefits under this statute.
The statute provides for benefits in cases of sickness, maternity
and employment-related injury and certain other related
matters.
• Factories Act 1948. This statute prescribes, among other things,
the necessary terms of health, safety, working hours, benefits,
overtime and leave requirements in respect of factories in India.

24. Shops and Commercial Establishments Acts.
• These are state-specific statutes regulating the conditions of work
and employment in shops, commercial establishments, residential
hotels, restaurants, eating houses, theatres, places of public
amusement/entertainment and other establishments located
within the state.
• These statutes prescribe the minimum conditions of service and
benefits for employees, including working hours, rest intervals,
overtime, overtime wages, holidays, leave, termination of service,
employment of children, young persons and women and other
rights and obligations of an employer and employee.

25. Economic and Legal Reforms
• In addition to the political changes, other important steps taken
to promote the ease of doing business in India were:
• Decriminalizing offences under the Indian Companies Act which
"lack any element of fraud or do not involve larger public interest"
by replacement of imprisonment with civil penalties.
• Introducing changes permitting certain classes of public
companies to be prescribed by the government which will be
permitted to issue securities for listing on stock exchanges in
permissible foreign jurisdictions, without requiring compulsory
listing in India. Required amendments to listing regulations by the
Securities and Exchange Board of India (SEBI) are to be notified.

26. • Another positive is the prescription of more stringent penalties for
contraventions. In many instances, the monetary punishment has
been increased and grave defaults have been made non-
compoundable..
• The Act also provides for the establishment of the National
Company Law Tribunal (NCLT). This Tribunal will deal with all issues
or disputes under the Companies Act and also to expedite disposal
of company-related cases. Existing powers of the Company Law
Board will be transferred to the NCLT, as well as those exercised by
high courts in respect of winding up of companies, amalgamation
and merger, rehabilitation and revival of sick industrial companies,
reduction of share capital, etc.

27. Will the new Companies Law be a bane for the stakeholders in
Business
• The Act is not without faults.
• For instance, the Act is expected to bring about many
practical difficulties in implementing consolidation of
accounts of associate companies and joint ventures.
• Also, the Act has not rationalized provisions for winding up
of a company.
• Another drawback of the Act is that it lacks in innovation? it
does not allow new types of structure to be created.

28. • Further, it has not provided for introduction of
differentiated compliance levels, depending on the size and
functioning of the company.
• Such differentiation would have aided more companies to
become more compliant with the legal and statutory
requirements
• Lastly, as a significant part of the law will be prescribed
through Rules, it gives the bureaucracy vast powers to
amend the law.

29. Data Protection Laws
• India does not currently have specific data protection legislation in
place. However, the Personal Data Protection Bill 2019 (PDP Bill)
has been introduced in Parliament and is currently pending
approval of the lower house.
• It deals with the rights of individuals (data principals) and liability
of data processors or entities collecting/processing information
provided by the owners of such information.

30. • The PDP Bill, when adopted by Parliament, will replace the
existing data protection framework, under the IT Act, including
the Information Technology (Reasonable Security Practices and
Procedures and Sensitive Personal Data or Information) Rules
2011 (Privacy Rules).
• The PDP Bill, amongst others, sets rules in respect of the
obligations of a data processor in processing any personal data
or sensitive personal data, data localisation requirements, the
rights of data principals and the establishment of the Data
Protection Authority of India (that is responsible for ensuring
compliance and protecting the interests of data principals).

31. Q & A
Thank you for listening