The Companies (Amendment) Bill 2003 introduced in the Parliament on May 7 2003, seeks to ensure better corporate governance practices and promote investor protection. The Bill restricts subsidiaries from becoming a holding company of another company. It makes identification of promoters mandatory to prevent occurrence of vanishing companies, thereby making it easier to trace assets. It raises the minimum subscription of application amount of shares from 5% to 25%. If the minimum subscription is not reached, the amount must be refunded within eight days of closing with interest at bank rate. The Bill bans auditors from simultaneously providing other services such as actuarial services, accounting/book-keeping and internal audit services. It adds grounds for the disqualification of auditors found to be linked to a client's financial interest.
Listed companies must appoint chief accounts officers if paid up share capital exceeds Rs30 million ($640,000) for maintaining accounts and ensure compliance with disclosure norms. It prohibits public companies from selling, leasing or otherwise disposing of, in a single financial year, more than a fifth of the total assets of the undertaking or a tenth of the total assets of the company. The bill provides for there to be a majority of independent directors on the boards of public companies that have paid-up capital and free reserves of Rs50 million or turnover of Rs5 billion. It also defines independence to exclude pecuniary relationships or transactions with the company or its management.
Finally, the government is empowered to cap the limit of inter-corporate loans made to share broking companies and to restrict companies from making investments through only one investment company. The new law will strengthen buyback provisions by making their contravention an offence punishable with a maximum prison term of two years. Buybacks of shares from any arrangement or compromise entered into between a company and its creditors or members are excluded. Lastly, the Bill raises the partnership firm limit of 20 to 50.
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