Highlights of Company Bill 2012- passed in Lok Sabha

After a long wait –  

Companies Bill, 2008 became Companies Bill, 2009 and then Companies Bill, 2011. Based on Parliamentary Standing Committee’s recommendations, it was again amended and finally now we have Companies Bill, 2012 – Passed in Lok Sabha on 18th Dec 2012 at 10:46 PM

The Companies Bill, 2012 has been passed by the Lok Sabha on 18 December 2012 and introduced in Rajya Sabha. After receiving Rajya Sabha’s and President of India’s assent it will get enacted and will replace the existing statute for regulation of companies in the country, viz. the Companies Act, 1956.

The final version of the Companies Bill 2012 that was passed by Lok Sabha is yet to be public. However, based on the existing Companies Bill which was placed before the Lok Sabha and yesterday’s PIB Press release, following are the Salient features of the Bill and the press release:

  1. Maximum number of members in a Private company – Maximum number of members in a Private Company increased from 50 to 200. Further, the concept of One Person Company has also been introduced.
  2. Small Companies – Concept of small companies with various relaxations in terms of reporting requirement, board meetings and procedure for mergers/ amalgamations have been introduced. Small Companies have been defined to mean a Company, other than a public Company – (a) having paid-up share capital not exceed fifty lakh rupees or such amount, not exceeding rupees five crores, as may be prescribed; (b) Having turnover not exceeding rupees two crores or such amount, not exceeding rupees twenty crores, as may be prescribed, as per its last profit and loss account. 
  3. Annual Return – Substantial additional information is required to be given in the Annual Return of a company. Further, in case of a listed company, even if the Annual Return is signed by the Company Secretary in employment of the Company, it is further required to be signed by the Company Secretary in Whole time 
  4. Auditor (Clause 139) – Auditor appointed shall continue to hold office up till the conclusion of 6th meeting. Also, in case of listed companies and certain other class of companies as may be prescribed, compulsory rotation of individual auditors in every five years and of audit firm every 10 years has been provided.Limited Liability Partnership is allowed to be appointed as auditor.
  5. Financial Year – Financial Year of any Company can end only on March 31 and only exception is for companies, which are holding / subsidiary of a foreign entity requiring consolidation outside India, can have a different financial year with the approval of Tribunal.
  6. National Company Law Tribunal and National Company Law Appellate Tribunal – The bill provides for constitution of a National Company Law Tribunal and National Company Law Appellate Tribunal consisting of combination of technical and judicial members
  7. Dividends (Clause 123) – Mandatory transfer of profits to reserves for dividend declaration out of profits seems to have been done away with. Further, declaration of interim dividend can be out of surplus profits or out of current year’s profits. However, in case the Company has incurred loss up to preceding quarter during the year, the interim dividend cannot be declared out at a rate higher than the average dividend declared by the Company during immediately preceding 3 financial years.
  8. Inter-Corporate loans / investment (Clause 186) – Rate of interest on inter corporate loans will be the prevailing rate of interest on dated Government Securities. Further, exemption to Private companies from restrictions /conditions contained under section 372A of the exiting Companies Act, 1956 is now done away with. Hence, private companies shall be required to be bound by the above restrictions (i.e., private companies may not be able to grant interest free loans).
  9. Buyback (Clause 68) – Time gap between 2 buy-backs of an unlisted company shall be minimum of 1 year whether approved by board of directors or shareholders.
  10. Concept of Fast Track Merger introduced (Clause 233) – Concept of fast track merger without the requirement of a Court Process introduced to facilitate merger between 2 or more “Small Companies” or between holding Company and its wholly owned subsidiary.
  11. Merger of Indian Company with Foreign Company (Clause 234) – Indian company can be merged with foreign Company or vice-versa with prior approval of RBI.
  12. Merger of listed Company with unlisted Company (Clause 232) – Under existing provisions of the Act, merger of listed company with unlisted company entails listing of the unlisted company. However, under the Bill, the unlisted company has an option to continue as unlisted company subject to payment of cash to existing shareholders of listed transferor company in accordance with determined valuation.
  13. Further issue of Capital (Clause 62) – Provisions relating to further issue of capital applicable to all companies. Accordingly, any shares have to be offered to all shareholders on pro-rata basis (except in case of preferential issue through special resolution dealt in next point).
  14. Issue of differential equity shares (Clause 43) – Issue of equity shares with differential rights would have to be in accordance with such rules as may be prescribed. This has been made applicable to even private companies now.
  15. Preferential issue of shares (Clause 62) – Pricing of a Preferential Issue of shares by a company to be determined by a registered valuer. Conditions may be prescribed in rules for preferential issue by companies.
  16. Concept of Corporate Social Responsibility (‘CSR’) introduced (Clause 135) – Board shall ensure to spend 2% of average profits of last 3 years on CSR. Applicable to Companies having net-worth of Rs. 500 cr or more or Turnover of Rs. 1,000 cr or more or net profit of Rs. 5 cr or more. Company also required to constitute CSR committee.
  17. Consolidation of financial statements (Clause 129) – Consolidation of financial statements mandatory in case a Company has one or more subsidiaries
  18. Directors (Chapter XI) – (a) One of the directors of the company shall be a person who has stayed in India for 182 days or more; (b) Maximum no. of directors in a company increased from 12 to 15 which can be increased further by special resolution; (c) Maximum no. of directorship increased from 15 to 20 (with maximum 10 public companies)
  19. Issue of Preference shares beyond 20 years (Clause 55) – For infrastructural projects, preference shares can be issued for a period exceeding 20 years.
  20. Loan to directors (Clause 185) – No Company shall directly or indirectly make any loan including book debt or give any guarantee or provide any security to its directors or to any persons in whom the director is interested. However, this provision shall not be applicable to managing director / whole time director subject to conditions, etc.
  21. Independent director (Clause 149) – Concept of independent director introduced. Applicable to listed companies and CSR committee.


Let’s hope that the Bill receives assent from the Rajya Sabha and the President of India and get’s enacted. Once the Bill becomes an Act, the Central Government will notify a date/s for coming into force of the Act, and only from such date / dates the provisions of the Act will come into force.

6 replies on “Highlights of Company Bill 2012- passed in Lok Sabha”

Thanks so much for these relevant updates on Company Law…Being a student of ICSI, I realize the importance of this Knowledge.

I actually added your blog to my favorites and will look forward for more updates. Great Job, Keep it up. First of all let me tell you, you have got a great blog .I am interested in looking for more of such topics and would like to have further information. Hope to see the next blog soon.

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