Potential Impacts of India’s New Companies Act, 2013

Francisco A. Laguna & Annapurna Nandyal

In last week’s post, we highlighted some of the new concepts and changes introduced by India’s Companies Act, 2013 (the “Act”).  Today, we explore some of the critiques of the Act and its potential impacts.

Many detractors of the Act still consider it inadequate compared to the legislation governing companies in many jurisdictions. Moreover, several provisions will not enter into force immediately: public comments continue to be reviewed, and the Indian Government must draft various rules and regulations to implement them.

India: Red Fort
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The Act was rolled out in two sessions, with feedback on the 1st Phase rules to be submitted by 10 October and feedback on the 2nd Phase rules to be provided by 23 October. Many have argued that the whole Act should have entered into force at one time, to avoid confusion. In addition, the lack of clarity in certain provisions has resulted in criticism by auditors, lawyers and finance professionals.

India’s New Companies Act, 2013

Francisco A. Laguna & Annapurna Nandyal

This week, we begin a 2-part series on India’s “Companies Act, 2013”, enacted in August 2013 (the “Act”).  The Act replaces the six-decade old Companies Act, 1956. Over the past 57 years, India’s corporate and business environment has evolved significantly; hence, the need to amend and modernize the law. The legislation is aimed at improving accountability and transparency in the corporate sector and increasing foreign investor confidence in the country.

Compared to Companies Act, 1956, the Act has brought about drastic changes in several areas of company administration and management to facilitate the ease of doing business in India.  One major objective of the Act is to decrease the need for government approvals, enhance self-regulation, increase shareholder rights and implement stricter corporate governance rules to meet global standards. The Act implements key changes in the following areas:

Government Buildings in New Delhi
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• Loans, Compromise, Arrangements, Amalgamations/Mergers and Demergers
• Auditing
• Accounting
• Corporate governance
• Related-party transactions

Importantly, the Act specifies that foreign companies conducting business activities in India in any manner are deemed to be Indian companies and must comply with Indian regulatory requirements.  It is unclear how this provision will be interpreted or applied.