The Companies Bill, 2012 (“Bill”) a thorough and comprehensive review of the Companies Act, 1956 (“Act”) was first introduced in the Lok Sabha in October, 2008 as Companies Bill, 2008 and after several modifications was passed by the Lok Sabha on 18th December, 2012. The Bill aims at simplifying the law governing the companies. This is clearly evident from the structuring of the Bill as many provisions in the Act that were redundant or served little or limited purpose have been weaned out to make the Bill a lot leaner, comprising of only 470 sections and 7 schedules against 750+ sections and 15 schedules of the Act.

The Bill is expected to be passed by the Rajya Sabha this year and inter alia seeks to provide for e-governance, protection to the small investors, promote corporate social responsibilities and provide more options to the entrepreneurs for operation by introducing new concepts such as ‘one person company’ and increasing the no. of members in a private company from 50 to 200. The Bill also accords greater power to the shareholders by increasing the number of matters that would require a special resolution including appointment of managing directors, removal of auditors, loan to managing/whole time directors, related party transactions etc.

Though the Bill clearly attempts to bridge lot of gaps in the Act, this article attempt only to analyze the stricter measures introduced by the Bill for investor protection.

Amongst others below are a few changes through which the Bill endeavours to provide a more secured environment to the investors:

• The market regulator SEBI has been vested with the power to administer/regulate the issue and transfer of the securities and non-payment of dividend by listed companies. The Bill also provides SEBI the final word in case of any market related issues or conflict between the laws.
• Further, in line with the Supreme Court’s interpretation of section 67 of the Act in Sahara India Real Estate Corpn. Ltd. v. SEBI, the definition of ‘private placement’ in the Bill has been amended in order to curb public issues in the garb of private placement.
• While the Act, in cases of fraud or falsely inducing a person to invest money (including inducing to enter into any agreement with bank or financial institution, with a view to obtaining credit facilities), provided a punishment of maximum five (5) years imprisonment or a fine upto INR ten thousand (10,000), the Bill is more stringent and provides for both imprisonment which may extend to minimum of six (6) months up to ten (10) years and fine not less than three times the amount involved in fraud.
• The Bill also extends the power of invoking class action to any person aggrieved or affected by any misleading statement or the inclusion or omission of any matter in the prospectus. As per the Bill, the suit may be filed by any person affected by any misleading statement or inclusion or omission of any matter in prospectus. Accordingly, specified number of members or class of members or depositors may file an application before the tribunal, if they are of the opinion that management of affairs of company are conducted in a manner prejudicial to the interest of company or members or creditors or depositors. However, the provision is primarily injunctive and may invite unwarranted activism interfering in the working of companies.
• The Serious Fraud Investigation Office (“SFIO”) is proposed to be provided a statutory status and its investigation report filed with the Court for framing of charges shall be treated as a report filed by a police officer. The SFIO shall have power to arrest in respect of certain offences under the Bill which attracts the punishment for fraud. These offences shall be cognizable and the person accused of any such offence may be released on bail subject to certain conditions provided in the Bill.
• Currently, forward dealing and insider trading, are regulated by the SEBI regulations, the Bill introduces specific provisions prohibiting forward dealing and insider trading of securities. This also includes prohibition on the directors and key managerial personnel from forward dealings in securities of the company.

The Bill is just one step short of becoming law and certainly promises new and improved regulatory environment with more democracy being introduced in the governance of company related affairs. The Bill also provides more muscle to the shareholder rights and powers but at the same time it also poses a big challenge before the companies, directors and the auditors to start preparing themselves for the regime change. Accordingly, the Bill accords the investors the cushion by way of the reforms reassuring the security to the investments.