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NEW DELHI: As the government explores further decriminalization of the company law, the corporate sector has suggested changes to the draft amendment bill moved by the Centre, including those relating to auditors.
In a series of presentations to the select committee considering the amendments, a senior industry executive said: “Increased flexibility in areas such as holding general meetings, updated limits for small businesses and targeted rationalization of compliance requirements would further strengthen the legislation and align it with the needs of a rapidly evolving corporate ecosystem.”For example, the bill provides for electronic public meetings, but there is a request to waive the mandate that at least one in every three public meetings be held physically.
“Alternatively, the law may explicitly recognize physical, virtual and hybrid modes of holding general meetings and provide companies with flexibility to determine the appropriate mode, taking into account ensuring effective shareholder participation and voting rights.
“While supporting the recognition of virtual meetings, the industry believes it may be appropriate to explicitly state virtual meetings in law, rather than leaving it to market practice,” an industry executive said.
Proposals regarding auditors cause a lot of heartburn. One of the provisions relates to a three-year cooling-off period for auditors from providing any service to the holding company or subsidiaries, a move the companies said would translate into a ban on non-audit work for 13 years, along with a 10-year audit period as changes to Section 139 have also been proposed.“The three-year cooling-off period norms may significantly limit the ability of firms to build integrated professional capabilities across service lines, thereby impacting the government’s goal of encouraging larger multi-disciplinary professional firms in India.
“The provisions of the bill may aim to enhance audit quality and auditor independence rather than create capacity constraints,” an industry body executive said.Another amendment to Article 144, which prohibits auditors from providing non-audit services directly or indirectly, has raised concerns among companies, although the government has stressed that such services are required to maintain independence. Arguing that this provision is already enshrined in ICAI’s Code of Ethics, one of the top four executives said the restriction would affect the international mood as a blanket ban did not exist in other jurisdictions.
A partner at a leading firm said such standards did not apply globally and inspections would only increase compliance costs.An industry body has proposed changes to provisions relating to the disqualification of directors in the event of conviction for breach of provisions relating to related party transactions.