Companies Act: Proposals to improve governance rules

Following the recent Companies Amendment Ordinance, 2018, in effect from 2 November 2018, the government of India now plans to bring further amendments to the Companies Act, 2013. The proposed changes considered to be urgent in nature and needed to strengthen the corporate governance and enforcement framework in India, are as follows:

Resignation of independent directors: It proposes to increase the oversight by the Registrar of Companies around the circumstances and the reasons for resignations of independent directors by requiring them to forward a copy of their resignation letters to the registrar within seven days, and also giving detailed reasons for it. Further, the resignation would only become effective after 30 days from the date of receipt of the notice or any other later date as mentioned in the notice.

Removal of independent directors: In February 2018, the government had amended section 169 of the act to provide that in the case of removal of independent directors, who are reappointed under section 149(10), a company would need to pass a special resolution in addition to giving him an opportunity to be heard. It proposes to apply the same process in case of all independent directors.

Manoj Kumar is the founder and managing partner at Hammurabi & Solomon.