NEW DELHI: As govt explores further decriminalisation of the Companies Act, the corporate sector has proposed changes to the amendment bill moved by the Centre, including those related to auditors. In a series of representations to the select committee looking at the amendments, a senior industry executive said: “Greater flexibility in areas such as the conduct of general meetings, updated thresholds for small companies and targeted rationalisation of compliance requirements would further strengthen the legislation and align it with the needs of a rapidly evolving corporate ecosystem.”For instance, the bill provides for electronic general meetings but there is a demand to do away with the mandate that at least one in three AGMs should take place physically. “Instead, the law may expressly recognise physical, virtual and hybrid modes of conducting general meetings and provide companies the flexibility to determine the appropriate mode, subject to ensuring effective shareholder participation and voting rights. While supporting the recognition of conducting virtual meetings, industry views that it may be appropriate to mention the conduct of virtual meeting expressly into the law, rather than leaving it to market practices,” an industry executive said.
The proposals related to auditors is causing a lot of heartburn. One of the provisions relates to a three-year cooling off for auditors from rendering any service to the holding company or subsidiaries, a move firms said will translate into a ban on non-audit work for 13 years, along with 10 years for audit as changes have been proposed to section 139 as well.“The criteria for three years cooling off period may significantly limit the ability of firms to build integrated professional capabilities across service lines and hence impact the govt’s objective of promoting larger multi-disciplinary professional firms in India. The bill provisions may rather aim to enhance audit quality and auditor independence than to create capacity restrictions,” said an executive with an industry body.Another amendment to section 144 barring auditors from directly or indirectly providing non-audit services have raised concerns among firms, although govt has maintained that these are required to maintain independence. Arguing that this provision is already provided in Code of Ethics issued by ICAI, a Big Four executive said that the restriction will affect international mood as a blanket ban was not in present in other jurisdictions. A partner at a leading firm argued that no such norms apply globally and the checks will only increase compliance costs.One of the industry bodies has proposed changes to the provisions related to disqualification of directors in case of conviction due to violation of provisions on related party transactions.
