Though the committee touched upon the issue, it failed to suggest a suitable regime, experts say.
There are some other deficiencies in the CLC’s recommendations that legal experts are worried about. For instance, under the Companies Act, various provisions refer to ‘firms’. Mostly, the term means a partnership firm under the Partnership Act. However, for some provisions, a firm can mean a limited liability partnership (LLP).
There is a need for further clarification over multiple laws governing related party transactions.
Some experts are concerned over the CLC’s recommendation to decriminalise offences relating to misstatements in the prospectus and those pertaining to related-party transactions.
The proposal to make violation of the requirements under Section 8 (primarily for charitable and social purpose companies) punishable only with fines is also being widely debated. “The feasibility of introducing a settlement mechanism under the Companies Act
and the existing framework needs to be covered,” says Gaurav Pingle, a company secretary.
Experts point out that there are several definitions and references to a single term in multiple Acts, leading to a new set of liabilities branching out of every law. “In the case of related-party transactions, the Accounting Standards, Sebi Rules, and the Companies Act
all apply. Widening the net for every minor thing can make the system cumbersome,” says Darshan Upadhyay, partner, Economic Laws Practice.
Experts also point out in 2015, the government had issued certain exemptions to private companies through a notification. However, in 2017, certain provisions related to these exemptions were amended, thereby causing confusion. The CLC is yet to clarify whether such exemptions shall prevail over the amendment or not. “Provisions relating to significant beneficial owners, easing compliances for private placements of securities, and disclosure of interest by directors are some of the aspects that require consideration,” says Pingle.
• Setting up a framework for voluntary disclosure of violations
• Non-alignment of provisions of the Companies Act with the LLP Act
• Clarification over multiple laws governing related-party transactions
• Clarification on whether exemptions to private firms in 2015 are still applicable