In a significant reform measure, on August 30, 2013, India enacted the Companies Act, 2013 (the “New Act”) to replace and revamp its existing company law régime. The New Act is seen as an important step in bringing Indian company law closer to global standards. It regulates areas ranging from incorporation to fundraising, corporate governance, mergers, auditor rotation and investor protection. The key highlights of the New Act are:
- Public companies will now be required to have independent directors on their boards with public listed companies required to have at least one-third independent directors. A code of conduct for such directors has been prescribed.
- The New Act provides for mandatory auditor rotation for listed and other prescribed companies every five years depending on whether the auditor is an individual or a firm.
- An investment structure that involves more than two layers of holding companies in India is now prohibited, subject to only two specific exceptions.
- “Class action” lawsuits have been introduced for the first time in India, whereby any class of members or depositors, in specified numbers, may initiate proceedings against the company if they are of the opinion that its affairs are being carried out in a manner unfairly prejudicial to the interests of the company, members or depositors.