The Cabinet on Thursday cleared Companies Bill 2011, which will now be tabled in the Winter Session of Parliament.
The Companies Bill will replace around 54-year old Companies Act 1956 when it is passed by Parliament.
The Bill proposes to introduce the concept of class action suits for the first time in India. That would empower investors to sue a company for ‘oppression and mismanagement’ and claim damages.
Among other things, it also proposes to tighten the laws for raising money from the public.
The Bill also seeks to prohibit insider trading by company directors or key managerial personnel by treating such activities as a criminal offence. Insider trading refers to the buying or selling of a security by someone who has access to material, nonpublic information about the security.
The Serious Fraud Investigation Office (SFIO)-agency mandated to investigate corporate scams-is proposed to be armed with more powers in the Bill.
The Bill proposes that companies should earmark 2 per cent of the average profit of the preceding three years for corporate social responsibility (CSR) activities, and make a disclosure to shareholders about the policy adopted in the process.
The Companies Bill (2008), which lapsed with the dissolution of the 14th Lok Sabha, was reintroduced in the Lok Sabha in August, 2009. Subsequently, in August 2010, the Parliamentary Standing Committee on Finance gave its report after examining the provisions of the law.