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Companies Act, 2013 – A New Era of Compliance Governance

Debtosh Dey
Companies Act 2013: Enhanced Corporate Governance, Stricter Director Duties, Mandatory Auditor Rotation, and Expanded Compliance Roles The Companies Act, 2013 introduces significant changes to corporate governance, emphasizing directors' duties to stakeholders and stricter regulations on personal transactions. It mandates specific roles such as Key Managerial Personnel and Independent Directors for certain companies, with penalties for non-compliance. Auditors face imprisonment and fines for willful contravention, with mandatory rotation every few years. The Act expands the Company Secretary's compliance role, introduces secretarial audits, and establishes additional board committees and internal audits. It also empowers the Serious Fraud Investigation Office for fraud investigations and regulates accounting standards through the National Financial Reporting Authority, indicating a move towards comprehensive compliance governance. (AI Summary)

Companies Act, 2013 makes following important changes :

Directors’ duties of care are more specific covering all stakeholders and applicable laws  besides restrictions on personal/ related-party transactions. Board’s report includes more disclosures including CSR initiatives where applicable. KMP (CEO/ MD or Whole-Time Director, CS, CFO, etc) and Independent Directors are mandated for prescribed/ listed companies. Defaulting directors/ KMP attract various liabilities depending on the circumstances.

Auditor’s willful contravention of certain provisions relating to audit report and non-audit services attracts imprisonment and fine. Auditor rotation is another important provision. 

CS’s role, in compliance reporting to the Board, virtually covers any applicable law besides Company law (i.e. from Contract, Securities & Tax Laws to any law relating to Property/ Labour/ Mining/ Industry/ Environment/ Carriage/ Foreign Trade/ FEMA, etc may be relevant). Further, the Act provides for secretarial audits and Annual Return certification in listed and some other companies by CS in practice.   

Moreover, additional Committees of Board (beside Audit Committee), Internal Audit and Vigilance Mechanism in certain companies, Registered Valuers, fraud investigation by SIFO (with powers of search, seizure & arrest) and regulation of accounting & auditing standards by NFRA suggest multi-functional checks.

Corporate Laws / IBC / SEBI
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