The Committee on the Companies Amendment Bill of 1997, commissioned in 2002 by the Ministry of Finance and Corporate Affairs under R. D. Joshi, Director General, Department of Company Affairs, arose from the need to adapt India’s corporate legal framework to the evolving economic landscape marked by the liberalization and globalization that had been initiated in 1991. The Companies Act of 1956 had been the cornerstone of corporate regulation, but it required significant amendments to align with modern economic reforms. Previous committees, like the Sachar Committee in 1977, had already highlighted the need for changes to address monopolistic practices and foster a more conducive business environment. The new committee’s report aimed to consolidate previous amendments and propose further refinements to ensure the Companies Act facilitated efficient business operations, robust corporate governance, and investor protection. Members included Rajiv Mehrishi (Joint Secretary, DCA and Alternate Chairman); V. K. Bhasin (Joint Secretary, Ministry of Law); S. B. Mathur (DII); Ashok Haldia (Secretary, ICAI); S. P. Narang (Secretary, ICSI); E. Selvaraj (JD(T), DCA); S. K. Sharma (AD(I), DCA); and S. P. Dixit (JD(L), DCA).

The committee emphasized the critical importance of good corporate governance for sustaining corporate growth and maintaining competitiveness in a global market. It recommended measures to enhance transparency, accountability, and reporting standards, including mandatory compliance with Indian Accounting Standards. The report proposed scrapping obsolete provisions, such as those related to sole-selling agents, to streamline the act. Additionally, it suggested dividing the act into smaller, focused statutes addressing specific areas such as insolvency and winding up, thereby simplifying regulatory compliance. Recommendations also aimed to prevent misuse of the provision for resolutions requiring special notice by moving the resolution without any meaningful support and ensure better corporate governance by addressing issues related to subsidiaries and holding companies. The report also recommended prohibiting company promoters from withdrawing from the subscription after their subscription generates market confidence to a public issue, as well as imposing a restriction on the number of directors and setting a retirement age for directors.

The committee’s recommendations aimed at making business operations easier by reducing government intervention. Significant proposals included eliminating the need for central-government approval for various corporate actions, such as buybacks, intercorporate investments, and the issuance of sweat equity. It also recognized modern documentation methods, allowing microfilm, facsimile copies, and computer printouts as legally valid documents. Enhancing limits for managerial remuneration without requiring government approval was another significant recommendation. Furthermore, the committee advocated combining sections of the law concerning sole-selling agents, simplifying the process of the Registrar of companies removing defunct companies from the list of companies, and limiting the number of subsidiaries to avoid complex structures.

Based on the recommendations of the committee, several changes to the Companies Act were made. Companies could now have up to 15 directors, and digital means of documentation were now considered legally valid. Limits were also imposed on the age of directors.

The report addressed the need to modernize India’s corporate legal framework, recommending measures to simplify compliance, enhance corporate governance, and reduce government intervention. Key proposals included streamlining the Companies Act, improving transparency through stricter reporting standards, and removing outdated provisions to foster a more efficient and globally competitive business environment.