The Bill seeks to legislate a framework for checks and balances to prevent frauds, make corporate board room decisions transparent and hold auditors and directors more accountable.
The legislation, which has been in the works for several years, is a key reform initiative of the UPA government that has announced a string of bold reformist moves since mid-September.
Replying to a debate before the Bill was passed by a voice vote, corporate affairs minister Sachin Pilot said through this new legislation, the government intends to make India an attractive and safe investment destination.
He said special courts would be set up for speedy trials, as an assurance to investors that cases will not linger on. He also said India will be become the first country to mandate CSR spend through a statutory provision.
It will allow shareholders' associations to take legal action against companies' promoters and management through 'Class Action Suits'-a form of lawsuit where a group of people bring a claim to court. This acts as a deterrent to carry out a fraud by tailoring and influencing board decisions only to suit promoters' and managements' interests.
It also imposes makes it mandatory for companies to rotate auditors within a stipulated time-frame, a practice which public sector enterprises and banks currently adopt.
Besides, the Bill also contains provisions defining rules for inter-corporate loans and norms for creation of a web of step-down sister companies or subsidiaries.