 "Could be an investment magnet: M S Sahoo")
The new Companies Act, which is now one signature away, would change the way every stakeholder in a corporation has to think, act and perform, says M S Sahoo, secretary, Institute of Company Secretaries of India (ICSI). ICSI is the apex body of professionals who are in charge of compliance of the key economic legislation across a million companies in the country. In an interview with N Sundaresha Subramanian, Sahoo explains the significance and implications of the new law. Edited Excerpts:
What is the significance of the new Companies Act?
There are one million companies in India. They are the major repository of resources in the country. Their governance and performance holds the key to prosperity. The key significance of the new law is emphasis on their governance and accountability. This balances the interests of various stakeholders, holds the companies accountable to them and strengthens shareholder democracy.
How prepared are companies and professionals to absorb and implement the various provisions of the new law?
It is a modern and contemporary law, enacted after the widest consultation ever. Since it has been in the making for some time, corporates and professionals have been gearing themselves up for this watershed event. Besides, it makes life simpler for everybody and does not require any specific preparation to implement the new law. It only requires a change in mindset from compliance to governance and from tick box approach to application of mind. It is a cakewalk as we have bright professionals who would be implementing various aspects of the new law. However, for a smooth transition, various provisions need to be implemented in a phased manner, the associated rules need to be notified, and institutional framework such as National Company Law Tribunal needs to be in place.
Several concerns have been raised about the level of discretion left in the hands of the ministry in the form of rules. What is your view on this?
With globalisation and liberalisation, we have transited to an incomplete legal regime which relies on the executive to undertake substantive subordinate legislation. This ensures the laws remain relevant all the time which would enable the authority to strike the moving targets while facilitating unhindered business operations. Nevertheless, the parent law has defined the boundaries of subordinate legislation and provided adequate checks and balances. It has balanced the needs of business with the possibility of misuse of discretion.
Does the new Act have adequate provisions for the protection of small investors and balance the interests of various stakeholders?
The hallmark of the new law is investor protection. The empowerment of Serious Fraud Investigation Office, streamlining of the enforcement mechanism, provision of class action suits, restriction on trading of shares, delivery through e-governance, shareholder democracy, etc. are aimed at protecting the interest of small investors. The elaborate corporate governance mechanism providing for independent directors, rotation of auditors, related party transactions, corporate social responsibility, gender balance in boards, etc. balances the interests of various stakeholders.
How would the new law impact the profession of company secretaries?
The new law transits company secretaries to corporate governance professionals. It brackets them in the category of key managerial personnel and holds them responsible for implementation of all relevant laws applicable to the companies. It envisages a much larger role for them in the areas of secretarial audit, restructuring, liquidation, valuation and much more. However, in recognition of the fact that they play a regulatory / public interest role which could be unpleasant at times to management and / or promoter, it has strengthened the position of the company secretaries by specifying responsibilities and the process of appointment.
What is the significance of the new Companies Act?
There are one million companies in India. They are the major repository of resources in the country. Their governance and performance holds the key to prosperity. The key significance of the new law is emphasis on their governance and accountability. This balances the interests of various stakeholders, holds the companies accountable to them and strengthens shareholder democracy.
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Also significance is the change in discourse from control to self-regulation. It presents a paradigm shift in the way every stakeholder in a corporation has to think, act and perform. This transports India into the big league in corporate democracy. It would pave the way for an increase in investment propositions.
How prepared are companies and professionals to absorb and implement the various provisions of the new law?
It is a modern and contemporary law, enacted after the widest consultation ever. Since it has been in the making for some time, corporates and professionals have been gearing themselves up for this watershed event. Besides, it makes life simpler for everybody and does not require any specific preparation to implement the new law. It only requires a change in mindset from compliance to governance and from tick box approach to application of mind. It is a cakewalk as we have bright professionals who would be implementing various aspects of the new law. However, for a smooth transition, various provisions need to be implemented in a phased manner, the associated rules need to be notified, and institutional framework such as National Company Law Tribunal needs to be in place.
Several concerns have been raised about the level of discretion left in the hands of the ministry in the form of rules. What is your view on this?
With globalisation and liberalisation, we have transited to an incomplete legal regime which relies on the executive to undertake substantive subordinate legislation. This ensures the laws remain relevant all the time which would enable the authority to strike the moving targets while facilitating unhindered business operations. Nevertheless, the parent law has defined the boundaries of subordinate legislation and provided adequate checks and balances. It has balanced the needs of business with the possibility of misuse of discretion.
Does the new Act have adequate provisions for the protection of small investors and balance the interests of various stakeholders?
The hallmark of the new law is investor protection. The empowerment of Serious Fraud Investigation Office, streamlining of the enforcement mechanism, provision of class action suits, restriction on trading of shares, delivery through e-governance, shareholder democracy, etc. are aimed at protecting the interest of small investors. The elaborate corporate governance mechanism providing for independent directors, rotation of auditors, related party transactions, corporate social responsibility, gender balance in boards, etc. balances the interests of various stakeholders.
How would the new law impact the profession of company secretaries?
The new law transits company secretaries to corporate governance professionals. It brackets them in the category of key managerial personnel and holds them responsible for implementation of all relevant laws applicable to the companies. It envisages a much larger role for them in the areas of secretarial audit, restructuring, liquidation, valuation and much more. However, in recognition of the fact that they play a regulatory / public interest role which could be unpleasant at times to management and / or promoter, it has strengthened the position of the company secretaries by specifying responsibilities and the process of appointment.