New companies law draft rules soon

The government is planning to release the draft rules on the new companies law by January-end. Earlier, it had set itself a target of December 15.

Industry associations like Associated Chambers of Commerce and Industry (Assocham) and the PHD Chamber of commerce and investment and professional institutes like the Institute of Chartered Accountants of India (ICAI) and Institute of Companies Secretaries of India (ICSI) have all voiced their opposition to delegating substantive provisions to the rules in their feedback to the government.

"The government wants to ensure that views of the expert committee on the new companies law headed by JJ Irani are taken before the draft rules are released," said a government official.

The expert committee is likely to meet in the first week of January. The release of draft rules will allow debate on various points and at the same time the committee can examine if certain rules should be dealt with in the main law, the official added.

"Clause 49 of the listing agreement is a classic example of what can happen when important provisions are dealt witj outside the Act," says an expert.

Implemented by the stock exchanges and regulated by the Securities and Exchange Board of India (Sebi), the clause has seen many changes and frequent debates, he added.

The concept paper has left provisions on the general meeting to the rules. It says, "The government may prescribe the rules regarding notice, conduct of the meeting, quorum, voting, entitlement of members to appoint proxies and other matters for conducting any general meeting."

Similarly, matters to be included in the director's report and the need to include the director's responsibility statement have been left to the rules.

The fear is that despite all the checks and balances in rule making, it would lead to more power in the hands of the government.

"Why should important matters be left to be prescribed through rules?" the expert said. The PHD chamber has suggested that the extent of rule making power should be diluted.

If many significant issues are prescribed by way of rules, the basic objective of having a delegated legislation may get defeated. A condensed Act accompanied with very voluminous rules will only lead to greater confusion it added.

ICAI has argued that terms of reference for the audit committee should be provided in the Act itself to make it effective.

The concept paper leaves it to be determined by the board as it does not deal with composition of the committee, its powers, role and also frequency of meeting.

Further it has said, "The provisions relating to auditor and the conditions and procedure for appointment should be detailed in the bill and not left to the rules". The non-audit services which a auditor cannot provide are left to be prescribed by the rules.