At least two dozen changes made to the Companies Bill, 2011, after it was last scrutinised by a parliamentary panel hold the key to the government’s decision to pause on its efforts to get the Bill approved in Parliament last week.
These include the ones that cover the definition of a private company and the number of members it can have, modification of provisions related to private placement and rotation of auditors.
It was such additions that prompted the leading Opposition Bharatiya Janata Party (BJP) to accuse the government of introducing a “half-baked” Bill first, and later changing it considerably after the committee has given its recommendations.
| VARYING STANCES The positions the standing committee and the Companies Bill, 2011, have taken on various issues | |
| Suggestions of panel | In the Bill |
| * Disallow proxy in board meeting | Hike minimum paid-up |
| * Hike minimum paid-up capital for incorporating public firm | No comment |
| * Loan and investment through only one investment company | Limits of investment company limited to two layers |
| * Disclosures such as time of payment of first dividend and expected rate of dividend in prospectus | Not provided for |
| * Rotation of auditors to be provided in clause | Classes of companies where auditor will retire after a fixed period will be prescribed in rules |
| * Directorship capped to 5 listed firms | No restriction |
| * Role of CFO clarified | CFO not in key position |
| * Unlisted firms need not do consolidation of accounts | Consolidation of accounts must |
in ‘officer who is in default’
person on whose direction
board is accustomed to act'
There is talk of the Bill being again referred to a standing committee on finance (as demanded by the BJP). The major new clauses that would then come before the committee include appointment of women and independent directors, merger and acquisition clauses and powers for class-action suits.
According to BJP spokesperson Prakash Javadekar, in charge of the party’s economic cell, what they are opposed to is not merely the provisions, but a “new way of governance to give half-baked bills to the standing committee” — and make major amendments later.
A standing committee member, however, said there was no need for scrutiny by another such body, as the “amended Bill” would be passed only after discussions in Parliament. According to him, the panel had given such a mandate to the government when it wanted Companies Bill, 2009, to be revised in such a manner that it addressed all contemporary as well as emerging issues, including the anticipated problems concerning the corporate sector.
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Ecology and environmental pressures, impact of global operations of Indian companies on domestic stakeholders, technological collaborations and free movement of capital were some issues on which the committee wanted the government to have a “futuristic vision”.
According to sources, industry was worried with the definition of “officer who is in default” as, instead of including the word “promoter” as suggested by the parliamentary panel, the government took a broad view to include “any person on whose direction or instruction the board is accustomed to act” under this definition.
Another area of concern was the modifications in provisions related to private placement — the exclusion of QIB from this provision, prescription of minimum application size and insistence on cheque payments. The number of members in private company has been proposed to be increased from 50 to 200.
Similarly, the 2011 Bill does not allow creditors to file class-action suits, unlike the proposal in the 2009 Bill. In place of creditors, depositors are now given the right to file class-action suits.
The introduction of a clause on merger and amalgamation of a company with a foreign company is also among the new clauses inserted.
Industry experts said a huge legislation of this nature is bound to fall short of expectations. They also felt several of the additions are meant to strengthen corporate governance and not to weaken it.
“At the least,” notes Manoj Kumar, managing partner of corporate law advisory firm Hammurabi & Solomon, “the long-pending Bill has finally seen the light of day amidst numerous demands for change in the antiquated Companies Act, 1956, from an array of competing interests: investor’s protectors group, the industry, workmen and policy makers.”
The new clauses introduced talk about formation of mediation and conciliation panels by the central government for speedy decisions on pending cases and seek exemption to a class or classes of companies from the provisions of the proposed Act. Similarly, it has re-inserted the current provision of allowing Courts to grant relief in certain disputes, though this provision was taken out in the Companies Bill, 2009.
The 2011 Bill mentions the need for a specific “number” of members who can move a notice for removal of directors while no number was prescribed in the earlier version of the Bill.
Similarly, the 2011 Bill limits the requirement of appointing a small shareholder nominee in the director board to listed companies.
On the redemption of minority shares, experts feel the 2011 Bill has taken a contrarian view, as it goes against the spirit of empowerment of small shareholders.
On its part, the Corporate Affairs ministry is hopeful of getting the Bill steered clear of Parliamentary Standing Committee in the coming months and pass the Bill in the forthcoming budget session of Parliament.