Merger norms may be eased

JJ Irani panel for one-third independent directors.

With an eye on doing away with a large number of government approvals, the JJ Irani committee on the new Company Law today recommended setting up a single-window clearance mechanism for mergers, removal of the ceilings on director remuneration and suggested a system of deemed regulatory approvals in case proposals were not cleared within a stipulated period.

It also proposed that one-third directors on the board of listed companies be independent directors (irrespective of whether the chairman is executive or non-executive) and sought to plug the misuse of unlisted companies by providing that preferential share capital issued by them should be valued by independent valuers.

"We have provided more powers in the hands of the shareholders and in many cases where the existing Companies Act requires the company to approach the government, we have suggested that shareholders should be allowed to take a decision," Irani said after presenting the report to Companies Affairs Minister Prem Chand Gupta.

"We are planning to introduce the new Companies Act by the end of this year and this report will be duly considered in framing the law," Gupta said.

Officials in the company affairs ministry said the report would be only one of the inputs for preparing the new law.

The report has noted that the merger process in India was court-driven and suggested that contractual mergers be allowed without judicial intervention. Such mergers should only require subsequent approval of the shareholders by majority, the committee proposed.

It suggested that the majority should only be in value of shareholding and the requirement of majority in numbers should be done away with. Deemed approval has been suggested where regulators do not inform their comments to the court, in which the scheme is submitted for approval.

The committee has come down heavily on directors who join the companies at the time of public issue or when investments are to be raised and resign soon afterwards. Such directors should continue to be be liable for two years for decisions taken when they were on the board.

To ensure that the management acts responsibly, the report has suggested that the financial statement should be signed by the managing director, chief executive officer and the company secretary even if they were not present in the meeting to finalise the accounts.

All directors present in the meeting should sign financial statements, including dissenting directors.

To ensure uniformity in financial reporting, the committee has suggested that all companies should have their financial year ending on March 31.

In order to protect the minority interest during mergers and takeovers, it has been suggested that the audit committee should appoint an independent valuer in case of companies that have delisted and have 1,000 or more shareholders.

The committee has also suggested that class action suits where one shareholder can sue on behalf of one or more shareholders should be recognised in the law. Protection to whistle-blowers has also been proposed.

The Irani committee has suggested that the government allow One Person Companies (OPC) to be registered as private companies, with one member to encourage entreprenuership.

As a safeguard in case of death or disability of the sole person a 'nominee' would have to be prescribed who would have to manage the affairs of the company till the shares are transferred to the legal heirs.

According to the report, companies should be allowed to issue perpetual and longer duration preference shares and to give more teeth to the lender it has been suggested that the registration of charges should be enabled by the lender if the borrower does not register the charge within a fixed time.

The issue of 'pyramidal companies' where corporates set up subsidiaries under subsidiaries and weave a complex ownership structure could not be resolved as it was felt that in the gobal business environment it may not be advisable to restrict subsidiary companies from setting up further subsidiaries.

'We have strengthened the disclosure norms at the time of setting up of companies to ensure that ownership can be traced,' Irani said. The committee has also not prescribed mandatory deposit insurance even though the same was considered.

Irani suggests

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• No special provision for FIs, government companies
• Separate law for limited liability partnerships
• Mandatory cash flow statement in accounts
• No need to attach accounts of subsidiary companies
• Flexibility on depreciation for infrastructure projects
• No mandatory rotation of auditors