The "caged parrot" has spoken. The Central Bureau of Investigation (CBI) has filed the most curious first information report (FIR) in contemporary Indian history.
The CBI, castigated by the Supreme Court for being a caged parrot, and for sharing its files with the very arms of the government being investigated in the "coalgate scam" (alleged corruption in allocation of coal blocks), has been zealous about demonstrating its strength and independence.
The FIR (more FIRs and charge-sheets are to follow) lays the blame at the door of P C Parakh, a bureaucrat who initially recommended that coal blocks should only be allocated by open auction, and upon review by government, changed the recommendation to allocate some blocks to a company in the A V Birla Group. Keeping him company in the FIR is K M Birla, the Birla Group chairman.
The government overlooked Parakh's recommendation to only auction coal, decided to first allocate coal blocks only to public sector companies, and then decided to review its decision to grant some portion to the Birlas. Curiously, the coal minister who took the decisions, in this case the Prime Minister himself, has been spared.
Retired bureaucrats have remarkably risen in unison to support Parakh. Industrialists and politicians have jumped to Birla's defence.
A notable defender is Sachin Pilot, the minister for company affairs, who has piloted the Companies Act, 2013, through Parliament mostly on the premise of its soft-but-dangerous provisions on corporate social responsibility (dangerous, because they have the power to sow the seeds of blatant corruption). He is reported to have lamented the atmosphere of fear and uncertainty. This column will not discuss the merits of the coalgate FIR, but will point out the seemingly innocuous new company law is fertile soil for fear and uncertainty.
Section 166 of the new law, for the first time, seeks to codify in principles-based generic terms, what the duties of directors of Indian companies would be. Sub-section (2) potently says: "A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment." Promote the objects of the company for the benefit of members: perfect, since this is what society always believed company directors should do.
Act in the best interests of the company: but of course, goes without saying.
Act in the best interests of employees: the line starts fearfully blurring - sacking employees to further the interests of the company's bottom line would militate with the acting in the employees' best interests. Act to protect the environment: vague about whether it is a reference to "green" environment, or to business and operational environment? Why then leave out a duty to further all other moral good?
How about gender equality, social justice, fair competition, non-discriminatory workplace - the list can be endless.
Perhaps that is what was meant by having to act in the best interests of the community: Now that takes the gold standard for uncertainty.
What is a "community" is quite a tough question to answer. Whether it would mean others in the same business; business community in general; stakeholders such as customers, suppliers, distributors, lenders and borrowers; those physically residing in the same district; those touched in any manner by the company's existence; the people of the nation; or everyone in the globe - there is only one inexorable consequence: Uncertainty. Not far behind the uncertainty, is fear.
Section 271(1)(c) provides that a company can be wound up by law if it has acted against the interests of the sovereignty and integrity of India, security of state, friendly relations with foreign states, public order, decency or morality. Cut back to coal and Birla (and indeed the other industrialists waiting in queue for future charge-sheets). The directors of these companies could be charged with acting against the interests of the community: after all, allegedly subverting government's interests would not be furthering interests of the community.
These companies could be asked to be wound up: Corruption but means immoral conduct. Did Pilot, who realises the dangers of fear and uncertainty, know what a shot in the arm the company law has given to fear and uncertainty, thanks to the law containing simplistic and feel-good language that would normally find place in "If I were the Prime Minister" essays by school students?
The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own. somasekhar@jsalaw.com
