The Draft Companies Bill, 1997, which was officially released yesterday, has lifted all restrictions on political contributions by companies.
The existing Companies Act, 1956, sets the ceiling on political contributions by a private or public limited company at five per cent of its average net profits in any financial year, subject to clearances by the companys board. Government companies, in which the Centre and/or state governments hold a stake of 51 per cent and above, were hitherto forbidden from making political contributions by the Act.
The draft bill has simultaneously deleted a provision regulating the powers of a companys board to make contributions to the national defence fund and any other fund approved by the Centre.
Provisions relating to a mandatory maintenance of the list of foreign shareholders (in case of global depository receipts) of a company have also been removed. This provision has caused undue hardships for companies accessing the international markets since there is no way of keeping tabs on the buying and selling of shares of a company in the international market by foreign investors.
There are 457 sections and three schedules in the revised draft. About 125 sections of the existing Companies Act have been dropped and 50 merged with other existing sections, while 27 sections have been added in the new bill.
The bill clearly demarcates the powers of the Department of Company Affairs and the Securities and Exchange Board of India, as well as those of the Company Law Board (CLB) and the high courts. Towards this end, Part III of the Companies Act, 1956, containing 30-odd sections relating to share/debenture issue and transfer procedures has been deleted from the Companies Bill, 1997.
The CLB has been renamed the Company Law Tribunal (CLT) and given the exclusive power to hear all disputes relating to the Companies Act. In order to further strengthen the tribunal, the bill provides that all appeals against a CLT order will now be heard by a dual member bench of the concerned High Court, instead of a single member bench.
The new provisions in the bill relate to filing of shelf prospectuses by public financial institutions, public and scheduled banks and non-banking financial institutions (NBFCs). Shelf prospectuses help institutions which have to enter the capital or bond markets repeatedly to keep an issue open for a substantially long period (365 days in this case) without having to go to the regulator every few months for prospectus clearance.
Buy-back of shares as well as buy-back of ``other specified securities such as debentures has been provided for. Full buy-out in case of takeovers, and use of the book-building method for price fixation of a issue have also been legally provided for in the new draft bill.
The bill has also provided for the setting up of group resource companies on a cost sharing basis to provide expert advise and support to a business group. However, a cost accountants certificate, attached to the annual report, stating that the group resource company is being operated strictly on a cost-sharing basis has been made mandatory. This provision is aimed at preventing the ills of the managing agency system, which was abolished two decades ago, from creeping into group resource companies.
Preparation of group accounts has been made optional, while the appointment of a cost accountant or a chartered accountant as a full-time chief financial officer (CFO) by all companies with a share capital of more than Rs 3 crore has been made mandatory. Persons above 65 years of age have been debarred from appointment as managing director, while any person above 70 years of age will be ineligible to be appointed as a company director. Existing provisions for managerial remuneration remain untouched. However, clearances from the central government for increasing the remuneration of whole/part-time directors and managing directors on appointment and re-appointment will not be required if the provisions of the bill are accepted.
Legal provisions in the existing Act which have been dropped include sections relating to the powers of the central government to declare that an establishment is not a branch office; provisions relating to the names of companies and procedures for change or rectification of name; regulations relating to companies with unlimited liability; and provisions for deemed public companies, where a private company can be declared a public limited company by the government under certain circumstances.
Provisions relating to termination of disproportionately excessive voting rights in existing companies have been dropped with the inclusion of new provisions relating to non-voting shares. Some of the existing norms relating to registration of charges have also been deleted while provisions relating to procedures to be followed for commencement of business have been relaxed.
The discretionary powers of the government have been reduced by deleting provisions relating to mandatory clearances for increasing or reducing the number of directors. Discretionary powers of the government to reduces fees/charges payable by a company have also been removed.
