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| The Union Cabinet today decided to withdraw the Companies (Amendment) Bill, 2003. A revised Bill that would take into account the concern raised by industry would be introduced “at the earliest”. This decision is to pull the Bill out of Parliament has been taken due to numerous objections and suggestions received on it from industry associations, professionals, institutions and individuals. “On examination of these objections and suggestions, it was decided to withdraw this Bill and introduce a new revised Bill,” informed sources said. The Bill that was introduced in May 2003 drew largely from the recommendations of the Naresh Chandra Committee on corporate audit and governance and the Joint Parliamentary Committee on stock market scam, besides some left over items of the Companies Bill, 1997. Sources said that it was felt that the issue was becoming “very confusing” since further amendments were being proposed to the Companies (Amendment) Bill. The subsequent amendments were being proposed to assuage the feelings of industry. While the May 2003 Bill contained about 174 clauses, the subsequent amendments proposed were upwards of 40. Though certain provisions of the Bill were welcomed by industry, it was widely felt that the proposed law, in its present form would create hurdles for smooth functioning of the corporate sector. Some of the provisions of the Bill that had irked corporate India included the proposal that no company, which is a subsidiary of another company shall, after the commencement of the Companies (Amendment) Act, 2003 become a holding company. In fact, the Federation of Indian Chambers of Commerce and Industry (FICCI) pointed out that “this proviso is going to have far-reaching effects on the corporate structures. It bans pyramid type corporate structure, which is of utmost necessity in today’s business environment”. Of being asked whether the amendments to the Bill had considered the issue of pyramid structure, source said, “the basic structure is going to be the same. Though the amendment did explain the position in case of a foreign company.” The first company to be incorporate in India would become the holding company. Another provision that had attracted the wrath of corporate India was that every company should make investment only through the investment company. According to informed sources, “no rollback on investment company was suggested in the amendment.” However, the changes that might have been brought in the Bill include easing of the provision for independent directors from 50 per cent to about two-thirds of the total strength of board of directors. Further, the clause making appointment of a woman director mandatory on every company’s board was to be deleted. Beside, the official amendment is also said to scrap the 75-year retirement age for directors on the boards of companies. Is the India Inc happy with this decision? “ The Companies Act, 1956 has been amended several times to keep pace with the changing economy and circumstances. While the Companies (Amendment) Bill, 2003 contains some welcome provisions, there were may key provisions in the Bill which were not in conformity with the basic thrust of the economic policy initiatives. These clauses transmit damaging signals to both domestic and foreign investors,” they point out.
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| The TATA Group has expressed reservations against the proposed Companies (Amendment) Bill 2003, which holds independent directors responsible for all deeds of the management of a company. Dr. J. J. Irani, Director, TATA Sons, said that the proposed bill, in it’s present form, would hold independent directors responsible when the actual day-to-day affairs, which were run by the management and over whose actions independent directors had little control. Dr. Irani was addressing delegates at the fourth international Conference on Governance organized by Indian Merchants’ Chambers (IMC) and Asian Centre for Corporate Governance. He
pointed out that the Company Law Board and the SEBI were going
for overkill with too many regulations and compliance norms. “Good
governance has to be cultivated and nurtured, not imposed,” Dr
Irani said. Other noted speakers at the conference included Judge
Mervyn King, who is also the author of the King Committee report
on Corporate Governance, from South Africa. Shailesh Haribhakti,
President, IMC, said that IMC was planning to form an independent
directors’ forum under which individuals who held directorships
could unite to voice their concerns.
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One of the world’s foremost authorities on corporate governance, Mervyn E King, has thrown his weight behind India Inc in its opposition to the government’s move to prevent companies from floating multi-layer subsidiaries. The government is planning to incorporate a clause in the Companies Amendment Bill, 2003, which will prevent companies from forming multi-layer subsidiaries. If the amendments come into force company A can have a subsidiary, company B. However, company B cannot have another subsidiary. “There might be a sound business reason for the formation of another subsidiary. Why restrict that? If the system is being abused, there are other places to deal with this,” King has said. The Corporate Governance Gurus comments are significant because he submitted two reports that have provided the framework for corporate governance in post – apartheid South Africa. He is also a previous president of the Commonwealth Association on Corporate Governance. King is
on a visit to India to deliver the keynote address at the fourth
international conference on Governance jointly organized by
the Asia Centre for Corporate Governance and the India Merchants’
Chamber. Cadbury is regarded as the father of corporate governance,
but King’s place is unique. Cadbury instituted a mechanism that
chiefly concerned itself with financial propriety and safeguarding
the interests of shareholders. King widened the ambit further
by bringing in customers, vendors, employees and other stakeholders.
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The Union Cabinet today approved the setting up of the National Foundation for Corporate Governance, an autonomous body that would provide financial and other assistance for the promotion of good corporate governance. The government will provide Rs.10 Crore, while associations like the Confederation of Indian Industry, the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India will together contribute Rs.5 Crore towards the trust. The Cabinet approved the establishment of the trust on the basis of the recommendations of a study group set up by the Department of Company Affairs (DCA) in May 2000. The study group had suggested the formation of a Centre for Corporate Excellence, which would have three broad functions: research, studies and education, promotion and development; and accreditation and awards. The
trust will be chaired by the Finance Minister and have a 3-tier
management structure – the governing council, headed by the minister
in charge of the DCA, the board of trustees and the executive
directorate. It will be responsible for providing consultancy
services, apart from technical and managerial support to the beneficiaries
of the trust. The trust will also spread awareness about the importance
of corporate discipline and institute awards recognizing excellence
in the field of corporate governance.
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Independent
directors and government nominees on board of directors of companies
beware. Those belonging to the telecom ministry will soon have
to give up their perks, courtesy a directive from the heavy
industries and public enterprises ministry. If the directive
is to be taken seriously, independent directors and government
nominees on the boards of Mahanagar Telephone Nigam, Bharat
Sanchar Nigam, Telecom Consultancy India, and Indian Telephone
Industries, will no longer get air-conditioners, air-conditioned
cars, computers, fax machines, charges on hiring part-time computer
operators, stenographers from public sector enterprises, and
reimbursements of electricity charges, furniture, furnishings,
including curtains and carpets.
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With the Securities and Exchange Board of India (SEBI) notifying the regulations for the Central Listing Authority (CLA), decks are cleared for the newly constituted authority to function as a vetting authority. All the offer documents to be filed by the issuers will, now be vetted by CLA headed by former chief justice MN Venkatchelliah. CLA is expected to issue letter precedent to listing without which the issuer will not be able to make a listing application to any stock exchange. While notifying the SEBI (CLA) Regulations, 2003, the capital market regulator said the main function of CLA will be to receive and process applications for letter precedent and issue letter precedent to listing to any such applicant. SEBI will also constitute a fund to be called the Central Listing Authority Fund and any application fees levied and received by SEBI and any other levy specified by SEBI will be credited to this fund. The expenses
of CLA for discharging its functions and exercise of powers under
these regulations, including salary and allowances payable to
CEO and staff, will be met from this fund. This fund will also
be used for meeting expenses incurred on fees of external professionals,
agencies, consultants and advisors, it added.
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The Department of Company Affairs has identified the first batch of cases to be referred to the Serious Fraud Investigation Office (SFIO), an agency set up for investigating serious corporate frauds, according to the Secretary, DCA, Mr. M.M.K. Sardana. “It will only be the fresh cases which will be referred to the SFIO and not those on which investigations are already going on. These may include those related to the stock market scam of 2001. These cases include investigations against certain companies owned by Ketan Parekh and DSQ Software. On
whether the Government will continue outsourcing independent investigators,
Mr. Sardana, while addressing media persons, said “the Government
would consider outsourcing investigations of more companies after
it evaluates the first two such probes of Xerox Modicorp and Flex
Industries, where the department has outsourced investigators.
The Companies Amendment Bill 2003 is likely to be passed in the
Winter Session of Parliament without incorporating the recommendations
of the second Naresh Chandra Committee report, he said. |
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Directors of Government companies need not
worry over the recent disqualification norm announced by the Department
of Company Affairs (DCA).
The department has now decided to grant immunity to directors of public sector companies disqualification from election as a director in case of defaults by a company. A notification granting the exemption has been issued by the DCA. This is, however, subject to approval from Parliament. (Source: Business Line, 28 October, 2003) |
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| © 2001 Academy of Corporate Governance |
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