THE CORPORATE
SECTOR – SOME RECENT DEVELOPMENTS
Vinod
Dhall *
As of September 2002, 6,03,778 companies
were registered in India. Of these, 76,429 were public limited
companies .
The companies
are spread all over the country. The State-wise distribution puts
Maharashtra on the top with about 22 per cent of the companies
followed by Delhi which accounts for about 18 per cent. About
35 per cent of the companies are in four other States - West Bengal,
Tamilnadu, Gujarat and Andhra Pradesh. Between them they account
for about three-fourths of the companies at work.
In the present
global scenario, India’s corporate sector has not only to compete
with businesses world-wide but also has to achieve levels of management
and governance that inspire confidence in investors – both domestic
and foreign. The legal and regulatory framework must provide comfort
to investors, especially foreign investors. Keeping this in view,
the Department of Company Affairs (DCA) has taken several initiatives
in the recent past. These include legislative changes and modernization
of services with the help of information technology.
Legislative
Changes
The DCA, in consultation
with experts in the field as also the stakeholders, has ushered
in several changes in the corporate law. The Companies Act, 1956
has been amended thrice since 1999 and some further amendments
are under consideration to give effect to the policy of economic
liberalization.
An Ordinance
was promulgated on October 23, 2001 for easing terms and conditions
for buy back of shares by companies. This was done keeping in
view the continuing depression in the share market and also the
recent developments that have taken place in the USA and elsewhere.
The liberalization of conditions of buy back of shares is expected
to help in improving market sentiments. This Ordinance has been
replaced by the Companies (Amendment) Act, 2001.
The Government constituted
a high level committee to examine and make recommendations for
the legislative framework to enable formation and conversion of
cooperative businesses into companies. Based on the recommendations
of this Committee, a Bill was introduced in the Lok Sabha in August,
2001and passed by both the Houses of Parliament in December, 2002.
This legislation is to provide ‘primary producers’ an option to
have a new kind of business organisation (called a producer company)
to produce and market the products in a modern and professional
manner at par with other companies. It may enhance their efficiency
and competitiveness in the present liberalized and globalised
market. It would also contribute to the betterment of ‘primary
producers’.
The Government constituted
a Committee to examine the existing law relating to winding up
of companies in order to remodel it in line with the latest developments
and innovations in the corporate law and governance.On the basis
of the recommendations of the Committee , a Bill was introduced
in the Lok Sabha in August, 2001 and was passed by both the Houses
of Parliament. This Bill ushers in a new era of Insolvency Laws.
It provides for constitution of a National Company Law Tribunal.
The jurisdiction and powers presently conferred on the Company
Law Board will be vested in the proposed National Company Law
Tribunal and will result in the dissolution of the Company Law
Board. It also envisages to replace the Board for Industrial and
Financial Reconstruction (BIFR) by repealing the Sick Industries
(Special Provision) Act, 1985 for accelerating the pace of revival.
Besides, there are several substantive improvements in the law.
It provides for initiation of restructuring of a corporate at
a much earlier stage of financial sickness, thereby enhancing
the possibility of its revival. It provides for a safety-net for
the workers and the investors through better terms by setting
up a Rehabilitation Fund and other allied measures. The jurisdiction
and powers relating to amalgamation and winding up presently vested
with High Courts are also being brought under the purview of National
Company Law Tribunal.
The Competition
Bill, 2002 is another landmark development in economic legislation.
The Government had set up a High Level Committee to examine the
existing Monopolies and Restrictive Trade Practices (MRTP) Act,
1969 for shifting the focus of the law from curbing monopolies
to promoting competition and to suggest a modern competition law
in line with international developments to suit Indian conditions.
With globalisation and opening up of the economy, the need was
felt that the Indian market should be geared to face competition
not only from within the country but from outside as well. Based
on the recommendations of the Committee , the Competition Bill
was introduced in the Lok Sabha in August, 2001. The proposed
legislation provides for prohibition of anti-competitive agreements,
prohibition of abuse of dominance, regulation of combinations
(acquisitions, mergers and amalgamation above a certain size).
The Bill also envisages establishment of Competition Commission
of India (CCI) in place of the existing MRTP Commission. The Bill
has been passed by Parliament in December, 2002.
Initiatives
The law governing
corporates has been fine tuned by amending the Companies Act to
create the right ambience for the corporate enterprises to function
effectively in the era of liberalization. With these amendments,
corporates are now in a position to adopt the best practices in
corporate governance in vogue elsewhere in the world.
The DCA has undertaken
an ambitious programme to completely overhaul its services to
the corporate sector by undertaking modernisation and placing
the services on the internet. This is being undertaken with a
view to reducing the time and resources spent by corporates in
ROC offices, curb malpractices that arise out of the situation
and also to tap the immense amount of economic data received through
filing in ROC offices and through Cost Audit Branch in DCA. Computerization
and modernisation is planned to be undertaken through private
or public partnership.
A Committee has
been set up to look into issues relating to auditor-company relationship
such as rotation of auditors/auditing partners, restrictions on
non-audit work/fee, procedures for appointment of auditors, determination
of audit fees, the role of independent directors and disciplinary
procedures for accountants. The recommendations of the Committee
when implemented are expected to help improve the credibility
of company accounts and the integrity of audit work. They would
also help in strengthening the disciplinary mechanism against
erring accountants.
In exercise of
the powers conferred by Section 205C of the Companies Act, 1956,
the Central Government (Department of Company Affairs) has, in
October, 2001 established an Investor Education and Protection
Fund. The Fund will get contributions from companies having unpaid
dividend, matured deposits and debentures and share application
moneys lying with them for 7 years. This Fund shall be utilized
for promotion of investors’ awareness and protection of their
interests. A Committee to administer this Fund has already been
constituted by the Department.
Recognising the
rising concerns about the levels of corporate governance and ethical
practices in the corporate sector, the DCA has undertaken active
measures by promoting good corporate governance and enhancing
the image of the Indian corporate sector. In this regard it has
also decided to set up a National Foundation for Corporate Governance
in collaboration with national level industry associations and
professional bodies. The National Foundation will be registered
as a Trust with the objective of promoting good corporate governance
in India.
Investigations
into the recent stock market ‘scam’ which are carried out by different
agencies have underscored the limitation of a fractured approach.
No agency seems to have a holistic picture of what really happened.
In such a situation it is very difficult to effectively punish
the fraudsters. With a view to investigating such frauds by multi
disciplinary team of experts, it has been decided to set up a
Serious Fraud Office (SFO) in DCA. The matter is in an advance
stage and it is expected to set up the SFO in early 2003.
In respect of
companies in Special Economic Zones, a decision has been taken
to increase the ceiling of remuneration of Rs. 20 lakh per month.
It has also been decided to remove the minimum residency condition
for the appointment of the top management.
The threshold
of paid-up capital requiring managerial appointment of a whole
time company secretary under section 383A of the Act has been
increased from Rs. 50 lakh to Rs. 2 crore. The threshold limit
for companies located in rural areas/small towns has been raised
to Rs. 5 crore of paid-up capital.
*
Secretary, Government of India, Ministry of Finance and Company
Affairs, Department of Company Affairs, New Delhi.
