New Bill: Fixing roles and responsibilities
The government on Monday reintroduced the Companies Bill in the Lok Sabha. It was under pressure to replace the Companies Act of 1956, especially after the Satyam fiasco in January.
Shareholders associations or group of shareholders to be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and ‘Class Action Suits’.
No company shall hold any shares in its subsidiary companies and no holding company shall allot or transfer its shares to any of its subsidiary companies.
Board approval will be required to borrow money exceeding the aggregate of its paid-up share capital and free reserves.
The auditor of a company shall have a right of access at all times to the books of account and vouchers of the company. The auditor will also be given the right of access to the records of all the subsidiaries.
The bill would be referred to the Parliamentary Standing Committee, which is likely to take a few months to give its approval and suggestions.
The intent of the new bill is more or less the same as the one introduced in 2008. “We did not want to waste any further time as the bill introduced last time was comprehensive. In case any changes are needed, the Standing Committee would point out in due course and we can then consider it,” a government official said.
The new bill provides for “articulation of shareholders democracy with protection of rights of minority stakeholders and responsible self-regulation with disclosures and accountability. “Shareholders associations or group of shareholders will be enabled to take legal action in case of any fraudulent action on part of the company and to take part in investor protection activities in class action suits,” the bill said.
Under current norms, a person holding shares worth Rs. 1 lakh or less in a company is categorised as a small investor. However, while large investors can question corporate strategies through voting rights and other means, small investors do not have any specific instrument to hold promoters of companies accountable.
The provision of class action suit is aimed at suitably empowering small and minority stakeholders in case of any wrongdoing by promoters or management of a firm. A class action or a representative action is a form of lawsuit where large groups of people collectively bring a claim to court.
The bill has also proposed several provisions, apart from setting accounting and auditing standards. It also defines the role and responsibilities of an independent director. An “independent director”, according to the bill, should be a person of integrity with relevant experience and should not have any monetary relationship or transaction with the company, its subsidiaries, or promoters.
A single forum for approval of mergers and acquisitions along with a shorter merger process for holding and wholly-owned subsidiary companies has been introduced.