Small shareholders’ long wait for greater rights in India is nearing an end with Parliament set to finally enact the Companies Bill, ending years of discussions to legislate a framework to make boardroom decisions transparent, hold auditors and directors more accountable and prevent corporate frauds by firms' owners by doctoring accounts and other such manipulations.
Corporate affairs minister Sachin Pilot will most likely move the Bill for passage in the Rajya Sabha on Tuesday. The Lok Sabha had already passed the Bill in December 2012.
“Once the bill is passed, it would automatically address a host of issues including that of minority shareholders' rights besides providing an opportunity to women to represent the boards, which is not happening in a normal manner,” Pilot told HT.
The legislation, which has been in the works for several years, is seen as a key reform initiative by the government battling charges of policy inaction to turnaround the economy.
Pilot said the law will create a more business- friendly environment with an emphasis on self regulation and minimal government interference. It will aid self-regulation with greater disclosure levels as opposed to the existing “government- approval-based regime,” which is seen as restrictive limiting entrepreneurial growth, he added.
New forms of organisation such as ‘one person-company’ and ‘small company’ concepts would get appropriate legal recognition making India’s business law environment more contemporary.
Independent directors will be allowed to serve on the board of a company only up to a stipulated tenure.
In addition, it will also make it mandatory for companies to rotate auditors within a stipulated time-frame, to prevent the building of a promoter-auditor nexus.
“The Companies Bill has evolved for over a decade and we are happy that most of the stakeholders’ views were taken into account and the final Bill is a progressive piece of legislation,” Chandrajit Banerjee, director general, Confederation of Indian Industry, said.
“Once the bill is passed, it would be a lift up sentiments of the domestic corporate group in a big way and that is critical as this point,” Rana Kapoor, president Assocham and managing director and chief executive officer, Yes Bank said.