The Hindu Business Line : Ministry's Concept Paper: Cos prefer more autonomy

WHILE welcoming the consultative approach adopted by the Government for framing company-related legislation, experts would prefer further improvement in the Concept Paper that has been circulated on a revamped company law by the Ministry of Company Affairs .

Mr K.N. Memani, Former Chairman & CEO, Ernst & Young, India, and Chairman, KNM Advisory Pvt Ltd, said, "There are a number of welcome measures that aim to bring about better corporate governance and enhanced shareholders participation in order to keep legal framework in line with international practices. However, greater autonomy is needed by companies to ensure speedy decision making."

The move to de-link procedural aspects of law from substantive law is welcome, as it will help in addressing the problems of a routine nature merely by administrative action. There would be no need to go to Parliament for amendment of statute. However, it remains to be seen how rules and regulations in respect of the provisions contained in the Act are framed.

The Concept Paper empowers the Government to make rules and regulations for many of the proposed provisions. According to Mr Memani, a greater transparency would be required while drafting the rules or else it may pose difficulties for corporates.

Regarding the proposal to increase the limit on the number of people forming partnerships in certain services from the present limit of 20 to 50, Mr Memani felt that the proposed limit was also too low. "As is the norm in many developed countries, there should be no limit prescribed," he stated.

However, in the present corporate scenario of fierce competition, such a step would encourage consolidation by partnership firms. It would also allow Indian firms to grow and compete with international counterparts.

On the contentious proposal of prohibiting the pyramid structure, he felt any restriction could be provided on a case-to-case basis. Such a blanket restriction would pose a lot of complications in the existing ownership structure. It will also hamper the joint ventures or restructuring of companies, which are often done through subsidiaries as special purpose vehicles.

In fact, the companies might be permitted to have a multi-layered structure and a more effective monitoring mechanism may be devised to check any misuse of the provision, he stated.

Commenting on the proposal of composition of board of a company, Mr Memani said this was something that corporates have been opposing but he personally had nothing against it.