Financial Daily from THE HINDU group of publications
Thursday, Oct 07, 2004
Corporate - Company Law
No concept, only paper
While the existing Act consists of 960 sections which fall in 26 Chapters in 19 Parts with 15 Schedules, the Bill provides for 289 Sections in 25 Chapters with one Schedule. The appearance of brevity is totally deceptive, for what are lost in terms of sections will be more than made up in terms of rules and regulations.
Provisions which are ousted from the Act will pop up in the form of larger numbers of rules and regulations.
There may be no diminution in the aggregate, in the number of provisions which the public will have to gulp, but their quality and description may be different for they will not be `legislation' in the sense of law laid down by Parliament but `subordinate legislation' which the executive may consider convenient in the enforcement of the law. They will be the products of expediency, not with the prior but the implicit ex post facto sanction of Parliament.
It is noteworthy that 47 of the old sections have already been omitted while 302 additions were made during the last few years.
It is also not without significance that most of the 302 additional sections were inserted after the introduction of the aborted Companies Bill, 1993.
No transparency in legislative work
The aforesaid facts raise several issues. If it is acknowledged that the public have the right to all the relevant information, should not the Ministry of Company Affairs have come out with detailed explanatory notes for the additions and deletions that have been made in the draft Bill that has been prepared by it?
Even those who have been familiar with the Act and its administration almost for a life-time, will not be able to make head or tail of it unless a clue is given on what has been taken out of it and why.
Obfuscation may be all right as a policy in international diplomacy but not in clarifications given to professionals and hardboiled businessmen.
There is a distinct risk of an `independent' director having no personal stake in a company in which he is a bird of passage with no bonds of loyalty or attachment to it, being swayed by considerations which are not strictly relevant to the company's own interest. There are demands and pressures on public companies for reservations of posts for backward classes and so on.
The law is in a position to issue unreasonable and impractical directions only where it confers any special favours/concussions/facilities in the cases of private or listed companies as a quid pro quo, but it is doubtful whether directors can be foisted on listed companies on the assumption of their independence and whether caste and communal inroads can be made into private business as a birthright.
Is an independent director expected to resist pressures and lobbies better than a director with stakes in the company? Will he be a `generalist' a rolling stone gathering moss all the time or a specialist with limited interest?
Apart from idealists and self-serving politicians there is no greater hurdle to speedy growth than the Government machinery which is subject to all kinds of pulls and pressures and which is similar in its functioning all over the world.
One can do no better than quote Gower on the situation in the UK in the same field, viz., development in company law:
"It seem inevitable that developments in our company law over the next 25 years will follow much the same pattern as that of the past 25. Reforms will be piecemeal without any review of the basic structure and with a marked reluctance to tackle fundamental problems except to the extent forced upon us by the European Community. The latter's initiatives may result in major changes and if these are to be to our liking it behoves us to play a more constructive role in the preparatory stages of Community legislation than we generally have in the past.
"Domestically inspired changes to our companies and related legislation are likely to be restricted mainly to technical matters, to the removal of flaws which have come to light in the legislation of 1985-1986, and to the closing of loopholes revealed by scandals as yet unforeseen. Our company legislation will continue to increase in length and, since changes in our style of legislative drafting are most unlikely, will become still more complex and opaque.
But cheer up: all this should provide grist to the mills of company lawyers." (Gower's Principles of Modern Company Law, Sweet & Maxwell, International Student Edition 1997, p. 71).
What Gower pointed out several years ago is no less true of India now.
(By arrangement with Corporate Law Adviser, New Delhi.)
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