The Hindu Business Line : Ministry chalks out measures to safeguard investors

PRIORITISING investor protection in the backdrop of corporate frauds and failures worldwide, the Ministry of Company Affairs has chalked out safeguard measures to screen companies from cheating investors.

Tightening the legal noose around such companies, the Government has suggested revamping the existing redressal mechanism and vigorously pursuing the prosecutions already launched against the defaulters.

"On review of the existing system, the need to strengthen the same was realised and the entire grievances redressal system has been revamped," the Minister for Company Affairs, Mr Prem Chand Gupta, said.

On some of the long-term initiatives taken by the Ministry for the purpose, he said: "Comprehensive review of the existing Companies Act has been taken with a view to bringing the law in tune with changing business models. Special emphasis has been laid on the measures to protect interests of investors. The Concept Paper for a new Companies Bill has certain provisions focussing on protection of small investors."

The aim is to introduce the Bill in Parliament in Budget session of 2005, official sources told Business Line. Outlining some of the initiatives, sources said an enabling provision for appointment of small shareholders on Boards of public companies has been proposed in the Concept Paper. The proposal if accepted would ensure that investors have a voice in the company, they explained.

Further, the paper also stipulates that the proposed National Company Law Tribunal (NCLT) is to be intimated by the company in case of any default made in making repayment of deposits of small depositors. Also, default in repayment of deposits including small depositors is a cognisable offence.

It has also been proposed that non-payment of dividend to shareholders including small shareholders and non-repayment of deposits to the depositors are grounds for disqualification of a director of a public company from holding directorships in other companies. The paper also prescribes prohibition for making loans and giving guarantee or acquisition of securities by company unless amount due to depositors including small depositors is paid.

To prevent occurrence of vanishing companies after raising money mandatory disclosure of identity of directors by way of more particulars has been proposed in the Concept Paper.

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Ministry chalks out measures to safeguard investors