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S. Murlidharan

The proposed company law amendments to ensure greater transparency, while welcome, need to be fine-tuned, says S. Murlidharan

THE Companies (Amendment) Bill 2003 seeks to introduce quite a few amendments to accounting and allied matters. Vide a proposed amendment to Section 209, it calls upon companies to disclose sales minutiae. Pray why? Mercifully, retail sales have been exempted from this rigmarole. Assuming the term `details' does not include in its sweep each and every bill and that it would suffice if aggregate of sales made to each wholesale dealer or distributor is disclosed, this in itself is a formidable task with no commensurate returns.

Already there is AS-18, which calls upon companies to give details of transactions with `related parties'. Why should the shareholders be burdened with unnecessary details? Incidentally, the Bill is biased in favour of service companies in that it does not propose to burden them with this requirement. Parity must be restored by dropping this ill-thought-out proposal altogether. For the nosy shareholder, however, there must be a dispensation allowing him access to books of accounts and allied records. As it is, vide Section 209A, only the Registrar of Companies, SEBI and the Central Government have this privilege. There is no reason why a shareholder should not belong to this charmed circle of wannabe inspectors. Such an access would make for greater transparency, though sceptics may dismiss off the suggestion on the ground that it would give further ammunition to feuding factions in a company.

But fear of feud is no ground for encouraging opacity. Similar thaw incidentally is required with regard to the minutes of the board meeting. As it is, shareholders have access only to the minutes of the general meetings. They are strangely shut out from accessing minutes of the board. When the Central Government is talking (at least) of abolishing the Official Secrets Act at the macro level, there is no reason why at the micro level of companies, it must keep board proceedings away from public gaze. Giving access to minutes of shareholders' meeting is no big deal because members were in any case privy to the proceedings thereat. Access needs to be given to the minutes of those proceedings they were not privy to.

Once again sceptics may cavil at this suggestion on the ground that this would be an invitation for competitors to plant a mole in the company. But then if companies are free to plant moles in each other that provides the level-playing field, does it not? Levity aside, shielding information from the prying eyes of competitors is no excuse for withholding vital information from shareholders. At any rate the listing requirement of SEBI calls upon all listed companies to bare their chest so long as it could be potentially price-sensitive.

Section 212A, sought to be introduced, clears the decks for mandatory furnishing of group accounts by a holding company. This section says that consolidated accounts shall be furnished with effect from such date as the Central Government by notification specify. That consolidated accounts are not compulsory in the meanwhile has served to confuse the draftsman who mistakenly has overreached himself while making consequential amendments. The amendment to Section 210 relating to presentation of accounts at an AGM gives the wrong impression that furnishing of consolidated accounts would be optional whereas the truth is, it is only optional for the time being, that is, till such time the Government gets its acts together and notifies the all important date from which consolidation would be mandatory.

The Bill wants to protect the office of the incumbent auditor apparently to make him more independent. It says that hereafter for unsettling an entrenched auditor, as it were, a special resolution would be required. Hitherto, for appointing a new auditor or for providing that the incumbent auditor shall not be reappointed, only an ordinary resolution was required. But then the proposed amendment is not in keeping with the times. There is a clamour for rotation of auditors, say, every five years, so that the auditor and the company do not develop a cosy relationship and function in a spirit of you-scratch-my-back-I'll-yours.

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