The Hindu Business Line : Loss of elite company

THE Congress-led coalition government at the Centre has appointed Mr Premchand Gupta as a Minister of State (MoS) with independent charge of, inter alia, the Department of Company Affairs (DCA).

If one were to trace the functioning of the DCA, it would be seen that it was always under the charge of a full-fledged Ministry — of Finance, Law, Justice and Company Affairs or Commerce and Industry. It has always had a Cabinet minister to whom proposals could be put forward.

From now on, any proposal by the DCA will have to be routed through the MoS to the Cabinet secretariat for making presentations to the Cabinet committee. On the other hand, the DCA will be denied the opportunity of back up support from two key ministries.

It remains to be seen how the DCA adjusts itself to this new power equation. Such a paradigm shift is bound to affect the efforts of the DCA in reconstructing the aborted Companies (Amendment) Bill, 2003 and the fire-fighting operations to salvage the National Company Law Tribunal (NCLT).

It is ironical that whenever there is a change of guard at the Centre, company law generally becomes the first target for tinkering with. Starting from the Companies (Amendment) Bill, 1993 no serious attempts have been made by any political party or combination of political parties to address the re-codification of the Companies Act, which was enacted in 1956 and had undergone numerous changes through amendment Bills.

The first attempt made was through the Companies (Amendment) Bill, 1993 based on the recommendations of the Sachar Committee. After much drama, the Bill was referred to a select committee.

But before Parliament could have a relook after assessing the observations of the select committee, the Lok Sabha was dissolved. Then in 1997, yet another attempt was made to simplify the Act. Even this Bill was not made law.

When the United Front Government was at the helm, the Finance Minister, Mr P. Chidambaram, under whose charge the DCA was, appointed a working group comprising experts to recodify the Act.

The committee submitted its report in record time. However, before any decision could be taken, the government was voted out of power.

Then came the BJP-led National Front government , which had its own political compulsions.

During its regime, piecemeal amendment Bills were introduced in 1999 and 2002, all of which resulted in making the law more complex.

A major amendment was made by the 2002 Amendment Bill, which appointed a National Company Law Tribunal (NCLT) in the place of the CLB and also an appellate body called the National Company Law Appellate Tribunal.

The Madras High Court struck down the NCLT as unconstitutional for the reason set out in the order of the said court. There are justifiable grounds under which the judiciary has taken this view. Rather than take corrective steps, the Department has, in its own wisdom, thought it advisable to go in appeal to the Supreme Court against the order; the apex court has not yet taken up the appeal. Non-functioning of the NCLT will have a cascading effect.

In constituting the NCLT, it was clearly laid down that with the commencement of the Companies (Amendment) Act, 2002, the Board of Industrial Financial Reconstruction Act (BIFR) would stand abolished. But sick companies have been left in the lurch. Denial of timely rehabilitation will only result in additional financial burden.

The case of the Competition Commission is also hanging fire. Despite the Supreme Court directing the Government to replace the chairman of the Commission with one having a judicial background, the issue remains unattended to.

The sooner the stranglehold of the bureaucracy ends, the better will it be for reforms.

The new Government has a task at hand. Remedial action should be taken to stem the continuing turmoil and, at the same time, there is a need to revamp the constitution of regulatory authorities — with a bias towards persons of expertise rather than bureaucrats.

(The author is a Pune-based company secretary.)