The Hindu Business Line : Concept paper to provide broad framework for `slim' company law

THE Ministry of Company Affairs, it appears, is following the footsteps of regulators. In line with the trend adopted by regulatory bodies, the Ministry in its concept paper for a new Companies Act is proposing a slim legislation that would provide only a broad legal framework, thereby, leaving its implementation through rules.

The Companies Act, 1956 currently has more than 700 sections that corporate India has to comply with.

Official sources told Business Line, "Our endeavour would be to make the Companies Act a slim legislation. The larger action could be done through the rules that are framed for the Act."

In fact, the current trend among the regulators, especially those in the financial sector, is to mould the legislations in such a manner that most of the intended provisions are implemented through rules. The main advantage of such a route is that the regulatory response in certain instances need not wait for the legislation to be amended through Parliament.

The concept paper is likely to incorporate the essential features of the existing Companies Act, 1956, the salient features of the controversial Companies (Amendment) Bill, 2003 (which was withdrawn from Rajya Sabha) and the recommendations of the second report of the Naresh Chandra Committee.

Though the concept of slim and trim company law finds favour with India Inc, the Federation of Indian Chambers of Commerce and Industry (FICCI) had taken a position that the law should only provide broad framework and the details should be left to the corporates themselves with the consent of shareholders.

"The concept paper would suggest a corporate-friendly and practical company law. It would also try to plug the loopholes for any manipulations or corporate frauds," Mr Prem Chand Gupta, Minister for Company Affairs, told Business Line.

In fact, industry associations have concurred with the view of the Government that the company law must provide adequate protection to investors, shareholders, creditors, employees and other persons concerned to ensure that corporate wrongs are quickly and effectively addressed and those responsible are punished.

On whether the small and medium companies would have separate dispensation under the proposed law, sources hinted that the concept paper would address this issue.