Financial Daily from THE HINDU group of publications
Thursday, Aug 05, 2004
Corporate - Company Law
Ministry has open mind on board set-up, holding cos
New Delhi , Aug 4
CORPORATE India and its stakeholders may have a lot to gain from a new Concept Paper on revamping the Companies Act, 1956, floated by the Ministry of Company Affairs even as some of the concerns of industry such as those on board composition and company structures have resurfaced.
The Concept Paper comes after two earlier failed attempts by the Government to come up with a recodified law in 1993 and 1997. Itwas released by the Minister for Company Affairs, Mr Prem Chand Gupta, here today.
The Ministry has now not only sought to simplify the law and reduce the size of the Act from the existing 781 Sections to 287 Sections, but also intends to place all procedures that were forming part of the existing law as part of rules.
Sections of the Concept Paper, which would now be open for public debate, is likely to generate another round of resistance from Corporate India since some of the provisions that were opposed by it earlier have been retained. This includes ban on pyramidal corporate structures that would prohibit a subsidiary company from becoming a holding company. However, the only exception to this is that a subsidiary company can be a holding company of a body corporate incorporated outside India.
It also suggests restrictions on the number of investment companies that can be floated by a company for holding investments.
On the contentious issue of board composition, the Concept Paper has held that "every public company having paid-up capital or turnover of such amount as may be prescribed shall have a minimum of seven directors out of which not less than three or such numbers as near to 50 per cent of the strength of the board, which ever is higher shall be independent directors... "
The Ministry intends to prescribe the attributes of an independent director through the rules for the proposed provision.
According to the Minister, "The proposal on board composition and pyramidal structures are concepts that need debate and that his Ministry was open to newer ideas on the same."
While claiming that the Ministry has not given up any of its original ideas proposed in the previous bills for bringing better corporate governance, the Secretary of Ministry of Company Affairs, Mr M.M.K. Sardana, said, "It would not be right to come to an early conclusion that the truncated Concept Paper had dropped many of the concerns of the industry."
He made it clear that most of the concerns find mention in it even while assuring that the final decision would be taken only after consultation process is completed in the next three months with the concerned stakeholders.
The main gain from the Concept Paper for the board members is that the Government has decided to drop the proposal of prescribing a retirement age for directors.
Besides introducing the concept of consolidated balance sheet, it has also said that no Government approval would be required for any increase in payment of remuneration by way of commission to non-executive directors.
Further, declaration of dividend out of reserves is proposed to be made self-regulatory - no Government approval will be required.
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