The Hindu Business Line : Dissection of a concept

BEING slim not only concerns men and women but the law as well. Recently, the Ministry of Company Affairs released for public debate a Concept Paper on Model/Modern Company Law which is basically a re-characterisation in the form of downsizing the 781 sections and 15 schedules.

Titled again as the Companies Act, the model law is slim, with 289 sections and a few schedules. The slimming has been done by way of deleting the redundant sections and by condensing, simplifying and rationalising the provisions. The law will be rule-based rather than substantive, as it is easier for the regulators to make amendments by way of notification rather than through parliamentary approval.

The main features of the model company law are as follows:

Filing of particulars at the time of incorporation in order to stop the menace of vanishing companies and identify the promoters;

Issue of securities, capital and related matters by way of Rules;

Non-repayment of public deposits to be a cognisable offence;

Increasing the filing time for registration of charges to 60 days;

Making forms for registration of charges composite;

Holding of statutory meeting not required;

Meetings on holidays too;

Shareholders before and after 1988 entitled to unpaid dividend;

Form of balance-sheet to be recommended by the Institute of Chartered Accountants of India (ICAI);

Penalties to be commensurate with the gravity of offences; and

Mandatory minimum penalty for public companies.

In the process of slimming, the new provisions relating to producer companies and insolvency, which were introduced recently by way of amendment acts, have been retained. However, the issues required to be addressed are:

Condensation: The number of Chapters (25) that have been proposed could have been fewer if organised on the following parameters: i)

formation of companies; ii) operation and management of companies; and iii) winding-up of companies.

Harmonisation: The law should not be such that it neither overrides the other related Acts nor is overridden by other statutes. Most Indian statutes in corporate law suffer from this lacuna. And the Companies Act, 1956, though huge, has sections that are over-ridden by many other Acts and this needs to be done away with.

One possible solution is that the concepts of harmonisation of corporate laws be given top priority by the legislature. Companies are governed by at least 3-4 statutes and fall under a minimum of two regulatory structures. The laws are different and, hence, compliance becomes not only difficult but also self-defeating.

A listed company, for instance, has to fulfil the requirements under the SEBI Act, the Companies Act and the Securities (Contracts) Regulation Act along with a host of related rules and regulations.

An overview of the Acts reveals that for a similar matter, say, issue of prospectus, the company has to fulfil compliance requirements as per the Companies Act and the SEBI Act. If SEBI vets the document, it is the Registrar of Companies who registers the prospectus. This dichotomy of two regulators for one document was corrected when Sections 56 to 65 relating to prospectus, and so on, were transferred to the administrative domain of SEBI.

Internationalisation: Law must take cognisance of the developments in the international arena. The law should harmonise in such a way that it adapts to both the local and international environments. With trade liberalisation and globalisation, foreign companies desire and expect a well-developed corporate law.

Decentralisation of power: The multiplicity of regulatory authorities and the host of related rules and regulations need to be streamlined and, if necessary, done away with. Industry and trade have voiced this time and again.

(The author is Deputy Director, ICAI.)