New company law – Just what the doctor ordered

Just as beauty is something that exists in the mind of the person seeing it, how the new Company law looks solely depends on the person viewing it.

So if you are an auditor looking at the new Company law, chances are that you will be upset for it puts the auditing community on the mat.

The reason – an auditor will not be able to use his judgment and needs to purely go by the prescriptive rules thrown at him by the bureaucrats.

For company secretaries, the Company law is a godsend as it elevates them to a new plane of corporate governance.

There is also additional professional opportunity of secretarial audits coming their way besides being counted as ‘key managerial person’. The worry now for company secretaries is that they have to use their judgment more often now.

If you are minority shareholder, you have all the more reason to smile as the new law seeks to improve the redressal mechanism available to such investors. You can also use class action suits to go after the wrongdoing of the company promoters or the auditors or consultants.

The one who will benefit the most is the corporate entity itself. For the new company law will help catapult Indian companies to the international stage through the mergers and acquisition (M&A) route.

Indian companies can now go ahead with mergers abroad without any legal hitch here. This can easily enable them to set up overseas listing vehicles.

The new company law also eases procedures for mergers and acquisitions within India. Without going to a court or tribunal, a holding company and a wholly-owned subsidiary can merge with just the Union Government’s permission.

There will be faster decisions regarding approvals for M&As, making corporate restructuring smooth and efficient.

Another menace that may be effectively tackled by the new Company law is India Inc’s penchant for pyramidal corporate structures involving multiple step-down subsidiaries.

While one would have to wait for the rules, indications are that the Government may not encourage this beyond two-to-three levels when it comes to vertical structures.

There is unlikely to be any restriction on the number of horizontal subsidiaries, it is learnt.

On a macro basis, the new Company law is slimmer with about 470-odd sections.

But the subordinated legislation – Rules – will be the real test on whether the new corporate framework is heralding a shift from control to self-regulation or not.

Nearly 75 per cent of the provisions in the new law are to be administered through the Rules. This is a clear pointer that Parliament and Indian law makers will have very little to do regarding Company law per se in the coming years with most changes possible through the executive.

Another interesting facet is that the new law has defined “fraud” and extensively dealt with it. The earlier Companies Act did not define “fraud” or corporate misconduct.

With increase in corporate frauds in the country, this may be the right approach.

Kudos to the lawmakers for ushering in a modern Company law, although after 16 years effort. Better late than never.

>srivats.kr@thehindu.co.in

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