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A government committee has recommended companies to declare commencement of business in order to curb shell companies. It has also suggested capping independent directors’ remuneration.
A committee, under the Chairmanship of Corporate Affairs Secretary Injeti Srinivas, which submitted its report to the Finance and Corporate Affairs Minister, Arun Jaitley, on Monday, observed that technically speaking there is no specific definition of a shell company under the Company Law. However, such companies are formed to launder money and thus become instrumental in generating black money, it said.
The committee recommended re-introduction of declaration of commencement of business provision to better tackle the menace of ‘shell companies’.
On the issue of corporate compliance and corporate governance, the panel called for imposition of a cap on independent director’s remuneration in terms of percentage of income in order to prevent any material pecuniary relationship, which could impair his/her independence on the board of the company and holding of directorships beyond permissible limits to trigger disqualification of such directors. The committee wants greater disclosures with respect to public deposits, particularly in respect of transactions exempted from the definition of public deposits under Section 76 of the Act, to prevent abuse and harming of public interest.
Adjudication mechanism
On adjudication mechanism, the committee suggested declogging. The present structure of the company law normally refers violation of law to the Special Courts.
This, on the one hand puts more pressure on the court while on the other hand makes the adjudication process for more serious cases longer. The committee has divided the penal provisions into eight categories based on the nature of offences. It has then recommended that the existing rigour of the law should continue for serious offences, covering six categories, whereas for lapses that are essentially technical or procedural in nature, mainly falling under two categories may be shifted to in-house adjudication process.
Compounding cases
The committee also suggested ways for unclogging the National Company Law Tribunal (NCLT) through significant reduction in compounding cases before the Tribunal.
In addition, the report touched upon certain essential elements related to corporate governance such as declaration of commencement of business, maintenance of a registered office, protection of depositors’ interests, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors.
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