Education

Separate heads at India Inc?

| Updated on February 03, 2013

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Companies Bill 2012 mandates separating the offices of Chairperson and Managing Director for most Indian companies. Companies that vest both responsibilities in one person will need to amend their constitution with shareholder approval.

However, it excludes companies that have multiple businesses and separate divisional MDs. Further, the restriction on appointing the same person as chairperson and MD or CEO is eased for certain prescribed class of companies. The CEOs of nearly half of India’s top-50 listed companies also hold the position of chairperson.

In the UK it is common practice to separate the roles of chairperson and CEO. However, in India family-owned businesses dominate, where promoters own large stakes. Hence, the separation of offices may not work here.

No will yet to curb benami deals

The Benami Transactions (Prohibition) Bill 2011 is targeted at the real estate sector (specifically land/ property ownership) and is meant to replace the existing Benami Transactions (Prohibition) Act 1988.

While generally prohibiting all benami transactions, the Bill, however, permits transactions in the names of those related to the actual buyer/ seller by blood or marriage or lineal ascendance or descendance. All property identified as benami shall be confiscated by the Central Government along with the associated owner rights. Such property would not be recoverable or transferable to other parties. Additionally, violators will face heavy penalties and fines up to 25 per cent of the benami property’s market value. As the Bill intends to prevent money laundering through benami transactions, violation cases would be tried by the same special courts that preside over violations of the Prevention of Money Laundering Act 2002.

Considering the prevalence of bribery and corruption in the real estate sector, such a Bill will work as a deterrent against malpractice/ dubious transactions and foster transparent business practices.

Published on February 03, 2013

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