New Delhi, Oct. 22: India Inc is pleased as punch that its hard lobbying has paid off with the government deciding to lob the Companies (Amendment) Bill back to the department of company affairs.
Industrial houses had been crying themselves hoarse pleading that provisions which forced them to take on independent directors, retire directors above 75 years of age and tighten prudential norms could “have a detrimental impact on corporate health”.
“The bill should have been withdrawn. Some of its provisions like retirement at 75 years for board of directors and reservation for at least one woman in the board were not viable, though for different reasons,” said . D. Gupta, ex-president of the Institute of Chartered Accountants of India. However, the bill was drafted based on actual practice in most developed countries and many lawyers feel that it was a good piece of legislation.
Leading Supreme Court advocate Deepak Chatterjee said, “It has many safety clauses which will force boards to become more responsive to small investors. There is no dearth of talented and qualified people for boards, despite what corporates are saying. It is just that promoters are scared of independent directors.”
Chatterjee said another proviso which chambers were objecting to, namely denial of permission to corporates to float large number of subsidiaries by the new Act, was important as it had been seen that most corporates were transferring profits out of their main firms to these subsidiaries and in some cases even siphoning them out.
However, Gupta, like many in corporate houses, feels that boards should be gender free. He added, “In India when the politicians manning the country are about that age, why can't companies be headed by post 75 people, since both function in a democratic setup.”
ICAI secretary Ashok Haldia said the move to withdraw the bill and re-draft it is in tune with the practical realities of the corporate world. It seems more consultation with the corporates is imperative for effective corporate governance, he said.
Most of the companies are of course happy with the move. Without wanting to be quoted some of them said that no harm will be done to the cause of corporate governance if women were not given reservation in board of directors or if there was no curb on the number of subsidiaries or investment companies that is permissible.
According to a CII spokesperson, “It is more important to have a proper, managable and implementable law than to rush in for the legislative process.”
After the introduction of the Companies (Amendment) Bill 2003 following representation from industries and companies, a cabinet note was prepared to dilute certain provisions of the bill.