| Irani: Prune point
New Delhi, May 31: The JJ Irani committee on revamping the company law has suggested that the number of independent directors on the boards of firms be pruned to a third of the total. This is at variance with the norms of Sebi, which insists in Clause 49 of the listing agreement that it should be nothing less than half.
This is one of the many recommendations aimed at simplifying the bulky statute and bringing it in tune with the present day realities, and will soon be taken up by the cabinet.
The other important area where the panel wants a change is liquidation, where it suggests that erosion of net worth as a basis should be replaced with default of matured debts.
The panel also says companies should be free to set up as many as subsidiaries and sub-subsidiaries, provided the accounts of these firms are consolidated in annual reports.
Mergers and acquisitions would be deemed approved if government departments empowered to raise objections do not respond within a specified time frame. The government, the panel says, should approach a court or tribunal to push for mergers in public interest.
One of the most important parts of the report is the recognition of “one-person companies”. Existing laws limit the scope to “associations of persons as companies”.
On regulation, the committee prescribes stronger policing measures, including a separate set of laws that can give the serious frauds investigation office more teeth.
“We have tried to incorporate views from various quarters. The effort has been to simplify the law and procedures governing companies,” Irani said after submitting his tome. Company affairs minister P. C. Gupta, who received the document, said the government would bring a bill, including the suggestions of the committee, in Parliament’s winter session.
“We have given full liberty to shareholders and promoters to run the companies. But in case of violations, penalties will have to be stringent,” Irani said.
According to the former Tata Steel chief, all directors who are aware of decisions taken by the company, including celebrities and public figures, will be liable to be punished in case of default.
“We discussed this point. Any director who sits on the board at the time of investment/public issue will be held responsible /liable for that issue for at least two years,” he said.
However, he made it clear that part-time directors who do not know of “wrong decisions” taken by the management will not be held answerable under the new law.
To check the menace of vanishing companies, the panel said preventive action should begin from the stage of registration and be sustained through a regime that requires regular and mandatory filing of statutory documents.
“Non-filing of documents or incorrect disclosures should be dealt with seriously. Delays should be penalised through a non-discretionary late fee,” the report states.
If the report is accepted, companies will have to publish information on convictions for criminal breaches of the Companies Act on the part of the company or its officers or key employees in their annual reports.
The committee wants offences to be classified into two broad categories. The first would be those calling for imposition of monetary penalties; the second will require imposition of imprisonment with or without a fine.