J J Irani in Calcutta on Saturday. Picture by Kishor Roy Chowdhury

Calcutta, July 23: The J J Irani expert committee, set up by the government to bring about amendments in the Companies Act, has suggested that there should be an easy exit route for defunct firms.

?The current provision is extremely inefficient, which is why a defunct company takes ages to liquidate ? unlocking of assets of these companies is very difficult. This acts as a dampener for many companies, both domestic and foreign, to set up shop in the country,? said J.J. Irani, chairman of the expert committee. He was speaking at a seminar organised by the Bharat Chamber of Commerce.

The committee has also suggested that the number of independent directors should be maintained at one-third of the total number of directors. ?In my experience, the independent directors are the ones who are the most dependent than even the promoters and other directors,? he said. The committee?s view on the number of independent directors might clash with the Securities Exchange Board of India?s (Sebi), which prescribes 50 per cent independent directors on boards of listed companies.

In its report, the Irani Committee had put no limit to the number of subsidiaries a company can float and even backed having subsidiaries of subsidiaries. According to the panel members, such structures have been found useful in creating joint ventures and business planning by corporate houses.

The Concept Paper on Company Law, issued by the ministry of company affairs, had proposed a ban on the formation of chain subsidiaries on the grounds that the multi-layer holding and subsidiary mechanism was being misused for siphoning of funds.

?But we felt that if second or subsequent level subsidiaries are prohibited, it may operate as an unreasonable restraint, particularly in the case of foreign companies investing in India. Such prescriptions will also make the environment rigid and put Indian companies at a disadvantage vis-?-vis their competitors internationally,? said Irani.

Therefore, the panel has favoured lifting of restrictions on the number of subsidiaries a company can have but has called for greater disclosures about the promoters and directors at the time of incorporation.

The committee has also recommended simpler regulatory regime for companies having single ownership, mandatory statement of cash flows and a slew of exemptions for small companies.