Finance minister P Chidamba-ram has suggested that the right to raise deposits from the public by companies should be reserved. The minister, in the light of experiences over the past 5-6 years, was of the view that the right to raise deposits should be a special right, possibly involving tight norms.
The finance minister was in the city yesterday to address the national seminar on the Draft Companies Bill, organised by the Federation of the Indian Cham-bers of Commerce and Industry (Ficci) for a dialogue on the recommendations of the working group on the bill.
The government now expects various recommendations to flow in from the industry and market experts by June-end. Discussions with the working group on the new proposed bill will take place in July.
Chidambaram was hopeful that the final draft may be placed before Parliament during the monsoon session and by the end of the year the bill may be passed, bringing in a new company law into force by April 1998.
Earlier few companies used to raise deposits from the public...now there are several who are doing this. From my experiences, I am inclined to think (though it is not my final view) that the right to raise deposits from the public should be a special one, he said.
Chidambaram underlined the need to look closely at the debt-equity ratio for different sectors of industry, keeping in view the case of buy-back of shares.
The Ficci, in its background paper, has called for a discussion on this issue as rigidity in the debt-equity ratio is tantamount to banning the buy-back of shares and different sectors require different debt-equity ratios for the meaningful management of resources.
The minister conceded that the previous exercise for drafting the companies bill had ended in a fiasco.
It was a government, bureaucracy driven draft. It was rubbished by the corporate sector. This draft has received a better response, he said.
The finance Minster said that in the interests of the corporate sector, disclosure norms should be worked out in such a way that there is a combination of self regulation and an external regulation. With over four lakh companies registered with the RoC and increasing at the pace of 5,000 per month the government cannot regulate all companies.
If there is a strong code on self regulation, the external regulation will be selectively interventionist. But if the self regulation is weak, the government will have no option but to be harsh and draconian in nature, he said.
Chidambaram said that the main concern was to ensure that joint stock companies must remain effective instruments for growth.
Such companies had triggered the fastest growth worldwide through men, material and money to create jobs and income, he said. He warned against setting up of a large umbrella of companies under one group.
A group can be an exploitative cover for a number of misdeeds. More companies have been floated in the past by the same entrepreneur, which has led to bad experiences, the finance minister said.