Check On Corporates

With a view to tightening the noose on errant corporates, the department of company affairs (DCA) will prepare a list of specific amendments to the Companies Act, 1956, to check misuse of inter-corporate loans and investments, transfer of funds from listed entities to privately owned companies, insider trading and devious methods of acquisition of shares in their own companies.

In addition, the penalty is also proposed to be enhanced so that companies are made to pay according to their capacity.

Large corporates often get away with minor fines for major offences. The matter was discussed at a recent meeting of the Company Law Advisory Committee.

It was decided that DCA would prepare a list of amendments and a concept paper for further deliberation.

A definition of independent directors, along with their functions, is also proposed to be put in place.

These directors will be exempt from disqualification and prosecution in cases which fall under the purview of a companys management and which are not under their control.

It was also proposed that disqualification and prosecution of directors would be linked to wilful default.

Similar exception had also been made for nominees of banks and financial institutions and the government.

DCA has already set up various committees and task forces to look at various options to plug loopholes related to various areas to check their misuse.

The compounding mechanism introduced in the Companies Act has also not had its desired impact and is not acting as a deterrent, a section of the committee said.

The Company Law Advisory Committee comprises representatives from industry chambers, banking and capital markets apart from officials from DCA.

It was felt that the loopholes needed to be plugged to check their misuse in the future as a number of such instances have been noticed during investigation of companies related to last years stock scam where the government could not take any action for want of evidence on non-adherence to clauses in the Companies Act.

The provisions of the Act were circumvented and weaknesses in the present legislative and regulatory framework were used by corporates.

The areas which require amendments had been flagged by the Joint Parliamentary Committee probing last years stock scam.