Co Secys Point Out Loopholes In Cos Bill

The Institute of Companies Secretaries of India has, in the light of the CRB scam, attacked the listing classifications in the draft Companies Bill, 1997.

They said that if this was not rectified then it would result in rampant misuse of capital markets by fly-by-night public unlisted companies through the medium of private placements.

The recent failures of NBFCs have proved beyond doubt that there is an imperative need for an external agency to report on the status of legal and secretarial compliance even in the case of companies which are required to appoint secretaries mandatorily, the council said.

The council argued that the draft bill indicated that the interest of shareholders in an unlisted public company which include at present several banks and public sector companies need not be protected in the same manner as that in a public listed company.

Since there was no limit in the number of shareholders in an unlisted public company, unlike in the case of a private company, and there was no restriction on such companies raising finance through private placements, the capital markets could be misused wantonly, the ICSI said.

The draft bill classifies the companies as: private limited companies whic h are legally self-governing; public unlisted companies having lesser government regulations; public listed companies having greater flexibility in their operations than before, but with stricter compliance norms.

The council in its resolution taken on Wednesday said, The concept of listing as a line of demarcation and to the status of virtue are not in order. Placing reliance on such a nebulous concept is, therefore, unjustified and lacks rationality.

According to the council, the yardstick of classification should be public interest as it encompasses a much wider area than mere shareholderss interest and the latter cannot be equated as the whole area of public interest.

Pointing out that the Bombay Stock Exchange (BSE) had recently delisted a host of companies and the Delhi Stock Exchange (DSE) was to follow suit, the council argued that listing did not provide a stable and enduring basis for the classification of companies.

The council maintains that the assumption of the listing classification by the draft bill will result in changes to several sections of the Companies Act, which in turn would result in awkward consequences.

Typically an unlisted company can alter the provisions of its memorandum so as to change its registered office from one state to another on the basis of a special resolution and would not be required to take prior approval of the Company Law Tribunal.