Legal Panel To Bring Psbs Under Co Act

The Indian Banks' Association (IBA) has constituted a legal snub-committee to recommend to the Centre the modalities of bringing listed public sector banks (PSBs) under the Companies Act, 1956.

This step will enable minority shareholders, whose rights are now curtailed, enjoy the same rights as in the case of private sector bank members and make general regulations governing PSBs contemporary.

The Bank Nationalisation Act, 1970, which was amended in 1994, enabled banks to go public (to raise capital), chose to curtail members' rights.

In the case of companies, dividends are recommended/proposed by the board of directors and declared at annual general meetings (AGMs), but in the case of PSBs the boards declare dividends with no role for the shareholders.

Further, the shareholders of listed PSBs are only permitted to discuss the annual reports at the AGMs in contrast to the annual reports being adopted by shareholders in the case of companies.

S N Ananthasubramanian, practising company secretary and part of the IBA sub-committee, said, "Shareholders in listed companies, among others, are entitled for nomination facility and can participate in buy backs. But shareholders' of PSBs do not have such rights. Further, PSBs, as per extant guidelines in force, do not have an automatic facility to issue shares on rights/preferential basis."

The state-owned banks are currently governed by general regulations framed by the banks individually with the approval of the RBI and the Centre.

"These regulations are stereotype and do not lend themselves to any amendments to make them contemporaneous with listed companies," said Ananthasubramanian.

With a view to make the Companies Act applicable to the listed PSBs, the Centre could either repeal/amend the Bank Nationalisation Act, 1970, or issue a notification under Section 616 of the Companies Act, 1956, so as to bring the banks under the Companies Act.

Some of the sections that are under the sub-committee's lens include the general regulations pertaining to dividend, directors responsibility statement, voting rights, issue of employees stock option plans, general meetings and their conduct, buy-back etc.

The PSBs, which have been constituted under an Act of parliament, are unique entities in that whilst they do the business of banking they do not conform to the definition of companies under the Companies Act.

Once listed, the PSBs are governed, apart from the principal regulator, the Reserve Bank of India, by the stock exchanges via the listing agreement and by the Securities and Exchange Board of India for all matters pertaining to the capital market. The Department of Company Affairs, however, has no jurisdiction over them.