Clause On Small Investors In Cos Bill Shelved

The Union Cabinet has decided to put on hold the controversial provision in the Companies Bill which would have permitted small investors to put their representative on the boards of companies. This decision was taken by the Cabinet on Wednesday evening because of differences among ministers over the issue. "It has neither been dropped altogether nor included in the Bill," a Cabinet source told Business Standard yesterday. As a result, the Companies Bill cleared by the Union Cabinet yesterday does not include the provision. So far, there is no decision whether the provision will be taken up for discussion at the next Cabinet meeting. All levels of the government had approved the provision earlier, including the standing committee. The clearances were secured during Ram Jethmalani's tenure as law minister.But when the Cabinet note on the Companies Bill was presented before the Cabinet at its meeting last week, Arun Jaitley had replaced Jethmalani. According to a government source, at the Cabinet's meeting last week, Jaitley began the debate on this clause by listing out arguments both in favour of and against the clause. He said the provision sought to strengthen corporate democracy as even small shareholders could take part in the decision-making process of companies. They could do so by electing one from amongst themselves to be on the boards of companies in which they have invested. Granting such a power to small shareholders could even be a populist move as far the image of the government was concerned. At the same time, there was another, more frightening side to the story. The move could result in shattering corporate confidence as it would become possible for corporates to put their own people on the boards of their rivals. Explaining this, the source said: "Imagine a Reliance man on Essar's board or an Essar man on Reliance's board". Given its long-term impact on corporates, Cabinet decided last week to debate the issue afresh at its next meeting. When the Cabinet took up the issue again this Wednesday, it soon became apparent that the Cabinet was divided on the issue. A further postponement of the entire Bill would have delayed the entire process, and therefore it was decided to clear the entire Bill except the provision on which the Cabinet was divided.