Companies To Be Given Free Hand On Recast Decisions

The department of company affairs proposes to give company managements a free hand to effect corporate decisions such as restructuring, streamlining, winding up existing businesses and entering new ones without the Union government's interference, provided the move has the backing of two-thirds of the shareholders.

This is being attained by freeing companies from the requirment of seeking clearance of the company law board clearance for changing the objects clause of the memorandum of association. Companies would, however, still require CLB sanction for shifting their registered office as per Section 17 of the Companies Act.

This freedom will be total, without any caveats, government sources said. Normally, some checks are there in advanced countries. In the UK, for example, shareholders with 10 per cent stake or more can appeal to a court, if they have any objection to any such plans of the company. We are moving from one extreme to another, company law experts said.

This change will be included in the short bill containing seven amendments to the Companies Act that is being moved by the finance minister in the current session of Parliament.

Of the proposed seven amendments, four will give effect to his budget announcements: grant of voting rights to Sebi-recognised funds, debarment of corporate defaulters from raising fresh deposits, permission to companies to issue non-voting shares and removal of the ceiling of Rs 1,000 on claims of an employee of a company going into liquidation.

Three additional amendments that are now being included will allow companies to file documents with the registrar of companies on a computerised format, issue of redeemable preference shares up to a maximum of 20 years (as against a 10-year tenure now) and permit companies to change their objects clause without CLB clearance.

The powers of the CLB under Section 17 (excluding the change in objects) provides that before permitting any alteration of the memorandum of association, the CLB must be satisfied that the claims of every class of investors are met.

In recent times, the CLB has used this provision to discourage companies from shifting head offices indiscriminately. While most companies seek to shift their corporate headquarters on the ground of corporate synergy, there have also been cases where companies have sought to make such a shift to make it difficult for the bulk of shareholders to attend and block certain critical special resolutions at the annual general meeting.

Since the quorum for passing a special resolution has to be two-thirds of the shareholders present at an AGM, it is possible for corporate managements to get any kind of resolution passed with the backing of a handful of sympathetic shareholders once its headquarters are shifted to inaccessible places.