Non-Voting Share Issue To Be Reviewed

One of the amendments permits a company to issue not more than 25 per cent of its voting equity as non-voting shares, provided the move has the backing of 75 per cent of its shareholders present at an annual general meeting.

Government sources said that since the brief of the working group was to look at the Companies Act, 1956, it was within its right to include the recently proposed amendments. The bill containing these amendments is now open in Parliament.

Ultimately, the decision to reject or accept the recommendations of the working group will rest with the government, the sources said.

The working group is advisory in nature and is required to submit its recommendations for public debate by January 1, 1997.

Several corporates have declared their intention to issue non-voting shares. Some have even proposed the issue of non-voting equity in the international market. Foreign investors have however been lukewarm to such proposals.

Sources said the working group was emphasising on the need to ensure that a basic common thread ran through the entire act. It has divided the act among its seven members in such a way that each would handle specific areas, taking into consideration the basic strengths of each member.

The 15-odd schedules attached to the act have been left untouched for the moment, but will be tackled at a later date, once the basic issues have been ironed out, sources said.

The overall division of the act among members could raise the issue of cross references, since the Companies Act abounds in them.

A cross reference means that the provisions of a particular section have to be read in conjugation with those of another.

Also, the legal provisions of one section sometimes override another, but only under certain circumstances.

Such cross references are often not placed adjacent to one another. A company law expert has to read and interpret the entire act to get the exact legal position.

The working group however foresees no problem arising out of such cross references.

Both the cross references and the schedules will be handled once the basic thrust of the act becomes clear, reliable sources said.

The schedules in the act are nothing but guidelines or rules framed on the basis of provisions of the underlying act.

Such rules normally lay down the format for matters like the particulars to be filed by a company, the proforma for seeking exemptions and the ceilings prescribed by the government in areas where partial or total controls exist.

The government prefers to separate these rules from the basic act because a schedule can be changed through notifications while any change in the act can to be effected only through a parliamentary sanction.