The Bhopal gas tragedy of 1984 and its sequel is likely to have a bearing on the Companies Bill, 2009, which was being scrutinised till this week by Parliament’s Standing Committee on Finance.
The government would be incorporating in the Bill the Supreme Court's expressed views on the liability of company directors for criminal acts, said Salman Khurshid, Union minister for corporate affairs.
"The curative petition filed by the CBI (Central Bureau of Investigation) on the Bhopal case is before the Supreme Court...whatever comes from it has to be factored in the Bill, as on criminal liability of directors we need to have guidance,” Khurshid said on the sidelines of a convention of the Institute of Company Secretaries of India here today.
“The issue is whether there is a need to reflect on new responsibilities and principles on the directors of a company...we need to look into the role of directors, independent directors and nominee directors and their responsibility,” he said.
The SC had, on Tuesday, issued notices to the former Union Carbide chairman, Keshub Mahindra, and six others, to explain why they shouldn't be charged with culpable homicide for the Bhopal tragedy.
PANEL GIVES REPORT
Two days after the parliamentary committee gave its report on the Bill, the ministry of corporate affairs (MCA) said today it was “studying the details” of the endorsement of basic principles made by the committee.
Khurshid said the committee had made “general endorsements” to the ministry's proposals in the Bill, from which the MCA would now have to formulate specific legislation. The Bill seeks to codify a new law to regulate companies and other corporate entities and simultaneously repeal the Companies Act, 1956.
The committee, Khurshid said, had supported the requirement of a code for independent directors that would be a “simple exposition of their duties and responsibilities...Independent directors should make a declaration that they are familiar with their responsibilities and obligations. They should be prepared to face sanction if they fail to do their duty,” he said.
In its report tabled on August 31, the standing committee has stated “there is a need to circumscribe and limit the liabilities of independent firectors, so that they are able to act freely and objectively and are able to share their expertise with the rest of the Board. A provision may also be made for their rotation by restricting their tenure in a company to, say, five years”.
Further, the report recommends “a code for independent directors may be considered for this purpose. The appointment process may also be made independent of the company management by constituting a panel or a data bank to be maintained by the Ministry of Corporate Affairs, out of which companies may choose their requirement.”
Khurshid said the committee had also endorsed the proposal for rotation of audit firms, as well as accounting and audit standards. “The manner in which this will happen has to be worked out.”
In its clause-by-clause examination, the committee has recommended that the fresh proposal of MCA regarding rotation of auditors be suitably incorporated in the Bill.
The Bill had said “every company shall, at each annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of the next annual general meeting”. Subsequent to suggestions from the committee, the MCA had suggested a new clause that disallowed any company “from appointing or re-appointing an individual or firm as auditor for more than five consecutive years”.
|BILLED TO CHANGE
A FEW PROPOSALS THAT COULD BE INCLUDED IN THE COMPANIES BILL, 2009
# Separation of Offices of Chairman & Chief Executive Officer
# Number of Companies in which an individual may be a director
# Attributes for Independent Directors
# Tenure for Independent Director
# Independent Directors expected to act as ‘whistleblowers’.
# Remuneration Committee to determine, recommend and monitor principles, criteria and the basis of remuneration policy of the company
# Evaluation of Performance of Board of Directors, Committees thereof and of Individual Directors
# More specific role and responsibilities for audit committee to be provided specifically in respect of related Party Transactions.
# Appointment of Auditors: Audit Committee to examine eligibility, independence etc of the auditor recommend his/its appointment to the Board
# Rotation of Audit Partners and Firms.
Of the other proposals supported by the committee, Khurshid said the matter of “managerial remuneration” had been addressed.
The committee's report supports the formation of a “Remuneration Committee to determine, recommend and monitor principles, criteria and the basis of remuneration policy of the company”.
Said Khurshid: “We are targeting the Winter Session (of Parliament to table this Bill) but a lot of work has to be done. But we will definitely do this by the end of this fiscal (2010-11).”