Quote martial: Recommendations not good enough

JJ IRANI
Director, Tata Sons

The new Companies Bill, 2009, which is now before Parliament, has several features that would impact positively the business climate in India.

However, lately, some features have crept into it, possibly influenced by the Satyam episode, which suggest a movement back to the earlier ‘sanctions’ and ‘permit’ rule, and liberalisation for corporates is not as complete as business would like to see. Particularly damaging is the stipulation that a company should not have step-down subsidiaries and that it should have only one investment company.

These two stipulations, which have crept into the text of the bill would greatly hamper the freedom of Indian companies to make investments abroad and in India, and flexibility to make such deals would be reduced. There are also some limitations in the structure of boards and managerial remuneration, which could easily be done away with in favour of residing decision-making powers where they belong, that is, in the board of the company.

 

RAHUL BAJAJ
Chairman, Bajaj Auto

The proposed changes to the Companies Bill submitted by the Standing Committee on Finance have many progressive provisions. However, there are some provisions which have caused legitimate concerns to the corporate sector.

These include:
# Independent directors —For an unlisted company and its unlisted subsidiaries, there should be no need to have any independent directors at all, as there is no public interest involved

# Mandatory two per cent debit under the head corporate social responsibility (CSR)

# Limiting subsidiaries to just one level below the holdingcompany, and

# Suggesting that every promoter will be deemed to be an officer by default even if he is not a director of the company

RAJIV MEMANI
Ernst & Young, country managing partner

The Bill appears to impose uncalled-for restrictions on auditors. The auditors’ liability for contravention, which would result in imprisonment, is too harsh and not in practice anywhere in the world. The threat of severe consequences may result in over-audit and will also discourage high-quality talent from joining the profession. There ought to be punishment for professionals when contravention is done knowingly or willfully.

For the audit practice to survive, it is necessary the strict test of auditor's obligations proposed in the Bill be accompanied with a statutory provision for proportionate civil liability for and with other wrongdoers. Another restriction states, subsidiary companies and the parent organisation need different auditors.

Globally, all regulators are going the other way. The new Bill must apply internationally-accepted practices on auditor independence, rather than imposing ambiguous limitations.

NARESH CHANDRA
Former bureaucrat

The provisions which were to be voluntary now find place in the proposed law. Surprisingly, these have passed through the Standing Committee of Parliament without much discussion. Industry circles are even more surprised that an experienced Chairman like Mr Yashwant Sinha could have allowed these measures to get into the proposed Bill at the last moment.

It is also to be seen that these provisions are even more strict than those contained in Clause 49 of Sebi’s listing agreement, that is to say, even unlisted companies have now to comply with more rigorous compliances than even the listed companies today!

The hallmark of any modern state is sensibility: In executive action, judicial decisions and in law-making. In many instances, the Companies Bill, 2009, fails the test of sanity and sensibility.

BERJIS DESAI
Managing Partner, J Sagar Associates

The Bill effectively dilutes the law relating to related party transactions. The "associate company" concept has been introduced to cover a company in which one has 26 per cent or more voting power or ability to control business decisions under an agreement. Similarly, ‘relative’ is extended to include all lineal ascendants or descendants, related by marriage or adoption.

"Key managerial personnel" now, apart from wholetime directors, will include the company secretary and the CFO. This expands the ambit of a "related party". But Section 166, which regulates related party transactions, is weaker than the existing Section 297.

Ensuring corporate governance in listed companies is best done by Sebi through the Listing Agreement. Inserting contradictory/competing provisions will only add to the confusion. Life would be easier if regulatory agencies stuck to their brief instead of grabbing turf.

Y M DEOSTHALEE
CFO, Larsen & Toubro

The Bill has proposed several welcome changes to make the corporate regulatory framework contemporary and effective. However, a few proposed issues need active consideration. Flexibility needs to be given to companies to fix the number of directors and managerial remuneration. The proposed ceiling of six years’ tenure for independent directors needs reconsideration.

Clause 49 of the Sebi Listing Agreement prescribes a term of nine years to enable them to contribute more effectively. There should not be any restriction on layers of subsidiary companies, so long as subsidiary companies are formed to meet legitimate business requirement, and shareholding in such subsidiaries is transparently disclosed.

Mandatory rotation of audit firms may result in deterioration in the audit quality, since the auditors may not get sufficient time to understand the business complexities.