Company Boards May Get More Powers

The working group set up to recast the Companies Act, 1956, has proposed delegation of additional powers to the boards of companies for approving annual and half-yearly accounts, mergers and acquisitions and raising of monies abroad, subject to a final clearance by shareholders.

At the same time, the group seeks to increase the accountability of the boards to shareholders, particularly with reference to public listed companies.

Other additional powers to be granted to the boards include those regarding diversification, donations and share buyback. At present, a companys board is empowered to call on shareholders only in respect of money unpaid on shares, debentures, borrowings and related investments.

 

Simultaneously, the group also proposes to clip the powers of individual directors and managing directors regarding loans taken by them from their company by capping the eligibility criterion at five times the annual pay package of each of these professionals.

Besides, the requirement of a Central government clearance is being replaced by the need to seek the minority shareholders approval through a special resolution at an annual general meeting.

This move has the dual benefit of restoring corporate democracy to the shareholder, even while distancing the government from corporate decision-makin.

The powers of directors to lease property without the boards consent are also being curbed. At present, such curbs are only on sale, purchase or supply of goods and services. Curbs on leasing property are being put in place for the first time.

Moreover, the requirement of shareholders approval through a special resolution is being imposed for all contracts by directors in case of companies whose paid-up capital is more than Rs 5 crore. At present, a clearance from the Union government is sufficient, which is now being replaced with the need for shareholders sanction.

Companies with paid-up equity below Rs 5 crore are being empowered to enter into contracts relating to purchase, sale, lease and supply of goods and services at the board level. The current threshold is set at Rs 1 crore. At present, companies with paid-up equity beyond this level are required to seek government clearances for all such decisions.