We wrote an FAQ on the Lok Pal Bill for Rediff. http://www.rediff.com/news/special/special-parliamentary-committee-cannot-study-lokpal-bill-in-10-days/20110822.htm The Lok Pal Bill has been referred to the Standing Committee of Parliament on Personnel, Public Grievances, Law and Justice. In this FAQ, we explain the process of these Committees. What is the role of such standing committees? The system of departmentally related standing committees was instituted by Parliament in 1993. Currently, there are 24 such committees, organised on the lines of departments and ministries. For example, there are committees on finance, on home affairs, on defence etc. These standing committees examine Bills that are referred to them. They also examine the expenditure plans of ministries in the Union Budget. In addition, they may examine the working of the departments and various schemes of the government. How is the membership of these committees decided? Each committee has 31 members: 21 from Lok Sabha and 10 from Rajya Sabha. Parties are allocated seats based on their strength in Parliament. The final membership is decided based on the MP’s area of interest as well as their party’s decision on allocating the seats. Who chairs the committees? Of the 24 committees, 16 are administered by Lok Sabha and eight by Rajya Sabha. The Chairperson is from the respective House. Political parties are allocated the chairs based on their strength in Parliament. Some committees such as home affairs, finance and external affairs are customarily chaired by a senior member of an opposition party. What will the Standing Committee do with the Lok Pal Bill? The Committee has invited comments and suggestions from the public on the Bill. Comments can be sent to Mr. KP Singh, Director, Rajya Sabha Secretariat, 201, Second Floor, Parliament House Annexe, New Delhi -110001. These may also be emailed to kpsingh@sansad.nic.in or rs-cpers@sansad.nic.in. The Committee will examine the written memoranda. They will also invite some experts and stakeholders for oral evidence. Based on its examination, the committee will prepare a report with its recommendations on the various provisions of the Bill. This report will be tabled in Parliament. Is the report decided by voting? No. The committee tries to form a consensus while preparing the report. However, if some members do not agree on any point, they may add a dissent note. For example, the committee on the Civil Liability for Nuclear Damages Bill had dissent notes written by MPs from the left parties. The Women’s Reservation Bill also had dissent notes from a couple of members. Are the committee’s recommendations binding? No. The Committee system was formed recognising that Parliament does not have the time for detailed examination and public feedback on all bills. Parliament, therefore, delegates this task to the committee which reports back with its recommendations. It is the role of all MPs in each House of Parliament to examine the recommendations and move suitable amendments. Following this, Parliament can vote on these amendments, and finalise the Bill. Can you give examples when the Committee’s work has resulted in significant changes? There are many such instances. For example, the standing committee on science and technology examined the Civil Liability for Nuclear Damages Bill. The committee made several recommendations, some of which increased the potential liability of suppliers of nuclear equipment in case of an accident. All the recommendations were accepted. Similarly, the Seeds Bill, which is currently pending in Rajya Sabha has seen several major recommendations by the Committee on Agriculture. The government has agreed to move amendments that accept many of these recommendations. Are all Bills referred to Standing Committees? Most Bills are referred to such committees but this is not a mandatory requirement before passing a Bill. In some cases, if a Bill is not referred to a committee and passed by one House, the other House may constitute a select committee for detailed examination. Some recent examples include such select committees formed by the Rajya Sabha on the Prevention of Torture Bill, the Wakf Amendment Bill, and the Commercial Divisions of High Courts Bill. There are also some instances when a Bill may be passed without the committee process. Is it a good idea to bypass the committee process? In general, this process provides a platform for various stakeholders to provide their inputs. In the Lok Pal case, a few influential groups such as the India Against Corruption (IAC) and the National Campaign for People’s Right to Information (NCPRI) have voiced their views. However, there may be other points of views of persons who do not have similar access to the media. The Standing Committee provides equal opportunity to everyone to write in their memoranda. It also allows parliamentarians to devote a significant amount of time to understand the nuances of a Bill and make suitable modifications. Thus, the standing committee system is an opportunity to strengthen legislation in an informed and participatory manner. Is it feasible to compress this process within 10 days and get the Lok Pal Bill passed within the current session of Parliament? There should be sufficient time for citizens to provide inputs to the committee. The committee has to examine the different points of view and find suitable provisions to achieve the final objectives. For example, there are divergent views on the role of Lok Pal, its constitution, its jurisdiction etc. The Committee has to understand the implications of the various proposals and then make its recommendations. It has been given three months to do so. Typically, most committees ask for an extension and take six to eight months. It is not practical to expect this process to be over within 10 days. Should civil society demand that the government issue a whip and pass the Jan Lok Pal Bill? Everyone has the right to make any demand. However, the government is duty bound to follow the Constitution. Our Constitution has envisaged a Parliamentary system. Each MP is expected to make up their minds on each proposal based on their perception of national interest and people’s will. Indeed, one may say that the best way to ensure a representative system is to remove the anti-defection law, minimise the use of whips, and let MPs vote their conscience. That may give us a more accountable government.
All companies are currently governed by the Companies Act, 1956. The Act has been amended 24 times since then. Three committees were formed in the last ten years, chaired by Justice V B Eradi (2001), Naresh Chandra (2002) and J J Irani (2005) to look into various aspects of corporate governance and company law. The Companies Bill, 2009 incorporates some of these recommendations. Main features The major themes of the Bill are as follows: It moves a number of issues that are currently specified in the Act (and its schedules) to the Rules; this change will make the law more flexible, as changes can be made through government notification, and would not require an amendment bill in Parliament. On a number of issues, the Bill moves the onus of oversight towards shareholders and away from the government. It also requires a super-majority of 75 percent shareholder votes for certain decisions. The powers of creditors have been enhanced in cases where a company is in financial distress. It has new provisions regarding independent directors and auditors in order to strengthen corporate governance. Finally, the bill increases penalties, and provides for special courts. Types of companies The Bill provides for six types of companies. Public companies need to have at least seven shareholders, and private companies between two and 50 shareholders. Charitable companies should have at least one shareholder, may have only certain specified objectives, and may not distribute dividend. Three new types of companies have been defined, which have less stringent provisions. These are one-person companies, small companies (private companies with capital less than Rs 50 million and turnover below Rs 200 million), and dormant companies (formed for future projects, or no operations for two years). Corporate Governance The Bill defines the duties of directors and norms for composition of boards. The number of directors is capped at 12. At least one director should be resident in India for at least 183 days in a calendar year and at least a third of the board should consist of independent directors. The Bill also sets guidelines for auditors. Certain related persons such as creditors, debtors, shareholders and guarantors cannot be appointed as auditors. Certain services such as book-keeping, internal audit and management services may not be undertaken by the auditors. Removal of an auditor before completion of term requires approval of 75 percent of the shareholders. Adjudication The Bill provides for a National Company Law Tribunal (NCLT) to adjudicate disputes between companies and their stakeholders. It also establishes an Appellate Tribunal. The NCLT may ask the government to investigate the working of a company on an application made by 100 shareholders or those who hold 10 percent of the voting power. Arrangements All arrangements such as mergers, takeovers, debt split, share splits and reduction in share capital must be approved by 75 percent of creditors or shareholders, and sanctioned by the NCLT. Standing Committee’s Recommendations The Parliamentary Standing Committee on Finance has submitted its report, and suggested several significant amendments. Corporate governance Substantive matters covered in various corporate governance guidelines should be contained in the Bill. These include: separation of offices of Chairman and Chief Executive Officer; limiting the number of companies in which an individual may become director; attributes for independent directors; appointment of auditors. Delegated legislation The Committee noted that the Bill provided excessive scope for delegated legislation. Several substantive provisions were left for rule-making and the Ministry was asked to reconsider provisions made for excessive delegated legislation. The Ministry has agreed to make some changes to include the following provisions in the Act: the definition of small companies; the manner of subscribing names to the Memorandum of Association; the format of Memorandum of Association to be prescribed in the Schedule; the manner of conducting Extraordinary General Meetings; documents to be filed with the Registrar of Companies. The Committee recommended that provisions relating to independent directors in the Bill should be distinguished from other directors. There should be a clear expression of their mode of appointment, qualifications, extent of independence from management, roles, responsibilities, and liabilities. The Committee also recommended that the appointment process of independent Directors should be made independent of the company’s management. This should be done by constituting a panel to be maintained by the Ministry of Corporate Affairs, out of which companies can choose their requirement of independent directors. Investor protection The Ministry, in response to the Committee’s concerns for ensuring protection of small investors and minority shareholders, indicated new proposals. These include: enhanced disclosure requirements at the time of incorporation; shareholder’s associations/groups enabled to take legal action in case of any fraudulent action by the company; directors of a company which has defaulted in payment of interest to depositors to be disqualified for future appointment as directors. The Ministry also made some suggestions on protection of minority shareholders/small investors, which the Committee accepted, including the source of promoter’s contribution to be disclosed in the Prospectus; stricter rules for bigger and solvent companies on acceptance of deposits from the public; return to be filed with Registrar in case of promoters/top ten shareholders stake changing beyond a limit. Corporate Delinquency Recommendations include: subsidiary companies not to have further subsidiaries; main objects for raising public offer should be mentioned on the first page of the prospectus; tenure of independent director should be provided in law; the office of the Chairman and the Managing Director/CEO should be separated. The Committee emphasised that the procedural defaults should be viewed in a different perspective from fraudulent practices. Shareholder democracy The Committee recommended that the system of proxy voting should be discontinued. It also stated that the quorum for company meetings should be higher than the proposed five members, and should be increased to a reasonable percentage. Foreign companies The Bill requires foreign companies having a place of business in India and with Indian shareholding to comply with certain provisions in the proposed Bill. The Committee observed that the Bill does not clearly explain the applicability of the Bill to foreign companies incorporated outside India with a place of business in India. It recommended that all such foreign companies should be brought within the ambit of the chapter dealing with foreign companies. Next steps The report of the Standing Committee indicates that the Ministry has accepted many of its recommendations. It is likely that the government will take up the Bill for consideration and passing during the winter session, which starts on 9th November. This article was published in PRAGATI on November 1, 2010
