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
Recently the Chairman of Rajya Sabha issued a direction to extend the sitting hours and change the timing of Question Hour in the Upper House. Beginning with the Winter Session, which starts on November 24, Rajya Sabha will meet from 11 am to 6 pm, an hour more than its typical sitting hours. Question Hour will be scheduled from 12 pm to 1 pm, which was earlier held in the first hour of meeting. Members of Parliament (MPs), in addition to their legislative capacity, play an important role to keep the government accountable. One mechanism for them to hold the government responsible for its policies and actions is Question Hour in Parliament. During Question Hour, MPs raise questions to Ministers on various policy matters and decisions. Currently, all MPs can submit up to ten questions for every day that Parliament is in Session. Of these, 250 Questions are picked up by a random ballot to be answered each day that Parliament meets. While 230 Questions are answered in writing by Ministries, 20 Questions are scheduled to be answered orally by Ministers on the floor of the House. When a Question is answered orally by a Minister, MPs are also able to ask him/her two Supplementary Questions as a follow up to the response given. Therefore the proper functioning of Question Hour allows Parliament to be effective in its accountability function. Over the years Question Hour has become a major casualty to disruptions in Parliament. The last decade has seen a decline in the number of questions answered orally on the floor of the House. Rajya Sabha had tried to address this problem in 2011, when Question Hour was shifted to be held from 2 pm to 3 pm, but this was discontinued within a few days. The 2014 Budget Session saw both Houses of Parliament work for over hundred percent of their scheduled sitting time. However, while Question Hour functioned for 87% of its scheduled time in Lok Sabha, it functioned for only 40% of its scheduled time in Rajya Sabha. In 13 of the 27 sittings of the 2014 Budget Session, Question Hour in Rajya Sabha was adjourned within a few minutes due to disruptions. It was as a result of these increasing disruptions in the Upper House that the change in timing of the Question Hour and extension of its hours of sitting were proposed. While the Rules of Procedures of Rajya Sabha designate the first hour of sitting for Question Hour, they also allow the Chairman of the House to direct otherwise. It is using this Rule that the Chairman of Rajya Sabha, Mr. Hamid Ansari, issued directions for the Question Hour to be shifted to noon. It now remains to be seen whether this change in timing of Question Hour in the Upper House will be sufficient to allow for its smoother functioning. Sources: M.N. Kaul and S.L. Shakdher, Practice and Procedure of Parliament, Lok Sabha Secretariat, 6th Edition, 2009 Rajya Sabha Rules of Procedure, Rajya Sabha Secretariat, 2010