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
In India, children between the age group of 6 and 14 years have the fundamental right to free and compulsory education. This right is implemented through the Right of Children to Free and Compulsory Education Act, 2009 (RTE Act). The Act is applicable to all categories of schools (government and private). According to recent media reports (see here and here), many schools (including government schools) are flouting norms laid down in the RTE Act. Unaided schools have criticised state government over norms related to religious and linguistic status of minority schools (see here and here). The government has also faced flak over unclear norms on neighbourhood schools and reimbursement of money to private schools (see here, here and here). Most Acts ‘delegate’ the power to make rules and regulations for operationalising the law to the executive (Ministry). We provide an overview of the Rules notified by the state governments. The central government notified the RTE Rules 2010 on April 9, 2010, which are applicable to all schools under the central government, and in the five Union Territories without legislatures. Most of the states have notified similar Rules with a few variations. The Rules define the limits of a neighbourhood and make it mandatory for the local authority to maintain list of children within its jurisdiction. They also prescribe the composition of the School Management Committee to be formed in government schools. Private schools shall reserve 25% of the seats for disadvantaged children. These schools shall be reimbursed for either their tuition charge or the per-student expenditure in government schools, whichever is lower. All private schools have to be recognised before they can start operation. Recognition is contingent upon meeting the minimum standard laid down in the Act Existing private schools have to meet the norms within three years of commencement of the Act. If they are not compliant after three years, they shall cease to function. Government schools under the central government have to meet only two conditions: the minimum qualification for teachers and the student-teacher ratio. For all state government schools and un-adided schools, the power to make rules is delegated to the state government. The central government circulated Model Rules for the RTE Act to the states. All state governments, except Goa, have notified the state RTE Rules. Delhi and Puducherry have also notified them. Most of the states have notified similar Rules with a few variations. We list some of the variations. Andhra Pradesh: The break-up of the 25% quota among the various disadvantaged groups have been included in the Rules. Scheduled Castes: 10%; Scheduled Tribes: 4%; Orphans, disabled and HIV affected: 5% and children with parents whose annual income is lower than Rs 60,000: 6%. Rajasthan: Private schools either have to be affiliated with a university or recognised by any officer authorised by the state government. Karnataka: In addition to the minimum norms under RTE Act, private schools have to comply with the Karnataka Education Act, 1983. Gujarat: If an existing recognised school is unable to meet the infrastructure norms it may be given the option of demonstrating that it achieved certain learning outcomes, both in terms of absolute levels and as improvement from previous years. Uttar Pradesh: The government shall pay per child reimbursement to the school after it gives a list of children with their Unique Identity Number and other details. Kerala: The local authority has to maintain a record of all the children (0-14 years) within its jurisdiction. It shall also maintain the Unique Identity Number of every child, as and when issued by the competent authority, to monitor his enrolment, attendance and learning achievements. Haryana: Defines textbooks, uniform and writing material. It states that Hindi is to be the preferred medium of instruction in all schools. For using other language, permission of Director, Elementary Education Dept is required (to be given within 45 days or deemed to be granted). West Bengal: The Rules give detailed definition of the appropriate age for each class. They require schools to be set up in a relatively noise-free and pollution-free area with adequate supply of drinking water and electricity. Existing schools (which are already recognised or affiliated with a Board) may get the local municipal authorities to provide infrastructural support including relaxation of building rules to comply with the requirements of the Act. Additional sources
