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
Yesterday, the Election Commission announced the dates for the 2019 Lok Sabha elections. The voting will take place in seven phases between April 11, 2019 to May 19, 2019. With this announcement, the Model Code of Conduct (MCC) has comes into force. In this blog, we outline the key features of the MCC.
What is the Model Code of Conduct and who does it apply to?
The MCC is a set of guidelines issued by the Election Commission to regulate political parties and candidates prior to elections, to ensure free and fair elections. This is in keeping with Article 324 of the Constitution, which gives the Election Commission the power to supervise elections to the Parliament and state legislatures. The MCC is operational from the date that the election schedule is announced till the date that results are announced. Thus, for the general elections this year, the MCC came into force on March 10, 2019, when the election schedule was announced, and will operate till May 23, 2019, when the final results will be announced.
How has the Model Code of Conduct evolved over time?
According to a Press Information Bureau release, a form of the MCC was first introduced in the state assembly elections in Kerala in 1960. It was a set of instructions to political parties regarding election meetings, speeches, slogans, etc. In the 1962 general elections to the Lok Sabha, the MCC was circulated to recognised parties, and state governments sought feedback from the parties. The MCC was largely followed by all parties in the 1962 elections and continued to be followed in subsequent general elections. In 1979, the Election Commission added a section to regulate the ‘party in power’ and prevent it from gaining an unfair advantage at the time of elections. In 2013, the Supreme Court directed the Election Commission to include guidelines regarding election manifestos, which it had included in the MCC for the 2014 general elections.
What are the key provisions of the Model Code of Conduct?
The MCC contains eight provisions dealing with general conduct, meetings, processions, polling day, polling booths, observers, party in power, and election manifestos. Major provisions of the MCC are outlined below.
What changes have been recommended in relation to the MCC since the last general elections?
In 2015, the Law Commission in its report on Electoral Reforms, noted that the MCC prohibits the issue of advertisement at the cost of public exchequer in newspapers/media during the election period. However, it observed that since the MCC comes into operation only from the date on which the Commission announces elections, the government can release advertisements prior to the announcement of elections. It noted that this gives an advantage to the ruling party to issue government sponsored advertisements that highlights its achievements, which gives it an undue advantage over other parties and candidates. Therefore, the Commission recommended that a restriction should be imposed on government-sponsored advertisements for up to six months prior to the date of expiry of the House/Assembly. However, it stated that an exception may be carved out for advertisements highlighting the government's poverty alleviation programmes or any health related schemes.
Is the Model Code of Conduct legally binding?
The MCC is not enforceable by law. However, certain provisions of the MCC may be enforced through invoking corresponding provisions in other statutes such as the Indian Penal Code, 1860, Code of Criminal Procedure, 1973, and Representation of the People Act, 1951. The Election Commission has argued against making the MCC legally binding; stating that elections must be completed within a relatively short time (close to 45 days), and judicial proceedings typically take longer, therefore it is not feasible to make it enforceable by law. On the other hand, in 2013, the Standing Committee on Personnel, Public Grievances, Law and Justice, recommended making the MCC legally binding. In a report on electoral reforms, the Standing Committee observed that most provisions of the MCC are already enforceable through corresponding provisions in other statutes, mentioned above. It recommended that the MCC be made a part of the Representation of the People Act, 1951.
Note that this is an updated version of a previous blog published in 201
