Corporate Affairs MinisterSachin Pilot on Thursday made a case for bridging the regulatory gaps that exist between regulators and Ministries, a move that could help attract additional investment into the country and create more jobs.

“We are trying to reduce the regulatory gaps between our Ministry, SEBI, RBI and Finance Ministry. We want a unified landscape as far as rules and regulations are concerned,” Pilot said at an event organised by the FICCI and The Institute of Company Secretaries of India.

He said the economy was facing challenges and investments were needed for growth, which was not as robust. “In these circumstances, it is incumbent upon all of us to make investments much easier and compliances more self-regulated,” he said.

Independent directors

In reply to a query on the mandatory provision of having independent directors on company boards, Pilot said small companies or start-ups don’t need to be burdened with independent directors.

The Ministry is thinking of putting together a pool of people who could be considered to become independent directors, as some companies would find it difficult to find such directors, he added.

Earlier, Sidhartha Birla, Senior Vice-President, FICCI, said the industry was looking to align SEBI’s governance norms with the Companies Act, and suggested that the Ministry of Corporate Affairs should be the driving force behind such a move.

Birla said FICCI had suggested a Rule Advisory Committee so that future amendments or prescriptions were not arbitrary.

The next set of draft rules under the new companies’ law would be released on September 20. The Ministry will also release the applicable forms relevant for the law on September 16, said M. J. Joseph, Additional Secretary.

On September 9, the Ministry had released the first set of draft rules seeking comments from the public. Joseph said the Ministry will soon notify the provisions relating to the National Company Law Tribunal. About 178 of the 470 sections of the Companies Act are linked to the functioning of NCLT.

The ministry of corporate affairs (MCA) is expected to take a final decision regarding its course of action in the NSEL payment crisis in the next few days. Corporate affairs minister Sachin Pilot said action would be taken against any company that wilfully does not comply with the company laws. “We are examining NSEL’s non-compliance from the companies law perspective. In a day or two we are going to take a final decision on what needs to be done,” Pilot said on the sidelines of a conference on Companies Act, 2013, by Federation of Indian Chambers of Commerce and Industry. Some members of Parliament have urged the government to order a probe into the irregularities by the National Spot Exchange (NSEL) by the Serious Fraud Investigation Office (SFIO). When asked about a probe by SFIO, Pilot said a final call would be taken once the inter-ministerial panel, headed by economic affairs secretary Arvind Mayaram, finalises its views. When corporate leaders asked Pilot about tax exemptions on CSR spends under the new Companies Act, 2013, he said he would be happy to be their ambassador and take up with the finance minister the demand for incentivising CSR projects through tax exemption and reliefs. The Companies Act, 2013, received Presidential assent on August 29 and was notified on August 30, 2013. Asked about guidelines relating to multi-level marketing companies, Pilot said he has requested consumer affairs minister KV Thomas “to issue the guidelines so there is clarity on what is acceptable and what is not acceptable”.

The Ministry of Corporate Affairs will approach the finance ministry to incentivise industry on corporate social responsibility (CSR) projects through tax exemption, said corporate affairs minister Sachin Pilot, while addressing an industry conference organised by FICCI on Thursday.

Pilot said he would be happy to be the ambassador of industry and take up with the finance minister the demand for incentivising CSR projects through tax exemption and reliefs.

On the ongoing payment crisis of the National Spot Exchange Ltd (NSEL), Pilot said MCA would take a final decision regarding its course of action in the next few days. He said action would be taken against the companies that violate law.

"MCA is examining NSEL's non-compliance with the Companies law, and in a day or two, we are going to take a final decision on what needs to be done," said Pilot.

He added that an inter-ministerial panel looking into the NSEL issue, headed by economic affairs secretary Arvind Mayaram, was likely to submit its report in a day or two.

NSEL faces a crisis of settling Rs 5,600 crore dues to 148 members, representing 13,000 investor clients, after its trade was suspended on July 31 by government orders.

The Corporate Affairs Ministry, which is looking into the issue of National Spot Exchange Ltd’s (NSEL’s) non-compliance with the company law , will take a final decision on a future course of action in a day or two. “The MCA is examining non-compliance of the company’s law, and I think in a day or two we’ll take a final decision as to what is to be done,” Corporate Affairs Minister Sachin Pilot told reporters at the sidelines of a FICCI event here on Thursday.

NSEL currently has to settle Rs. 5,600 crore in dues to 148 members/brokers, representing 13,000 investor clients, after its trade was suspended on July 31 by government orders.

The minister said the inter-ministerial panel, headed by Economic Affairs Secretary Arvind Mayaram, that is looking into the NSEL issue was likely to submit its report in a day or two.

Mr. Pilot, who was speaking about the recently-passed Companies Act 2013, said it was essential that regulatory gaps between various ministries and regulators were plugged to attract investments. MCA was working towards that, he added. “We are trying to reduce the regulatory gaps between our Ministry, SEBI, the RBI, the Defence Ministry and the Finance Ministry,” he said.

Ministry of Corporate Affairs is expected to take a final decision regarding its course of action in the NSEL payment crisis, in the next few days.

“Ministry of Corporate Affairs is examining (NSEL's) non-compliance with the companies law and in a day or two we are going to take a final decision on what needs to be done,” Corporate Affairs Minister Sachin Pilot told reporters here on Thursday.

Pilot assured that action would be taken against companies which “wilfully non-comply” with the Company Law.

He added that the inter-ministerial panel, headed by Economic Affairs Secretary Arvind Mayaram, which is looking into the NSEL (National Spot Exchange Ltd) issue, is likely to submit its report today or by tomorrow.

Pilot was talking on the sidelines of a conference organised by industry body FICCI on “Companies Act 2013”.NSEL, is presently facing a crisis of settling Rs 5,600 crore dues to 148 members/brokers, representing 13,000 investor clients, after its trade was suspended on July 31 by government orders.

Asked about guidelines relating to multi-level marketing companies, Pilot said he has requested Consumer Affairs Minister K V Thomas “to issue the guidelines so there is clarity on what is acceptable and what is not acceptable”.

“Hopefully in the next few weeks we will have more clarity on multi-level marketing companies...We must differentiate the law abiding good companies from the ones that are misusing the loopholes and are duping people of there investments,” Pilot said.

Some cases of some multi-marketing schemes duping investors of money with promise of high returns have been reported.To another query, Pilot said the Damodaran panel report on improving business climate in the country is been examined by his ministry.”...The idea is to take the report and some other inputs we have received and make sure that India's ranking and investment position is better,” he said adding the state governments and the Centre need to work together to create a better investment climate for the country.

Union corporate affairs minister Sachin Pilot has assured corporate leaders that he would be happy to be their ambassador and take up with the finance minister industry's demand for incentivising CSR projects through tax exemption and other relief.

Mr Pilot was addressing a conference on the Companies Act, 2013 organised jointly by industry chamber FICCI and the Institute of Company Secretaries of India.

The Companies Act, 2013 received Presidential assent on 29 August and was notified the following day.

The Act enjoins companies to invest two per cent of their net profit on socially, educationally, environmentally and economically beneficial activities, especially in remote and underdeveloped areas with a view to help the vulnerable and disadvantageous sections of the society.

While acknowledging the correctness of the industry's demand for alignment of rules framed by the Sebi and the Companies Act, Mr Pilot felt that there was a need for the finance ministry, ministry of corporate affairs, the RBI and the Sebi to sit together to create a risk-free environment to do business. The minister urged the Indian corporate sector to go ahead with their investment plans so that the foreign investors get a positive signal that India is a safe and profitable investment destination.

Mr Pilot further sought to allay apprehensions amongst the business community stating that rules would be laid down after having consultations with all the stakeholders.

The draft rules have been uploaded in the ministry's website for feedback, he added.

“No legislation is sector-specific, some sectors will have positive effect and some negative,” the minister said, adding that the Act is more relevant now to face the economic challenges as it will ease the burden of doing business and attract the flow of funds into the economy.

Mr SN Ananthasubramanian, President, ICSI, described the Act as a flagship legislation.

Corporate affairs minister Sachin Pilot today said he expected a final decision soon on the course of action to be taken against National Spot Exchange Ltd (NSEL).

“The ministry of corporate affairs is examining NSEL’s non-compliance with the companies law and in a day or two we are going to take a final decision on what needs to be done,” Pilot said on the sidelines of a conference by industry body FICCI on Companies Act, 2013 here today.

Meanwhile, the Enforcement Directorate in its status report submitted to the finance ministry today on alleged financial law violations by NSEL indicated that the crisis-ridden bourse might have violated money laundering laws and a few foreign exchange procedures.

NSEL needs to settle dues worth Rs 5,600 crore to 148 members/brokers, representing 13,000 investor clients, after trading was suspended on July 31 by government orders.

Ministry of Corporate Affairs is expected to take a final decision regarding its course of action in the NSEL payment crisis, in the next few days.

'Ministry of Corporate Affairs is examining (NSEL's) non-compliance with the companies law and in a day or two we are going to take a final decision on what needs to be done,' Corporate Affairs Minister Sachin Pilot told reporters on Thursday.

Pilot assured that action would be taken against companies which 'wilfully non-comply' with the Company Law.

He added that the inter-ministerial panel, headed by Economic Affairs secretary Arvind Mayaram, which is looking into the NSEL (National Spot Exchange Ltd) issue, is likely to submit its report on Friday.

Pilot was talking on the sidelines of a conference organised by industry body FICCI on Companies Act 2013. NSEL, is presently facing a crisis of settling Rs 5,600 crore dues to 148 members/brokers, representing 13,000 investor clients, after its trade was suspended on July 31 by government orders. Asked about guidelines relating to multi-level marketing companies, Pilot said he has requested Consumer Affairs Minister K V Thomas 'to issue the guidelines so there is clarity on what is acceptable and what is not acceptable'.

'Hopefully in the next few weeks we will have more clarity on multi-level marketing companies...we must differentiate the law abiding good companies from the ones that are misusing the loopholes and are duping people of there investments,' Pilot said.

Some cases of some multi-marketing schemes duping investors of money with promise of high returns have been reported. To another query, Pilot said the Damodaran panel report on improving business climate in the country is been examined by his ministry.

'...the idea is to take the report and some other inputs we have received and make sure that India's ranking and investment position is better,' he said adding the state governments and the Centre need to work together to create a better investment climate for the country.

The Companies Bill takes giant strides in improving transparency and corporate governance in India. To name a few, the institution of independent directors has been strengthened, severe restrictions have placed on directors and more powers have been vested with shareholders.

There has been a lot of debate on the responsibilities of directors in the recent times. Under the Companies Act, 1956, liability for any default is usually not attributed to all members of the board. In fact, in most instances, under the Companies Act, 1956, liability is attributed for non-compliance with the provisions of the Act only to an ‘officer in default’.

The Companies Bill, 2012, for the first time clearly defines the term ‘Key Managerial Personnel’, ‘Independent Director’ and ‘officer in default’. It also lays down in great detail the roles, functions, duties and other such details in the Code for Independent Directors as part of Schedule IV in the Bill. The Bill provides that an independent director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his/her knowledge, attributable through board processes, and with his/her consent or connivance or where he/she had not acted diligently. Independent directors bring an element of objectivity to board processes in general interests of the company and also to the benefit of the shareholders, especially the minority and small shareholders. Further, in this emerging regulatory environment, it is also important to strengthen the whole institution of independent directors which is one of the most important pillars on which the edifice of corporate governance stands.

However, some incidents have led to people of eminence shying away from becoming independent directors. To contain this undesirable situation, enough respect needs to be given to them, to enable them to contribute effectively to the boards. It is pertinent to provide them the right atmosphere to be able to retain good talent and also enable them to perform their enhanced roles and responsibilities, especially in the current market driven economy. The right and conducive environment will help them to play a constructive role towards better functioning of boards and companies.

There is a remarkable feature in the Corporate Manslaughter and Corporate Homicide Act, 2007, in the UK. This Act creates a new criminal offence of corporate manslaughter, which applies when someone has been killed because the senior management of a corporation has grossly failed to take reasonable care for the safety of employees or others. The UK government has stated that the offence is concerned with corporate liability and does not apply to directors or other individuals who have a senior role in the company or organisation. However, existing health and safety offences and gross negligence manslaughter will continue to apply to individuals. Also, prosecutions against individuals will continue to be taken where there is sufficient evidence and it is in the public interest to do so.

Such kind of a fine distinction would go a long way to ensure that there are no unfortunate incidences where directors are likely to be hauled for no fault of theirs. This also illustrates the indispensable need to have a law on a similar footing in India so that a director is not erroneously booked under the criminal legal system in such situations. The absence of such provision in the Indian law highlights the serious impact it could have on directors of the company where the intention is not of breach of trust and default, and the actions were honest and fair. In other words, the cardinal principle of mens rea should not be overlooked while judging the actus reus. This will also uphold the fundamental intent of all concerned, that good-faith acts in the best judgement or omission or commission should be protected from needless penal actions, and indeed any mischief under the Act. Having a non obstante clause in the Companies Bill would address this perhaps unintended situation and be a great relief for corporate India.

The author is Sidharth Birla, Senior Vice President, FICCI

The stage is set for the passage of the Companies Bill, 2011, after a parliamentary committee unanimously signed off on it on Monday.

The new Bill, which will replace the 56-year-old Companies Act, will not only ensure transparency, but also make companies more accountable, seeks to reduce gender disparity by laying down quotas for woman board members and makes the rotation of auditors mandatory. It will, for the first time, also permit class action suits against companies.

The government will, after taking into account the recommendations of the standing panel on finance headed by Bharatiya Janata Party leader and former finance minister Yashwant Sinha, move fresh legislation for Parliament’s approval.

The govt will, after taking into account the recommendations of the standing panel on finance headed by BJP leader Yashwant Sinha, move fresh legislation for Parliament’s approval. Photo: Ramesh Pathania/Mint

“We are awaiting final comments from the finance ministry and the Planning Commission. After that the cabinet will take up the Bill for consideration,” said a top corporate affairs ministry official. He did not want to be identified.

The Bill was first introduced in 2008 and then again in December last year, and when approved will replace the Companies Act of 1956, which presently governs companies in India.

While the new Bill has been pruned down to around 470 clauses, compared with 700 sections in the Companies Act, several key changes have been incorporated aimed at promoting transparency in investments, strengthening the rights of minority shareholders, making it tough for companies to hide illegal transactions, and promoting gender equality on company boards.

The Bill, for the first time, introduces the concept of an independently director. For every listed company, at least one-third of the directors should be independent, with every such board member allowed a maximum two terms of five years each. It further requires independent directors should not have any monetary transaction with the company of a value equivalent to or more than 10% of turnover.

Analysts are, however, divided over the efficacy of some of the key changes.

In an attempt to promote transparency in investments, the Bill proposes that companies should now be allowed to have only up to two layers of investment subsidiaries. The current regulation makes no such stipulation.

“The objective is to make finances of companies fully visible. Therefore, this is a welcome step,” said J.N. Gupta, a former executive director at the Securities and Exchange Board of India and the founder and managing director of Mumbai-based activist shareholder advisory firm, Stakeholders’ Empowerment Services Pvt. Ltd.

Harinderjit Singh, partner at Pricewaterhouse, however, disagrees. “The government’s rationale for bringing in such a stipulation is that they are unable to monitor companies’ funds. This will put undue pressure on the companies,” he said.

The Bill also seeks to introduce a quota for women on the boards of companies. While the move is intended to reduce the gender disparity on company boards and to bring the gender-mix in line with companies in developed economies such as the US or Europe, analysts believe it may not have the desired effect. “Very few qualified women directors are available in India. Such a move would mean that all the companies would be chasing the same women directors,” said Gupta.

“We are not in favour of quotas for women. What is required is to find ways of increasing the number of women directors available,” said Singh of Pricewaterhouse.

E. Balaji, chief executive officer of recruitment firm Ma Foi Randstad, said, “There are many international studies which show that companies with good participation of women impacts overall performance in terms of improving shareholder value or corporate governance practices. So, in that context, it is good to have diversity at the workplace, and an environment which represents the fabric of society. Even EU is currently considering a similar proposal.”

Kiran Mazumdar-Shaw, chairperson of Biocon Ltd, said that she doesn’t believe in the concept of reservation. “The more progressive companies will start focusing on gender diversity automatically and induct more and more female members on the board. Such kind of affirmative action (reservation) is required for the really underprivileged sections of the society,” she said.

“The reason why the number of women directors are so few is because the number of quality women at the top is pretty low. But just to give women a push, we should not induct incompetent women at the top. Quality should not be compromised at any cost,” she added.

For the first time, the new companies Bill introduces the concept of class action suits in India, in a bid to strengthen minority shareholder rights. Moreover, it makes it mandatory for an individual or a group of persons acquiring more than 90% of the shares in a company to make an offer to the remaining shareholders to buy them out at an independently determined value.

A class action suit is typically a lawsuit in which a group of people file a claim before a court in which a specific class of defendants is being sued.

“The provision for a class action suit is a must,” said Gupta. “If India had such suits, companies like Union Carbide would never have been left scot-free,” he added, referring to the gas leak in Bhopal in 1984 from a plant owned by the company at the time.

“The government should properly define the implementation rules and regulations regarding class action suits. They should not be used as a handle to trouble majority shareholders,” said Singh.

The new Bill further provides for mandatory publication of consolidated balance sheets by companies with unlisted subsidiaries. While Gupta feels that such mandatory disclosures will make it tough for companies to hide transactions, Singh feels that such a move is “overkill”. “When, in India, IFRS (International Financial Reporting Standards) norms have not yet been implemented, why put such restrictions?” he asked.

Another contentious issue that the Bill seeks to address is spending on corporate social responsibility (CSR). While CSR spends have not been made mandatory, it does ask boards of companies with a net worth of more than Rs.500 crore or turnover of more than Rs.1,000 crore or net profit of more than Rs.5 crore, to “endeavour to spend” at least 2% of annual net profit towards such activities. While non-compliance will not be penalized, companies will be required to disclose reasons for non-compliance. “Frankly, this is an issue on which no consensus has yet been reached,” said Singh.

Another issue that has pitted companies and auditors against the government is the rotation of auditors. While the existing provisions do not have any cap on the term for which an auditor can audit a company’s books, the new Bill limits this to a 10-year period. “Rotation of a partner is a better idea than that of an audit firm. Moreover, transitional provisions during the rotation of (an) audit firm have not been spelt out yet and no cooling-off period has yet been specified,” Singh said.

“There is nothing to be unhappy about,” said Sidharth Birla, chairman of the corporate laws committee and vice-president of the Federation of Indian Chambers of Commerce and Industry. “In the long term, for good development of boards, it is a positive step. But there should be some time frame given before this can actually be made into a working rule, otherwise many companies will try to take shortcuts,” he said.

“We do support diversity of boards and good gender balance consequently,” said Chandrajit Banerjee, director general of the Confederation of Indian Industry. “However, quality of board is also critical so there should be same rigor for women as for other directors. Also this needs to be embedded into the organization culture so that diversity is nurtured throughout the hierarchy and not followed only at director level,” he added.

The irony will not be lost on anyone. Exactly a year to the day that the first hint of trouble at Satyam Computer surfaced, the Government is celebrating ‘India Corporate Week' to focus on corporate governance. The Government has planned events in association with apex industry bodies such as the CII, FICCI, Assocham, and the three professional accounting institutes. Welcome, as these events are, they are not in themselves adequate. In the year since the biggest corporate scam in Indian history surfaced, there is little to show by way of improved norms of governance. Neither have newer laws or regulations been introduced to tighten governance standards nor have the guilty been punished. Yes, Satyam Computer, the company, was rescued and given a fresh lease of life. But that is not something that furthers corporate governance. Save for some changes in disclosure requirements mandated by the stock market regulator, Securities and Exchange Board of India (SEBI), very little has been done to improve corporate governance standards in the country.

Some might say corporate governance is not something that can be monitored or guaranteed by the Government. It is for companies to adopt voluntarily. . This argument is no more valid than the one that we don't need criminal laws and Courts simply because murders and dacoities happen anyway. The result will be anarchy. While it is important to put laws in place, it is equally important that they are enforced. This is where the Government's failure stands out. Though the main protagonists of la affaire Satyam are in jail, we are nowhere near their trial and conviction of those found guilty. The central investigating agency is yet to file its charge-sheet, even though it is almost a year since Mr Ramalinga Raju's confession. The Institute of Chartered Accountants of India (ICAI) has yet to get to the bottom of how the auditors certified patently false financial statements as true. Contrast this with the speed and alacrity with which US agencies pursued the conviction and sentencing of Bernard Madoff, whose $65-billion scam surfaced at almost the same time as Satyam.

Symbolism such as ‘India Corporate Week' is fine but the Government should get down to brass tacks and address important corporate governance issues that have cropped up post-Satyam. It has to define the rights and liabilities of independent directors, set limits for the number of independent director positions an individual can assume, get the ICAI to tighten its regulatory oversight mechanism over members and, most important of all, pursue transgressors with single-minded determination.

The ministry of corporate affairs would release the draft voluntary guidelines for corporate governance by next week.

R Bandyopadhyay, secretary in the ministry of corporate affairs, announced it here on Tuesday at India Corporate Week, a government initiative to showcase the achievements of the corporate sector along with the initiatives of the corporate affairs ministry towards corporate regulatory reforms. The event began on Monday.

Unlike clause 49 of Sebi’s listing agreement, which is mandatory in nature, these guidelines would be voluntary. However, the catch is if a company chooses not to accept, it would be at the risk of attracting ire from investors. “Investors are bound to question why the company is not adopting it. Do they have anything to hide?” a ministry official told Financial Chronicle.

Speaking at a session organised by the Confederation of Indian Industry (CII) in the capital on Tuesday, Bandyopadhyay assured the industry of a lot of flexibility in government approach while framing the guidelines. He stressed that the key thought process behind the guidelines was to build on ‘comply or explain’ theme. The government’s voluntary guidelines would incorporate suggestions from both CII and FICCI. Last week, CII released its guidelines under the chairmanship of Naresh Chandra.

Apprehending the misuse of the concept ‘class action suit’, the Government is considering a proposal to change the norms on such a suit specified in the Companies Bill, 2009.

According to the Bill, a person holding even a single share or even a single creditor can file a class action suit against a company if he/she feels that the company is being run against the interests of its members or creditors.

Corporates and lawyers feel that this provision can lead to a situation where a disgruntled shareholder or creditor can hold the entire company to ransom.

At a FICCI event on Tuesday, Renuka Kumar, Joint Secretary, Corporate Affairs Ministry, said, “We are getting many representations pointing out instances of harassment by shareholders. We need to look into minute details of this provision. We have to take a relook at what a class action suit is and who can file it.”

The changed norms could specify the requirement of a certain number of shareholders coming together to file such a suit. The new norms could also mandate that such shareholders hold a certain percentage of the total capital of the company to file a class action suit.

Mr Shardul Shroff, Managing Partner, Amarchand & Mangaldas & Suresh A Shroff & Co, said, “If a company has a million shareholders, even a cut off of 100 shareholders is too little. This provision requires more deliberation because it can lead to companies wasting time and money in fighting class action suits.”

In the US, class action suit is filed against a company by shareholders who suffered losses due to accounting frauds or violation of securities norms. Such suits are filed for restituting the value of the losses to the shareholders, like in the class action suit filed against Satyam in the US, Shroff said. However, Section 216 of the Companies Bill, 2009 on class action suits is not based on the US concept at all, he said.