Mumbai: The government is willing to listen to any concerns that Indian industry and other stakeholders may have on the new Companies Bill, 2009 before its tabled, Salman Khursheed, minister of corporate affairs, said in an interview on Friday.
“The (parliamentary) standing committee has looked at it (the draft) for about a year. They have made some far-reaching recommendations as well. If there is something which makes it unworkable and that’s a practical reality, we will obviously make that adjustment,” Khursheed said. “And we would tell Parliament we are making this adjustment for practical reasons.”
The parliamentary standing committee (PSC), formed under the chairmanship of former finance minister Yashwant Sinha, released its report on 31 August.
Mint reported on 30 September that some companies are unhappy with the incorporation of some recent recommendations made by the PSC, pertaining to a range of issues. Industrialists, directors on the boards of various companies and industry associations are terming the recommendations “a case of regulatory overreach” in matters that should be left to shareholders of companies to decide.
Khursheed said that although the committee is “a mini-Parliament” and its recommendations are “very weighty and virtually conclusive”, some suggestions “are in many cases, a broad band of options”, allowing the ministry to take final decisions. “The committee has said make this five years or they have said, make it less than 15 years; less than 15 years is five years or nine years or both, we still have to decide to be five or nine. And that’s something that we are going to do in consultation with the industry.”
Top billing: Khursheed says he is hopeful that the Bill will be tabled by the budget session. Pankaj Nangia/Bloomberg
He added: “It is a lot of work…we are burning the midnight oil. It’s a huge legislation. But you know, it’s not just the main legislation. Also, (it) has regulations and rules, all have to be done, because you can’t give a law and say there are no rules to apply.”
For this reason, the minister said he was “not confident at all” that the Bill would be tabled before the “end of the calendar year”. “It is really expecting too much from my colleagues to push it through before four weeks. So hopefully by the budget session,” said Khursheed.
The Bill, once passed by Parliament, will replace the existing Companies Act, 1956.
The ministry of corporate affairs is still formulating the modalities on the recommendations made by the PSC on areas such as rotation of auditors, the number of independent directors, number of boards a person can be an independent director of, the number of years one can be an independent director, remuneration and multiple level subsidiary companies.
“This is very harsh. We don’t have enough skilled people. (Moreover) understanding books of big companies takes time,” the head of one of the largest audit and consulting firms said, referring to the recommendations.
“We have had responses from a whole lot of people and there are differences and disagreements,” Khursheed said. “We have to take all that into account, because ultimately we are giving this to industry and to business, so we must make sure that at least the bulk of them are on board with us.”
He categorically stated that there was no shortage of independent directors (IDs).
“My answer is no, it hasn’t dried up. You are not looking at it.. If you keep churning them around, if you keep changing them around, provide opening for attrition, more people will come in. How will you know that there are more people who can be IDs till you try them,” he said. The “procedure by which people pick IDs is lacking in opening up the field. And I think IDs should be familiar with board room strategies, board room structures etc, their responsibilities, before they actually become directors.”
The PSC report also advocated for a cap of six consecutive years on an individual to remain as director. Further, it asks that a period of three years should elapse before such an individual is inducted in the same company in any capacity.
Some companies have called the measure retrograde.
“I do not accept putting a cap on the number of years an independent director can be on the board of a company,” said Rahul Bajaj, chairman of Bajaj Auto Ltd. “What is the rationale for such a proposal?”
Having a competent individual such as Naresh Chandra, former cabinet secretary and an independent director at Bajaj Auto, does not suggest that he is “colluding with the company”.
On the issue of government playing a role in deciding the salary of senior management, Khursheed said, “(The first) draft said don’t touch remuneration, leave it open. That happened before Wall Street, that happened before (President Barack) Obama; that happened before Satyam.”
“Now you talk to everybody, they say you can’t just walk away from the remuneration issue,” the minister said. “You got to have some lid. Maybe a lid which is higher than the present but you got to have some lid, you can’t walk away—that’s Parliament’s position, that’s also the position of the very people, the stakeholders, (who) at the initial stage said to u*s no lid on remuneration. Now, they themselves are saying that we have to have some lid on remuneration. Because things have changed.”
Clarifying on whether the proposed changes to the takeover code will clash with the new Companies Bill, he said, “We are trying to work closely and to collaborate and coordinate. The Bill will try to ensure we don’t have two separate sets of standards—theirs and ours—that we align ourselves completely and that such changes made either in our area or their area, are accommodated, reflected in the counterpart as well.”
There was no question of making corporate social responsibility (CSR) mandatory, he said.
“I think CSR is a way of doing business. It’s not just setting aside a certain amount, but it’s a way of doing business. So all these issues must be reflected in the formulation on CSR when the Bill finally gets passed by Parliament,” the minister said. “This is what we are working on.”
The government will also make sure that investors don’t get duped, he said. “Vanishing companies have stopped vanishing,” he said, adding that the government was now “looking forward to make sure companies don’t vanish”, and if they vanish then those who invested in those companies would be taken care of.
“That’s why the Investor Protection Fund is now going to be given statutory structure by which compensation will be given to those who for no reason have lost money,” the minister said.