Limited Liability & Fastrack Mergers
Limited liability for Independent Directors, no restrictions on corporate subsidiaries and a speedier route to mergers, amalgamations & liquidations- the final version of the Companies Bill promises to make life much easier for Corporate India.
Sources tell CNBC-TV18’s Menaka Doshi about some changes underway to the Company’s Bill.
A policeman at the door, frequent visits to court – Independent Directors in India Inc. are often hauled up for corporate failings that they have no control over.
Rama Bijapurkar, Independent Director in an interview to ‘The Firm’ on March 2011 said, “I am fairly popular with my neighborhood police station because when there is a Weights and Measures violation in the factory of a board that I stepped off 10 years ago, the police still comes to my doorstep with the notice. When an irate customer sues the company, again the police comes to my door. Obviously, cheque bouncing has actually gone quite far.”
But some of that could soon be a thing of the past. Sources say the new Company Law is expected to include umbrella protection that limits the liabilities of Independent Directors. This protection will supersede all previous legislation and could help safeguard Independent Directors; except in the case of willful default or violation of law.
But how effective can this be? Ministry of Corporate Affairs’ sources tell me a new Central Law can supersede earlier Central Laws and those on concurrent list items. As for State Laws that are a cause of most of the harassment that independent directors face, the Ministry of Corporate Affairs is keen to work with States to amend those specific aspects of State Law that give rise to unwarranted liabilities for Independent Directors. Then, of course, there’s the Criminal Procedure Code. Now, I don’t have the full details and surely Company Law can’t fix everything but even partial protection will help. This I’m told will be accompanied by a fixed tenure for Independent Directors and for audit firms.
A fixed tenure of maybe 10 years- we don’t know the final number yet. Post which, there will have to be a cooling-off period before reappointment. The same will apply to audit firms- all in the effort to prevent too much familiarity or coziness with management.
The Ministry of Corporate Affairs is also keen on simplifying procedures for India Inc. So there will be no cap on the number of subsidiaries a company can have; except for finance companies.
And no lengthy court outings for those companies looking to merge, amalgamate or liquidate. A substantial majority approval could put the company on the automatic track. That means- let’s say if 75-90% of the members, creditors in value and shareholders in number approve of a corporate action- then that merger, amalgamation or liquidation may not need court or tribunal approval.
This will come as music to the ears of companies and their Independent Directors. Now I only hope the Ministry of Corporate Affairs also works towards protecting minority rights especially making way for class action. We’ll know when the Bill is presented in Parliament this monsoon session- a date the Ministry of Corporate Affairs intends to keep.