Economic Highlights
New Delhi, 23 January 2009
New Companies Bill
NECESSARY, BUT LET’S NOT RUSH
By Shivaji Sarkar
The
Government appears to be in a hurry to pass the new Companies Bill introduced
in Parliament during last session. In the wake of the Satyam fraud its concern
is not out of place. However, it would be prudent to put off its passage as the
Bill may require additions and improvements following emergence of new aspects
daily.
As
of now, the Bill is with the Standing Committee for a thorough all-party
review. It should remain there for some time, notwithstanding the Lok Sabha
elections drawing closer. Obviously, the Government is under pressure to
showcase its will for corporate cleanliness before it goes to the electorate.
The
new bill is meant to replace the Companies Act 1956. It is a major exercise.
Once a bill is passed, amendments to it would involve another such exercise. The
Satyam incident has come as an eye-opener. Every day new facts and methods of
committing a long-term fraud are being unearthed. Each needs to be plugged and
dealt effectively. However, the new bill stresses more on penalties, which are
necessary. But provisions of penalties alone can not be a solution.
The
Satyam investigation has just begun. The Serious Fraud Investigation Office
(SFIO) is looking into eight subsidiaries of Satyam and all their financial
affairs. Estimate is that it would take at least three months to submit its
report. And, this is precisely the government’s problem as electioneering
around then would be at its peak. Its capacity to take decisions would undoubtedly
be under the scanner of the Election Commission’s model code of conduct.
Truly,
a catch 22 situation! The government wants to go to the electorate without any
stigma attached or handing over opportunities to the opposition. But it fails
to realize that the electorate is not so naïve. If the seriousness and
complication is explained, the people would understand.
One
can say that it is not just the failure of the law but also its implementation
procedures. After all, the past two decades of globalization have witnessed the
rise of “corporate power”. In addition, it has seen an increase in corporate
irresponsibility at a global level, with India being no exception. The
nation, like the global system too has been trying to learn how ingenious this corporate
world could be in defrauding.
The
corporate have taught the globe that they are unworthy of the sovereignty they
have been touting since the 60s. In fact, while the US debates, the corporate is busy bulldozing
all ethical concerns saying it is above national sovereignties. In reality, it
has become a trans-national affair to hoodwink all governments. World over they
have suffered and so has India.
Satyam
is not a stand alone case. Prior to it there have been massive frauds but were wished
away as “exceptions”. Some were swept under the carpet of Mumbai stock scams in
the past 15-odd years. But no stock scam is possible without the willful participation
of companies. And, in all these scams the names of a few companies came up
uniformly.
From
time to time, the methodology of some non-Indian MNCs too has been questioned. But
despite existing provisions in the Companies Act, it was rarely enforced. Even
in the present case we find that it is not restricted to Satyam. At least eight
other companies are active partners. The probe may very well throw up some more
names.
Clearly,
Sartyam has symptomised this corporate mindset. The new bill should make this
its hallmark. It needs to take care of the implementation process than a mere
addition of provisions, which might again remain in the books alone.
The
present bill has been drafted by a committee headed Dr JJ Irani. The Minister
for Company Affairs says it has simplified the procedure and that it would not
require to be amended by Parliament in case a change is required. What he is
implying is that the Companies Act 1956 has been amended 25 times and the new
procedure would obviate this process.
Simplification
should be welcome but not in this case. Amendments to laws are done in
Parliament so that a detailed scrutiny of the new procedure can be undertaken. Taking
this right of Parliament is inappropriate. It simply means that the bureaucrats
could make changes, thereby giving them not only undue and unnecessary powers but
also making them susceptible to corporate influence.
Of
course, Parliamentary procedures are a bit tardy but these are reliable and
always open to debate. On the other hand, bureaucratic decisions remain on files
and the deliberations too are often not made public. How then would one ensure
that the decisions would be fair? Even if they are, why should a devious method
be adopted to avoid parliamentary scrutiny, in effect people’s scrutiny, of a
new policy? The bill needs to scrap this provision as the common apprehension
is it could be misused. Worse, the very purpose for it being sought to be
introduced would in all probability be defeated. Are we trying to open another
can of worms while trying to shut one?
The
concept of introduction of Limited Liability Partnership (LLP) is also unclear.
Presently chartered accountants, company secretaries, lawyers, cost accountants
and others are not permitted to be partners. A CA cannot have a company
secretary as a partner. However, the new bill seeks to do away with it.
But
it is not as simple as it looks. Nobody is sure of the fall-out of such a change.
Nobody knows whether it would check fraud or make it easier? It requires a
detailed discussion before Parliament could accept the provision. The Standing
committee needs to deliberate on this further. This is not an issue that could
be passed because someone has proposed it. There are many ramifications.
The
new bill seeks to make the procedure of setting up a company simpler. It is
welcome. However, we have seen that even with complicated laws companies that
are set up do not enjoy credibility. During the past few years 1,50,000
companies opted for an exit route and got themselves delisted and names deleted
from the official list. These companies could register themselves despite what
is now being projected as complicated laws. If it is simplified it would
certainly not solve the problems. The chances are that many new ones may come up
and that the official system may be manipulated by the unscrupulous.
For
all these reasons, the Companies Bill needs to have a thorough re-look and be
thrown to open debate. Amending the bill is not just an economic question. Let
the nation not create an instrument and then repent or backtrack as for the many
laws that it has made. -INFA
(Copyright, India News and Feature Alliance)
|