The paper released by the Minister of Company Affairs Premchand Gupta on Wednesday has prescribed that a company's board should have at least seven directors, of which at least three should be independent.
Gupta, however, termed the concept of an independent director as faulty. "If a board has to take decisions in the interest of the company, then a majority of its members should be those who have a stake in the company," he said.
Ministry officials, on the other hand, told reporters that the constitution of the board, including the number of independent directors, would be specified in the rules to the Bill after it was passed by Parliament. Rules are different from the legislation in that changes can be effected through notifications without an amendment to the Act.
The concept paper has dropped provisions like routing of investment through one subsidiary, reservation for women directors in the board, retirement age of 75 years for directors, qualifications for independent directors, which were part of the Companies (Amendment) Bill, 2003, drafted by the previous government. The officials, however, said these would be included in the rules, to be prescribed from time to time.
Gupta said the concept paper suggested pruning the number of sections in the Act from the present 685 to 289. He added that the concept paper was open to debate and the government was open to suggestions from various quarters.
"We expect the stakeholders, like the industry chambers, to give their reactions in the next three months," he said.
The main recommendations include doing away with unnecessary and cumbersome procedures like government approval for increases in remuneration by way of commission, appointments of sole-selling agents and declaration of dividend out of reserves. The procedural aspects would now be included in the rules to give the Act more flexibility.
The need for holding statutory meetings by public companies is proposed to be done away with. The concept of a consolidated balance sheet has been introduced, where exemption from the requirement of obtaining exemption from attaching subsidiary accounts has been proposed.
The paper has also suggested dispensing with
Tightening of certain laws has been recommended too. The concept paper has proposed disqualification of auditors indulging in non-audit activities, withdrawal of company-specific exemptions from disclosure requirement given to industries like sugar and vanaspati.
To prevent incidence of vanishing companies, the identity of promoters should be disclosed by way of mandatory furnishing of photographs, PAN numbers and passport numbers, at the time of incorporation of the companies, the paper said.
It has also suggested that the government should be able to order a special audit into the companies account if it suspected any kind of mismanagement.
It also says that the results of these internal audits should be disclosed not only to the company board but also to the government. It has also recommended appointment of Chief Accounts Officer as mandatory.
The concept paper has drawn out a separate schedule for penalties, with the amount proposed to commensurate with the magnitude of violation. A floor for fines has also been suggested for some offences, but only for public companies. Many offences invite imprisonment also.
Other suggestions include transferring unpaid dividend credited to general revenue account to Investor Education annd Protection Fund and extending time limit for change of name extended to five years.
The MCA official in a presentation also said that the paper proposed streamlining of the provisions relating to related party transactions, registration of organisation like societies and co-operative institutions.
He also said that the concept paper would give flexibility in granting exemptions to private limited companies.
The officials said that the ministry was not averse to having simpler provisions for smaller private companies and added that the enabling provisions had been included in the paper.
What the paper suggests