COLUMN / Economy

Bill of Import

While the entire attention in this winter session of the Parliament was hogged by the Lokpal Bill, another Bill of consequence was largely ignored by the media. When it is eventually passed, the Companies (Amendment) Bill 2011, will have vast repercussion in dealing with corporate corruption. Despite the fact that everyone acknowledges how much the private corporate sector’s role in India’s economy and its clout in polity has grown since 1991, public pressure to deal with misuse of corporate power has been conspicuous by its absence. Any movement to stem corruption will be partial without enhanced and empowered auto regulatory systems for the corporate sector. The new Bill, initiated despite the absence of pressure, takes a long step in the direction of stakeholder protection.
Some of its most outstanding aspects are that it gives judicial powers to the National Company Law Tribunal (NCLT) to deal with disciplinary matters relating to auditing and accounting frauds which are the most common kind to bamboozle investors. Jail terms of up to ten years, debarred from accounting business for not less than five years and fines amounting to three times the size of the deception await the chartered accountants and auditing firms found guilty of fraud. So far the Institute of Chartered Accountants of India (ICAI) decided on disciplinary matters. ICAI is a member based, self regulating agency with the usual conflict of interest limitations. Some of its powers have been taken over by the NCLT now. This is momentous seeing that the oligopolistic grip of the big four multi national auditing and consulting firms like KPMG, Pricewater, Deloitte and Ernst & Young has tightened a complex web over the corporate landscape. The web of power is helping to perhaps conceal more than reveal significant financial information.
Further the Bill tightens public issue norms and if the company is required to restate its financial statements due to non compliance with accounting standards or fraud, the company can recover from any past or present Managing Director, whole time director or manager the remuneration received. Mandatory rotation of auditors should occur every five years. Insider trading by directors and managers is now a criminal offence and more powers have been given to the Serious Fraud Investigation Office. The SEBI Act will now rein supreme in market related conflict putting an end to the jurisdiction conflict between various new regulating acts and agencies. The Bill introduces the possibility of class action suits, so aggrieved stakeholders can come together and file a combined case against a corporate entity. This could be groups of workers, investors, customers or a local community whichever a company has impacted adversely. So far this could be done through the government e.g. the Government of India vs. Union Carbide. This change will also throw open a wide new window for legal firms and action in India.
To promote stakeholder participation, simultaneously increasing pressures to improve corporate governance the Bill allows Directors and Shareholder video conferencing, electronic voting in Annual General Meetings using NSDL platforms subject to certain compliances. This will prevent a small group of influential shareholders from using the proxy voting system to retain a grip over the company’s management. It suggests but unfortunately did not make mandatory (due to sharp resistance from corporate heads) that companies direct at least 2% of their profits above a certain threshold level towards social involvement/improvement projects under Corporate Social Responsibility function. Leaving this aspect to peer pressure!n

Anuradha Kalhan
is Lecturer, Dept of Economics,
Jai Hind College, Mumbai.

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