New Companies Bill

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.

Shivaji Sarkar, -INFA