It’s like broth you serve after agonizing for too long. Or having several cooks for the job but none really in charge.

In cricketing terms, a bit like Tendulkar now having to face a billion of us after making 94. Therefore, to be fair, a huge legislation of this nature was thus bound to fall short of expectations.

As cleared by the union cabinet on November 24, shorn of legalese, it isn’t the panacea that small investors and minority shareholders relating to corporate governance, transparency and accountability might have hoped for.  Ironically, large corporates looking for the ‘big idea’ would have a similar complaint.

For the least, the long-pending bill has finally seen the light of the day amidst numerous demands for change in the antiquated Companies Act, 1956 from an array of competing interests: investor’s protectors group, the industry, workmen and policy makers, one could go on and on.

So, thank God something moved!

The context off my chest, let me get on to our favoured FAQ format:

• What’s a Single Member Company under the bill?

The bill now seeks to recognize companies having only one member as a shareholder. Under the existing Companies Act, 1956 a company needed to have at least two members in the case of a private ltd. company and seven members in the case of a public ltd. company.   

• What’s continuity of the board in case of single member company?

The bill provides for, in cases having company of only one member, who is an individual and that such a member is also a sole director of the company, such member can nominate a person as a Reserve Director to survive him/ her in the event of his death.

• What’s small shareholders representation on the board?

The proposal for empowering small shareholders to be represented through one director on the board of the company has been dropped from the bill in the version approved by the cabinet although a provision was the same which was there in the working draft of the bill.

• What’s redemption of minority shares?

The bill empowers Shareholders representing ninety percent of the company’s shares to compel the company to redeem the shares held by the shareholders representing the balance ten percent, irrespective of whether the terms of issue permitted such shares to be redeemed or not. This provision appears to be creating a disadvantage to the minority shareholders and also appears to be in contradiction with the scope and ambit of the takeover code in case of listed companies.

• What are rights of dissenters?

The bill provides that any member dissenting from a proposed merger, consolidation, sale/ transfer, a redemption of his shares or an arrangement, if permitted by the court- is entitled to payment of fare value of the shares. The entire scheme and architecture of the rights and obligations of the minority shareholders/dissenters as set out in the bill is hugely disadvantageous to the minority shareholders rights and also seems to be unmindful of the scope and ambit of the Takeover Code, in case of listed Companies. Suffice to say, the investor protection regime build around the takeover code and administered by Securities and Exchange Board of India (SEBI) may come under pressure of instances where majority shareholders use the redemption tools provided in the bill as an alternate route to undertake share transfer/consolidation transactions without triggering the open of a process under the takeover code.

• What is the core idea on corporate social responsibility?

It is proposed that every company meeting certain thresholds, i.e, every company with net worth of Rs. 500 crore or more, turnover of rs.1000 Crores or more or a net profit of Rs. 5 crores or more should formulate a corporate social responsibility (CSR) policy and implement the same after talking the approval of the shareholders. Interestingly, the bill also seeks to mandate companies to earmark 2% of the average profit of the preceding three years towards CSR initiatives and inform the shareholders full details of the same.

• What’s the plan on rotation of auditors?

Talking a cue from the Satyam experience, the bill now seeks to provide for a rotation of auditors/ audit firms, i.e a minimum cooling of a period of 4 years in between two fixed terms of four years each. The bill additionally requires rotation of the concerned partner handing the audit on the part of the audit firm every year.

• What of women directors?

Seeking to set an example for the composition of legislative houses, the bill seeks to make it mandatory for certain classes of Company to have at least one women Director.

• Any thoughts on insider trading by key personnel?

The bill seeks to make insider trading by key managerial personnel or Directors of the Company as a criminal offence. However, Insider trading being an ongoing and continuous threat requiring to be dealt with, on a day to day basis, the administrative mechanism around it still needs to be worked around by the department of company affairs.

• Any changes on independent directors?

Seeking to gift more teeth to independent directors, the bill provides for fixed term of office for independent directors to usher in more transparency and accountability in the management and administration of the company.

• What of class action?

The bill seeks to empower different classes of members to bring a class action suits against the company and management for protection of the rights and interest of the company.