presented by: cs nesar ahmadpresented by: cs nesar ahmad ‘sankalp’ c-227, paryavaran complex new...

PRESENTED BY: CS NESAR AHMAD

‘SANKALP’ C-227, PARYAVARAN COMPLEXNEW DELHI-110 030

TEL: +91-11-2953 6312/ 6642TELEFAX: +91-11-2953 6642

NESARASSOCIATES@YAHOO.COM‘

Nesar & Associates, New Delhi

COMPANIES BILL 2012AN INITIATIVE FOR CORPORATE REFORMS

COPYRIGHT

The presentation is a property of Nesar & Associates. No part of it can be copied, reproduced or distributed in any manner, without explicit prior permission.

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TOPICS OF DISCUSSION

SHAREHOLDER’S DEMOCRACY

The Concept of Shareholder’s Democracy in the Corporate World denote the shareholder’s supreme authority in the governance of the business and affairs of their respective companies either directly or through their elected representatives. Its main intent is :

Establishing dialogue with the management on issues that concern a shareholder

Influencing the corporate culture

Increasing general awareness on economic, environmental, social and human issues concerning the organization (shareholder activism)

RECENT DEVELOPMENTS (PROXY FIRMS)

A recent and encouraging development in India which is propelling shareholder’s democracy is proxy advisory firms.

A proxy advisory firm is a firm hired by shareholders of public companies (usually large institutions) to recommend and sometimes cast proxy statement votes on their behalf.

Many institutional investors use proxy advisory firms to help them vote their proxies in shareholder elections.

RECENT DEVELOPMENTS (PROXY FIRMS)

Internationally well acclaimed proxy advisory firms like Pensions Investment Research Consultants Ltd (PIRC), ISS and Glass Lewis are playing an important role.

In India though, this is in its infancy stage so far three proxyfirms like ingovern, Institutional Investor Advisory services Limited and Stakeholders Empowerment Services have come up in India.

This recent augment of proxy advisory firms in India, serves as a complement to shareholders, provides with the necessary advice to exercise their corporate democracy in an informed manner.

COMPANIES BILL

The Companies Act, 1956 had already recognized the supreme authority of the shareholders by giving various authority to direct, control, conduct and manage the business and affairs of the Company.

Now the Companies Bill, 2012 has armed the shareholders with more effective and powerful weapons so as to enable them to ensure that the business and the affairs of the Company are properly managed.

SHAREHOLDER’S DEMOCRACY

Among various provisions Some of the important added weapons in the Companies Bill armory are:

SPECIAL RESOLUTION

Clause 27 provides, a Company shall not vary the terms of contract objects referred to in prospectus or objects for which it issued shall not except subject to the approval of or an authority given by the Company in general meeting by way of special resolution

USE OF FUND

Proviso to Clause 27 provides, now a Company which has varied the terms of contract referred to in prospectus or objects for which it issued shall not use any amount raised by it through Prospectus for buying, trading or otherwise dealing in Equity Shares of any other Listed Company .

ACCEPTANCE OF DEPOSITS

Clause 73 states that a Company cannot accept deposits from person other than its member and approval of shareholders subject to such rules as may be prescribed in consultation with the RBI will be required for the acceptance of deposits.

As per the Bill, NBFCs are not covered by the provisions relating to the acceptance of deposits and they will be governed under rules issued by the RBI.

ELECTRONIC VOTING

Clause 108 encourage wider participation of shareholders at General Meetings, the Central Government may prescribe the class or classes of companies in which a member may exercise their vote at meetings by electronic means.

POSTAL BALLOT APPLICABILITY

Clause 110 provides that the Provisions of the Postal Ballot shall be applicable to all the Companies whether listed or unlisted

It is also provided that the resolutions as may be prescribed by CG, shall be passed by Postal ballot.

STAKEHOLDERS RELATIONSHIP COMMITTEE

Clause 178(5) provides, where the combined membership of the shareholders, debenture holders, deposit holders and any other security holders is more than one thousand at any time during the financial year, the company shall constitute a Stakeholders Relationship Committee.

RELATED PARTY TRANSACTION

Clause 188 provides in case of having the prescribed paid up-capital, no Related Party Transactions will be carried without the approval of the shareholders by passing a Special Resolution.

RESTRICTION ON NON-CASH TRANSACTIONS

Clause 192 provides that the company shall not enter into any arrangement by which a director of the Company or of its Holding Company or any person connected with him can acquire assets for the consideration other than cash form the Company & vice versa without the approval of the Company in general meeting.

STRINGENT PENALTY

Clause 75 made the penalty for failure to repay deposit has been made extremely stringent.Where a company fails to repay the deposit and it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit shall, without prejudice to liability under section 447 i.e. punishment for fraud), be personally responsible, without any limitation of liability, for all or anyof the losses or damages that may have been incurred by the depositors

MINORITY RIGHTS

This has always been a demand that the corporate governance framework should ensure the equitable treatment of all shareholders, including minority shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

Minority Shareholders gets teeth in in the Companies Bill, 2012 by wayof following powerful tools :

EXIT SCHEME

The Dissenting shareholders shall be given an exit offer by the promoters or controlling shareholders at such exit price and in such manner and conditions as may be specified by the Securities and Exchange Board by making regulation in this behalf.

IMPORTANCE

Exit option is a measure to deal with investor angst over companies either suddenly entering new areas by changing the objects for which the money was raised or by a demerging profitable business.

Though it will not stop the Company from diversifying, it will allow the minority shareholder to exit in case he is unsure of the kind of business move.

CLASS ACTION

The biggest boost for the small investor comes in the form of the provision for class-action lawsuits, which can allow a group of investors with common interest in a matter to sue the management of a firm, its auditors or a section of shareholders in case of suspected wrongdoing, a option not available under the current regulations.

CONCEPT OF CLASS ACTION

The concept that is common in various jurisdictions such as US, UK and Singapore did not exist in India.

The threat of class action tends to enhance sense of responsibility and diligence of the defendant towards the interest of stakeholders.

APPLICABILITY

Suit under Clause 245 may be filed by members or depositors or any class of them before the National Company Law Tribunal, if they believe that the management or conduct of the affairs of the company prejudices the interest of the company, its members or depositors.

IMPORTANCE

The importance of the provision can be gauged by the experience of the Satyam fraud. Well over three years after the scandal broke; Indian investors are yet to get any significant compensation in the 8,000-crore fraud allegedly committed

by the promoters of Satyam Computer Services. But some of their counterparts in the US, who owned American Depositary Receipts, have made the company commit to pay $125 million in settlement by taking recourse to the strong class-action framework.

CLASS ACTION SUIT VIS-A VISSUIT FOR OPPRESSION AND MISMANAGMENT

Clause 241 of the Bill deal with the filing of petition before the Company Law Board against oppression and mismanagement.

There are some difference between an oppression and mismanagement suit and a class action suit

1. Depositors can file class action suits but not a suit under clause 241 of the Bill

2. Oppression and mismanagement case can be filed against the company and its statutory appointees only, while a class suit in addition to the company and its statutory appointees can be filed against an expert or advisor or consultant or any other person for any incorrect or misleading statement to the company and also against an auditor for any improper or misleading financial statements

3. Petitions under clause 241 of the Bill can be filed for past mismanagement and to prevent recurrence, while class action suit can ask the management or directors of company to desist from one or more particular action that have not been taken yet.

ALTERNATIVE DISPUTE RESOLUTION (ADR)

Alternative Dispute Resolution (ADR) describes processes of settling disputes by means other than litigation (taking a case to court). ADR includes mediation & conciliation and arbitration processes.

MEDIATION & CONCILIATION

Companies Bill 2012 introduced the provisions of mediation and Conciliation in order to get the speedy disposal without the judicial proceeding.

Clause 442 provides for power, in case of any proceeding before the NCLT or the CG or NCLAT, to refer a matter to the mediation and conciliation panel

MEDIATION AND CONCILIATION

The Central Government shall maintain a panel of experts to be called as the Mediation and Conciliation Panel consisting of such number of experts having such qualifications as may be prescribed for mediation between the parties during the pendency of any proceedings before the Central Government or the Tribunal or the Appellate Tribunal under this Act.

EXPERT

Clause 2 (38) of the bill deals with Definitions, defines expert as :“expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force

SPEEDY DISPOSAL

The Mediation and Conciliation Panel shall follow such procedure as may be prescribed and dispose of the matter referred to it within a period of three months from the date of such reference and forward its

recommendations to the Central Government or the Tribunal or the Appellate Tribunal, as the case may be

CONCLUSION

The Companies Bill 2012 by all the above powerful tools is going to change the way companies are incorporated, raise money, interact with its stakeholders, govern themselves and contribute to nation building.

presented by: cs nesar ahmadpresented by: cs nesar ahmad ‘sankalp’ c-227, paryavaran complex new...

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