India: company law reform moves a step closer - Companies Bill 2008 approved by Cabinet

In 2005 the Irani Report, on the reform of India's company law, was published. Legislation to replace the Companies Act 1956 has been expected for some time. Its introduction has moved a step closer: today it was announced that the Companies Bill 2008 has been approved by the Union Cabinet and will be introduced in Parliament in October. 

The Government's announcement contains an overview of the purpose of the Bill: to provide the principles for the internal governance of companies and a framework for their regulation, administered by Central Government, but with a much greater role for shareholders.  Specific proposals include:

• The introduction of a new entity, the "one-person company".
  
• The abolition of shares with differential voting rights.
  
• Provision for the duties and liabilities of directors, with every company to have at least one director resident in India.
  
• At least one third of board directors to be independent [it's not yet clear to which companies this rule will apply; the Irani Committee proposed that is should apply to public listed companies and those taking deposits from the public]. 
  
• Insider trading by directors to be recognised as a criminal offence.
  
• Auditors' rights and duties to be explained.
  
• Class action suits by shareholder associations to be permitted.
  

India: Supreme Court upholds constitutional validity of National Company Law Tribunal

Significant changes to the way in which company law disputes and the winding-up of companies are dealt with have moved closer. Earlier this week the Supreme Court of India held - in Madras Bar Association v Union of India (11 May, appeal number 3067 of 2004, heard with appeal number 3717 of 2005) - that it was not unconstitutional to create the National Company Law Tribunal and National Company Law Appellate Tribunal and vest in them the powers and jurisdiction exercised by the High Court with regard to company law matters. A copy of decision is available by searching the Supreme Court judgments website here.

The Company (Second Amendment) Act (2002) provided for establishment of the NCLT and NCLAT to take over certain functions performed by the High Court, Company Law Board, the Board for Industrial and Financial Reconstruction and the Appellate Authority for Industrial & Financial Reconstruction. This followed the recommendations of the Eradi Committee, which found that the time taken to wind-up a company (often between 10 and 15 years) was largely due to the multiplicity of court proceedings required.

India: voluntary corporate governance and social responsibility guidelines published

The Ministry of Corporate Affairs has, for the first time, published voluntary corporate governance guidelines: see here (pdf). Based on 'comply or explain', the guidelines are directed at public companies and are divided into six sections: the board of directors; responsibilities of the board; audit committee of the board; auditors; secretarial audit; and whistle blowing. 

The Ministry has also published voluntary corporate social responsibility guidelines: see here (pdf). 

India: MCA seeks comments on task force report and recommendations

The Ministry of Corporate Affairs is seeking comments on the draft report and recommendations of the Corporate Governance Task Force appointed by the Confederation of Indian Industry. The task force makes wide ranging recommendations and its report provides some interesting insights into the structure of listed companies in India. For example, in the context of discussion about whether the roles of the chairman and chief executive should be separated - which the task force believes should be the case - it is noted: 

Most Indian listed companies are controlled by promoters, often holding over 50 per cent of the voting stock. Indeed, many in corporate India feel that the separation is not desirable — that the dominant, risk taking shareholder being both the Chairman and Chief Executive of a company gives a greater notion of commitment than otherwise".

India: Listing Agreement Changes

The Securities and Exchange Board of India (SEBI) has announced in press release 95/2008 several changes to the Listing Agreement. The following mandatory provisions have been added:

1. If the non-executive Chairman is a promoter or is related to promoters or persons occupying management positions at the board level or at one level below the board, at least one-half of the board of the company should consist of independent directors.

2. Disclosures of relationships between directors inter-se shall be made in specified documents/filings.

3. The gap between resignation / removal of an independent director and appointment of another independent director in his place shall not exceed 180 days.

4. The minimum age for independent directors shall be 21 years.

In addition, the following non-mandatory provision has been added:

The company shall ensure that the person who is being appointed as an independent director has the requisite qualifications and experience which would be of use to the company and which, in the opinion of the company, would enable him to contribute effectively to the company in his capacity as an independent director.

India: New Companies Legislation

In 2005 the Irani Report, on the reform of India's company law, was published. Legislation, to replace the Companies Act 1956, has been expected for some time. It has now been reported that a Companies Bill will soon be forthcoming. Corporate Affairs Minister Prem Chand Gupta has been reported as saying:

"[A] Draft of the new Company Law Bill is being given final touches. The new law will promote shareholders' democracy, replace approval-based system with responsible disclosures, promote good corporate governance and effective protection of investors".

India: ACGA issues white paper on corporate governance

The Asian Corporate Governance Association has published a white paper making recommendations for the improvement of corporate governance in India: see here (pdf). The recommendations fall within five headings: shareholder meetings and voting, related party transactions, preferential warrants, disclosure and the auditing profession.