It was said that any minister holding the charge of Ministry of Corporate Affairs who tries to enact new a Companies Act loses his job. Ultimately, the Companies Bill, 2012, has been passed by the Lok Sabha and the jinx has been broken. Hopefully, the Rajya Sabha will also pass the Bill and a new Companies Act, replacing a more than half a century old Act, will come into force.
The Companies Bill as passed by the Lok Sabha has many new features, some of them welcome while others controversial. The Bill introduces the concept of One Person Company, rotation of auditors, introduces bar on auditors from rendering certain services to auditee companies, makes detailed provisions for appointment of independent directors, requires certain companies to spend 2% of its average profits towards Corporate Social Responsibility, etc. The Bill provides for stiff penalties and fines for various defaults.
The provision relating to rotation of auditors has always generated a debate. Views have been expressed for and against such a provision. In practice, one will have to see how this provision works, whether it will bring about improvement in the quality of audits, equitable distribution of the audit work or will only result in ‘rotation’ of audits amongst `networked’ auditing firms. It would be of interest to see how the new provision impacts the size of audit firms.
The Bill provides for the constitution of a National Financial Reporting Authority (NFRA). This will replace NACAS. NFRA is vested with the power to investigate into professional or other misconduct by chartered accountants and impose stiff monetary penalties. Slowly but steadily, the autonomy vested in the Institute of Chartered Accountants to govern the profession is being diluted. While this is a disturbing trend, it also calls for introspection on our part.
Another disturbing feature of the Bill is the large number of provisions, where power has been given to the Government to frame rules. While delegated legislation provides necessary flexibility, its excess leads to possible abuse and uncertainty. Provisions dealing with the appointment of auditors as well as independent directors are fairly in detail in the Bill itself. Yet, there are provisions empowering the Government to prescribe the manner in which companies shall rotate auditors and the manner and the procedure of selection of independent directors. There are many such instances.
The Bill makes various provisions which are applicable to listed companies. SEBI has already made various Regulations applicable to listed companies. To that extent, there is an overlap. There may be situations where SEBI Regulations and provisions in the Bill may not be in sync. This will have to be sorted out.
Chartered accountants, other professionals, company executives and directors, will have to spend time in unlearning the old law and learning the new one.
On 28th December, 2012, Mr. Ratan Tata stepped down as the chairman of the Tata Group on attaining 75 years of age and handed over the reins to Cyrus Mistry nearly 30 years his junior. During the two decades that Ratan Tata presided, the Group revenues increased to $ 100 billion, 40 times the 1991 level. Today, many companies in the Group are headed by young CEOs. Tata had the courage and conviction to replace old hands, acquire corporations and brands outside India. Certainly, he faced some failures and disappointments. But he took them in his stride, gave the Group international recognition and earned respect of the industry. It was not easy for Ratan Tata to step into the shoes of J R D Tata and it is not going to be easy for Cyrus Mistry to step into the shoes of Ratan Tata.
In the year 2011, the issue of corruption prompted youth to come out in large numbers and protest in Delhi and elsewhere. The government had to take note of that. In the year 2012, the country witnessed similar protests by youth condemning crime against women. Causes for crime against women are many. It requires a change of mindset of the society alongwith other measures. But that is a long and slow process. The government needs to take the initiative and at act quickly to ensure the safety of women. Merely increasing the quantum of punishment will not solve the problem when the conviction rate itself is abysmally low. What is important is to convey the message that crime will certainly invite punishment and that too swiftly. We need to think if we have gone too far with the adage `Let hundred guilty be acquitted but one innocent should not be convicted’? Alongwith better investigation of the crime, we possibly need a change in the judicial process and the implementation of the Evidence Act. Let us hope that the death of the young girl who fell victim to the atrocities of few men and has become a symbol is not forgotten, the protests of youth do not go in vain and the New Year brings a change for the better.
Wishing all readers a very Happy and Joyous New Year.
