Heralding a new era for Corporate India

A new exciting era of shareholder democracy, more democratisation and transparency in how companies are run, rotation of auditors and mandatory spending of two per cent of the past three years’ profits on corporate social responsibility activities are among the hallmarks of the new Companies Bill that will soon become an Act, replacing the Companies Act of 1956.

It will, however, take a while before the new law can be operationalised; and one hopes minister of state for corporate affairs, Sachin Pilot, gets down to the nitty-gritty of rules to be framed with the utmost clarity, simplicity and speed. Ambiguous rules and bureaucratic play with phrases will only cause corruption, delays and litigation. The devil, as they say, lies in the fine print.
The entire country has been waiting for this bill to go on the statute book for the past four years; ever since it was first tabled in Parliament. The bill, of course, has been in the making for decades. There are an estimated one million registered companies, of which an estimated 75-80 per cent are either family-run or promoter-driven. In such a scenario the corporate governance requirements that are mandated under this new law are pathbreaking.
For most shareholders of companies, who have been largely ignored and neglected and have fallen victim to myriad scams that saw them collectively lose thousands of crores with not a paisa returned, the new law is a landmark in enhancing investor protection. They can now initiate class action suits and claim and get damages or compensation from fraudsters who cheat them of their dues, as fellow shareholders do in the United States.
It is possibly the first time since Independence that there were widespread consultations with almost all stakeholders, and many of their recommendations have been incorporated in the bill. The result is that everyone is happy with the final outcome. While some sticky issues remain such as CSR, which many are not enthused about, these will hopefully be resolved when the detailed provisions and regulations are finalised. The CSR issue, as the young Mr Pilot said, should not be looked upon as a cess or a tax. There are now several organisations that have managed to demonstrate that CSR can indeed be profitable, and boost the sales of a company, besides of course enhancing its image.
The new Companies Act 2013 comes at a time when India avidly is looking for investments, from both foreign and domestic sources. There have been several complaints from private equity investors that they have been cheated by the companies they invest in. With the new regime of transparency, corporate governance, self-regulation and more disclosure, the business climate should soon get more investor-friendly.