Q: Specifically why?

Vasani: This is one part where I think it is more of an old wine in a new bottle. What we have done is that we have rearranged the sections. We have introduced concepts, which are not necessary to introduce like I don’t think there was need for a separate definition of independent directors when Sebi has already under clause 49 and this definition is in variance with what Sebi has prescribed.

Number two I felt that there was not much of innovation done. Like for example there is a huge debate in corporate India that the way the modern corporations have become transnational is the board itself as an organ proving to be inadequate. There is a larger philosophical issue here. Do we need a two-tier board like Germany has that supervisory board and executive board?

And quite frankly many a times when you sit on the board you realise that such a large corporation with so much of complexities - can you really in a two hour board meeting after three-months and really supervise and manage the affairs of the corporation like this? So those larger philosophical issues are not dealt with.

And also the fact that there were so many drafting lacunas in the existing act, not many corrections have been carried out. What they have done is that they have rearranged the sections, brought it under one common roof and basically reduced the number of sections relating to corporate governance.

But I was expecting much more. I expected that the entire board structure would be kind of dealt with in a much more - we need to have a debate on this issue that can we live with this kind of board structure now. For example, one issue which always bothers me is that there is too much of asymmetry in the knowledge level when you are participating in a board meeting. There are executive directors and there are non executive directors and the asymmetry is increasing by the day with the complexities of the modern world.

Now there is no aspect of the Companies Act which deals with this issue as to what is the level of information which should be provided to a board. I am going on a further larger issue. Assuming the board is presented with a proposal that you are acquiring a company in South Africa, and there are three bidders in the three different jurisdictions say one in UK, one in USA and one in India. The quality of information which goes to the board, the quantity of information which goes to the board and the quality of deliberations - it would be a study in contrast.

Q: I think some of the issues that you are talking about are incredibly broad issues and I think it would take many debates to be able to fix that. I’ll ask you both for specifics - either of things that you think are wrongly put in this act or what you think should have been there but is absolutely missing?

Shroff: Firstly I think this replication of concepts which are in clause 49 is not exactly the same. It is almost as if the draftsman of this act has forgotten that there is something like clause 49 because from a company’s point of view you have to comply with both laws and then you always land up in a tricky situation where you have to either over comply the higher standard and then it doesn’t sort of make sense.

Secondly a lot of securities market concepts have been unfortunately brought into this whereas they should have been left over there for instance insider trading. Now insider trading is something which should be dealt with by Sebi as a part of regulating the markets and maintaining the market integrity there. Whereas, it has unfortunately been brought into and replicated and duplicated what is already there in the insider trading regulations. So you are having this impossible situation where for the same kind of offence of insider trading you have to really deal with two regimes and there is no idea of how that’s going to be dealt with.

To just carry this stream of thought further, in terms of violations having been created for things which do not make any sense. For instance key managerial personnel who have been defined, there is almost a compete prohibition on them from dealing with securities which in a general sense is good but what happens to key managerial personnel who happen to hold ESOPs or who happened to hold shares because they are part of the promoter group as well.

So, some amount of impracticality has come in as well. I have a broader philosophical issue in terms of how governance has been dealt with but we can come to that perhaps at a later part in this discussion.

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