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The New Companies Bill - What's Wrong?

Published on Sat, Jul 18, 2009 at 10:30 | Source : CNBC-TV18

Updated at Mon, Jul 20, 2009 at 13:43

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Fifty nine years ago the Bhabha Committee made recommendations for independent India's first Corporate Law thereafter the Companies Act 1913 was repealed and the Companies Act 1956 was enacted. For 53 years India Inc has been regulated by that law. In 53 years the law has undergone 24 and more amendments including two major ones in 1988 and 2002. Twice that's in 1993 and 1997 attempts were made to comprehensively review the entire Companies Act 1956 and finally in 2003 the Companies Amendment Bill was passed to widen the scope of the law in the area of governance.

Five years ago the ministry of company affairs started the process of creating a new modelled codified company law. Finally last year a new Companies Bill was introduced in Parliament but it's been hanging fire for six months and is now finally on the agenda of this new parliament.

This is the most important piece of legislation for India Inc and in the special two part series of The Firm we are going to examine in detail the new Companies Bill - what's missing, what's wrong and finally is it good enough? Joining me to do that are three stalwarts YH Malegam, Partner, SP Billimoria & Co, Cyril Shroff, Managing Partner of Amarchand Mangaldas and Bharat Vasani, General Counsel of Tata Group.

YH Malegam, Partner, SP Billimoria & Co, Cyril Shroff said there is a need for a whole new law because the whole corporate sector has changed.

Cyril Shroff, Managing Partner of Amarchand Mangaldas said the corporate environment is a dynamic one and the things have changed since 1956, so a relook is required in some aspects. "We will have to approach it from a more qualitative perspective, and not simply change for change's sake," he added.

Bharat Vasani, General Counsel of Tata Group said there is a need for a contemporary, modern, forward-looking company law for India.

Here is a verbatim transcript of the exclusive interview with YH Malegam, Cyril Shroff and Bharat Vasani on CNBC-TV18. Also watch the accompanying video.

Q: To understand whether this new proposed law is good enough, we first need to know why we need a new law at all. Everything from what you tell me always is that good law always stands the test of time. If we have made do with amendments in all these years, why can't we make do with some more amendments to update this law? Why do we need a whole new law itself?

Malegam: I think we need a whole new law because the whole corporate sector has changed. When the law was formulated, the corporate sector was slightly different in the sense that there were not so many new instruments; there were not so many new concepts like concepts of corporate governance, there were no existence of institutions like Sebi and therefore the environment is different.

Also, always when you change a law, you try and if you like, remove the problem areas in the law. You remove the loopholes and you rectify ambiguities that are there. Also, to some extent you remove rigidities that are built up into the law.

So, I think those were all the major reasons why it was necessary to have a new law. You cannot do that by just tinkering with a few provisions here and there, because you needed to have a comprehensive look.

Finally, of course the feeling always was that there were too many sections in the Companies Act and maybe the whole thing could be streamlined and made more intelligible instead of having so many sections.

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