Exclusive | Company law panel may call for more teeth against directors amid alleged irregularities at Byju's, others

The Committee is considering stronger regulations for unlisted companies

The Company Law Committee (CLC), which was set up by the ministry of corporate affairs to review implementation of the Companies Act, 2013, is likely to make several recommendations to strengthen the law, a person aware of the development told Moneycontrol.

Specifically, the panel may call for the law to be given more teeth to pin corporate governance lapses on directors. It may also seek to have personal guarantees defined, and bat for uniformity in litigation under various provisions.

“The committee has had 2-3 meetings in this regard so far,” said the person cited above.

The panel is likely to finalise its recommendations over the next three months and submit them to the new government after elections, sources said.

Directors are trustees of the money and property of a company; as defined by the Companies Act, they have fiduciary duties, are responsible for strategic decisions, corporate governance and legal compliance, and are accountable to shareholders. The directors are also liable to disclose any conflicts of interest they may have in transactions involving the company.

The Committee, which is considering stronger regulations for unlisted companies, was set up in the wake of alleged irregularities at a number of companies, including edtech firm Byju’s.

Other changes on the radar

A personal guarantee is a commitment made by an individual, usually a director or shareholder of a company, to personally assume responsibility for the repayment of a loan or fulfillment of a contractual obligation undertaken by the company. In essence, the individual guarantees that if the company fails to fulfill its obligations, he/she will do so personally, often using his/her personal assets as collateral. However, the Companies Act does not explicitly define what a personal guarantee is.

Another likely recommendation of the committee is to have uniformity in the litigation under the Companies Act and the Insolvency and Bankruptcy Code (IBC), he said.

The committee is holding comprehensive consultations with the Institute of Company Secretaries of India (ICSI), The Institute of Chartered Accountants of India (ICAI), the Ministry of corporate affairs and other stakeholders to come up with an improved and better mechanism to ensure corporate governance, a senior government official told Moneycontrol.

“The new government will take some time to review the recommendations,” the official said. But even if there is some delay due to government formation, it's important to keep in mind that the Companies Act is being reviewed after 10 years, so the wait is worth it, he added.