Company Law under slowdown Spectre

CA. Rajeev Aggarwal (Chartered Accountant) (3419 Points)

19 December 2008  

The global economic meltdown may bring in a major change in the final layout of the new company law, which is now being considered by a Parliamentary Standing Committee.

The Companies Bill 2008, which aimed to reduce government intervention in internal affairs of the companies and substitute it with disclosures and their self-regulation, may now be reworked.

A government official said on the condition of anonymity that there could be changes in the new law, as recent economic trends worldwide have suggested a need to keep a close regulatory watch on corporate behavior.

Noting that the Bill was drafted at a time of global economic prosperity and that the recent financial turmoil has reflected the need for greater oversight, he said a fine balance between companies’ liberty and the overall interest of the economy has to be struck.

The proposed law has been prepared after five years of consultations and proposed relaxation for companies on the regulatory front. However, the Standing Committee is now expected to judge the effectiveness of these proposals in the light of the global economic crisis.

The Bill was prepared on the recommendations of an expert panel headed by J J Irani. It proposed to give greater freedom to companies in compensating their directors, entering strategic corporate alliances or for raising capital. The proposals required companies to be accountable to their shareholders and keep the government informed of their activities through increased disclosures.

But the failure of financial firms in the west has brought out the need for regulatory control on companies like never before. It has also prompted the government to review the efficiency of its proposed framework that has been easy on several respects than the existing law.

Pointing out the difference in the present economic scenario and the one when the original draft of the Bill was prepared, the official said the government has the opportunity to suggest changes to the proposed law. The global economic crisis has brought out severe lapses in a relatively less regulated corporate environment.

Even though experts believe that the new Bill has greater safeguards as compared with the US, there may be a need to do a feasibility study on the need for greater regulatory controls.