Corporate Affairs Ministry launches Makeover
Deora's resignation prompts changes
Joe C Mathew / New Delhi July 6, 2011
A new team at the ministry has junked antiquated rules, introduced sensible new ones and given India Inc a boost.
Corporate Affairs Minister Murli Deora offered his resignation yesterday and, while the reasons for it are still being debated, it most certainly wasn’t because of a lack of traction in his ministry.
Ironically, Deora’s resignation comes on the heels of a renaissance of sorts that has taken place at the corporate affairs ministry. A steady string of notifications and circulars has considerably eased procedural issues that have plagued Indian companies for decades. For example, last month, the ministry effected changes in a 46-year-old rule framed under a 55-year-old law — the Companies Act of 1956 — to do away with sector-specific cost-accounting rules that were no longer relevant in the current business environment.
CORPORATE AFFAIRS INITIATIVES IN THE LAST SIX MONTHS
* Exemption from submission of separate balance sheets for all subsidiaries
* Exemption from managerial remuneration approval for unlisted companies
* IFRS convergent accounting standards notified, implementation put on hold
* E-payment of fees permitted for corporate affairs ministry services
* Simplification of issuing Director Identification Number (DIN) process
* Registration of company in 24 hours
* Enhanced regulatory framework on annual statutory filings
* Balance sheet filing in extensible business reporting language (XBRL) mode
* M&A regulations under the Competition Act notified
* Issue of certificate by digital signature
* Delegation of regulatory powers of ministry to Registrar of Companies (RoC)
Thanks to Deora’s team of senior ministry officials, similar changes and regulatory exemptions, though small in terms of individual impact, have phased out dozens of outdated regulatory requirements that were big headaches for the Indian corporate sector for years.
Vijaya Sampath, co-chair, corporate law committee of industry chamber Ficci, feels that the ministry’s “actions in the past few months in issuing clarifications and circulars have had a major impact in amending certain obsolete provisions that needed change a long time ago”.
Far from a one-off initiative, this is a programme of systemic change launched by the ministry over the past six months.
In addition to doing away with antiquated procedures, new initiatives have also been implemented.These include asking companies to migrate towards electronic filing of mandatory data and allowing company directors to interact with their shareholders through video conferencing. These initiatives suggest an urgency to introduce reforms that can facilitate healthy industry growth.
Indeed, most of these changes had been long-term demands of industry. However, with the ministry on the verge of enacting the Companies Bill, 2009, which in effect comprehensively revises the 1956 law, no one expected these changes to happen quickly. After all, the new company Bill, expected to be tabled along with the fresh set of company rules in the forthcoming Parliament Session, would have taken another year to get implemented.
Sampath, also the company secretary of telecom major Bharti Airtel, welcomed ministry decisions that now allow companies to send balance sheets by emails to shareholders and allow board, committee and shareholder meetings to be held via video conferencing. Easing the norms for managerial remuneration for unlisted companies was also appreciated.
While these developments have been largely met with elation throughout corporate India today, six months ago, the mood was a little different. Industry was slightly apprehensive to see a complete leadership change at the Corporate Affairs ministry when Murli Deora and R P N Singh came in as the new ministers and D K Mittal and Sudhir Mital took over as the new secretary and additional secretary, respectively.
Within days of taking charge, Union Minister Murli Deora and his secretary D K Mittal made it clear that the ministry's priority would be to facilitate industry growth. On the day of joining, Mittal wanted “a week’s time” to kick start the reform process which his officials have been carrying out regularly since then.
The ministry was confronted with a daunting schedule. Apart from the legislation of a new Company Law, there were rules to be framed to kick-start the process of merger and acquisition scrutiny under the Competition Law. Then, the ministry had to draw up corporate governance standards and undertake the notification of accounting standards to make the Indian accounting system converge with that of the International Financial Reporting Standards (IFRS). Industry was also anxious about the government's plans to make the corporate social responsibility (CSR) spending compulsory.
An extension of the “Easy Exit Scheme”, which allows defunct companies to get their names struck off the registrar of companies, came first. The idea was to rid the registrar of the clutter of documents belonging to thousands of companies that no longer exist, leading to a more realistic cataloguing of the universe of companies registered in the country.
Within a week, as Mittal had hinted, came a general exemption for companies from the requirement of mandatory submission of quantitative details about the production and procurement process, a requirement that dates back to the industrial licensing era when there was a regulatory purpose in monitoring such details. Companies producing defence equipment, export-oriented companies, shipping companies, hotels, manufacturing companies and traders were now freed from the shackles of this outdated requirement much before the new law could have made it possible.
Today, merger and acquisition rules are in place and IFRS standards notified. The ministry has given an assurance that CSR spend will not be mandatory under law.
“The series on notifications during the last six months is aimed at easing the regulatory procedural hurdles and facilitating growth of the corporate sector. Notification of merger and acquisition norms and pragmatic approach towards IFRS convergence is commendable,” says Salil Bhandari, president, PHD Chamber.
Interestingly, some of the objectives of the new Companies Law have already been fulfilled as the ministry has gone much ahead in its plans for e-governance with its MCA-21 portal becoming fully functional. Similarly, the ministry has already made it mandatory for company directors to have a unique director identification number.
Even while the ministry is issuing notifications, circulars and amended rules on a routine basis, it is busy sculpting a comprehensive Companies Bill, 2009, to be introduced in the forthcoming Parliament session.
In a recent industry interaction, ministry officials pointed out that the major concerns of the industry with regard to the Companies Bill, 2009, were all under examination. This relates to areas such as norms governing independent directors (numbers, attributes, tenure, liability, remuneration, etc), rotation of auditor (audit firms), corporate social responsibility, restrictions on layers of subsidiaries, issue of equity shares with differential voting rights, maximum number of directorships and managerial remuneration limits.
The law enactment is expected to outperform the series of routine efforts, thus setting the stage for a one-time correction of all such anomalies and shortcomings that currently exist.