CII says new Companies Bill will stunt growth

Friday, 01 August 2003, 19:30 IST
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NEW DELHI: A leading business chamber has urged the government to reconsider some of the provisions of a proposed law that would bring far-reaching changes in the structure of Indian companies. The Confederation of Indian Industry (CII) has said that some of the provisions in the Companies (Amendment) Bill would "stunt growth" and should be eliminated. It said this in a memorandum to the prime minister, the finance minister and the minister of law and commerce and industry. The bill, which is under consideration in Parliament, has proposed crucial amendments for all types of companies -- private, public and listed -- and also the selection and retirement of board directors, shareholders, auditors and company secretaries among others. While stating there were several good provisions in the Companies Bill, CII president Anand Mahindra pointed out: "Despite our long standing commitment to corporate governance, CII is seriously concerned about some of the provisions that could place roadblocks to corporate growth. "Provisions that stunt growth, place needless speed breakers in the path of corporate performance or hinder competitiveness cannot be justified as good corporate governance measures," Mahindra stated in his memorandum. Introduced in Rajya Sabha in May, the CII memorandum comes in response to views sought by the government on the bill that will usher in several changes in the operation of companies. CII has objected to the new definition of a subsidiary in the amendment bill entailing 50 percent or more of paid up capital. "This is a conceptually wrong definition because paid up capital can also consist of preference shares, which carry no voting right. The correct definition should be either control over the board of directors or 50 percent or more of voting rights of a company, or both - which is the existing definition," the CII stated. The industry lobby has also objected to the proposed bar on a subsidiary company having another subsidiary in a multiple pyramid structure. "In today's competitive era, Indian companies are competing with multinational companies (MNCs) both in India and in third countries. Most MNCs have no restrictions in having multi-layered subsidiaries and special purpose vehicles (SPVs)," the CII pointed out. The practice of multiple level subsidiaries or having an SPV is visible particularly in the hotel and tourism industry and in the financial and infrastructure sectors, the CII said. "There is nothing wrong with this corporate construct." The clause that investments should be made only through one investment company, CII believes, "would limit the ability of companies to grow laterally and horizontally". According to CII, these are examples of a "speed barrier approach" to regulations. The industry lobby criticised the provision setting 75 as the maximum age for retirement of directors, "especially in a country where we have a successful prime minister discharging his duties at the age of 78". The new criteria on having a majority of independent directors on the board of a company and the definition of such directors have been objected to by CII. According to CII, independence "is a matter of the mind, and of an attitude that can disagree with management when the need arises. It has nothing to do with how many years a person serves on the board".
Source: IANS
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