Central Govt plans ordinance to cover governance issues

The Central government may bring an Ordinance to implement changes in the Companies Act based on recommendations of a Committee under the Chairmanship of Corporate Affairs Secretary to look into issues of corporate governance.

The recommendations include ways to curb shell companies, de-clog the National Company Law Tribunal and capping independent directors’ remuneration.

The committee’s report touches upon issues such as declaration of commencement of business, maintenance of a registered office, protection of depositors’ interests, registration and management of charges, declaration of significant beneficial ownership, and independence of independent directors. A key recommendation relates to shell companies.

There is no specific definition of a shell company under the Company Law. However, such companies are formed to launder money. Keeping this in mind, the committee has recommended re-introduction of declaration of commencement of business provision. Other recommendations related to corporate compliance and governance include imposition of a cap on independent directors’ remuneration in terms of percentage of income to prevent any material pecuniary relationship, which could impair his/her independence on the board, and holding of directorships beyond permissible limits to trigger disqualification of such directors.

It suggested a reduction in the time-limit for filing documents related to creation, modification and satisfaction of charges and stringent penal provisions for non-reporting. Once a company obtains restrictions under Section 90 (7) relating to significant beneficial ownership, in respect of shares whose ownership remains undetermined, such shares should be transferred to the Investor Education and Protection Fund if the rightful owner does not claim ownership within a year, it said.