The dangers of excessive delegation to babus
Every new legislative act brings with it a hope that the law will be simpler, more transparent and will be for the larger good of the citizens. The present Companies Act (the Act) in India was enacted in 1956; it had replaced the earlier Act of 1913. The Act has been amended nearly 25 times since 1956; several major and minor alterations have been made, including many deletions. In addition, hundreds of circulars and notifications have also enlarged the scope of the Act over the years.
During the past few years, a view has emerged that the Act has become cumbersome and outdated and there is a need for a total overhaul—a new law. After several earlier attempts, now the Companies Bill, 2011 (the Bill) is on the anvil. Although it was withdrawn soon after its introduction in the Lok Sabha and has now been forwarded to the Standing Committee of Parliament, the Central government is keen to have the Bill back in the Lok Sabha during the Budget session of Parliament.
The basic thrust of the Bill has been on removing those Sections whose provisions were already deleted and also by consolidating the provisions spread over several Sections, e.g., on managerial appointment and remuneration, deposits, etc. Besides, there are a few new provisions on subjects like ‘One Person Company’, independent directors, etc.
One major issue that the Bill is attempting to address is to reduce the rigidity of the law by providing for greater flexibility through delegated legislation. Once a law is passed by Parliament, any change can be effected only by Parliament and that would entail a cumbersome and time-consuming process; to overcome this, the Bill is delegating several powers to the Central government.
It is interesting to note that while there are 470 clauses in the Bill, there are 473 provisions where the words, ‘as may be prescribed’ appear; giving power to the government to prescribe necessary rules from time to time. This will result in a huge amount of subordinate legislation giving enormous clout to the officials. The Bill also intends to transfer certain powers presently being exercised by the Company Law Board (CLB) to the Central government.
While there are several aspects in the Bill for which the government needs to be commended, one should also be alert to the dangers that could be posed by excessive delegation of powers to the babus. Similarly, the transfer of certain powers from a quasi-judicial body like the CLB to the executive could result in unintended consequences.
Just as an example, under the Act, presently any company wanting to shift its registered office from one state to another state is required to approach the CLB and seek its approval for such shifting. This power is sought to be transferred to the executive and, if past experience is anything to go by, there is every likelihood of misuse of this power by the concerned officials.
Similarly, the power relating to rectification of register of charges, particularly condoning the delay in the filing of a charge, modification or satisfaction of a charge within the stipulated time, is with the CLB. Under the Bill, it will go to the babus who will have the freedom to use their discretion for a price.
Another important power that will stand transferred from the CLB to the government is in respect of convening of the annual general meeting; this power comes into play when the company fails to convene the annual general meeting forcing the shareholders to approach the CLB for necessary directions.
To ensure that the proposed discretionary powers are not misused by the dealing officers, we need safeguards with detailed guidelines, duly publicised. Also effective remedial/appellate machinery should be in place for addressing complaints against errant officials without jeopardising the interest of the complainants. It is extremely important for the minister for corporate affairs and his top officials to address the issue of potential for causing serious mischief by crooked companies and dishonest officials.
SD Israni is a corporate lawyer. Email: sdisrani@gmail.com
Every new legislative act brings with it a hope that the law will be simpler, more transparent and will be for the larger good of the citizens. The present Companies Act (the Act) in India was enacted in 1956; it had replaced the earlier Act of 1913. The Act has been amended nearly 25 times since 1956; several major and minor alterations have been made, including many deletions. In addition, hundreds of circulars and notifications have also enlarged the scope of the Act over the years.
During the past few years, a view has emerged that the Act has become cumbersome and outdated and there is a need for a total overhaul—a new law. After several earlier attempts, now the Companies Bill, 2011 (the Bill) is on the anvil. Although it was withdrawn soon after its introduction in the Lok Sabha and has now been forwarded to the Standing Committee of Parliament, the Central government is keen to have the Bill back in the Lok Sabha during the Budget session of Parliament.
The basic thrust of the Bill has been on removing those Sections whose provisions were already deleted and also by consolidating the provisions spread over several Sections, e.g., on managerial appointment and remuneration, deposits, etc. Besides, there are a few new provisions on subjects like ‘One Person Company’, independent directors, etc.
One major issue that the Bill is attempting to address is to reduce the rigidity of the law by providing for greater flexibility through delegated legislation. Once a law is passed by Parliament, any change can be effected only by Parliament and that would entail a cumbersome and time-consuming process; to overcome this, the Bill is delegating several powers to the Central government.
It is interesting to note that while there are 470 clauses in the Bill, there are 473 provisions where the words, ‘as may be prescribed’ appear; giving power to the government to prescribe necessary rules from time to time. This will result in a huge amount of subordinate legislation giving enormous clout to the officials. The Bill also intends to transfer certain powers presently being exercised by the Company Law Board (CLB) to the Central government.
While there are several aspects in the Bill for which the government needs to be commended, one should also be alert to the dangers that could be posed by excessive delegation of powers to the babus. Similarly, the transfer of certain powers from a quasi-judicial body like the CLB to the executive could result in unintended consequences.
Just as an example, under the Act, presently any company wanting to shift its registered office from one state to another state is required to approach the CLB and seek its approval for such shifting. This power is sought to be transferred to the executive and, if past experience is anything to go by, there is every likelihood of misuse of this power by the concerned officials.
Similarly, the power relating to rectification of register of charges, particularly condoning the delay in the filing of a charge, modification or satisfaction of a charge within the stipulated time, is with the CLB. Under the Bill, it will go to the babus who will have the freedom to use their discretion for a price.
Another important power that will stand transferred from the CLB to the government is in respect of convening of the annual general meeting; this power comes into play when the company fails to convene the annual general meeting forcing the shareholders to approach the CLB for necessary directions.
To ensure that the proposed discretionary powers are not misused by the dealing officers, we need safeguards with detailed guidelines, duly publicised. Also effective remedial/appellate machinery should be in place for addressing complaints against errant officials without jeopardising the interest of the complainants. It is extremely important for the minister for corporate affairs and his top officials to address the issue of potential for causing serious mischief by crooked companies and dishonest officials.
SD Israni is a corporate lawyer. Email: sdisrani@gmail.com
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