Either you trust corporate India or you dont. Our approach is to trust it

Updated: Nov 21 2005, 05:30am hrs
Five decades after the Companies Act, 1956, was enacted, it is now set for an overhaul, likely in the Budget session of Parliament. Company affairs minister Prem Chand Gupta spoke to KG Narendranath on the governments plan to modernise the law to suit the best global practices on regulation of corporates. The minister also comments on corporate fraud, monopolies and investor protection. Excerpts:

How do you react to the criticism in some quarters that the JJ Irani reporton which the proposed new company law heavily relies is subtly twisted in favour of promoters of big corporations and less inclined to protect the interests of small investors

This allegation is baseless. The Irani panel had recommended one-person companies (OPCs), as well as a special regime of exemptions (from regulatory rigmaroles) for small companies. If implemented, these would help the small investor community. The panel also drew a distinction between compliance requirements for smaller comp-anies with that of the larger ones and sought to relieve the former from many regulatory requirements. In the proposed new Companies Bill, we will certainly incorporate provisions that would strengthen and make protection of small investors more effective.

My ministry has, in fact, adopted an action-oriented approach towards investor protection. Currently, dedicated investor protection cells are operating at three levels the ministry, the regional directorates and the registrar of companies. All complaints by investors are responded to in 72 hours and prompt remedial actions taken. We have also activated the Investor Education & Protection Fund (IEPF) under the Companies Act.

We have also effectively cracked down on vanishing companies. The number stood at 229 in May 2004, of which we had traced and taken action against 114. FIRs have been filed in over 100 cases. The support of NGOs has been enlisted for investor protection. We will continue these efforts more vigorously in the coming months. We have also instructed the RoCs to ensure all new registrations are done with definite proof of identity of the applicant.

These apart, we have already referred 30 cases of suspected corporate fraud to the Serious Frauds Investigation Office. SFIO has already completed the probe into eight cases and in some of these, prosecution has been initiated by the ministry. SFIO is still in its very early years and Im sure with the passage of time it will serve a every useful purpose. It has already given firm signals to corporates and others that freedom comes with responsibility and accountability.

Lack of a flexible and workable insolvency legislation in India is a major stumbling block in dismantling/turnaround of bad assets and liabilities. Would you address this issue in the proposed Bill

Corporate insolvency will be part of the new company law. We are keen to bring about suitable reform in this crucial area and are studying international best practices. We are also in the process of setting up the National Company Law Tribunal.

What measures have already been taken by you to improve corporate governance and also facilitate incorporation of businesses

You will have to either trust the corporates or not. Our basic approach is to have trust in the corporate sector, accompanied with an intention to ensure accountability. There has been a sea change in recent years in the way businesses are conducted. In the wake of this transformation, we are trying to remove obstructions in (corporate) processes with a view to enhancing efficiencies. This concept will be quite perceptible and manifest in the new Companies Bill, set to be introduced in the Budget session, particularly with regard to mergers, liquidation, etc. We hope to have in place reasonable compliance requirements, with greater shareholder monitoring and less government control in the proposed Bill.

Our endeavour would be to provide the form and functional structures that should enable the corporates to perform to their fullest abilities and face competition effectively.

The Competition Commission is yet to begin full-fledged operations. In the era of increased cross-border business operations, what do you think the Commission should focus on to ensure fair play and frustrate creation and prolongation of monopolies and other anti-competitive practices

The Commission could not become fully operational because of legal challenges. It had been restrained from performing adjudicatory activities. However, in the interregnum, it has undertaken competition advocacy and capacity-building activities and case studies. We are in the process of bringing about suitable amendments to the Competition Act. The relevant amendments would be sent for Parliaments approval shortly.

Yes, there has been a delay in finalising the legal structure for the Commission, as we have been keen to ensure that the amendments are carried out in total adherence to the Constitution.

You have posted a concept paper on limited liability partnerships (LLPs) in the electronic medium for public comments...

Yes, the LLP is proposed as a body corporate and a separate entity under a new law. Liability of partners would be limited, except in case of fraud. As per the proposals, an individual or body corporate may be partner in an LLP and can do business covering not only trade, but other occupations, including manufacturing.