AS the chorus grows louder for a comprehensive review of the Companies Act 2013, the department of public enterprises (DPE) has submitted its wish list of exemptions to the ministry of corporate affairs (MCA). A committee headed by Deepti Gaur Mukherjee, joint secretary in the DPE, has finalised the set of desired exemptions after wider consultations with the central public sector enterprises (CPSEs).
The exercise was undertaken on the assessment that CPSEs might need new exemptions under the changed business environment while existing ones could have become irrelevant. ?We have submitted the list of recommendations on the required exemptions to the MCA, which will take a final call?, Mukherjee told FE. CPSEs enjoyed 62 exemptions under the erstwhile Companies Act of 1956.
Despite the enactment of the Companies Act, 2013, CPSEs can retain exemptions that were available to them under the Companies Act, 1956. The DPE has traditionally followed a consultative process to finalise exemptions so that PSUs should not feel any operational difficulties. Similar provisions also exist under section 462 of the new Companies Act of 2013. And it is under this section that the DPE and the CPSEs are seeking exemptions from MCA, sources said.
Experts have highlighted dozens of anomalies and practical difficulties in implementing the provisions of the new Companies Act, especially by the CPSEs, including transitional provisions, rotation of auditors, difficulties in the functioning of board of directors, related party transactions and its adverse impact on subsidiaries, mandate of the audit committee and the leg-room for India Inc in implementing the CSR clauses.
Experts said clarity is required vis-?-vis transitional provisions. For example, while the Act provides transitional period of one year for the appointment of independent directors, the constitution of audit, nomination & remuneration committees are mandatory with effect from April 1, 2014. ?The two requirements need to be aligned,? said a corporate lawyer, adding that the provisions related to the evaluation of directors could make the board?s functioning difficult, particularly for the CPSE, and this may result in a break-down of trust due to ?too much? caution. ?The Act should lay down specific and objective parameters in this regard,? he said
The replaced Companies Act, 1956, empowered the central government to modify the laws in relation to government companies from time to time. But most provisions of the new Act
will be uniformly applicable to companies, including CPSUs, and this is the reason DPE has been deliberating on continuing with certain exemptions granted to CPSEs under the old companies Act.
A case in point is the new provision on corporate social responsibility. Boards of government companies now need to factor in changes in the CSR norms. The CSR policy mandates 2% sharing of average net profits by certain class of companies whereas the CSR policy for PSUs and government companies stipulates between 1% and 5% sharing. ?CPSEs may need more time to make the transition to the new law. This will come up when the new minister of state for corporate affairs, Nirmala Sitharaman, meets the industry later this week to seek clarity on the difficulties being faced by India Inc?, said a corporate lawyer, who provides legal consultation to some of the leading CPSEs.
Government companies are governed by the provisions of the Indian Companies Act. Under Section 620 of the older Companies Act of 1956, the central government enjoyed the right to exempt partly or wholly the application of any provision of the Act to the government companies except Section 618, 619 (A). The audit and accountability to Parliament is prescribed under these sections.