Don't miss: Companies Bill, 2012 Analysed
In an interview to CNBC-TV18, Hitesh Jain, partner at ALMT Legal speaks about the Companies Bill and gives his outlook going forward.
Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra.
Q: What are the implications on the P&L and the balance sheets of companies? The corporate-social responsibility (CSR) expenditure now is nearly being mandated at 2 percent. I understand the wording is not mandatory, but companies may spend. Yet a board member will have to be in a committee, which will monitor this expense and give credible explanations, if that 2 percent is not met. Will this, therefore, begin to impact the P&L in some fashion?
A: There are two very important provisions in the clause. The first clause is that the board is mandated to ensure that the company will spend on the CSR. Second thing is that they have to give their explanation. So, effectively although there is no mandatory obligation on the company, but a responsibility is cast upon the board members.
Added with the responsibility, to give the explanation for non-implementation or implementation makes it mandatory. When you are not able to give a satisfactory explanation about not spending on CSR activities then the regulator will certainly have a power to question the roles and responsibility of the directors. So, effectively it gives a teeth, it is not just a provision on the paper, but it puts an obligation on the board, which they cannot easily get away. So, one thing is very clear that the new bill has looked into this provision extremely carefully. Although not mandatory, but a binding obligation is on the board to make sure that the company will spend on the CSR.
Q: After the Companies Bill being passed, what are the most common queries that you are facing from clients at this point in time? What are they most worried about in terms of adherence going forward?
A: The first query, which we are facing from the client, is about the CSR. The second is about the Memorandum of Association. They are also worried about the roles and responsibility of the independent directors. The fourth concern, which they are discussing, is the provisions pertaining to investor protection mechanism.
There is one very important provision. If you are obtaining the credit facilities and loan from the bank, if incorrect information is provided, it puts a heavy onus on the board. The queries are also directed towards the roles and responsibility of the independent directors. What is the responsibility, whether they are going to be liable, to what extent they will be responsible? The independent directors attend for the sake of attending and there is no positive contribution. For example, when you look into the various examples, you deal with the frauds in the corporate governance or the problems arising in the corporate governance and the independent directors playing just a role on the paper.
More to come.
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