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7/29/2019 Share Holder Gemocracy
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PRESENTED BY: CS NESAR AHMAD
‘SANKALP’ C-227, PARYAVARAN COMPLEX
NEW DELHI-110 030TEL: +91-11-2953 6312/ 6642TELEFAX: +91-11-2953 6642
Nesar & Associates, New Delhi
COMPANIES BILL 2012 AN INITIATIVE FOR CORPORATE REFORMS
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COPYRIGHT
Nesar & Associates, New Delhi
The presentation is a property of Nesar & Associates. Nopart of it can be copied, reproduced or distributed in any manner, without explicit prior permission.
In case of linking, please do give credit and full link
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TOPICS OF DISCUSSION
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SHAREHOLDER’S DEMOCRACY
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The Concept of Shareholder’s Democracy in the Corporate
World denote the shareholder’s supreme authority in thegovernance of the business and affairs of their respectivecompanies either directly or through their electedrepresentatives. Its main intent is :
Establishing dialogue with themanagement on issues thatconcern a shareholder
Influencing the corporate culture
Increasing general awareness on economic,environmental, social and human issues concerning theorganization (shareholder activism)
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RECENT DEVELOPMENTS
(PROXY FIRMS)
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A recent and encouraging development in India which is
propelling shareholder’s democracy is proxy advisory firms.
A proxy advisory firm is a firm hired by shareholders of
public companies (usually large institutions) to recommendand sometimes cast proxy statement votes on their behalf.
Many institutional investors use proxy advisory firms tohelp them vote their proxies in shareholder elections.
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RECENT DEVELOPMENTS
(PROXY FIRMS)
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Internationally well acclaimed proxy advisory firms like PensionsInvestment Research Consultants Ltd (PIRC), ISS and Glass
Lewis are playing an important role.
In India though, this is in its infancy stage so far three proxy firms like ingovern, Institutional Investor Advisory services
Limited and Stakeholders Empowerment Services have come upin India.
This recent augment of proxy advisory firms in India, serves as a
complement to shareholders, provides with the necessary adviceto exercise their corporate democracy in an informed manner.
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COMPANIES BILL
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The Companies Act, 1956 had already recognized thesupreme authority of the shareholders by giving variousauthority to direct, control, conduct and manage the
business and affairs of the Company.
Now the Companies Bill, 2012 has armed the shareholders with more effective and powerful weapons so as to enablethem to ensure that the business and the affairs of the
Company are properly managed.
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SHAREHOLDER’S DEMOCRACY
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Among various provisions Some of the important added weapons in the Companies Bill armory are:
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SPECIAL RESOLUTION
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Clause 27 provides, a
Company shall not vary theterms of contract objectsreferred to in prospectus or
objects for which it issuedshall not except subject tothe approval of or anauthority given by the
Company in generalmeeting b y w a y o f
speci a l r eso l u t i o n
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USE OF FUND
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Proviso to Clause 27
provides, now a Company which has varied theterms of contract referredto in prospectus or
objects for which it issuedshall not use any amountraised by it throughProspectus for buying,
trading or otherwisedealing in Equity Sharesof any other ListedCompany .
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ACCEPTANCE OF DEPOSITS
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Clause 73 states that a Company cannot accept depositsfrom person other than its member and approval of
shareholders subject to such rules as may be prescribed inconsultation with the RBI will be required for theacceptance of deposits.
As per the Bill, NBFCs are not covered by the provisionsrelating to the acceptance of deposits and they will begoverned under rules issued by the RBI.
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ELECTRONIC VOTING
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Clause 108 encourage wider participation of shareholdersat General Meetings, the Central Government may prescribe the class or classes of companies in which amember may exercise their vote at meetings by electronicmeans.
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POSTAL BALLOT APPLICABILITY
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Clause 110 provides that
the Provisions of thePostal Ballot shall beapplicable to all theCompanies whether listed
or unlisted
It is also provided that the
resolutions as may beprescribed by CG, shall bepassed by Postal ballot.
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STAKEHOLDERS RELATIONSHIP
COMMITTEE
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Clause 178(5) provides, where the combined membershipof the shareholders, debenture holders, deposit holders andany other security holders is more than one thousand at any
time during the financial year, the company shall constitutea Stakeholders Relationship Committee.
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RELATED PARTY TRANSACTION
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Clause 188 provides in case of having the prescribed paidup-capital, no Related Party Transactions will be carried
without the approval of the shareholders by passing a
Special Resolution.
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RESTRICTION ON NON-CASH
TRANSACTIONS
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Clause 192 provides that the company shall not enter intoany arrangement by which a director of the Company or of its Holding Company or any person connected with him canacquire assets for the consideration other than cash form
the Company & vice versa without the approval of theCompany in general meeting.
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STRINGENT PENALTY
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Clause 75 made the penalty for failure to repay deposit has been made extremely stringent.
Where a company fails to repay the deposit and it is provedthat the deposits had been accepted with intent to defraudthe depositors or for any fraudulent purpose, every officer
of the company who was responsible for the acceptance of such deposit shall, without prejudice to liability undersection 447 i.e. punishment for fraud), be personally responsible, without any limitation of liability, for all or any
of the losses or damages that may have been incurred by the depositors
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MINORITY RIGHTS
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This has always been a demand that the corporate
governance framework should ensure the equitabletreatment of all shareholders, including minority shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.
Minority Shareholders gets teeth in
in the Companies Bill, 2012 by way
of following powerful tools :
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EXIT SCHEME
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The Dissenting
shareholders shall begiven an exit offer by the promoters orcontrolling shareholders
at such exit price and insuch manner andconditions as may bespecified by theSecurities and ExchangeBoard by makingregulation in this behalf.
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IMPORTANCE
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Exit option is a measure to deal with investor angst overcompanies either suddenly entering new areas by changingthe objects for which the money was raised or by ademerging profitable business.
Though it will not stop the Company from diversifying, it
will allow the minority shareholder to exit in case he isunsure of the kind of business move.
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CLASS ACTION
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The biggest boost for the small investor comes in the formof the provision for class-action lawsuits, which can allow agroup of investors with common interest in a matter to suethe management of a firm, its auditors or a section of shareholders in case of suspected wrongdoing, a option not
available under the current regulations.
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CONCEPT OF CLASS ACTION
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The concept that is common in various jurisdictions such asUS, UK and Singapore did not exist in India.
The threat of class action tends to enhance sense of responsibility and diligence of the defendant towards theinterest of stakeholders.
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APPLICABILITY
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Suit under Clause 245 may be filed by members ordepositors or any class of them before the National
Company Law Tribunal, if they believe that themanagement or conduct of the affairs of the company prejudices the interest of the company, its members or
depositors.
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IMPORTANCE
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The importance of the provision can begauged by the experience of the Satyam
fraud. Well over three years after thescandal broke; Indian investors are yet toget any significant compensation in the
8,000-crore fraud allegedly committed by the promoters of Satyam Computer Services. But someof their counterparts in the US, who owned AmericanDepositary Receipts, have made the company commit to
pay $125 million in settlement by taking recourse to thestrong class-action framework.
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CLASS ACTION SUIT VIS-A VIS
SUIT FOR OPPRESSION AND MISMANAGMENT
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Clause 241 of the Bill deal with the filing of petition beforethe Company Law Board against oppression andmismanagement.
There are some difference between an oppression andmismanagement suit and a class action suit
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CLASS ACTION SUIT VIS-A VIS
SUIT FOR OPPRESSION AND MISMANAGMENT
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1. Depositors can file class action suits but not a suit under
clause 241 of the Bill
2. Oppression and mismanagement case can be filed against
the company and its statutory appointees only, while aclass suit in addition to the company and its statutory appointees can be filed against an expert or advisor orconsultant or any other person for any incorrect or
misleading statement to the company and also against anauditor for any improper or misleading financialstatements
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CLASS ACTION SUIT VIS-A VIS
SUIT FOR OPPRESSION AND MISMANAGMENT
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3. Petitions under clause 241 of the Bill can be filed for pastmismanagement and to prevent recurrence, while classaction suit can ask the management or directors of company to desist from one or more particular action that
have not been taken yet.
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ALTERNATIVE DISPUTE RESOLUTION (ADR)
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Alternative Dispute Resolution (ADR) describes processesof settling disputes by means other than litigation (taking acase to court). ADR includes mediation & conciliation andarbitration processes.
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MEDIATION & CONCILIATION
Nesar & Associates, New Delhi
Companies Bill 2012 introduced the provisions of mediation and Conciliation in order to get the speedy disposal without the judicial proceeding.
Clause 442 provides for power, in case of any proceeding before the NCLT or the CG or NCLAT, to refer a matter tothe mediation and conciliation panel
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MEDIATION AND CONCILIATION
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The Central Government shall maintain a panel of experts
to be called as the Mediation and Conciliation Panelconsisting of such number of experts having suchqualifications as may be prescribed for mediation betweenthe parties during the pendency of any proceedings before
the Central Government or the Tribunal or the AppellateTribunal under this Act.
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EXPERT
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Clause 2 (38) of the bill deals with Definitions, defines
expert as :
“expert” includes an engineer, a valuer, a charteredaccountant, a company secretary , a cost accountant andany other person who has the power or authority to issue a
certificate in pursuance of any law for the time being inforce
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SPEEDY DISPOSAL
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The Mediation and Conciliation Panel shall follow such
procedure as may be prescribed an d d i spo se o f t h e
m a t t er r ef er r ed t o i t w i t h i n a p er i o d o f t h r ee
m o n t h s from the date of such reference and forward its
recommendations to the Central Government or theTribunal or the Appellate Tribunal, as the case may be
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CONCLUSION
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The Companies Bill 2012 by all the above powerfultools is going to change the way companies areincorporated, raise money, interact with itsstakeholders, govern themselves and contribute tonation building.
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Nesar & Associates, New Delhi