The recent change at the helm of affairs of the Ministry of Corporate Affairs (MCA) has rekindled the discussion on the Companies Bill. Newspaper reports indicate that the new Bill is expected to be introduced in Parliament during the monsoon session that begins August 1. The reports also highlight some key areas recently at the forefront.
It has been suggested that SEBI will be conferred powers to regulate all companies (whether listed or unlisted) that raise public funds. This seems to come at the heels of the Sahara controversy where the companies have challenged SEBI’s powers. Of course, we do not yet know the details of the changes proposed, but if the change is intended to be clarificatory in nature such that it covers all “public” offering of securities (even by unlisted companies) that is understandable. However, if the proposal is to provide greater authority to SEBI to investigate all share issuances by SEBI (whether they relate to 50 offerees or less), that would be a case of overregulation. Unlisted companies must be given the flexibility of carrying on financing their businesses through issuance of shares when it is within the domain of private placements – in such a case no public interest is involved. In its pursuit of dealing with exceptional situations such as those in the Sahara case, the Companies Bill should not come in the way of genuine private fund raising by unlisted companies. The problems of excessively applying securities regulations to unlisted companies are only too well-known because the Securities Contracts (Regulation) Act (SCRA) is sought to be applied by courts and regulators to such companies as well thereby inhibiting transactions such as forward contracts and options in securities.
Another suggestion is that corporate social responsibility (CSR) will be made mandatory in the Bill. This represents a flip-flop on the issue as the last known stance of the MCA was that the CSR requirement would be introduced in the nature of a disclosure obligation (by way of “comply-or-explain) rather than a mandatory requirement.