SEBI AS SOLE AUTHORITY:

In the Companies Act, 1956, registration of prospectus is done by the RoC for all types of companies, and the role of SEBI is restricted to vetting of prospectuses to ensure that the guidelines issued by it are duly complied with. As a result of this proposed amendment, the role of the RoC has been reduced to record-keeping. Though the rationale behind this proposal may appear sound, it is not clear how the administration of certain provisions of the Act can be vested with an authority other than the Department of Company Affairs (‘DCA’). The RoC must continue to be vested with the administration of the Companies Act, including provisions relating to prospectus (such as the registration of prospectus) and this should not be diluted and taken away on the grounds of liberalised policies. In fact, the role of the RoC in the liberalised environment is much more important than it was ever before.

Indeed, while vetting the prospectus, RoC approaches the issue from a totally different angle based on the history of the company, documents filed by the company with it, past record of the promoters/company, etc. Hence it is in a better position to examine the offer document with respect to the past record of the company, promoters background, legal compliance and offer its comments. Further, while the role of SEBI focuses on the issue of securities, the role of RoC does not stop with the issue alone, but extends till the company is wound up. The RoC has also got powers of investigation under various provisions of the Act and hence it is only proper that the administration lies with RoC. It is possible that the shifting of administration of the Act will complicate matters further when a company gets delisted for various reasons.

It is felt the SEBI's role must continue to be that of managing intermediaries of capital markets, laying down guidelines for the issue of securities and protecting investor interests. Recently, SEBI issued a guideline to exempt companies from vetting the offer documents which fulfil its guidelines and in the process to concentrate on those companies which come out with issues which are not in line with the guidelines. This is a clear case of control by exception. This aspect has not been considered by the Bill since SEBI itself wants to restrict its role relating to capital markets. In view of the volume of transactions spread over different parts of the country, a premier watchdog body such as SEBI cannot be expected to fulfil purely administrative functions. It would be wise to strengthen the already existing offices of the RoC and make themselves responsible for proper administration of listed companies also within the framework of SEBI guidelines.

RAISING CAPITAL BY UNLISTED COMPANIES:

The Working Group had earlier recommended that public unlisted companies accessing funds (debt, equity, hybrid or any other form of security) from their members or by private placement should come under the purview of the DCA insofar as regulation, policing and enforcement are concerned. As per Clause 73 of the Bill dealing with further issue of capital, the scheme of option given to employees, officers or working directors made by a public company shall be subject to the conditions specified by the Government or SEBI as may be applicable.

It appears that the recommendation of the Group has been specifically accepted only in respect of employee stock options. In other cases such as private placement, the Bill is silent and the Government is not specifically empowered to administer the provisions of the Act relating to the issue of securities by unlisted companies. In the liberalised context, it is essential to frame proper guidelines and stringent disclosure norms relating to fund-raising by even unlisted companies in order to protect the interests of investors and ensure transparent corporate governance. The Bill should be amended so as to specifically provide for such things, and empower the Government to frame guidelines and regulate the issue of securities by unlisted public companies.

BUY-BACK OF SHARES:

The Bill has introduced provisions relating to buy-back of shares vide Clause 68. These include passing of a special resolution, filing a declaration of solvency and complying with certain norms such as a ban on issuing any new shares (including rights issues but excluding bonus issues) for 12 months, maintenance of a debt-equity ratio of less than 2:1 and such other restrictions relating to voting rights, dividend rights, bonus issues and rights issues eligibility. This buy-back can be for preventing a take-over or for treasury operations.

While this is a welcome move, it should be ensured through suitable guidelines mat this provision is resorted to only to meet certain specific purposes and not misused by the corporate sector to get rid of some shareholders. Guidelines should protect the interests of the minority shareholders as well as employee shareholders. A clear-cut guideline in this regard should be framed immediately after enactment of the Companies Bill.

FULL BUY-OUT:

The Bill, vide Clause 272, provides that in the event of any person, group or body corporate acquiring 95 per cent of the shares of a public listed company (either through takeover or otherwise) and the company getting de-listed, the residual shareholders should sell their shares to the 95 per cent owner at a price determined in accordance with Government rules. This amendment seeks to legislate in India the key feature of shareholder democracy. This move takes care of the interests of the residual holder who may face the problem of selling at a lower price due to non-listing. This is similar to the provisions of Section 395 of the present Act and must be implemented with strict compliance norms. Proper certification by the company's auditors should be insisted upon for determining the share prices to be offered to the residual shareholders. It would also be worthwhile considering the extension of this proposal on a voluntary basis to investors whose holding exceeds the threshold limit of 80 per cent ownership, as, for all practical purposes, the minority shareholders have very little leverage.

SHELF PROSPECTUS:

The Bill, vide Clause 51, provides for the filing of the shelf prospectus, which will have a validity period of 365 days with suitable updates on material facts, litigations and changes in financial position between the previous offer and the next. This facility is extended to public sector financial institutions and banks and companies specialising in infrastructural finance. The Government is empowered to extend this facility to other corporate bodies.