New companies Bill: here are the moments of pleasure and pain

India has the completely new company law, which is more suitable for the 21st century and its problems. With the passing of the companies Bill, 2012, in the Rajya Sabha today, which is of the companies Act, 2013, when officially notified the legislation, few things change for the Indian corporate sector (download the full Bill here).

Among them: corporate boards should have a third of their members as independent members; Some boards should include more women; Auditors should necessarily be changed after 10 years; the costs of corporate social responsibility (CSR) will be given for companies of a certain size and minimal profitability; the company's Board of Directors will have to become more accountable; and, most importantly, minority shareholders and investors in the company, you can start a class action lawsuit against the leadership.

The best thing about the new company law is simple, with greater clarity of intentions and objectives. It replaces the old law with more than 700 conflicting situation with something shorter and sweeter: 470 reservations all in 309 pages. Not bad for something that will regulate all listed and unlisted companies in the country.

However, the current law does not in itself becomes a great law, success depends on the implementation. Here are the main issues that will make or Mar the success of the new law.

# 1: independent directors: a fine in principle is to make the company have one third of their Board members as independent directors. Independent directors (IDs) also more strictly defined, and their term will be limited to two terms, adding up to 10 years. Identifiers can also hold a maximum of 20 directorates.

The best thing about the new companies Act, that is simply, with the clarity of intentions and objectives

Sounds tempting? But there are drawbacks. For three reasons. Firstly as independent identifiers can be when they are appointed and paid by the promoters? The promoters will appoint a truly independent people on the boards? Secondly there are enough people to be appointed as identifiers? In theory, Yes, because there are no qualifications for becoming an identifier. However, in practice, once you tell future face duties that it will carry, the actual number of competent IDs and willingness decreases. In fact, most IDs would eventually adorn the corporate boards without the time and commitment to work for the benefit of shareholders. Thirdly, if the right IDs eventually occupying 20 directorships each, how can they really serve each of these companies stockholders carefully? According to the report, CNBC TV18, Analjit Singh Max India, for example, attended only one Board meeting 14 Dabur in the three years before he resigned. He really helped protect the interests of the shareholder's remaining missing Dabur?

Conclusion: it is good to have many identifiers, but corporate governance will require heavy doses of regulation too to complete the picture.

# 2: corporate social responsibility:of course, this Bill does not do 2 per cent of the cost of mandatory CSR, but he comes close. As we noted earlier, the real problem is not in percentage, but that the Bill makes no effort at all to define CSR. The only obligation is to allocate funds to form the Committee, develop a policy for CSR and spend the cash. If you don't spend the money, you should explain in the annual report. So it seems the law has no problem if the company uses the profits to help commercial sex workers in Mumbai or build places of worship as part of CSR.

According to business research in January, 457500 on the BSE 500 Index companies will have to provide for CSR, and on the basis of average net profits over the previous three years, they will have to fork out RP 6.751 crore in the CSR spends. ONGC will spend about 405 rupees crore per year and reliance 377 rupees crore, the newspaper said. RS 6.751 crore is not a small amount. But it's chickenfeed compared to ONGC and other oil and gas companies have spent (and wasted) in subsidies for fuel consumers in India under the UPA (more than 30 times the total mandatory CSR for India Inc., combined). So, in addition to cultivating a corporate conscience, what difference will it make to society?

# 3: excessive bureaucracy:to make directors accountable, new companies Bill mandates that every Director should register themselves with the Government and get a Director identification number (DIN). As UID, which should give every Indian citizen a unique identity and prevent fraud, DIN will allow the Government to control the number of directorships that any person holds, as well as its track record. Given India's track record, where bureaucratic monitoring of Corporate Affairs leads to corruption and bribery, as the Board of Directors will want to risk being on the watch list, the Government? DIN hold more competent people from holding directorships or encourage them?

# 4: women directors: it's important for corporate boards for gender diversity, but before that happens, the supply of women qualify for Board positions to be created. According to the rankings of women on the boards of GMI surveys 2013, even on the most well-known companies in the world, women make up only 11 percent of total directorships. In India, a sample of 89 companies with more than $ 1 billion in market valuation, women account for less than 7 per cent. And we are only talking about major companies here. Obviously will have to be made to create more women directors work, but before that there should be more women reaching the top of the corporate hierarchy. Legislation should serve as a catalyst for the empowerment of women, but the line may be years away.

# 5: class action suits. Perhaps the best new company position Bill is the inclusion of tort actions and class action lawsuits. If this provision was set in the year 2008, Satyam Indian shareholders to have filed a class action lawsuit against the company, or even the Rajus Mahindra-run, which took over Satyam's assets. Mahindra Satyam settled lawsuits in the United States and the UK, as these countries include class action suits, but in India the shareholders were left idle while foreign shareholders were returned.

This cannot happen in the future, but the question is whether the shareholders of public companies can sue the Government for crushing the minority interests. It is worth recalling that coal India was sued by a shareholder (the children's investment fund) for the next Government diktat to lower coal prices in the year 2012. There are ample opportunities for claims against ONGC oil India, GAYLE, who are subsidizing losses in oil marketing companies.

Class action suits should be filed before the Tribunal of the national company law for the first time, but banking companies are excluded from such action.

In the weeks ahead as companies pore over the fine print of the Bill, the more problems will surface. But now the best sum up this is: it's a good start, but as always, the proof of the pudding is in the eating.