Editorial
Proposed amendments to Companies Act
Drawing flak from far and wide
It is little wonder that the government's plans to amend the Companies Act 1994 to enable it to appoint administrators to run so-called troubled companies have run into rough water. Apart from business establishments, eminent lawyers too have questioned the legality of such a move. From what has been reported in the press, we understand that such a move would violate two articles of the constitution. Furthermore, what has come to light is that there is no need to amend the Act since there are provisions that exist under the law allowing for administrators to step in through direction of the court.
It is interesting to note that the government at present is in the process of formulating a new law, the Companies Act, 2012 where there is no provision for government-appointed administrators to take control of private businesses. When the new law is ratified, the old one, i.e. Companies Act 1994 is automatically invalidated. In that case, why on earth is so much fuss being made on amending it in the first place? Leaving aside the legalities, the only plausible explanation for such a move is, as pointed out by this paper earlier, is political leverage on business entities and a direct infringement on private property.
The government's pretext for the proposed changes revolves around the irregularities multilevel companies are engaged in. In that case, would it not make more sense to bring in separate legislature to tackle these swindling companies? It is not surprising to see that the commerce ministry has not received an iota of support from a broad spectrum of interests including business houses, industrialists, legal experts, Chartered Accountant firms and policy watch think-tanks. We are left at a crossroads since despite vehement opposition from all quarters; the government is yet to give a decision on scrapping proposed changes. We cannot emphasize enough that such a move would send out absolutely the wrong signal to private sector as a whole. It would further serve as a nail in the coffin for future foreign investment in the country, investment that is sorely needed in infrastructure and energy sectors.
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