Companies Bill to be more flexible; SMEs worried

The Hindu Business Line,

In a bid to make the Companies Bill more lean and flexible, it will be stripped of all detail, which may be separately inserted under the heading – Rules.

The bulk of the Bill is being taken to the Rules, to enable quick amendments through notifications without going to Parliament.

“The procedures will be in the rule as always,” said an official of the Ministry of Corporate Affairs.

“Any amendment in the Act, i.e. law, is a complicated task as it requires Parliamentary approval, whereas Rules can be amended by the Government at any time through official notifications. Hence, it was preferred to avoid giving details in the Act,” said Mr Pavan Kumar Vijay, Managing Director of Delhi-based consultancy, Corporate Professionals.
While industry welcomed the move, they cautioned against pushing through of misplaced legislation, especially the medium and small and micro enterprises (MSMEs).

“The Government will have the flexibility to listen to different associations from time to time but there is a danger of it becoming a victim in the hands of big companies. For small companies whose lobbies are too small to be heard, it does not provide a level playing field,” said Mr Dinesh Agarwal, Founder and Chief Executive Officer, Indiamart.com.

Mr Sanjay Nagi, Managing Director, Market Insight Consultants, said this may lead to misinterpretation and breed corruption.
“If rules and laws are ambiguous then they are open to interpretation. The Government does not understand the SME sector’s concerns. They are doing away with protectionism and moving ahead with the times, but they are doing it without understanding the needs of the sector. There is a huge contradiction in policy making,” said Mr Nagi.

Mr Ashish Patni, Proprietor, Vidarbha Plastics Co, said that while the ‘rules’ would be a handy tool in the hands of the lawmaker, it was welcome if it cut down red tape. But since it will not be debated in Parliament, there is a danger that rules that are not good for small companies might be easily pushed through, he said.

Calling this change contemporary, Mr Sidharth Birla, Chairman, Corporate Law Committee, FICCI, said that the underlying logic seemed quite sound in a dynamic scenario where course corrections often have to be made without changing the underlying legal provisions (which then becomes a subject for the Parliament).

“The one thing we need to observe as time goes by is that rules be tweaked for substantive purposes rather than to just tweak them disruptively or simply because it is now easier to do so,” he cautioned.

Ms Susmita Shekhar, Secretary General, PHD Chamber, welcomed the move and said small companies needn’t worry about the change as the provision of one-man company and conversion into Limited Liability Partnership provide support to the smaller company.