DISCRETIONARY POWERS IN 3/4TH OF CLAUSES IN COMPANIES BILL,2012

Even as it pushes for greater simplicity, disclosures and accountability, the new compendium of laws to govern companies in India, currently in the making, bestows greater discretionary powers on the government of the day to change the rules. The source of these discretionary powers is in an innocuous legal phrase that appears in 346 of the 470 clauses, or 74%, in the Companies Bill, 2012: “as may be prescribed”. This is a marked increase, in absolute and relative terms, over the current Companies Act 1956, where this phrase appears in 108 of the 658 sections, or 16%.
What this phrase essentially means is the minister of corporate affairs (MCA) can alter the specifics of these laws without going through Parliament. 

 Terming the discretionary powers as ‘excessive’ in certain cases, Jamil Khatri, global head of KPMG’s accounting advisory services, cited two examples where it could have been avoided: auditor rotation and cash-flow statement. The proposed rules say firms have to change auditors after five years and disclose cashflow statements. But the rules don’t specify which companies (public limited, private, etc) have to do so. According to Sachin Pilot, minister of state (independent charge) of MCA, some latitude in the rules is needed as “we can’t legislate to all emerging situations”. Pilot pointed out how the concept of e-commerce did not exist when the current law was legislated.

The Companies Bill, 2012, was passed by the Lok Sabha in the last session of Parliament, in December 2012, and is currently pending in the Rajya Sabha.
Opinion is, divided among corporate practitioners on the need and implications of the recurring occurrence of this provision in the new rules. BP Inani, a chartered accountant with Swan Finance, a corporate finance and management consultancy firm, feels the rulemaking powers are not excessive. “In most of the clauses, it comes more as defining later than trying to impose authority,” he says. “Such parameters are dynamic and so the need to put this term.” According to the 2011-12 annual report of the MCA, a total of “30 notifications and 47 general circulars/press notes, simplifying the rules and procedures under the Companies Act, 1956, have been issued during the year”. 

“We cannot interpret this (the ‘as may be prescribed’ provision) as greater interference from bureaucrats, but as flexibility in the law to meet the changing corporate environment,” says Shriram Subramanian, founder and managing director of InGovern Research Services. “Of course, the flip side of this flexibility is the fear that various lobbies will put pressure to bring about subordinate legislation that protects their interests.” Pilot says he intends to address this concern in two ways: by involving practitioners in the decision-making process and by institutionalizing it. “The rulemaking process will be made more participative and transparent,” he says. “I am open to meeting all representatives. All their points of view will be taken into account so that it’s not seen as an opaque process.”
As part of this process, the minister says, MCA will put minutes of meetings on the ministry’s website and update the rulemaking progress. “I plan to institutionalize the process so that it’s not substituted by suo moto actions,” says  Pilot.
Accounting professionals feel that might not suffice. “The rules have to operate within a framework,” says N Venkatram, managing partner-audit, Deloitte Haskins & Sells. 

Sources:- The Economy Times