The Corporate Affairs Minister, Mr Salman Khurshid, on Wednesday said that the Companies Bill, 2009 will also have provisions for Class Action suits that will allow investors to seek compensations from companies. At a workshop to discuss the Bill, Mr Khurshid said, “Compensation cases in India are a long-drawn-out process, with few success stories. Within the current framework of the company law there is no provision for compensation for shareholders in the event of negligence or fraud being committed by company directors. We are trying to enable investors to file Class Action suits in India.”
However, he said that it has to be ensured that this facility is not misused. “A Class Action suit should be against the management of the company and the defaulters. It should not become an open invitation for people to wreck the functioning of the company.”Online GST Certification Course by TaxGuru & MSME- Click here to Join
Mr Khurshid added that the standards of compensation will not be laid down in the Bill, “It won’t be fair to import compensatory standards from the West. It will be a judicial process and the judiciary will decide on the compensation on a case-to-case basis.”
On whether the amendment will be retrospective, Mr Khurshid said that it won’t be fair to make it retrospective as it would look like the Government is going out of it way to help the Satyam shareholders affected by the scam. He said that the amendment will be prospective.
The Minister also stated that the Government is working towards restricting the board membership of independent directors. “We need to further restrict the number of directorships that an individual can hold. Also there has to be a familiarisation process for new directors to make them responsible for good corporate governance.”
Mr Khurshid said that while the number of directorships a person can hold should come down, there will also be an escape clause for exceptional cases based on performance. Also, there will be a sunset clause to allow individuals to give up directorships after 3-4 years of the rule.
Regarding the reports of Serious Fraud Investigation Office’s probe into mining firm Sesa Goa Ltd’s accounts, Mr Khurshid said, “There are certain procedures that are being followed. But we must find out if anything is wrong before making any accusations. I do not want to see the company’s shares tumble further based on speculations.”