On reform of Companies Act 1994
The beginning of last month saw the first of its kind “Corporate and Commercial Law Conference 2018” in Bangladesh organised by Think Legal Bangladesh, an online legal resource platform. One of the panel discussions on "Company Law: The need for reforming the Companies Act, 1994” focused on high level concerns with the Companies Act and possible reform. The discussion was moderated by Barrister Rashna Imam, Advocate of the Supreme Court of Bangladesh. The panel comprised of Honourable Dr. Justice Syed Refaat Ahmed, Judge, High Court Division of the Supreme Court of Bangladesh; Barrister Fida M Kamal, Senior Advocate of the Supreme Court; and Sheikh Fazle Fahim, Senior Vice President, FBCCI.
The session began with a keynote presentation by Barrister Margub Kabir, Senior Associate, Huq & Company highlighting the inadequacies of the Act and suggesting reform.
Barrister Imam initiated the panel discussion by posing the questions on colossal backlog of cases in the Company Bench of the High Court, barriers to accessing statutory remedies for minority shareholders, need for improving accountability of directors and auditors, adequacy of the investigation powers under the existing Act and the complete lack of regulatory guidelines on mergers and acquisitions (M&A).
Mr. Fahim, who sits in the Arbitration Tribunal of FBCCI, suggested that parties should be encouraged to resolve their disputes through Alternative Dispute Resolution mechanisms, such as arbitration. He felt a clear need to minimise matters requiring permission from the High Court, e.g. amendment of objects clause, and recommended empowering the Registrar or the company itself in this regard. On directors' duties, he recommended a clear delineation of the duties and accompanying penal consequences of breach in the existing Act to improve accountability.
On M&A, the panel discussion benefitted tremendously from the inputs of Justice Ahmed, author of the two landmark judgments sanctioning the Robi-Airtel merger and the intra group merger of the four entities of the Summit Group under sections 228 and 229 of the existing Act. When Barrister Imam asked him about the challenges he faced in view of little to no regulatory guidelines on M&A, he stated that “these judgments are harbingers of the complexities with which the judiciary has to deal with in view of the legislative vaccum, and a wake-up call for the legislature”. When asked of the specific challenges he faced in each of these mergers, he mentioned, among others, the absence of a benchmark against which a proposed M&A may be evaluated, the lack of statutorily endorsed objective standards against which the sufficiency of a mode of valuation of the shares may be gauged and lack of statutory guidelines on the need for an independent audit exercise. To tackle the challenges, he had to rely on foreign decisions, draw analogies and resort to the court's inherent jurisdiction to devise ways and means to consider the interests of various stakeholders. While the judgments certainly go a long way in common law innovation, he stated that they are equally stark reminders of the limitations to common law jurisdictions, absence statutory standards and guidelines.
Barrister M Kamal, when asked about the barriers to accessing the statutory remedy under section 233 for aggrieved minority shareholders (since only shareholders holding 10% or more are eligible to apply), stated that there is justification for a minimum threshold as only shareholders with sufficient financial interest in the company should be able to apply for relief and second guess decisions of directors. However, he continued, in exceptional circumstances, if they make out a case of prejudice, the court may waive the minimum threshold as allowed under the Indian Companies Act 2013. While answering a question on whether the investigative regime under the Companies Act is required to be strengthened in the wake of financial scandals like that of the Destiny group, he felt that the current regime is sufficient. The problem, according to him, lies in enforcement. On a general note he stressed the urgent need to update the existing Act by inserting provisions that enable the use of technology and imposing heftier penalties on directors and auditors.
The writer is an Associate, Akhtar Imam & Associates.