Task force for protection of minority shareholders

By Our Legal Correspondent

NEW DELHI, DEC. 28. The task force on corporate excellence on a sustained basis to sharpen India's global competitive edge has recommended the introduction of the concept of `interested shareholders' in the scheme of voting on resolutions by shareholders.

In its report, the task force, headed by Mr. S. Rajagopalan, former chairman of Mahanagar Telephone Nigam (MTNL), has said that the basic character of the joint stock corporation where voting rights are proportionate to the voting capital held should be retained. However, the proposed `interested shareholders' concept would require all shareholders requiring individually or in groups or categories benefiting from a proposed resolution to the exclusion of other shareholders, to abstain from voting on such resolutions.

Elaborating further, the report said that to ensure that this provision was not abused by a handful of vested interests, its operation should be limited to specific matters such as selective preferential issues of equity shares, setting up competing ventures and buy-back of shares where a majority or dominant shareholder group stands to benefit.

The report said that these provisions should be made applicable to cases where the `interested shareholders' constitute 76 per cent or less of the total shareholding by par value.

To ensure transparency in the working of the companies, the task force has favoured that the annual reports of listed companies should disclose whether any agreement existed between dominant or controlling shareholder groups the benefits of which would not be available to all the shareholders.

The task force has suggested that a wholetime or managing director of a listed company should be disqualified for appointment for three years if the listed company was categorised as a defaulting company by the proposed National Listing Authority or the Securities and Exchange Board of India or designated stock exchanges.

According to the panel good corporate governance required a continuing effort at self evaluation and improvement and there was need for companies to undertake a periodic corporate health check either internally or with professional help to ensure that there was adequate and early diagnosis of symptoms leading to a quest for improvement. Corporate governance insofar as it reflected the responsibility of the board of directors must not only be effective but also non-invasive.

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Section  : Business
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