The Companies Act 2013 provides Board Evaluation. Most Indian Companies will carry out the exercise for the first time. Kindly go through the article appeared in Business Standard
| Board evaluation — Is the law misleading? |
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Most Indian companies will carry out the exercise for the first time, as the Companies Act 2013 ( Act) mandates board evaluation. The Act does not prescribe any specific method for evaluating the board. However, the provisions have been constructed in such a manner that compliance of the law to the letter might have significant dysfunctional effects. Board evaluation is an elaborate process. Pre- evaluation process involves deciding the objective, criteria and method for evaluating the board. The board decides all those with inputs from the CEO. The most common evaluation method is to collect data by analysing governance documents ( e. g., agenda and minutes), surveying directors through a questionnaire and interviewing directors. The data so collected is analysed and a report is presented for discussion before the full board. Performance of individual directors is assessed through self- assessment and interview. Feedback is provided to each director on aone- to- one basis. Usually, the chairperson of the Nomination Committee or the lead independent director supervises the whole process, interviews individual directors, provides feedback to each director and presents the report before the full board. Confidentiality is the hallmark of the evaluation process. Therefore, names of individuals are removed from all documents while collating and analysing the data. The Act mandates that independent directors will meet separately at least once a year to review the performance of non- independent directors and the board as a whole; and to review the performance of the chairperson of the company, taking into account the views of executive directors and non- executive directors. Evaluation of the board and non- independent directors just by meeting once without getting into an elaborate exercise will only be an informal evaluation. This is not the intention of the law. The Act requires the board to disclose in its report the manner in which the board has made formal annual evaluation of its own performance and of its committees, and individual directors. Therefore, independent directors will have to formally evaluate the board and non- independent directors. They may finalise the draft report in the separate meeting. Although, the law is silent on how the result of evaluation will be used, the draft report should be discussed with the full board to decide the actions for improving board effectiveness. Independent directors should involve the CEO and the full board in deciding the objective, criteria and method of evaluation. It will be a grave error to exclude non- independent directors from the whole process. They should consider the views of nonindependent directors in board evaluation. There is some strength in the argument that inclusion of the views of non- independent directors in board evaluation will distort the result, as non- independent directors might not be able to provide an honest feedback. But exclusion of non- independent directors from the whole exercise will have huge dysfunctional effects. This will politically divide the Board. The board cohesiveness will be lost. The whole exercise will be a waste. The Act requires the board to evaluate independent directors. It is problematic. Open discussion of individual performance in the Board breaches the principle of confidentiality. It also fails to achieve the purpose of providing an honest feedback to each director to enable him to improve his performance. Discussion of report cards of individual directors with the full board is likely to be resented by directors and might drive away good directors. The best practice is to use self- assessment and interview method to assess individual performance and to provide feedback to each director (independent or non- independent) on a one- to- one basis. The reports of independent directors should be submitted to the chairperson of the Nomination and Remuneration Committee. It should consider the same while deciding the continuation of the independent director as a board member. The Act requires that Nomination and Remuneration Committee of the Board to carry out evaluation of every director's performance. The law is not clear about the role of the Committee, as the law requires the board to evaluate independent directors; and independent directors, in a separate meeting, to evaluate non- independent directors. I suggest that the Committee should take the responsibility for the whole board evaluation exercise. Complying the law to the letter will have huge dysfunctional effects. Boards should comply with the law in spirit. They should adopt the global best practices. Ioften face a question on whether the board evaluation and evaluation of individual directors will be meaningful in government companies and promoter- driven companies. Ihold the view that boards and directors in those companies will receive valuable feedback from a serious evaluation exercise even though the controlling shareholder ( government or promoter) plays an important role in appointing directors and strategic decisions are taken at forums other than the board. Only rubber stamp boards will not benefit from the exercise. Professor and Head, School of Corporate Governance and Public Policy, Indian Institute of Corporate Affairs; Advisor (Advanced Studies), Institute of Cost Accountants of India; Chairman, Riverside Management Academy Private Limited E- mail: asish. bhattacharyya@ gmail. com There is strength in the argument that inclusion of non- independent directors views in board evaluation will distort the result ACCOUNTANCY ASISH K BHATTACHARYYA |
Row over old and new provisions
Important judgement by Hon'ble Supreme Court about old and new provisions. According to the judgment that all pending disputes has to follow old provisions. The judgement based on General clauses Act which provides that " General Clauses Act also asserts that the amendment of a statute which is not retrospective in operation does not affect pending proceeding, except where the amending provision expressly or by necessary intendment provides otherwise."
" a law which brought about a change in the forum would not affect pending actions, unless the intention to the contrary was clearly shown. Since the amending provision does not so envisage, it has to be concluded that the pending appeals would not be affected in any manner.
| BRIEF CASEN M J ANTONY |
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When a law is amended, litigation which started earlier is usually caught midway between the old and the new provisions. Each contending party invokes the provision that is convenient to it. This starts another round of arguments which often reach the Supreme Court. One such dispute was decided last week in the case, Videocon International Ltd vs SEBI. The Sebi Act was amended in 2002 to specify that the appeal from Securities Appellate Tribunal shall lie to the Supreme Court and not the high court. Also, the new provision stated that appeals can be moved only on questions of law and not on facts. Videocon was adversely affected by an order of the Bombay high court in its appeal from the tribunal. Therefore, it appealed to the Supreme Court arguing that the high court had lost jurisdiction after the amendment. The high court rejected it and held the appeal of the board was maintainable. The Supreme Court dismissed the company's appeal stating that " a law which brought about a change in the forum would not affect pending actions, unless the intention to the contrary was clearly shown. Since the amending provision does not so envisage, it has to be concluded that the pending appeals would not be affected in any manner." Moreover, the General Clauses Act also asserts that the amendment of a statute which is not retrospective in operation does not affect pending proceeding, except where the amending provision expressly or by necessary intendment provides otherwise." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Liquidator to pay tax on sale of assets Official liquidator of a wound- up company has to act as a " dealer" and pay trade taxes in some cases, the Supreme Court ruled last week in an appeal from Kerala. In this case, Assistant Commissioner vs Hindustan Urban Infrastructure Ltd, the official liquidator ( OL) was appointed by the high court after the Board for Industrial and Financial Reconstruction recommended the winding up of Premier Cable Ltd. The OL invited tenders for sale of the assets of the company. Hindustan Urban firm was the successful bidder. Later a dispute arose over who would take the liability of sales tax and other levies on the sale of assets. The high court held that the OL could not be treated as a dealer and asked to pay the duties. The revenue authorities appealed to the Supreme Court arguing that OL should be deemed to be a dealer under the Kerala law. The Supreme Court ruled that an OL acted on behalf of the company in liquidation and he is appointed by and under the control of the court while discharging his duties. Allowing the appeal, the court held that the OL must bear the tax burden as " a manager or receiver of the property". >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> More compensation with each appeal The Supreme Court last week asked the insurance company to pay enhanced compensation of ₹ 24.25 lakh for the death on the road of a young manager of HDFC Bank. The Motor Accident Claims Tribunal in Ratlam had awarded ₹ 12 lakh, which was raised by ₹ 2 lakh in the appeal to the Madhya Pradesh high court. However, on further appeal in the case, Kanhsingh vs Tukaram, the Supreme Court ruled that both the courts below wrongly calculated the loss of income suffered by the parents, who filed the claim. They did not consider the house rent allowance, medical and other welfare benefits, apart from the prospects of rise in the career of the 27- year- old victim who could have served at least 35 years more. Further, the funeral expenses were raised from ₹ 2,000 to ₹ 25,000 and the compensation under the head "loss of love and affection" was raised from ₹ 30,000 to ₹ 1 lakh. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Thumbs up for workers At a time when there are allegations that labour law is being diluted, the Supreme Court has asserted that the welfare laws in line with the Directive Principles of State Policy must be interpreted in a liberal way. In two judgments last week, this aspect was discussed. In the case, Jasmer Singh vs State of Haryana, a worker who was employed for more than 240 days was dismissed without notice and denied retrenchment compensation. He moved the labour court which ordered his reinstatement with continuity and back wages. The high court set aside the appeal of the state government. The worker appealed to the Supreme Court. It restored the order of the labour court. In the second case, KVS Ram vs Bangalore Metropolitan Transport, an employee was dismissed for misdemeanor after holding inquiry for 12 years. The labour court ordered the management to reinstate him with continuity of service. The Karnataka high court set aside the order. But the Supreme Court allowed the appeal of the worker and restored the order of the labour court. In both judgments, it emphasized that social and economic justice is a " living concept of revolutionary import in a welfare state." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Hybrid seeds firms lose IPR case The Delhi High Court has dismissed a batch of writ petitions moved by hybrid seed companies which had challenged a 2012 order passed by the Registrar, Protection of Plant Varieties and Farmers Rights Authority holding that parent lines of known hybrid varieties could not be registered as "new" plant varieties under the Protection of Plant Varieties and Farmers Rights Act. The authority had held that if the hybrid falls under the category of extant variety about which there is common knowledge then its parental lines cannot be treated as novel. Five companies, namely Bayer Bioscience Ltd, Monsato Holdings Ltd, Sungro Seeds Ltd, Maharashtra Hybrid Seed Ltd and DCM Shriram Consolidated Ltd had argued that the hybrid seeds, obtained from crossing the parental lines, are distinct in traits and characteristics from the parent lines and could not be considered as propagating or harvested material of the parental line varieties. The judgment stated that Section 15( 3) of the Act would indicate that if the seeds of parent lines have been commercially sold, the breeders cannot claim the parent lines to be novel. The legislative intent of the Act is to protect the intellectual property rights of the farmers and plant breeders as India had ratified the TRIPS agreement. |
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