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BW Businessworld

Slew Of Exemptions Come In For Govt Companies

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The move is aimed at shielding government companies from strict provisions of new Companies Act, 2013

After waiting for almost two years, now most of the Government owned companies have been granted a slew of exemptions under the new Companies Act, 2013. While many of the exemptions are copied from the old Companies Act 1956, there are some noticeable new exemptions too.

For example, the Government companies are now not required to specify the policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters which are otherwise applicable to all companies. Also, there is no restriction on the number of directors a Government company can have. For non-Government companies, the new company laws caps the number of directors to a maximum of 15. Of course, non-Government companies can add directors beyond the 15 by passing a special resolution, which then will have to be communicated to the government.

The Government companies will also be exempted from provisions relating to proportional representation for appointment of directors on the Board. Non-Government companies have to have proportional representations of directors on their respective board.

A Government company is also not required to comply with provisions of section 196 dealing with the restriction on appointing or re-appointing any person as its managing director, whole-time director or manager for a term exceeding five years at a time.

A Government company is also exempted of provisions which specify limits for overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits. This is not the case for non-Government companies.
The provisions of Section 203 with respect to appointment of key managerial personnel, holding of office, period within which appointment to be made in case of vacation of office of key managerial personnel (KMP), will not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government company.

Section 185 prohibiting granting of loans to directors and to any other person in whom director is interested shall not apply to Government companies in case such company obtains approval before making any loan or giving any guarantee.

Another key exemption pertains to the provisions of related party transactions when a Government company is entering into contract or arrangement with another Government company. Section 188 of the new company laws prohibits companies from entering into related party transactions exceeding specified values without obtaining prior approval of shareholder and also restricts related party (who is a party to the contract) to abstain from voting.

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