The Working Group on the Companies Act, which recently submitted its report to the Finance Minister, was set up to recommend amendments in the companies Act to facilitate the economic liberalisation policy and grant greater maneuverability to the companies. However, the expert group has not touched the now ambiguous provision of Section 163(2) of the Companies Act which provides certain rights and privileges to the investors viz. share holders, debenture holders (which includes subscribers to Bonds).The above provision was probably introduced to provide a right to the share and debenture holders to inspect the register in order to see that their account was properly maintained by the company and principal/interest on the investment properly recorded. Besides, the investors could sought clarification from the company in case there was some discrepancy in their account.

Under Section 163(2) of the Companies Act, the registers, indexes, returns, and copies of certificates and other documents referred to in Sub-Sec. (1) of that Section are to be kept open during business hours to facilitate the inspection by any member or debenture-holder, or any other person on payment of the prescribed sum for each inspection and such member, debenture-holder or other person is allowed to make extracts from the register, index, or copy, without fee or additional fee. Refusal to allow inspection is punishable under sub-section (5) of Section 163.

The moot question is whether ``any other person'' includes all members of the public or is limited only to persons who have a statutory duty or a person in the course of performance of any duties or responsibilities in relation to the company, or a person authorised by a member or debenture holder. This Section does not provide for an explanation to the expression ``any other person''. Therefore, one has to go by the context in which the expression occurs in the section, with regard to the objects and purposes of the Act and the over-all principles of interests of the company, and interests of the share holders and public interest for interpreting the same. No court has a direct authority with regards to the interpretation of this provision. However, in a judgement rendered by the Bombay High Court in the case of Narotamdas T Toorani Vs Bombay dyeing and Mfg Co Ltd (1986), Justice Sujata Manohar (Now a Supreme Court Judge) held that the right of debenture holder of inspecting the company's records is ``extremely limited''. If that be so, any member of the public at large cannot claim the right of inspection unless he has an interest or a statutory duty to perform or is under an obligation, contractually or otherwise. In relation to the company for example, an official liquidator appointed by the Court of Law is neither a member nor a debenture-holder. He would come under ``any other person'' with a right to inspect the documents. Financial institutions and banks, which are connected with the company concerned would come under ``any other person''.

Therefore, it is necessary in the Act to provide for inspection by such persons. This is in consonance with the objects of the Act namely, to provide for the information to the Share-holders, debenture holders and other individuals with contractual or statutory obligation.

According to me, ``the other person'' which has been specified in the Companies Act must of those persons who are connected with the company by the Court of Law like liquidator, recovery officer etc. The framers of the Companies Act could not have imagined that ``any other person'' specified in the section is connected with the company as an investor, who can inspect the books of the company namely, the bonds registers and share registers.There is also a responsibility on the part of the company to maintain the confidentiality with regard to its investors like banks, who are obligated to maintain confidentiality with regard to the account of their customers. The company should not disclose the names of the share holders or bond holders or debenture holders to any other person other than to the concerned share holders, bond holders and debenture holders.

There is a possibility of this provision being misused by the contacting persons on the basis of the information provided by the company for their personal benefits. The share holders/bonds holders can also take the company to task for providing the information to the third person who in no way is connected to them. Recently, many of the professionals are carrying on the business of stock brokers and in order to develop their business, adopts this easy method to get information about the investors, their addresses and their investment in the company by quoting the above provision which the company cannot deny as per the existing provisions of the Companies Act.

It is therefore, necessary for the authorities concerned to take a re-look and necessary explanation should be made, indicating in the Act itself the definition of ``other person'' clearly, by which any ambiguity in the interpretation of the provision can be avoided. This will protect both the investors and the company from being exploited by persons not connected with them.-S Sundereshan,Director (Finance), Hudco

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.