At a time when every regulator and investor is beating the drum for greater transparency through disclosures and ministers are expressing concerns about obscene salaries, several companies are blatantly flouting disclosure requirements specified by the Companies Act, 1956. The Act, which outlines the regulatory and legal framework for companies in India, lays down specific guidelines regarding disclosures to be made by companies in their annual reports. One such guideline requires companies to disclose particulars of employees who draw a certain amount of salary (now Rs2 lakh per month) as an annexure to the director’s report. The disclosure includes the name, designation, qualification, experience and the name of the previous company where employed. The purpose is to enable shareholders of the company to know if salary is in fact commensurate with the experience and qualification of such employees.
However, several companies have decided to ignore this aspect and have not disclosed these details in their annual reports. These companies include ABG Shipyard, Aptech, Core Projects, Sterlite Industries, Mangalore Refineries and Petrochemicals Ltd and Network18, among others. In their defence, the companies are quoting a certain provision in the Companies Act and a SEBI circular to avoid the disclosure.
Section 217(2A) of the Companies Act makes it mandatory for every listed company to include in the director’s report a statement showing the name of every employee who is in receipt of remuneration (currently not less than Rs2 lakh) or which is in excess of that drawn by managing director or whole-time director or manager and holds by himself or along with his spouse and dependent children, not less than 2% of the equity of the company. The section also requires that the statement mention whether such person is a relative of any director or manager of the company and if so, the name of such director.
However, companies are skipping this section by taking recourse to Provisio (b)(iv) of Section 219(1) of the Companies Act and SEBI circular dated 26.04.2007 on sending abridged annual reports to the shareholders. The provision gives a listed company the option to send a statement containing salient features of balance sheet, profit and loss account and auditors’ report to the members of the company. The SEBI circular, in order to align Clause 32 of the Equity Listing Agreement with the provisions of Section 219(iv) made an amendment in the clause to permit listed companies to send a statement containing salient features of the above documents instead of sending full balance sheet and annual report. Using these legal aspects to their advantage, companies are not sending the required list of employees along with the annual report and are instead asking shareholders to write back to them in case they need the list.
This amounts to going against the Act as it supersedes all other enactments. Also, there is no way a company can abridge its director’s report or any of its annexures as it is dealt with a separate section (section 217 and not Section 219). Nowhere in the SEBI circular is there any clause which gives a listed company an option not to send the list of employees covered under section 217(2A) which is a part of the director’s report.
These companies should take a leaf out of the book of corporate governance biggies like Infosys Technologies and Tata Group of companies, who have set a good example by regularly making necessary disclosures in their annual reports.