The Companies Law 2013 and the healthcare sector

Introduction:-

With the president Pranab Mukherjee giving his assent to the new companies’ bill, making it into a law, it provides for many changes in the way our companies will operate and be regulated. The new law reckons much needed changes to the 1956 legislation enacted for the same purpose as it reflects the need of the hour in terms of the changing face of the Indian industry. The next stage in the process after the parliamentary approval and the presidential assent is the process of making the rules of the new legislation, the draft of which the corporate affairs ministry is expected to roll out in a couple of weeks.
Though broadly speaking the impact of the new companies bill on sectors like manufacturing, retail, the services sector in general are usually discussed, the ramifications of this law on the healthcare and hospital sector in particular also would be worthy to take look at.

First and foremost, the question of its impact on the hospital sector becomes interesting because of the slow shift that we have been seeing in the nature of ownership of the hospitals. When the hospitals of the yesteryears were mostly charitable in nature and were not strictly under the purview of the companies’ law, but with the corporatization of the healthcare sector many of these institutions would now come under the ambit of this law. Having said this it now becomes pertinent for the healthcare managers to be aware of the new law. Let us look at some of the new features of this law.

Spending on Corporate Social Responsibility:-

This has been the most talked about topic in the new law. According to the law all corporate entities are supposed to spend 2% of its average net profits during the three preceding on CSR activities. The nature of these activities may be but not restricted to activities that help the immediate neighborhood. The CSR spending has been included to encourage the companies to create a positive impact on the immediate social fabric through their existence in the society; it would be interesting to note how the corporates view it. Though the views of some of the people in this regard seem to range from looking at this as a mere additional tax or even if in a lighter vein, it can be said that if a large industrial house is running a hospital that in itself become a CSR activity, however the essence of this new law is in the point of inclusive growth in the society in which we are serving and whose resources we are utilizing to survive. Whatever might be the different ways in which we look at it, we need to understand that, especially in case of a hospital that even when run on a purely business model it should be able to serve the community in which it is located irrespective of various financial and social barriers that limit the people from seeking treatment. With the advent of this new law let us hope that it becomes an opportunity for the healthcare providers to do this better than taking it to be a statutory burden.

Women Directors:-
The new companies’ law also stipulate that there must be at least one woman on the board of directors. The healthcare industry in India is also no exception to the “glass ceiling” phenomenon that is seen in other sectors. This is evident from the fact that tough there are a sizeable number of women in the both junior executive positions and clinical roles; the number becomes a handful when it comes to the CXO and directorial positions. At least till a point where this virtual ceiling is broken a statutory requirement would ensure that budding woman mangers wouldn't be demotivated by the inbuilt incongruities of the system.

Tighter statutory Control:-

The bitter experiences of the Satyam episode and the way in which the various investment banks in the west went belly up almost bringing the global economy to a meltdown, seems to have played its part in the formulation of the companies law as it tries to rope in many of those grey areas which let many such serious financial frauds to be overlooked, at least initially. One important thing that has been envisioned is the statutory recognition for the Serious Fraud Investigating Office (SFIO). This recognition would give more teeth to this authority to subdue erring originations right from the beginning rather than deal with them when things go awfully wrong.

Another among the reforms included the responsibilities of the auditor has been increased and this is done to take the process of audit beyond the levels of "reasonable assurance”. For this some measures like appointment of a single auditor for a period of 5 years has been included. It also stipulates that one auditor can audit a maximum of 20 companies and the inclusion of a clause for imprisonment up to one year for misleading statements etc. are all expected to bring in more accountable audit process. Other important feature has been the inclusion of the class action suites which enables even the small investors in the company to question the various policies and stopping their interests being hijacked just because of their minority value of stockholding. To top it all a separate national company law tribunal has been setup, which would now mean a more focused judicial process will follow the legislation.
The most direct impact of the above is going to be to the insurance sector. Insurance sector in India has been very keen to tap into a very large market primarily through their participations in the government schemes like the RSBY. In a way insurance is poised today is akin to the IT sector in India and the financial services growth in the USA and the pattern of development is indicative of a Damocles sword hanging, some of the evidence of which can be seen in the recent allegations against a major insurance company of having the government to cough up crores as premium for ghost beneficiaries. It is the right time to bring in such regulations to nip some of these nefarious tendencies in the bud.

For Entrepreneurs:-
One of the new features of this law that would be of interest for the upcoming entrepreneurs is that it allows for a one person company. This is a welcome move for the fact that healthcare has become one of the hotbeds for spurt in entrepreneurial activities using various IT platforms and solutions which essentially opens up the possibilities of one person companies to a greater extent than ever before.

Another feature of the new law, though a one which would be one of the worst nightmares for any entrepreneur to encounter is that the employer is supposed to pay all employees 2 years of salary in advance on winding up of operations.

Conclusion:-
Though the complete ramification of the new law can only be fully understood after the rules are framed and it is executed, but in a nutshell we can surely say that the new companies bill is a right step in fortifying the functioning of the corporates and making them more grounded into the society in which they are. But as with all the laws in India, the execution is where it falters, let us hope that this new law provides a framework for improvement of our corporate ecosystem and it gets adapted in both letter and spirit.

By - Vivin George

MHA-Hospital Administration
2012-2014 Batch
TISS, Mumbai