DRAFT SUGGESTIONS TO AMEND COMPANY LAW TO SAVE CORPORATE ENVIRONMENT, email YOUR SUGGESTIONS to mca2051@gmail, [email protected] FACTS IN INDIA 1) In India, More than 90% of the total companies registered in India are small & medium size. 2) Majority of total small & medium private limited company & unlisted public ltd companies are just like the partnership firms incorporated by the family members & friends together. 3) The process of formation, maintenance of such companies should be simple & economical. 4) Kindly note that formation of companies has already decreased by at least 90% recently. 5) The complex process of raising capital, loan & high maintenance cost of these companies will further discourage the incorporation of companies in India. REQUIREMENT OF SMALL & MEDIUM SIZE COMPANIES i. The process of formation & maintenance of such companies should be simple & economical. ii. “Penal & prosecution” provisions should be separate for these small & medium size companies. iii. Penal & prosecution provisions has been inserted in the Companies Act,2013 taking into account ‘some violations’ made by ‘few big companies’ in past. iv. It will further improve the ranking of India in “ease of doing business”. PROBLEMS & SUGGESTION: A) Total penalty & prosecution under various Chapters: More than 90% of the total companies registered in India are small & medium size. Penal & prosecution provisions has been made taking into account ‘the few violations’ made by ‘few big companies’ in past. “Penal & prosecution” provisions should be separate for these small & medium size companies. This has destroyed the corporate environment. No one wants to form a company these days, which has been reflected in the decrease in no of new company formed by more than 95%. People want to liquidate their existing company. It is due to the disproportionate penal & prosecution provisions, which can create hardship in future. Let us take an example, A (P) Ltd with a total net worth of Rs. 5 Lakhs,is engaged in trading activities in a small town of Vednagar, Gujarat(birth place of narendra modi). Company has raised Rs 3 Lakhs under sec 42, but has violated provision of sec 42 by depositing cheque in same bank account, instead of opening separate bank account. Consequences: i. Minimum penalty to be levied is 2 crores ii. Prosecution provision is also attracted iii. Penalty to be levied is much more than the “total family assets”. iv. As penalty is mandatory, no court can levy penalty less than the minimum penalty prescribed. Under the companies Act, penalty was discretionary for most of the violations. However, scenario has been changed under the companies Act, 2013 where in most of the places penalty is mandatory. Let us take another example, suppose A (P) Ltd has not filled 4 resolutions required to be filled u/s 117. Consequences: i. Minimum penalty to be levied is Rs. 5 Lakhs for each default to company & Rs 1 Lakh to each officer in default [sec 117(2) & Sec 403(2)]. ii. Penalty to be levied is much more than the “total family assets”. iii. As penalty is mandatory, no court can levy penalty less than the minimum penalty prescribed. Under the companies Act, penalty was discretionary for most of the violations. However, scenario has been changed under the companies Act, 2013, where in most of the places, penalty is mandatory. Let us take another example, suppose A (P) Ltd has granted a loan of Rs 10,000 to its director . Consequences: i. Minimum penalty to be levied is Rs 5 Lakhs on the company & Rs 5 Lakhs on the director. Penalty can be extended upto Rs 25 Lakhs on each of company & director also. ii. Prosecution provision is also attracted. iii. Penalty to be levied is much more than the “total family assets”. iv. As penalty is mandatory, no court can levy penalty less than the minimum penalty prescribed. Under the companies Act, penalty was discretionary for most of the violations. However, scenario has been changed under the companies Act, 2013, where in most of the places penalty is mandatory. SUGGESTIONS: i. These companies (i.e. officer in default) should be exempted from prosecution provisions. ii. Total penalty leviable under companies Act for all the violations in a f.y. should not exceeds 10% of net worth of company. C) CHAPTER III, Part II: Section 42, Chapter IV, clause (c) of sub-section (1) of section 62 1) Requirement of “Valuation of Shares” & “Special resolution” seems to be create additional hardship & is almost impracticable for small private Ltd Cos & small unlisted public Ltd companies 2) These companies usually receive the money only from closely held companies & related persons. 3) Such requirements will unnecessary increase their cost of raising capital & further complex the process to raise capital. 4) These will discourage the process of formation of companies in India. Suggestion: 1) It is suggested to exempt total issue of equity shares upto Rs. 5 crores in a f.y. from the requirement of valuation of shares for Pvt Ltd & unlisted public Ltd companies. 2) It is also suggested to exempt total issue of equity shares upto Rs. 1 crores in a f.y. from the requirement of special resolution for Pvt Ltd & unlisted public Ltd companies. D) Chapter XII, section 185: 1) In private limited & unlisted public companies, shareholders are mostly closely held group companies also. 2) It is difficult to find a company without corporate shareholdings. 3) Hence, draft exemption notification is not expected to relax these companies. Suggestion : Sec 185 should not be applicable for companies having for paid up capital upto 50 crores. E) Chapter V, sub-section (2) of section 73: Suggestion: Banks also allow their clients to borrow until they maintain debt equity ratio of 2:1. Private companies are solely dependent on their shareholders and directors for their business financial needs. It is not always possible or advisable to approach banks etc. for their day-to-day financial requirements. Small & medium size companies practically receives loan from its members to a large extent. Suggestion : Borrowing from members should be allowed upto twice of Net worth, specially for Small & medium size companies. ALSO EMAIL YOUR SUGGESTIONS TO MCA [email protected], [email protected], [email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],mca2051@gmail,[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected],[email protected], balramprasadbimal@yahoo, [email protected]
Posted on: Tue, 09 Dec 2014 09:19:17 +0000
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