Source Times of India and Business standard updates *Source Times of india* *timesofindia.indiatimes/Business/India-Business/India-Inc-wants-new-Companies-Act-overhauled/articleshow/36628714.cms * India Inc wants new Companies Act overhauled [image: timesofindia.indiatimes/photo/5778683.cms] Sidhartha , TNN | Jun 16, 2014, 04.29AM IST NEW DELHI: Meeting the mandatory 2% corporate social responsibility (CSR) spend is proving to be a headache for some large public sector undertakings ( PSUs ), given the large sums involved. For instance, 2% of ONGCs net profit translates into close to Rs 450 crore for CSR, around Rs 350 crore for Indian Oil and over Rs 50 crore for SAIL. It has led to the rise of a new class of consultants, who are advising companies on how to spend the money. Suddenly, some NGOs have cropped up, said a senior PSU executive, referring to the stipulation in the new Companies Act. For several large corporate houses, which have traditionally spent funds on building and running hospitals or schools through trusts, it means a complete overhaul of the spending pattern as companies have to do it directly. A top executive at a conglomerate, which has interests across sectors, said the groups IT company is the only one which does not meet the 2% spending requirement but the restrictive rules are not making life easy. As the implementation of the new Companies Act kicks in, CSR is only a small worry for most companies as India Inc is now waking up to issues that threaten its day-to-day operations. Some go to the extent of demanding a repeal of the law. The government needs to consider doing away with the entire law given that it has so many holes that it will be difficult to repair it, and replace it urgently by a well-drafted law prepared in consultation with private practitioners. he current law has done long-term damage to India Inc though it has a few good concepts albeit badly drafted. The new Companies Act will have a material impact on ease of doing business, said corporate lawyer Cyril Shroff. There are so many concerns that industry chamber CIIs representation exceeds 60 pages. The problems start with registering a new company and lawyers say that instead of a few days, it will it take weeks to register one now. Similarly, the government wants companies to begin their accounting year from April 1, unless they can get an exemption from the National Company Law Tribunal. But the government is yet to constitute the tribuna l. There are others related to fund-raising, since the new law requires companies to set aside 50% of the money raised into a debenture redemption reserve. This will mean that if companies need Rs 500 crore, they actually need to raise Rs 1,000 crore as half the money is set aside. It will raise borrowings costs significantly, said an investment banker. There are several other clauses, ranging from a more time-consuming process for issuing debentures. In its bid to crack down on inter-corporate loans, the government has introduced provisions that are tough to comply with or raise the cost significantly. There are several problems. There are issues where there is a lack of clarity, there are those where additional time for compliance is required and there are others where the government has tried to deal with the problems through the rules but has ended up with a situation where the rules override the provisions of the Act, said Sai Venkateshwaran, partner and India head of accounting advisory services at consulting firm KPMG . The biggest concern is about directors, right from who can be on a company board. Then, there are issues such restriction on independent directors being on the holding company and the subsidiary. The law also provides that at least one director has to be in India for not less than 182 days, which can be tricky in private and foreign companies. The new law also prescribed that an independent director should have no pecuniary relationship with the company, which CII has said lacks clarity as purchase of soap from a FMCG company by an independent director on its board can be interpreted to mean deriving pecuniary benefit. Even the mandatory appointment of at least one woman director is seen as a problem, and companies have sought to overcome it by appointing the promoters family member. There is a huge shortage of independent directors as all companies, listed or unlisted, need them. And, given the responsibilities thrust upon them, not everyone wants to be an independent director, said a leading investment banker, who did not wish to be identified. There is much more responsibility on auditors, including what Venkateshwaran describes as going past the audit mandate and is beyond their capability. For instance, the auditor now has to look at the managements decision making. Even some aspects dealing with M&As are going to be affected, said Amrish Shah, transaction leader at Ernst & Young. For instance, the law restricts merger of companies from some foreign jurisdiction with Indian companies. The fear is a company in a tax haven may not be allowed to be merged with an Indian company. The government is yet to notify these jurisdictions but it is tough to understand why this kind of a provision is required, he says. Source Business Standard *India Inc set to get more leeway on stock options* SAMIE MODAK & SACHIN P MAMPATTA Mumbai, 15 June The Securities and Exchange Board of India ( Sebi) will soon review the norms governing issue of employee stock ownership plan ( esops) to provide India Inc more flexibility in rewarding staffers. The regulator plans to again allow companies, specifically those with low promoter holding, to purchase shares from the secondary market for issuing esops. The matter is likely to come up for consideration at Sebi’s board meeting on Thursday. The move is aimed at helping those promoters that hold around 26 per cent stakes in their respective companies and run the risk of losing control if they issue stock options under the current guidelines. Last year, Sebi had banned issue of esops through secondary- market purchase of shares and asked companies to, instead, issue fresh equity. At present, there are nearly 100 companies with promoter holding between 26 per cent and 28 per cent. Promoters of these companies potentially face loss of control if they issue shares to employees. “A lot of companies want to reward their shareholders by issuing esops. However, companies with promoter holding of around 26 per cent aren’t able to do so, as there are fears of loss of control. We will soon take steps to address this issue,” said a senior Sebi official. Promoter holding of at least 26 per cent is significant from the new Companies Act perspective, which requires the assent of at least 75 per cent of shareholders for a special resolution to pass. If someone holds a 26 per cent stake, he can effectively block such resolutions. Special resolutions can be used for making fundamental changes to the company, such as changing its Articles of Association or even winding- up operations. Last January, Sebi’s notification barring employee welfare trusts from acquiring shares from the secondary market and directing existing schemes to realign with the new guidelines had created a lot of flutter among listed companies. Daksha Baxi, executive director, Khaitan & Company, suggested the regulator could bring rules to limit purchases. “If the esops were to be met through fresh issue of shares, it would lead to dilution of stake of all shareholders... The regulator could put in place checks and balances for permitting such acquisitions. These could include setting an upper limit for shares that such trusts could acquire from the market, a requirement that the shares held by the trusts should be backed by an incentive scheme within a short period of time, say one or two years, etc,” she said. Internationally, companies are allowed to issue esops through secondarymarket purchases but Sebi had banned such a practice after it came to light that a lot of companies were using these to manipulate share prices. Rajesh Srinivasan, partner, Deloitte Haskins & Sells, says allowing secondarymarket purchases with appropriate checks and balances will be advantageous for both companies and their promoters. Turn to Page 5 > Firms with low promoter holding may get to buy shares from secondary market MORE OPTIONS *Sebi might again allow secondarymarket purchase of shares for issue of employee stock options *Relaxation could be given to companies in which promoters have low holding and run the risk of losing control *Sebi had last year banned openmarket purchase for issue of esops and directed companies to issue fresh shares instead *Esop- issuing companies with promoter holding of around 26% were hit by the new norm *Relaxation likely at Sebi’s board meeting scheduled for Thursday *Nearly 100 companies are likely to benefit from the relaxation ------------------------------ *Click here to read more...Turn to Page 5 >* *Click: Article continued from…India Inc set to get more* * ------------------------------ * *India Inc set ...* * >FROM PAGE 1* *“An esop transaction dilutes promoter stake if it happens through fresh issue of shares. A secondary- market transaction could help avoid that. Also, if an esop granted is through an actual cash transaction, it is easier from a the taxation perspective to deduct it as an expense. A fresh issue is considered anotional expense and has been challenged at times by the tax authorities,” he says.* *“On the other hand, the cost could also be significant for companies, as operations in the secondary market result in cash outflows, as opposed to fresh issue where there is no cash transaction,” Srinivasan adds.* *Some experts believe, the capital market regulator should entirely lift the ban on secondary- market purchases, rather than looking to create an elbow room through exceptions.* *“If Sebi plans to allow secondary- market purchases, it should allow all companies. It shouldn’t bother about companies with low promoter holding. If these companies wish to reward their employees, they can do so by giving monetary compensation or promoters can put in money to prevent dilution,” says Shriram Subramanian, managing director of Ingovern, a corporate governance advisory firm.* *In November last year, in a discussion paper to completely review norms governing employee benefit schemes, Sebi had proposed allowing secondary- market purchases through the trust route. The regulator is yet to take a final call on the consultation paper.* *Rajasthan eases labour laws ahead of infrastructure boom* SAHIL MAKKAR Jaipur, 15 June On June 4, Ratan Tata, chairman emeritus of Tata Sons, met the newly elected Rajasthan government officials, to explore investment opportunities. The next day, Rajasthan announced proposals to amend the Industrial Disputes Act, 1947, the Factories Act, 1948, and the Contract Labour Act, 1970. The incidents are not linked but signal a shift in the state government’s approach to attracting investments. The proposed labour reforms will benefit 18 companies ( see box), which have or are investing ₹ 34,380 crore in several projects across Rajasthan. These investments are taking place under a new Bharatiya Janata Party (BJP) dispensation that won 163 of 200 seats in December’s Assembly elections. “Rajasthan is trying to project itself as an investor- friendly state and has decided to join competition with Gujarat. The other side of the coin is that chief minister Vasundhara Raje wants to outperform other BJP chief ministers and grow in stature among the party rank and file,” says a secretary in the state government who does not wish to be named. Also, Rajasthan is expected to witness an infrastructure boom because of the DelhiMumbai section of the Golden Quadrilateral highway project, the proposed Dedicated Freight Corridor ( DFC) and the Delhi- Mumbai Industrial Corridor. Almost 40 per cent of the DFC passes through Rajasthan. After the Japanese interest in Neemrana, the Koreans are exploring opportunities in the area. Raje could not be reached for comment. Since the formation of the Narendra Modi– led National Democratic Alliance government at the Centre in May, there has been a surge of industrialists scouting various Rajasthan cities and government departments. These visitors include representatives from Saint Gobain, Hero, Honda and Lafarge, which is setting up a ₹ 1,600crore plant at Nimbahera in Chittorgarh district that will employ 350 people. Cyrus Mistry, Tata group chairman, met Raje afew months ago and, according to newspaper reports, his group is likely to invest in solar energy. Tata expressed interest in the health and social sectors. “Does anyone remember when Tata last visited Rajasthan? It is definitely a good sign,” says Gulab Chand Kataria, a senior cabinet minister in Raje’s government. Highly placed government sources said in February, a month before the model code of conduct for the Lok Sabha elections came into force, the state government showed unprecedented haste in clearing projects worth ₹ 400 crore. “The labour reforms are intended to increase investment in the state,” says Giri Raj Singh, principal secretary, labour and employment. Around 17,000 labour disputes are pending before various forums in the state. “ The biggest problem industries, especially medium enterprises, face is closure of unprofitable units. This will spell a big relief for many industrialists,” Singh adds. According to the Industrial Disputes Act, 1947, an organisation cannot retrench more than 100 employees without permission of the state government.. The Rajasthan cabinet has proposed to increase the floor to 300 employees, subject to approval in the Assembly during its budget session next month and President Pranab Mukherjee’s nod as the law falls under the concurrent list of the Constitution. The Factories Act, 1948, and the Contract Labour Act, 1970, too, are sought to be diluted in favour of industry. The move has not gone down well with employee unions, which are awaiting official word from the state government. Mahesh Vyas, president of the Rajasthan Joint Employees and Mazdoor Sangh, says, “ The owners can now hire and fire workers. Workers will lose their voice. We sternly oppose it.” Two labour organisations, the Bharatiya Mazdoor Sangh, supportive of the ruling BJP, and the Centre of Indian Trade Unions ( CITU), which has roots in the Left parties, are also opposed. The unions feel the decision follows strong lobbying by industry leaders. There are 20 labour laws in Rajasthan that govern the working and relations of employers and workers. The state’s officials say these laws will still protect employees’ interests and will only come into force when a factory is being shut down. “ It will increase productivity and benefit workers. This will also save small industries from the inspector- raj,” says a government official who does not wish to be named. Industry leaders are, naturally, exuberant. “ This will ensure a level playing field. Raje has laid down the red carpet for investors, which was missing in the previous regime,” says K C Jain, secretary general of the Rajasthan Chambers of Commerce and Industry. OPINION A potential jobs breakthrough 15 > A) Proposals received before December 2013 but being implemented now Company Project Amount (~ cr) Kalyani Steels Steel project 1,500 Welspun Textile 8,000 Super Smelters Ltd Steel project 3,250 GL Steel Steel project 450 Total 13,200 B) New proposals under implementation Hindustan Zinc Expansion of zinc smelter 8,000 Amtech Industries Engineering goods 2,500 Chambal Fertilisers Fertiliser 2,500 Hero MotoCorp Motorcycle/ two- wheelers 1,000 Eicher Polaris Personal vehicles 500 JCB India Heavy machinery equipment 500 Cadila Medicinal formulation 300 Mankind Pharma Medicinal formulation 300 Sunbeam Aluminium casting 200 PetroIndia ATM machines 200 Total 16,000 C) New proposals in the pipeline Rashtriya Ispat Steel plant 2,500 Vacmet India Polyester films 1,500 Gitanjali Steel plant 1,000 Mayur Uniquoaters Synthetic leather 180 Total 5,180 Total A+ B+ C= 34,380 Source: Rajasthan government ATTRACTING INVESTMENT “The owners can now hire and fire workers. Workers will lose their voice. We sternly oppose it” MAHESH VYAS President, Rajasthan Joint Employees and Mazdoor Sangh *Consumer courts aren’t so consumer- friendly* JOYDEEP GHOSH Afew years earlier, the district forum ( of a consumer court) was shut for two months. The stenographer had fractured her hand and the presiding officer said as he would not remember what was argued, it was better that proceedings didn’t take place. No wonder, most consumer activists or lawyers have this simple advice: “ For anyone going to a consumer court, there should be a strong financial reason to fight the case. If you want to make an ethical point or have been cheated a small amount, it’s just not worth it.” While the government’s advertisement says Jaago grahak, jaago, it often means getting more harassed, and while paying from your own pocket. The entire idea of having a consumer court has taken a serious hit over the years. Consumer lawyer Jehangir Gai says: “ The idea of setting these up was to provide a forum to consumers without the ills and technicalities of a civil court. But over the years, it has become worse than these. There are certain established procedures in civil courts, here, they entirely depend on the presiding officer.” Hence, a presiding officer might seek the complaint in a certain format. Say, space of 2.25 inches on the left side and 1.25 inches on the right side of the paper. If you have left 1.5 inches on both sides, the staff might refuse to accept your complaint. Some might want the top half of the first page to be left blank. In fact, earlier one could apply through a letter. Now, there has to be a proper affidavit, with two to three copies and even a file cover. “ In other words, they are almost pushing you to get a professional lawyer, an expensive proposition for many people,” says Delhi- based consumer lawyer Rajan Khosla. Even the notice issued is in the local language. If there is a case between a manufacturer in another state and a complainant in Maharashtra, if the former received a notice in Marathi, it will find it difficult to respond in time. Another deterring factor is cost. Consumer lawyers said cases used to get resolved in three to six months; now, an average one takes two to three years. The cost of a lawyer:₹ 50,000 initially and ₹ 10,000 per hearing. According to lawyers, at the average there are six hearings of a case in a year. In other words, assuming acase takes three years, one will have to spend ₹ 2.3– 2.5 lakh in only lawyer fees. Another deterrent is the time taken. For instance, if you have gone to the court because of a defect in a fridge, till the case is resolved what does one do with it? “ Many simply give up the case midway because they cannot continue to fight it financially or emotionally. So, he comes to court eager to fight, but loses his zest and, finally, the case gets dismissed for nonappearance,” adds Gai. Recently, a citizen of Thane’s case regarding online fraud got resolved after nine years. The Thane resident had lost ₹ 59,000 in November 2005 when it was debited from his account fraudulently through an online transfer. The bank claimed the complainant had either given out his personal identification number (PIN) issued for the internet banking facility or someone had hacked into the account. However, the consumer forum did not find any documentary evidence of the bank’s charge. The complainant was awarded ₹ 59,000 plus nine per cent annual interest and compensation of ₹ 25,000. While the judgment, like many others, has gone in the favour of the complainant, nine years for doing so is very long. Explains Gai: “ It is primarily because in certain forums, judges sit in the courts for only two hours a day.” Then, as in the above example, there can be issues if the presiding officer or members are transferred; the case has to be reheard. The number of resolved or disposed cases is in favour of consumer courts. According to data from the National Consumer Disputes Redressal Commission the number disposed is an impressive 91 per cent for district, state and national commissions. But the number of cases being filed has been falling over the years. Jehangir Gai says in the Mumbai suburban forum, around 1,500 consumer cases was filed in 1999. This number was less than 500 in 2013. Khosla is scathing in his analysis: “ The government advertisement of Jaago grahak, jaago is misleading. It makes one feel that things get resolved easily and quickly. But one only gets to know of the pitfalls once the process begins.” [1]Some might insist on a margin of 2.25 inches on the left side and 1.25 inches on the right side on the sheet when giving a complaint. If you have put 1.5 inches on both sides, the staff could refuse to take it [1]Some might insist the top half of the first page be left blank. Even if you have already typed and notarised it, the whole thing has to be done afresh [1]While complaints can be filed in English, Hindi or the local language, the notice issued is in the local language. If the company is in another state, it could cause a problem [1]One bench may allow a rejoinder, another may refuse STUCK IN PROCEDURES Complicated processes, costs and the long time taken to resolve cases are defeating the aim of establishing these forums BRIEF CASEN [1] M J ANTONY Modvat credit on sale of by- products The Supreme Court has ruled in a batch of appeals by the central government that modvat/ cenvat credit cannot be denied to manufacturers on the ground that in the course of production of the main goods, non- excisable by- products also come into being. By- products cannot be equated with final products for excise purposes, the court stated while dismissing the appeals, led by Union of India vs Hindustan Zinc Ltd. In this case, zinc ore concentrate was processed to obtain zinc, but sulphuric acid came out as a by- product. It was sold to fertiliser companies. The revenue authorities issued showcause notice to the company for not keeping separate records for inputs used in the production of zinc and sulphuric acid. They demanded eight per cent duty on the sale price of the acid. Two other companies, Birla Copper and Rallis India Ltd also faced the same problem. Birla Copper was selling sulphuric acid obtained while processing copper ore. Rallis manufactured gelatine for making medicinal capsules from animal bones. Some by- products, described as waste products, were cleared without payment of duty, inviting the show cause notices. The judgment stated that the assessee companies were entitled to the modvat/ cenvat credit on inputs used in the manufacture of exempted final products. They were also not obliged to keep separate accounts of the inputs when there are dutiable and nondutiable final products. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Objections in land acquisition In land acquisition matters, the officer who hears objections from land owners must submit his report and another officer cannot do that job. It would render the report invalid, the Supreme Court emphasised in the case, Union of India vs Shiv Raj. The Delhi High Court had quashed the land acquisition in certain areas in the capital in 1985. In this case, the grievance of some land holders was that their objections to the acquisition was heard by one officer but the report was submitted by another who succeeded the earlier one. Therefore, the report was prepared by the second officer without hearing them afresh. This contention was upheld by the high court. The central government appealed to the Supreme Court, without success. The court ruled that a person who hears the objections cannot pass on the responsibility of deciding them. The successor officer cannot rely on the records made by his predecessor. It would be destructive of the fundamental concept of granting hearing to aggrieved parties. “ In case his successor decides the case without giving a fresh hearing, the order would stand vitiated having been passed in violation of the principles of natural justice,” the judgment emphasied. A weekly selection of key court orders -- A.Rengarajan Company Secretary Chennai 93810 11200 “Positive belief in yourself will give you the energy needed to conquer the world and this belief is the power behind all creation.” ― Stephen Richards , *Think Your way to Success: Let Your Dreams Run Free* CS Benevolent Fund is a collective effort towards extending the much needed financial support to the community of Company Secretaries in times of distress Let us lend support and join for noble cause. 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Posted on: Mon, 16 Jun 2014 02:25:36 +0000
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