| Majority of shareholders say YES to directors' appointment' |
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Kolkata, 9 June A majority of YES Banks shareholders, who participated in the paper balloting on appointing three new directors on the board, have voted in favour of the appointments, according to people familiar with the development. "Shareholders holding 57 per cent shares in the bank had participated in the ballot. Close to 80 per cent of them have voted in favour of the appointment," said a source, requesting anonymity. A bank spokesperson declined to comment. The outcome of the voting would be announced tomorrow. Sources said all the institutional investors which participated in the balloting voted in favour of the appointments. The promoters have locked horns over board- level appointments and the dispute spilled into the private lenders annual shareholders meet on Saturday. Madhu Kapur, widow of YES Bank cofounder Ashok Kapur ( who was killed in the November 2008 terrorist attacks in Mumbai), had petitioned the high court in Mumbai for a stay on the annual general meeting. She alleged she was not consulted, as mandated by the banks articles of association, on the three appointments – Diwan Arun Nanda, Ravish Chopra and M R Srinivasan. The court refused to order a stay on the AGM but said the appointment would be subject to the courts final order. In the AGM, the resolutions to appoint the three directors were opposed by a section of the shareholders and the proposals were put to vote. The process was conducted by the two appointed scrutineers; as a special case, the bank also agreed to allow Shagun Gogia (daughter of Madhu Kapur) as an observer to the process, for transparency. " Not everyone in Madhu Kapurs group voted against the resolutions," said another source. Madhu Kapur currently has 12 per cent stake in the bank, while Rana Kapoor owns 13.72 per cent. SETBACK FOR MADHU KAPUR Co- founder's widow alleges she was not consulted, as mandated by the bank's articles of association Madhu Kapur, after attending the bank's 9th AGM held in Mumbai on 8th of June |
| Shareholders can't dictate directors' appointment, says Rana Kapoor |
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Kolkata, 9 June The appointment of directors on a bank's board cannot be dictated by shareholders, as it has to meet the fit- and- proper guidelines of the Reserve Bank of India ( RBI), says Rana Kapoor, co- founder, managing director and chief executive of YES Bank. The promoters of the bank had locked horns over boardlevel appointments and the dispute spilled over to the private lender's annual shareholders' meet yesterday. "No shareholder, especially nonboard ones, can direct the bank or its board on who should be appointed as directors... One cannot just induct his or her relatives on a bank's board. Bank governance is completely driven by RBI's regulations and not by shareholders. YES Bank has always adhered to the RBI guidelines while appointing directors on its board," Kapoor told Business Standard. The dispute started in early 2009, afew months after Ashok Kapur, who co- founded YES Bank with Kapoor, died in the 26/ 11 Mumbai terror attack. His widow, Madhu Kapur, sought a board position. This was rejected by the bank, citing RBI's fit- and- proper criterion. Earlier this month, Kapur sent a request to induct her daughter, Shagun Kapur Gogia, as her nominee board member. While the bank decided to discuss the proposal at its next board meeting on July 24, Kapur and her two children moved the Bombay High Court for a stay on the bank's annual general meeting ( AGM). Kapur also alleged she was not consulted, as mandated by the bank's articles of association, on appointment of three directors — Diwan Arun Nanda, Ravish Chopra, and M R Srinivasan. While the court refused to order a stay on the AGM, it said the directors' appointment would be subject to the court's order. At the AGM, the resolutions to appoint the three directors were opposed by several shareholders and the proposals were put to vote. The outcome of the paper ballot will be announced tomorrow. Rana Kapoor said the bank had to take into account the subsequent regulations that were released by RBI after its formation while appointing directors. " The ' articles of association' is the opening position of the bank... There have been subsequent regulations after the bank was formed and those rules have to be dovetailed. For instance, the guidelines on ownership and governance in private- sector banks came on February 28, 2005, after YES Bank was formed," he said. BACK PAGE 22 > >' Majority of shareholders say YES to directors' appointment' Q& A ON BACK PAGE 22 > "Bank governance is completely driven by RBI's regulations and not by shareholders" RANA KAPOOR MD & CEO, YES Bank |
| Sebi turns focus to PSUs on minimum holding norms |
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New Delhi, 9 June After cracking its whip on 105 private sector companies forfailing to meet minimum public holding norms, market regulator Securities and Exchange Board of India (Sebi) has turned its focus to about a dozen Public Sector Units ( PSU). These units need to comply with these regulations in the next 60 days with sale of shares worth about ₹ 3,600 crore. Sebi is also considering further actions against the non- compliant private sector companies, in addition to the orders passed against them last week. Such an action might include monetary penalties and initiation of adjudication proceedings. A final call on this would be taken by the end of this month after responses from the companies against whom an interim order was passed on June 4. Sebi has begun the process of sending reminders to about adozen listed PSUs yet to attain a minimum public shareholding of 10 per cent, a senior official said. In these reminders, the companies are being asked to initiate steps to achieve this requirement through sale of shares by the promoter, the government or state- owned entities in this case, and inform Sebi. Sebi is also informing these companies about the actions that might be taken against them for non- compliance by August 8. Just like the private sector entities, the PSUs are also unlikely to get any respite on the deadline, a Sebi official said, adding the government had already assured it about the compliance within the prescribed timeframe. The PSUs that need to lower their promoter holdings to 90 per cent or below to meet the guidelines include Andrew Yule & Company, Fertilizers and Chemicals Travancor, Haryana Financial Corp, Hindustan Copper, HMT, India Tourism Development Corp, ITI, Metals and Minerals Trading Corporation of India ( MMTC), National Fertilisers, Neyvelli Lignite Corp, Scooters India and State Trading Corp. The government would need to sell shares worth an estimated ₹ 3,600 crore at the current valuations to meet the minimum public holding norms in these companies. Among these, the shortfall to the minimum 10 per cent public holding is more than nine per cent at MMTC and Haryana Financial Corp, and over eight per cent in HMT and Fertilisers and Chemicals Travancore. STC, ITI, ITDC, Neyveli Lignite, Andrew Yule and Hindustan Copper would need to increase their public holdings by one to five per cent. The requirement would be relatively higher at little more than five per cent for Scooters India and seven per cent in National Fertilizers. State Bank of Mysore and Rashtriya Chemicals and Fertilisers had promoter holdings of more than 90 per cent but have managed to increase their public shareholding to above the threshold limits of 10 per cent. One PSU entity, Hindustan Photo Films Manufacturing Corp, is currently suspended from the stock exchanges and its position could not be ascertained with regard to the minimum public holding norms, as it has not filed its shareholding pattern for a long time. Assocham for three- month extension for companies to meet Sebis norms NEW DELHI, 9 JUNE Press Trust Of India Terming Sebis actions as "harsh" against firms which could not meet public shareholding norms, industry body Associated Chambers of Commerce and Industry of India ( Assocham) has said the non- compliant companies should be given three more months to comply with the regulatory requirements. While making a strong plea to Sebi to take less stringent action against promoters of 105 companies which could not bring their holding to below 75 per cent, the industry body asked for at least another three months to meet the guidelines on public holding. "While it is true that it has been three years since Sebi had asked listed firms to take firm steps to increase public holding, it must also be realised that selling stocks in the marketplace is a function of sentiments or else the promoters would be compelled to offload equity at a distress price. This is particularly true about the small and mid- cap companies," Assocham Secretary General DS Rawat said. In a tough action, Sebi has restrained the promoter groups from raising funds from the market, barred them from selling and buying their company shares and receiving dividends in excess of 75- per cent ceiling. |
| Corporate governance failure at Ranbaxy? |
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In the year 2004, Ranbaxy Board had Tejendra Khanna, Gurucharan Das, P S Joshi, Vivek Bharat Ram, Nimesh Kampani, Vivek Mehra, SurendraDaulet Singh and J W Balani as independent directors. All of them are enlightened leaders in their own field. Sebi Code was drawn from Anglo- Saxon corporate governance model. It is unlikely that those who were on the Ranbaxy Board had no exposure to corporate governance models. Ranbaxy's shareholding data as on March 31, 2004, shows that promoters' shareholding was 32.04 per cent, while (including FII's shareholding of 22.68 per cent) and 15.16 per cent respectively. One would expect corporate governance of highest order with the illustrious Board and significant foreign and institutional shareholding, however, the reality was different. Ranbaxy systematically perpetrated fraud on shareholders by exposing their investment to huge reputation and compliance risks by fuzzing data submitted to regulators. By selling adulterated drugs, it perpetrated fraud on consumers, hospitals, value chain partners and common Indians who took pride that Ranbaxy had emerged as the first Indian multinational in the pharmaceutical sector. The corporate governance failures manifested in the Board's failure to check fraud, absence of adequate risk management system, and unethical culture. Should we hold independent directors accountable for the same? There is a similarity in the fraud at Satyam and the same at Ranbaxy. In both cases, the top management overrode the internal control system. On January 2, 2013, southern district of New York judge Barbara Jones gave a landmark judgment. The judge did not see a case of the former independent directors of Satyam acting recklessly. The claim was not sustainable because " intricate and well- concealed fraud perpetrated by a very small group of insiders and only reinforce the inference that the [ independent directors] were themselves victims of the fraud." It may be argued that the Ranbaxy fraud was perpetrated with the support of employees at different levels and not by a small group at the top level. But the fact remains that it was well concealed. Therefore, it would be harsh on independent directors if they were held accountable for the fraud. Clause 149 ( 11) of the Companies Bill, 2012, provides that an independent director shall be liable " only in respect of such acts of omission or commission by a company which had occurred with his knowledge, where he had not acted diligently". We have to wait for Court rulings to understand Court's interpretation of ' diligence' in the context of independent directors. The dictionary meaning of the word diligent is ' Having or showing care and conscientiousness in one's work or duties'. Did independent directors fail to act diligently? Did independent directors fail to catch signals from the exit of Devinder Singh Brar ( then CEO), Rashmi Barbhaiya ( then president, R& D), Rajinder Kumar ( successor to Rashmi) and Dinesh Thakur ( whistle blower in this case and subordinate to Kumar), who were celebrated leaders of the company, in quick succession. Their exit signaled that something was wrong. Assume that independent directors had taken notice of that and arranged of their exit. I guess that process would have been futile, as none would have blown the whistle in the absence of protection to whistle- blowers. Thakur had blown the whistle in USA and not in India. It may be inappropriate to conclude that independent directors did not act diligently. It has been reported in media (BS story on June 5, 2013) that Tejendra Khanna and P S Joshi were present in the science committee meeting held on December 21, 2004, in which detailed presentation was made on wide spread lapses and fudging of data. If it is true, they cannot claim innocence. Independent director's responsibility is limited to ensuring that he/ she understands the business model, best corporate governances practices ( e. g. board policy, and transparency within and outside the Board) are in place and operating effectively, analysing information available through the Board processes or otherwise and acting proactively based on that analysis for the benefit of the company as a whole. If independent directors are held responsible for frauds perpetrated by or with the support of the top management, which has the ability to override internal controls, it will be difficult to induce professionals to join Boards of companies as independent directors. Affiliations: Professor and Head, School of Corporate Governance and Public Policy, Indian Institute of Corporate Affairs; Advisor (Advanced Studies), Institute of Cost Accountants of India; Chairman, Riverside ACCOUNTANCY ASISH K BHATTACHARYYA Dr P SJoshi VivekMehra J WBalani |
| Similar contracts can have different taxes |
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The distinction between a contract of sale and a works contract has been the subject matter of several judicial decisions. From a taxation point of view the final outcome of the above deliberation is of utmost importance. Typically, a contract for sale attracts VAT and a contract for pure service would only attract service tax. A works contract on the other hand could attract both VAT as well as service tax, albeit at lower rates ( both — VAT laws and service tax provisions — allow reduction of value of services and value of material respectively before applying tax rates). The definition of works contract under different state VAT laws is much wider than the definition under service tax. This article sale and a works contract. The most common forms of works contracts are building contracts. These are well understood as works contracts, as is the taxation of these contracts. However, there are several types of contracts involving moveable property, where the distinction between a works contract, aservice contract and a sale of goods is more subtle. Let us take an example of printing contracts to understand the issue in more detail. Say, an author wrote a book and approached a printer to print 1,000 copies of the book. The author designed the entire book and also specified the quality of the paper and material to be used. The printer has to print those is no doubt in this case as to the intent of the parties. The final printed book is the ultimate product which the author intends to procure. Though the author has provided the content and design, the printer provides the author with 1,000 books. Further, at no point of time before the actual supply of the 1,000 books does the author have ownership of any of the materials such as the paper used in the books. The printer is solely responsible for the risk and ownership of the material and labour until the printed books are delivered and accepted by the buyer. It is a contract for sale. Similar would be the case where a firm places an order for trademark, etc, to be printed on the letterheads and visiting cards are specified by the buyer and are its sole property, still the real intention of the buyer is to purchase the printed letterheads and cards in specified quantity and quality at a given price. The buyer had no previous property in the goods before the actual delivery of printed letterheads and cards. This would still be a contract for sale. However, it is quite common to find people holding a view that this is a works contract. This interpretation stems from the fact that the printer has received considerable input from the customer. In this thought process, supply of goods off the shelf are a sale while supply of custom- made goods are a works contract. This being a case of custom works contract. Now, say, the buyer wants marriage invitation cards to be printed and supplied the blank cards to the printer for printing. As per contract printer has to print the cards, fold them and put them into a transparent cover bag. Printer is also asked to print name labels and stick them on to the cover bag. In this case the buyer is the owner of the cards at all times and printer has used labour and material to print and prepare the cards as per the terms of the contract. This is a contract for work and material as against a contract of sale, which is the case in the first example. The third type of fact pattern, again using a printing contract as an example, involves the customer providing all the material required to the printer. This could the books or the cards as the case may be. This would be a contract for service. The real test would seem to be who owns the goods. If they are entirely owned by the printer as in the first example, the resultant contract would be one of sale of goods. If goods owned by the printer are added to goods supplied by customer as in the invitation cards example, the resultant contract would be a works contract. And the goods are entirely supplied by the customer, it would be a contract for service. Ensuring that one has the facts come out clearly in the contract and that one duly calculates the correct tax is vital under these similar contracts. The author is Leader, Indirect Tax Practice, PwC India Management Academy Private Limited Email: asish. bhattacharyya@ gmail. com Misunderstanding between contract for sale and contract for works & material can affect amount of actual taxation Definition of works contract under different state VAT laws is much wider than the definition under service tax |
LEGAL DIGEST
CLB can compound offence
The Supreme Court has ruled that prior permission of the criminal court is not necessary for compounding an offence under the Companies Act when power of compounding is exercised by the Company Law Board ( CLB). It was argued that the board has to seek the permission of the criminal court and it cannot compound an offence without such permission. Rejecting the argument in the case, VLS Finance Ltd vs Union of India, the court stated that Section 211 of the Companies Act and related provisions were brought " in view of the need of leniency in the administration of the Act because a large number of defaults are of technical nature and many defaults occurred because of the complex nature of the provision." According to the complaint in this case, a hotel company and its chairman- cummanaging director were arrayed as accused for showing assets wrongly in the balance sheet. They moved the CLB and it compounded the offence. The appeal was dismissed stating that "any offence punishable under the Companies Act, not being an offence punishable with imprisonment only or with imprisonment and also with fine, may be compounded either before or after the institution of the prosecution by the CLB."
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No I- T deduction in compensation
The Supreme Court raised the compensation for the death of a youth from ₹ 14.94 lakh to ₹ 29.73 lakh and stated that the Rajasthan High Court was wrong in deducting 20 per cent from the salary of the deceased towards income- tax for calculating the compensation. As per law, the presumption will be that employer at the time of payment of salary deducted income- tax on the estimated income of the deceased employee from the salary. Therefore, the salary as shown in the last pay certificate should be accepted for computing the income of the deceased person. The court stated that provident fund, pension and insurance receivable by claimants cannot be deducted as 'pecuniary advantage' accrued to the claimants. Similarly, bank balance, shares, fixed deposits also are receivable by the nominees, but they are pecuniary advantages not related to the Motor Vehicles Act provisions. The employee or his heirs are entitled to receive these amounts irrespective of the accidental death. They are secured, are certain to be received, while the amount under the Act is uncertain and receivable only on the happening of the event, viz., accident, which may not take place at all. Similarly, compassionate appointment of a dependent should also not be considered for deduction, the judgment emphasised.
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Move to check litigation cost
The Delhi High Court has directed Timken Services Ltd not to use the trade name of multinational US firm Timken Co and pass off the products with ' Timken' name, logo or artworks. The court rejected the argument of Timken Services that it had no knowledge of the US company's presence in India since 1922 and it adopted the name of a director, ' Cat Timkey', without dishonest intention since 1989. The US company has submitted that it has incurred ₹ 43,60,250 in this matter. In an innovative order, the court asked both parties to submit their estimate of future cost before starting the trial " so that the parties shall have notice of actual cost that the other side estimate would be incurring in the course of litigation. Greater transparency about cost will promote access to justice. This process shall also keep the cost in check."
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Challenge to award rejected
The Bombay High Court has dismissed the petition of Maharashtra Small Scale Industries Development Corporation against the arbitration award in its dispute with Snehadeep Structures involving the question of interest on delayed payment. The private firm was employed to clear slurry from the Chandrapur thermal power plant. It claimed that it was entitled to receive full payment of the bills within 10 days of the submission and the corporation failed to pay the bills within the prescribed time and delayed the payment without any justifiable cause. The dispute was decided by an arbitrator in favour of the firm. The high court declined to interfere in the award.
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Otis told to install lifts
The National Consumer Commission has directed Otis Elevators Co Ltd to install all the 22 lifts in a cooperative housing society in Delhi within three months or pay ₹ 10,000 per day as penal charges. The Talaganj society ordered the lifts but the elevator company did not install half of them despite extending the schedule for completion of work, putting the residents in difficulty. The company had promised to complete the job in 52 weeks. It argued that the cost of material and installation had gone up since the signing of the contract in 1996. The commission rejected this contention stating that the money had already been paid by the society and the company was " enjoying the amount for more than a decade." The complaint of deficiency in service was fully proved, the judgment said.
THINKSTOCK
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Company Secretary, Chennai
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