| Companies Bill passed |
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New Delhi, 8 August Fifty- seven years after the first Companies Act was enacted and over 20 years after liberalisation, India on Thursday inched closer to bringing more contemporary issues, such as corporate governance, investor protection, corporate social responsibility and measures to check frauds, under the legislation. Even as the treasury benches and the Opposition had yet to evolve a consensus on many other pieces of legislation, the muchawaited Companies Bill was passed by the Rajya Sabha on Thursday. The Bill, vetted twice by a Parliamentary panel, had already got the approval of the Lok Sabha in December last year. Now, only the President's assent will be required for it to become law. Once the new law is put in place, profit- making companies will be required to spend two per cent of their average net profit of three years on activities related to corporate social responsibility (CSR). Three years will be counted as preceding the one during which CSR was to be undertaken. However, the government has diluted the mandatory provision for CSR after objections from India Inc. Those failing to meet the obligation will have to explain the reasons for the shortfall. The norm is valid only for companies with net worth of ₹ 500 crore or more, or turnover of ₹ 1,000 crore or more, or a net profit of ₹ 5 crore or more, during the past three financial years. Experts believe this would bring aparadigm shift because the old legislation only provided for voluntary guidelines for CSR. Moving the Bill for consideration, Corporate Affairs Minister Sachin Pilot said private companies, while maximising their growth, also had a responsibility towards society, besides equitable and sustainable growth for the country. Pilot emphasised that the Bill aimed to encourage firms to undertake social welfare voluntarily, instead of imposing that through " inspector raj". The Bill, aimed at improving corporate governance, also contains provisions to strengthen regulations for companies, as well as auditing firms. Turn to Page 8 > Only President's nod needed for it to become law A PRIMER All you wanted to knowaboutthe newcompanies law Why? The Companies Act, 1956, though amended 25 times, was not in sync with the new economic and corporate realities How long it took Four years since it was first introduced as Companies Bill, 2009, in the Lok Sabha on Aug 3, 2009 The course it took The Lok Sabha passed it in December 2012, after a Parliamentary standing committee gave its second report in August last year Key changes Rewritten extensively; new provisions for investor protection, better corporate governance and corporate social responsibility; new terms defined New corporate terms defined The Bill prescribes 33 new definitions, including those of CEO, CFO, etc Investor- protection measures Class action suit, better disclosure in financial statements and disclosure of interests of directors, etc; procedures related to disclosure of transactions with parties related to directors, promoters, etc, streamlined Anti- fraud measures Prohibition on forward dealings in companies' securities by key managerial personnel; insider trading rules; restriction on non- cash transactions involving directors Business- friendly measures Provision for single- person company, woman directors; cap on number of persons in a private company raised to 200; e- voting recognised Key concerns Numerous provisions contain the clause " as may be prescribed". Companies fear this might allow too much discretion for the ministry What now? The Bill goes for Presidential assent. The draft rules on the Companies Act will then be made public and the Act come into effect, with a notification by the corporate affairs ministry "This Bill will usher in a new era for the nation for the next 2- 3 decades.... CSR ( corporate social Minister "We commend the govt for prioritising the Bill. It shows its commitment to ushering in the new era of corporate regulation. The Bill is the culmination Director- General, CII "The new Act is modelled on modern law, given that the extant law outlived its importance in terms of size and relevance to India's liberalisation. It will MUKESH BUTANI Chairman, BMR Advisors TOWARDS CONTEMPORARY LAW |
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To a question raised by a member of Parliament, Pilot said the employees stock option (Esop) could not be given to independent directors, as that was given to employees. A third of the board had to be filled with independent directors. The government has also made provisions regarding incorporation of companies. According to the new law, even one person can form a company, as against the earlier requirement of at least two people. Safeguarding workmen in the legislation, the new law mandates payment of two years' salary to employees in companies that wind up operations. This liability would be overriding, Pilot said while pointing out companies had been allowed easy exit. Besides, the changed law allows more statutory powers to the government's investigative arm, the Serious Fraud Investigation Office ( SFIO), to tackle corporate frauds. The industry has appreciated the new Bill, saying it is commensurate with global standards vis- à- vis disclosure requirements, increased democratic rights for shareholders, self- regulation and accountability, while also restraining the management powers of promoters. "We commend the government for prioritising the Bill. It shows the government's commitment to ushering in the new era of corporate regulation," Confederation of Indian Industry Director- General Chandrajit Banerjee said. >FROM PAGE 1 |
| 'Could be an investment magnet' |
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There are one million companies in India. They are the major repository of resources in the country. Their governance and performance holds the key to prosperity. The key significance of the new law is emphasis on their governance and accountability. This balances the interests of various stakeholders, holds the companies accountable to them and strengthens shareholder democracy. Also significance is the change in discourse from control to self- regulation. It presents a paradigm shift in the way every stakeholder in a corporation has to think, act and perform. This transports India into the big league in corporate democracy. It would pave the way for an increase in investment propositions. How prepared are companies and professionals to absorb and implement the various provisions of the new law? It is a modern and contemporary law, enacted after the widest consultation ever. Since it has been in the making for some time, corporates and professionals have been gearing themselves up for this watershed event. Besides, it makes life simpler for everybody and does not require any specific preparation to implement the new law. It only requires a change in mindset from compliance to governance and from tick box approach to application of mind. It is a cakewalk as we have bright professionals who would be implementing various aspects of the new law. However, for a smooth transition, various provisions need to be implemented in a phased manner, the associated rules need to be notified, and institutional framework such as National Company Law Tribunal needs to be in place. Several concerns have been raised about the level of discretion left in the hands of the ministry in the form of rules. What is your view on this? With globalisation and liberalisation, we have transited to an incomplete legal regime which relies on the executive to undertake substantive subordinate legislation. This ensures the laws remain relevant all the time which would enable the authority to strike the moving targets while facilitating unhindered business operations. Nevertheless, the parent law has defined the boundaries of subordinate legislation and provided adequate checks and balances. It has balanced the needs of business with the possibility of misuse of discretion. For full interview, visit The new Companies Act, which is now one signature away, would change the way every stakeholder in a corporation has to think, act and perform, says MS SAHOO, secretary, Institute of Company Secretaries of India ( ICSI). ICSI is the apex body of professionals who are in charge of compliance of the key economic legislation across a million companies in the country. In an interview with NSundaresha Subramanian, Sahoo explains the significance and implications of the new law. Edited Excerpts: MS SAHOO Secretary, Institute of Company Secretaries of India |
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| Amnesty scheme for service tax defaulters made more liberal |
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New Delhi, 8 August In a bid to allay fears of taxpayers, the finance ministry on Thursday liberalised the Service Tax Voluntary Compliance Encouragement Scheme (VCES) that is aimed at promoting self- declaration of tax dues. In a circular, as well as booklet on frequently asked questions about the scheme, the ministry clarified disclosures made by taxpayers would not be rejected by tax authorities if they meet eligibility criteria. Finance Minister PChidambaram on Thursday said of over one million defaulters identified, 1,400 had filed declarations amounting to ₹ 650 crore. The scheme announced in Budget 2013- 14 had said a declaration could be rejected by the authorities if it was made by a person against whom an audit had been initiated and it was pending. As it got a lukewarm response from the industry, the Central Board of Excise and Customs has defined its scope. The industry wanted clarity on what would be considered initiation of audit— the date on which letter is issued or when the auditors visit the taxpayer. Now, it has been clarified that the latter would be taken as the date of initiation of audit. Audit would be considered pending if initiated before March 1, 2013, but not culminated by that date. Another breather for the industry is that if the audit has happened but an issue was not picked up by the authorities, the taxpayer would be eligible for the scheme. Under this scheme, service tax defaulters can pay half of their dues by December 2013 and the rest by June 2014 to avoid interest, penalty and prosecution. A defaulter can avail of the one- time scheme on the condition that he files a truthful declaration of service tax dues since October 2007 and makes the payment in one or two installments. The finance ministry is expecting the scheme to pick up once the clarification is issued and the deadline for making declaration inches closer. Chidambaram expressed hope that the scheme would result in substantial disclosure by non- filers and exhorted the service tax assessees to make use of this " golden opportunity". The scheme said any person might declare his tax dues in respect of which no notice has been issued before March 1, 2013. Experts argued that since most large taxpayers have received a demand notice, the scheme, in the current form, can only be used by small taxpayers. Taxpayers raised doubt whether the general enquiry notice will also fall under it. The industry expressed concerns regarding Cenvat credit and acknowledgement of declaration. All these issues have been clarified in FAQs. The service sector contributes about 65 per cent of the gross domestic product (GDP) but the number of service tax payers is quite less. The scheme was launched to bridge this gap and allow defaulting persons and companies to disclose their tax liabilities and file their service tax returns. While there are nearly 1.7 million registered assessees, only about 700,000 file returns. Revenue Secretary Sumit Bose had earlier held a meeting with representatives of the industry to discuss and know their concerns and doubts with regard to the scheme. Finance Minister P Chidambaram with the logo of the voluntary compliance scheme in New Delhi on Thursday PHOTO: DALIP KUMAR |
| Law ministry says e- KYC valid |
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New Delhi, 8 August In what could do away with the need for physical documents to avail of financial and government services, the law ministry has approved fulfillment of know- your- customer ( KYC) norms electronically, through Aadhaar or the unique identification number. The finance ministry has written to the Reserve Bank of India ( RBI), as well as other regulators such as the Securities and Exchange Board of India ( Sebi), to issue directives for financial companies to start accepting e- KYC. In July, Business Standard had reported there was division on whether e- KYC was allowed under current laws and, therefore, the matter was referred to the law ministry. On condition of anonymity, a government official said the ministry felt since the Information Technology Act considered electronic documents on a par with physical ones, e- KYC was valid. " The finance ministry has sent a letter to RBI and other regulators such as Irda (Insurance Regulatory and Development Authority) and Sebi so that a notification can be issued, after which banks and other financial companies can start using e- KYC," the official said. He added the letter was sent "a couple of weeks ago". The use of e- KYC would not only hasten linkage of bank accounts with Aadhaar for the Direct Benefits Transfer programme, it would also save banks the huge cost incurred in document verification and storage, the official said. Once e- KYC is implemented, one can open a bank account or get a new insurance policy by providing his/ her Aadhaar number and authenticating his/ her biometrics. The servers of banks or other financial companies, which would be connected with the UIDAI ( Unique Identification Authority of India) server, would check if the details provided by the person are correct. After a customer gives his/ her consent, the data drawn from the UIDAI servers for authentication could also be digitally stored by the bank for reference. The service could also be used to avail of other government services that need authentication. RBI has already notified Aadhaar number are valid proof of address and identity. So far, UIDAI has issued Aadhaar numbers to 392 million people. By next year, it plans to issue these to 600 million. While bankers admit e- KYC would help reduce costs, some have raised concerns on the security front and are apprehensive on the use of a new and untested technology. However, those favouring e- KYC argue it is a fool- proof system of establishing identity compared to paper records, which can easily be forged. "I have not seen the directive yet. But the finance ministry and the RBI must have examined it and it should be a foolproof system," said executive director of Mumbai- based public sector bank. Another banker agreed banks might not face any discomfort in implementing eKYC because Aadhaar number is issued after a proper biometric identification. " There should not be any security risks. It will bring down costs for banks and help in faster implementation of the DBT scheme," he said. Both of them did not wish to be identified, as they had not yet received the directive from RBI. Finance ministry asks bank, insurance & market regulators to issue notificatio |
| Green signal to women bank |
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New Delhi, 8 August The first bank dedicated solely for women could be a reality by the end of this year. The Cabinet on Thursday cleared a proposal to set up the bank with an initial corpus of ₹ 1,000 crore. The government will seek Parliament's nod for funds for the bank through a supplementary budget grant in the ongoing session. Bharatiya Mahila Bank (BMB), proposed in this year's Budget, will provide dedicated financial services to women in general and women self- help groups ( SHGs) in particular. The bank is likely to be operational by November. Minister of State for Finance Namo Narain Meena had said on Wednesday in the Rajya Sabha the government was planning to seek Parliament's nod for allocation of funds for setting up the bank. " It is proposed to solicit the approval of the Cabinet to include the allocation of ₹ 1,000 crore to the women's bank in the first supplementary to be approved in the current monsoon session of Parliament," he had said in a written reply in the Upper House. The finance ministry has asked public sector banks to provide 125 officers for deputation to the first womanfocused lender. The corporate office, including treasury department of the bank, will be based out of Delhi. During a meeting with Finance Minister PChidambaram last month, heads of public sector banks had agreed to provide officers on deputation to the women's bank to be headed by Usha Ananthasubramanian, executive director of Delhi- based Punjab National Bank. Wheat Exports: The Cabinet Committee on Economic Affairs (CCEA) allowed an additional two million tonnes ( mt) of wheat export from government godowns through public sector trading firms, to clear surplus stock. The exports would be from godowns of Food Corporation of India ( FCI) and shipments would be undertaken by the state- owned trading firms STC, MMTC and PEC. The government had allowed 4.5 mt of wheat exports from FCI godowns during the last financial year through public sector undertakings (PSUs). Of this, about 4.2 mt have been exported for ₹ 7,000 crore. The government has allowed additional exports as it has a huge stock of 40 mt of wheat against the requirement of 14 mt at the end of September 2013. The bulging stocks in FCI godowns have put pressure on storage availability, despite a sharp decline in collection this year. FCI and other state agencies procured only about 25 mt this year against 38 mt last year. The drop in procurement was due to a fall in production and aggressive purchase by private traders. Wheat production stood at 92.46 mt in 201213 against a record 94.88 mt in the previous year. To clear stocks, the government had also allowed private trade to export five mt of wheat from FCI godowns, but shipment did not pick up due to lower global prices than the government benchmark price. Funds for IITs and IISc: With bodies of excellence — Indian Institutes of Technology ( IITs) and Indian Institute of Science (IISc)- Bangalore — crying for funds, the Cabinet cleared a proposal to revise non- plan expenditure of these institutes during the 12th Five- Year Plan (2012- 13 to 2016- 17). The amount computed as non- Plan grants for the IITs will be based on student strength, according to a revised block grant scheme for funding non- plan expenditure of IITs and IISc approved by the Cabinet. NCABINET DECISIONS N OTHER DECISIONS | 50: 50 ownerships of metro rail companies to be treated on a par with central public sector undertakings for transfer of land |New Media Wing to take govt's messages to public via social media |₹ 409.29- crore fund to strengthen consumer movement by spreading literacy through a sustained campaign about rights and responsibilities |Scheme of integrated cold chain, value addition and preservation infrastructure |To set up 12 mega food parks; allocation of ₹ 1,714 crore |NHPC disinvestment deferred |To revise non- plan spend of IIT and Indian Institute of Science, Bangalore |Plan money to fund scholarships, fellowships Bharatiya Mahila Bank is likely to be operational by November |
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Company Secretary, Chennai
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