| Factories with up to 40 workers may be kept out of major labour laws |
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New Delhi, 3 May After proposing an overhaul in labourlaws, theNarendraModi- led central government is considering morereforms, thistimeforsmallfactories. The Cabinet is set to discuss this week a Billtoexemptthefactoriesthatemployup to 40 workers from 14 labour laws. The government has drafted the Small Factories ( Regulation of Employment and Conditions of Services) Bill, which is meant to keep small factories out of the ambit of certain major labour laws, such as the Industrial Disputes Act, the Factories Act, and the Payment of Wages Act. Besides, there will also be some relaxation in provisions of the Employees Provident Funds Act for these firms. According to sources, the Union government plans to introduce this Bill in the current session of Parliament. This will come as a huge boost for around 70 per cent of all factories in factories in India, 125,301 employ less than 50 workers, show Annual Survey of Industries ( ASI) data for 2011- 12. The Bill, if enacted in its current form, will allow businessmen to register or shut their small factories electronically. A factory will be deemed registered within 30 days of filing an application, if no action is taken in this regard. All that the employer will have to do is apply online or give a written application within 60 days of starting a factory. There will be no inspectors; they will be replaced by " facilitators", who will act as " guide for the establishment". These facilitators will issue " improvement notices" to employers if they observe any defect. And, in case of shutting down, the owner will have to notify to these facilitators electronically within 15 days of closing a unit. Once the facilitator is convinced about the nature of closure, and after ensuring the wages to employees have been settled, he will remove the factory from his registers and cancel the registration certificate. The Union government had in February this year held a meeting with representatives of worker and employer groups to discuss this Bill. " The interest of the workers will always be foremost and this law is only for simplification and ease of doing business," Labour Minister Bandaru Dattatreya had said at the meeting, minutes of which have been reviewed by Business Standard. Turn to Page 4 > OPINION 9 > >EDIT: The legislative tangle Union Cabinet to take a call this week | The govt is considering alabour Bill for small factories factories with up to 40 workers from 14 labour laws, including Industrial Disputes Act, Factories Act around 70 per cent factories in the country to register or close their factories electronically salaries via bank accounts |Inspectors to be replaced by facilitators, who will issue " improvement notices" in case of defects |Workers will be allowed to do 96 hours of overtime in a quarter, compared with the earlier provision of 50 hours |At least 51 per cent workers will be required to raise disputes related to unfair labour practices at work |
| Sebi to bring in e- KYC framework in 2 months | |
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Mumbai, 3 May After successfully implementing acommon know- yourcustomer (KYC) framework for the capital market, the Securities and Exchange Board of India ( Sebi) has embarked on an ambitious project to enable investors open a trading account sitting at home. According to sources, the market regulator plans to introduce an electronic, or e- KYC, format that will provide an option of conducting inperson verification ( IPV) through webcams. The e- KYC process will streamline and simplify processes. A senior Sebi official said e- KYC guidelines will be ready in two months. The new system is also aimed at reducing costs and expediting account- opening. Industry officials say a simplified KYC process has the potential of getting more people into the capital market. Currently, IPV has to be done physically: An investor has to visit an intermediary or a representative is sent to the client. Market players say the current framework allows online IPV but brokerages do not offer this due to lack of clarity. "Technically, e- verification is allowed but what we need clarity from the regulator is on the procedure and the manner in which this can be conducted," said BGopkumar, head ( broking), Kotak Securities. " Once that is smoothened out, then the entire digitalisation process can be completed." Completing KYC formalities is mandatory for an investor for transacting in the securities market. Earlier, an investor had to go through the KYC process again while transacting with a new intermediary. For instance, an investor of HDFC Mutual Fund had to go through the KYC process again while investing in Reliance Mutual Fund. In 2012, Sebi introduced centralised KYC, under which an investor had to do KYC just once with any stock market intermediary —either a brokerage or a fund house. The centralised KYC process is handled by a Sebi- registered KYC registration agency which manages the process for a stock market intermediary. The e- KYC process will be implemented through these. Sources said the regulator wanted to put in place more checks and balances to ensure the e- KYC process was not manipulated by investors. E- KYC is also expected to bring down the cost of acquisition for brokers and the time taken to open an account. Currently, the cost of turning around a lead or acquiring a customer for brokerages ranges from ₹ 10,000- 12,000 for large ones or ₹ 7,000- 8,000 for smaller ones. This could come down to as little as ₹ 4,000- 5,000 once the process goes online. Similarly, the time taken to complete the KYC process online could be reduced to one- two days from the eight- 10 earlier. New system aimed at reducing costs and time related to account- opening EASING OPENING OF ACCOUNTS |Electronic know your customer (e- KYC) framework likely in two months |Industry players seek online in- person verification through webcam |Such online verification will complete digitisation of KYC |Digitisation could bring down account- opening costs by half |Account- opening time to come down to a couple of days from 8- 10 now E- KYC is expected to bring down the cost of acquisition for brokers and the time taken to open an account | |
| Living with shareholder agreements | |
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Between 2010 and 2013, United Spirits entered into several agreements with group companies to give out loans, largely to finance its ailing aviation venture, Kingfisher Airlines. These transactions were prior to British liquor major Diageo picking up a controlling stake in United Spirits in July 2013. The new company law, Companies Act of 2013, came into effect from April 1, 2014. A tighter corporate governance regime, with empowered minority shareholder rights, in a way, tripped the Diageo- Vijay Mallya ( pictured) marriage. Legal experts point out had the new company law provisions been in force in the period when the contracts were entered into, and subsequently cleared by the respective boards of United Spirits Limited and United Breweries Holding Limited, there would have been greater scrutiny of these transactions from minority shareholders. "Indian companies paid little or no regard to related- party transactions and there was little scrutiny of such transactions that were detrimental to the interests of minority shareholders," says Shriram Subramanian, founder and managing director, InGovern Research Services. Legal experts say the previous version of Securities and Exchange Board of India ( Sebi)' s listing agreement under Clause 49 did not have elaborate provisions for related party transactions. The new Companies Act and the revised listing agreement brought related party transactions into focus with minority shareholders needing to approve related party transactions. Still requirements under related party transaction provisions fall short of global best practice in this regard. Globally, the best practice is related party transactions are voted for by a majority of minority shareholders, with all related parties getting no votes. However, according to an amendment to the Act requires only the specific related party with whom the transaction was taking place getting no votes, while other connected parties to the related party get to vote. According to Sebi notification in April 2014, companies were supposed to get shareholders' approval for existing material related party contracts or arrangements that are likely to continue beyond March 2015. In by provisions of Sebi's new listing agreement and the new company law —questioned the related- party transactions between United Spirits and the entities owned by Mallya. Subsequently, United Spirits said, in a filing to the stock exchanges, nine of the 12 resolutions had not been approved by members with the requisite majority. It also informed the exchanges that the licensing proposal for manufacture and distribution of Diageo's products in India, on which it had sought approval through a postal This has raised between two under agreements could override agreement, provided the terms and conditions are enforceable in law," says Lalit Kumar, partner in law firm JSagar Associates. Only the signatories are party to the contract, points out Vaibhav Kakkar, partner, Luthra & Luthra Law Office. However, for shareholders' agreement to be enforceable against the company and other shareholders, including those who are in minority, the provisions of the agreement have to be incorporated in the Articles of Association of the company, say legal experts. Though there is no mention of shareholder agreement under the Act, it does recognise transfer restrictions —like lock- in provisions in shares, right of first refusal, and right of first offer — between two or more shareholders of a public company. Legal experts say even if a shareholder agreement becomes binding on minority shareholders, they continue to retain their rights under the Act. Minority shareholders have the right to file a case of oppression and mismanagement against the promoters before the company law board, or file a class action suit as and when the provisions of come into force. In the event of a conflict between the shareholder agreement and the Article of Association, the provisions of the shareholder agreement cannot go contrary to the Article of Association. " When it comes to governance or board structures the Article of Association is a self- containing document," says Kakkar of Luthra & Luthra. Legal experts point out that corporate governance standards provided under the Act cannot be overridden by a shareholder agreement. " The terms of the shareholder agreement cannot go beyond the provisions of law," says Kumar of JSA. However, there are judgments, which have upheld that if provisions of the shareholder agreement are more stringent than the ones set out under the Act, the same will bind the company, says M S Ananth of Nishith Desai Associates. " In essence, the stricter of the compliance requirements prevails," says Ananth. The boardroom battle at United Spirits raises questions over related party transactions, legal sanctity of ashareholder agreement, rights of minority shareholders and corporate governance practices MINORITY POWER The special resolutions that were defeated at the USL EGM Nature of agreement Related party Votes against* (%) Loan UBHL 44.12 Property sale UBHL 27.12 Services Kingfisher Finvest 77.17 Advertising Force India Watson Ltd 58.78 Sponsorship United Racing & 58.25 Bloodstock Breeders Sponsorship United Mohun Bagan 32.69 Football Team Aircraft services UB Air Pvt Ltd 77.53 Properties call PE Data Centre 75.52 Resources Contribution Vittal Mallya Scientific 47.48 Research foundation POSTAL BALLOT RESOLUTION Licence for manufacture Diageo BV, &distribution, sharing Diageo N- America, 29.80 of advertising cost Diageo Scotland *75% votes from non- promoter shareholders is required Source: USL filing with BSE | |
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