| Is Audit Committee the newpower centre? |
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There are three advantages in working through committees. The first advantage is that experts in a specialised subject handle issues related to that subject. The second advantage is the optimum utilisation of directors' time and efforts through distribution of work. Directors' time is the most scare resource. Independent directors, who are usually busy professionals or senior executives in full- time employment in other companies or institutions, cannot spend significant time to perform duties assigned to independent directors by law. The third advantage flows from the fact that a majority of members of the committees are independent directors. Committees can take an objective view on the issues placed before them. The performance of a committee hinges on the ability of independent directors to protect their independence. The Companies Bill 2012 ( Bill) stipulates that listed companies and some other classes of companies ( to be notified by the government) shall constitute Audit Committee, and Nomination and Remuneration Committee. The Audit Committee will have aminimum of three members. A majority of members will be independent directors. Unlike the requirement under the clause 49, the Bill does not mandate that the chairperson shall be an independent director. The duties of the Audit Committee, as delineated in the Bill are: [1]To recommend appointment, remuneration and terms of appointment of auditors of the company [1]To review and monitor the auditor's independence and performance, and effectiveness of audit process [1]To examine the financial statement and the auditors' report thereon [1]To approve transactions of the company with related parties if those are not entered in the normal course of business on an arm's length basis [1]To scrutinise inter- corporate loans and investments [1]To estimate the value of undertakings or assets of the company, wherever it is necessary [1]To evaluate internal financial controls and risk management systems, and monitor the end use of funds raised through public offers and related matters. The Board may also refer additional matters to the Audit Committee. The Audit Committee may call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors. It can review financial statements before their submission to the Board. It has the power to obtain professional advice from external sources. The auditors of a company and the key managerial personnel will have a right to be heard in the meetings of the Audit Committee. In a way, the Audit Committee deals with contentious issues that might arise from the conflict of interests between the dominant shareholders and minority shareholders. The Bill requires that the Board's report shall disclose the composition of an Audit Committee and where the Board had not accepted any recommendation of the committee, the same will be disclosed in the report along with the reasons for not accepting the recommendation. Some hold the view that this provision makes it almost mandatory for the Board to accept the recommendations of the Audit Committee. This is not correct. The Board, which is the larger body, can always overrule the recommendations of one of its subcommittees. A sub- unit is always subordinate to the larger body. The full Board discusses the recommendations in the presence of the members of the Audit Committee and it examines the issue, if required, afresh. It is only in a rare situation that the difference between the Board and Audit Committee persists. Ultimately, it is the Board, which is accountable to shareholders and regulators. Therefore, it has the authority to take the final decision. Accountability demands that it should defend its position in public on a particular issue. The provision in the Bill only enforces accountability of the Board. The Bill requires that independent directors should meet separately, at least once in a year, without the attendance of non- independent directors and management. The purpose of the meeting is to review the performance of non- independent directors, the Board as a whole, and the chairperson of the company, and to assess the quality, quantity and timeliness of flow of information between the company management and the Board. Audit Committee members, being in the most advantageous position to see the big picture. They are expected to contribute significantly in the review process. This makes the Audit Committee as the most powerful constituent of the Board. It might emerge as a separate power centre within the Board. It is the responsibility of the members of the Audit Committee to ensure that this does not happen. Emergence of a separate power centre within the Board will harm stakeholders rather than benefitting them. The author is a 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 Management Academy Private Limited The Board can always overrule the recommendations of one of its sub- committees ACCOUNTANCY ASISH K BHATTACHARYYA Audit Committee members are expected to contribute significantly to the review process for non- independent directors, the Board and the Chairperson |
| Investors can move winding up petition against company' |
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We have received 17,31,065 applications seeking compensation. Most of these people had deposited money in Saradha. However, investors of other companies such as Amazon, Suraha Microfinance, Sunmarg, ICore, Rose Valley, Alchemist have also registered complaints with the commission. We are empowered to look into all similar companies, not only Saradha. But our focus is primarily Saradha. So far, we have provided hearing to 6,500 cases. Data processing is on for the applications, it will take some time. But, roughly 86 to 87 per of the complaints pertained to investments less than ₹ 10,000. The highest amount invested by an individual in Saradha was ₹ 27 lakh. But it will take some time to get an idea about the total money involved. Given the slow progress of hearing, when can the investors expect some compensation? We are trying to categorise the applications some way, so that bulk hearing can be provided for fast completion of the process. We are doing the data processing work for this. In payment of compensation, the poor will be given priority. We are identifying the poor investors, hopefully in a month the process of paying out the compensation would begin. Do you think ₹ 500- crore fund announced by the West Bengal governmentwill be enough to compensate all the investors? Our priority is to pay the poor investors first and most of the people made investments around ₹ 10,000. I cannot say now whether the ₹ 500 crore fund would be enough or not to pay compensation. But, investors will surely get their money. We will recommend selling assets of Saradha, we are empowered to do that. We will look into that aspect as well as part of our probe. But, currently, we are doing the data analysis, so that the process of paying compensation can be started as soon as possible. Why have so called chit fund companies or collective investment schemes flourished in the state? Are there loopholes in the system or there is inadequate laws to protect the investors? It is not a recent phenomenon. Everyone knows about Sanchayita. And this is not the case with West Bengal only. If you see the profile of affected investors in case of Saradha, there are domestic helps, rag pickers, cab drivers, teenaged working people, etc. they invest despite knowing the high- risk involved, only out of greed. There can be no solution, but to educate them. There is a central Prize Chits and Money Circulation Schemes ( Banning) Act, 1978, which is enforced by states. Many states have their own legislations to curb such companies. But now- a- days the companies pool money under different garbs -- in the name of various kind of schemes, real estate business, tourism package etc. If you talk of the legal loopholes, Istill think there is enough scope in the legal system for the affected investors to seek legal remedy. If cheated, they can always move a winding up petition against the concerned company. But people need to be educated for this. The Sebi Act 1992 has recently got amended by a presidential Ordinance, empowering the capital market regulator in this aspect. How effective will that be? In recent times, Sebi has taken action in many cases and even passed orders against some companies. But many of the companies have put up alarge number of agents as The investigations of Saradha scam, one of the biggest financial frauds involving small depositors, are still on. Justice SHYAMAL KUMAR SEN, who is heading the enquiry commission, hopes the process of paying compensation would begin within a month. In an interview with Probal Basakand Namrata Acharya, Sen says, in spite of loopholes that allow unscrupulous entities to raise public money, there is enough scope for aggrieved investors to seek legal remedies. Excerpts: |
| Teething times at Sebi |
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Mumbai From being just a stock market regulator, the Securities and Exchange Board of India ( Sebi) has now become the watchdog for all investment- related products, which includes ponzi or illicit money collection schemes. The government has decided to hand Sebi sweeping powers that include seeking any information for investigation, conducting search and seizure operations, and disgorgement to recover ill- gotten gains from violators. The enhanced powers given to Sebi are similar to the income tax department. The government has put the onus on Sebi to crack down on such schemes by bringing collective investment schemes ( CIS) under its ambit. For implementation, Sebis board has readied an action plan. However, Sebi is facing challenges with regard to its staff strength. It regulates nearly 70,000 entities, but has a staff strength of less than 700 while the USs Securities and Exchange Commission ( SEC) and UKs Financial Services Authority ( FSA) have a staff strength of over 4,000 each. South Koreas integrated financial regulator, which oversees just 3,000 intermediaries, has a staff strength of 1,700. The regulator has already embarked on one of its biggest recruitment drives to hire 75 professionals from various streams. Sebi is in the process of framing new regulations and will soon announce regulations pertaining to search and seizure operations and also disgorgement. It will also prescribe guidelines for officers deputed for recovery of money through attachment and sale of assets. There are plans to deploy more staff, with legal background, to conduct operations like search and seizure and disgorgement. Sebi will tie up with other regulators, not just domestic, but international and also plans to request the government for designated special courts. Lack of adequate powers were crippling Sebi's efforts against securities law violators. Earlier, search and seizure operations were done with the approval of a magistrate. There have been instances where shares were lying in the demat account of the defaulter, but Sebi had not been able to sell them and recover dues. Experts say, the new powers have given Sebi the necessary wherewithal and will make it one of the most powerful regulators in the country, but whether the new powers will help in safeguarding investors, is the question. BIG PICTURE TOUGH TO CRACK Effect of patent regime on the number of patent applications filed by drug makers in India Compiled by: Lall, Lahiri & Salhotra; Source: Annual Reports of IP Office 3,239 798 4,267 905 3,672 1,207 3,070 530 3,526 596
No. of Patent Applications filed No. of Patents Granted 2006 - 07 BARCODEN 2007 - 08 2008 - 09 2009 - 10 2010 - 11 |
| BENCH PRESS N M J ANTONY A weekly selection of key court orders |
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The Supreme Court last week ruled that there are two conditions for getting Modvat credit benefit: i) On the raw materials i. e. on the inputs, the manufacturer must have paid duty and such raw material must have been used in the process of manufacturing the final product in his factory or premises. ii) Excise duty must have been levied on the final product. If there is no duty levied on the final product, there would not be any question of grant of any relief because in that case there would not be any cascading effect on the duty imposed. The court explained the legal position in its judgment in the case, M/ s KCP Ltd vs Commissioner of Central Excise. The firm is engaged in setting up machinery for sugar and cement factories after buying some equipment from the local market. The dispute arose when it sent goods bought from the local market to Vietnam where the Indian company was to set up a sugar plant for M/ s Vina Sugars. The Indian company claimed Modvat credit on the machinery and equipment packed and shipped out. They declared that they were ' capital goods'. The revenue authorities rejected the claim. The department was of the view that none of such purchased items had been used by the Indian firm in its factory premises in relation to manufacture of the final product manufactured by it. Accepting the department's view, the Supreme Court stated that the firm had only acted as a trader or as an exporter in relation to the machinery purchased by it, which had been exported and used for setting up a sugar plant in a foreign country. In any case, it cannot be said to have manufactured that plant in its factory. Moreover, the assessee firm did not pay any excise duty on the sugar plant set up by it in Vietnam and therefore, there cannot be any question of availing any Modvat credit. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> New formula for computing damages The Supreme Court has ordered the National Insurance Company to pay enhanced compensation of ₹ 3.75 lakh for a 12- year- old child who suffered 18 per cent permanent disability in a road accident. It criticised the motor accident claims tribunal and the high court for wrongly calculating the compensation in the case, Master Mallikarjun vs National Insurance. The tribunal awarded ₹ 63,000 while the high court enhanced it to ₹ 1.09 lakh. " It is unfortunate that both the tribunal and the high court have not properly appreciated the medical evidence available in the case," the Supreme Court stated. The age of the child and deformities on his body resulting in disability have not been duly taken note of. The court then laid down a formula to compute compensation based on medical evidence. It said: " We are of the view that the appropriate compensation on all other heads in addition to the actual expenditure for treatment, attendant, etc., should be, if the disability is above 10 per cent and up to 30 per cent to the whole body, ₹ 3 lakh; up to 60 per cent, ₹ 4 lakh; up to 90 per cent, ₹ 5 lakh and above 90 per cent, it should be ₹ 6 lakh. For permanent disability up to 10 per cent, it should be₹ 1 lakh, unless there are exceptional circumstances to take a different yardstick." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Notice not must for CCI probe The Delhi High Court last week ruled that the Competition Commission of India is not required to give notice or hearing to the person against whom an information is given or a reference is made before the commission directs further investigation in exercise of the powers conferred upon it by the Competition Commission Act. Dismissing the writ petition of South Asia LPG Co Ltd against the commission, the court stated that Section 19 did not provide for any opportunity of hearing to the person against whom the reference is made nor did it provide for any such hearing to such a person, before further investigation is directed by the commission. The issue arose when a complaint of abuse of dominant position was moved before the commission. East India Petroleum Ltd was engaged in providing terminalling service at Vishakhapatnam port which enabled it to handle imports and exports of bulk liquid products as well as liquefied gas fuels. The gases were unloaded from ships by an entity owned by HPCL and pumped by HPCL through a pipeline, part of which was owned by HPCL and part by East India. On commissioning of underground cavern by South Asia, the unloading services offered by HPCL were handed over to it in the year 2008 and gradually the unloading arm of HPCL was discontinued. Thereafter all the products were unloaded only through South Asia. East India submitted an information petition to the commission, alleging that South Asia had created a dominant position in terminalling services and abused its dominance and charged exorbitantly for its services. The legal issue over notice and opportunity of hearing was raise while the commission was considering its Director General's report. The judgment remarked: "Even an accused in a criminal case is not entitled to a hearing before a magistrate passes an order for further investigation... The person against whom an information is given or a reference is made to the commission cannot be placed on a footing higher than that of an accused in a criminal trial." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Five- legged race for arbitration The Bombay High Court last week declined to appoint a sole arbitrator in a dispute between five partners who were running a luxury hotel in Mumbai. The partners had signed an agreement in which they had stated that in case of disputes, each one would appoint an arbitrator. When they fell out, some partners were in one group regarding one issue, while there were other combinations and permutations. Moreover, if an even number of arbitrators were appointed, there should be afifth one to preside over the team. All these complications made it difficult to agree on arbitrators. Ultimately four arbitrators were named by different combinations of partners. One group moved the high court to appoint a sole arbitrator to avoid delay and excessive costs. The high court declined to do so, giving astrict reading of the arbitration clause. " The clause would require to be complied with by all the parties since that is the contract or an agreement between them. The agreement cannot be re- written by the court," stated the judgment in the case, Perin Hoshang vs Kobad Dorabji. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Afcon's challenge to tender dismissed The Bombay High Court has dismissed the petition of Afcons Infrastructure Ltd against the decision of Oil and Natural Gas Commission ( ONGC) in the selection of a contractor for the conversion of Sagar Pragati, a mobile offshore drilling unit to a mobile offshore production unit. After a tender, ONGC shortlisted a consortium of two corporations to undertake the work as their bid was the lowest. Afcons challenged the choice as arbitrary and alleged that the consortium did not possess a dry dock facility which was mandatory in the bid and that the tender conditions were altered at the instance of the consortium. The high court rejected both these arguments. Regarding the bids, the high court stated that consortium's bid was the lowest bid, the difference between the two bidders being to the extent of $ 5 million. |
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