| Making the company lawwork |
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The government has made 45- odd changes in the Companies Act of 2013, through circulars, notifications or orders, ever since the provisions of the new company law came into effect on April 1 this year. Last week, the Union Cabinet cleared another 14 changes in the Act, paving the way for tabling amendments in the ongoing session of Parliament. Over the last seven months, the bulk of the changes that have taken place pertain to provisions and rules in related party transactions, corporate social responsibility ( CSR) spend, easing rules for private companies, issue of consolidated financial statements, and the role of directors and key managerial personnel. Most of these changes were driven by calls from stakeholders — industry, auditors, consultants — to ease the environment to do business, while striking a balance for meeting a higher corporate governance threshold in the way business is conducted. Some of these changes were necessitated by avoidable drafting errors in the Act. Business Standard spoke to various stakeholders from industry, audit community and corporate legal experts to get a drift of the impact of these changes on the way the Act will affect businesses. Related- party transactions While going about making these clarifications and changes, the ministry of corporate affairs has devoted most of its time and effort to issues surrounding related- party transactions. Ever since the new company law came into effect, stricter provisions around related party transactions were something that was hurting the industry the most, with most complaining that they were difficult to implement, affecting day today business operations. The government has, over the months, brought about changes to make these provisions more industry- friendly. According to an analysis by KPMG Accounting Advisory Services, eight major changes were made in the provisions pertaining to related- party transactions over the past seven months. These do not include the amendments suggested by the Cabinet last week. One of its clarifications was that if any company and a public company have common director, and if that director — either by himself or along with his relatives — holds more than two per cent in the paid- up share capital of the company, then the companies will be termed ' related party'. This provision was clarified so that a common director does not create a conflict of interest and minority shareholders are not harmed because of that director's actions. One major clarification came in relation to merger and amalgamations, where the government said mergers and amalgamations would be done according to the provisions of the Companies Act of 1956, and the provisions regarding the related party transactions would not be applied to such cases. Mergers and amalgamations, according to the new law, have to be sanctioned by National Company Law Tribunal ( NCLT), instead of high courts. The Madras Bar Association has already filed a case against NCLT formation and the case is sub- judice. In July, the government clarified that the related parties of the company themselves can't vote when any relatedparty transaction comes up to a stage where there is need to pass a special resolution. In effect, this meant that only minority shareholders can vote in such a resolution. The government has now proposed that instead of special resolution, which requires 75 per cent approval, only an ordinary resolution needs to be passed, which requires just 50 per cent approval. A special resolution is required in case a transaction value crosses a certain threshold. Industry associations the government raised the threshold, bringing more clarity to the issue of passing the related- party transaction. Sai Venkateshwaran, partner and head — accounting advisory services at KPMG in India, says the government seeks to partly align the requirements of the Act with the Securities and Exchange Board of India ( Sebi) requirements, whereas in some other aspects, it has sought to provide greater relaxation, compared to the Sebi requirements. clarifications on CSR spending. It prescribed certain areas in also clarified that while the paid by companies to regular CSR staff as well as to volunteers can be factored in to the CSR project cost as part of the CSR expenditure, notes Yogesh Sharma, partner, Grant Thornton India LLP. Independent directors and financial statements The Act has defined the role of independent directors, making them a crucial cog in uplifting corporate governance practices in the board. However, in a major relaxation to industry, the government has stated that any transaction with the independent directors, which is covered under the related- party transactions, and is under ' ordinary course of business' and ' arm's length basis', will not be considered a pecuniary relationship. According to V Balaji, partner, Deloitte Haskins & Sells, a clarification has also been issued to state that any remuneration that the independent director receives as prescribed in the Act will not be treated as part of a pecuniary relationship. " He/ she can be considered for appointment in the holding company, subsidiary or associate company of such company," he adds. The company, if it has many step down wholly- owned subsidiaries, then only the top holding company needs to bring a consolidated statement. The government also clarified that the consolidated financial statement need not be prepared by a company, which has no subsidiaries, but has only associate companies or joint venture companies. Recent Cabinet amendments The government has decided to remove the requirement of paid- up share capital to start a company. In the Act, any private company had to show certain amount in bank account in order to get a commencement certificate. The government proposes to further loosen related party provisions. The Cabinet has also cleared provisions prescribing punishment under the new Act for the illegal deposits obtained from any company, prohibiting public inspection of board resolutions filed with the Registrar of Companies, introducing a threshold so that auditors shall only report frauds above that limit, among others. The plan is also to bring out the guidelines of the terms " ordinary course of business" and " arm's length basis", which will be a guide to businesses on nature of transactions. A host of concessions to private companies —mostly small and mid- sized ones — from some stringent provisions of the Act is also in the offing. Amendments to the provisions of Companies Act, 2013 since April are largely the result of a drive to increase ease of doing business and correct some drafting anomalies |Omitting requirement for minimum paid- up share capital |Making common seal optional for execution of documents |Prescribing specific punishment for deposits accepted under the new Act |Prohibiting public inspection of Board resolutions filed in the registry |Including provision for writing off past losses/ depreciation before declaring dividend for the year |Rectifying the requirement of transferring equity shares for which unclaimed/ unpaid dividend has been transferred |Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Centre. Any fraud below the threshold will be reported to the Audit Committee and disclosed in the Board's report |Exemption u/ s 185 ( loans to directors) provided for loans to wholly- owned subsidiaries and guarantees/ securities on loans taken from banks by subsidiaries |Empowering audit committee to give omnibus approvals for related- party transactions on an annual basis |Replacing ' special resolution' with ' ordinary resolution' for approval of related- party transactions by non- related shareholders |Exempt related- party transactions between holding companies and wholly- owned subsidiaries from the requirement of approval of non- related shareholders |Bail restrictions to apply only for offence relating to fraud u/ s 447 |Winding- up cases to be heard by two- member bench, instead of three- member bench |Special courts to try only offences carrying imprisonment of two years or more Related party transactions Thresholds for approvals |The threshold prescribed for paid up share capital has been removed Exemptions from approval requirements |The contracts which are entered into by companies before commencement of Section 188 of the 2013 Act do not require fresh approval under Section 188 till the expiry of original term of such contracts |Only the related party in context of the contract or arrangement for which the special resolution is being passed is required to abstain from voting |The transactions arising out of compromises, arrangements and amalgamations will not require approvals in Section 188 otherwise required for related- party transactions Amendments to related party definition |Related party does not include independent directors Internal financial controls |The Ministry of Corporate Affairs has deferred the reporting by auditors on internal financial control and its operating effectiveness to financial years 2015- 16 onwards Consolidated financial statements |Preparation of consolidation financial statements shall not apply to an intermediate wholly- owned subsidiary, other than a whollyowned subsidiary whose immediate parent is a company incorporated outside India |Companies which do not have any subsidiary but only have associates companies and/ or joint ventures, are exempt from the requirement of preparation of consolidated financial statements for FY15 Financial statements prior to April 1, 2014 |Financial statements, auditors report and board report in respect of financial years that commenced earlier than April 1, 2014 shall be governed by the 1956 Act Subsidiaries of overseas companies |The ministry has clarified there is no bar in the Act for a company incorporated outside India to incorporate a subsidiary either as a public company, or a private company |An existing subsidiary of a company incorporated outside India, registered under the Company Act, 1956 either as private company or a public company of that Act, will continue without any change in the incorporation status of such company Independent Directors |Independent director can be appointed for a period less than five years but such appointment shall be considered as one term, and cannot hold office for more than two consecutive terms |For an independent director pecuniary relationship with a company does not include receipt of remuneration by way of fee, reimbursement of expenses for participation in board meeting and profit- related commission approved by members while considering his appointment Corporate Social Responsibility |The ministry has clarified certain issues relating to the provisions of Section 135 and the provisions of CSR rules. Some key clarifications are: |The list of activities as mentioned in Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule |One- off events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV programmes, etc would not be qualified as part of |Expenses incurred by companies for the fulfilments of any Act/ Statute of regulations are not counted as CSR expenditure |Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies can be factored into CSR project cost |Expenditure incurred by foreign holding company for CSR activities in India will qualify as CSR spend of the Indian subsidiary, if the CSR expenditures are routed through Indian subsidiaries and if the Indian subsidiary is required to do so under Section 135 of the Act |Contribution to corpus of a trust/ society/ Section 8 companies will qualify as CSR expenditure as long as ( a) they are created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in the Act Depreciation Useful life and residual value of the assets |Companies are permitted to have longer or even shorter lives than as prescribed under Schedule II. However, a justification for the difference has to be disclosed in its financial statements. The justification must be supported by atechnical advice KEY AMENDMENTS TO COMPANIES ACT, 2013 ( since April 2014) The Companies Act, 2013, was notified on August 29 last year. Out of 470 sections in the Act, 283 sections and 22 sets of rules corresponding to such sections have so far come into force. The Companies ( Amendment) Bill, 2014, set to be tabled in the current session of Parliament, will amend certain provisions in the Act. The proposed changes, cleared by Union Cabinet lastweek, include: |
| FM plans ₹ 13k- cr carrot to clear GST bottlenecks |
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New Delhi, 7 December Finance Minister Arun Jaitley, who is meeting state finance ministers on Thursday to garner support for the Constitution Amendment Bill for a goods & services tax ( GST), is likely to immediately dole out about ₹ 13,000 crore in Central Sales Tax ( CST) compensation to states. The minister, even as he is walking the tightrope to contain the government's fiscal deficit, might propose to clear about a third of states' ₹ 34,000- crore CST dues in the first supplementary demand for grants, to be tabled in the current Parliament session, officials said. The empowered committee of state finance ministers is to discuss the draft Constitution Amendment Bill for implementation of GST at their meeting on Thursday. Later that day, Jaitley will meet the state FMs and try to reach a broad understanding on crucial issues. That will be against the backdrop of Prime Minister Narendra Modi's Sunday meeting with chief ministers where he emphasised the need for states' greater role in the proposed body to replace the Planning Commission. "We have shared the draft Constitution Amendment Bill with the empowered committee. The matter will be handled at the political level now," said a finance ministry official who did not wish to be named. Among the states earlier opposed to the proposed GST regime, Madhya Pradesh and Gujarat have relented since aModi- led government took charge at the Centre in May this year. In two other major states, Maharashtra and Haryana, Modi's Bharatiya Janata Party has replaced the Congress at the helm of governments after the recent Assembly polls there. Tamil Nadu was a dissenting state but it is expected to mellow down after the Centre recently gave relief to J Jayalalithaa, chief of the ruling All- India Anna Dravida Munnetra Kazhagam there, in an old income- tax case. Though consuming states will benefit from a destination- based tax, West Bengal might still not extend its support to the Bill easily, given the recent war of words between Mamata Banerjee, that state's chief minister, and BJP President Amit Shah. It is important for the government to have the Trinamool Congress on its side, as the BJP- led ruling coalition does not have the required number of members to get the Bill passed in the Rajya Sabha. "States will press their demand to keep fuel outside the ambit of GST. The Centre's suggestion on keeping petroleum products zero- rated under GST will not work. If petroleum is subsumed, states cannot get CST on inter- state movement. Integrated GST gives revenue to the consuming state, while CST gives it to the originating state," said a state government official. Though the Centre seems firm on its decision to subsume petroleum and entry taxes in GST, with a provision for first tranche of CST compensation, Jaitley is likely to assure states the Centre will compensate them for three years' losses under GST as well, even without a provision for that in the Constitution. After the previous two finance ministers refused to release CST compensation till states extended their cooperation on GST, Jaitley promised to clear the dues over a period of three years. The central government wants to table the Bill in the current Parliament session, so that GST can be implemented from April 2016. The Bill is important for the government, especially at a time when industry is beginning to complain about the lack of crucial reforms even six months after the change of power at the Centre. "If they do not present the Constitution Amendment Bill in this session, GST will not happen," said Harishanker Subramaniam, partner, EY. He, however, added it was equally important to bring out a GST with minimum exemptions. So, petroleum products, property, entry taxes and even alcohol should be subsumed in a GST. As a robust information technology (IT) infrastructure would be the backbone of GST, as highlighted by the prime minister several times, the finance ministry has also started assessing IT preparedness of states. Revenue Secretary Shaktikanta Das is planning a meeting on the issue on Wednesday. Likely to clear a third of CST compensation dues to get states on board ALL ON BOARD? |Among states that were opposing GST earlier, Madhya Pradesh and Gujarat have relented since a Modi- led govt came to power at the Centre in May this year |In Maharashtra and Haryana, BJP has replaced Congress at the helm of the state govts after recent polls |Tamil Nadu, another dissenting state, might change stance after the Centre recently gave relief to AIADMK chief J Jayalalithaa in an old income- tax case |Bengal could still not extend its support to the Bill easily, given the recent war of words between Chief Minister Mamata Banerjee and BJP President Amit Shah |It is important for the govt to have Banerjee's Trinamool Congress on board, as NDA does not have the required numbers to get the Bill passed in the Rajya Sabha The empowered committee of state finance ministers will discuss the draft Constitution Amendment Bill at its meeting on Thursday. Later that day, Finance Minister Arun Jaitley will meet the state FMs to reach a consensus on crucial issues PHOTO: PTI |
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| BRIEF CASEN [1] M J ANTONY | |||||||||||||||||||||||||||||||||||||||
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Granting subsidies in power tariff to certain sectors is the prerogative of the state government and the electricity regulatory commission has no authority to burden the state by extending the benefit to heavy industries, the Supreme Court stated last week while dismissing the appeals of heavy industries in Uttar Pradesh, in the judgment Paschimanchal Vidyut Vitaran Nigam vs Adarsh Textiles. The government had granted flat rate to farmers, weavers and light power consumers according to a policy decision. The state regulatory commission took the view that the policy had the effect of altering the rate schedule approved by it. Therefore, it issued an order restraining all electricity supply undertakings in the state from implementing the government order. The petition of the state power corporation opposing it was dismissed by the Allahabad High Court. On appeal, the Supreme Court ruled that the high court was wrong in extending the subsidy to heavy industries. " It is the prerogative of the state governments to extend the benefit of subsidy to a class of consumers; subsidy being a concession could not be enforced as a matter of right," the judgment said and added that the commission was bound to act according to the directives of the government under the provisions of the Electricity Act 2003 and the Reforms Act 1999. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Steamer agent to pay warehousing dues When the consignee of a shipment does not take delivery of the cargo, the liability to pay demurrage and port charges for warehousing will fall on the agent of the ship owner or the steamer agent. The Supreme Court clarified this position last week in a batch of appeals against Bombay and Calcutta High Court judgments in the case, Forbes Forbes Campbell & Co vs Board of Trustees. In one typical case, the consignee of the goods did not clear it nor responded to any of the notices issued by the port authorities. Therefore, authorities sold the goods by public auction after a few years. Normally, the amount due is recovered from the sale by auction. But in these cases, the amounts fetched fell short of the total charges payable, leading to litigation. The port authorities filed a suit against the steamer agent for the balance amount. The suit was dismissed. It appealed to the high court, which held that the steamer agent was liable. The agents moved the Supreme Court arguing that under the provisions of the Major Port Trust Act and the bylaws no liability is cast either on the ship owner or his agent for payment of demurrage and port charges. The Supreme Court rejected this contention and dismissed the appeals. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Unfair dismissal of a women employee The Supreme Court has severely criticised Cimco Birla Ltd for harassing a woman employee by " dragging her from one court to another from 1987 till date, nearly 27 years." The management had lost in several forums including the Bombay High Court over the years, but it did not stop the litigation against her at any stage. " In this process," said the Supreme Court, " the legitimate right of receiving monetary benefits was denied by taking untenable contentions, putting her and her family members to great hardship and mental agony." The labour court had found Cimco Birla guilty of unfair practice in dismissing Rowena Lewis. The industrial court had directed the company to pay her back wages and benefits with 12 per cent interest. While dismissing the appeal of Cimco Birla, the court imposed costs on it and directed it to comply with the order within a month. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Tax question referred to larger bench The Supreme Court has doubted its own earlier decision in an income tax judgment on deductions and referred the question to a larger bench. The issue is whether the term ' profits and gains' is synonymous with the term ' income'. The earlier judgment of 2,000 ( Motilal Pesticides Ltd) analysed sections 80- HH and 80- M and ruled that they have the same meaning. This is prima facie incorrect, according to the thinking of the new bench. Therefore, the question raised in the appeal case Vijay Industries vs Commissioner of Income Tax has been referred to a larger bench to be set up by the Chief Justice. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Arbitrator appointed on distillery JV The Supreme Court has appointed its former judge, Justice B Sudershan Reddy, as sole arbitrator in a dispute over a joint venture agreement in the case, Demerara Distilleries vs Demerara Distilleries. The former company argued that the agreement contemplated equal participation in the equity of the joint venture and covered transfer of technology and trade marks. It alleged that the other company failed to fulfil the contractual obligations. So it applied under the Arbitration and Conciliation Act for appointment of an arbitrator. It was opposed by the rival firm contending that the agreement was between it and a foreign firm incorporated in Guyana. The petitioner company had not signed the signed the agreement. The court rejected the objection and appointed the arbitrator. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> CCI probe can't be stayed The Delhi High Court stated last week that the Competition Commission of India ( CCI) can appeal to it against an order staying investigation by its director general ( DG) on a complaint of abuse of dominant position. In this case, Bull Machines Ltd filed information before CCI against JCB India Ltd accusing it of abuse of dominant position. The order was challenged in the high court. A single judge bench stayed the DG's probe report. CCI appealed to the division bench. It stated that since the investigation by the DG formed part of the regulatory jurisdiction of CCI, any order hampering the investigation affected its functioning. So the right to assail a stay order was available to the complainant as well as CCI. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> CBDT rapped for calling names The Central Board of Direct Taxes ( CBDT) adopted an " unduly technical or pedantic approach" while dubbing an assessee firm as a " habitual late filer, with a view to avoid scrutiny/ enquiry". The Bombay High Court stated so last week in the case, Artist Tree Ltd vs CBDT. The firm filed its returns for 1997- 98 in September 1999, some 22 months late. The assessing officer, therefore, declined to condone the delay and examine the case on merit for refund of ₹ 6. 34 lakh. The firm submitted that it had shifted office and therefore there was some delay in tracing documents. It was " genuine hardship" recognised by law, and it should be liberally applied, it argued. Accepting these arguments, the high court set aside the CBDT order and asked it to scrutinise the returns on merit. A weekly selection of key court orders | |||||||||||||||||||||||||||||||||||||||
Source Business Line
Labour law violations in Govt sector: number of inspection declines
OUR BUREAU
Cases of prosecutions over wages, contract workers, child labour are down
NEW DELHI, DECEMBER 7:
Among key initiatives of the Narendra Modi government has been the fast-tracking of labour law reforms to put an end to 'inspector raj' and improving the country's rank in the World Bank's ease of 'doing business' index.
However, when it comes to checking labour law violations, the number of inspections in the Central sphere, which includes banks, railways, defence, insurance, mines among others, has anyway been on the decline.
Contract workers
For instance, with the number of contract labourers engaged in the Central sphere estimated at about 21,12,715 persons, the number of inspections under the Contract Labour Regulation Act fell to 6,990 with 4,084 prosecutions launched in 2013-14, against 8,146 inspections and 4,671 prosecutions launched in 2012-13, according to Labour Minister Bandaru Dattatreya, in a written reply to the Lok Sabha last week.
Minimum wages
Under the Minimum Wages Act, the number of inspections in 2013-14 dropped to 13,099 with only 5,167 prosecutions launched against 15,460 inspections and 5,267 prosecutions launched in 2012-13.
Under the Equal Remuneration Act, only 2,881 inspections were conducted in 2013-14 against 4,167 in 2012-13, with the number of prosecutions launched at 831 against 773, respectively.
Even in the area of child labour, the number of inspections in 2013-14 fell to 1,380 from 2,421 in 2013-13, with no prosecution launched in 2013-14 against only 74 in the previous year.
Only 609 inspections were conducted and 11 prosecutions launched in 2013-14 under the payment of Bonus Act, against 905 inspections and 39 prosecutions launched in 2012-13.
(This article was published on December 7, 2014)
Practising Company Secretary
Chennai
Mobile 93810 11200
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