POLICY POINTERS


Amended Companies Act notified

The amendments to the Companies Act, 1956  became effective from December 14, 2000 with the exception of clauses 7 and 75 of the Bill. 

These two clauses pertaining to the registration of companies with the Registrar of Companies (ROC) will be notified after computerisation of all the ROC Offices.

The Companies (second Amendment) Bill 2000, sought to bring in greater transparency in corporate governance and provide protection to small investors.

The bill allowed for a ten fold increase in penalties for non compliance with the provisions of the Act.  It makes offence relating to acceptance of deposits cognizable under the CrPC.

Other provisions of the Bill include appointment of small investors  nominee on the board of the company, issue of non-voting shares, execution of a debenture trust deed by companies proposing to raise funds in the form of debt and introduction of postal and electronic voting on resolutions.

The bill classifies all companies as private or public. The provision for deemed public company has been done away with.  It further stipulates that all private companies shall have paid up equity base of Rs.1 lakh and every public company Rs.5 lakh. Companies with equity base falling short of the new stipulation are required to enhance the paid up capital to meet the new requirement within a period of two years from the date of notification of the amendment.  

To make companies more accountable and to secure the small investors interests, the bill requires companies defaulting in making repayment of depositor money to intimate the Company Law Board within 60 days of such default. The bill has further clarified that the intimation to CLB should be made on monthly basis. The CLB is then required to pass an order within a period of 30 days.

The bill has also sought to delegate powers on issue, transfer of securities and non payment  of dividend to the SEBI in the case of listed public companies. 

ECBs allowed for setting up SEZs

The government has decided to allow external commercial borrowings (ECBs) for setting up special economic zones (SEZs) which are going to be revenue neutral.

Setting up SEZs would require a high cost which would be borne by the promoter and the government’s role would be restricted to providing legal framework and bureaucratic backup. The objective behind the setting up of SEZs was to boost exports.   

New textile policy to quadruple exports

The National Textile Policy 2000, unveiled by textiles minister Shri Kashi Ram Rana on 02.11.2000 seeks to dereserve garments sector and lift foreign direct investment (FDI) cap of 24 per cent in a bid to push India’s exports to $ 50 billion by 2010.

In the next five years, the textiles ministry would strive to induct 50,000 shuttless looms in the industry, against 8,000 looms at present.  The policy would assist the private sector in setting up specialised financial arrangements to fund the industry’s diverse needs and also launch a venture capital fund for knowledge based entrepreneurs.  

The handloom sector would be strengthened to produce value-added items and assist it to forge joint ventures to secure global markets. The textile industry would be facilitated to attain and sustain a pre-eminent global standing in the manufacture and export of clothing.

The policy would aim at liberalising the controls and regulations, with a view  to enable different segments of the industry to perform in a larger competitive environment.

The industry would also be enabled to build world-class state-of-the-art manufacturing capabilities, in conformity with environmental standards. For this purpose, both foreign direct investment, and research and development in the sector would be encouraged.

The other main features of the policy are :-

  • Produce cloth of good quality at acceptable prices to consumers.
  • Develop a strong multi-fibre base with thrust on product upgradation and diversification.
  • Sustain and strengthen the traditional knowledge, skills and capabilities of weavers and crafts people. 
  • Expand productive employment.
  • Make information technology an integral part of the entire value chain of textile production.
  • Involve and ensure the active co-operation and partnership of the state governments, financial institutions, entrepreneurs, farmers and non-governmental organisations.
  • Launch the technology mission on jute to increase productivity and diversify the use of this environment friendly fibre.
Explaining about the increased employment opportunities as a result of dereservation of garment sector Shri Rana said that it would lead to increased investments in turn leading to more employment opportunities. The dereservation would mean that large-scale investment would be possible in the garment sector and there will in fact be better opportunities for employment in this sector.

The garment sector is highly labour intensive and is modular in nature. The Ministry of Small scale industry and Agro and Rural Industries in their comments on the draft National Textile Policy have stated that dereservation of garment sector would not affect employment adversely.

Easy bank finance for women entrepreneurs.

The finance ministry has approved an Action Plan, wherein the public sector banks will earmark atleast two percent of their net credit for women entrepreneurs initially, which will be raised to five percent during a period of five years.

The 14 point plan, prepared by finance ministry in consultation with the department of women and child development, department of SSI, Agro and Rural industries, NABARD, SIDBI and Reserve Bank of India, have been asked to prepare necessary environment by simplifying the procedural formalities. These institutions will also offer updated information, guidance and other credit facilities to women entrepreneurs.

Labour intensive policy needed for 9% growth : panel

The Planning Commission said today a shift towards labour intensive policy was needed to sustain high growth rate of nine per cent as the current high incremental capital output ratio (ICOR) and capital intensive production was becoming “unsustainable”.

Achieving a more optimistic nine percent growth itself is a vicious circle since the domestic savings have to grow by atleast 35-36 percent from 23 per cent and this requires more labour participation.

Member Planning Commission, Shri S.P. Gupta said in New Delhi on 16.12.2000 more labour oriented production techniques could be fruitfully used in small and medium (SME) sectors to give the much-needed impetus to the labour market.

Since India is a labour surplus economy, the production function should concentrate on human resources development, good governance and institutional changes.

There was negative effect on labour market due to capital intensive production. Though the share of labour went up marginally by 3 per cent in services sector, it fell 5 percent  in the manufacturing sector”.

Adding to the burgeoning army of unemployed was the closure of a total of 1235 firms in the small scale sector.  Many firms would follow once closure orders were issued by the BIFR. The objective of the policy it is felt should thus be to give employment with security.

VC exit norms relaxed

The Union Minister of Finance, Shri Yashwant Sinha on 02.11.2000 announced an easing of exit norms for venture capital funds which had been imposed a few weeks ago.

The government had earlier announced two exit clauses on VC funds stipulating that VC funds cannot exit before one year in an unlisted company and two, they must exit within one year, following an IPO. Both the clauses have been revoked.

GoM clears 3-stage revival plan for sick firms

The group of ministers on Sick Industrial Companies Act (SICA) has cleared a three-stage revival plan for sick companies to be worked out within 135 days of the company reporting its sickness to the National Company Law Tribunal (NCLT).

The GoM on sick industries has also cleared the proposal to set up an appellate tribunal (NCAT) on whose decision an appeal will lie only in the Supreme Court.

Currently, liquidation and winding-up notices are issued by high courts but the new tribunal, NCLT, will be empowered to initiate liquidation.  The Eradi Committee’s recommendation to permit NCLT to order change in management of a referred company has also been accepted.

According to the three step plan, a company can go to the NCLT voluntarily on erosion of 50 per cent of its net worth or on default on payment of loans for three quarters–the new definition for sickness. However, it will have to disclose all assets and liabilities and also submit a revival plan.

In the first stage, the matter will be referred to an approved panel of chartered accountants who will determine whether the company is sick within 30 days. Based on their recommendations, the company will be referred to another panel comprising banks and financial institutions (FIs) in the second stage. These institutions will have 45 days to decide on the revival plan for the company. Based on their recommendations NCLT will then determine whether the company is revivable or bankrupt within another 60 days.  In case it is to be wound up, it has the option to appeal back to the NCLT which will then set up an operating agency (OA) to reassess the case within 45 days.    

The NCLT will then give its final order within 60 days of receipt of the report from the OA.

The finance ministry has already moved a Cabinet note for repeal of SICA which would result in the dissolution of BIFR and AAIFR.   NCLT will be set up through an amendment in the Companies Act, 1956, for which a separate Cabinet note is to be moved by the department of company affairs.

Govt. to protect domestic industry

Government of India has announced a four-pronged strategy to protect domestic industry from cheap imports as under :-

  • Duty on edible oils hiked.
  • Anti-dumping probe on Chinese toys, sports shoes and dry cells.
  • BIS standards, printing of retail price made mandatory for all imported goods.
  • Licensing to be made compulsory for all imports, though permission to import will not be denied.
FM wants insurance cos. to drive GDP growth up

Finance Minister, Shri Yashwant Sinha has expressed the hope that the newly opened up insurance business will emerge as the single most important driver for economic growth in the coming years.   The projected 2 per cent share of insurance in the GDP can go up to 5-10 per cent “in a very quick time” if the players tap the massive rural insurance potential, he observed while speaking at the inaugural session of the CII fifth insurance summit on ‘The Agenda Ahead’ (CII), in New Delhi on November 22, 2000.

Shri Sinha also assured that the private and public insurance companies will be given a “level playing field” in respect of tax rates and asserted that the opening up of the sector will give “strength and spread” to the domestic capital markets into which some investments are expected to flow.  The minister also hoped that opening up of the sector would result in products like health and crop insurance becoming more popular.  

As the industry is a manpower dependent industry, the entry of the private sector would create fresh employment opportnities. The government has created the necessary infrastructure for the sector, like allowing FDI into the sector through the automatic clearance route.

Move to amend section 217A of companies act

The department of company affairs (DCA) is to amend Section 217A of the Companies Act, 1956, in order to make it mandatory for companies to provide aggregate figures for number of employes on their rolls and their total remuneration - category wise in their annual balance sheets.

The need for such an amendment was felt to obtain the figures for total number of employees and their remuneration directly from balance sheets. This can be used for accurate estimation of (gross domestic product) national income originating in the organised sector. The figures can also be a proxy in certain cases for estimating national income originating in the unorganised sector.
 
The original request was made by the labour ministry alongwith the department of statistics. The DCA has already received a number of other proposals for amendments.  

Plan panel constitutes working group on agricultural credit

The Planinning Commission has constituted a working group on agriculture credit, co-operative movement and crop insurance for formulating appropriate strategies for the ensuing Tenth Plan.

The President of the National Co-operatives Union of India (NCUI) and former Union Minister of state for finance Shri Swai Singh Sisodia will head this group.

The terms of reference before the working group is to review the flow of credit to the agriculture sector, identify factors affecting its growth and suggest strategies.

It will also review the magnitude of agriculture indebtedness and also the status of overdues, financial health of the co-operative credit structure and suggest measures for making it more cost effective, competitive and efficient in the era of liberalisation.   Special study should be made for making the co-operative credit structure viable in the north eastern region.

The working group will review the performance of the on-going schemes operated by the Union agriculture ministry, RBI, NABARD and department of banking and suggest modifications.  It will also suggest measures for making the co-operative movement more professional and viable and evaluate its contribution to the economy.   It will also review the present status of the National Agricultural Insurance Scheme and suggest measures for making it more cost effective and beneficial to the farming community.

Steps to cut exporters’ transaction cost s announced

In a bid to cut the exporters’ transaction costs, the government has decided to refund customs and excise duties paid by them within 3 days under the electronic data interchange (EDI) system and within 5 days under the manual system.

A Nodal officer will be appointed in each of the customs house to deal with export promotion and to redress the exporters’ grievances. Shri G.N. Ramachandran, Minister of State for Finance announced these decisions at a meeting with select exporters of the Federation of Indian Export Organisations (FIEO) in Delhi on 19.12.2000.

The government is “committed to ensuring a userfriendly environment for all sections of the society, more so for the exporting community, who is the most important source of foreign exchange”, he stated.

Mr. Ramacandran also referred to the most fundamental change in the excise rules regarding the decision to dispense with statutory records from July 01, 2000.

As a result, the excise department would rely on the manufacturers’ own records adding that this provision would be great boon for the manufacturer exporters.