| Hony.
Editor |
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Dr.
Bindi Mehta
(Director,
Research at ICSI - CCRT, Formerly, Chief economist, CRISIL |
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National
Events |
| Independent
directors may get hike in sitting fees |
| The
Department of Company Affairs (DCA) plans
to raise the ceiling on remuneration payable
to an independent director to Rs. 20,000
per board meeting. At a very conservative
level, the ceiling on sitting fees may
be raised to Rs. 15,000 per meeting. According
to DCA sources it was planning a three
to four fold increase in the remuneration
paid to the independent directors. An
amendment to raise the ceiling from Rs.
5,000 per meeting as prescribed in the
schedules to the Companies Act, 1956 will
be made by the end of July, top government
sources have said. Various industry groups
had sent representations to the government
for relaxation of the remuneration ceiling,
citing difficulty in attracting top professionals
to join boards of companies as independent
directors.
Department
of Company Affairs official felt that
very high remuneration for independent
directors could prove counterproductive.
"It could make a director very dependent
on a company and compromise his independence."
Any company is required to convene at
least four meetings of the board in a
financial year. In actual practice there
could be 10 to 15 meetings of the board
and various committees of the board in
a year. This means that with a sitting
fee of Rs. 20,000 per meeting, an independent
director can earn up to Rs. 2 lakh a year
as remuneration from a company if the
board and its committees meet 10 times
a year. Over and above this, a director
is entitled to airfare to the venue of
the meeting and stay at a star hotel.
Another
change under contemplation is that an
ex-employee of companies will be allowed
to join as independent director on the
board of companies after a three-year
cooling period. Clause 119 of the bill,
which proposed insertion of a new section
252 A, had stated that a person who has
held any post in the company will not
be eligible to be appointed as an independent
director on the board of that company.
DCA officials say that the government
had intended to allow former employees
to be appointed as independent directors,
but a drafting error had caused the proposal
to appear as a complete ban on nomination
of ex-employees as independent directors.
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Companies
may get a breather on number of independent directors |
| Department
of Company Affairs’ Secretary Mr. Vinod Dhall clarified that the
board strength, of which independent director have to number more
than half, excludes the nominees of the financial institutions.
This would mean that if a company has a board size of 12, of which
two are nominees of the financial institution, a minimum of 5
independent directors would have to be appointed once the Bill
is enactment and notified. Effectively, the number of independent
directors would be less than half, if nominees of FIs are represented
on the board. The Amendment Bill has said that the at least 50
% of the board should comprise independent directors and that
the nominees of the financial institution do not qualify as independent
directors.
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| Come
July 1, 2003, the auditor will have to be more vigilant, as the
Manufacturing and Other Companies (Auditor’s Report) Order (MAOCARO)
is being replaced with a tougher Companies (Auditor’s Report)
Order (CARO). This will make auditors more accountable. Clearly,
the shadow of Enron has fallen squarely on the auditor’s shoulders,
who will now have to dig deeper into the maze of corporate transactions
to keep their head above water.
Keeping
in mind the increasing number of corporate frauds coming to light,
nationally, CARO requires auditors to report whether any fraud
on or by a company has been noticed or reported during the year
under audit. CARO will require auditors to report defaults in
repayment of dues to banks, FIs or debenture holders. The period
and amount will have to be reported. Additionally, CARO requires
auditors to provide sufficient reason for offering unfavourable
or qualified opinion in case of transactions, which they feel
don’t follow the general accepted principals of accounting.
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De-listing
up during first quarter of FY 2003-04 |
The delisting
bandwagon has gathered momentum in the first quarter of 2003-04,
with 72 companies, domestic and multinational, proposing to
quit regional exchanges between April 1 and June 14, against
88 in the whole of 2002-03. Four multinational firms -–Kodak
India, Otis Elevator, Reckitt Benckiser and Rossel Industries
– have proposed to quit regional bourses in the last one and
half months.
Promoters
are now seeking voluntary de-listing from regional stock exchanges
to save on listing costs. Regional bourses are becoming redundant
because of technological disadvantages. Almost 99.9 per cent
of trading volumes are recorded on the two major exchanges,
the Bombay Stock Exchange (BSE) and the National Stock Exchange
(NSE). With most regional exchanges reporting minuscule volumes,
promoters prefer to pay listing fees to only the two most liquid
exchanges instead of paying annual charges to all of them.
As such,
trading volume was nil in the last one and half years on the
Delhi Stock Exchange (DSE). Thirty-three companies proposed
to de-list from the Ahmedabad Stock Exchange and 30 from the
Calcutta Stock Exchange.
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DCA
may review audit guidelines |
The
Department of Company Affairs (DCA) is likely to review some of
the provisions in the Companies (Auditors Report) Rule that have
become applicable from July 1.
Rajiv Mehrishi, Joint Secretary at DCA, informed an industry gathering
that areas like reporting preferential allotment of shares to
specified parties and use of long-term loans for short-term investment
by companies were beyond the realm of needed to be reviwed. Promoters
also needed to become more careful with disclosures as the DCA
was coming with a notification that would make it mandatory to
have a consolidated account along with a stand-alone account of
the holding company, he said.
The other rules that, according to the official, needed review
included the issue of rate of interest and whether the conditions
of loans taken by the company were prejudicial to the interest
of the company and the pricing of the specified transactions,
etc.
Referring to the provision that restricts the sale, lease or disposal
of assets to only 10 per cent of total assets of the undertaking,
he clarified that the rules did not restrict the board from taking
shareholders consent for a higher percentage.
On the issue of a subsidiary company being prevented from having
further subsidiaries, the DCA official siad that in the past this
was used as a route to siphon off large funds which were still
unrecoverable. The provision to restrict creation of such subsidiaries
had been aimed at putting a check on the practice.
He also informed that consolidation of accounts would be made
mandatory shortly and once this was notified, a holding company
would be required to submit consolidated accounts for the entire
group along with the standalone account of the holding company.
The requirement of attaching the accounts of subsidiaries would
be dispensed with.
(Source:
Economic Times, 20th July, 2003)
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Representation
on boards —
India Inc against `statutory crutches' for women
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Women’s
representation continues to be a thorny issue in India, be it
for the Parliament or on the boards of corporate India. A large
section of India Inc are against any legal binding (reservation)
for mandatory appointment of women directors on the boards of
public companies having a paid-up capital and free reserves
of Rs 5 crore or more or a turnover of Rs 50 crore or more.
The DCA proposes to amend Section 252, which prescribes for
constitution of board of directors. As per the existing provisions,
every public company (other than a public company which has
become such by virtue of Section 43A) shall have at least three
directors. While other company's would have at least two directors.
The DCA proposal in the Companies (Amendment) Bill, 2003, mandating
appointment of women directors on company boards, met with stiff
resistance at the National Seminar on Companies (Amendment)
Bill, 2003 here on Wednesday.
Opposing the proposal, the Federation of Indian Chambers of
Commerce and Industry (FICCI) opined that it is expertise, knowledge
and qualification that should be the criteria, not gender.
"Women today do not require the crutches of the statute.
The appointment should be on the basis of competence and merit.
There are enough professionally qualified women who are holding
offices of importance. Per-se, there is no need for making it
legally binding, in fact it is not respecting the calibre of
a woman," the chamber said.
Mr Onkar S. Kanwar, Vice-President, FICCI, said that "Companies
Act is meant for the purpose of company management and this
should not be equated with social laws. The role of Parliament
in enacting company law is primarily to provide investor protection.
In a shareholder democracy, it should be left to the shareholders
to elect the most eligible and qualifying director."
Voicing his concern on the proposal, Mr S.K. Birla, past-President,
FICCI, said "inducting a lady director on a compulsory
basis is a subject which has been discussed in respect of the
political set up and till date no consensus has emerged.
(Business Line, July 3, 2003)
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©
2001 Academy of Corporate Governance |
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