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Vol
3, Issue No.7, July 2003 |
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| With the Companies (Amendment) Bill 2003 proposing that no one can hold a board position after attending 75 years of age, the grand old men of Indian business, including patriarchs of like K.K. Birla, Brijmohan Lal Munjal, Keshub Mahindra, Arvind Mafatlal, LN Jhunjhunwala, Arvind Lalbhai, B M Khaitan, Bharat Ram and Charat Ram and many other may soon have to quit board positions and all the perks that go with it. The amendment to the act, however, proposes to protect the existing terms of the directors even if they have already attained the age of 75. Quiet understandably, businessmen are miffed and are already marshalling forces to oppose the proposal. Their argument is simple: if politicians who are nudging 80 years of age can remain in office as central ministers and as Chief ministers of state governments, why should they (the businessmen) be banished from corporate boardrooms on considerations of age. Contrarily,
many executives we spoke to find it amusing that the company’s
bill is thinking of bringing in “new blood” by this clause while
most companies are wanting a VRS for the 45 year olds! They believe
that anyone over 65 should not be allowed on the boards taking
a cue from the general practice in the case of public enterprises.
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| The department of company affairs is planning investors from the personal assets of promoters who have vanished with funds. A legal amendment may be required to implement the plan because promoters have limited liability. The department is also checking out if existing provisions in the Companies Act can be used for the purpose. The Companies (Amendment) Bill, 2003, introduced in Parliament earlier in May, has also proposed stricter norms for companies raising capital, and penalties have been enhanced to ensure that the vanishing firms phenomenon of the mid-nineties does not recur. "Penalties have been linked to amounts raised, and we hope this will act as deterrent", according to a DCA official. The
official pointed out that action had been initiated and prosecution
launched against 149 companies under Section 63, 68 and 628 of
the Companies Act, 1956, which included penalties for non-compoundable
offences. Measures have also been proposed in the Companies (Amendment)
Bill, 2003. Moreover, a model first information report (FIR) has
been provided to registrar of companies and regional directors
instructed to file them with the police in their respective areas
of jurisdiction. The model report is a follow-up to the recommendations
of the joint parliamentary committee that investigated the 2001
stocks scam.
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Unlisted companies may have to seek prior approval of the Union Government if they are to issue “Sweat Equity” shares for more than 15 per cent of total paid-up equity share capital in a year or shares of the value of Rs.5 crore, which is higher. A Committee appointed by the Department of Company Affairs (DCA) has favoured such a restriction even as the Committee’s Chairman, Prof. J.R. Varma, has disagreed with the recommendation. Prof. Varma is of the view that there are no justifications for placing restrictions on the quantum of stock option grants or Sweat Equity shares that can be issued by a company. The Committee has, however, held that the primary rationale for such restriction is a concern about possible abuses and misuses in this area. “As such, the intention is that the Central Government would take a sympathetic view of requests for approval of larger option grants or sweat equity issues in genuine cases. The majority is also of the view that the restrictions themselves should be reviewed after a period of two to three years on the basis of the experience gained during this period,” the committee said. It has also recommended that seat equity issued to directors for consideration other than cash would be subject to the ceiling on managerial remuneration under Section 198 of the Companies Act. Further, the draft rules on Seat Equity stipulate that approval of shareholders by way of separate resolution in the general meeting should be obtained by the company in case of grant of shares to identified employees and promoters, during any one year, equal to or exceeding one per cent of the issued capital (excluding outstanding warrants and conversion) at the time of grant of the sweat equity shares. The Board of Directors of the company are also required to disclose in the Directors Report the number of sweat equity shares to be issued to the employees or directors. The price of sweat equity shares to be issued to employees and directors should be at a fair price calculated by an independent valuer, says the draft rules. All the Sweat Equity shares issued to employees or directors would have a lock-in period of three years from the date of allotment.
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The article draws attention to a recent Review of Global Development Finance by the World Bank issued in March 2003 which makes the important point that, over the years, developing countries have turned out to be net exporters of capital instead of being recipients of capital from the developed world. On a net basis, capital is no longer flowing form high-income countries to developing economies that need it and which casts doubt on the declarations of the various developed countries, including the recent statements following the Evian Summit about their concern for poverty alleviation and determination to increase aid flows. Table below brings out a picture of the net capital flows to developing countries, starting from 1997 to 2002.
In 2002, the total of net private debt and equity and net official flows from developed countries was $ 192 billion, down from $ 210 billion in 2001 and $ 215 billion in 2000. There has been a steady decline in these flows since 1997, when they had peaked at $ 325 billion, the article points. If we take into account the reverse flow of resources represented by the growth in official reserves, the net outflow from developed countries would be seen to be substantially less. Foreign direct investment also flows into the richer countries from the poorer. The current account deficit of the US itself absorbs more than $ 500 billion a year from the rest of the world, mostly from the poorer countries, which are running a current account surplus. Hence, the conclusion that poor countries are exporting capital to the rich. Debt flows declined to as low as $ 7.2 billion in 2002 from $ 102 billion in 1997 as evident from Table-2. The net resource flow from the World Bank is relatively small, compared to the influence it commands in the corridors of powers. Table.2
In addition, there were equity flows in the form of FDI and portfolio. Equity flows have been significantly in excess of debt flows, making them an important component of resource transfers from developed world to the developing world. The reverse flow is represented by change in reserves. This pattern is seen in Table 3. Table.3
The increase in reserves flow back to the developed countries, in effect offsetting much of the resource flow as exists from the developed parts of the world to the developing parts. In addition, there is the reverse foreign direct investment flow from the poorer countries to the richer ones – which is quite substantial. The World Bank report shows the important role played by workers’ remittance in the flow of finances to developing countries. Workers’ remittance increased from $62 billion in 1997 to $80 billion in 2002. They are higher than most other forms of assistance. Resources that should be used in developing countries for their development are today invested in the securities of richer countries. The total reserves of the developing countries account to as high a figure as $888 billion, which represents a loan by the poorer countries to the developed world. …the resources of the “robust” developing world appear to be lent to the consumption and investment needs of the developed world. |
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| © 2001 Academy of Corporate Governance |
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