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Vol 4: Issue No.7 : July, 2004
NATIONAL NEWS

Hony. Editor
Dr. Bindi Mehta
Professor & Chairperson (Research & Publications)
Narsee Monjee Institute of Management Studies
(Deemed University)






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National Events
Companies de-list from local Stock Exchanges
in bid to cut costs

In the last few years, industry sources estimate more than 600 companies have de-listed themselves from various regional exchanges. The exact numbers, though were not made available by the exchanges.

The trend began after SEBI revised its guidelines for listing last year. Earlier, companies had to compulsorily list on the regional stock exchanges in which area their head office was registered. However, now, with the change in the guidelines, companies are no longer bound to do so, as long as they are listed on an exchange with a national coverage, such as the Bombay Stock Exchange or National Stock Exchange.

Since the BSE and NSE are highly liquid and have an all-India reach, it makes sense for the company to cut down on annual listing fees and other charges levied by the regional bourses. Listing fees are paid annually by companies and are a function of the paid-up share capital of the firm. De-listing also saves companies the hassles of meeting listing requirements.

Regional stock exchanges, as such, are struggling for survival. Out of the 23 stock exchanges in India, BSE and NSE together contribute to more than 90% of the average daily trading business. This percentage has been steadily growing in the last few years. And, if declining volumes were not enough for small regional exchanges, company de-listings are further making their survival tougher.






 
 
   
Database Program for Capital Market Participants by SEBI

The Securities and Exchange Board of India (SEBI) introduced last year a database programme for capital market participants. All players on the capital market were required to register themselves under this scheme to be eligible to commence or continue their operations in the market transactions. According to a recent report, some twelve thousand such registrations have already been made, including over two thousand corporates. This clearly brings home the fact that India is quickly moving towards global standards in regulatory discipline.

Independent directors are also required to register and are to be subjected to this discipline. It has been argued that since independent directors are to oversee and monitor the executives / management and they are not supposed to participate in the day-to-day management of companies and therefore should not be subjected to this. Even in the US, SEC does not require such directors to obtain registration. We invite readers’ opinions on the subject.

 


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Lack of clarity on executive default law irks corporates

The question whether a non-executive director of a company can be considered as officer in default if the company fails to comply with the provisions of the Company Law continues to trouble the corporate sector. Despite the law clearly specifying who the directors/officers in default are, the interpretation made by some of the Regional Directors (RDs) of the Ministry of Company Affairs (MCA) is creating lot of confusion among the companies, industry sources said.

"While processing the compounding applications, some RDs insist that all directors/officers in default should sign the compounding applications, which means that all the directors irrespective of executive or non-executive would be held defaulter and are liable to be punished."

This, according to the corporate sector, is contrary to the provisions of the Companies Act, which clearly stipulates that where there is a Managing Director or Manager, they and all other employees of the company would be punishable.

When the company has neither Managing Director nor Managers, all directors would be punishable.

The problem arises more so with reference to Section 212 of the Companies Act, which stipulates that the holding companies have to attach, while issuing balance sheet, specific details of subsidiaries, including balance-sheet, report of board of directors, auditors' report, and statement of holding company's interest in the subsidiary.

Further, the Central Government has been empowered to exempt the companies from these provisions and the offence was compoundable under Sections 212(9) & (10) of the Act.

The Act also specifies of the persons responsible for compliance of this Section.

As per Section 212(9) any such person as is referred in the Act fails to take all reasonable steps to comply with the provisions of the section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to Rs 10,000, or with both.

Section 212(10) states that if any person, not being referred to in the Act having been charged by the Managing Director, Manager or board of directors, as the case may be, with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may be extended to six months, or with fine which may extend to Rs 10,000, or with both.

(Source: Business Line, July 21, 2004)

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Lack of clarity on executive default law irks corporates

The Government today said it has decided to fix a time-frame of six months for finalising the liquidation process of the defunct companies and also bring down the number of Clauses to 300 from the current 796 under the new Companies Act.

The Government will also expedite functioning of the Competition Commission and National Company Law Tribunal, Company Affairs Minister PC Gupta, said addressing an ASSOCHAM meeting here.

"Since the current liquidation process takes years, the Government is planning to fix the liquidation process of defunct companies within six months after it receives an application to this effect", the Minister said.

He also said that under the new Companies Act the Government proposes to bring down the Clauses to 300 from the existing 796 since most of them have been found outdated and old-fashioned, an ASSOCHAM release said.

The Government is in the process of helping industry to file documents with the Registrar of Companies through emails and payment of fees through the electronic processing system, the Minister said.

The Centre was also preparing a concept paper on issues and concerns of industry to be incorporated in the new Act, he said adding a draft paper will be sent to various industry associations for eliciting their views.

(Source: The Hindu, June 30, 2004)


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Experts feel `unjust' removal of auditors can be challenged
Company Law experts are of the view that removal of a statutory external auditor who has just been re-appointed (at a properly constituted AGM), through a specially called extraordinary general meeting subsequently, though permissible under the Companies Act, is generally not resorted to by most professionally managed companies.

According to one senior lawyer, courts have issued directions in such cases, stating that the auditor cannot be removed till the next AGM, particularly going by the principles of natural justice. The auditor can also take the matter to the "Committee of Unjust Removal of Auditors" of the Institute of Chartered Accountants of India (ICAI). The generally accepted practice, according to them, was for the companies to ask auditors, if involved in any major controversy after re-appointment, to resign on their own.

Under Section 224 (7), except as provided in the proviso to sub-section 5, any auditor appointed under this section may be removed from office before the expiry of his term only by the company in a general meeting, after obtaining the previous approval of the Regional Directors of RoC.

As per provisions with regard to resolutions for appointing or removing auditors, under Section 225 of Companies Act,

1) special notice shall be required for a resolution at an annual general meeting appointing, as auditor, a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be appointed.

2) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor, and

3) Where notice is given of such a resolution and where the retiring auditor makes representations in writing to the company (not exceeding a reasonable length) and requests their notification to members, the company shall, unless the representations are received too late, state the fact of representations having been made in the notice, and send a copy to every member to whom notice of the meeting is sent.

And if the copy is not sent as aforesaid either because it was sent too late or because of company's default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.

(Source: Business Line, July 21, 2004)

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