RECENT AMENDMENTS IN CORPORATE LAWS

Law: Do we need it?

Laws are the rules that govern the behavior of a society as a whole, as well as, individual behavior. They protect individual rights. Laws provide penalties or punitive actions for those whose fail to obey them. Without law and order; there would be absolute chaos.

Recent Scenario

The year 2009 has seen some major changes in the corporate sector. Increasing liberalization has forced companies to become more competitive and adopt different strategies to survive. The Government has also responded by continuing with its liberalization policy and further simplifying the laws & procedures.

Significant changes have been made in the field of corporate laws in the last couple of years in areas such as capital market regulations, corporate governance, simplification of tax laws, rationalization of excise and customs duty etc.

Significant Amendments in Company Law

The Companies Amend. Act 2006

Company Law in India has been left largely undisturbed since the enactment of the Companies Act, 1956. Periodically, certain amendments have been carried out, to keep in tune with the changing circumstances. However, as this has been delayed, some of the major items were introduced by way of an amendment to the Companies Act by the enactment of the Companies Amendment Act, 2006.

Latest Amendments

Section 1. Short title and commence-ment.- (1) This Act may be called the Companies (Amendment) Act, 2006.(2) It shall come into force on such date as the Central Government may, by notification, appoint and different dates may be appointed for different provisions of this Act

Section 2. Amendment of section 253 The following provision shall be

inserted, namely:—“Provided that no company shall appoint or re-appoint any individual as director of the company unless he has been allotted a Director Identification Number under section 266B.”.

Section 3. Insertion of new sections 266A, 266B, 266C, 266D, 266E, 266F and 266G.- After section 266 of the principal Act, the following sections shall be inserted, namely:—“Director Identification Number

DIN Section

266A. Application for allotment of Director Identification Number

266B. Allotment of Director Identification Number

266C.Prohibition to obtain more than one Director Identification Number.

266D.Obligation of director to intimate Director Identification Number to concerned company or companies.

266E.Obligation of company to inform Director Identification Number to Registrar.

266F.Obligation to indicate Director Identification Number.

266G.Penalty for contravention of provisions of section 266A or section 266C or section 266D or section 266E

Introducing E-Form method

After section 610A of the principal Act,

the following section shall be inserted,

namely:—

“610 B.Provisions relating to filing of applications, documents, inspection, etc., through electronic form”

Rules under 610B

(a) such applications, B/S, prospectus, return, declaration, MOA, AOA, particulars of charges, shall be filed through the electronic form and authenticated in such manner as may be specified in the rules;

(b) In case of alterations in Articles or Memorandum, Prospectus etc, is directed to be discharged by the Registrar, by the electronic form.

Significant Amendments in Securities Laws

SEBI~A Regulatory body !!

The Securities and Exchange Board of India is turning a stricter eye on company promoters who have been issued preferential warrants, saying that they will have to forfeit the upfront payment made on unexercised warrants. This is contained in its recently notified Issue of Capital and Disclosure Requirements (ICDR) Regulations 2009, which SEBI made public on Thursday 3rd September 2009.

ICDR, 2009

These regulations replace the Disclosure and Investor Protection (DIP) Guidelines 2000 that now stand rescinded.

The ICDR Regulations have been primarily created by conversion of the SEBI (Disclosure and Investor Protection) Guidelines 2000, a SEBI circular said.

In the matter of preferential warrants, SEBI’s new norms are probably meant to contain the situation following January 2008, when the stock market crash brought the price of several shares below the warrant exercise price for promoters, several of whom decided not to exercise their warrants in full.

Tighter Norms

If the promoter of a debarred company is also a promoter, director or person in control of any other company, even that company would now be barred from accessing the capital markets.

The new norms also ban firm allotment to privileged people, who may be related in either way to promoters group. Promoters with majority shareholding in a listed company can offer shares to the public straightaway.

Public Issues

“With the notification of the regulations, there will be a credible and stable framework for disclosure and investor protection, which would go a long way in streamlining the process of issue of capital,” an expert familiar with SEBI matters said. According to the new ICDR Regulations, the allotment/refund period in public issues has been reduced to 15 days for both fixed-price and book-built issues.

The new regulations have also removed the exemption available to banking companies for IPOs; these companies had until now enjoyed exemptions on norms such as track record, minimum tangible assets, distributable profits, etc.The issue period for infrastructure companies has been brought on a par with that for other companies, and is now down to 10 days from 21.

A ComparisonDescription Existing

normsNew Norms

Book-Building Process 100 % of Issue Price Book Building Process through 75% or 100% of Issue size

Allotment – Refund period in Public issues

15 days for both fixed price and book built issue

30 days for fixed price issue and 15 days for book-built issues

Disclosure of Price or Price band

Not required to be disclosed in draft prospectus

Required in draft prospectus in case of fixed price Public issues

Issue period in case of Public issues

Total issue period not to exceed 10 days, including any revision in price band

Issue period not clear in case of revision of Price band in book-built public issues.

Significant Amendments in Labour Laws

Amendments in Wages Act,

The Employers have the statutory responsibility to pay wages on time. If he fails to do so willfully,With effect from 30 March 2006, the maximum penalty for wage offences will be a fine of $350,000 and imprisonment for three years.

Under Bonus Act,

On October 1, 2007 the Cabinet has approved the Amendments to the payment of Bonus Act, 1965, which are as follows.

Eligibility limit for payment of bonus has been enhanced from Rs. 3,500 to Rs.10,000

Ceiling for purpose of calculation of bonus to the employee earning salary or wage has been enhanced from Rs. 2,500 to Rs.3,500.

Building operations will now be covered under The Payment of Bonus Act, 1965

Companies Bill, 2009

The Companies Bill, 2009 equates Company Secretary with the CEO and CFO expecting our profession to partner onerous responsibility in the corporate ladder. Corporate restructuring, cross border insolvencies, mergers and amalgamations, international tax planning, national integrated VAT system(GST), competition law and competition economics, arbitration and dispute resolution, legal and knowledge process outsourcing, knowledge management, indirect taxation and a host of other areas are emerging for Company Secretaries to excel both in employment and in public practice.

Case Studies :

Manager,ICICI Ltd VS Prakash

Kaur ORS.

Aasia Properties Development

Ltd VS Juhu Beach resort Ltd.

Case (i)

Manager,ICICI Ltd VS Prakash Kaur ORS.o Banking law – Employment of recovery agents by

banks – Hiring goondas to repossess hired vehicle – Whether legal – Held, No. Whether bank is liable for the acts of its recovery agents – Held, Yes. Supreme Court issued directions to RBI

o Facts: The respondent purchased a truck with the financing of the appellant bank. He failed to pay the installments and the bank forcefully took possession of the truck. He moved the High court under writ. The High court allowed the writ and the appellant bank appealed to the Supreme Court.

oDecision : Repossession of financed vehicle by force is illegal. Banks cannot employ goondas to repossess the vehicle. Bank is liable for the illegal and abusive acts of its recovery agents.

Case (ii)Aasia Properties Dev Ltd Vs Juhu Beach

Resort LtdCompanies Act, 1956 - Sections 293,397 and

398 – Company entering into management contract with hotel chains – Whether tantamount to selling of the business – Held, No. Whether shareholders approval is necessary for entering into such contracts – Held, No.

Brief Facts- Respondent Co, - Pvt ltd, Two groups’ viz S group and R group held one-third and two-third of the share capital respectively.

~Contd~

As disputes arose as to the management S filed a petition before the CLB alleging various acts of oppression and suppression, that management contracts entered with hotel chains are to be declared as null and void since shareholders approval was not obtained by the company. This issue is digested in this case.

Decision: Allegation dispelled.

Case (iii)

Federation of Hotels & Restaurants Association of India Ltd Vs Union Of India

Hotels and restaurants – Sale of Mineral water – Price charged more than MRP – Whether violates any provisions of Standards of Weights and measures Act – Held, No. Whether such supply could be treated as sale – Held, No.

Brief facts : Facts are immaterial for this case. The issue before the court was whether a hotel or restaurant could serve mineral water at a price more than its MRP?

Decision: They can serve.

From the President. . .

“The profession of Company Secretaries, during its existence for more than four decades has come a long way from being conscience keepers to compliance officers and now governance professionals. Having earned the trust and confidence of the Corporate Sector, Government and the regulators as watchdog for governance architecture, Company Secretaries are now expected to assume a leading role in guiding corporates as agents of change.”