 "Satwinder Singh")
The new companies Act has generated a mixed response from corporate India. Satwinder Singh, partner, Vaish Associates Advocates, who, along with his team, recently authored a book titled Companies Act 2013-Impact Assessment, talks to Deepak Patel about some of the dilemmas businesses are facing while implementing the Act. Edited excerpts:
Many legal experts have said the companies Act hasn't been drafted well. How justified is this criticism?
When we talk about legal language, even a wrongly placed comma leads to a completely different interpretation. There are certain gaps and inconsistencies in the provisions (of the law), which might lead to different interpretations. Implementation of this is creating hassles for companies.
The definition of related-party transaction has been widened in the new Act. What impact will this have on the way business is done in India?
The government is trying to improve upon it. Recently, the Ministry of Corporate Affairs brought out a notification, removing disparity in the case of companies with paid-up share capital of at least Rs 10 crore and introducing revised threshold limits for all companies.
Now, a transaction that doesn't fall under ordinary course of business and isn't on an arm's length basis requires shareholders' approval only when thresholds are triggered. Still, the question of what constitutes 'ordinary course of business' and how arm's length basis (manner and methodology) will be determined are grey areas, open to different interpretations.Also, when we talk of related-party transactions, we have to ask how far it is practicable to apply related-party provisions to private companies. I believe, for private companies, this provision should be done away with.
How are companies coping with the spate of circulars and notifications the ministry has issued through the past four-five months?
Many of the circulars and notifications are meant to clarify the intent behind provisions, though there is ambiguity on many provisions. Many provisions have taken away the ease of doing business or structure operations (particularly for private and closely-held public companies); this has led to the questions whether there was a need for this Act and whether the requisite changes could have been introduced by way of amendment to the Act. Though there are a few problem areas, the Act has brought about some positive provisions.
What are the key problem areas?
Take the example of deposits or loans to directors. Earlier, private companies were allowed to accept loans from directors, members and their relatives. Now, loans from members and their relatives by private companies aren't allowed, leading to cases for refund of such deposits within a year. The concept of deemed deposit has also been introduced in certain cases.The director, too, cannot give a loan to the company to save it, in case he is borrowing against his personal assets to fund the company. Companies are facing issues of how to appropriate the existing share application money in the books of account, how to structure the financial instruments that don't fall in the ambit of 'deposits', how to deal with situations in which loans and advances are to be given within group companies with common directors, issues concerning related-party transactions, procedural complexities for issuance of shares on a preferential/private placement basis by private and closely-held companies, etc.
Important provisions such as those relating to mergers and amalgamations haven't been notified. As a result, companies have to use provisions of the 1956 Act and the 2013 Act. Is that creating confusion?
The related provisions in the new Act haven't been notified and, therefore, so far, provisions of the 1956 Act continue to be applicable and on such matters, the jurisdiction of the high court will continue. For some sections, only a part has been notified, which, to an extent, is adding to the confusion. Section 465 of the new Act clarifies that until a date is notified for transfer of all matters to the National Company Law Tribunal, the jurisdiction of the Company Law Board and the court will continue to be applicable, as if the Companies Act, 1956, hasn't been repealed.
What are the key concerns companies have on the issue of corporate social responsibility (CSR)?
There was confusion on the applicability of CSR for this financial year, but with the ministry's latest clarification, it is now clear this will be applicable. Issues such as whether the contribution to CSR is mandatory or that of its deductibility under the Income Tax Act are still debatable. Further, contribution to trusts by the companies that are subsidiaries of foreign companies under CSR regulations might attract provisions of the Foreign Contribution Regulation Act.
It appears contributions have to be monetary, as there is no valuation mechanism for quantifying contributions in kind.
