Holding firms must keep books of SPVs

The JJ Irani Committee has recommended that holding companies be made accountable for proper maintenance of accounts of non-corporate entities like partnerships, special purpose vehicles and associations under their control.

The committee has also suggested that the government specify the manner in which accounts have to be maintained.

The committee has recommended that the government should encourage states to set up economic offences investigation departments like the Serious Frauds Investigation Office (SFIO) with the central SFIO as the nodal agency.

Another recommendation is a relaxation in the requirements relating to company meetings. The committee has said that companies be allowed to transact any business through postal ballot and leave a small negative list for items to be transacted at annual general meetings (AGMs).

The negative list, according to the Irani Committee, should consist of consideration of annual accounts and reports of directors and auditors, declaration of dividends, appointments of directors and auditors, and setting their remuneration. These will need approval by an ordinary resolution (where simple majority is required).

Exception is also made for matters on which directors or auditors have the right to be heard at meetings. Such matters have been excluded from postal ballot.

The committee suggested that in case of small companies, even the negative list should be done away with so that holding of AGMs is not needed. Instead, resolutions be circulated among members.

The committee has suggested that transactions between a holding company and its subsidiaries be treated as "related party" transactions to bring them into the "disclosure net".

Details of transactions be placed before audit committees and transactions that have not taken place in the ordinary course of business be disclosed in the annual report, the committee has recommended.

The committee has also asked for dispensing with the Companies (Transfer of profits to reserves) Rules, 1975 and The Companies (Declaration of dividend out of reserves) Rules, 1975. These rules specify the declaration of dividends out of reserves. The committee feels that these rules are irrelevant in the present environment.

The committee has suggested that the test of insolvency for a company should be a default in the payment of matured debt within a prescribed time instead of erosion of networth.