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The Institute of Company Secretaries of India is a premier
national professional body constituted under an Act of
ParliamentnamelytheCompanySecretariesAct,1980(ActNo.
56 of 1980), to develop and regulate the profession of
Company Secretaries in India. The ICSI functions under the
jurisdictionofMinistryofCorporateAffairs.

The Institute has on its rolls about 36,000 members including

membersholdingcertificateofpractice.Thenumberofcurrent
studentsisover2.87lakh.TheInstitute:

Has its Headquarters at New Delhi, 4 Regional Councils at

Chennai, Kolkata, Mumbai and New Delhi, 68 Chapters
located in various cities all over India and the Center for
Corporate Governance, Research and Training (CCGRT) at
NaviMumbai.
Registersstudentswith10+2andgraduatequalificationsfor
Foundation and Executive Program of Company
Secretaryship respectively with course contents in Law,
Management,AccountingandFinancedisciplines;
Conducts Company Secretaryship examination twice a year
in June and December, at 66 centers spread all over India
andoneoverseascenteratDubai;
Provides postal/oral coaching and training enabling
studentstoqualifyasCompanySecretaries;
Provides elearning for students through Web Based
Training,VideoBasedTrainingandLiveVirtualClassroom;
Arranges practical training for Executive/Professional
Program pass students in Companies/with Practicing
Company Secretaries especially empanelled for the
purpose;
Enrolls qualified persons as Associate/Fellow members of
the Institute and issues Certificate of Practice to members
takinguppractice;
Conducts Post Membership Qualification Courses for
membersoftheInstitute;
ConductsICSA,UKExamsformembersoftheInstitute;
Publishes Chartered Secretary, a professional journal
popularamongallprofessionals;
Publishes Student Company Secretary and C.S.
FoundationProgramBulletinforthebenefitofstudents;
Publishes Online 'CS update' containing current
notificationsandcircularsrelatingtovariouscorporateand
relatedlaws;
Exercisesprofessionalsupervisionoverthemembersofthe
Institute, both in employment and in practice in matters
pertainingtoprofessionalethicsandcodeofconduct;
UndertakesresearchinLaw,Management,andFinanceand
Capital Market disciplines and brings out research
publicationsandguidancenotes;
IssuesSecretarialStandardsandbringsoutGuidanceNotes
thereon;
Gives expert advisory opinion to members on intricate
issuesrelatingtovariouscorporatelaws;
Organises Professional Development Programs and,
International / National / Regional Conventions and
Conferences.
Organises Professional Development Programs in
collaboration with Chambers of Commerce, Department of
Public Enterprises, Sister Professional Institutes and other
ProfessionalDevelopment/ManagementBodies.
Interacts with various National and Regional Chambers of
CommercewithregardtovariousGovernmentPoliciesand
Legislations.
Interacts with the Central and State Governments and
RegulatoryAuthoritiesonmattersofprofessionalinterests;
Interacts with CS Institutions of other countries in respect
oftheInternationalFederationofCS;
Bestows ICSI National Award for Excellence in Corporate
Governance to best governed Companies; Bestows Life
Time Achievement Award on one eminent corporate
personality for Translating Excellence in Corporate
GovernanceintoReality.
FounderMemberoftheNationalFoundationforCorporate
Governance.
Founder Member of International Federation of Company
Secretaries.

Visit:
www.icsi.edu/bangalore
Page 3

Message from Bangalore Chapter of ICSI

MyDearStudents,

AmhappytosharewithyouthattheBangaloreChapteroftheICSIisreleasingtheESouvenirto
commemoratethe9
th
StateLevelStudentsConferenceMilaap2013MeetingofMinds

IcongratulateallthestudentswhohavecontributedbywayofarticlesintheESouvenir.

My heartfelt thanks to the entire organising team for their time, efforts and invaluable
contributioninbringingouttheESouvenirinsuchgrandeur.IamconfidentMilaap2013willbe
of immense value to the students in all round development and in shaping their professional
careerasaCompanySecretary.

Message from Mysore Chapter of ICSI

DearStudents,

Meeting of Minds..!!! Yes indeed! I recall my CS student days, the first ever big event which I
attended was Milaap, organised by Bangalore Chapter and participated in each activities of
Milaapandwasagoodlearningexperience.EveryyeartheMilaapeventcomesoutwithunique
activities.EarliertheeventwasparticipatedbyCSstudentsfromacrosstheKarnatakastateand
with growing popularity, this reach has surpassed the state and now even students from other
statesarealsoattendingtheeventandtakingpartineachactivateslistedfortheirparticipation
andmakingthethemeofMeetingofMindsagrandsuccessandtakingthiseventtothenational
level.

MysorechapterandBangalorechapteralwaysshareacomplimentaryrelationshipineachspheresofprofessionalstream.Mysore
chapter students takes active participation in Milaap event and Bangalore chapter students takes part in UmangZeal to Excel.
(AnnualeventorganisedbytheMysorechapter).

With this message I would like to wish the team of Bangalore chapter Managing Committee and the students a grand success in
hostingthisAnnualeventandkeepthespirithighandkeepreachingnewheights.BestofLuck!

Message from Mangalore Chapter of ICSI

DearBangaloreChapter&StudentsofICSI,

WithrespectoftheMILAAP2013,IonbehalfoftheMangalorechapteroftheICSIwouldliketo
wish the Bangalore chapter of the ICSI the very best in organizing the 9th State Level Students'
ConferenceMILAP2013.

IwouldalsoliketotakethisopportunitytocongratulatetheBangaloreChapterforhavingtaken
theinitiativetoorganizesuchawonderfuleventforthebenefitofthestudentsoftheICSI.Iwish
thestudentconferenceagrandsuccess.

CS M. Manjunatha Reddy
Chairman
Bangalore Chapter of ICSI
CS. Sunil Kumar B.G.
Chairman
Mysore chapter of ICSI
CS. Ullas Kumar M.
Chairman
Mangalore Chapter of ICSI
Page 4

ICSI Bangalore Chapter

Managing Committee for the Year 2013

CS. Manjunatha
Reddy
Chairman









CS. Sharada S.C
Vice-Chairman










CS. Dattatri H.M
Secretary









CS. Srinivasan R
Treasurer









CS. G.M. Ganapathi
Member









CS. S. Kannan
Member









CS. Hari babu Thota
Member









Mr. B.N. Harish
Co-opted









CS. Gopalakrishna Hegde
Ex-officio
Member Central Council









CS. Dwarakanath C
Ex-officio
Chairman-SIRC of ICSI









CS. Nagendra D Rao
Ex-officio
Secretary-SIRC of ICSI

Page 5

Nethra Sridhar
CS Professional Program
Trainee with CS Parameshwar G. Bhat

Rakshita.T.S
CS Professional Program

DearFriends,

A small body of determined spirits fired by an

unquenchable faith in their mission can alter the course
ofhistory.MahatmaGandhi.

These inspiring words of Gandhi really give energy to make a

smalleventtobig.

Whenwestartedesouvenirwehadonlyasmallidea,butwhile
implementing,itwasnotjustaboutamagazineitwasallabout
knowledge. E Souvenir has given us immense knowledge and
alsochangedusaspersons.

TwoMonthsbeforefewinterestedpeoplegottogethertomake
an event successful. A small group of determined spirits could
makethiseventsuccessful.Becauseofthisteamspiritwehave
got record breaking articles, which got us smiles on our faces.
Thankyousomuchwriters!

Writingisthatpartofourhiddentalentwhichisoutburstwhen
we have podium like esouvenir. Not only students got e
souvenir to show their talent. It was also esouvenir which got
wonderful,mindstormingarticlesfromtalentedpeople.

ThearticlesonCompaniesBill2012,updateduswithlatest.Few
articles made us to think and inculcate in our own lives. These
gavenewdimensionforsouvenir

The efforts of our team and their sacrifices of their personal

commitmentsneedsbigapplause.OurcommitmenttoGogreen
and make esouvenir successful could be achieved only by
making them to reach all the students. We had nearly made
innumerablecallsandmailstoallstudents.Weatthismoment
like to remember the support given by all Company Secretaries
who contributed to esouvenir by encouraging their trainees to
beapartoftheevent,thiswasgreatcontribution.

Wereceived82articlesfromdifferentplacesinwhichwecould
select 50 articles which enhance the beauty of esouvenir. We
receivedthesearticlesfromlocationinandoutofKarnatakalike
Bangalore,Mumbai,Belguam,Mangalore,Sirsietc.

This shows how Bangalore team has put its efforts to make it
reachstudentsalloverIndia.

We had all categories of students from Young age of 21 to 58

years. The other articles Included Understanding the Sahara
Group Imbroglio A Case Study Health Checkup were quite
interesting and Health Checkup title was puzzling, it was a
giggle.

Few articles made our work easy as they were so perfect in all
aspects like Presentation, Language, Content, reference,
perceptionetc.

We congratulate all the winners and like to wish all the 77

writerswhomadesouvenirarecordbreakevent.

Our Gratitude to all the reviewers who showed up at the time

weneededandcouldtakeuptimefromtheirbusyschedule.

We also express our gratitude to the CS Shilpa Budhia, CS.

Ravishankar and CS. Sanjeev Rao Y for judging the best articles
and we express Our gratitude to our mentors CS. Dattatri H M
andCS.HarishBNwhosupportedineachstepwhenweneeded
them.

We thank each office bearer of Bangalore Chapter for their

support and the other Milaap teams which also contributed to
oursuccessespeciallypublicityTeam.

Lastly, we are thankful to the people who gave us an

opportunitytobepartofesouvenirandMilaap.Thisisanevent
toberememberedinourentirelife.
Page 6

eSouvenir:
Data Sheet!

Total articles received -

82

Articles passed through
tough round of selections
50

The Team:

Mentors Members Editors Judges
CS Dattatri H.M.
CS Harish B.N.

Rakshita T.S.
Nethra Sridhar

CS Abhishek Bharadwaj
CS Chakri Hegde
CS Omkar Hegde
CS Parameshwar G. Bhat
CS Prabhath
CS. Ratnamala Hegde
CS Sharada S.C.
CS Srinath
CS Vighneshwar Hegde
CS Vinay B.L.
CS Ravi Shankar G
CS Sanjeev Rao Y
CS Shilpa Budhia



Cash awards sponsored by:

CS Vinod Raman


Page 7

A
A
r
r
t
t
i
i
c
c
l
l
e
e
s
s



1. Sahara Group Imbroglio.................................................................................................................. 9
2. Exchange Traded Funds ................................................................................................................. 11
3. Health Check-Up................................................................................................................................ 13
4. ESOP ....................................................................................................................................................... 14
5. TP & Role of a CS.............................................................................................................................. 16
6. Committees of a Company ............................................................................................................ 19
7. What is FEMA? ................................................................................................................................... 21
8. Joint Ventures in India .................................................................................................................. 22
9. Money Laundering............................................................................................................................ 24
10. SEZ An Overview............................................................................................................................ 26
11. Public Issue without Going Public............................................................................................. 28
12. One Person Company....................................................................................................................... 30
13. Fast Track Exit ................................................................................................................................... 31
14. Takeovers ............................................................................................................................................. 33
15. FDI in Retail........................................................................................................................................ 35
16. Corporate Governance.................................................................................................................... 37
17. Opportunities & Challenges to a CS.......................................................................................... 39
18. Allotment of Securities................................................................................................................... 41
19. CSR & Companies Bill 2012.......................................................................................................... 43
20. Real Problems in the Virtual World......................................................................................... 45
21. Fraud and Corporate Governance............................................................................................. 47
22. Corporate Governance.................................................................................................................... 49
23. Positioning of CS............................................................................................................................... 51
24. Transparency in Governance....................................................................................................... 53
25. IEPF......................................................................................................................................................... 56
26. Best Legal Practices ......................................................................................................................... 58
27. Related Party Transactions.......................................................................................................... 60
Page 8

28. Merchant Banking in India........................................................................................................... 62

29. Producer Companies & Inflation............................................................................................... 64
30. Sustainability & Governance....................................................................................................... 66
31. Strategic Management.................................................................................................................... 67
32. Interim Dividend............................................................................................................................... 70
33. Office or Place of Profit ................................................................................................................. 72
34. Corporate Social Responsibility................................................................................................. 73
35. Soft Skills -An Overview................................................................................................................. 74
36. Buyback of Shares .......................................................................................................................... 76
37. Accounts and Audit.......................................................................................................................... 78
38. One Person Company....................................................................................................................... 80
39. E-Governance...................................................................................................................................... 82
40. Management Soft Skills.................................................................................................................. 84
41. One Person Company....................................................................................................................... 86
42. Listing of Securities Kept in Abeyance.................................................................................... 88
43. Body Language an Effective Communication ................................................................... 90
44. Role of CS under the Companies Bill, 2012............................................................................ 92
45. Committees .......................................................................................................................................... 94
46. Withholding Tax................................................................................................................................ 96
47. Charges.................................................................................................................................................. 98
48. Insider Trading................................................................................................................................ 100
49. Forensic Audit: Necessity or an Option? ............................................................................... 101
50. Suggested Agenda for BM & SHM............................................................................................ 103
51. Poems by Coolkarni105
Page 9

Sahara Group Imbroglio

MohammedIsaq
M.com,CMA(Final)CS(Prof)
Accountant@BBMP,Bangalore
ishaqsait@gmail.com


Earl Warren states on Law, It is the spirit and not the
formoflawthatkeepsjusticealive

Hence, we have to practice and profess law in its true

spirit and not to twist the provisions of law to avoid its
truecompliance.

The Supreme Court of India in its recent judgment on

SaharaGrouphasupheldthisview.

Background:

Sahara India Real Estate Corporation Limited (SIRECL) and

Sahara Housing Investment Corporation Limited (SHICL)
are the companies controlled by Sahara Group. A special
resolution passed in their General Meetings under
Section 81(1A) of the Companies Act, 1956 to raise
funds through unsecured Optionally Fully Convertible
Debentures (OFCDs) by way of private placement to
friends, associates, group companies,
workers/employees and other individuals
associated/affiliated or connected in any manner with
Sahara Group of Companies without giving any
advertisementtothegeneralpublic.

RedHerringProspectus(RHP)filedwiththeRegistrarof
Companiesspecificallyindicatedthattheydidnotintend
toget their securitieslistedonanyrecognized stock
exchange.Anditisonlyforthosepersonstowhomthe
Information Memorandum(IM) was circulated and/or
approached privately who were
associated/affiliated/connected in any manner with
SaharaGroup,wouldbeeligibletoapply.
TruthUnfoldsSeriesofevents:

Roshan Lal, a resident of Indore sent a letter to National

Housing Bank to look into housing debentures issued by
two companies (SIRECL & SHICL) which are bought by
large number of investors alleging that Sahara Group was
issuing housing debentures without complying with
Rules/Regulations/Guidelines issued by RBI/MCA/ NHB.
The same was forwarded to Securities Exchange Board of
India(SEBI)

SEBI identified the large scale collection of money from

thepublicbySaharasthroughOFCDs,whileprocessingthe
RHP submitted by Sahara Prime City Limited, another
CompanyoftheSaharaGroup,foritsinitialpublicoffer.

SEBI then addressed a letter to Enam Securities Private

Limited, merchant bankers of Sahara Prime City Limited
aboutthecomplaintreceived.

Merchant Banker sent a reply stating that SIRECL and

SHICL were not registered with any stock exchange and
were not subjected to any rule / regulation /guidelines /
notification/directionsframedthereunder.Theissuances
ofOFCDswereincompliancewiththeapplicablelaws.
Legal provisions involved under various statutes are as
follows:

Companies Act, 1956, Securities Contracts (Regulations) Act,

1956(SCR),SEBIAct,1992,DIPGuidelines,2000,UnlistedPublic
Companies (Preferential Allotment) Rules, 2003 SEBI (ICDR)
Regulations,2009

KeyIssues:

o WhetherOFCDsissuedbySaharas

o Securities only under Companies Act OR should be

readwithSCRAct?

o ConvertibleBondunderSCRAct?
I
Prize
Winner
Page 10

o Offer to fifty or more persons is a public issue and its

compliance?

o Required to file final prospectus with SEBI when offer

ismadetomorethanfiftypersons?

o LiabletoCivilandCriminalliabilityfornoncompliance
oftheCompaniesAct?

o SEBI has jurisdiction or power to administer the

variousprovisionsoftheCompaniesAct&SEBIAct?

o ViolatedthevariousprovisionsoftheDIP(Guidelines)
andSEBI(ICDR)Regulations2009?

ContentionofSahara:

o OFCDs are hybrid, a separate and distinct class of

securities, neither shares nor debentures and are
convertiblebondssonotliableforlisting.
o Preferential allotment by unlisted public companies
on private placement basis was provided for and
permitted without any restriction on number of
persons and no requirement of listing them on a
recognizedstockexchange.
o Prospectus is to disclose true and correct statements
andnotaninvitationtothepublicforsubscription.
o IM or RHPs can be filed to offer shares by way of
privateplacementortoasectionofthepublicoreven
tothepublic,butyetwithoutintendingittobelisted.
o Noevidenceofcrediblenaturetoshowthattherewas
anattempttodeceiveorcollectmoneyfromfictitious
sources.
o NoviolationsundertheCompaniesAct.
o SEBIhasnojurisdictiontoadministertheaffairsofan
unlisted company; their securities could not be
regulatedbytheSEBI.
o No action against the companies by SEBI under the
DIP Guidelines till they were repealed. ICDR
Regulationswouldonlyhaveprospectiveeffect(w.e.f.
26.8.2009)andwouldnotbeapplicabletoactionsand
activities which had taken place before the
commencementoftheICDRRegulations.

ObservationofSupremeCourt:

o OFCDs although hybrid, possess characteristics of

sharesanddebenturesandfallwithinthedefinitionof
Section 2(h) of SCR Act. Company's option, choice,
election, interest or design does not matter. The law
demandstheconductandaction.
o Every private placement made to fifty or more
personsbecomesanofferintendedforthepublicand
attractsthelistingrequirementsunderSection73(1).
o Saharas had violated the listing provisions and
collected huge amounts from the public in
disobedience of law. Order of SEBI is justified in
directingrefundoftheamountwithinterest.
o Saharas were legally obliged to file the final
ProspectusunderSection60B(9)withSEBI.
o Saharas conduct invites civil and criminal liability
undervariousprovisionslikeSections56(3),62,68,
68A,73(3),628,629andsoon.
o The definition of preferential allotment under
Unlisted Public Companies (Preferential Allotment)
Rules, 2003are more explicit and these Rules are
subordinate regulations and are to be read with
provisionsofSection67(3)and73(1)andotherrelated
provisions.
o SEBI has the powers to administer under the
provisions of Companies Act,, and can exercise its
jurisdiction under Sections 11(1), 11(4), 11A (1) (b)
and11BofSEBIActandRegulation107ofICDR2009.
o Saharas have violated the DIP Guidelines and SEBI
(ICDR)Regulations2009.

Conclusion:

Saharas have no right to collect money from three

million (3crore) investors without complying with
regulatory provisions contained in the Companies Act,
SCRAct&SEBIActandRulesandRegulationsmadethere
under.

The conduct of Saharas is clear violations of various

regulatory provisions. The Supreme Court has upheld the
judgment passed by SEBI and Securities Appellate
Tribunal. Saharas have to refund the entire amount
collectedalongwithInterest@15%.

On February 6 2013, Supreme Court allows SEBI to seize

Sahara assets and issued contempt notice against the
Saharagroupfornotrefundingtheentireamount.
This case has made clear raising of funds in disguise of
privateplacementthoughapublicissuecannotbeusedby
companies without complying listing and other approvals
and SEBIs role in protecting the interest of Investors in
thespiritoflawratherthantheformoflaw.
Page 11

Exchange Traded Funds

ApurvaR.Murthy
ManagementTraineewithCS.R.C.VenkateshRao
apurvaappi@gmail.com

Banking your retirement on stocks is risky enough;

Banking on individual bonds is typically less risky, but
the same general principle holds. There is safety in
numbers. Thats why gnus graze in groups. Thats why
smartstockandbondinvestorsgrabontoETFs.

Just as a deed shows that you have ownership of a

house,andashareofcommonstockcertifiesownership
in a company, a share of an ETF represents ownership
(most typically) in a basket of company stocks. To buy
or sell an ETF, place an order either through broker or
by on line (due to cost reasons) or place an order by
phone.

The fluctuation in price of an ETF required to be

watched through the trading hours from 9:30 a.m.
to4:00 p.m., so as to watch the market value of the
securitiesitholds.(Sometimestherecanbealittlesway
times when the price of an ETF doesnt exactly track
the value of the securities it holds but that situation
is rarely serious, at least not with ETFs from the better
purveyors.)

PreferringETFsoverIndividualStocks

Why buy a basket of stocks rather than an individual

stock?QuickAnswer:Youllsleepbetter.

Compared to the world of individual stocks, the stock

market as a whole is as smooth as a morning lake. If
youarenotespeciallykeenonrollercoasters,thenyou
areadvisedtoputyournesteggintonotonestock,but
into basket of stocks. But for most of us commoners,
the only way to effectively diversify is with ETFs or
mutualfunds.

DistinguishingETFsfromMutualFunds
ETFs are bought and sold just like stocks (through a
brokerage house, either by phone or online), and their
priceschangethroughoutthetradingday.

Mutual fund orders can be made during the day, but the
actualtradingdoesntoccuruntilafterthemarketsclose.

ETFs tend to represent indexes market segments and

the managers of the ETFs tend to do very little trading of
securitiesintheETF.(TheETFsarepassivelymanaged).

Mostmutualfundsareactivelymanaged.

ETFsusuallyrequireyoutopaysmalltradingfeesandcostof
winding up less than mutual funds because the ongoing
managementfeesaretypicallymuchless,andthereisnever
aload(anentranceand/orexitfee,sometimeanexorbitant
one)asyoufindwithmanymutualfunds.

ETFs are structured due to low portfolio turnover less in

taxablecapitalgainsthanmutualfunds.

Savoringtheversatility

Unlike mutual funds, ETFs can also be purchased with limit,

market, or stoploss orders, taking away the uncertainty
involvedwithplacingabuyorderforamutualfund andnot
knowing what price youre going to get until several hours
afterthemarketcloses.

Yourbasictradingchoices(forETFsorstocks)

Buying and selling an ETF is just like buying and selling a

stock;therereallyisnodifference.Althoughyoucantradein
all sorts of ways, the vast majority of trades fall into these
categories:

1. Marketorder.
2. Limitorder.
3. Stoploss(orstop)order.
4. Shortsale.

Page 12

WhyETFsarecheaper

The management companies that bring us ETFs are

presumably making a good profit. One reason they can
offer ETFs so cheaply compared to mutual funds as
expenses are much less. When you buy an ETF, you go
throughabrokeragehouse.Thatbrokeragehousedoes
all the necessary paperwork and bookkeeping on the
purchase.

ETFs that are

linked to
indexes do
have to pay
some kind of
fee. But that
fee is nothing
compared to
the exorbitant
salaries that
mutual funds
pay their
analysts.

Notaxcalories

ThestructureofETFsmakesthemdifferentthanmutual
funds. Actually, ETFs are legally structured in three
different ways: as exchangetraded openend mutual
funds, exchangetraded unit investment trusts, and
exchangetradedgrantortrusts.ETFshares,whichrepresent
stock holdings, can be traded without any actual trading of
stocks.Inawayitslikefatfreepotatochips,whichhaveno
fatcaloriesandpassesthroughyourbody.

Conclusion

Sogiventhatlargevaluestockshistoricallyhavedonebetter
than large growth stocks, and that small caps historically
have knocked the stocks off, does it still make sense to sink
some of your
investment dollars
intolargegrowth?Oh
yes, it does. The past
is only an indication
of what the future
may bring. No one
knows whether value
stocks will continue
to outshine. In the
past 10 years or so
especially, large
growth stocks have
lagged behind value
andhavefallenbehindsmallerstocksbyawidemargin.But
this trend was itself a reversal in 1990s when growth
trumped value. The higher your risk tolerance, the closer
youll want to be, to the lower end of that range. In India,
most ETF expenses are in 0.5% to 1% range, but for large
ETFs'itcanbemuchlower.
Page 13

Health Check-Up




AnkushSethi
TraineeatJ.Sundharesan&Associates
ankush.code@gmail.com



The information era which we live in has made people
more caring towards health of themselves and their dear
ones. With advancement in science new methods to
detect&keepdiseaseatbayhavebeendiscovered.

The people have a fair knowledge to keep themselves in

goodhealth,yetfeeltheneedtoconsultadoctor,asthey
canverywellassessthesituationanddecidewhatwillbe
mostappropriatealternativetouse.

But how would you take an artificial/ judicial person to a

doctor?DOCTOR!!

Doctor in this context will be represented by a

professional be it a Charted Accountant, Company
Secretary, Cost Accountant, Lawyer wherein each one
specializesintheirrespectivefields.

Artificial/JudicialPersonrefertoallcorporate,association
of people, body corporate, including statutory bodies. In
case of Artificial/ Judicial Person, it is governed by laws,
rules&regulationsbytheappropriateauthoritywhichhas
mandated a compulsory health checkup, nothing but
StatutoryAuditforallbodycorporateregisteredinIndia.

Audit

The term audit is derived from

the Latin term audire, which
means to hear. In early days an
auditor used to listen to the
accounts read over by an
accountant in order to check
them.

The general definition of anauditis anevaluationof a

person, organization, system, process, enterprise, project
or product. The term most commonly refers to audits
inaccounting, but similar concepts also exist in project
management, quality management, water management,
andenergyconservation.

StatutoryAudit

The purpose of a statutory audit is the same as the

purpose of any other audit to determine whether an
organization is providing a fair and accurate
representation of its financial position by examining
information such as bank balances, bookkeeping records
andfinancialtransactions.

The progress in science has led to many methods/ tests

beingbroughtouttodetectvariouskindsofproblemsthat
couldaffectthehealthofaperson,andisnotrestrictedto
onlyBloodTestorCtScanorXRay.

A CTScan or XRay is done only when advised by the

doctor and on basis of his prescription. In the similar
manner, there are certain audits prescribed only for
certain companies / body corporate, which shall satisfy
the conditions specified in the regulations given by the
appropriate authorities. The
possibilitiesofsuchauditscouldbelike

Internalaudit:

An internal audit is designed to review

what a company is doing in order to
identify potential threats to the
organization's health and profitability,
and to make suggestions for mitigating
theriskassociatedwiththosethreatsin
ordertominimizecosts.
(ContinuedinPage18)
Page 14

ESOP

ApoorvaG
CSProfessionalStudent
Apoorva.gnaneshwar@onmobile.com

Employee Stock Option Plan (ESOP) refers to various

schemes where the company offers its shares to the
employees. The Company provides the employees an
option to buy the company's share at a certain price. The
price could either be at the market price or at a
preferential price and in case it is an unlisted Company,
thepricecouldbeasdecidedbythemanagement.

WHYESOPs??
It is a tremendous motivator and can get employees
highly involved in their jobs and focused on their
performance.
Promote employee ownership culture and reduce the
attrition.
ESOPsofferrewardsthatcanexceedtheexpectations
of employees but are still affordable to the company
astheyarehighlyperformancedriven
Enhances job satisfaction of the Employee due to
ownershipincentive.
ESOP proves to be a good retirement benefit plan for
employee.

MethodsofESOP

TrustRouteisthemethodinwhichatrustiscreated
for the allotment of shares to the employees.
Companyissuesharestothetrustandthentrustissue
sharesfurthertotheemployees.
Directrouteinthismethodtheshareswilldirectlybe
allottedtotheemployeesofthecompany.

FrequentlyusedTermsinanESOPScheme

Grantissuingofoptionstoemployeesundervarious
ESOPschemes
Vesttheprocessbywhichtheemployeeisgiventhe
right to apply for shares of the company against the
optiongrantedtohim
Exercise making of an application by the employee
to the company for issue of shares against option
vested.
Vesting period the period during which the vesting
of the option granted to the employee in respect of
ESOPs.
Exercise period the time period after vesting within
whichtheemployeeshouldexercisehisrighttoapply
forsharesagainsttheoptionvested.

LegalProvisions

TheCompaniesAct,1956
ForeignExchangeManagementAct,1999
SEBI (Employee Stock Option Scheme and Employee
StockPurchaseScheme),Guidelines,1999
IncomeTaxAct,1961

ProceduralAspects

ObtaininginprincipleapprovalfortheESOPPlan

Step1BoardmeetingtoapproveESOP,togivenoticeof
general meeting and to constitute compensation
committeeforadministrationandsuperintendenceofthe
ESOS.

Step2IntimationtothestockexchangesabouttheBoard
meeting.

Step 3 The explanatory statement to the notice and the

resolution proposed to be passed in general meeting for
ESOP shall contain the following information: [Clause 6.2
SEBI(ESOP&ESPS)Guidelines,1999]

a. totalnumberofoptionstobegranted;
b. identification of classes of employees entitled to
participateintheESOP;
c. requirementsofvestingandperiodofvesting;
d. maximum period within which the options shall be
vested;
e. exercisepriceorpricingformula;
Page 15

f. exerciseperiodandprocessofexercise;
g. the appraisal process for determining the eligibility of
employeestotheESOS;
h. maximum number of options to be issued per
employeeandinaggregate;
i. a statement to the effect that the company shall
conformtotheaccountingpoliciesspecifiedinclause
13.1**
j. method of valuation of options whether fair value or
intrinsicvalue.
k. the statement as given in the above Clause must also
beincludedintheAnnualreport.

*Clause 9.1 Lockinperiod: one year from the date of

grantofoptionstothedateofvestingofoption.

**Clause 13.1 compliance with the accounting policies

specified in Schedule I given in the SEBI (ESOP & ESPS)
Guidelines,1999.

Step 4 special resolution in the general meeting

authorizing issue of securities to employees under the
ESOP.[Sec.81(1A)(a)ofTheCompaniesAct,1956]

Step 5 Appointment of registered Merchant Banker or

implementationofESOPaspertheguidelinestillthestage
of framing the ESOP and obtaining inprincipal approval
from the stock exchanges. [Clause 22.8 of SEBI (ESOP &
EPSP)Guidelines,1999]

Step 6 Filing of eForm 23 along with a certified copy of

the special resolution and explanatory statement within
30daysofsuchresolution,withtheRegistrar.[Sec.192of
TheCompaniesAct,1956]

Step 7 Obtain in principle approval for listing of new

shares under ESOP from all the concerned stock
exchanges.

ApplyingfortheListingoftheexercisedoptions

Step 8 The Company opens the window for exercise of

vested ESOPS as may be decided by the Company from
timetotime.

Step9MeetingoftheBoardorCompensationcommittee
to pass a resolution for allotment of shares to the
exercisers that have been made during the exercise
window period. A return of allotment is to be filed with
theROCineForm2within30daysoftheallotment.[Sec.
75ofTheCompaniesAct,1956]
Step 10 In case of listed company give intimation to the
CDSL/NSDLforCorporateAction.

Step 11 Apply for Listing of those exercised shares after

obtainingcreditconfirmationsbytheCDSLandNSDL.

Otheraspects:

1. An employee who is a promoter or belongs to the

promoter group shall not be eligible to participate in
the ESOP. [Clause 4.2 of SEBI (ESOP & EPSP)
Guidelines,1999]
2. Disclosure in the Directors' Report or in the annexure
to the Directors Report, the details of the ESOP as
given in the Clause 12.1 of SEBI (ESOP & EPSP)
Guidelines,1999
3. The company may by special resolution in a general
meeting vary the terms of ESOP offered but not yet
exercised provided such variation is not prejudicial to
theinterestsoftheoptionholders.[Clause7.2ofSEBI
(ESOP&EPSP)Guidelines,1999]
4. Right to exercise the option is not transferable.
[Clause11.1ofSEBI(ESOP&EPSP)Guidelines,1999]
5. Certificate from the auditors at each annual general
meeting that the scheme has been implemented in
accordance with these guidelines and in accordance
with the resolution of the company in the general
meeting. [Clause 14.1 of SEBI (ESOP & EPSP)
Guidelines,1999]

TheConceptofRePricing:TheCompanycanRepricethe
options in the interest of employees and approval from
the shareholders in General Meeting has to be obtained
forsuchtask[Clause7.5ofSEBI(ESOP&EPSP)Guidelines,
1999]. Idea Cellular Limited, OnMobile Global Limited,
StridesArcolabLimited,IndiaInfoline,DishTVaresomeof
the Companies that have repriced their options in the
pastfewyears.

Conclusion: The advantage of ESOPs to an employee is

that the exercisepriceremainsfixedoverthe term ofthe
option and that he would exercise his option when the
market price of the shares goes substantially high and
would gain on the difference between the market price
and exercise price. Hence ESOP is primarily a kind of
incentivetoholdtheemployeestothecompanysfold.
Page 16

TP & Role of a CS

ShruthiMuraliKumar
TraineewithProf.CSRVTyagarajan
shruthi_dingi87@yahoo.com

A Company Secretary holds a key position in any

CompanyastheComplianceOfficer.ACompanySecretary
is responsible for all regulatory compliances ofCompany.
As per the Income Tax Act, any income (or expenses)
arisingfrom an international transaction (or specified
domestictransaction) with an Associated Enterprise shall
becomputed having regard to arms length price.
Accordingly,itisimperativefortheCompanySecretaryto
understandcertain terminologies governing the Indian
TransferPricingRegulations.

1.AssociatedEnterprise(AE):

ThistermisdefinedunderSec92AoftheIncomeTaxAct,
in relative terms. In commercial usage associated
enterprise generally means a subsidiary of MNCs,
sometimes, also called as intermediaries. MNCs do take
active participation in management of intermediaries in
different modes through director indirect equity holding,
controlovertheboardofdirectors,orappointmentofone
or more executivedirectors by one enterprise in other
enterprise or by thesame person in two
enterprises.Situationslikegrantingofloanmorethan51%
ofthebookvalueofassets,givingguaranteeofmorethan
10%of the total borrowings of the other Company,
completedependence on knowhow, patent, etc. of the
otherCompany, or purchase of raw materials from the
otherCompany greater than 90% of the total raw
materialpurchased by the Company duringthe year, or
oneentity hasmorethan 10%ofthebeneficialinterestin
a partnership firm, associationof persons or body of
individuals triggers the deemed fiction and thetwo
entitieswillbedeemedtobeAE.

RoleofCompanySecretary:
ThemainroleofaCompanySecretaryistoidentifyallthe
associated enterprises with whom the Company has
transactedduring the year. There are likely chances that
some ofthe entities which are falling under the deeming
fictionmight go unnoticed to the auditors. The
consequenceof nonreporting of a transaction is as high
as 2% ofthe total value of transaction that went
unreported.Further, penalty proceedings can also be
initiated forconcealment of true facts and disclosure
undersectiontheIncomeTaxAct.

2.InternationalTransaction:

Aninternationaltransactionmeansatransactionbetween
two or more associated enterprises either of whom or
bothofthemarenonresidents.

Finance Act 2012 has now clarified that an

internationaltransactionshallalsoincludethefollowing:
- capital financing, including any type of longtermor short
term borrowing, lending or guarantee,purchase or sale of
marketable securities or anytype of advance, payments or
deferred paymentor receivable or any other debt arising
duringthecourseofbusiness;
- provision of services, including provision ofmarket
research, market development, marketingmanagement,
administration, technical service,repairs, design,
consultation,agency,scientificresearch,legaloraccounting
service;
- a transaction of business restructuring orreorganization,
entered into by an enterprise withan associated
enterprise.
- anintangible asset shall also include marketing
relatedintangible such as trademarks, trade names,
brandnames,logos,etc;technologyrelatedintangiblesuch
as process patent, patent application, technicaldocuments
and knowhow; artistic related intangiblesuch as literary
works and copyrights, musicalcompositions; data
processingrelatedintangiblessuchasproprietarycomputer
software, softwarecopyrights, automated databases;
engineeringrelated intangible such as industrial design,
productpatent, trade secrets, engineering drawings
andschematics,blueprints.
Page 17

RoleofCompanySecretary:

WheneveraCompanyisproposingtoenterintoanyofthe
above internationaltransactions, a CompanySecretary
should liaise with theFinance Director or the
ChiefFinancialOfficeralongwiththeStatutoryAuditorsof
the Companyand ensure that an appropriateadvise from
a transfer pricingspecialist has been taken as towhat
should be an appropriatearms length price for
enteringintosuchinternationaltransactions.

When such transaction is acontinuous transaction

whichistakingplace,theCompanySecretaryshouldliaise
withtheFinanceDirectorortheChiefFinancialOfficerand
ensure revisingtheir pricing model on a reasonable
concurrentlevel so as to demonstrate to the tax
authoritiesthat the transfer pricing documentation
aremaintainedonacontemporaneousbasis.

3.SpecifiedDomesticTransaction:

Transfer Pricing until now was applicable to companies

having crossborder transactions with their associated
enterprises. However, FinanceBill 2012, honoring the
supreme court ruling in case ofCIT vs. M/S
GlaxoSmithkline Asia (P) Ltd. (SpecialLeave to Appeal
(Civil) No(s).18121/2007), expandedthe ambit of Transfer
pricing to specified domestic transactions w.e.f01 April
2013.

Transactions covered under the ambit of

domestictransferpricing:
- Any expenditure in respect of whichpayment ismade or is
tobemadetoapersonreferredtoin
- .Section40A(2)(b)oftheIncomeTaxAct,1961;
- AnytransactionthatisreferredtoinSection80AofIncome
TaxAct,1961;
- Any transfer of goods or services referred toin Section 80
IA(8) i.e. applicable to companiesoperating as industrial
undertaking or enterprisesengaged in infrastructure
development;
- Any business transacted between the assessee andother
personasreferredtoinsection80IA(10);
- Any transaction, referred to in any other sectionunder
Chapter VIA or section 10AA, to whichprovisions of sub
section (8) or subsection (10) ofsection 80IA are
applicable;
- Anyothertransaction,asmaybeprescribedbytheboard.

Provided that the aggregate value of the

transactionenteredintobytheassesseewithitsdomestic
associatedenterprisesexceedsRs.5crore.

ImplicationofsuchamendmentbyFinanceAct,2012:

All the transactions entered into by thetaxpayers

operating in Special EconomicZones (SEZs); taxpayers
entering intotransactions with certain related
partiesspecified under section 40A(2) and allthe
taxpayers claiming profit baseddeductions for
undertaking specifiedbusiness activities (under section
80A,80IA,etc.)willbecovered.

Themostlikelyaffectedindustriesareindustriesoperating
in SEZs, infrastructuredevelopers and / or
infrastructureoperators, telecom services industries,
industrial parkdevelopers, power generations or
transmission, etc.Apart from these industries, the
business conglomerateshaving significant intragroup
transactions would beimpacted. Most likely transactions
underthescanneroftheTPAuthoritieswouldbe:
- InterestFreeLoanstogroupcompanies;
- Granting of Corporate Guarantees / Performance
GuaranteesbyParentCompanytoitssubsidiaries;
- Intragrouppurchase/sell/servicetransactions;
- Paymentmadetokeypersonnelofthegroupcompanies;
- Payment made to relatives of key personnel of thegroup
companies.

RoleofCompanySecretary

Companies which didnot have internationaltransactions

till date,however had domestictransactions with
relatedparties, were not governedby the Indian
TPR.However, now since thedomestic transfer pricing
regulations are in place,Company Secretary ofthe
companieswhohavedomestictransactionwithitsrelated
parties equal toor more than Rs. 5 crore orcompanies
whose presentdomestic transaction lessthan Rs.5 Crore
butislikelytoincreasebeyondRs.5croreinthefinancial
year 201213 are advised to validatetheir present
business model and pricing methodologyfrom a transfer
pricing perspective which will enablethem to take
correctiveactions,ifnecessary.

Page 18

4.ArmsLengthPrice:

An arms length price means a price which is applied or

proposedtobeappliedinatransactionbetweenpersons
other than associated enterprises in uncontrolled
conditions [Section 92F (iii) read with Rule 10A] (pl
mention name of the Act and name of the rule). It is a
pricearrivedatdisregardinganyinfluencefromassociated
enterprise.

RoleofaCompanySecretary:
TheroleoftheCompanySecretaryistoensurethatallthe
transactionswhichareenteredintobyaCompanywithits
AE should be entered into having regards toarms length
price. Ifthe transactions are found not to be at arms
length, theCompany might face huge transfer pricing
additionsduringthetransferpricingassessments.

Check List for a CompanySecretary to ensure

appropriatecomplianceofTransferPricingRegulation:

1. During the financialyear, liaise with the FinancialDirector or

the Chief FinancialOfficer along with the statutory auditors of
the Company to identify the list ofAEs and determine the
valueof International Transactionsor specified
domestictransactions.

2. Revisit the existingbusiness model and transferpricing

methodology at leastonce in a year to ensure that
thetransactions of the Companywith its AEs are at arms
lengthto justify contemporaneous nature of transfer
pricingbusinessmodel.

3. Ensure that the Transfer Pricing Accountant Report isfiled

with the Assessing Officer before the due date offiling of the
returnofincomei.e.30November.

Health Check-Up (ContinuedfromPage13)

For all companies to which Companies (Auditors Report)

Order, 2003 [CARO] applies shall mandatorily need to
provideforInternalAudit.FurtherClause49oftheListing
Agreement provides for constitution of an Audit
Committee,forpurposeofanInternalAudit.

Costaudit:

Cost audit is an independent examination of cost records

andotherrelatedinformationofanentityincludinganon
profitentity,whensuchanexaminationisconductedwith
aviewtoexpressinganopinionthereon.

The Companies (Cost Audit Report) Rules 2011 (CAR)

makesitmandatoryforcompaniesinvolvedinactivitiesas
describedintherulestoobtainaCostAuditReportfroma
Cost Accountant who is a member of Institute of Cost
AccountantsofIndia.

The diagnostics across have developed a range of

products for the people who have an awareness to keep
themselves fit. Products which diagnose a particular
aspect say Blood Group, or Sugar level. Then there is
something called Master Plan which makes an attempt to
analysetheallroundfactors.
The same ways, companies are advised to adopt a
complete audit, which shall enable them to assess the
actualpositionofthecompany.Thispurposeisaddressed
by the practice of Secretarial Audit, and this Secretarial
Audit shall be conducted by a Company Secretary in
practice.

Secretarialaudit:

ThecontemporaryscopeofSecretarialAuditextendsitself
to the assessment of all Corporate Laws except that
relatedtoFinanceandTaxationwhichfallwithinthescope
ofaStatutoryandTaxAuditor.

As of now there are no specific provisions under the

existingCompaniesAct,1956forsecretarialaudit,butThe
Companies Bill 2012, does make it mandatory for certain
companies to get a secretarial audit done by a Company
SecretaryinPractice.

A doctor may also prescribe a test only on occurrence of

certainevent,oronnoticingcertainsymptomswhichgive
a signal that something is wrong. Similarly the companies
mayadoptForensicAudit.

Page 19

Committees of a Company

VeenaDeepakMajukar
CSProfessional
Trainee@GMRGroup,Bangalore
veenamajukar@yahoo.com

Corporate Governance may be defined as A set of

systems, processes and principles which ensures that a
company is governed in the best interest of all
stakeholders. It is about promoting corporate fairness,
transparency, effective decisionmaking and
accountability. Listing agreement & the new Companies
Bill, 2012 (which is yet to be passed in Rajasabha)
introduces some basic corporate governance practices in
Indiancompaniesandbroughtinanumberofkeychanges
in governance and disclosures. It specified the minimum
numberofindependentdirectorsrequiredontheboardof
a company. The setting up of an Audit committee, and a
Shareholders Grievance committee, among others, were
made mandatory. In this article, it is dealt with the
committees constituted by companies to comply with the
clausesofthelistingagreement.

AuditCommittee

Clause 49 of the Listing Agreement: It mandates the

setting up of a qualified and independent Audit
Committee. An audit committee is a committee of the
Board of Directors. It is established with the aim of
enhancing confidence in the integrity of an organisations
processes and procedures relating to internal control and
corporate reporting including financial reporting. It
provides an independent reassurance to the board
throughitsoversightandmonitoringrole.

Need of Audit Committee: The current economic

environment has heightened the need for effective audit
committees.Thefinancialdebaclesandallegedfraudulent
activities at established organizations even in some
nonprofit making organisations along with phenomena
such as the credit crunch and continuing economic
turbulence are well known to the public. Young, growing
organizations also face a unique set of challenges
triggered by their lessdeveloped internal control
structures.Asaresult,both establishedorganizationsas
wellasemergingorganizationshaveanevengreaterneed
forindependentoversight.

Constitution: The audit committee shall have minimum

three directors as members of which 2/3rd of the
members shall be independent directors. All members of
audit committee shall be financially literate and at least
one member shall have accounting or related financial
management expertise. The Chairman of the Committee
shallbeanindependentdirector.

Meetings: The committee should meet at least 4 times a

yearwithanotmorethanfourmonths.Thequorumshall
be either two members or one third of the members of
the audit committee whichever is greater, but there
should be a minimum of two independent members
present.

Powers:

Toinvestigateanyactivitywithinitstermsofreference.
Toseekinformationfromanyemployee.
Toobtainoutsidelegalorotherprofessionaladvice.
Tosecureattendanceofoutsiderswithrelevantexpertise,if
itconsidersnecessary.

RoleofAuditCommittee

Reviewtheadequacyoftheinternalcontrolstructure.
Monitorcompliance withthe code ofconduct andconflict
ofinterestpolicy.
Reviewthepoliciesandproceduresineffectforthereview
ofexecutivecompensationandbenefits.
Review, with the organizations counsel, any legal matters
that could have a significant effect on the organizations
financialstatements.
When applicable, review the activities, organizational
structureandqualificationsoftheinternalauditfunction.
Page 20

Works with theindependent auditor, whichmayinclude

thefollowing:

Recommend the appointment (or reappointment) of the

independentauditor.
Reviewtheindependentauditorsfeearrangements
Review the scope and approach of the audit proposed by
theindependentauditor.
Conductapostauditreviewofthefinancialstatementsand
audit findings, including any significant suggestions for
improvements provided to management by the
independentauditor.
Review the overall performance of the independent
auditor.
Otheroversightfunctionsasrequestedbythefullboard.

OtherCommitteesofaCompany

ShareholdersGrievanceCommittee(Mandatory)
Nominationcommittee(NonMandatory)
Remunerationcommittee(NonMandatory)
CorporateGovernanceCommittee

ShareholdersGrievancecommittee

The primary function of this Committee is to assist the

Board in controlling the shareholders grievances against
the Company and redresses the complaints of the
shareholders. The Committee shall consist of three or
more Directors. The Company Secretary shall act as
SecretarytothisCommittee.Thequorumofthemeetings
shall be one third of the total strength or two Directors
whichever is more. The Committee shall ensure proper
controlsatRegistrarandShareTransferAgentandReview
movementinshareholdingsandownershipstructure.

NominationCommittee

The Committee shall be appointed by the Board and shall

comprise of a Chairman and at least 2 other members,
entirely of independent directors (or where independent
directors constitute the majority), with the Committee
chairmanbeinganIndependentdirector.TheCommittee
shall regularly review the structure, size and composition
(including the skills, knowledge and experience) required
of the Board compared to its current composition and
make recommendations to the Board with regard to any
changes. It should give full consideration to succession
planning for directors and other senior executives in the
courseofitswork,takingintoaccount thechallengesand
opportunities facing the Company and what skills and
expertisearethereforeneededontheBoardinthefuture
and be responsible for identifying and nominating for the
approval of the Board, candidates to fill Board vacancies
asandwhentheyarise.

RemunerationCommittee/CompensationCommittee:

The constitution of a remuneration committee is not

mandatory and it meets whenever matters pertaining to
the remuneration payable, are to be made. The
Committee should comprise of at least three members,
majority of whom should be independent directors.
Chairman of the committee being an independent
director, Remuneration payable shall be approved by
passing resolution in the meeting. It should have
delegated responsibility for setting the remuneration for
all executive directors and the executive chairman,
includinganycompensationpayments,suchasretirement
benefits or stock options, etc. It should also recommend
and monitor the level and structure of pay for senior
management, i.e. one level below the Board. Further, a
Committee constituted to offer shares under ESOP/ESOS
shouldbenamedasCompensationCommittee.

CorporateGovernanceCommittee

Corporate Governance is a system by which companies

are directed and controlled. It reviews and recommends
best corporate governance practices including board
process, disclosure practices, policy on ethics/code of
conductetc.andtocontinuouslyreviewandreinforcethe
corporategovernancepracticeswithinthecompany.

Inadditiontothecommitteesprescribedunderclause49,
the New Companies Bill 2012 also suggests Corporate
Social Responsibility committee (CSRC). The CSR
Committee shall formulate and recommend CSR policy to
Board, which shall indicate activities to be undertaken by
the company. The companies bill seeks to break this
barrier through its notable provisions. Let's hope, these
reforms would ensure better corporate governance and
protectionofinterestsofstakeholdersofthecompany.
Page 21

What is FEMA?

S.Padmavathy
CSProfessionalStudent
TraineewithGMRGroup
Paddy.jannu@gmail.com


Foreign Exchange Management Act, 1999 or in short
FEMAisan actthatprovidesguidelinesforthefreeflow
of foreign exchange in India. It has brought a new
management regime of foreign exchange consistent with
theemergingframeworkoftheWorldTradeOrganization
(WTO). FEMA was earlier known as FERA (Foreign
Exchange Regulation Act). FERA created flourishing black
market in foreign exchange. It brought into the economic
lexiconthewordHAWALA.UnderFERA,anyoffencewas
acriminalonewhichincludedimprisonment.There wasa
demandforasubstantialmodificationofFERAinthelight
of ongoing Economic liberalization and improving foreign
exchange reserves position. Accordingly, FEMA replaced
the FERA. The Act consolidates andamends the law
relating to foreign exchange tofacilitate external trade
and payments, and to promote the orderly development
and maintenance offoreign exchange in India. FEMA is
applicable all over India and even branches, offices and
agencies located outside India, if it belongs to a person
whoisaresidentofIndia.

Importantconcepts:ForeignExchangeTransactions

Foreign Exchange transactions may be Capital Account

transactionorCurrentAccountTransaction:

CapitalAccountTransactions

A transaction which alters the assets or liabilities i.e., any

transaction which affects the balance sheet items or
onetime transaction like transfer of property, transfer/
issueofsecurity,borrowing/lending,export/import.

CurrentaccountTransactions

Current account Transaction is revenue in nature i.e.,

regular transaction that affects the routine receipts and
payments. Any person may sell or draw foreign exchange
toorfromanauthorizedpersonifsuchsaleordrawalisa
current account transaction. The Central Government
may, in public interest and in consultation with the
Reserve Bank; impose such reasonable restrictions for
current account transactions as may be required from
timetotime.

FEMA prohibits foreign exchange transactions carried out

otherwise than through an authorised person. It also
exempts possession and few transactions in foreign
exchange by any person upto such limit as the Reserve
Bank may specify. Capital Account Transactions are
deemed to be prohibited unless permitted and Current
Account Transactions are deemed to be permitted unless
prohibited.
ContinuedinPage27
Transactions that do not require any
approvalfromRBI
Transactionsthatrequireapproval
fromRBI
Prohibited Current Account
Transactions
ReleaseofExchangeforTravel
Upto USD 10,000 or equivalent in one
financial year for one or more private
visits abroad (Nepal and Bhutan being
exempted)
UptoUSD25,000forbusinessvisits
Upto USD 1,00,000 for person going
abroad for employment, education
(yearly)andformedicalTreatment
Gifts and Donations above USD
5000
Corporate Donation above 1 % of
ForeignExchangeEarningsduring
3previousyearsorUSD5million,
whicheverisless

Drawal of exchange for travel to or

withresidentsofNepal/Bhutan
Commission on export to JV/WOS
abroadofIndianCompanies.
CommissiononRupeeTrade
CallbackCharges
Remittance out of Lottery, racing
etc.
BogusPrizes/FictitiousSchmesetc.
Page 22

Joint Ventures in India

PrashanthSV
ManagementTrainee@Hemanth,Biswajit&Co.,
Svpp77@gmail.com

Introduction

Indiaisafastdevelopingcountryandanemergingmarket
fornewventuresaswellasJointVentures.JointVentures
in India have become an integral part of global business
strategyforcompetitiveadvantage.

A Joint Venture is as an association of two or more

individuals or business entities that combine and pool
their respective expertise, financial resources, skills,
experience and knowledge in furtherance of a particular
projectorundertaking.Inotherwords,aJointVentureisa
cooperation of two or more individuals or businesses in
which each agrees to share profit, loss and control in a
specific enterprise. This association may take various
forms and may involve the running of a business on a
longterm basis or on the realisation of a particular
project. The venture may be entirely a new one or it may
be an existing venture in which the prospective joint
venture partners will benefit from the introduction of a
futurepartner.

AJointVentureis,therefore,ahighlyflexibleconcept,and
thenatureofanyparticularjointventurewilldependtoa
very large extent on its own facts, resources, and
requirementsofthejointventurepartners.

Thejointventurepartnersmayhavecomplementaryskills
or resources to contribute to the joint venture or may
have experience in different industries, which it is hoped
willproducesynergisticbenefits.

SubstantiveFeaturesofJointVentures
InJointVenture,twoormorepersonscometogetherand
create a separate entity to carry out business in which
each person contributes and plays an active role in
decision making process. The essential features of a JV
include
a) Agreementbetweentheparties
b) Poolingoftangibleandintangibleassets
c) Mutualcontrolandmanagement;and
d) Sharingofprofits.

TypesofJointVentures

The two fundamental types of joint venture according to

the International Trade Centre of United Nations
ConferenceonTradeandDevelopment(UNCTAD)are:

a) Equity Joint Venture: It involves formation of a new

company in which each owns a certain portion of the
equity or alternatively, there may be equity
participationinanexistingcompany.

b) Contractual Joint Venture: This type of joint venture

maybeformedwheretheestablishmentofaseparate
legal entity is not needed or the creation of such a
separate legal entity is not feasible in view of one or
the other reasons. The contractual joint venture
agreementcanbeenteredintoinsituationswherethe
projectinvolvesanarrowtaskoralimitedactivityoris
for a limited term or where the laws of the host
country do not permit the ownership of property by
foreigncitizens.

FormationofJointVenture
Choosing of a good home partner is the most important
tooltothesuccessofanyjointventure.Onceanassociate
is selected, normally a memorandum of understanding
(MoU) or a letter of intent is signed by the parties
stressing the foundation of the future joint venture
agreement.

Page 23

StepsinvolvedinsettingupofJointVentureCompany

SettingupofJVCsrequirecomplianceswiththerulesand
legislation prevailing in India if one of the Partner is non
resident. Joint Venture Agreements and shareholders'
agreement should be carefully drafted to provide a
comprehensive road map on the rights and obligations of
the parties and minimize differences and disputes.
Further, the salient features of the JVA and shareholders'
agreement must be incorporated in the articles of
associationoftheJVCtobelegallyenforceable.

It is advisable that the JVC must provide right to first

refusaltoensurethatdifferencesandconflictsamongthe
parties do not paralyze the operation of the JVC. Right of
first refusal in a JVA is a device under which a party
planningtoexittheJVCisobligedtoofferhissharestothe
existingpartybeforesellingthesetoanoutsideparty.The
objectistopreservethesanctityoftheJVAbypreventing
entryofoutsidersintotheJVC.

Setting up aJV in India: A JV in India, has to comply with

all applicable Indian laws. Further, foreign investment in
India is governed by FDI Policy and subsection (3) of
section 6 of the FEMA dealing with capital account
transactions, read with Foreign Exchange Management
(Transferorissueofsecuritybyapersonresidentoutside
India)Regulations,2000.

ContractsAssociatedwithJointVentureCompanies

Promoters'Contracts:Generallypromotersenterintopre
incorporation agreements for supplying technical know
how, land and building, plant and machinery for
implementationoftheJVprojecttobeownedbytheJVC
called "promoters' contracts". Such contracts are legally
not binding on the JVC because JVC would not have been
in existence when these contracts were entered into by
thepromoterswiththirdparties.

Duties of Promoters: The two fiduciary duties of

promotersare:

a) Nottomakeanyprofit,directlyorindirectly,attheexpense
of the JVC, without the knowledge and consent of the
company, otherwise the company can repudiate the
contractandcompelthemtoaccountforit;
b) Can make profit out of promotion with the consent of the
JVC in the same way as an agent may retain a profit
obtained through its agency with its principle's consent
subjecttocompletedisclosure.

Contracts in which directors are interested: The Board of
Directors (BOD) of a JVC, for entering into certain
contractsinwhichparticulardirectorsareinterestedhave
to comply with Section 297 of the Companies Act, 1956
(Act). The provisions of Section 297 of the Act are also
founded on the principles of fiduciary relationship of
directors with the company. A JVC is
entitled to the collective wisdom of its
directors and if all or any of them are
interested in any contract with the
company, the company loses the benefit
of its unbiased judgment. In other words,
every director, directly or indirectly,
concerned or interested in an
arrangement must disclose it to the
board, and abstain from participating in
such discussions and voting relating to
such matters. Failure by a director to
makedisclosureispunishablewithfine.

Conclusion: Joint Venture is an excellent

business vehicle for facilitating for mutual advantage and
exploring and establishing new markets. However, before
decidingaJV,factorsliketheeligibilitycriteria,meritsand
demeritsofdifferentformsofbusinessorganization,fund
raising avenues and type of instruments, transfer of
capital and repatriation, tax concessions and incentives
etc.,shouldbecarefullyconsidered.

Page 24

Money Laundering

AgileshR.Iyer
CSManagementTrainee
J.SundharesanandAssociates
agilesh@sundharesan.com

Introductiontoandmeaningofmoneylaundering:

Money is the prime reason for engaging in almost any

type of criminal activity. Moneylaundering is the method
by which criminals disguise (Conceal) the illegal origins of
their wealth and protect their asset bases, so as to avoid
any suspicion. Criminal activities such as terrorism,
illegal arms sale, financial crimes, smuggling, drug
trafficking, bribery etc., produce large profits for criminal
groups.Suchcriminalgroupsconvertthismoneyintolegal
money (i.e.,theprocessofconverting taintedmoneyinto
untaintedmoney).

Impactofmoneylaunderingontheeconomyofthe
country:

Moneylaundering can erode a nation's economy by

changing the demand for cash, making interest and
exchange rates more volatile, and by causing high
inflationinthecountry.
Money laundering has negative effects on economic
development. The infiltration and sometimes
saturation of dirty money into legitimate financial
sectors and nations accounts can threaten economic
andpoliticalstability.
Economic crimes have the potential of adversely
affectingpeoplewhodo notprimafacie,seemto be
the victims of the crime. The negative economic
effects of money laundering on economic
development are difficult to quantify yet it is clear
that such activity damages the financialsector
institutions that are critical to economic growth
reduces productivity in the economys real sector by
diverting resources and encouraging crime and
corruption,whichslowdowneconomicgrowth.

StagesinMoneyLaundering:

1. PlacementStage:Theplacementstagerepresentsthe
initial entry of the Dirty cash of crime into the
financial system. Generally this stage serves two
purposes:
- It relieves the criminal from holding and guarding
largeamountsofcash
- It places the money into the legitimate financial
system.
2. Layering Stage: This takes place after the funds have
entered the financial system through the placement
stage. In this stage, the Launderer engages in a series
of conversions of funds to separate them from their
sources.
3. IntegrationStage:ThefinalstageinMoneylaundering
is the Integration stage. It is in this stage where the
moneyisreturnedtothecriminalfromwhatseemsto
be the legitimate source. The major objective at this
stage is to reunite the money with the criminal in a
manner that appears to result from a legitimate
source.

Preventionofmoneylaundering:Internationaland
domesticinitiatives:
1. Since money laundering is an International
phenomenon, transnational cooperation is of critical
importancetofightthemenaceofmoneylaundering.
2. Attheinternationallevel,anumberofinitiativeshave
been taken to deal with the problem of Money
Laundering(Ex:VariousInternationalConventionslike
Vienna Convention, Council of Europe, The Financial
Action Task Force(FATF), BASEL Committee statement
ofprinciples,etc.,)
3. At the Domestic level Prevention of Money
LaunderingActwaspassedintheyear2002.
Page 25

SomeMethodsofMoneyLaundering

1. Frequentexchangeofcashintoothercurrencies
2. Transfer of large sums of money to or from overseas
locationwithinstructionstopayincash
3. PurchaseofArtTreasuresandJewelry
4. Techniqueofoverpaymentoftax
5. Gambling(HorseRace,Betting,Lotteryetc.)

Dirty Money is mainly being used for Political

corruption, Terrorist Financing, Anti Corruption and
FinancialCorruption.

ConceptofLobbyingandBribery

Lobbying:Theactofattemptingtoinfluencebusinessand
Government leaders to create legislation or conduct an
activitythatwillhelpanorganization.Therecentexample
for Lobbying in India is WalMart Lobbying case (2012).
TheUSbasedsupermarketshaveapproximatelyspentRs.
125 Crores to enter Indian market. This case was mainly
initiatedbecauseLobbyingisconsideredtobelegalinUSA
andillegalinIndia.

Bribery: Bribery may include the corruption of a public

official as well as commercial bribery, which refers to the
corruption of a private individual to gain a commercial or
business advantage. The essential elements of official
bribery are (1) Giving or Receiving, (2) A thing of value,
(3)Toinfluence,(4)Anofficialact.

AntiMoneyLaundering

AntiMoneyLaunderingisthetermusedbythebanksand
other financial institutions to describe the variety of
measures to combat this illegal activity and to prevent
criminals from using individual banks and the financial
system in general as the conduit for their Proceeds of
Crime.
The vast majority of criminal dealings are done in cash.
Criminals need ways to dispose of the cash and have it
reappear as part of their wealth with as little chance as
possible of it being tracked back to the cash element.
Criminals have to use the financial system and banks in
particulartodothis.

AntiMoney Laundering processes and controls help

banksandfinancialinstitutionstoprotectthemselvesand
their reputation from the criminals. Two aspects in which
financialinstitutioncanprotectitselffromtheserisksare:

StrongKnowYourCustomerprocessesand
StrongTransactionCheckingprocesses

KnowYourCustomer(KYC)

The words KYC in financial sense describe the process by

whichabankorafinancialinstitutioncheckstheidentity,
background and other aspects of the source of wealth of
potential and existing customers. RBI has come up with
more specific guidelines regarding KYC. These were
dividedintofourparts:
Customer Acceptance Policy:All banks shall develop
criteria for accepting any person as their customer to
restrict any anonymous accounts and ensure
documentationmentionedinKYC.
Customer Identification Procedures:Customer to be
identified not only while opening the account, but also at
thetimewhenthebankhasadoubtabouthistransactions.
MonitoringofTransactions:KYCcanbeeffectivebyregular
monitoring of transactions. Identifying an abnormal or
unusual transaction and keeping a watch on higher risk
groupoftheaccountisessentialinmonitoringtransactions.
Riskmanagement:Thisisaboutmanaginginternalworkto
reducetheriskofanyunwantedactivity.

Conclusion: Thus Money Laundering is a global problem

and must attract global concerns. Without international
cooperation money laundering cannot be controlled.
Bankers play the most prominent role and without their
connivance the operation cannot be carried out.
Developmentofnewhightechcoupledwithwiretransfer
of funds has further aggravated the difficulties to detect
themovementofslushfunds.

Money laundering must be combated mainly by penal

means and within the frameworks of international
cooperation among judicial and law enforcement
authorities. Last but not the least it is vitally important to
keep in mind that simple enactment of AntiMoney
Laundering Laws are not enough. The Law enforcement
Community must keep pace with the ever changing
dynamics of money Launderers who constantly evolve
innovative methods which helps them to stay beyond the
reachoflaw.

Page 26

SEZ An Overview

ShambhaviM.
CSProfessionalProgram
TraineeGanapathi&Mohan

Inthepresentscenario,exportactivitiesareconsideredas
one of the contributing field for the economic
developmentofacountry.Further,acontinuouseffortfor
overall development of particular backward regions in a
state or a country may contribute for the economic
development of a country which is achieved by declaring
suchregionsasSpecialEconomicZones.

Special Economic Zone means designated areas in

countries that possess special economic regulations that
are different from other areas in the same country.
Moreover, these regulations tend to contain measures
that are conducive to foreign direct investment.
Conducting business in a SEZ usually means that a
companywillreceivetaxincentivesandtheopportunityto
paylowertariffs.

Itisageographicalregionthathaseconomiclawsthatare
more liberal than a countrys typical economic laws. An
SEZisatradecapacitydevelopmenttool,withthegoalto
promoterapideconomicgrowthbyusingtaxandbusiness
incentivestoattractforeigninvestmentandtechnology.
SEZdoesitreallyrequired?

The concept of SEZs was largely pioneered by China,

wherein the SEZs contribute to 20 percent of the total
FDI. Then the SEZ model was also successfully
implemented in Poland and Philippines. The SEZs are
important in todays context for the third world countries
which have been in the race for rapid economic growth.
There are many positives which emerge out of
establishinganSEZ.

Advantages:

1. Promoteexports
2. Encourage substantial investments from domestic as
wellasforeigninvestors
3. Generateadditionaleconomicactivity
4. Developmentofinfrastructurefacilities
5. Duty free import/domestic procurement of goods for
development,operationandmaintenanceofSEZunits
6. IncomeTaxexemptiononexportincomeforSEZunits
7. Exemptionfromminimumalternatetax
8. ExemptionfromCentralSalesTax,ServiceTax
9. ExemptionfromStatesalestaxandotherleviesofthe
StateGovernments.
10. Simplified procedures for development, operation,
and maintenance of the Special Economic Zones and
forsettingupunitsandconductingbusinessinSEZs.

SomeoftheapprovedactivitiesunderSEZ:

Land&SiteDevelopment
Utilities
SecuritySystems
TeleCommunicationfacilities
Facilities&Infrastructure
WatersideInfrastructure
TradingHub
Commonfacilities&Services
SocialInfrastructure

OperationofSEZinKarnataka:

Moving continuously towards growth phase, global trade

and investment, Karnataka has been one of the most
activestateininitiatingproductiveventuresandactivities
on the SEZ front. Further, the Karnataka Government has
been efficient in generating growth and expansion
through Karnataka SEZs at multiple locations all over the
state. Some of the names that deserve mention are as
follows:

Sector Specific SEZ for Pharma & Biotechnology at

Hassan.
Sector Specific SEZ for Food Processing and Agro
basedindustriesatHassan.
SectorspecifictextileSEZatHassan.
ITSEZatMangalore.
CoastalSEZatMangalore.
Page 27

Drawbacks:

a) Takesawaytheagriculturallandfromthefarmers.
b) SEZsareleadingtodecreaseincropproduction,thus
slowing down of agricultural activity in the country
which could lead to food crisis and loss of self
sustenanceinfuture.
c) The SEZs if not properly located could lead to Supply
ChainManagementproblems.
d) Improperplanningcouldleadtounbalancedgrowthin
theregion.
e) SEZssetupforthemanufacturingsectorsmayleadto
environmentalpollution.

AsIndiaconsistsofmorevillages,mainactivityofmajority
groupofpeopleisagriculture.TheSEZscouldononeface
greatly contribute to the economic development of a
country and on the other face affects the agricultural
activities of a country. To conclude, focus towards the
growth of a nation should not become bane to the
individual person or group. It is the duty of the
Government which authorizes and declares the region as
SEZ, to take necessary actions, plans and steps to
safeguardtheinterestofcommonpublic.

What is FEMA? (Cond., from Page 21)

Conclusion:

Intoday'schangedscenario,Indianrupeehasbecomefullyconvertiblesofaras
current account transactions are concerned. This implies that foreign exchange
isfreelyavailable to theresidentsforremittanceonaccountofcurrent account
transactions for the various purposes like foreign travel, foreign education, and
medicaltreatmentabroadetc.Thenonresidentsarealsofreelyallowedtoremit
outsideIndiatheincomeorcapitalgaingeneratedinIndia.But,eventoday,the
Indianrupee,inrespectofcapitalaccounttransactions,isnotfullyconvertible.

Business and Commercial Remittance

Abroad
Foreign Technology Agreements are
permitted except in High Priority
Industries
Paymentcanbemadeonlumpsumor
Royalty based on sales or by issue of
EquitySharesafterdeductingTDS
There are no limitations on royalty
payment and payment of Technical
Fees
No collaboration permitted in Lottery,
Gamblingetc.
Commission to Agents abroad for
sale of residential/commercial
plotsinIndiaabove5%ofInward
Remittance or USD 25000,
whicheverishigher
Consultancy Charges paid
abroad for more than USD 1
million
Reimbursement of Pre
incorporation expenses above 5%
of FDI or USD 1 lac whichever is
higher
Few Examples of Current Account
Transactions
Paymentforimportsofgoods
Remittanceofinterestoninvestment
made and funds borrowed from
abroadaftertaxdeductions
Remittance of Dividend if the
investmentwasallowedwithoutany
condition
BookingwithAirlines/Shipping
Salary/remuneration to Foreign
Directors subject to restrictions in any
otherlaw
Page 28

Public Issue without Going

Public

MeenakshiSharma
ManagementTrainee@INGVysyaBank
Mssharma11@gmail.com

To the league of the corporate legal battles of Vodafone

tax issue, illegal mining in Karnataka, Goa and other
states, now, Sahara Group has joined them on 24
th

November, 2010. Howsoever, the battle is still going on

through appeals and second petition from both Securities
Exchange Board of India (SEBI) and Sahara Group though
the Supreme Court has passed the judgment. We will
considertheCaselawinthelightofthesame.

PartiestotheCase

(i) Two unlisted Sahara group entities Sahara India Real

EstateCorp(SIRECL)andSaharaHousingInvestmentCorp
(SHICL) for the purpose of this article, we shall
collectivelyconsiderthisasSaharaGroup

(ii)SEBIMarketWatchdog

Issues:

1. Whether Optionally Fully Convertible Debentures

(OFCDs) issued by the Appellant are securities within
themeaningofsection2(h)ofSEBIAct?
2. Whether SEBI has jurisdiction u/s 55(b) of the
Companies Act, 1956 to call for information and
investigate the matters relating issue and transfer of
OFCDs offered by the Sahara Group to more than 50
persons?
3. Whether the Sahara Group had committed any
violation of section of companies act relating to issue
of prospectus, misstatements in prospectus and
criminalliabilityandpenaltiesforviolations?

Background

1. Sahara India Real Estate Corp Ltd. (SIRECL) floated an

issue of OFCDs and started collecting subscriptions
from investors with effect from 25 April 2008 up to 13
April2011.Duringthisperiod,thecompanyclaimedto
have collected over Rs. 19,400 crore, while up to 31
August 2011, after redemptions the company had a
totalcollectionofoverRs.17,656crore.

Similarly, Sahara Housing Investment Corporation (SHCIL)

had filed a red herring prospectus with the Registrar of
Companies,Mumbai,inOctober2009andraisedRs.6,373
crorefrom7.5millioninvestors.

In 2009, when Sahara Prime City, one of the group

companies approached SEBI to go public, the regulator
suddenly asked SIRECL and SHICL to refund all the OFCD
moneytoinvestors.Thatbegunthebattle.

2. When SEBI sent its queries, Sahara had its arguments

well marshaled. Section 55A of the Companies Act of
1956, it argued, delegates administrative power to SEBI
only with respect to listed public companies and those
companies which intend to get their securities listed in
India.

Sincethetwocompanies,SIRECLandSHCIL,hadstatedin
theirredherringprospectusesthattheydidnotintendto
list the OFCDs, the matter was outside the market
regulators purview. Also, since the OFCDs were being
issued to a defined group of people, though large it may
be, it was a preferential issue, not a public issue, and
hencenotwithinSEBIsregulatoryjurisdiction.

SEBI was not convinced by these arguments. If OFCDs are

being issued to 50 people or more, it becomes a public
issueandthereforefallswithinitsjurisdiction,themarket
regulatorsaid.

Caseprocessing:

Page 29

In April 2010, SEBI forwarded some OFCD investor

complaints to RoCs in UP and Maharashtra saying that
Sahara companies were unlisted and had not filed
prospectusforraisingfundswithit,andrequestedthetwo
RoCs "for examination (of the complaints) and necessary
action".

When this information came to the notice of the capital

marketregulator,itstarteditsinvestigationandpassedan
exparte order on 24 November 2010 restraining the
company from mobilizing funds under a red herring
prospectus(RHP).

SEBIpassedanorderdated23June2011thatwasplaced
before the Supreme Court, which asked both the Sahara
companies to withdraw their writ petitions from the
Bombay High Court with a direction to appeal before the
SecuritiesAppellateTribunal(SAT).

Around this time, in another case relating to an unlisted

entity, initially, government opinion favored Sahara. In
early 2011, when Salman Khurshid was the corporate
affairs minister and Veerappa Moily was law minister,
Additional Solicitor General Mohan Parasaran had said
that unlisted companies, like Sahara India Real Estate
Corporation and Sahara Housing Investment Corporation,
should be regulated by the ministry of corporate affairs
andnotSEBI.

In July 2011, Khurshid and Moily swapped portfolios and

the scenario changed: the ministry of corporate affairs
now said that SEBI and it would work in tandem and the
marketregulatorhadfulljurisdictionoverpublicissues.

Now,onthequestionofwhethertheOFCDoffertomore
than 50 people was a public issue, the SC has recently
ruledthattheycomeunderSEBI'sjurisdiction.However,in
2007 Sahara had reported that there were 1.97 crore
investors for its first issue and no one had objected. In
addition,postthisdiscloser,twoRoCshadallowedSahara
toissuefreshOFCDissues.

TheCaseobservedthefollowingpoints:

1. It was noted that Sahara claims to issue OFCDs on

privateplacementbutthefacts/actionstatingentirely
different.
2. Sahara had issued the hybrid securities to more than
50 Persons and it is deemed to be a public offer in
terms of Section 67 (3). Therefore, SEBI got its
jurisdiction.
3. Section 60(b) 1 casts no obligation to issue
Information Memorandum (IM). However Sahara
chooses to do that to raise public demand and issued
RedHerringProspectus(RHP).

DecisionCourtJudgment

TheSupremeCourtorderedthetwocompaniesonAugust
31 of 2012 to return the money they had raised through
the bonds Rs. 24,029 crore to the 2.96 Crore
investors,alongwithinterest(15percentperannum).Itis
said that the deposit amount be deposited an interest
bearingdepositA/cwithanationalizebankandauthorize
SEBI to take legal recourse, if Sahara fails to comply with
thedirection.

AppropriatenessofDecision

After an extensive see saw game, the Supreme Court has

stated the above judgment, however on the flop side, it
hasleftbackthefollowingunansweredquestions:

(i). If with government permission a business is done for 11

years, can the rules be changed and the entity punished with
retrospectiveeffect?

(ii).CanaregulatorgiveonestatementinParliamentandaftera
fewmonthsgiveacontradictorystatementthroughanaffidavit
incourt?

(iii). Can SEBI state through a letter to RoCthat an entityis not

under it and RoC should take action, but after seven months
contradict itself and issue prohibitory orders against the same
entity saying it was under its purview and not MCA, the nodal
ministryforRoC?

Influenceontheexistinglaw

TheCasewillgiveanestimatetotheauthoritiestoinclude
the section related to the case that when the unlisted
entityissuesahybridsecuritytomorethan50persons,it
willbeunderSEBIspurvieworMCAspurview.

Conclusion

This is quite a commendable judgment by SEBI to protect

interest of small investors as well as to prohibit
unscrupulous promoters who raise huge money from
publicinthenameofsavings.
Page 30

One Person Company

Sowmya Raghunath
TraineeatGanapathi&Mohan,CompanySecretaries,
Bangalore


ONEPERSONCOMPANY(OPC)isanewavenuetoIndia
whichisanentitywhichfunctionsonthesameprincipleas
a Company, but with only one member and one
shareholder.

One Person Company (OPC) is the Concept introduced by

theGovernmentofIndiainCompaniesLaw,2009.

The Companies Law, 2012 has been passed by Lok Sabha

on18thDecember2012.ThismaymovetoRajyaSabhain
the coming budget sessions of Parliament. The bill will
come into force on the date on which the Central
Governmentmay,bypublishingnotificationintheOfficial
Gazette.

BasicFeaturesofOnePersonCompany(OPC):
One Person Company is one of the type of Company
onthebasisofnumberofmembers
One Person Company has only one person as a
member/shareholder
OnePersonCompanyisaPrivateCompany
Minimum paid up share capital of One Person
Companyisonelakhrupees(Rs.1,00,000)
One Person Company may be either a Company
limited by share / a Company limited by guarantee /
anunlimitedCompany
The words "One Person Company" should be
mentioned in brackets below the name of the One
PersonCompany
The Name of Company shall include word OPC One
person Company within bracket below the name of
the Company, wherever its name printed, affixed or
engraved.
One Person Company shall indicate the name of the
nominee/other person in the memorandum, with his
priorwrittenconsent
The written consent above, shall be filed with the
Registrar at the time of incorporation of the One
Person Company along with its MOA&AOA
(MemorandumandArticles)
The nominee/otherpersoncanwithdrawhisconsent
atanytime
The member/Shareholder of One Person Company
maychangethenominee/otherpersonatanytime,by
giving notice to the other person and intimate the
sametoCompany.ThentheCompanyshouldintimate
thesametotheRegistrar
In case of the death of member/shareholder or his
incapacity to contract, then nominee/other person
becomethememberoftheCompany
Member/Shareholder of the One Person Company
acts as first director, until the Company appoints
director(s)
One Person Company can appoint maximum 15
directors,butminimumshouldbeonedirector
One Person Company need not to hold any AGM
(AnnualGeneralMeeting)ineachyear
Cash Flow Statement may not include in the financial
statementsofOnePersonCompany
One Director is sufficient to sign the Financial
Statements/Director'sReport
Within180daysfromtheclosureoftheFinancialYear,
One Person Company should file the copy of the
FinancialStatementswithRegistrar
One Person Company should inform to the Registrar
about every contract entered and also should record
intheminutesofthemeetingwithin15daysfromthe
dateofapprovalbytheBOD(BoardofDirectors)

(ContinuedinPage36)
Page 31

Fast Track Exit

VinayakBhat
ProfessionalProgramme,Sirsi
vinayak.bhat21@gmail.com

Ministry of Corporate Affairs has introduced a scheme

called Fast Track Exit Scheme (FTES) on 7
th
June, 2011
videGeneralCircularNo.36/2011.

ThemainintentionofFastTrackExitSchemeistoprovide
easy way for dissolution to such companies, which are
inoperative for various reasons since incorporation or
commenced business but become inoperative or defunct
later on. Such defunct companies, which are desirous of
getting their names struck off from the Register of
Companies maintained by the Registrar of Companies
(ROC), can avail the FTES under the provisions of Section
560 of the Companies Act, 1956 rather than going for
elaborateliquidationprocedure.

This Scheme is less time consuming and also less

expensive compare to other modes of winding up of
Companies in India. FTES made the way easy for the
defunct companies for dissolution. FTES is an
improvement over the Easy Exit Scheme (EES). The main
differences between Fast Track Exit Scheme and Easy Exit
Schemeareasfollows:

Applicability: FTE Scheme is applicable for a Defunct

Company.DefunctCompanymeans,TheCompany:
whichhasnilAssetsandLiability
hasnotcommencedanybusinessactivityoroperationsince
incorporation.
is not carrying over any business activity or operation for
lastoneyearbeforemakingapplicationunderFTES.

Anydefunctcompanywhichhasactivestatusoridentified
as dormant by the Ministry of Corporate Affairs (MCA),
mayapplyforgettingitsnamestruckofffromtheRegister
ofCompanies.

The following companies shall not be allowed for FTE

mode:
ListedCompanies
Companies delisted for noncompliance of listing
agreement
Companies registered under section 25 of companies
act,1956
VanishingCompanies
Companies where investigation and inspection is
pendingintheCourt
Companies against whom
prosecution is pending for non
compoundableoffences.
Company is in default or
outstanding in repayment of
publicdeposits
Companyhavingsecuredloan
Company having management
dispute
Company having dues towards
Income Tax, Sales Tax, Banks,
CentralExcise,Local/StateorCentralGovernment
Company in respect of filing documents have been
stayed by Court, Company Law Board, Central
Governmentoranycompetentauthority.
Particulars Fast Track Exit
Scheme
EasyExitScheme(EES)
FilingFees Rs.5000/ Rs.3000/
Eligibility The Company which
is inoperative or not
carryinganybusiness
activitysincelastone
year.
The Company which is
inoperative or not carrying any
business activity since 1
st
April,
2008andTheCompanywhichdid
not raise their minimum paid up
capitalthatisRs.1,00,000/ orRs.
5,00,000/.

Page 32

Procedure: The Defunct Company which is desirous of

getting their names struck off from the Register of
Companies maintained by the ROC can avail FTES under
theprovisionsSection560oftheCompaniesAct,1956by
followingbelowmentionedprocedure:

- The Defunct Company shall make an application in

theFormFTEalongwiththefilingfeeofRs.5000.
- The Form FTE shall be digitally signed by any of the
Director,SecretaryorManager.
- FormFTEshallbecertifiedbyaCharteredAccountant
orCompanySecretaryorCostandWorksAccountant
inwholetimepractice.
- The Form FTE shall be accompanied by an affidavit
signedbyalltheexistingDirectorsbeforeafirstclass
Judicial Magistrate or Oath Commissioner or Notary
todeclarethattheCompanyisaDefunctCompany.
If the company has carried some business for a
periodinthatcasethedateshallbespecified.
- Form FTE shall also be accompanied by a notarized
IndemnityBondstatingthatthelossesandliabilityof
the Company will be met in full by every director
individuallyorcollectivelyevenafterthenameofthe
Companyisstruckofffromtheregister.
- If the Company has a Foreign Nationals or Non
Residents the Affidavit and Indemnity Bond shall be
notarizedaspertherespectivecountrysLaw.
- The Company shall also file a
statement of accounts certified by
Statutory Auditor or Chartered
Accountant in practice. The said
statement of account shall be
drawn up to a date which is not
older than one month from the
dateoffilingtheapplication.
- TheCompanyshalldisclosepending
litigation if any, involving the
CompanywhileapplyingFTE.
- If the litigation is regarding non
filing of Annual Return then such
application may be accepted,
provided that the applicant has
already filed the compounding application. But the
stepforfinalstrikingoffwouldbedoneonlyafterthe
disposalofthecompoundingapplication.

Procedure adopted by the registrar of companies under

FTEmode:

- The ROC on receipt of application shall put up the

name of the Company under FTE mode and send
noticetotheCompanybygiving30daystimeforthe
stakeholdersforraisingobjections,ifany.
- The ROC on being satisfied shall strike off the name
of the Company and on publication in the Official
gazettetheCompanystandsdissolved.
- The decision of the ROC in respect of striking off the
nameoftheCompanyshallbefinal.

Conclusion:

FTES is the best and easy way for defunct companies to

striking off their names from the Register of Companies
maintained by the ROC and also in FTES time and cost
involved is comparatively much lower than involved in
othermodesofwindingup.

Nowadays it seems that FTE became a regular part of

company law administration and is not a time bound
scheme.

Page 33

Takeovers

Rakshita.T.S
Professional
Programme
rakshisetty@gmail.com

Introduction: The word Merger, Amalgamation and

Takeovers creates attention as being inexplicable. The
word takeover is just not a word in any books now, but
infactithasbecomecorporategrowthdevicesinBusiness
world where one company acquires control of the other
company.Butacquiringacompanyisthatsoeasier?

The companies which intends for take over should follow

legislationsandregulationslaidforthesame.

Meaning:Takeovermeansabusinesstransactionwherea
group of individuals or a company becomes owner of the
other company by acquiring control over the assets or
managementofothercompany.

Why Takeovers take place?: Any company which comes

intoexistenceintendsnotonlytomakeprofitbuthavean
intention to grow and also to sustain for long time in its
Industry and market. Apart from the above they are
variousreasonsfortakeoversuchas

Competition
Improveeconomiesofscale
Brandname
Financialstabilityandsoonandsoforth.

So, for any corporate body the decision of takeover has

beenprovedinrecenttimesascostbenefitandprofitand
growthbenefit.

Legal Aspects of Takeovers: To make any takeover and

action plan of a corporate body, successful and legal, the
legislationsandregulationshelpsthem.

Thelegislationsandregulationsthatgoverntakeover

CompaniesAct,1956
SEBI(Substantial Acquisition of Shares and Takeovers)
Regulations,2011
ListingAgreement.

CompaniesAct,1956Sections395

Power and duty to acquire shares of shareholders

dissentingfromschemeorcontract

(a) The company which intends to acquire the shares of

anothercompanywithanintentiontohavecontrolonthat
anothercompanyiscalledasTransfereeCompany.
(b) The companywhose sharesare proposed to be acquiredis
calledastransferorcompany.(referencestudymaterial)
(c) Every circular or offer made on this behalf will be
accompanied by approval of Board of directors of both
Transferorandtransfereecompaniesandeveryoffermade
by the transferee company shall be accompanied with
statement stating that the steps have been taken by it to
ensurethatnecessarycashwillbeavailable.
(d) The transferee company can circulate any circular given by
directorsoftransferorcompaniesrecommendingtoaccept
the offer of transferee company only after filing the
circularwithregistrarinformno35A
(e) The transfer of shares by the transferor company must be
approvedbytheholdersof9/10
th
inthevalueoftheshares
whosetransferisinvolved
(f) Such approval should be obtained within 4 months from
thedateofcirculation
(g) The MOA of the transferee company should contain in its
objectclauseaprovisionfortakeover
(h) Once the approval is available the transferee company
shouldcompulsoryacquiresharesoftheminorityinterest
Page 34

(i) The transferee company must send the notice to the

minorityinteresttosurrendertheirshares
(j) Onceinthebooksofthetransferorcompanyacquisitionof
the 90% of shares has been registered ,the transferor
company should send intimation within one month of
registration to the dissenting shareholders about the
registration and receipt of the amount from the transferee
company
(k) Theamounttobepaidtoacquireminoritystakeshouldbe
transferredbyTransfereeCompanytoTransferorCompany
and the amount so transferred should be in accordance of
theschemeorcontract.

SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations,2011

Regulation 3 Open Offer Thresholds: Open offer should

be made if the following is triggered. This is applicable
when the control of the company is done through
acquisitionofshares:

Acquisitionof25%ormoresharesorvotingrights
Acquisitionofmorethan5%orvotingrightsinafinancialyear

Regulation 4 Acquisition of Control: This regulation applies

whenthereischangeincontrolofthecompany
Regulation6VoluntaryOffer:ItisaVoluntaryopenoffermade
by the person holding 25% or more in the target company but
lessthanmaximumpermissiblenonpublicshareholding.
Regulation 7 Offer size: The offer size should be at least of
26%,oftotalsharesofthetargetcompany.
Regulation9Modeofpayment:Theofferpricecanbepaidin
form of cash, issue or exchange of shares or exchange of
convertibledebtinstrumentsorcombinationofallthethree.
Regulation 10 General Exemptions: This regulation exempts
fromopenofferobligationsunderRegulations3and4without
SEBIs approval for few categories such as immediate relatives,
group companies, ordinary course of biz of merchant banker,
stockbrokeretc.,TakeoversasperSARFAESIActetc.
Regulation11ExemptionsbySEBI:Theregulationsexemptthe
open offer obligations ender regulations 3 and 4 with SEBIs
approval.Butitdependsonindividualcases.
Regulation 17 Escrow Account: As a security for acquirers
performance an escrow account should be opened with
scheduled commercial bank or bank guarantee should be given
anddeposittheamountinfollowingmanner:
- IfconsiderationisuptoRs.500Cr25%ofconsideration
- IfconsiderationismorethanRs.500Cr25%ofRs.500crs
and10%ofbalanceamount.
Regulation 21 Payment of Consideration: The acquire has to
complete all the procedure including payment of consideration
to shareholders within 10 days from the close of tendering
period.
Regulation 23 Withdrawal of Open Offer: An acquirer can
withdraw the open offer for reasons like statutory approvals
have been refused, if SEBI requires withdrawl, if individual
acquirerdiesetc.

TAXPOINTOFVIEW:

Tax Planning can be done for acquiring company For

example: If any company takeover sick company then it
can benefit the accumulated losses of sick company by
acquiring company through carry forward and setoff
losses against profits which reduces tax liability of
acquiringcompany.

STRATEGICPOINTOFVIEW:

Takeover has similar benefits of that of Mergers and

Amalgamationslike
a. Marketexpansion,
b. Profitmaking,
c. Cheaperacquisitionbusiness,
d. Economiesoflargescaleetc.

But, takeovers if become a tool for any business tycoons

thenitmaycreateMonopolyintheindustryitisoperating
and close the doors for all new entrants to the industry
and also for the existing small industries as they cannot
competewithlargeindustries.

At same time such take overs help to improve countrys

economy by generating Income through Foreign
Investments, Foreign Technology Collaborations, and also
to reduce Nonperforming Assets blocked in sick
companieswhichaffectseconomyonwhole

Conclusion:Takeoversinrecenttimeshavebecomequite
popular in business world. It has become common
strategyforexpansionandaccesstoworldmarkets.

Fewrecentacquisitionshaveproveddifferently.Thesehas
not only helped the companies for their own benefits but
also made realize the entire world that India stands
equally shoulder to shoulder as a competitor in Business
world.TheseacquisitionshavereallychangedthePhaseof
Industrial era for India. The Legislations and regulations
are changed accordingly for the benefit and successful
implementationoflawfortakeoversinIndia.
Page 35

FDI in Retail

ChethanJ.Nayak
Mangalore
popchethan@yahoo.co.in

Foreign Direct Investment refers to Foreign Capital that is

invested in India wherever the Funds are required, to
enhance or expand the production or business
respectively. However, FDI in retail is different from the
investment in any sector. Retail can be single or multi
brand and may be described as a sale to the ultimate
consumeratamarginofprofit.

Retailing is one of the core parts of the Indian economy

that constitutes certain percentage of GDP and India is
one of the top five retail markets in the world. As
estimatedbyPwCtheIndianretailsectorisworthUS$350
Billionandtheorganizedretailingisonly8%.InaCountry
having a population of 1.2 billion, there is scope for
tremendousincreaseintheretailmarkets.

InNovember2011,India'scentralgovernmentannounced
retail reforms for both multibrand stores and single
brand stores. These market reforms paved the way for
retail innovation and competition with multibrand
retailers such as Walmart, Carrefour and Tesco, as well
singlebrandmajorssuchasIKEA,Nike,andApple.

Later, on 7
th
December 2012, the Federal Government of
India allowed 51% FDI in multibrand retail in India. The
Fedsmanagedtoget the approvalofmultibrandretailin
theparliamentdespiteheavyuproarfromtheopposition.
SomestateswillallowforeignsupermarketslikeWalmart,
TescoandCarrefourtoopenwhileotherstateswillnot.

Critics

It will promote welfare of farmers by agriculture growth

andtherebyincreasingtheirincomelevel.FDIinretailwill
make the consumer happy as well. In the absence of
intermediaries, the consumer will end up with paying
lower price for a better product. Besides, in the
unorganizedsector,consumerhastoargueandfightalot
in case he has to return some faulty product to the
retailer. This process will be standardized. It will serve as
an antidote to inflation. The producer will get direct
payment from the retailer and the same will be higher
than what he was getting earlier due to the foul play by
intermediaries. FDI will improve investment in logistics of
theretailchain,leadingtoanefficientmarketmechanism.
India is one of the biggest producers of fruits and
vegetables (more than 180 million tones). However, it
does not have a strong integrated coldchain
infrastructurewithonlyaround5,400coldstorageshaving
total capacity of about 24 million tones. Foreign direct
investmentintheretailsectorwillspurcompetitionasthe
current scenario is of low competition and poor
productivity. India will flourish in terms of quality
standardsandconsumerexpectations.

FearsthattheentryofFDIinmultibrandretailmaycause
unemployment as foreign firms may not procure material
from domestic producers and may import the same from
international market are unfounded as the entry of big
companies like Reliance and Tata has substantially
improved the life standard of farmers and villages from
where they are procuring. Allowing multiband retailing
may cause the Indian market to consist only of Sales
Mens and not of Production. There will be more foreign
company coming to India not giving Domestic Company
enough space to grow. It may create large monopoly in
the retail market. There is fear of large takeover of the
domestic company by the foreign giants. It increases the
demand and creates pressure in the production market
and farmers leading to hyper production of fruits and
vegetableswithouthavingenoughnutrientsinit.

Challenges

McKinsey study claims retail productivity in India is very

low compared to international. For example, the labor
productivity in Indian retail was just 6% of the labor
productivity in United States in 2010. India's labor
Page 36

productivity in food retailing is about 5% compared to

Brazil's 14%; while India's labor productivity in nonfood
retailingisabout8%comparedtoPoland's25%.

Total retail employment in India, both organized and

unorganized, account for about 6% of Indian labor work
force currently most of which is unorganized. This is
about a third of levels in United States and Europe and
about half of levels in other emerging economies. A
complete expansion of retail sector to levels and
productivity similar to other emerging economies and
developed economies such as the United States would
create over 50 million jobs in India. Training and
development of labor and management for higher retail
productivityisexpectedtobeachallenge.

To become a truly flourishing industry, retailing in India

needstocrossthefollowinghurdles:
Automaticapprovalisnotallowedforforeigninvestmentin
retail.
Taxation,whichfavourssmallretailbusinesses.
Absence of developed supply chain and integrated IT
management.
Lackoftrainedworkforce.
Lowskilllevelforretailingmanagement.
LackofRetailingCoursesandstudyoptions

Conclusion: Though FDI in retail is a boom for Indian

market, there is an opposition from political parties and
restrictioninsomestates.Stillthereisalongwaytogo!

One Person Company (Continued from Page 30)

AdvantagesofOPC:

Better opportunities for loan and banking facilities as

acompany
Unorganized proprietorship into organized structure
ofaccompany
Nocashflowstatementsrequired
Annual return need not be necessarily signed by a
companysecretary
Annual general meeting is not essential and general
meetings/extraordinary general meetings are not
applicableinthiscase.
Expansion of a Company is easy and possible. All you
need to do is to increase the authorised capital and
allotshares
Investment and investors prefer a Private Limited
Company, since it is the only structure where it is
possibletoissuesharestothirdparties,andalsohave
aboardfromwhichsupervisionispossible.

DisadvantagesofOPC:

Justlikeanyotherformofbusiness,beinganOPCcanalso
haveitsdisadvantages.

Liability Single entrepreneur though seen as a

separate entity by the law. Still it is sometime subject
to unlimited liability. This means if the business gets
into debt, the business owner is
liable. In the worst case, this may
mean a person risks their home,
personalsavingsandanyotherassets
theyhavebothinandoutsideofthebusiness.
Finance Single entrepreneur often find it difficult to
raisefinancetofundtheirbusiness.Theymaystruggle
withexpansioninthefuture.
Reverse economies of scale Single entrepreneur will
be unable to take advantage of economies of scale in
the same way as limited companies and larger
corporations, who can afford to buy in bulk. This
mightmeanthattheyhavetochargehigherpricesfor
theirproductsorservicesinordertocoverthecosts.
Decision making All decisions must be made by the
single entrepreneur. There is no room for help by
others. So the success or failure of the business rests
ononeperson.
Taxation If the corporation does not elect to be
treated as a corporation, there is the potential for
doubletaxation.Therearealsoothertaxissues.

To sum up, OPC is a zealous step which will help in

bringingtheunorganizedsectorofproprietorshipintothe
organized version of a private limited company, i.e., ONE
PERSONCOMPANY. Withthis new progressinlaw,more
number of small and medium enterprises will enter into
thecorporatedomain.ThiswillhelpinboostingourIndian
market also, but proper care should be given as this OPC
erashouldnotboostforeignnominationinourcountryby
making Indian as a nominee shareholder and monopole
the Indian market. Lets all welcome the new concept
withapositiveapproachbynotgivewayto
anynegativeimpactonthenation.
Page 37

Corporate Governance


SanjeevRK
ManagementTrainee@GMREnergyLimited
sanjeev.kulkarni@gmrgroup.in

Corporate governance is needed to create a corporate

culture of consciousness, transparency and openness. It
should lead to increasing customer satisfaction,
shareholder value and wealth. With increasing
government awareness, the focus is shifted from
economic to the social sphere and an environment has
been created to ensure greater transparency and
accountability. It is integral to the very existence of a
company.

Corporate Governance refers to combination of laws,

rules, regulations, procedures and voluntary practices to
enablethecompaniestomaximisetheshareholderslong
termvalue.

CorporateGovernanceModelsaroundtheWorld:There
are many models of corporate governance around the
world. The AngloAmerican model tends to emphasize
the interests of shareholders. The coordinated or multi
stakeholder model associated with Continental Europe
and Japan also recognizes the interests of workers,
managers, suppliers, customers, and the community at
large.

The Organisation for Economic Cooperation and

Development(OECD)oncorporategovernance:OECD,in
its endeavour to improve the governance practices, had
publisheditsrevisedprinciplesonCorporateGovernance
in the year 2004 The OECD Principles of Corporate
Governance have since become an international
benchmarkforpolicymakers,investors,corporationsand
other stakeholders worldwide. The OECD advanced the
corporate governance agenda and provided specific
guidance for legislative and regulatory initiatives in both
member and nonmember countries. OECD Principles on
CorporateGovernanceare:
i. Principle I: Ensuring the Basis for an Effective Corporate
GovernanceFramework
ii. Principle II: The Rights of Shareholders and Key Ownership
Functionsprotectedandfacilitated
iii.PrincipleIII:TheEquitableTreatmentofShareholders
iv. Principle IV: The Role of Stakeholders in Corporate
Governancerecognized
v. Principle V: Disclosure and Transparency: Timely and
accurate disclosure is made on all material matters including
the financial situation, performance, ownership, and
governanceofthecompany.
vi. Principle VI: The Responsibilities of the BoardMonitoring
ManagementandAccountabilitytoShareholders

EvolutionofcorporategovernanceframeworkinIndia:

With the globalisation and liberalization of the Indian

economy since 1991 the government had formulated
different measures to protect the diverse interest of
shareholders and stakeholders in the companies. The
report on corporate Governance by the Cadbury
Committee in the U.K. in 1992 has provoked intense
consideration of the concept in our country. The parties
involved in corporate governance include government
agencies and authorities, stock exchanges, management
(including theboard of directors,theChief Executive
Officer, other executives and line management,
shareholdersandauditors).Otherinfluentialstakeholders
are lenders, suppliers, employees, creditors, customers
andthecommunityatlarge.

Companies Act, 1956 provides for basic framework for

regulation of all the companies. Certain provisions were
incorporated in the Act itself to provide for better
corporategovernanceviz.:

1. Loan to directors or relatives or associated entities needs

CentralGovernmentapproval
2. Interested contract needs approval of the Board in a duly
convened meeting and also the approval of Central
Governmentincertaincases
3. Interested directors are not allowed / considered to
participateorvote
4. Appointment of director or relatives for office or place of
profitneedsapprovalbyshareholders.Iftheremuneration
exceeds prescribed limit, Central Government approval
required

Page 38

5. Constitution of Audit Committee is mandatory for Public
companieshavingpaidupcapitalofRs.5Croresormore
6. Shareholders holding 10% can appeal to Court in case of
oppressionormismanagement.

Steps taken by SEBI for ensuring better governance in

listed companies: The introspection that followed the
Satyam episode has resulted in some major changes in
Indian corporate governance regime. Some of the recent
stepstakeninthisregardare:

Disclosure of pledged shares by the Promoters in listed

entitiespromotedbythem;
Peerreview:Inthelightofdevelopmentswithrespectto
Satyam SEBI carried out a peer review exercise of the
working papers (relating to financial statements of listed
entities) of auditors in respect of the companies
constitutingtheNSE Nifty50theBSE Sensexandsome
listed companiesoutside theSensexandNiftychosenon
arandombasis.

Disclosuresontheirwebsitesregardingagreementswith
the media companies Maintenance of website: to
maintain a functional website containing basic
information about the entity, duly updated for all
statutory filings, including agreements entered into with
mediacompanies,ifany.

Compulsory dematerialization of Promoter holdings

Peer reviewed Auditor:, Limited review/statutory audit
reports to be submitted to the concerned stock
exchangesshallbegivenonlybythoseauditorswhohave
subjected themselves to the peer review process of ICAI
and who hold a valid certificate issued by the Peer
ReviewBoardofthesaidInstitute;
Approval of appointment of CFO by the Audit
Committee

Disclosure of voting results/patterns on their websites

and to the exchanges within 48 hours from the
conclusionoftheconcernedshareholdersmeeting.

Enablingshareholderstoelectronicallycasttheirvoteto
ensure wider participation of shareholders in important
proposals.

Manner of dealing audit reports filed by listed entities:

SEBIhasapprovedmechanismtoprocessqualifiedannual
audit reports filed by the listed entities with stock
exchanges and Annual Audit Reports where accounting
irregularities have been pointed out by Financial
Reporting Review Board of the Institute of Chartered
AccountantsofIndia(ICAIFRRB).Inordertoenhancethe
qualityoffinancialreportingdonebylistedentities,ithas
been,interalia,decidedthat:
1. Deficienciesinthepresentprocesswouldbeexaminedand
rectified.
2. SEBI would create Qualified Audit Report review
Committee (QARC) represented by ICAI, Stock Exchanges,
etc. to guide SEBI in processing the audit reports where
auditorshavegivenqualifiedauditreports.
3. Listed entities would be required to file annual audit
reports to the stock exchanges along with the applicable
Forms.Afterpreliminaryscrutinyandbasedonmateriality,
exchangeswouldreferthesereportstoSEBI/QARC
4. Cases wherein the qualifications are significant and
explanation given by Company is unsatisfactory would be
referred to the ICAIFRRB. If ICAIFRRB opines that the
qualification is justified, SEBI may mandate a restatement
of the accounts of the entity and require the entity to
inform the same to the shareholders by making the
announcementtostockexchanges.

ListingAgreementandCorporateGovernance:Clause49
of the Listing Agreement provided for detailed rules for
ensuring better transparency and openness. An abstract
oftheClause49oftheListingAgreementisasunder:

1. TheClausecontainsdetailedprovisionsforcompositionof
the Board of Directors, its committees, the items of
business to be considered at its meeting, with stress on
participation and contribution of independent directors.
Thedetailsofremunerationtoexecutivedirectorsshallbe
disclosed to shareholders and other stakeholders at
periodical intervals and the same shall be placed on the
websiteofthecompany.
2. The roles and responsibilities of the various committees
and its constitution is also provided to ensure balance of
authority
3. Disclosureofrelatedpartytransactionismandatory
4. Periodical certification by the CFO and CEO to ensure
continuancecomplianceoftheclauseoflistingagreement
5. The management / Board of Directors are responsible to
providereportonCGonaperiodicalbasis

The objective of CG shall be to respect the rights of the

shareholders and other stakeholders and help them to
exercise those rights. It can be achieved by
communicating information that is understandable and
accessible. In recent days CG is gaining more and more
ImportanceanditshouldbefollowedbyallCorporations
toachievesustainablegrowth.

Page 39

II
Prize
Winner
Companies Bill 2012
Opportunities & Challenges
to a CS

KarthikS.N.
ProfessionalProgramme,Bangalore
karthikshannu@gmail.com


In this study I have tried to concisely present a
comprehensive analysis of the recently passed
Companies Bill 2012 (Bill),with respect a Company
Secretary (CS), in terms of opportunities that are coming
by as well as the challenges to be prepared for and to
overcome them. The muchanticipated Bill received the
Lok Sabhas assent on 18
th
December 2012.The Bill that
places more thrust on corporate governance and
corporate social responsibility (CSR) entrusts enhanced
responsibility on the management of the company,
especially the Key Managerial
Personnel (KMP). In the Bill, a
CS is included in the definition
of a KMP (Claus 2(51)).Such an
inclusion goes on to show that
the muchneeded statutory
recognition of a CSs roles and
responsibilities is duly
recognized and acknowledged
by the legislature. However, it
istobeborneinmindthatsuch
recognition will always
accompany greater expectations and demands in future.
A CS, being an academically and practically experienced
individual, is reared to take up demanding roles and
responsibilities at the helm of an organization. With
proper application and execution, a CS can become an
impetus in an organizations success. The various roles
that a CS, member of the ICSI, can do is shown in the
pictographgivenwiththisartile.

Hopingallgoeswell,theBillshouldsoonbeenactedand
the new legislation will throw open a plethora of
opportunities and challenges to a CS. The following is a
brief overview of the provisions of the Bill that promises
the upcoming opportunities and cautions on the
challengesahead

Opportunities An option to perform ones duties and

propelwithexcellence!

TheBillbestowsaCSwithopportunitiesbywhichhecan
contribute and uphold the purpose towards corporate
governance and CSR. The roles & responsibilities under
the current Companies Act,
1956 continue to be associated
with a CS, only that it is
renewed with more thought
and provisions for effective
implementation in the Bill. The
opportunities under the Bill
cover the ambit from statutory
procedure to voluntary
compliance. As a CS, the
voluntary compliance is the key
to make the most of any
opportunity and thereby combat the associated
challenges.

Thefollowingaretheopportunitiesalistofprovisionsin
theBillthataCSshouldtakenoteof:

Todeclare/certifythatalltherequirementsoftheAct(i.e.,
Bill) and the rules made thereunder in respect of
registration and matters precedent or incidental thereto
havebeencompliedwith(Cl7(1)(b)).
To certify the Annual Return of the company(Cl 92(1)). In
addition, a listed company and certain other class of
companies,asmaybeprescribed,willhavetogetitsannual

Page 40

return certified by a practicing CS (PCS) as well. However,
with respect to a oneperson company (OPC) the
certificationbyaCSmaynotbemandatory.
A CS, being a KMP, is entrusted with recording and
maintaining minutes of proceedings of Board/committee
(Clause118).
A CS in employment will have to sign on the financials of
thecompany(Clause 134 (1)).
To conduct secretarial audit as stipulated in Clause 204.
Whiledoingconductingsuchanaudit,thepowers&duties
of the PCS are to be in sync with provisions listed out in
Clause143.

This is a very huge opportunity for a PCS as their role &

responsibility grows manifold when they check and
ensure that a company is complying with all the
provisionsoftheAct(i.e.Bill).Byvirtueofthisprovision,
aCScanbeanactivewhistleblower.

To ensure that the company complies with

appropriate appointments to any of the KMP
positions(Clause203).
To adhere to and perform in accordance with the
functions mentioned in Clause205, which is very
exhaustiveclauseasitmandatesanddirectsaCShas
to ensure that the company complies with all the
provisionsoftheAct(i.e.,Bill).
To certify annually whether a scheme of
compromise/arrangement, including mergers and
amalgamations, is being implemented in accordance
with the terms specified in the order of the tribunal
(Clause 232).
A CS in practice for a period of 15 or more years is
eligibletobeamemberoftheNationalCompanyLaw
Tribunal that shall be constituted by virtue of
Clause408(Clause409 (3) (d)).
TheCSinemploymentoraPCStocertifyin accordance
with clause (ii) & (iii) of sub section (c) of Section III, Part II of
Schedule V

that

(i) All secured creditors and term lenders have stated in

writingthattheyhavenoobjectionfortheappointmentof
the managerial person as well as the quantum of
remuneration and such certificate is filed along with the
returnasprescribedundersubclause(4)ofClause196.

(ii) There is no default on payments to any creditors, and

allduestodepositholdersarebeingsettledontime.
The CS in employment or a PCS to certify that the
requirementsofScheduleVhavebeencompliedwith
and such certificate shall be incorporated in the
returnfiledwiththeRegistrarundersubclause(4)of
Clause196(In accordance with Part III of Schedule V).

CS as a professional independent director The bill

mandates that every listed and such other class of
companies,asprescribed,shallmandatorilyappointsuch
number of independent directors on its Board of
Directors (Clause 149 (4)). A CS is very much eligible to be
appointed as an independent director on the companys
Board and can be more than a just a company secretary
tothecompany.

ThiswillbroadenthescopeofaCSandwillenablehimto
respond to demands of responsibility. From being a
person ensuring compliance, in the capacity of a CS, he
can be a person complying or effecting compliance from
the top most level of the management by being an
independentdirector.

ChallengesOpportunitiesindisguise!

Shortcomings The shortcomings for a CS is that the Bill

hasenhancedthepenalty/liabilityforanycontraventions
in quite a lot of provisions. A CS, who is defined as an
expert (Clause2 (38)), is liable for any misstatement or
misleading certifications made to the company or its
members(Clause 245 (1) (g) (iii)).Beingapersondefinedasa
KMP, the liability is always attached to every act and
omission.

Upholdingprofessionalvalues&ethicsOneofthe most
commonly faced confrontation to all professionals,
including company secretaries is whats the level of
integrity that one should be having in performing ones
duties and upholding all that is right. It is a matter
challenging selfconscience and professional etiquette
when there is pressure from the management or peer
andevenmoresoifthework/earningsareatstake.

However,thesechallengesareanopportunityindisguise
foraCStoactwiselyandbeaprofessionalwhonotonly
speaks of compliance but also walks his talks; even if it
meanstobraveagainsttheodds,tofollowlawbyletter&
spiritcoupledwithethicalstandards.

With the constant perseverance of the ICSI, through its

teachingsandguidance,andtheprofessionalandstudent
members zeal to excel, the profession will surely reach
newheights.Innearfuture,whenaCSsaysEveryword
ofitwillbearauthenticity.

Page 41

Allotment of Securities




NareshKumarB.R
ProfessionalProgramme
nareshworld.2010@gmail.com

AllotmentofShares:Allotmentofsharesmeanstheact
ofappropriationbytheBoardofdirectorsofthecompany
out of the previously unappropriated capital of a
company of a certain number of shares to persons who
havemadeapplicationsforshares.

NoticeofAllotment:Anallotmentistheacceptanceofan
offer to take shares by an applicant, thus, a binding
contract between the company and the applicant could
emerge only when the allotment is made by a resolution
oftheBoardofdirectorsandnoticeofsuchallotmenthas
beengiventotheallotteetobindacontractbetweenthe
companyandtheallottee.

General Principles Regarding Allotment: With regard to

the allotment of shares, the following general principles
shouldbeobserved:

(1) The allotment should be made by proper authority,

i.e. the Board Directors of the company, or a
committeeauthorised to allotsharesonbehalfofthe
Board. Allotment made without proper authority will
be invalid. Allotment of shares made by an irregularly
constitutedBoardofdirectorsshallbeinvalid[Changa
Malv.ProvisionalBank(1914)ILR36All412].
(2) Allotmentofsharesmustbemadewithinareasonable
time (As per Section 6 of the Indian Contract Act,
1872, an offer must be accepted within a reasonable
time).
(3) The allotment should be absolute and unconditional.
Sharesmustbeallottedonsametermsonwhichthey
were applied for and as they are stated in the
application for shares. Allotment of shares subject to
certainconditionsisalsonotvalid.
(4) Theallotmentmustbecommunicated.
(5) Allotment against application only No valid
allotmentcanbemadeonanoralrequest.Section41
of the Companies Act, 1956 requires that a person
shouldagreeinwritingtobecomeamember.
(6) Allotmentshouldnotbeincontraventionofanyother
law.

4. MinimumSubscription

Section 69(1) of the Companies Act, 1956 states that no

shares shall be offered to the public until the minimum
subscriptionstatedintheprospectushasbeensubscribed
andtheamountpayableonapplicationhasbeenreceived
in cash by the company. In this context, SEBI has
prescribed that any company making public or right issue
must receive a minimum of 90 percent of the issue
including devolvement on underwriters subscription
againsttheentireissuebeforemakingallotment.

5. LetterofAllotment

The company is required to issue letter of allotment to

personswhoareallotedshares.SuchletteriscalledLetter
of Allotment. Such persons are required to surrender this
letter of allotment to company for issue of share
certificate.

6. EffectofIrregularAllotment

An allotment is irregular if it is made without complying

with the conditions precedent to a regular allotment, viz,
the provisions of Section 69 and 70 of the Act.
Consequences of irregular allotment depend upon the
nature of irregularity involved. These may be noted as
follows:

1. Failure to deliver a copy of the prospectus to the

Registrar before its issue In case an allotment has

Page 42

been made without delivering to the Registrar of
Companies,acopyoftheprospectusalongwithother
specifieddocumentseitherbeforeoronthedateofits
issue, the company and every person who is
knowingly a party to the issue of the prospectus shall
be punishable with fine which may extend to Rs.
50,000 [Section 60(5)]. The allotment, however, shall
remainvalid.

2. Noncompliance with provisions of Section 69 and

Section70Intheeventofnoncompliancewiththe
provisions of Section 69 and Section 70 (viz allotment
without raising minimum subscription or without
either collecting application money or collecting less
than 5 percent as application money or failure to
deliver a copy of statement in lieu of prospectus at
least three days before allotment), the following
consequencesshallfollow:

The allotment is rendered voidable at the option of the

applicant.Theoptionmusthoweverbeexercised:

Within2monthsaftertheholdingofthestatutorymeeting
ofthecompanyandnotlater;or

Where the company is not required to hold a statutory

meeting,orwheretheallotmentismadeaftertheholding
ofthestatutorymeeting,within2monthsafterthedateof
allotmentandnotlater.

Any director who has knowledge of the fact of the

irregularallotmentofsharesshallbeliabletocompensate
the company and the allottee respectively for any loss,
damages or costs which the company or the allottee may
have sustained or incurred thereby. Proceedings to
recover any such loss, damages or costs cannot be
commenced after the expiration of 2 years from the date
ofallotment.

7. Ultraviresallotment

Where the directors have no authority under the

companys memorandum to make an allotment, the
allotment would be irregular and may be ratified by the
company. But it would be void where the company itself
has no power to make an allotment. At common law any
subscription money was returnable to the allottee.
[WaverlyHydropathicCo.v.Barrowman,189523R.136].

8. ReturnofAllotment

Section 75 of the Companies Act provides that after

allotmentofsharesbyanycompany,areturnofallotment
in the prescribed eform 2 even if it is of a single share,
mustbefiledwiththeRegistrarofCompanieswithinthirty
daysoftheallotmentofshares.Thereturnmuststate:

(A)Wheresharesareallottedforcash
(i) The number and nominal amount of the shares
allotted.
(ii)Theamountpaidorpayableoneachshare.
i. Theclassofsharesequityorpreference.
ii. Theamountofpremiumpaid/discount.

(B) Where shares (other than bonus shares) are allotted

for consideration otherwise than in cash whether fully
paiduporpartlypaidup,thefollowingarerequired:

(i)Acopyofcontract,ifany,forallotmentofsuchshares
isrequiredtobeattachedwiththeeform.
(ii) The contract of sale or for services or other
consideration for which the allotment was made;
and
(iii)Areturn statingthenumberandnominalvalueofthe
shares so allotted, to the extent to which they are
paidup, and the consideration for which they are
allotted.

(C) Where bonus shares have been issued, a return must

befiledwiththeRegistrarstating:

(i) The number and nominal value of such shares

comprisedintheallotment.
(ii) The names, addresses and occupation of the
allottees;and
(iii) A copy of the resolution authorising the issue of
such shares is required to be attached with the e
form2.

(D) Where the shares have been issued at a discount, a

copy of the resolution passed by the company
authorising such issue and a copy of the order of the
CentralGovernmentsanctioningtheissuemustbefiled
with the Registrar. If rate of discount exceeds 10% the
relevantorderoftheCentralGovernmentmustalsobe
filedwiththeRegistrarasanattachmentwitheform.

Page 43

CSR & Companies Bill 2012

RajeshwariS.
ProfessionalProgram
HemanthBiswajit&Co
rajeswari.s07@gmail.com

May the whole world live

happilyOurancientsagesprayedforthewellnessofthe
whole world and that time society was small with limited
boundaries.

Wayoflivingonearthsawaseachangesincethatancient
time. Now it is not that simple living. Society as a whole
expandedmakingthewholeearthaglobalvillagethanks
to the advanced Information Technology as well as rapid
transportsystems.

Manlikestolivewithinthesocietyandgivestothesociety
either in the form of service or business and receives the
same from the society. As civilization advanced, business
toochangedintovariousformsi.e.frombartersystemto
electronic mode of transactions. Rules and regulations
formed by the civilized society which resulted in business
enterprises transforming into companies and big
corporate houses. These enterprises flourished obtaining
rawmaterials,labourandsupportfromthesociety.Much
ofthewealthhappenedtoaccumulateinthehandsoffew
individuals.

Concept: Now, in an era of globalization, multinational

corporations and local businesses are no longer able to
conduct destructive and unethical practices, such as
polluting the environment, without attracting negative
feedback from the general public. As the awareness is
increased in the society and electronic media is a playing
vital role, pressure from nongovernmental organizations
and rapid global information sharing, there is a surging
demand from civil society, consumers, governments, and
others for corporations to conduct sustainable business
practices. In addition, in order to attract and retain
employees and customers, companies are beginning to
realizetheimportanceofbeingethicalwhilerunningtheir
dailyoperations.

This new consciousness is being known as Corporate

SocialResponsibility(CSR).

CSR is also knownas corporate conscience,corporate

citizenship,social performance, sustainable responsible
business or responsible business. Itis a form
ofcorporateselfregulation integrated into abusiness
model. CSR policy functions as a builtin, selfregulating
mechanism whereby a business monitors and ensures its
active compliance with the spirit of the law, ethical
standards, and internationalnorms. CSR is a process with
the aim to embrace responsibility for the company's
actions and encourage a positive impact through its
activities on the environment, consumers, employees,
communities,stakeholdersand all other members of the
public spherewho are also considered as stakeholders. A
businessneedsahealthyeducatedworkforce,sustainable
resources and an adept government to compete
effectively.

Definition: 'CSR' may be defined as corporate initiative to

assessandtakeresponsibilityforthecompany'seffectson
the environment and impact on social welfare. The term
generallyappliestocompanyeffortsthatgobeyondwhat
may be required by regulators or environmental
protectiongroups.

TheWorldBusinessCouncilforSustainableDevelopment
definesCSRas"thecontinuingcommitmentbybusinessto
behaveethicallyandcontributetoeconomicdevelopment
while improving the quality of life of the workforce and
theirfamiliesaswellasofthelocalcommunityandsociety
III
Prize
Winner

Page 44

at large". CSR is a process to achieve sustainable
developmentinthesociety.
A growing number of companies in the world wide practice
some form of CSR. Recently more than 3500 companies took
part in Global Reporting Initiative and had issued more than
eightthousandenvironmentalandsocialsustainabilityreports.

InitiativebyIndia:CompaniesBill2012

As CSR is being accepted globally our legislatures

envisaged to legalize Corporate Social Responsibility by
makingCSRamandatoryrequirementforlargecompanies
in the new Companies Bill 2012. In the Companies Bill
2012,Clause135providesfor:

1. Everycompanyhaving
networthofRupeesFiveHundredCroreormore;or
turnoverofRupeesOneThousandCroreormore;or
anetprofitofRupeesFiveCroreormore

duringanyfinancialyear,shallconstituteaCSRCommittee
consistingofthreeormoredirectors,outofwhichatleast
onedirectorshallbeanindependentdirector.

2. The Boards Report under subsection (3) of section

134 (the provisions under existing Section 217 of
CompaniesAct1956)shalldisclosethecompositionof
theCSRCommittee.
3. TheCSRCommitteeshall,
a. formulate and recommend to the Board, a Corporate
Social Responsibility Policy which shall indicate the
activitiestobeundertakenbythecompanyasspecified
inScheduleVIIofCompaniesBill2012
b. recommend the amount of expenditure tobe incurred
ontheactivitiesreferredtoinclause(a);and
c. Monitor the Corporate Social Responsibility Policy of
thecompanyfromtimetotime.

4. The Board shall after taking into account the

recommendations made by the CSR Committee,
approvethe CSRpolicyforthecompanyanddisclose
contents of such Policy in its report and also place it
on the company's website, if any, in such manner as
maybeprescribed;and

5. TheBoardofeverycompanyreferredtoinsubsection
(1) shall ensure that the company spends, in every
financialyear,atleasttwopercentoftheaveragenet
profits of the company made during the three
immediatelyprecedingfinancialyears,inpursuanceof
itsCSRPolicy:

Provided that the company shall give preference to the

local area and areas around it where it operates, for
spendingtheamountearmarkedforCSRactivities:

If the company fails to spend such amount, the Board

shall,initsreportmadeunderclause(o)ofsubsection(3)
ofsection134,specifythereasonsfornotspending.

InacompanyCSRpolicymaybeasperScheduleVIIofthe
Companies,Bill2012.Activitieswhichmayberelatingto:

i. Eradicatingextremehungerandpoverty;
ii. Promotionofeducation;
iii. Promotinggenderequalityandempoweringwomen;
iv. Reducingchildmortalityandimprovingmaternalhealth;
v. combating human immunodeficiency virus, Acquired
Immune Deficiency Syndrome, Malaria and other
diseases;
vi. Ensuringenvironmentalsustainability;
vii. Employmentenhancingvocationalskills;
viii. Socialbusinessprojects;
ix. Contribution to the Prime Minister's National Relief Fund
oranyotherfundsetupbytheCentralGovernmentorthe
State Governments for socioeconomic development and
relief and funds for the welfare of the Scheduled Castes,
the Scheduled Tribes, other backward classes, minorities
andwomen;and
x. suchothermattersasmaybeprescribed

The Companies Bill 2012 proposes mandatory measures

forcompaniestocommitthemselvestoCSRprogramsand
activities.Infact,CorporateSocialResponsibilityiswellon
its way to become an eventuality. When the Bill becomes
an enactment companies are expected to perform well in
nonfinancial areas such as human rights, business ethics,
environmental policies, corporate contributions,
community development, corporate governance, and
workplaceissues.

At present, in India only a few large companies are

fulfilling their social responsibilities effectively and
contributing to the society in various ways. We can say
that fulfillment of CSR is a gateway for better corporate
governance and thereby enhances the image of the
companyinthesocietyaswellasinthebusinessworld.

Page 45

Real Problems in the
Virtual World

Shivali
CSExecutiveProgramme
Bangalore
shivali.k@outlook.com

The internet last month

turned thirty and this
comesquiteasasurprise
as internet in a
comfortably within short
span of time has made a
tremendous impact, rather an overbearing one. For good
or bad internet has changed the world, not the least for
India.

Birth of a network : Though Scientists had networked

computers way back in 1950s but no common language
had been developed which allowed the network to
communicate between each other easily. It was only in
the late 1970s that the American Defence Advanced
Projects Agency after a series of experiments resulted in
the outcome of Transmission Control Protocol/Internet
Protocol(TCP/IP)whichwasadoptedonJanuary1,1983.
Oneamidstthecreatorstohaveinventedinternetnamed
David .P. Reed stated Most of us never thought that this
particular internet, which would be a very experimental
thing,wouldlastverylong
1

The marvel of internet is paraded in our lives having got

interlaced right from getting a Birth certificate, Railway
reservations, Banking transactions, Telephonic
communications, Biomatrix attendance in offices,
Examination result cards, Aircraft transportations, Traffic
signals, to obtain a death certificate which are all now
carried out with the aid of computers and every data and
information has acquired electronic shape and capable to
glidethroughtheopticcables.

With the pervasion of internet so strong in our lives the

epidemic called cybercrime is fast becoming an everyday
affair.
Whatiscybercrime?

The term cybercrime is held to be a misnomer. The term

has not been defined in any of the statutes and acts
enacted by the Indian Parliament. Cybercrime maybe
definedasAnycriminalactivitythatusescomputereither
asaninstrumentality,targetorameansforperpetuating
furthercrimescomeswithintheambitofcybercrime
2

A cybercriminal can destroy websites and portals by

hacking and planting viruses, carry out online frauds by
transferring funds from one corner of the globe to
another,gethishandsonhighlyconfidentialandsensitive
information, cause harassment by e mail threats or
indecent material, play tax frauds, indulge in cyber
pornography involving children and a whole range of
otherobsceneacts.

With recent events like the death of Internet activist

AaronSwartz,thearrestof2girlsforupdatingcontentious
mattersonFacebook,onlinethreatstoaKashmiriallgirls
bandextendingtothemostheinouscrimesliketheuseof
Information Technology by terrorist organisations to burn
down nations and sabotage tranquility exemplifies the
enormity of an impact the global computing network can
cause. For Instance the Hollywood flick Diehard 4
dramatically pictures the wallop and the devastating
imprints a cyberwarfare can lead to. Hard hitting crimes
unspecifiedintheITACT

High Yield Investment Programmes Faux websites which

dubiously promise a return of invested money with a
return of 1% interest on a daily basis attracts a lot of
innocentnetizens,whoaredupedoftheirlifetimesavings.

Page 46

FinancialcrimesinacasewhereWiproSpectramindlost
the telemarketing contract from Capital one due to an
organized crime. The telemarketing executives offered
fake discounts, free gifts to the Americans in order to
boost the sales of the Capital one. The internal audit
revealed the fact and surprisingly it was also noted that
thesuperiorsofthesetelemarketerswerealsoinvolvedin
the whole scenario.
3
This led to huge financial loss to the
company.

IPR theft Owing to unconfined territorial dominion of

the net and the rise of digital technologies and internet
filesharingnetworks,laxityinlawenforcementIPR thefts
are becoming grossly redundant. In a theft the source
codeisstolenthusleadingtoheavylosesforcompanies.

Cyber squatting and typo squatting is another popular

crimethroughwhichsquattersmakemoneybytrafficking
andregisteringpopulardomainnamesinabadfaithfrom
the goodwill of a trademark that belongs to another
person. Data theft and phishing also has caused
irreparableblowstobanksandcorporatehouses.

Cardtricks:Withtherisingusageofdebitandcreditcards
and the internet emergence as a popular tool for
transactions, fraudsters are on the constant lookout for
gullible customers .The
migration from a cash based
to a cashless economy has
furtherencouragedtheuseof
cards and net for banking
transactions .This has led to
advancement in the
technicalityofcrimeswherein
fraudsters can con the people
withoutstealingtheircards.

Skimming/card cloning With

the help of a cashier at large
retail stores the card is swiped twice where once in the
card reader and then in the skimmer, which captures the
carddatawhichislaterbemisused.

ATM fraudsthe data transfer between the ATM and the

banks server is intercepted by a device attached to the
network cable. The data is then stored and replicated
later. The device can also be used to interrupt the ATMs
functioninganddeceivethecustomer.

EyeofthestormSection66A

66A. Punishment for sending offensive messages through

communication service, etc.
4
The phraseology of Section
66AoftheITAct,2000issowideandvagueandincapable
of being judged on objective standards, that it is
susceptibletowantonabuseandhencefallsfoulofArticle
14, 19 (1)(a) and Article 21 of the Constitution.says
Shreya Sangal who filed a PIL to review the law under
which two young women were arrested recently in
MaharashtrafortheirFacebookposts.
5

A few cyber security personnel hold a view that the rules

and legislations governing and policing the cyber space is
not well regulated and framed, owing to the fact that
when the germination of IT rules were enacted there
wasnt enough deliberations and the legislation slipped
throughbereftofbrainstorming.

Conclusion: Internet is a revolution which has

substantially altered our lives. Despite the setting up of
cyber appellate authority, cybercrime police stations and
aiding websites like the internet crime complaint center
(IC3), cybercrimes are growing in geometrical
progression. Primarily the lacunae can be spotted both in
the mind set and enforcement of the regulations.
Adjudication of the crime is a
prolonged process and a
remedycouldbe,byappointing
enough special magistrates to
exclusively handle cyber cases.
Oursocietycomprisesofaclass
divide, a section that cannot
connectwiththeneedofcyber
spaceanddeemtheubiquitous
presence of internet unwanted
and the other section mostly
comprising of the younger lot
who hold it an indispensable
medium. Ethical hackers must be got to the mainstream
andgroomedtodealwithCyberwarfare.

Regardless of the fact that cybercrime has become

habitual and pernicious the cognizance of the paramount
issue is yet to be regarded and is devoid of sufficient
awareness that has to be created amongst the netizens
equippingthemwiththeneededprecautionarymeasures
foraEworldsafeandsecure.

Page 47

Fraud and Corporate
Governance
RahulMurthy
Trainee@R.C.VenkateshRao,Bangalore
rhlmurthy@gmail.com

Introduction

Incommonparlance,thewordfraudisdefinedasanyact
ofdeceptioncommittedforpersonalgain,and/ortocause
damage or disadvantage to another individual. This
definition is on a microlevel; when we take it to a macro
level this definition encompasses entire organisations
devotedanddedicatedtofraud,eitherovertlyorcovertly.
The overtly fraudulent organisations are those who are
known publicly or by a substantial section of public to be
criminally active. The covert ones however, are what we
areinterestedinwithrespecttothisarticle.

Organisedformsofbusinesshavebeenaroundsincetime
immemorial, and have been governed by diverse set of
laws depending on the cultures, usages and time of the
society. In 1602 the Dutch East India Company was
established in Netherlands as a trading company. It is
widelybelievedtobethefirstorganisationtoissueshares
andbecomeapubliccompany.Howeverfromthetimeof
theindustrialage,thegrowthofjointstockcompanieshas
beenphenomenal,withonenationafteranotheradopting
thisformofbusiness,astheydevelopeconomically.Ifone
thought that this growth was fast, then the growth that
took place towards the end of the 20
th
century and
beginningofthe21
st
wouldhavealteredtheirperceptions
dramatically. The information age as it were began,
combined with rapid globalisation, rising levels of
awareness, and a vigorous entrepreneurial spirit ensured
that companies would be incessantly formed all over the
globe.

As companies grew, so did the capital markets in every

part of the world, and along with it came new financial
instruments to tap into more and more funds. This is
where the promising story started to reveal colours that
we didnt quite see in all the excitement and fervour
aroundfabulousstoriesofwealthandprosperity.
Scandalous!:

In the frenzy of growing companies faster and faster,

nobody seemed to be paying attention to the need for
adequate controls. In the absence of which executives
and management, along with the auditors found
themselves in an open bank vault with no one around.
Thiswasonetheparentstothepracticethatwouldcome
tobeknown ascreativeaccounting.Theotherparentor
cause was the extreme standards that shareholders and
the public had set for, or expected of companies. Each
quarterly target had to be bigger than the previous, and
each one had to be met in a timely manner. To achieve
both these ends and get away with it, the figures
presented to shareholders had to be tinkered with. And
although this tinkering began slowly, like all addictions, it
soon become so vast that it seemed to resemble a
fictional illustration given in college study material.
Creative accounting are practices that attempt to show
faithfulness in complying with the rules of standard
accounting practices, but which divert from the spirit of
those rules. They are methods of using accounting
practicestoconvincinglyshowaparticularstateofaffairs,
whentherealitymaybeverydifferent.

Cases:

1. In 2003,Nortelmade a big contribution to this list of

scandalsbyincorrectlyreportingaonecentpershare
earnings directly after their massivelayoffperiod.
They used this money to pay the top 43 managers of
thecompany.
2. In 2005, after a scandal on insurance and mutual
funds the year before,AIGwas investigated for

Page 48

accounting fraud. The company already lost over 45
billion US dollars worth of market capitalisation
becauseofthescandal. Investigationsalsodiscovered
over a billion US dollars worth of errors in accounting
transactions.

Public ownership and limited liability, along with limited

role of shareholders in running of the company should
have been clear signals to the relevant authorities and
regulatory agencies that caution was needed. The
interaction between shareholder, top management and
the board is an intricate balance of power, stewardship
and responsibility. When such balance is upset, then the
major frauds as witnessed at the end of the 20
th
century
andbeginningofthe21
st
aretheresult.

Table:EffectofFrauds

Company Asset
($Billions)
Bankruptcy
FiledOn
WorldCom 101.9 July,2002
Enron 63.4 Dec,2001
Texaco 35.9 April,1987
GlobalCrossing 25.5 Jan,2002
Adelphia 24.4 June,2002
UnitedAirlines 22.7 Dec,2002
PG&E 21.5 June,2002

CorporateGovernancetotheRescue:

While all the frauds were being carried (during the initial
periods), a committee was considering ways to improve
accountability, provide greater control and improve
transparency at the board and managerial levels. This
committee was known as the Cadbury committee.
TheCadbury Report, titledFinancial Aspects of Corporate
Governance, is a report of a committee chaired byAdrian
Cadburythat sets out recommendations on the
arrangement of company boards and accounting systems
to mitigatecorporate governancerisks and failures. The
reportwaspublishedin1992.

The Committee recommended sweeping changes to the

manner of internal regulation of the board, the
managementandinthematterofdisclosuresinreportsto
shareholders. The Cadbury Report was the inception
point of the formation of many such committees all over
the world for the same purpose of strengthening the
corporategovernancesystems.

Basically corporate governance (as agreed by various

bodies)isthesetofprocesses,customs,policies,laws,and
institutions affecting the way a corporation is directed,
administered or controlled. Corporate governance also
includes the relationships among the many stakeholders
involved and the goals for which the corporation is
governed.

HistoryofCorporateGovernanceinIndia:

There have been several major corporate governance

initiativeslaunchedinIndiasincethemid1990s.Thefirst
was by the Confederation of Indian Industry (CII), Indias
largest industry and business association, which came up
with the first voluntary code of corporate governance in
1998. The second was by the SEBI, now enshrined as
Clause 49 of the listing agreement. The third was the
NareshChandraCommittee,whichsubmitteditsreportin
2002. The fourth was again by SEBI the Narayana
Murthy Committee, which also submitted its report in
2002. Based on some of the recommendation of this
committee, SEBI revised Clause 49 of the listing
agreementinAugust2003.

All the committees had certain common

recommendationstoofferincluding:

1. Composition of the Board favouring Nonexecutive

Members
2. IndependentDirectors
3. Audit Committee and strengthening of internal Audit
Function
4. WhistleBlowerMechanism
5. FrequencyofBoardMeetingsandAttendancethereof

Verdict:SuccessorFailure?

Despitethewellintentionedeffortsofthevariousbodies,
and regulatory agencies, the implementation of the
corporategovernancesystems,thoughresultingincertain
success,leftmarksoffailurethatexposedmanyloopholes
not just in the system, but more so in the lack of
understanding of the spirit of the codes by corporate
houses.
(ContinuedinPage55)

Page 49

Corporate Governance
An Understanding

RajeevT.S.
ProfessionalProgramme
ManagementTrainee@Hemanth,Biswajit&Co.
Rajeev.ts@hbcs.in

Corporate governance is nothing more than how a

corporation is administered or controlled. Corporate
governance takes into consideration company
stakeholders as governmental participants, the principle
participants being shareholders, company management,
and the board of directors. Adjunct participants may
include employees and suppliers, partners, customers,
governmental and professional organization regulators,
and the community in which the corporation has a
presence.

CorporateGovernanceInBrief

Corporate Governance refers to the way a corporation is

governed. It is the technique by which companies are
directed and managed. It means carrying the business as
per the stakeholders desires. It is conducted by the
boardofDirectorsandtheconcernedcommitteesforthe
companys stakeholders benefit. It is all about balancing
individual and societal goals as well as economic and
socialgoals.

CorporateGovernanceistheinteractionbetweenvarious
participants (shareholders, board of directors, and
companys management) in shaping corporations
performance and the way it is proceeding towards. The
relationshipbetweentheownersandthemanagersinan
organization must be healthy and there should be no
conflict between the two. The owners must see that
individuals actual performance is according to the
standard performance. These dimensions of corporate
governanceshouldnotbeoverlooked.

Corporate Governance is looked upon with utmost

importance by the legal systems and company
regulatory regimes all around the world. India is not an
exceptiontoit.InIndiatoo,variouscommitteessetupby
the industry, Securities and Exchange Board of India and
the Ministry of Corporate Affairs have made reports and
recommendations covering every subject of importance
to corporate governance. The government has also
introduced a comprehensive bill in the Parliament for
amending the various provisions of the companies Act
1956andtherelatedprovisionscontainedinotherActs.

Corporate governance is based on principles such as

conducting the business with all integrity and fairness,
being transparent with regard to all transactions, making
all the necessary disclosures and decisions, complying
with all the laws of the land, accountability and
responsibilitytowardsthe stakeholders andcommitment
to conducting business in an ethical manner. Another
pointwhichishighlightedintheSEBIreportoncorporate
governanceistheneedforthoseincontroltobeableto
distinguish between what are personal and corporate
fundswhilemanagingacompany

Importance of Corporate Governance: Fundamentally,

there is a level of confidence that is associated with a
company that is known to have good corporate
governance. The presence of an active group of
independent directors on the board contributes a great
deal towards ensuring confidence in the market.
Corporate governance is known to be one of the criteria
that foreign institutional investors are increasingly
depending on when deciding on which companies to
invest in. It is also known to have a positive influence on
thesharepriceofthecompany.

Page 50

A clean image of corporate governance will make it
easierforcompaniestoraisecapitalatmorereasonable
costs. Unfortunately, corporate governance often
becomesthecentreofdiscussiononlyaftertheexposure
ofanumberofscamshappenedincorporateworld.

RoleofCompanySecretary:

The principal responsibility in this regard has been

entrusted on the CS, who has been given an alleviated
positioninthecorporatehierarchy.
Company Secretary being a key functionary in the
corporate hierarchy his role, functions and
responsibilities have been widened over the years. With
increasingemphasisontheprinciplesofgoodgovernance
and introduction of various provisions relating to
corporate governance, he has added responsibilities for
safeguardingtheinterestsofthestakeholders.

A qualified company secretary has a clear responsibility

to protect the probity of the organization He not only
serves the interests of
shareholders but also is
able to represent the
interest of the numerous
other stakeholders such
as creditors, employees
andlocalcommunities.

The delegated authority

and full range of
responsibilities that
company secretaries
undertake varies
considerably from
company to company but
their responsibility for supporting the directors is
consistentthroughout.

Needforfurtherstrengthening

The changes mostly are a welcome change and do go a

long way in establishing considerable authority of the CS
overmattersrelatingtotheinternalregulation,butcould
bemademoreeffectivebysomefurtherchanges.

Companiestodayfollowdiversesecretarialpractices.The
companiesadoptsuchsecretarialstandardsashavebeen
decided in their general body meetings. It is the
submission of the researcher that these standards must
be made uniform on the lines of the accounting
standards. An effective model to be followed could be
theoneproposedbytheInstituteofCompanySecretaries
ofIndia.TheSecretarialStandardsformulatedbytheICSI
are a set of principles which companies are expected to
adopt and adhere to, in discharging responsibilities and
could integrate, consolidate, harmonize and standardize
thesesecretarialpractices.

Othermeasureswhichcouldbetakenare:

1. PenaltyfornonappointmentofKMPaftertheexpiry
ofsixmonths.
2. The appointment of a Practicing Company Secretary
should be by way of a resolution passed at the
meeting of the members on the same lines as
appointmentofStatutoryAuditor.
3. Mandatory secretarial audit apart from a financial
audit
Such an audit would give an independent assurance
ofcomplianceofthecomplex
web of laws and rules and
regulations which govern the
functioningofacompany.

Conclusion

Since late 1990s, significant

efforts have been made by
theIndianParliament,aswell
as by Indian corporations, to
overhaul Indian Corporate
Governance. The current
Corporate Governance
regimeinIndiastraddlesboth
voluntary and mandatory requirements like Voluntary
Guidelines by Ministry of Corporate Affairs. For listed
companies, the vast majority of Clause 49 of the listing
agreementsrequirementsismandatory.

The voluntary guideline on Corporate Governance by

MinistryofCorporateGovernanceisabenchmarkforthe
Corporate Governance practices in the Indian
corporations, and hopefully the corporate world will
make the best use of it. India has one of the best
Corporate Governance legal regimes but poor
implementation together with socialistic policies of the
prereformera.Ithasaffectedthecorporategovernance.

Page 51

Positioning of CS
-under the New Companies Bill, 2011

NaveenKumarK
ProfessionalProgramme
CorporateLawConsultantatNaveen&Associates,Bangalore


CompanySecretariesasKeyManagerialPersonnel:

In clause 203 of the Companies Bill, 2011, the Secretaries

are recognized as whole time key managerial personnel
alongwithManagingDirector,ChiefExecutiveOfficerand
Mangers.Further theCompaniesBill,2011hasalsomade
itmandatorytoappointtheCompanySecretary.Inclusion
of Company Secretaries in the definition of Key
ManagerialPersonnel:

KeyManagerialPersonnelmeans:

TheChiefExecutiveOfficerorthemanagingdirectororthe
manager;
TheCompanySecretary;
TheChiefFinancialOfficeriftheBoardofDirectorsappoints
him;and
Suchotherofficerasmaybeprescribed;

IncreasedroleincertificationofAnnual:

A much responsible role has been proposed for company

secretariesinemploymentandinpracticeaswellthrough
clause92oftheCompaniesBill,2011.Asperclause92of
the new Companies Bill, 2011, every company shall
prepare its Annual return in the prescribed form
containingtheparticularsastheystoodonthecloseofthe
financial year regarding just like previous Section 159 of
theCompaniesAct,1956.

NewSigningprovisionsataglance:AspertheCompanies
BillAnnualReturnisrequiredtobesignedby:

a. ADirectorandtheCompanySecretary,orwherethere
is no Company Secretary, by a Company Secretary in
wholetimepractice.

It means that in respect of all the companies, whether

private or public, listed or unlisted, if no Company
Secretary is appointed by the company, the Annual
Return is compulsorily required to be signed by the
CompanySecretaryinpractice.

b. Incaseoflistedcompaniesandcompanieshavingsuch
paidupcapitalandturnoverasmaybeprescribed,the
Annual Return is also to be signed by a Company
Secretary in wholetime practice certifying that the
annualreturnstatesthefactscorrectlyandadequately
and that the company has complied with all the
provisionsoftheAct,intheprescribedform.

It means, in case of a listed company, even if the Annual

ReturnissignedbytheCompanySecretaryinemployment
oftheCompany,itisfurtherrequired tobesignedbythe
CompanySecretaryinWholetimepractice.

In case of One Person Company and small company, the

annualreturnshallbesignedbythecompanysecretary,or
where there is no company secretary, by the director of
thecompany.

IntroductionofSecretarialAudit

Secretarial Audit was very much there in Listed

Companies. Under Companies Bill, 2011, the
parliamentary Standing Committee recommended
SecretarialAuditforlistedandotherclassofcompaniesas
maybeprescribed.Clause204oftheCompaniesBill,2011
explainstheproposedprovisionsasfollows:

a. Every listed company and a company belonging to

other class of companies as may be prescribed shall
annex with its Boards report a Secretarial Audit
Report, given by a Company Secretary in Practice, in
suchformasmaybeprescribed.

Page 52

b. It shall be the duty of the company to give all
assistance and facilities to the Company Secretary in
Practice, for auditing the secretarial and related
recordsofthecompany.
c. The Board of Directors, in their report shall explain in
full any qualification or observation or other remarks
made by the Company Secretary in Practice in his
report.
d. If a company or any officer of the company or the
company secretary in practice, contravenes the
provisions of this section, the company, every officer
ofthe companyorthecompanysecretaryinpractice,
who is in default, shall be punishable with fine which
shall not be less than one lakh rupees but which may
extendtofivelakhrupees.

FunctionsofCompanySecretary

a. To report to the Board about compliance with the

provisionsofthisAct,therulesmadethereunderandother
lawsapplicabletothecompany;
b. To ensure that the company complies with the applicable
secretarialstandardsissuedbyICSIandapprovedbyCentral
Government;
c. Todischargesuchotherdutiesasmaybeprescribed.

ProvisionofpenaltyfornonappointmentofCS

As per Companies Act, 1956 the penalty for non

appointmentofcompanySecretarywasRs.500perday.

But considering the importance of appointment of

Company Secretary, Companies Bill, 2011 has proposed
the penalty for nonappointment of CS (pl do not use
shortforms)asfollows:
On company one lakh rupees which may extend to five
lakhrupees.
OneverydirectorandKMP(pldonotuseshortforms)who
is in default 50,000 rupees and 1,000 rupees per day if
contraventioncontinues.

CompulsorilyapplicationofSecretarialStandards

For the first time, the Secretarial Standards has been

introducedandprovidedstatutoryrecognitionintheAct.

As per clause 118(10) of the Companies Bill, 2011: Every

company shall observe Secretarial Standards with respect
General and Board Meetings specified by the Institute of
Company Secretaries of India constituted under section 3
of the Company Secretaries Act, 1980 and approved by
theCentralGovernment.
Asperclause118(10)oftheCompaniesBill,2011itisduty
of the Company Secretary to ensure that the company
complieswiththeapplicableSecretarialStandards.

DifferencebetweenCompaniesAct,1956andCompaniesBill,2011

COMPANIESACT,1956 COMPANIESBILL,2011
DefinitionofCS(noshortforms)inSec.2(45)
Definition (do not use short forms) of PCS in
Sec.2(45A)
1) DefinitionofCSinClause2(24)
2) DefinitionofPCSPinClause2(25)(donotuseshortforms)
1) NoprovisionofSecretarialAudit
2) No provision for Compliance with Secretarial
StandardsofICSI
1) Secretarial Audit mandatory for all listed Companies and such
otherCompaniesasprescribedunderClause204
2) All Companies shall comply with Secretarial Standards of ICSI
relating to Board & General Meeting as prescribed under
Clause118(10)
Annual Return signing by a Director and a Secretary, if
any.AndifthereisnoSecretarythenby2Directors.
AnnualReturntobesignedbyaDirectorandtheCompanySecretary,or
where there is no Company Secretary, by a Company Secretary in
practice.
Companies having a minimum paidup capital and
capitaluptoRs.5CroresaComplianceCertificatefrom
PCSisrequired
Concept of Compliance Certificate from practicing Company Secretary
recasted in new form and clubbed with Annual Return Certification of
listedcompanyandsuchothercompaniesasmayprescribed.
CONCLUSION:Manygoodprovisionshavebeenproposed
like applicability of Secretarial Standards, revised
framework for regulation of mergers and amalgamations,
insolvency, rehabilitation, liquidation and winding up of
companies, which offers great scope for Companies
Secretariesnotonlytoactasliquidator/administratorbut
also to represent the various stakeholders before the
Tribunal. It is quite visible that to promote good
governance, detailed disclosures are contemplated under
the proposed Bill for the compliance of which the
companies would look forward to professionals including
CompanySecretaries.

Page 53

Transparency in
Governance
The Ultimate Key to Success

AvinashJain
Bangalore
avinashjain790@gmail.com


Corporate collapses as in the case of Enron, Harris Scarf,
HIH, Ansett etc. highlight the need of greater ethics and
the need of framework for enforcing good ethical
practices within the organization. These business failures
have compelled a relook at the corporate accountability
and transparency issues thus propelling the board role in
corporategovernanceintothespotlight.

A values based corporate governance framework is the

needofthehourandmusthencebedevelopedwithafull
view to its overall impact on various stakeholders such as
employees,investors,customers,investors,customers,mana
gement,local communities and the environment. The
principle of governance must be in accordance with the
recognizedinternationalmechanismsthatpromotesound
ethicalbusinesspractices.

In the six decades of independence from alien rule, India,

despiteitsburgeoningPopulation,grindingpoverty,large
scale illiteracy and unparalleled diversity, has not only
remained successfully afloat in the democratic ark,
remarkably so in a destabilizing neighborhood, but can
also rightfully boast of significant advances made in
agriculture and food production, science and technology,
trained technical man power and higher education to
nameafewareasofsuccess.

Meaningofcorporategovernance:
Corporategovernanceis"thesystembywhichcompanies
are directed and controlled". It involves regulatory and
market mechanisms, and the roles and relationships
between a companys management, its board, its
shareholders and other stakeholders, and the goals for
which the corporation is governed. In contemporary
business corporations, the main external stakeholder
groups are shareholders, debt holders, trade creditors,
suppliers, customers and communities affected by the
corporation's activities. Internal stakeholders are the
boardofdirectors,executives,andotheremployees.

Much of the contemporary interest in corporate

governanceisconcernedwithmitigationoftheconflictsof
interestsbetweenstakeholders.

Dutytoacthonestly,withduecareanddiligence:

There is quite a tangible potential for directors to incur

legal liability in the wake of legislations such as SOX. The
inabilityofthelegaltoeffectivelyprosecutesuggeststhat
this issue is less likely to be driven by the regulation and
enforcement than by personal values and an inner sense
ofconcernsforethics.Thereismuchpressureviabusiness
media,aswellactivebusinessprofessionalgroupssuchas
confederation of Indian Industry and the accounting and
commercial law communities. The NGO movement is also
a significant force in India. Frame work of integration of
governance.

Transparency&Disclosures

Transparency in governance refers to the absence of

secrecy and mystery between the Government and those
being governed. It implies that the Government shares as
much information with the citizenry as possible. The
informationsharedshouldnotbeambiguousorselective,
but complete and correct. A transparent Government
does not just inform the people about decisions that
affect them, but also lets them know the grounds on
which such decisions have been taken. Transparency also
implies that all rules and regulations regarding the

Page 54

functioningofthevariousarmsofthegovernmentandthe
powersanddutiesofitsofficersareinthepublicdomain.
Transparency in governance in India has certainly
improved in recent years, but a lot is still to be desired.
Thetransparencyinternationalreportin2008putsIndiaat
No.85 among 180 countries for corruption which is the
direct result of lack of transparency. Even as the country
ranks right behind the developed nations in terms of
economic development, it is still far behind in terms of
transparency.

The two most important recent developments regarding

transparencyingovernanceinIndiahavebeenthepassing
of the Right to information Act and the emergence of the
concept of eGovernance. The passage of the Right To
Information Act (RTI Act) in 2005 has been a truly
revolutionary event, in the sense that it has empowered
citizens to seek information on all public matters without
asking for justification, sets a timeframe within which
officials must provide information, and also provides for
punishments for those officers who wrongfully, or with
malintent, deny information to the public. The RTI Act
also states that an officer who denies any information to
theapplicanthastojustifyhisreasoningfordoingso,and
alsoallowspetitionerstoappealagainsthisdecision.

The RTI Act has indeed become a powerful tool in the

hands of activists against corruption, who have used its
empowering features for unearthing corruption
in projects like road constructions to award to
tenders by individual in Governments claims
regardingdevelopment.
TransparentAdministration

According to Er. Ajit Mahapatra, government

must believe in transparency and target to
weed out corruption in public places.
Transparency can never be tackled in isolation.
ItisapartoffivesofterComponents,whichare
heavilyinterlinked.Theyare:

1.SocialOpenness:Themoreopenasocietyis;
themoretransparentitsactivitiesare.

2. Society's respect and commitment to

education and training: The Education system
shouldincorporateasenseofmoralvaluesatall
Levels.Alltypeoftrainingmustbevaluebased.

3. Relative honesty and transparency in

business/government relation: The collusion between
governmentandbusinessattheexpenseofEfficiencyand
effectiveness stifles the free expression of human Spirit
and creativity, resulting in a corrupt society. This type of
activitiesmustbeopposedopenly.

4. Strong legal framework: Such framework to provide

consistency and Predictability, and timebound action,
allowingbusinesstofocusonwhatitdoesbestandinthe
bestway.

5.Admirationforrisktakers:Thepeople,ingeneral,must
learn to admire those who take risks and spearhead
innovation, which see opportunity despite tremendous
odds. The society has to take such people as their role
models and follow their style, which are never based on
corruption.

From the above, one could realize that transparency in

governance is only one of the components which cannot
betackledinisolation.Alltheothercomponentsaretobe
tackled simultaneously to get the desired results. So the
holisticnatureofthesecomponentsandresultingsynergy
created thereof, can only fight corruption in common
places.

Page 55

Conclusion: The strategies to achieve good governance
being forwarded by international leading agencies are
beingappliedtorealitiesprevailinginthethirdworld.The
conceptisbeingcountedaspanaceaforallpoliticalillsthe
march affecting the nations democracy good governance
is characterised consensus arrived, accountable,
transparent, responsive, effective, efficient government
rule of law. The government of the day viz, of the third
world expected to move in the specific direction,
obviouslyinconsensuswithLPG.

The success of the governance in the modern world need

to adopt Organizational Strategy and leadership,
establishing and managing the integrity system, the
written guides to acting with integritypolices and code,
communicating policy and building commitment,
developingintegrityskillsandabilities, managingintegrity
breaches and feedback, reinforcement of appropriate
behaviours, evaluation and disclosure, benchmarking
throughbestpractices.

To sum up, the 'vigilant citizens' could shake up the

bureaucracybymakingitdutyconsciousandaccountable.
Unless the public servants are made afraid of being
questioned, they shall never improve and perform and
corruptionshallcontinuetothrive.Therefore,thecitizens
must acteither on their own or with the help of NGOs

Fraud and Corporate Governance (ContinuedfromPage48)

The Satyam scandal rocked not only the legal system, but
alsoleftadeepgashintheauditorclientsystemthatwas
prevailing. While the rules of corporate governance may
on the face of many companies seemed to be well
applied, frauds like this show that companies have not
conscientiously felt the need to be transparent and to
followthestraightandonlyroadtolonglastingsuccess.

LookingtotheFuture:

We now live right in the middle of a period of rapid

globalisation,wheremanymoreforceswillstarttoimpact
and influence the activities of the company. Legislations
like the USAs Foreign Corrupt Practices Act, and the UK
Bribery Act will have a bearing on
the activities and consequently the
decisions of companies. E&Y, in
their report titled: Fraud and
Corporate Governance Changing
Paradigm2012,haveobservedthat
many companies have started to or
are in the process of incorporating
proactive fraud risk management
systems in their structures. Such
companies have realised the
damaging impact even a false
charge can have on the operations
of the company. Their report
further notes that the awareness among companies of
fraudulent practices and the need for controls has visibly
increased.

Steps that Companies can take to Improve Corporate

Governance:

1. Leverage technology to enhance the detection, and

preventionoffraudulentpracticesandtoisolatehigh
riskareas
2. Inculcate a culture of Integrity into the workforce by
rewardinghonesthardwork,andthroughintrinsicand
externalmotivators.
3. Strengthen the Whistle=Blower
Mechanism by assuring
confidentiality of informants and
providing a direct channel to the
relevant committees and their
members.
4. Conduct third party due diligence
periodically, as it shows employees
that you are serious in maintaining a
fraudfreeenvironment
5. Empower independent directors and
encourage them to act as deterrents
tofraud.

Page 56

IEPF
AnithaRevanth
ManagementTrainee@Hemanth,Biswajit&Co.
anitha.braj@gmail.com

Introduction:

Government of India, through Ministry of Corporate

Affairs formed the Investors Education and Protection
Fund [IEPF] under section 205C of the Companies Act,
1956. There were many factors that were noted prior to
theformationofIEPFwhichactuallycauseditsformation.
For a long time, authorities were discussing on this fact
that being aware about investing, helps the investors to
take careful steps towards the coming opportunities and
the risks associated with them. Knowledge about
investment opportunities allows them to take decisions
watchfully, understand the strategies of the market and
thus participate actively in the growth of the nation. So,
IEPF was formed to create more awareness among the
investorsandtohelptheminvestwisely.

AboutInvestorEducationandProtectionFund:

Investor Education and Protection Fund (IEPF) has been

established under Section 205C of the Companies Act,
1956 by way Companies (Amendment) Act, 1999 for
promotion of investors awareness and protection of the
interests of investors. As per the Act, the following
amounts which have remained unclaimed and unpaid for
a period of seven years from the date they became due
forpaymentshallbecreditedtotheIEPF.
a) Amounts in the unpaid dividend accounts of
companies.
b) The application moneys received by companies for
allotmentofanysecuritiesanddueforrefund.
c) Matureddepositswiththecompanies.
d) Matureddebentureswiththecompanies.
e) grantsanddonationsgiventotheFundbytheCentral
Government, State Governments, companies or any
otherinstitutionsforthepurposesoftheFund.
f) The interest or other income received out of the
investmentsmadefromtheFund.

The Act provides for setting up of a Committee for taking

decisions regarding spending moneys out of the Fund for
carrying out the objects as mentioned above. For the
purpose of administration of IEPF, the Investor Education
and Protection Fund (awareness and protection of
investors) Rules 2001 were notified on 1
st
October 2001.
These Rules, inter alia, contain provisions relating to
constitution and functions of the Committee, activities
relatingtoinvestorseducation,awarenessandprotection
to be undertaken with the recommendation of the
Committee, conditions for utilization of Funds by the
Committee, proforma for applications for registration of
associations, institutions or organisations and also for
seekingfinancialassistanceunderIEPF,etc.

ThepresentCommitteehasbeenconstitutedofmembers
who are experts in various fields of Capital Market,
Accountancy, Taxation, Media, Management Consultancy,
RBI,etc.

TheFundhasbeenestablishedwithaviewtosupportthe
activities relating to investor education, awareness and
protection. Following are the objectives/ activities of the
Fund:

a) Educatinginvestorsaboutmarketoperations.
b) Equipping investors to analyze information to take
informeddecisions
c) Makinginvestorsawareaboutmarketvolatilities
d) Empowering the investors by making them aware of
theirrightsandresponsibilitiesundervariouslaws.
e) Continuously disseminating information about
unscrupulouselementsandunfair practices in
securities market and broadening the investors base
by encouraging new investors to participate in
securitiesmarket.

Page 57

f) Promoting research and investor surveys to create a
knowledge base that facilitate informed policy
decisions

MajorinitiativesunderIEPF:

Under IEPF, various programmes on investor education

and awareness have been funded and organized through
Voluntary Associations or organizations registered under
IEPF. The various initiatives for increasing the investors
awareness and education undertaken under the aegis of
IEPFwereasfollows:

a) Series of advertisement on investor education were

issued in national as well as regional language
newspapers. Through these advertisements, efforts
have been made to educate investors for investing in
IPOs,marketinstruments,MutualFundsetc.

b) Media campaigns were launched in various

newspapers, wherein besides the above said
educative message, NGOs/VOs involved in investor
education and protection activities, especially those
with a rural outreach, were been invited to apply for
financial assistance under IEPF schemes. Further,
organizations, which were keen to carry out the
researchonthesubjectsofinvestor
education/protection, related issues were also invited
tosubmittheirproposalstotheIEPF.

c) Investor Education message was aired on All India
Radio through Prasar Bharati to create awareness on
theissuesconcerninginvestorsandabouttheIEPF.

d) An Investor Helpline www.investorhelpline.in

project which had been launched under IEPF through
Midas Touch Investors Association to provide a
mechanism for redressal of grievances and to create
investor awareness has been rendering effective
service to the investors. The redressal rate has been
around46percent.

Filing of information regarding unpaid and unclaimed

amounts:

Every Company (Companies and Residuary Nonbanking

Companies) shall, within a period of 90 days after the
holdingofAnnualGeneralMeetingorthedateonwhich
itshouldhavebeenheld aspertheprovisionsofsection
166 of the Act and every year thereafter till completion
of the seven years period, identify the unclaimed
amountsasreferredtoinsubsection(2)ofsection205C
of the Act, separately furnish and upload on its own
website as also on the Ministrys website or any other
website as may be specified by the Government a
statement or information through eForm 5INV,
separately for each year, containing following
information,namely:
a) Thenamesandlastknownaddressesofthepersons
entitledtoreceivethesum;
b) Thenatureofamount;
c) Theamounttowhicheachpersonisentitled;
d) TheduedatefortransferintotheInvestorEducation
andProtectionFund;and
e) Suchotherinformationasconsideredrelevantforthe
purpose

Defaultinfilingofinformation:

If a company fails to furnish and upload information or

furnishes and uploads false information on the website,
the company, and every officer of the company who is in
default, punishable with fine which shall not be less than
Rs 5 lakh but which may extend to Rs 25 lakh and every
officer of the company who is in default shall be
punishablewithfinewhichshallnotbelessthanRs1lakh
butwhichmayextendtoRs5lakh,thebillstipulates.

Conclusion:

IEPFhasbeenactivelyinvolvedinorganizingseminarsand
programs that are directly related with spreading
awareness about protection among investors through
education. IEPF has also been assisting those
organizations, through infrastructure and finance channel
which have been showing and taking active part in
accomplishingthemissionsetbyIEPF.Otherthanallafore
mentioned activities, IEPF has also been a busy customer
in furnishing vital information on important investment
options such as role of capital market, IPO investing,
mutualfundinvesting,stocktrading,depositoryaccounts,
debt market and others for the investors to get the inner
viewoftheterminologiesandcomplicationthatmayarise
fortheminfinancialmarkets.

Page 58

Best Legal Practices
& Compliance Initiatives


JignaJinandra
Mumbai
ProfessionalProgramme
j.jigna01@gmail.com

For survival and growth of any institution, the best legal

practices and compliance are much needed and here are
some of the best practices that may help us to build and
maintainaneffectivestrategy:

Define audit policy categories (configure which events to

record)
Automaticallyconsolidatealleventrecordscentrally
Usebothflatformat&databaserecords
EventmonitoringRealtimealerts&notificationpolicies
Definewhicheventsshouldtriggeranalert,anddefineyour
pollintervals
Generating reports for key stakeholders: auditors, security
orcomplianceofficers
&managementteams
AuditingLogData
CentralLogAnalysis
Adhocforensics

IdentifyingBestPractices

Somefirmsaresowellknownforbestpracticesincertain
areasthatitisnotnecessarytoconsultbooks,magazines,
libraries, or the Internet to find the information. For
example, Federal Express is often cited as having best
practices among competitors in the expedited small
package industry for their ontime delivery and package
tracking services. Microsoft, the computer software
developer,iscitedasbeinginnovativeandcreative,while
the L. L. Bean outdoor products and clothing company is
frequently lauded for its customer service practices and
returnpolicyguarantees.

When a firm is benchmarking to learn about the best

practices of others, often these superior methods are
found in companies outside the firm's key industry
segment. Thus it is important to research and observe
companies in a wide variety of settings, countries,
industries, and even in the notforprofit sector to learn
better ways to improve continuously. Information on best
practices and innovative technologies can also be found
on the Best Manufacturing Practices (BMP) Web site at
http://www.bmpcoe.org/. This site has as its goal to
increase the quality, reliability, and maintainability of
goods produced by American firms. One way BMP
accomplishes this goal is to identify best practices,
document them, and share the information across
industry segments. They believe that by sharing best
practices, they allow companies to learn from others'
attempts and to avoid costly and timeconsuming
duplicationofefforts.Companiesprofiledhavesubmitted
abstracts of what their organization does well and they
includepreviouspractices,changestonewprocesses,and
information on implementation as well as quantitative
detailsandlessonslearned.

An example of best practice outside the manufacturing

sector is provided by Richard T. Roth in a recent article in
Financial Executive. Roth writes: "An analysis of the most
recent finance benchmarks in the 2005 Hackett Book of
Numbers finds that worldclass performers spend 42
percent less than typical companies on their finance
operationsasapercentageofrevenueandoperatewith
less than half the staff of their peers. At the same time,
they close their books more quickly each month, and
historically have generated significant additional savings
through reducing effective tax rates and days sales
outstanding." The example illustrates how a well
quantified "best practice" can become a corporate goal
elsewhere.

BackgroundComplianceinitiatives

"Basic Policy for Compliance, which has been officially

announced,describesthemanagement'sdetermination.

Page 59

1. Winningtrustfromourcustomers
2. Promotingfairandreasonablebusiness
3. Ensuringappropriatedisclosureofcorporateinformation
4. Showingrespectforemployees
5. Makingcontributiontopreservingourenvironment
6. Contributingtosociety
7. Ensuring harmony with international and regional
communities

All these models contain various components aimed at

enhancing and ensuring institutional compliance,
including:

Establishing institutional expectations and codes of

conduct
Developing and effectively communicating policies
andprocedures
Designating a formal compliance office with suitable
administrativepowers
Implementingaprogramtomonitorcompliance
Identifyingandapplyingsanctionsforintentionalnon
compliance

ImplementationSteps

CFO redesignates the Executive Director of Internal

Audit as the Executive Director of Internal Audit and
Institutional Compliance (the Executive Director). The
Executive Director continues to report to the CFO,
with a direct reporting relationship to the President
andtheCommitteeonAuditoftheBoardofTrustees.
Board of Trustees
redesignates the
Committee on Audit as
the Committee on
AuditandCompliance.
Executive Director of
Internal Audit and
Compliance is tasked
with presentation of an
annual institutional
compliance report to
the President, Cabinet, and Committee on Audit and
Compliance.
President appoints a Compliance Coordinating
Committee, The primary purpose of this Committee
will be to meet at least semiannually to do risk
assessments and ensure that all members are
knowledgeable about pertinent noncompliance risks
derivingfromsourcesexternaltotheUniversity.
The Executive Director initiates Compliance Program
activities,including:
Provides liaison with the Office of the General
Counsel,theOfficeofUniversityCommunications,and
other responsible offices in addressing incidents of
allegednoncompliancethatarise.
Works through the Internal Audit function to both
monitor compliance and assess the adequacy of
compliance activities in each area. Includes such
informationintheannualcompliancereport.
Implements and publicizes a "Compliance Helpline"
program.
IncooperationwiththeOfficeoftheGeneralCounsel,
develops a formal policy, and procedures, to protect
University employees who make allegations of
noncompliance.
Networks with other university compliance officers
throughout the nation to keep apprised of emerging
complianceissues,sharebestpractices,etc.
Considersneededchangesinthecomplianceprogram
and brings them to Compliance Coordinating
Committee for review and transmittal to the
President.
Secures necessary funding from the Provost to carry
outtheaboveactivities.

Conclusion

Learning about the best practices of

others is a valuable way for firms to
gather fresh insights into possible
methods of improving a myriad of
aspects of their operations. It should
be an important part of an
organization's strategic planning
activities.

Page 60

Related Party Transactions

NethraSridhar
ProfessionalProgramme
TraineewithCSParameshwarG.Bhat
nethracs2@gmail.com

In the corporate world, one of the most frequently used

terms is RELATED PARTY TRANSACTIONS. Different laws
contain various provisions on this matter. In the
Companies Act, 1956, we come across this term under
sections 297, 299, 300 and 301. The supreme capital
market regulator, the Securities and Exchange Board of
India, through Listing Agreement casted certain duties on
companies in this regard. As per Section 40A(2) of the
Income Tax Act, 1961, Assessing Officer can disallow the
expenditureincurredbytheassesseinrespectofspecified
persons to the extent excessive and unreasonable. The
Institute of Chartered Accountants of India has come out
with an Accounting Standard (AS18) on Related Party
Disclosures.

Some important definitions given in AS 18in this context

are:

Related party: parties are considered to be related if at

any time during the reporting period one party has the
ability to control the other party or exercise significant
influence over the other party in making financial and/or
operatingdecisions.

Related party transaction: transfer of resources or

obligationsbetweenrelatedparties,regardlessofwhether
ornotapriceischarged.

ControlItmaybebywayof

(a)Ownership,directlyorindirectly,ofmorethanonehalf
ofthevotingpowerofanenterprise;or
(b)controlofthecompositionoftheboardofdirectorsin
the case of a company or of the composition of the
corresponding governing body in case of any other
enterprise;or
(c)asubstantialinterestinvotingpowerandthepowerto
direct, by statute or agreement, the financial and/or
operatingpoliciesoftheenterprise.

Significantinfluence:participationinthefinancialand/or
operatingpolicydecisionsofanenterprise
Key management personnel: persons who have the
authority and responsibility for planning, directing and
controllingtheactivitiesofthereportingenterprise.

Generally,therelationshipexistsbetween:

Parentandsubsidiarycompany
Jointventurepartner
Investoranditsinvestee
Associates
Key management personnel(KMP) of reporting
enterprise
Relativeincaseofindividualenterprises

Thefollowingarenotdeemedtoberelatedparties:

A common director of companies who is not able to

influencemutualdealingsofthecompanies
A single customer, supplier, franchiser, distributor or
general agent with whom significant volume of
businessistransacted
Providersoffinance
Tradeunions
Governmentdepartmentsandagencies

COMPANIESACT,1956:

Section 297:Subject to the conditions herein below, a

director of the company or his relative, a firm in which
suchdirectororhisrelativeisapartner,anyotherpartner
insuchfirm,oraprivatecompanyofwhichthedirectoris

Page 61

adirectorormember,canenterintoanycontractwiththe
companywithrespectto

(a) sale, purchase or supply of any goods, materials or

services;or
(b) underwriting the subscription of any shares in or
debenturesofthecompany.

Theconditionsare:

A)Wherethepaidupsharecapitalofthecompanyisless
thanRs.1crore:
1. PriorapprovaloftheBoardofdirectors;or
2. Subsequent approval of the Board within three
monthsfromthedateofenteringintocontract.

B)WherethepaidupsharecapitalofthecompanyisRs.
1croreormore:

1. PriorapprovaloftheBoardof
directors;and
2. Prior approval of the Central
Government.

This power of the Central

Government has been delegated
to Regional Directors vide MCA
notificationdatedJuly10,2012.

ExceptionstoSection297:

(a) Transactions only on cash

basis and at prevailing market
prices;
(b)Thevalueofthecontractdoes
not exceed Rs. 5,000/ in
aggregatenanyyear;
(c) In case of banking or insurance company, any
transactionintheordinarycourseofbusiness.

Every Director, by virtue of Section 299 is duty bound to

disclose his interest to the Board. He is required to give a
general notice to the Board, disclosing his nature of
interestintheentitywithwhichthecompanyhasentered
into or is entering into any contract. Such notice will
expire at the end of every year and is required to be
renewed.

InthecaseofapubliclyownedcompanySection300does
notallowadirectortotakeanypartinthediscussionorto
vote on any contract or arrangement in which he is
interested.

Section 301 requires every company to maintain a

Register of contracts, companies and firms in which
directorsareinterested.

Disclosure of related party transaction to Audit

Committee:

(i) Periodical statement of transactions in the ordinary course

ofbusiness
(ii) Details of material individual transactions which are not in
thenormalcourseofbusiness
(iii) Details of material individual transactions not on an arms
length basis together with Managements justification for
thesame;

RequirementsunderClause49of
theListingAgreement:

Audit Committee has to

mandatorily review the
information related to
Statement of significant
related party transactions
submittedbymanagement;
Report on Corporate
Governance in the Annual
Report of Companies should
include Disclosures on
materially significant related
party transactions that may
have potential conflict with
the interests of the company
atlarge.

Inthecaseofcorporateentities,realownersaredifferent
fromthemanagement.Thedirectorsbeingatthehelmof
the organization, must exercise their powers bona fide
andforthebenefitofthecompanyasawhole.Toprevent
the management from misusing its powers, the law
requires the Board to monitor Related Party Transactions
andestablishremunerationpolicyforBoardmembersand
theirrelativesemployedbythecompany.

Page 62

Merchant Banking in India

S.K.RAVI
CSProfessional
TraineewithR.C.VenkateshRao
sk4u.ravi@gmail.com

Happiness: a good bank account, a good cook, and a

gooddigestionJeanJacquesRousseau

ORIGINOFMERCHANTBANKING:

The origin of merchant banking is to be traced to Italy in

late medieval times and France during the seventeenth
and eighteenth centuries. The Italian merchant bankers
introduced into England not only the bill of exchange but
alsoalltheinstitutionsandtechniquesconnectedwithan
organized money market. Merchant banking consisted
initially of merchants who assisted in financing the
transactions of other merchants in addition to their own
trade.

In France, during seventeenth and eighteenth centuries a

merchantbanker(lemerchandBanquer)wasnotmerelya
traderbutanentrepreneurparexcellence.Heinvestedhis
accumulated profitsinall kindsofpromisingactivities.He
added banking business to his merchant activities and
becameamerchantbanker.

ORIGINOFMERCHANTBANKINGININDIA:

The first merchant bank was set up in 1969 by Grindlays

Bank. Initially they were issue managers looking after the
issue of shares and raising capital for the company. But
subsequently they expanded their activities such as
working capital management, syndication of project
finance, global loans, mergers, capital restructuring, etc.
Initially the merchant banker in India was in the form of
management of public issue and providing financial
consultancyforforeignbanks.

In 1973, SBI started the merchant banking and it was

followed by ICICI. SBI capital market was set up in August
1986 as a fullyfledged merchant banker. Between 1974
and 1985, the merchant banker has promoted lot of
companies. However, they were brought under the
control of SEBI in 1992 with enactment of the Securities
and Exchange Board of India (Merchant Bankers) Rules,
1992.

SERVICESRENDEREDBYMERCHANTBANKS:

The working of merchant banking agencies and units

formed subsequently to offer merchant banking services
hasshownthatmerchantbanksarerenderingdiverse

services and functions, such as organizing and extending

finance for investment in projects, assistance in financial
management, acceptance house business, raising
Eurodollar loans and issue of foreign currency bonds,
financing of local authorities, financing export of capital
goods, ships, hydropower installation, railways, financing
ofhirepurchasetransactions,equipmentleasing,mergers
and takeovers, valuation of assets, investment
management and promotion of investment trusts. Not all
merchantbanksofferalltheseservices.

Differentmerchantbankersspecializeindifferentservices.
Merchant banking may cover a wide range of financial
activitiesandintheprocessincludeanumberofdifferent
financialinstitutions.

Page 63

FUNCTIONSOFMERCHANTBANKERS:

1. Promotional Activities Merchant Banks helps the

entrepreneur in conceiving an idea, identification of
projects, preparing feasibility reports, obtaining
Governmentapprovalsandincentives,etc.
2. Issue Management Management of issues refers to
effectivemarketingofcorporatesecuritiesviz.,equity
shares, preference shares, debentures or bonds by
offering them to public. Merchant banks act as
intermediary whose main job is to transfer capital
fromthosewhoownittothosewhoneedit.
3. Credit Syndication Credit Syndication refers to
obtaining of loans from single development finance
institution or a syndicate or consortium. Merchant
Banks help corporate clients to raise syndicated loans
fromcommercialbanks.
4. ProjectCounselingItincludespreparationofprojects
reports, deciding upon the financing pattern,
appraising the project relating to its technical,
commercialandfinancialviability.Itincludesfillingup
ofapplicationformsforobtainingfundsfromfinancial
institution.
5. Leasing and Finance Many merchant bankers
provide leasing and finance facilities. Some of them
even maintain venture capital funds to assist the
entrepreneurs. They also help companies in raising
financebywayofpublicdeposits.
6. ServicingIssuesMerchantBankershelpsinservicing
the shareholders and debenture holders in
distributingdividends,debentureinterest.
7. Other Specialized Services Merchant Banks also
provide corporate advisory services on issues like
mergersandamalgamations,taxmatters,recruitment
ofexecutivesandcostandmanagementaudit,etc.

LEADMERCHANTBANKER:

All issues should be managed by at least one merchant

banker functioning as the lead merchant banker. In an
issue of offer of rights to the existing members with or
without the right of renunciation, where the amount of
the issue by the body corporate does not exceed rupees
fifty lakhs, the appointment of a lead merchant banker is
not mandatory. Every lead merchant banker shall before
taking up the assignment relating to an issue, enter into
an agreement with such body corporate setting out their
mutual right, liabilities and obligations relating to such
issueaninparticulartodisclosures,allotmentandrefund.

GENERALOBLIGATIONS:

The 1992 regulations have enunciated the following

general obligations and responsibilities for the merchant
bankers.

SoleFunction:

EverymerchantbankershallabidebytheCodeofConduct
asspecifiedinScheduleIII.Theyareasfollows:

1. Merchant Banker not to associate with any business

otherthanthatofthesecuritiesmarket.
2. No merchant banker, other than a bank or a public
financial institution, who has been granted certificate of
registrationundertheseregulations,shallafterJune30th,
1998 carry on any business other than that in the
securitiesmarket.However,amerchantbankerwhoprior
to the date of notification of the Securities and Exchange
Board of India (Merchant Bankers) (Amendment)
Regulations, 1997, has entered into a contract in respect
ofabusinessotherthanthatofthesecuritiesmarketmay,
if he so desires, discharge his obligations under such
contract. Similarly, a merchant banker who has been
granted certificate of registration to act as primary or
satellitedealerbytheReserveBankofIndiamaycarryon
such business as may be permitted by Reserve Bank of
India.

TOCONCLUDE:

The merchant banking apparatus has proved to be a key

linkbetweeninvestorsandcompanies.Withtheincreased
amount of compliance practices, the rapidly changing
regulatoryenvironmentandtheexplosioninpopularityof
the corporate body will ensure that the role will only
becomemorecriticalintimestocome.

Therefore,itwouldbegoodifGovernmentensuresproper
environment in which both investors and companies can
reapthemostofmerchantbankers.

Page 64

Producer Companies &
Inflation

SudhirSGaonkar
INGVysyaBankLimited
sudhirsgaonkar@gmail.com

In 2012, India witnessed approximately 2.5% growth rate

inagriculturesectorwhencomparedtoaverage5.5%and
9% growth rate in industry and service sectors
respectively. Year on year the food production rate is
decreasing while the industrial production rate is
increasing. Does it signify agriculture is neglected or
inflationiseatingupthegrowthrate?

According to the latest CPI all India annual inflation rates

data published by Central Statistics office of Ministry of
Statistics and Programme Implementation, inflation rate
for food and beverages has reached 13.04% up to
December 2012. Thus, a common mans expenditure has
increasedtwice,thoughthesourceofincomeandincome
levelsremainedalmoststagnant.

Onshootupofpricesofvegetables,grainsandotherfood
stuffs, farmers became poorer than before due to their
inaccessibility to the direct consumers. In many of these
cases, the middlemen/agents also contribute to inflation
toearnhigherprofits.

Farmers engaged in agriculture are shifting from their

primaryoccupationbysellingofftheirlands.Whynotthe
samewithmiddlemen?

RulepositionofProducerCompaniesasperLaw:

The concept of Producer Companies was inserted in the

CompaniesAct,1956byamendingtheprovisionsin2002,
with an intention to provide the facility of cooperative
principles within the Companies Act. The Companies
should work on mutual assistance principle. The Act
provides the voluntary membership with single voting
rightirrespectiveofshareholding.
TheConcept:Integratingthefarmers,especiallythesmall
farmers, within the value chain so that the net return is
remunerative enough for the farmers to pursue
agriculture.

TheconceptofProducerCompanyenablesthefarmersto
earn better price and the consumer to enjoy fresh
produce and thus they are mutually benefitted. The
Concept covers mainly the primary produce viz.
agriculture including animal husbandry, horticulture,
floriculture, pisciculture, viticulture, forestry, forest
products, revegetation, bee raising and farming
plantation products: produce of persons engaged in
handloom, handicraft and other cottage industries: by
products of such products; and products arising out of
ancillaryindustries.

Anillustrationabouttheconcept

Mr.A,afarmergrowing10000coconutsayearandhaving
an estimated annual income of 1,00,000/ has many
constraints. Since he cannot accommodate transport
facility,sellscoconutsthroughanagentattherateof`6/
each.Thisagentfurthersellstoawholesalerattherateof
9/each.

The wholesaler sells to retail traders at 12/ each and

retail traders sell to the ultimate consumers at `15/ each
(Farmer Agent 6/ Wholesaler 9/ Retailer 12/
Ultimate Consumer 15/). Here the profit is 9/ and is
shared between all the middlemen. The customer paid
inflatedpriceof15/whereasfarmergotonly6/!!

However under Producer Company, farmer sells to

Producer Company at `6/, Producer Company markets/

Page 65

sellstoultimatecustomerat`12/andtheprofitof`6/of
Producer Company is shared by the farmers as
dividend/patronage bonus. Here the customer is
benefitted with 20% (`15/ `12/) lesser price and farmer
alsogainsabenefitofdividend,whichequalsto`8/each.

ControllingInflation

Inflationmainlyandpracticallyisoftwokinds.Oneisfuel
inflationandtheotheroneisfoodinflation.Theexistence
ofProducerCompanyateachlevelofprimaryproducewill
bring the retail market of India under the control of
various producer companies. The Government with the
regulatorypowercanfixthesupportpriceforeachkindof
produce and thereby control the food prices in retail
marketandtherebyfoodinflationofthecountry.

Challengesforimplementation

1. Patronage:Itisthe
use of services of
Producer Company
by a member
participating in its
business activities.
However
members share in
the company shall
be proportionate
to the patronage.
This clause restricts
a member to deal
through Producer
Company for an
amount of goods
not more than the
farmers
investment.

For example: Mrs. C has invested Rs. 20,000/ in

shares of XYZ Producer Company Limited. She is
eligibletotakeherproducttothemarketthroughXYZ
ProducerCompany(UsingServicei.e.,patronage)only
uptoRs.20,000/.

2. Restriction on Invitation for Public deposits: The

Companies Act, 1956 restricts invitation for public
deposits from persons other than the members. This
clauseaffectsthemanagementofworkingcapitaland
shorttermexpansionplansofthecompany.

3. Lack of education: The farmers do not have the

knowledge of existing laws and are engaged in the
conventional trading method. Capacity building of
farmers will enable the successful implementation of
thisconcept.

4. Tieups with retailers: Instead of establishing own

retail chain, existing Producer Companies are acting
like middlemen who supply to big branded retail
chains.

Farmers are joininghandsand mind, body and spirit. In a

quiet revolution underway across the countryside,
growers are setting up companies, replete with balance
sheets,professionalCEOs,BoardofDirectors,andincome
tax returns. By pooling together the land and produce of
their shareholders, these
companies are signing
lucrative deals with large
retail chains, food
companiesandexporters
keen to establish reliable
supplychains.

As many as 300
companies have been
formed by farmers from
different parts of the
country.Withanaverage
1,000 members, more
than 2 lakh farmers are
now shareholders in
what are known as
'Producer Companies'
under the Companies
Act.

From identifying the opportunity, mobilising potential

shareholders (farmers), exploring the market potential in
theproductvaluechain,writingbusinessplan,gettingthe
companyregistered,appointingstaff,filingannualreturns
with the Registrar of Companies, professional consultants
areassistingfarmerstolearnandadoptthebestpractices
andvisualizingforanotherGREENREVOLUTIONinIndia.

Page 66

Sustainability &
Governance
InduSharma
Bangalore
indu7sharma@gmail.com

Sustainabilitysisaningredientandacompletematerialas
wellwhichisrequiredasanapproachaconceptinvarious
domains. Where it will alignment the system and
integratesthesystem.

Being the base of Longevity for resources, world and

peopleSustainabilityistobeappliedineveryactiontoget
the effective results. From the economic point of view it
will enhance the curve of GDP of a country which is
dependent on various variables. However this is fallen a
prayofpoorgovernanceifseenfromtheimplementation
aspect.Thegrowthspanofeconomicplansandavailability
of resources require Governance to act as a shield and
providesystematicresults.

Meaning of Governance is same however the application

is changing at a pace where policies and framework
requirereconsideration.It isrequiredatmacroandmicro
level, single unit and Industry level. Every individual,
systemandframeworkcallsforredefinition.Toapplyitin
a manner which will lead to required results and results
which have approach of better future for the generations
tocome.

Corporations have seen and world have seen the impact

of poor governance at firm level like Enron and Arthur
Andersen.Thesecaseshaveraisedquestiononthesystem
and governance at firm level and at regulatory level.
These have definitely brought a tighten guidelines and
workflowandintroducedSarbanesOxleyActof2002and
in India Clause 49. But the saga of poor governance has
not stopped after this. Laws are framed, policies have
beenframed,regulationsaretight,punishmentsaretough
however still scam happens and unethical practices
flourish.Becauseinthesystemsomewheresomebodyhas
an urge and he seeks to align the system as per his
requirements and frame an atmosphere which is
favourabletohimandscamoccur.
The frameworks which are defined for better and
progressive economy have bought changes and many
revisions are done but the need was felt after the
noticeableeffectorbadpractices.

It is a question which can be asked at any given stag of

business activity or day to day life if good governance is
imbibed in the system then it leads for a better flow and
mapping the dots for life. Why would be require
committees to sit and frame regulations to control the
undesired practices. The answer could be somewhere
someonewants:
Fastergrowth
Individualisnotdoinghisduty
Easymoney
Which leads to imbalance dots feels the gap which gets
filledbyunethicalpractices.Andthisleadstoimbalancein
the basic economic principles. After all has happened the
responsibility comes on the shoulder of government.
Whereas we tend to forget the economy starts with us
and government system is run on our practices we like.
We as a part of system give scope for poor governance
andunethicalpractices.Insteadofblamegameweshould
practicesourdutyinauthorisedmanner.

When we take sustainability as a responsibility then we

alsoknowthattheneedoffutureintegrity,accountability
and responsibilities which are governed by good
governance sustainability is doubtful till we understand
howtoachievesustainability.Knowingthebestanddoing
the best has a thin line difference and the reason is
Desire,anger,greed,lust,egoandjealous(LordKrishna)
Today the scams like Coal and Spectrum allocation
becausetheneedandintegrityweretobedefinedbyself
andifwesharetheresponsibilityofthesamethenlieson
the policy makers as well and we practise the same at all
level.Suchsituationswillnotoccur.
ContinuedinPage69

Page 67

Strategic Management
- A Contemporary look

VinodKumar
TraineewithR.C.VenkateshRao
vinodmohithay20@gmail.com

Howeverbeautifulthestrategy,youshouldoccasionally
lookattheresultsSirWinstonChurchill

A strategy is a set of actions that managers take to

increase their companys performance relative to rivals. If
acompanysstrategydoesresultinsuperiorperformance,
it is said to have a competitive advantage. The main
strategic responsibilities of its CEO are setting overall
strategic goals, allocating resources among the different
business areas, deciding whether the firm should divest
itself of any of its businesses, and determining whether it
shouldacquireanynewones.

StrategicManagers

Managers are playing a important role in the strategy

making process. It is individual managers who must take
responsibility for formulating strategies to attain a
competitive advantage and putting those strategies into
effect.Theymustleadthestrategymakingprocess.

In most companies, there are two main types of

managers: general managers, who bear responsibility for
the overall performance of the company or for one of its
major selfcontained subunits or divisions, and functional
managers,whoareresponsibleforsupervisingaparticular
functionthat is, a task, activity, or operation like
accounting, marketing, R&D, information technology, or
logistics.

LevelsManagers

CorporateLevelManagers:

The corporate level of management consists of the chief

executiveofficer(CEO),otherseniorexecutives,theboard
ofdirectors,andcorporatestaff.Theseindividualsoccupy
the apex of decision making within the organization. The
CEOistheprincipalgeneralmanager.Inconsultationwith
other senior executives, the role which focused on urban
and suburban locations, corporatelevel managers is to
oversee the development of strategies for the whole
organization. This role includes defining the goals of the
organization,determiningwhatbusinessesitshouldbein,
allocating resources among the different businesses,
formulating and implementing strategies that span
individual businesses, and providing leadership for the
entireorganization.

BusinessLevelManagers:

A business unit is a selfcontained division (with its own

functionsfor example, Finance, purchasing, production,
and marketing departments) that provides a product or
service for a particular market. The principal general
manager at the business level, or the businesslevel
manager, is the head of the division. The strategic role of
these managers is to translate the general statements of
direction and intent that come from the corporate level
intoconcretestrategiesforindividualbusinesses.

FunctionalLevelManagers:

Functionallevel managers are responsible for the specific

business functions or operations (human resources,
purchasing, product development, customer service, and
so on) that constitute a company or one of its divisions.
Thus, a functional managers sphere of responsibility is
generally confined to one organizational activity, whereas
general managers oversee the operation of a whole
companyordivision.Althoughtheyarenotresponsiblefor
the overall performance of the organization, functional
managers nevertheless have a major strategic role: to
develop functional strategies in their area that help fulfill

Page 68

the strategic objectives set by business and corporate
levelgeneralmanagers.

MissionStatement:

Thefirstcomponentofthestrategicmanagementprocess
is crafting the organizations mission statement, which
providestheframeworkorcontextwithinwhichstrategies
are formulated. A mission statement has four main
components: a statement of the raison dtre of a
companyororganizationitsreasonforexistencewhich
is normally referred to as the mission; a statement of
some desired future state, usually referred to as the
vision;astatementofthekeyvaluesthattheorganization
iscommittedto;andastatementofmajorgoals.

For example, the current mission of Microsoft is to

enable people and businesses throughout the world to
realize their full potential. The vision of the company
the overarching goalis to be the major player in the
software industry. The key values that the company is
committedtoincludeintegrityandhonesty,passionfor
ourcustomers,ourpartners,andourtechnology,

ExternalAnalysis:

The second component of the strategic management

process is an analysis of the organizations external
operating environment. The essential purpose of the
external analysis is to identify strategic opportunities and
threats in the organizations operating environment that
willaffecthowitpursuesitsmission.

Three interrelated
environments should
be examined at this
stage: the industry
environmentinwhich
the company
operates,thecountry
or national
environment,andthe
wider socioeconomic
environment or
macroenvironment.

INTERNALANALYSIS:

The third component of the strategic planning process,

serves to pinpoint the strengths and weaknesses of the
organization. Such issues as identifying the quantity and
qualityofacompanysresourcesandcapabilitiesandways
of building unique skills and companyspecific or
distinctive competencies are considered here when we
probethesourcesofcompetitiveadvantage.Buildingand
sustainingacompetitiveadvantagerequiresacompanyto
achieve superior efficiency, quality, innovation, and
responsiveness to its customers.Company strengths lead
tosuperiorperformanceintheseareas,whereascompany
weaknessestranslateintoinferiorperformance.

SWOTAnalysis:

The next component of strategic thinking requires the

generation of a series of strategic alternatives, or choices
of future strategies to pursue, given the companys
internal strengths and weaknesses and its external
opportunities and threats. The comparison of strengths,
weaknesses, opportunities, and threats is normally
referred to as a SWOT analysis Its central purpose is to
identify the strategies that will create a companyspecific
business model that will best align, fit, or match a
companys resources and capabilities to the demands of
theenvironmentinwhichitoperates.

Managers compare and contrast the various alternative

possiblestrategiesagainsteachotherwithrespecttotheir
abilitytoachieveacompetitiveadvantage.

Page 69

Strategyimplementation:

Having chosen a set of congruent strategies to achieve a

competitive advantage and increase performance,
managers must put those strategies into action: strategy
hastobeimplemented.Strategyimplementationinvolves
taking actions at the functional, business, and corporate
levelstoexecuteastrategicplan.

Thus, implementation can include, for example, putting

quality improvement programs into place, changing the
way a product is designed, positioning the product
differently in the marketplace, segmenting the marketing
and offering different versions of the product to different
consumer groups, implementing price increases or
decreases, expanding through mergers and acquisitions,
or downsizing by closing down or selling off parts of the
company.

TheFeedbackLoop:

Strategic planning is ongoing; it never ends. Once a

strategy has been implemented, its execution must be
monitored to determine the extent to which strategic
goals and objectives are actually being achieved and to
what degree competitive advantage is being created and
sustained. This Knowledge is passed back up to the
corporate level through feedback loops and becomes the
input for the next round of strategy formulation and
implementation. Top managers can then decide whether
to reaffirm existing strategies and goals or suggest
changes for the future. For example, a strategic goal may
prove to be too optimistic and so the next time a more
conservative goal is set. Or feedback may reveal that the
strategy is not working, so managers may seek ways to
changeit.

Conclusion

In a dynamic and uncertain environment, strategic

management is important because it can provide
managerswithasystematicandcomprehensivemeansfor
analyzing the environment assessing their organization's
strengths and weakness and identifying opportunities for
which they could develop and exploit a competitive
advantage.

Sustainability & Governance
ContinuedfromPage66

The subjects which we ignore and believe less sometimes becomes the subjects which provide us the better path like
CadburyCommitteeandKumarMangalamBirlacommitteereportisforustoguidethroughbettergovernance.

Leaders have a great responsibility to affirm which will incisive for sustainability. They can turnaround the system and
changemanythingsforbetterresults.

Duetofewpoorexamplesaneedforchangeintheleadershipalsoisfelt.Itrequirespolishingandstrongpushwithan
approachofintelligencewhichrequiresspiritualismasanimportantingredient.Whichhasanobjectiveofservingothers
and through study it is observed that this approach helps in resolving many problems. This can also help in enhancing
moralityandethicalvaluestofunneldownforsustainability.

TherearevariousconceptsandtheoriesforsustainabilitypracticedbutthebaseisTripleBottomprincipleholdtruefor
worldandforindividualandurgestobecomecustodianforgovernanceinthelevelsofslotsdefinedforeverybody.Itis
observedthatcorporatesandgovernmentsarechangingtheirapproachtohavesustainabilityistherebusiness.Butthis
goal is difficult till every single individual understand the meaning of sustainability. Governance is merely a system
howeveringredientsaretheindividualswhoarepartofthesystemandeverydotneedtobejoinedforbetterfuture.

Page 70

Interim Dividend

InduP
TraineewithCSVivekHegde
Indupurushotham2@gmail.com

The word "dividend" comes from theLatinword

"dividendum" ("thing to be divided"). Dividends are the
share of a companys profits that it decides to pay to its
shareholders. They are an important part of the return
frominvestinginshares,inadditiontoanyincreaseinthe
share price. Companies are under no obligation to pay
dividends, but they usually choose to do so because
dividendsprovideanincentivetoinvestintheirshares.
Companies typically keep part of their profits back to
expandthebusinessortoincreasetheirreserves,andwill
then pay out the rest as a dividend. If companies have
good investment opportunities, they will tend to keep
more of their profits back for this purpose, reducing the
amount available for dividends. So the amount of profit
companiesmakeandthealternativeusesofitsprofitswill
helptodeterminethedividend.
Dividends are usually payable for a Financial Year (FY)
after the final accounts are ready and the amount of
distributable profits is available. Dividend for a FY of the
company(whichiscalledFinalDividend)ispayableonlyif
it is declared by the company at its Annual General
Meeting (AGM) on the recommendation of the Directors.
Sometimesdividendisalsodeclaredbydirectorsbetween
two AGMs which are called an Interim Dividend. As the
name goes, it is a dividend declared and paid during the
intervening period between two AGMs and may also be
treatedasFinalDividendiftheCompanydoesnotdeclare
anydividendattheAGM.

Procedure for declaration and payment of interim

dividendbyaprivatelimitedcompany

UnderCompaniesAct,1956Section205

1. The Company in accordance with Section 286 of

Companies Act must issue notice for holding a
meeting of the Board of Directors of the Company to
considerthematter.Alternatelyinterimdividendcan
bedeclaredviaacircularresolutionalso,iftheArticles
of Association of the Company do not restrict the
same. Before declaring an interim dividend, the
Directors must satisfy themselves that the financial
positionoftheCompanyallowsthepaymentofsucha
dividend out of profits available for distribution. The
Company must have adequate profits to pay interim
dividend after providing for depreciation for the full
year. The Directors of the Company may be held
personally liable in the event of wrong declaration
dividend.

2. No dividend should be declared by the company

unless certain percentage of profit is transferred to
reserve account in accordance with The Companies
(Transfer of profits to reserves) Rules, 1975 which
provides for transfer of not less than 2.5% to 10% of
current profit to reserve account, for proposed
dividendrangingfrom10%to20%ormore.
CalculationofInterimDividend
TotalDividend=%ProfitAfterTaxdeclared
100
DividendperShare=TotalDividend
No.ofShares
DividendPercentage=DividendperShare*100
FaceValueofshare

3. Open an Interim Dividend Account with the bank as

resolved by the board and deposit the amount of
dividend payable in the account within 5days of
declarationofdividend.
4. Prepare a statement of dividend in respect of each
shareholder containing the details of name and
address of the shareholders, number of shares held,

Page 71

amount of dividend payable along with their bank
accountdetails(foronlinetransfer).
5. Ensure dividend tax is paid to the tax authorities
withinprescribedtime,asdetailedbelow.
6. Dispatch dividend warrants within 30days of the
declarationofdividend.
7. Arrange for transfer of unpaid or unclaimed dividend
to a special account named Unpaid dividend A/c
within 7 days after expiry of the period of 30days of
declarationofdividend.
8. Any Money transferred to the unpaid dividend
account of a Company which remains unpaid or
unclaimedforaperiodofsevenyearsfromthedateof
such transfer shall be transferred to Investor
EducationAndProtectionFund(IEPF)
9. TheCompanywhilecreditingFundtoUnpaiddividend
A/c should separately furnish to ROC a statement of
unclaimedandunpaidamountsineform5INVofIEPF
rulesdulycertifiedbyapracticingCA,CSorCWA.

UnderIncomeTaxAct,1961Section115O

1. Dividends are exempt from tax in the hands of

shareholders but the Company is liable to pay
Dividenddistributiontax.

2. Alldividendreceivedfromforeigncompanyaretaxed
inthehandsofShareholders.

3. Dividend shall be charged to dividend distribution tax

(DDT) @ 15% (plus applicable surcharge and cess i.e.
5% & 3% respectively). The effective DDT works out
currently to 16.2225% on the dividend declared. The
company is required to pay dividend distribution tax
evenifnoincometaxispayable.

4. No deduction shall be allowed to the Company or a

Shareholder for DDT or any expense on dividend
income.

5. DDT shall be paid to the credit of the central

government within 14days from the date of
declaration or distribution or payment of dividend,
whichever is earlier. Nonpayment or delayed
payment of DDT attracts simple interest @ 1% per
monthorpartthereof.
Under FEMA Remittance of dividend to NonResident
Shareholder

Remittanceofdividend to anonresidentshareholderisa
permitted current account transaction and as such does
notrequireanyspecificRBIapproval.

Howevertheproceduremustbefollowed:

1. Indian companies intending to remit dividend to their

nonresident (NR) shareholders should make an
application to an Authorized Dealer (AD) in Form RCD
1, supported by the particulars of nonresident
shareholding in form RCD 2 and other documents
prescribedintheform.ADsmayallowtheremittance
of dividend after verifying the documents and
satisfyingthemselvesthatnecessarypermissionofthe
Reserve Bank has been obtained by the nonresident
shareholdersforpurchaseoftheshares,ifany.

- ADswillalsoverifythatthecertificate giveninPart 'B'

oftheformRCD1hasbeenproperlycompletedbythe
company's auditors before remitting the dividend
amountthroughFormA2.

2. Indian companies can remit dividend to their non

resident shareholders either through the normal
banking channels without issuing individual dividend
warrants or by issuing individual dividend warrants to
the shareholders bankers in India for credit to their
OrdinaryNonresidentRupee(NRO)accounts.

3. As regards the remittance of interim dividend,

application may be made by the company in India to
theADbyletter(induplicate)enclosingonlytheform
RCD 2 and a copy of the Board Resolution approving
the payment of interim dividend. ADs may allow the
remittance of interim dividend subject to what has
beenstatedinparagraph.

Above is a brief procedural note on declaration and

payment of interim dividend. The Directors Report
normally carries a reference to dividend payment, if any
and also if the Directors are proposing any Final Dividend
at the AGM or the interim dividend is itself to be treated
asFinalDividend.

Page 72

Office or Place of Profit

BhavanaShetty
TraineewithCS.ShardaBalaji
bhavanashetty88@gmail.com

Section314oftheCompaniesAct,1956:Director,etc.,not
toholdofficeorplaceofprofit

An office or place of profit means an office of profit or

position which brings to the person holding it some
advantageorbenefit.Itwillbeanofficeorplaceofprofit
ifitcarriessomeremuneration,advantage,benefitetc.
Section 314 (1) except with the consent of the company
accordedbyaspecialresolution:

(a)Nodirectorofacompanyshallholdofficeorplaceofprofit,
and
(b)(i)Nopartnerorrelativeofsuchdirector,
(ii) No firm in which such director, or a relative of such
directorisapartner
(iii)Noprivatecompanyofwhichsuchdirectorisadirectoror
member,and
(iv)Nodirectorormanagerofsuchaprivatecompany

shallholdofficeorplaceofprofitcarryingatotalmonthly
remuneration as prescribed (shall not be less than Rs.
50,000 per month, as per circular passed by Ministry of
CorporateAffairsason6April2011).

Relationship between the Company and the said person

holdingofficeofprofit:

ApersonissaidtoholdanofficeorPlaceofProfitifthere
is, between the said person and the company a
relationship of employer and employee or such other
personperformsforandonbehalfofthecompanycertain
acts under the control, direction or supervision of the
company and also he is in receipt of consideration in due
dischargeofhisduties.

Approval of Shareholders in General Meeting by Special

resolutionisrequiredforthefollowingpersons:
Director, Partner in a firm in which a director is a partner,
Relative of such director, A firm in which such director or
relativeisapartner,Anyprivatecompanyofwhichadirectoris
adirectorormember,Anydirectorormanagerofsuchaprivate
company

shall hold any office or place of profit in the company

which carries a total monthly remuneration as prescribed
(shall not be less than Rs.2,50,000 permonth). Director's
Relatives (Office or Place of Profit) Amendment Rules,
2011Amendmentinrules3and7

Persons Excluded from the provisions of this Section are

Managing Director, Manager, Banker and Trustee for
Debentureholder

Vacation of Office: It would be deemed that the person

holding such place or office of profit would vacate his
office as such on and from the date after the General
meeting and shall be liable to refund to the company any
remuneration received in respect of holding the office of
profit.

Subsection 2(A): Any person who is appointed to hold a

place of profit shall declare in writing of the relationship
thesaidpersonhaswiththedirectorofsuchcompany.

Subsection 2(B) and 2(C): Any such person who holds the
office of profit on and from the date after the general
meeting shall be liable to refund to the company any
remunerationreceivedinsuchposition.

Subsection 2(D): The company shall not waive the

recovery of any sum refundable to it unless with the
permissionofCG.

Formstobefiled:
Form24B:ApplicationofCGforholdingofficeofprofit
Form23:RegistrationofSpecialresolution
Conclusion: The Provisions of this section is applicable to
publicandprivatelimitedcompanies.Directorsappointed
directly by Central government (under section 408) shall
beexcludedfromtheprovisionsofthissection.

Page 73

Corporate Social
Responsibility
PoojaBDesai
Mumbai
ProfessionalProgramme
88pooja.desai@gmail.com

The main aim for corporate is to make money and

increase shareholders value. Through CSR, Company
increases the shareholders wealth, it helps the society in
which it operates. CSR help the shareholder as CSR
Activities are bound to increase the reputation of the
CompanyanditsbrandImage.

Corporate Social Responsibility is a management concept

whereby companies integrate social and environmental
concerns in their business operations and interactions
with their stakeholders. CSR is generally understood as
being the way through which a company achieves a
balance of economic, environmental and social
imperatives(TripleBottomLineApproach),whileatthe
same time addressing the expectations of shareholders
and stakeholders. In this sense it is important to draw a
distinctionbetweenCSR,whichcanbeastrategicbusiness
management concept, and charity, sponsorships or
philanthropy. Even though the latter can also make a
valuable contribution to poverty reduction, will directly
enhance the reputation of a company and strengthen its
brand,theconceptofCSRclearlygoesbeyondthat.

There are various corporates like TCS, Infosys and Wipro

whoarealreadydoingmanyCSRactivities,beforethelaw
onCSRispassed.

The Lok Sabha has approved the Companies Bill

introducing the concept of CORPORATE SOCIAL
RESPONSIBILITY making it mandatory for profitmaking
companies to spend on activities related to corporate
social responsibility. In this article, let us discuss the
provisionsofCSRincompaniesbillanditsImpact.

ConstitutionofCSRactivities:AsperClause135(1),every
companyhaving
NetworthofRupeesfivehundredcroreormore,or
TurnoverofRupeesoneThousandcroreormoreor
ANetprofitofRupeesfivecroreormore

during any financial year shall constitute a Corporate

SocialResponsibilityCommittee.

The committee shall consist of 3 or more Directors out of

which at least one Director shall be an Independent
Director. It is interesting to note that CSR is applicable to
Every Company & not merely a listed Company or a
PublicCompany.

RoleofCSRCommittee:
FormulateaCSRpolicy
Recommend the amount of expenditure to be
incurredforCSRactivities
MonitortheCSRpolicyfromtimetotime.

Schedule VII contain list of activities which may be

included by companies in their Corporate Social
ResponsibilityPolicies:

Eradicatingextremehungerandpoverty
Promotionofeducation
Promotinggenderequalityandempoweringwomen
Reducing child mortality and improving maternal
health
Combating human immunodeficiency virus, acquired
immune deficiency syndrome, malaria and other
diseases
Ensuringenvironmentsustainability
Employmentenhancingvocationalskills
Socialbusinessprojects
Contribution to the Prime Ministers National Relief
Fund or any other fund set up by the Central
Government or the State Government for socio
economic development and relief and funds for the
welfareoftheScheduledCastes,theScheduledTribes,
otherbackwardclasses,minoritiesandwomen;and
Suchothermattersasmaybeprescribed.
ContinuedinPage75

Page 74

Soft Skills -An Overview

ChethanKumar
ProfessionalProgramme
chethan_bangalore@yahoo.com

Soft skills are personal attributes that enhance an
individual's interactions, job performance and career
prospects. Unlike hard skills, which are about a person's
skill set and ability to perform a certain type of task or
activity, soft skills are interpersonal and broadly
applicable.

We all possess 2 types of skills, technical skills, soft skills

or interpersonal skills. Do you know importance of
technical skills vs. soft skills towards our success?
According to Harvard Business School, technical skill
contributes only 15% to our success, and then what is
responsibleforbalance85%?

Softskillscontribute85%towardsoursuccess.

Adopting of soft skills is very important in this corporate

world.Itisoneofthebasicthingseveryoneshouldlearn.

Soft skills are very important for the professionals in

his/her daily business activities, which will lead to shine
his/her profession and leads to best practice. Those who
rank with good soft skills are generally the people that
most employers want to hire, retain and promote.
Technical and jobrelated skills are amust, but they are
NOT sufficient when it comes to progressing up the
ladder.Superior performance depends on how well an
individualhandles himself/herself and othersaround the
workspace.Soft skills therefore complement the hard
skills.

Softskillforsuccessfulcareer:
Softskillistheabilityrequiredandexpectedfrompersons
for finding a suitable work, its maintenance and
promotion.

Communicationskillassoftskill:

Successful communication is an exchange, two people

sharinginsightsonthesametopic.Theirinsightsmightbe
diametricallyopposed,buteachexpressesanopinionand
listenstotheresponse.

Many times the conversation instead of being a dialogue

becomes a monologue. Only one person does all the
talking and the other listens. This leads to breakdown in
conversations. Good conversation like good tennis needs
volleyingfrombothsides.

So remember when you converse allow the other person

to air his / her opinion. Try to understand his view if
possibleevenifitistotallyagainstyouropinion.

Whether speaking to an audience of hundreds or of one,

strengthen your speaking and your image with a short
silent pause. We often clutter our speech with verbal
crutcheslike, Uhh Err Well . We lean on these
crutches to fill the silence when thinking of the next idea
or word. The silence is better. If you use these crutches
break the habit by pausing. Make no sound. You will be
surprised to see how quickly the next word pops up. And
youwillfindthesilenceishardlynoticeable.

Dealingwithsensitiveissues:

Candor and directness are admirable qualities but

sometimes tact works more effectively. If the issue is
sensitive and can lead to confrontation tread a bit
carefully. Use the following three diplomatic techniques
especiallyiftheissueisraisedatyourworkplace:

Page 75

Lower your voice and control your tone: Its true hostility
can be conveyed in a whisper but thats less likely if you
control/ soften your tone of voice. Cushion the impact of
criticism with expressions like maybe and we might
consider Such expressions can prompt an open
response. For example Maybe we can approach it
anotherwaysoundsmuchbetter.

Use the passive voice to focus on the issue not the

individual:Insteadof:Youdesignedtheconceptto.Try:
Theconceptseemsdesignedto

The words you choose and the way you deliver them can
turnconfrontationintoresolution.

Small Talk: You are in the elevator and the Managing

Directorenters.Astheelevatorascendsthesilencebuilds.
Yousearchdesperatelyforsomethingtosay.Whatdoyou
say?YouthinkwhattheMDwillthinkifyousaynothing.

Casual meetings may not advance or derail your career,

but they do add to the impression people form of you. In
suchsituationssparklingconversationisnotexpectedbut
small talk is. So what do you talk about? Dont try to be
brilliant Most people dont expect it in casual meetings.
Turn the spotlight on the other person Ask about the
other persons family, vacation plans etc. What do you
think of the weather is not exactly original but can work
as an ice breaker. Compliment carefully. Give sincere
praise. False flattery can back fire. Use friendly body
language Smile, make eye contact and dont fold you
arms. Many times the other person may be just as
uncomfortable as you are. So any small talk will be
welcome.

Communicationskillsformthecornerstoneofsoftskill
Everyhumanbeinghastoessentially&effectively
communicatewithothers
Effectivecommunicationisthehallmarkofones
education
Theabilitytospeakfluentlyusingtherightwordinthe
rightorderisangoodcommunication
Messageusingappropriatevocabularyandsyntaxform
effectivecommunication

Bodylanguage:Nonverballanguage

Face is the index of the mind and it clearly displays the

personsinterest.Bodylanguagepresentstotheaudience
what we feel & think about the particular matter Ex:
Nodding ones head. Body language includes arms
crossed, standing, sitting, relaxed etc. Emotion of the
sender & receiver can be felt clearly speaking clearly,
enthusiasticetc.,

WrittencommunicationSkill:

- Writing evaluates a persons proficiency indications,

spellinggrammaretc.
- Errors committed while writing circulars, reports &
agendaconsiderablyspoiltheimageofthewriter
- Good visual presentation using graphics, color,
balanced design layout adds so much to written
communication.
- Keep handouts and other written materials for your
presentation.

Corporate Social Responsibility(ContinuedfromPage73)

QuantumofContributionunderCSR

The Company shall spend at least 2% of average net

profits during the preceding 3 years in pursuance of the
CSR Policy. In case if a Company is unable to contribute
the profits as prescribe above, it need to specify the
reasons for not spending the amount in the Boards
Report. Companies shall also give preference to the local
areaarounditwhereitoperates,forspendingtheamount
earmarkedbyitforCSRactivities.

Those Companies which would like to contribute to the

Society and some welfare measures might contribute to
CSR activities, while the rest of the Companies might
quote many reasons like business expansion, new
infrastructure creation, etc. as the reasons for not
contributing to the CSR Activity. So CSR is mandatory but
in reality it depends on companies policies and wishes
only.

Page 76

Buyback of Shares

MedhaGokhale
ProfessionalProgramme
TraineewithDwarakanath&Associates
minchugokhale@yahoo.co.in

Whatareshares?

Shareasthenameitselfindicates,isashareinownership
of a Company. Share capital is an inevitable part of a
Company.Itcanbeoftwotypes:Equitysharecapitaland
preference share capital. The shareholders of the
company are generally referred to as members of the
Company.

Whatisbuyback?

Buyback, as the name indicates, is acquisition by the

company,ofitsownshares.Therearecertainprovisionsin
theCompaniesAct,1956whichallowtheshareholdersto
sell their shares directly to the Company. Thus, buy back
of shares can be understood as the process by which a
company buys its shares back from its shareholder or a
resort a shareholder can take in order to sell the shares
backtothecompany.

The background: Prior to the amendment of the

companiesactin1999,therewasnowayacompanycould
buy its shares back from the shareholders without a prior
sanction of the court (except for the preferential shares).
The laws as to the buying of its share by the companies
were very stringent. Some of the ways by which a
companycouldbuyitssharesbackwereasfollows:

Reduction of share capital as given in sections 100 to

104.
Redemption of redeemable preferential shares under
section80.
Purchase of shares under an order of the court for
scheme of arrangement under section 391 in
compliancewiththeprovisionsofsections100to104.
Purchaseofsharesofminorityshareholdersunderthe
orderofthecompanylawboardundersection402(b).

Though there were ways by which a company could buy

itssharesbackfromtheshareholders,itcouldnotbedone
without the sanction of the court. This was done to
protect the rights of the creditors as well as the
shareholders.Buttheneedoflesscomplexwaysofbuying
itssharesbackbythecompanywasalwaysfelt.Themuch
needed change in the companies act was brought about
by the Companies Amendment Act 1999.Sections 77A,
77AA and 77B were inserted in the companies act by this
amendment.

Provisions in the Act: The provisions regulating buy back

of shares are contained in Section 77A, 77AA and 77B of
the Companies Act, 1956. These were inserted by the
Companies (Amendment) Act, 1999. The Securities and
Exchange Board of India (SEBI) framed the SEBI (Buy Back
of Securities) Regulations,1999 and the Department of
CompanyAffairsframedthePrivateLimitedCompanyand
Unlisted Public company (Buy Back of Securities)
rules,1999 pursuant to Section 77A(2)(f) and (g)
respectively.

Whybuyback?

Buyback is usually resorted to for the following

reasons/objects:

Toincreasepromotersholdings.
Toincreaseearningspershare.
To rationalize the capital structure by writing off
capitalnotrepresentedbyavailableassets.
Topayoutsurpluscash.
Tosupportshareprice.

Page 77

Howtobuyback?
Fromexistingshareholdersonaproportionatebasis.
Fromtheopenmarketthroughstockmarket.
Fromopenmarketthroughbookbuildingprocess.
Fromoddlots.
From employees, those shares issues pursuant to a
schemeofstockoptionorsweatequity.

FromwheretogenerateFundsforBuyback?

i) Free reserves Where a Company purchases its own

shares out of free reserves, a sum equal to the
nominal value of the shares so purchased shall be
transferred to the capital redemption reserve and
details of such transfer shall be disclosed in the
balancesheet.
ii) Securitiespremiumaccount
iii) Proceedsofanysharesorotherspecifiedsecurities.A
companycannotbuybackitssharesorothersecurities
out of the proceeds of an earlier issue of the same
kindofsharesorspecifiedsecurities.

ConditionsforBuyBack:
Itshouldbeauthorizedbythearticlesofassociation.
Aspecialresolutionauthorizingthebuybackhastobe
passedatthegeneralmeeting.
If the buy back is 10% or less than the total paid up
equity share capital, a resolution at the general
meeting is not needed to be passed rather a simple
board resolution is enough, provided that no offer of
buy back shall be made within 365 days reckoned
fromthedateofofferofbuyback.
The buy back is or less than 25 percent of the total
paidupequityshare\capitalandfreereserves.
Thepostbuybackdebtequityratioshouldnotexceed
1:2.
Sharetobeboughtbackarefullypaid.
The buyback of listed securities should be in
accordancewiththeregulationsmadebytheSEBI.
Every buy back of shares should be completed within
aperiodof12months.

ModificationstotheExistingFrameworkforBuyback

It has been observed by SEBI that buy back through open

markethasfailedtoachieveitsobjectivesinspirit,dueto
thefollowingreasons:

Section 77A (4) of the Companies Act, 1956 specifies

that every buy back shall be completed within a
periodof12months.However,evenafterkeepingthe
buyback offer open for such a long time, there have
been instances where companies did not buy a single
share.
TherearenoexplicitprovisionsintheCompaniesAct,
1956 or in the SEBI (Buyback of Securities)
Regulations, 1999 regarding the price or quantity of
Buyback.
Itwasobservedthattherewerecompanies,whichdid
not take a single step to buy the shares even after
publishingpublicnotice.
The company discloses the maximum price only and
eventuallypurchasesthesharesatmarketpricewhich
couldbesignificantlylowerthantheannouncedprice.
This may convey a misleading message to the
shareholdersandtothemarket

Key highlights of the proposed modifications for buy

backthroughopenmarketpurchase

Minimum buy back quantity: It is proposed to mandate

50%astheminimumbuybackquantity.

Maximum period to complete the buy back: It is

proposed that companies complete the buy back in3
months. It is further proposed that these companies be
mandated to put 25% of the maximum amount proposed
forbuybackinanescrowaccount.

Post buy back obligations: Listed companies coming out

with buyback programs may not be allowed to raise
furthercapitalforaperiodoftwoyears.

Disincentive for not completing the buyback program

successfully:Inordertoensurethatthecompaniesdonot
launchbuybackprogramsforstabilizingtheshareprice,it
isproposedthatcompanieswhoarenotabletobuyback
100%oftheproposedamount(ortheproposedmaximum
number of shares) may not be allowed to come with
another buyback for a period of at least one year
irrespectiveofthemodeofapprovalforbuyback.

(ContinuedinPage84)

Page 78

Accounts and Audit
-under the Companies Bill 2012

ChaitanyaV.Bhat
TraineewithCSC.Dwarakanath
ProfessionalProgram
bhat.chaitanya8@gmail.com

Thanks to the farreaching changes proposed by the new

CompaniesBillwithrespecttoauditorsandthemannerin
which audits will be conducted. Hereafter the financial
statements and auditors report will be read with greater
relianceandtrust.TheBillwaspassedbytheLokSabhain
therecentlyconcludedwintersession.

After a spate of serious scams that shocked India like

Satyam, 2G etc. the deficiencies and ambiguities in the
existing Companies Act, 1956 with respect to audits were
felt and there was a need to upgrade the audit standards
tobringtheminlinewithgloballyacceptedpractices.

Itwasalsofeltto makeauditorsmore accountable tothe

various stakeholders who rely heavily on their
assessments. Realizing this need, there were
recommendations that ranged from ensuring more
independence to auditors, providing for rotation of
auditors, punishing those guilty of fraud or abetting or
colluding in any fraud, prohibiting them from providing
nonaudit services, and so on. The Companies Bill has
incorporatedtheserecommendations.

ChapterXoftheBillconsistingofclauses139to148deals
withauditandauditors.Everycompanyisrequired toget
its accounts audited for each financial year from a
CharteredAccountantoraFirmofCharteredAccountants.
U/s.139,thefirstauditorcanbeappointedbytheBoardof
Directors. At present, auditors are appointed by the
membersattheAnnualGeneralMeetingeveryyear.Now,
at the annual general meeting the members have to
appoint auditors for a term of 5 years. Thereafter, on
expiry of every 5 years, the members have to appoint
auditorsforafurthertermof5years.Itisalsoprovidedin
section 139 that the members will have to follow the
procedure for selecting the auditors as per the Rules
which will be notified by the Government. The company
hastofilethenoticeofappointmentofauditorswithin15
dayswiththeRegistrarofCompanies.

RotationOfAuditors:

The introduction of a mandatory rotation clause for

auditors in the new Companies Bill is expected to
significantly improve the quality and integrity of auditing.
Inthecaseoflistedcompaniesandsuchclassorclassesof
companies as may be prescribed a new provision is made
inSection139(2)forrotationofauditors.Thisprovisionis
asunder:

(i) An Individual auditor shall not be appointed for more

than5consecutiveyears.

(ii)Afirmofauditorsshallnotbeappointedformorethan
10consecutiveyears.

(iii) The auditors who have completed the above term,

cannot be reappointed as auditors of that company for a
period of 5 years. This restriction for reappointment shall
apply to the audit firm which is to be appointed after
completion of the above term to any audit firm in which
one or more partners are partners in the firm which has
completeditstermasstatedabove.

(iv)Inrespectanexistingcompanytowhichthisprovision
appliesitisprovidedthatsuchcompanyshallcomplywith

Page 79

the above provision within 3 years from the date of
commencementoftheCompaniesAct,2011.

(v) Members of the company can resolve that the firm of

auditors appointed by them shall rotate the audit partner
and his team every year or the members may decide to
appoint two or more audit firms as auditors of the
company.

ResignationOfAuditors:

Theauditorofacompanyonceappointedcanberemoved
before expiry of his term by passing a special resolution
after obtaining previous approval of the Government as
providedintherules.Iftheauditorsubmitshisresignation
beforetheexpiryofhistermofoffice,hehastofilewithin
30 days a statement in the prescribed form about the
reasons and other facts relevant to his resignation with
the company to the ROC. If this statement is not filed by
the auditor he can be penalized by levy of minimum fine
of Rs.50,000 which may extend up to maximum of Rs.5
lakh.

ChangeOfAuditorsByTheOrderOfTribunal:

TheTribunalmay,byorder,directthecompanytochange
itsauditors,ifitissatisfiedthat the
auditorofacompanyhasactedina
fraudulent manner or assisted in
any fraud by, or in relation to. The
companyoritsdirectorsorofficers.
The Tribunal may so direct either
suomotooronanapplicationmade
to it by the Central Government or
byanypersonconcerned.

Reporting Of Fraud Committed By

TheCompany:

If an auditor of a company, in the course of the

performanceofhisdutiesasauditor,hasreasontobelieve
thatasoffenceinvolvingfraudisbeingcommittedagainst
thecompanybyofficersoremployeesofthecompany,he
shall immediately report the matter to the Central
Governmentwithinsuchtimeandinsuchmannerasmay
be prescribed. If any auditors do not report fraud
committed or being committed as above, he shall be
punishablewithfinewhichshallnotbelessthanonelakh
rupeesbutwhichmayextendtotwentyfivelakhrupees.

AuditorNotToRenderCertainServices:

AnauditorappointedundertheCompaniesAct,2011shall
not directly or indirectly provide any of the services like
accounting and book keeping, internal audit, actuarial
services, investment advisory services, management
services, rendering of outsourced financial services and
any other kind of consultancy services to auditors
companyoritsholdingcompanyorsubsidiarycompanyor
associatecompany.

ClosingThoughts:

AlthoughtheCompaniesBillattemptstoreformtheaudit
system,itmissessomecrucialreforms,suchastheroleof
audit committee in the appointment of auditors. In some
of the most developed economies, the appointment of
auditors requires approval of an independent audit
committee. The Companies Bill, however, only provides
for seeking the recommendation of the audit committee
in matters of appointment and filing casual vacancy of an
auditor. But audit committee can only recommend. The
finalsayforthechoiceofauditorrestswithshareholders,
which means a large controlling
shareholdersdecisioncaninfluence
thechoiceofauditor.

A welcome change which will make

the auditors more accountable to
punishtheauditor,iffoundguiltyof
abetting or colluding in any fraud.
Such an auditor will be removed
and debarred to act as auditor of
any company for a period of five
years. In such cases, both the firm
and the partner concerned will be jointly and severally
liable.

Therefore, now, audit firms will not be able to wash their

hands of corporate scams committed in connivance with
their audit partners. Further, for certain violations of
duties and obligations, an auditor can be imprisoned and
made liable to pay damages to the company, statutory
bodies or authorities, for loss arising out of incorrect or
misleadingstatementsintheauditreport.

Page 80

One Person Company
a New Era in Corporate India

SwatiHegde
TraineeunderDwarakanath&Associates
ProfessionalProgramme
hegdeswat@gmail.com

Background

Whatiswrongifasinglepersonhasgivenanopportunity
toexplorehisbusinesstalentandparticipateineconomic
activityintheplatformof,corporateformoforganization?
Whatisstrangeifasinglepersonfortunedwithcorporate
skillsandallresourcesformsinglyacompanyandrunthe
business in structured and organized way? It is neither
wrongnorthestrangeconceptbutthedesiredconceptby
the most of the entrepreneurs of the country for being
givenanopportunitytoparticipateintocorporateactivity.
And finally, our Government realized the need for the
dreamconceptformakingthingsclearerandmorelogical.

The recommendation of One Person Company has been

done by the Experts committee in 2005. The Committee
reported with increasing use of information technology
andcomputers,emergenceoftheservicesector,itistime
that the entrepreneurial capabilities of the people are
given an outlet for participation in economic activity
throughthe creationofeconomicpersonintheformofa
company.

With all efforts, the Companies Bill, 2012 is provisioning

the concept of One Person Company and corporate India
is looking forward for welcoming this new concept in
India.

Meaninganddefinition

AsperClause2(62)oftheCompaniesBill,2012,whichhas
been passed by LokSabha on 18th December, 2012, One
PersonCompanyisacompanyhavingonlyonepersonas
a member. One Person Company is one which is formed
for any lawful purpose by only one person as member
wherelegalandfinancialliabilityislimitedtothecompany
andnottothemember.

Thus, one person company is essentially a legal entity

whichfunctionsonthesameprinciplesasacompany,but
with only one shareholder. It is an alternative for Indians,
who typically operate using the risky concept of a
proprietorship.

FeaturesandProvisions

This new idea which is still in its infancy is backed with

several features and new concepts, provisioned in new
Companies Bill passed by Lok Sabha. Provisions for One
Person Companies strew all across the Bill. If we make a
listoffeaturesoftheconceptalongwiththeprovisionsof
CompaniesBill,2012,itwillgoasunder:

1. The one person has only one person as a member

(Clause2(62)
2. One Person Company is a private company whose
minimumpaidupcapitalisrupeesonelakh.
3. The word One Person Company should be
mentionedinbracketsbelowthenameofOnePerson
Company to distinguish it from other companies
(Clause12(3)).
4. One person Company shall indicate the name of the
nominee in memorandum, with his prior written
consent, which would be registered at the time of
incorporationandthenomineebecomesthemember
of the company if the original member dies or
becomes incapable to enter in to contract. The
nominee has the right to withdraw his nomination at
any time and the member has the right to cancel and
changethenominationathisdiscretion.Thisprovision
has been introduced to keep alive the principle of
Perpetual succession of company form of
organization.(Clause4(1)(f)).

Page 81

5. One Person Company can appoint maximum 15
directors but the minimum number is one director
(Clause149).
6. One Person Company need not hold Annual General
Meetingineachyear(Clause96).
7. Cash flow statement may not include in the financials
ofOnePersonCompanyasperclause2(40).
8. Annual Return can only be signed by the director and
notnecessarilybythecompanysecretary.
9. It would suffice if one director signs the financials on
behalfoftheBoard(clause134).
10. As per Clause 137, One Person Company will get six
monthsfromthecloseofthefinancialyeartofiletheir
financials.
11. Onemeetingoftheboardhastobeconductedineach
half of a calendar year and the gap between the two
meetings should not be less than ninety days as per
clause173.
12. IfOnePersonCompanysupposetoenterintocontract
withthesolememberofthecompanyandwhoisalso
a director of the company, the company shall, unless
thecontractisinwriting,ensurethatthetermsofthe
contract are contained in memorandum or are
recorded in the minutes of the first board meeting
heldafternextenterintocontract.

Prosandcons

With the several pros, the concept of One Person

Company is proposed to float in India. Though the
supportiverulesfortheconceptarenotyetready,wecan
lookovermajorandgeneralprosandconsoftheconcept.

Pros
1. The sole member can enjoy the limited liability
concept which he never had experienced during his
entrepreneurship and the
business risk may be
transferred from promoter to
thecompany.
2. The business talent of a person
can be optimized in the
structured arrangement. This
concept will be organized
versionofsoleproprietorship.
3. Due to centralized control, flexibility in corporate
decisionwillbegiventoanindividual.
4. Member can be relieved from unstructured business
line as well as enjoy the corporate form of platform
withlessprovisionsandcompliances.

Cons:Buttheconceptissufferingfrommanyloopholes.

1. The theoretical check and balance system in the

company management shareholders meeting,
board of directors and board of supervision may not
beavailableinonemancompany,
2. The shareholder can lie under the shadow of limited
liability privilege; transfer the loss of the company to
thecreditors.
3. There is a bottleneck to the foreign subsidiary One
Person Companies with the introduction of the
conceptofmandatoryResidentIndianDirectoronthe
Board.
4. Expansion of business may face difficulty because of
lessopportunitytoraisefunds.
5. InvestormaypreferacompanyotherthanOnePerson
Company since the former provides the opportunity
forissuesharestothethirdparties.
6. It may give room for evasion of public funds and tax
liabilitiesbyindividual.

Conclusion

TheprovisionsintheCompaniesbill,2012forOnePerson
Company seems to be focused on minimizing compliance
requirement under the Companies Act. As Indian industry
is tired of lode of compliances for corporate form of
organization,definitelyOnePersonCompany conceptwill
beneweraincorporateIndia.Thecriticalthoughtwhichis
playing in the minds of Indian entrepreneurs is how
supporting legislation pushes
the concept of One Person
Company. Let us hope for
gettingsuchalegislationwhich
recognizes the concept as an
entity and not just an
extension of a sole
proprietorship. Corporate
Indiaislookingforwardforrise
in birth of One Person
Companies.

Page 82

E-Governance

KeertiHegde
WorkingunderCSCDwarakanath
ProfessionalProgramme
keerti.hgd@gmail.com

Introduction:

Thedevelopmentofinformationtechnologieshasledtoa
new form of communication with the government e
governance. The main purpose of e governance is to
bring about fundamental changes in the relationship
between citizens and public authorities and local
governments.

Meaning:

By definition, egovernance means the provision of

government information and services by means of the
Internet and other computer resources. It means, it is a
comprehensiveprogrammeatalllevelsofGovernmentto
improve efficiency, transparency and accountability at
theGovernmentCitizeninterface.

It is the application of Information and Communication

Technology (ICT) for delivering government services,
exchange of information communication transactions,
integration various standone systems. It provides for
services between GovernmenttoCitizens (G2C),
GovernmenttoBusiness (G2B), Governmentto
Government (G2G) as well as back office processes and
interactionswithintheentiregovernmentframework.

AdvantagesofEGovernance

Better access to information and quality services for

citizens,
Transparency, efficiency and accountability in the
government,
Expandedreachofgovernment.

EGovernanceinIndia

Indian governments, like their global counterparts, are

using egovernance as part of their broader government
modernizationprograms.

The Government of India has launched the National e

Governance Plan (NeGP) with the intent to support the
growth of egovernance within the country. It aims to
makeallgovernmentservicesaccessibletocommon

citizens in their localities through common service

delivery outlets and ensure efficiency, transparency and
reliabilityofsuchservicesataffordablecosts.NeGPsgoal
istomakemostpublicservicesavailableonline,ensuring
that all citizens have access to them, thereby improving
the quality of basic governance on an unprecedented
scale.

Ensuring Better Corporate Governance through E

Governance

Ascompanyisacongregationofvariousstakeholdersand
shouldbefairandtransparenttoitsstakeholdersinallits
transactions. In view of the large number of corporate
scams and scandals shocking the nation, egovernance
tools have to be employed on a large scale to improve
corporate governance. Egovernance has a vital role to
play in expanding the scope of corporate governance to
cover new areas. The use of information technology in
corporate governance leads to greater transparency and
efficiency.

MCA21AsAFlagshipEGovernanceInitiative

Page 83

MCA 21 is India's largest egovernance initiative by the
Ministry of Company Affairs and a mission project under
Govt of India's national eGovernance plan. The MCA21
projectisthelargestfullscaledeploymentofInformation
Technology, in the shortest possible time frame, and will
revolutionise the way India Inc. interfaces with the
government.

SalientFeaturesofMCA21include:

o Corporations, professionals and the public at large

will no longer need to visit the Registrar of Company
offices and would be able to interact with the
MinistryusingtheMCA21portalfromtheirofficesor
home or by going to the facilitation centres, which
havebeensetup.
o The users will have multiple options to make
payments in the online mode either through credit
cardsortheInternetbankingfacility.Besidesthis,the
traditional payment through demand draft would be
acceptedagainstasystemgeneratedchallanatmore
than200bankbranchesacrossthecountry.
o The programme also introduces the concept of
Director Identification Number (DIN), which is a
unique and lifetime identification number being
issued to all current and prospective directors. It is
mandatoryforalldirectorswhowishtointeractwith
theministryinfuturetoacquireaDIN.
o The system would also enable the stakeholder to
track the service request through a Service Request
Number(SRN).
o The MCA21 project will also facilitate electronic
submission of forms, which require a unique Digital
SignatureCertificate(DSC).

RoleofCompanySecretariesinEGovernance

Companies Bill, 2012 has introduced the concept of e

governance to corporate sector. It provides for various
company processes like maintenance and inspection of
documentsinelectronicform,optionofkeepingofbooks
ofaccountsinelectronicform,financialstatementstobe
placedoncompanyswebsite,holdingofboardmeetings
through video conferencing/other electronic mode;
votingthroughelectronicmeans.

A Company Secretary of present days needs to be tech

savvy and updated about e governance, particularly
whiledealinginfollowingareas.
MCA21
EDIFAR (Electronic Data Information Filing and
Retrievalsystem)
MIS(ManagementInformationSystem)
OnlineSecretarialAudit
EIncorporation
ESearch

Conclusion: Egovernance has been responsible for the

progression in technology of developing countries. The
goal of Egovernance is the ability to access and interact
with the world on an even plain. Without Egovernance,
developingcountrieswillbeleftbehindwhenitcomesto
technology because almost every day, ICT technologies
are advancing and changing. Developing countries now
have the opportunity to better themselves through
electronicsandmaketheirsocietybemoreadvancedand
moreefficientthaneverbefore.

E governance opens tremendous opportunities for

Professionals and business houses. But it requires
continuousupdationsandextensivecarewhileitsusage.
Buyback of Shares (ContinuedfromPage78)

Ongoing disclosure requirements: The companies will be

askedtodisclosethenumberofsharespurchasedandthe
amount utilized to the exchanges on daily basis. The
currentrequirementoffortnightlypublicationproposedto
becancelled.
Limit for open market method: Buyback of 15%or more
of(paidupcapital+freereserves)mustbeonlybywayof
atenderoffermethod.
Procedure for buyback of physical shares (odd lot) in
Open Market Purchase Method: Creation of separate
windowintradingsystemforbuyingphysicalsharesisalso
proposed.
This window will remain open only during the buyback
program. Shareholders holding 500 shares or less in
physical form will be eligible to tender their shares in this
window.

Page 84

Management Soft
Skills

SantanuKumarGantayat
ProfessionalProgramme
Santanu.gantayat@gmail.com

Any business is
managed by people;
therefore soft skills are
all about how you deal
with people and
present yourself. Soft skills are very significant in the
current globalized business environment. It is
indispensable to be technically adept but one ought to
also have the knack to deliver the idea from down or up
the organizational hierarchy in the greenest manner. Soft
skills relates to a constellation of personality traits like:
attitude, communication, adaptability, social graces that
typifyanindividualsrelationshipswithpeoplebothinand
outofworkplace.

Soft skills are progressively becoming the solid skills of

today's work force. It's just not adequate to be high in
technical skills, without developing the softer,
interpersonal and relationshipbuilding skills. Methodical
and jobrelated skills are mandatory, but they are not
passable when it comes to making headway in the
organizational set up. With the customary authoritarian
styleofleadershipbecomingpass,andmuchofthework
todayisbeingperformedinteams,professionalmanagers
expect their teams to be preemptive and connect openly.
Their cordiality and people skills eventually ensure
sustainabilityofthepacttheiremployershavebagged.

These behavioral people skills are more crucial as

organizations melee to find significant ways to sustain
themselves in a fiercely competitive globalized business
environment and be productive. Teamwork,
communication and leadership are braced by soft skills
development. As each is an important constituent for
organizational and individual success, evolving these skills
isveryessentialanditdoescount.

An individuals soft skill is an imperative part of their

specific contribution to the achievement of an
organization like those dealing with customers headon.
Planning is essential but implementation is also just as
important.Soft skills facilitate such executions with ease
as it implicates dealing with people directly. In the
preliminary existences of ones career, procedural or
knowledge skills are vital for attainment of prized
assignments. However, when it comes to budding in an
organization,itisyourpersonathatmatters,asnumerous
people with parallel technical proficiency will vie for a
promotion. Soft skills are more pertinent in the Indian
context where the education system does not contain
aspects of personal grooming and professional
development.Employeesaretheconcerninglinkbetween
the company and the business environment so its
quintessentialthattheirsoftskillsenablethemtopresent
theircompanyinarewardingframe.

Here is a list of personal mannerisms which professionals

and students alike can inculcate to enrich on their soft
skills?
1. Figureoutyourpersonalitytypeandassesthetypeof
personyouare.
2. Readanumberofpersonalityimprovementliterature.
3. Participate in online forums on personality
development and get your queries answered by
experts.

Page 85

4. Participate in group activities and improve on your
adaptabilityskills.
5. Analyze your strengths and weaknesses, retain your
strengthsandworkontoweedoutyourweaknesses.
6. Followethicalworkprinciples.
7. Ensure that others swear by your good principles at
work and they find you to be dependable and
responsible.
8. Finetuneyourtimemanagementskills.
9. Respondtofeedbackviaconstructivecriticism.
10. Practice good corporate etiquettes and ensure your
communicationisverypolite.
11. While in professional space doesnt forget to greet
peoplearoundyou.
12. Always respond to foster communication. This can
mean a simple thank you and people will definitely
keep you in their good books. This ensures that you
areverymuchinthenetwork.
13. Beagenuinelyactivelistenerandensureempathyfor
people.
14. Ensure that the tone and tenor of your
communicationisnotprovocative.
15. Wear outfits that complement your profession, this
sets a feel good factor not only for yourself but for
otherstoo.
16. Restrict your peer discussions to something which is
verygeneralandnotpersonalized.

Apart from the above individual efforts one can join

formal training programs that can zest up personality
traitstoagreatextent.

Conclusion:

In a nutshell it can be summed up that while your

knowledgeskillsmayhelpyoureachthedoor,yourpeople
skills are prerequisites for the doors to open up for you.
An individuals attitude, work principles and emotional
intelligenceareessentialingredientsforsuccessfulcareer.
With these soft skills you can excel as a leader, in teams
and also feel complete as a professional. Day to day
official work involves handling conflicts, negotiations;
team work, motivating, delegating, goal setting and
handling these can be a cakewalk if your soft skills are
polished. To sum up mastering the art of getting along
with people and demonstrating a confident and positive
attitude are decisive for success up the ladder in the
organization.

Special Moment: Release of e-Souvenir of Milaap 2013

On24
th
February2013byCS.GopalkrishnaHegde,CentralCouncilMemberofICSI.

CS.NagendraRao,SecretarySIRCofICSI,CS.ManjunathaReddy,Chairman,ICSIBangaloreChapter,CS.Sharada,Cice
Chairman,BangaloreChapterofICSIjoinedhandsforthereleaseoftheeSouvenir.CS.Dattatri,SecretaryBangalore
ChapterofICSIfacilitatedtherelease.CS.RavishankarKandhispokeonbehalfofjudgesandexplainedthecriteriaof
judging.

Page 86

One Person Company
an Overview

SukanyaSontha
ProfessionalProgramme
sukanya.sontha@gmail.com

As the name suggests, One Person Company (hereinafter

referred as OPC) is a Company with only one member
and where legal and financial liability is limited to the
company only and not to that person. (i.e. liability is
limited).. It is the new concept introduced in the
Companies bill 2012 (hereinafter referred to as Bill). It is
considered as revolutionary step taken by government to
encourageunorganizedproprietorshipbusinesstoenterin
to organized corporate world. It is a concept parallel to
existing sole proprietorship form of entity wherein OPC is
recognized as a separate legal entity distinct from its
promoter or proprietor. The concept of OPC is widely
accepted in some of the developed countries like China,
USA, Singapore and many more and shall pave its way in
IndiaoncethebillispassedinRajyaSabha.

Membership: Section 2(62) of the Bill defines OPC as a

Company, which has only one person as a member. It is
essentially a legal entity which functions on the same
principleasaCompany,butwithonlyonemember.Itcan
be an alternative option for Individuals, who runs risky
proprietorshipbusiness.

Status:Section2(68)oftheBillprovidesforthedefinition
of private company to include OPC. It also explicitly
excludes OPC from the condition form minimum number
of members i.e., two 2 for its formation. This implies that
all the provisions of the Act which is applicable to private
companyshallalsoapplicabletoOPCunlessotherwiseitis
specificallyexcludedfromitscompliance.Alsosection3of
the Bill further clarifies the fact that OPC shall be treated
as a private company for all legal purposes with only one
member.
SomeoftheimportantandspecialfeaturesofOPC
Nomination Section 3 of the Bill states that at the time
of incorporation of OPC, the Memorandum of OPC shall
include the name of the other person, with his consent,
whoshallbecomethememberofthe companyincaseof
deathorincapacitytocontract,ofthesubscribingperson.
The consent of such other member shall be in prescribed
formanditshouldalsobefiledwiththeRegistrar.

The Bill further provides that the nominee/ other person

can withdraw his consent at any time and the
member/Shareholder of OPC may change the
nominee/otherpersonatanytime,bygivingnoticetothe
other person and intimate the same to Company. OPC
should intimate such change to the Registrar within the
prescribedtime.Italsoprovidesthatsuchachangeinthe
name of the other person shall not be deemed to be an
alterationintheMemorandum.

In case of the death of member/shareholder or his

incapacitytocontract,thenthepersonnominatedbysuch
membershall:
(i) have title to all the shares of the deceased
member;
(ii) the nominee on becoming entitled to such shares
in case of the members death shall be informed
ofsucheventbytheBoardofthecompany;
(iii) such nominee shall be entitled to the same
dividends and other rights and liabilities to which
suchsolememberofthecompanywasentitledor
liable;
(iv) On becoming member, such nominee shall
nominate any other person with the prior written
consent of such person who, shall in the event of
thedeathofthemember,becomethememberof
thecompany.

Name clause The name clause of the OPC shall include

the words One Person Company within brackets below
the name of the company wherever its name is printed,
affixedorengraved.

Page 87

SomeoftheimportantrelaxationsprovidedtoOPC:
Cash flow statement need not be included in the
financialstatementsofOPC

The financial statements shall be signed by only one

director irrespective of number of directors. And
annual return shall be signed by Company Secretary,
or where there is no Company Secretary by the
directorofthecompany.

In case of OPC, the report of Board of Directors need

not disclose specifically the statement of declaration
by independent directors and any explanations or
commentsasrequiredunderSection134(3);

OPCshallfilewiththeRegistraracopyofthefinancial
statements duly adopted by member, along with all
the documents which are required to be attached to
such financial statements, within 180 days from the
closureofthefinancialyear.

OPC need not to hold any AGM (Annual General

Meeting) in each year. Provisions relating to AGM,
extra ordinary general meeting,
notice convening such meeting and
procedures to conduct general
meetingsdoesnotholdgoodforan
OPC.

As an alternative to the general

meetings, the Bill provides that any
business which is required to be
transacted at an AGM or other
general meeting of a company, by
means of an ordinary or special
resolution,itshallbesufficient,ifin
case of OPC, the resolution is
communicated by the sole member
to the company and entered in the
minutesbookandsignedanddated
by the member. The resolution will be effective form
thedateofsigningsuchminutes.

One Person Company can appoint maximum 15

directors, but minimum should be one director. The
directors shall be appointed according the provisions
of Articles of Association of OPC. Member/
Shareholder of the One Person Company acts as first
director, until the Company appoints director(s) or
where there is no provision in the Articles of
AssociationoftheOPCforappointmentofdirector.

If the OPC is having only one director, there is no

compulsiontoconductBoardmeetings.ButiftheOPC
ishavingmorethanonedirector,atleastonemeeting
ofBoardofDirectorsshouldbeconductedineachhalf
of a calendar year and gap between two meetings
should not be less than 90 days. In such a case,
provisionsrelatingtonoticeconveningsuchmeetings,
quorum and passing of resolutions by board shall be
applicabletoOPC.

IftheOPCishavingonlyonedirectoronitsboard,any
business which is required to be transacted at the
meeting of the Board of Directors of the company, it
shall be sufficient if, the resolution by such director is
entered in the minutes book required and signed and
dated by such director. The resolution shall become
effectivefromthedateofsigningsuchminutesbythe
director.

Conclusion:

Inviewofabove,itcanbesaidthat
the government has tried to
provide several relaxations to
promote the concept of OPC. OPC
will give greater flexibility to an
individual or a professional to
managehisbusinessefficientlyand
atthesametimeenjoythebenefits
of a company. The concept of OPC
will also help many foreign
companies, which need to appoint
a minimum of two nominees now
when they form a whollyowned
subsidiary. OPC will open the
avenuesformorefavourablebankingfacilities,particularly
loans,tosuchproprietors.Besides,theconceptwillboost
flow of foreign funds in India as the requirement of
nomineeshareholderwouldbedoneawaywith.However,
its actual benefits shall be felt only when it is well
recognized by the other legislations such as Income Tax
Actaswellasbankingsector.

Page 88

Listing of Securities Kept
in Abeyance
at the Time of Amalgamation

KrishnMurthyPR,Bellary
ProfessionalProgramme
chintu.8883@gmail.com

Introduction:
All listed companies in India are governed by the
Companies Act, 1956 as well as Listing Agreement and
other applicable laws of the country. In the interest of
stakeholders and to ensure clear compliance of law,
Companies while issuing or allotting new securities have
to coordinate with various regulatory authorities. When a
Company is going for Merger, drafting of Scheme of
Amalgamation,ascertainmentofShareswapratio,making
application to the respective high courts, obtaining in
principleapprovalfromthestockexchanges,allotmentof
sharestotheshareholdersofTransferorCompanyetc.are
the routine procedures during the process. When any
shareholder of the Transferor Company is
unascertainable, his shares will be kept in abeyance and
will be credited to Demat Suspense Account until such
shareholder is ascertained. Allotting of shares kept in
abeyance to the respective shareholder is one of the
rarest activities for a company secretary. There are some
procedures to be followed for listing of securities, earlier
keptinabeyance.

Illustration:
a) Amalgamation
1
: A Transferor Company gets
amalgamated with Transferee Company as per the
schemeofamalgamationapprovedbytheHighCourt.

IssueofSharespursuanttotheAmalgamation:

PostAmalgamation,TransfereeCompanyissuesfullypaid
up equity shares to the shareholders of Transferor
CompanyintheratioX:Yi.e.Yfullypaidupequityshares
of Transferee Company for every X equity shares held in
Transferor Company as consideration for amalgamation.
Hence, Transferee Company issues Y shares in total to
erstwhile members of Transferor Company as
consideration for the amalgamation, out of which details
of an erstwhile shareholder of Transferor Company to
whom Y1 shares of Transferee Company to be issued
couldntbeidentifiedbytheTransfereeCompany.

b) Reason for Abeyance

2
: As the details of shareholder
regarding Y1 shares to be issued, is not known to
Transferee Company, these shares cannot be
considered under the paid up capital of the company
and consequently cannot be listed and shall be
creditedtoDematSuspenseAccount.

c) Claim for Shares

3
: When such unidentified
shareholder, whose shares are kept in abeyance, got
the knowledge about the same, he may make an
application to claim Y1 shares from the Transferee
Company.

1
Section 391 to 394 of Companies Act, 1956 Contains provisions relating to Compromise, Arrangement and Reconstruction and
AmalgamationofCompanies

2
Clause5AIoftheListingAgreementprovidesthatwhereanyofthesharesissuedinanypublicissueoranyotherissue,remains
unclaimed for no details regarding the allottees, the same shall be credited to Demat Suspense Account opened with one of the
DepositoryParticipant.

Page 89

3
SubClause(d)ofClause5AIoftheListingAgreementprovidethat,asandwhentheallotteeapproachestheissuer,theissuershall
credittheshareslyingintheSuspenseAccount,totheDematAccountoftheallotteetotheextentoftheallotteesentitlementafter
properverificationoftheidentityoftheallottee.

Procedure of Allotment and Listing of Shares held in

abeyance:

Inprinciple approval: The first step, the company has to

follow is to obtain inprinciple approval from the stock
exchanges where the companys securities are listed as
per Clause 24 (a)
4
of the Listing Agreement for allotting
shares kept in abeyance by providing following
information:

1. Complete scheme of amalgamation and order

receivedfromtheHighCourt.
2. Copies of original share certificates of Transferor
CompanyassurrenderedbytheShareholders(incase
ofphysicalsharecertificate).
3. Copy of the advertisement issued in the newspaper
about allotment of shares to the shareholders, to
knowanypersonshasanyobjectiontotheallotment.
4. Affidavitobtainedfromtheshareholders.

Allotment: Company shall convene Board meeting for

allotment of shares kept in abeyance and shall intimate
outcomeoftheBoardmeetingwithstockexchanges.

Filing of Corporate Action Form (CAF) with NSDL/CDSL:

Once the Company receives the preliminary inprinciple
approval from stock exchanges, it shall file CAF with
NSDL/CDSL for the purpose of admitting the subject
sharesfordematerialization.

Final Listing approval: The Company shall receive

dematerialization confirmation letter from depository. On
the basis of confirmation from depository, Company Shall
approach stock exchanges and obtain their final listing to
the shares allotted by the Company which were earlier
kept under abeyance and admitted the aforesaid shares
fordealingontheexchange.

Quick look on Allotment and Listing of Shares Kept in

Abeyance

Followingpointshouldbekeptinmindwhileallottingand
listingofshareskeptunderSuspenseAccount:

IntimateStockexchangeswherecompanyssharesare
listed, about the details of any shares which are kept
under Suspense Account due to nonavailability of
allotteesdetails
TakeinprincipleapprovalfromtheStockExchanges(s)
where companys shares are listed, before allotting
shareskeptunderSuspenseAccount.
File Corporate Action Form (on letter head of the
Company) with both the Depositories i.e. NSDL and
CDSL for admitting issued shares for
dematerialization.
File the dematerialization confirmation received from
thedepositorieswithStockExchangesforgettingtheir
FinalListingandTradingApproval.
If the further issue of shares kept in abeyance causes
increase in the listing fees payable to the Stock
Exchanges, then listing fees as increased by further
allotmentneedstobepaid.

Conclusion:

Securitymarketismeaninglessintheabsenceofinvestors.
Any law pertaining to securities protects the interest of
the investors or shareholders. Shareholders in such case,
where their shares kept in abeyance, they can avail such
shares under the securities law. Shareholders shall have
the knowledge about day to day developments in
corporateworldasitmayleadstomaximisetheirwealth.
Inthisregard,properinformationaboutshareholdersmay
minimize the consequences like non receipt of dividend,
annual report etc. and helps In smooth functioning of
Companies

4
SubClause(a)ofClause24ofListingAgreement:TheCompanyagreestoobtaininprincipleapprovalfromtheexchangeshaving
nationwidetradingterminalswhereitislisted,beforeissuingfurthersharesorsecurities.Wherethecompanyisnotlistedonany
exchange having nationwide trading terminals, it agrees to obtain such inprinciple approval from all the exchanges in which it is
listedbeforeissuingfurthersharesorsecurities.

Page 90

Body Language an
Effective Communication

AshaVijayChougule
Belgaum
ProfessionalProgramme
leoasha@gmail.com


When we move confidently and carry our body
confidently, we not only feel more confident but others
assume that we are. But its surprising to know that only
7% of the information you transmit to others is in the
languageweuse.Theremaindercomesfrom:

38% How we speak quality of voice, accent, voice

projection, emphasis, expression, pace, volume, pitch etc.
55%Bodylanguageposture,position,eyecontact,facial
expression, head and body movements, gestures, touch
etc.

Whereaspeopleoftentrytodisguisetheirtruefeelingsin
their utterances, they communicate them freely through
their nonverbal. When your body language tells a
different story from your spoken words, guess which is
believed? The answer is your body language. It imparts
eighttimesasmuchinformation.

Body language or Kinesics is a science of nonverbal

communication. Body Language is the unspoken
communication including gestures, postures, expressions
etc. That goes in every FacetoFace encounter with
another human being. Body Language supposedly
accounts for 75% of most conversations. Presenting the
properBodyLanguagecangolongwaytowardssuccessful
communication. Because of heavy communication
requirements of most jobs, recognizing and properly
utilising body language can make a noticeable difference
attheendofeachday.

Thewordsofconversationprobablywouldnotbenoticed
as a direct lie. It is more likely to be the body signals that
give one away. Darting eyes, shifting from one foot to
another, hand covering mouth or fingers tugging at the
earsareclues.

Some of the obvious body language elements which are

easilyapparentandnoticeable:

Fidgeting
Crossingarms
Tappingyourfoot
Doodlingonpaper
Touchingyourfaceorplayingwithyourhair
Lookingawayorhesitatingbeforeorwhilespeaking
Voice

COMMONGESTURES

Handshake
A Well gripped and strong handshake creates a positive
impression. The handshake too conveys a lot about the
personalityofapersonandhisattitudetowardsaperson.
A weak, limp, dead fish handshake gives an impression of
a disinterested and a cold person, it also signifies lack of
enthusiasm where a strong, well gripped handshake gives
an impression of warm friendly and enthusiastic person.
Handshake is an integral part of ones personality and
modifyingyourhandshakecanimproveyourinitialimage.
Practiseastrongwellgrippedandverticalhandshake.

EyeContact
Remember the saying face is the index of mind, if it is
so,theneyesare50%ofit.Whenwearenotinterestedto
listen to something, we tend to break the eye contact or
look somewhere else. Shutting eyes for a brief period or
blinking it more than the normal pace is an indication of

Page 91

ourdisbeliefanddisinterestinthesubjectofdiscussion.It
is also an escapist reaction, indicating desire to avoid
discussing the matter. Closing eyes or to steer them
towards blank while conversing is also an indication of
concentrating and recollecting something. Rapid glancing
to and fro and shifting the eyes from the other person to
something away and then back while talking gives an
impression as if the person is looking for a more
interested companion. Too fast blinking and flickering of
theeyelidsindicatesnervousness.Shorteyecontactwhich
is frequently broken while talking indicates, that the
personisshyorthatthepersonistellingalie.Sothebest
practice looking above the eyes, near the forehead of the
personwhilespeaking.

BodyMovements
Tellingalieisnoteasy;ourbodyismorehonestthanour
words. When a person is telling a lie, his body tends to
balance the deed by absorbing the discomfort. This
discomfortisapparentinmanyways.Coveringthemouth
with the hand. Rubbing, stoking or scratching the nose
quite frequently. Moving the hand to scratch or rub the
ear. Scratching the side of the neck with fingers. Rubbing
the eye, etc. are all an indication of an untruthful
statementbeingmade.Becauseofthefearwhiletellinga
lie,themouthmaybecomedrierwhichcausestheperson
to lick his lips more often and may be to swallow
nervously. Even the breathing is prone to become more
unevenandthethroatclearingismoreoften.Crossingthe
arms and legs while telling a lie is also common, crossing
the legs and arms give a feeling of self defence or
protection against a challenge to the liar. The above
gesturesandshiftyeyesareasureshotsignofdishonesty.
During interviews one should avoid any hand to face
gestures (even if you get actual physical itch), also avoid
all unnecessary body movements like tapping with your
feet or crossing the legs, arms, etc. Sit straight and erect
anddonotchangeyourposturequiteoften.

Understandingbodylanguageisfairlysimpleandinvolves
3basiccomponents:
Distance
Posturing
Focus

Keepingtherightdistance:Themostimportantaspectof
body language for making a person feel comfortable or
uncomfortableisrespectingtheirpersonalspace,whichis
an invisible circle around them. Each culture is different
but in every culture there are the same three distances:
Public,PersonalandIntimatedistance.

Whatyouseeiswhattheysay:ifyouseesomeonewho
looks like they are carrying a heavy load physically
(sloped shoulders, bowed back) then they are probably
carrying a heavy emotional burden and might appreciate
you or someone else relieving them of some of their
responsibilities. At least dont add any more to their load
without some offset. How open they appear is an
indicationofhowopentoconversationtheyare.Someone
who crosses their arms or legs tightly is likely to have
somewallsupandisfeelingdefensive.Itprobably means
that you need to stop and listen to their viewpoint some
more. As they do this, you will usually notice that they
startopeningupbothphysicallyandinconversation.On
the other side would be someone who puts their hands
behindtheirheadandputstheirfeetup.Thisposturesays
that I feel no need for protection, and I am not going
anywhere.

May I have your attention please? Focus is another

simpleandobviousthingthatisoftenoverlooked,andyet
can have a strong residual effect on how someone feels
about us. Eye contact with the person shows confidence
and honesty. Looking down is perceived as some level of
shame.Skirtingeyesareperceivedaslessthanhonest.

CONCLUSION

Remember that body language is not a study of single

isolated movements and gestures but rather it is about a
chain of gestures and movements. Studying single
gestures and movements may be deceptive at times. So
caremustbetakenwhilereachingatconclusions.

As the global village continues to shrink and cultures

collide, it is essential for all of us to become more
sensitive,moreaware,andmoreobservanttothe myriad
motions, gestures, and body language that surround us
eachday.Andasmanyofuscrossoverculturalborders,it
would be fitting for us to respect, learn, and understand
more about the effective, yet powerful "silent language"
ofgestures.

Page 92

Role of CS under the
Companies Bill, 2012

K.Subhash
CSExecutive
subhash.nathaniel@gmail.com

TheCompaniesBill,2008introducedonOctober23,2009,
lapsed due to the dissolution of the LokSabha and was
reintroducedonAugust3,2009whichwasreferredtothe
Standing Committee on Finance (SCF). The Report of the
Standing Committee was placed before the LokSabha on
August 31, 2010. Later Companies Bill, 2011 was
introduced in LokSabha on December 14, 2011 which is
amended and approved by the LokSabha as Companies
Bill,2012.

The much awaited Companies Bill, 2012 (hereinafter

referred to as the Bill) is passed by the LokSabha on
December 18, 2012replacing the 56 years oldCompanies
Act, 1956 (hereinafter referred to as the Act) The Bill
seeks to consolidate and amend the law relating to
CompaniesandintendstoimproveCorporateGovernance
andtostrengthenregulationsforCorporates.

RoleofCompanySecretariesundertheBill

1. Inclusion of Company Secretaries in the definition

of Key Managerial Personnel Definition of Key
Managerial Personnel under Clause2(51) includes
Chief Executive Officer, Managing Director, Manager,
Company Secretary, Chief Financial Officer and such
otherofficerasmaybeprescribed.

2. Inclusion of strict compliance with regard to

appointment of Company Secretary Currently
Section 383A provides a defense of Poor Economic
Condition for nonappointment of Company
Secretary which has been removed by the Bill to
prohibittheCompaniesfromescapingtheliability.

3. ProvisionofpenaltyfornonappointmentofCompany
Secretary The Act provides a penalty of Rs. 500/ per
day for every day during which the default continues,
but considering the importance of appointment of
Company Secretary, the Bill has proposed the below
penalty
OnCompanyRs.1,00,000/whichmayextendtoRs.
5,00,000/
On every Director and Key Managerial Personnel who
is in default Rs. 50,000 and Rs. 1,000 per day if the
contraventioncontinues.

4. 4.IncreasedroleincertificationofAnnualReturnAsper
Clause 92 of the Bill, every Company shall prepare its
Annual Return in the prescribed form containing detailed
disclosureastheystoodonthecloseoftheFinancialYear
(ItisasatthedateofAGMasperSection159oftheAct)

Thecertificationrequirementsareasfollows:

In case of Private and Public Companies A Director

and the Company Secretary or where there is no
Company Secretary, by a Practicing Company
Secretary.
In case of Listed Companies and Companies having
such paid up capital and turnover as may be
prescribed in addition to the signature of the
Company Secretary in employment, a Practicing
Company Secretary should certify that the Return
statesthefactscorrectlyandadequatelyandthat the
Company has complied with the provisions of all
applicablelaws.
In case of One Person Company The Company
Secretary or where there is no Company Secretary by
onedirector.

Page 93

5. 5.FunctionsofCompanySecretaryClause205oftheBill
hasproposedforthefunctionsofaCompanySecretaryfor
thefirsttime,whichshallinclude
To report to the Board about compliance with the
provisions of this Act, the rules made thereunder and
otherlawsapplicabletotheCompany
To ensure that the Company complies with the
applicable Secretarial Standards issued by ICSI and
approvedbyCentralGovernment
Todischargesuchotherdutiesasmaybeprescribed.

6. Introduction to Secretarial Audit Under the existing

Act,SecretarialAuditisnotmandatoryandisonlyfor
listedCompanies.TheparliamentStandingCommittee
recommended Secretarial Audit for listed as well as
companies belonging to other class as may be
prescribed.Clause204proposesthefollowing:
Every listed Company and Companies belonging to
such other classes as may be prescribed shall annex
Secretarial Audit Report given by a Practicing
CompanySecretaryalongwithitsBoardsReport.
The Company is duty bound to give all assistance,
details, documents and facilities to the Practicing
CompanySecretaryforauditing.
The Board in its report shall explain in full any
qualificationorobservationorotherremarksmadeby
the Practicing Company Secretary in the Secretarial
AuditReport.

Penalty:

If a Company or any officer of the Company or the

Practicing Company Secretary contravenes the provisions
of this section, the Company, every officer of the
Company or the Practicing Company Secretary, who is in
default, shall be punishable with fine not be less than Rs.
1,00,000/butwhichmayextendtoRs.5,00,000/.

7. Compulsory application of Secretarial Standards

Forthefirsttime,theSecretarialStandardshasbeen
provided statutory recognition in the Act. As per
Clause 118(10) of the Bill every Company shall
observe Secretarial Standards with respect to
General and Board Meetings specified by the
Institute of Company Secretaries of India
constituted under Section 3 of the Company
Secretaries Act, 1980 and approved by the Central
Government.

8. Other Provisions giving recognition to Company

Secretaries

Under Clause 291 a Company Liquidator can seek

professional assistance with the sanction of the
Tribunal and appoint one or more professionals to
assist him in the performance of his duties and
functions.
UnderClause140aPracticingCompanySecretaryhas
the power to immediately report to the Central
Government, if he has reason to believe in pursuance
to his duties that an offence involving fraud is being
committedagainsttheCompany.
Clause 432 of the Bill corresponds to Section 10GD of
the Act, which provide that a party to the proceeding
may appear in person or authorize a Company
Secretary or Legal Practitioner to present the case
beforetheTribunalortheAppellateTribunal.
Clause 140 requires a Company Secretary engaged in
the formation of a company to declare in the form as
maybeprescribedbytheCentralGovernmentthatall
requirementsoftheActandrulesmadethereunderin
respect of registration and the matters precedent or
incidentaltheretohavebeencompliedwith.

Conclusion:

With the introduction of the Bill there will be huge

requirement for the Company Secretaries in the market,
asithasplacedalotofemphasizeontheirrole.

It is to be noted here that there is a vast demand and

supply gap in the availability of qualified Company
Secretaries in the Country as the number of Companies
which are required to appoint Company Secretary are
more than the availability of Company Secretaries in the
market. This would result in creation of employment
opportunitiesfortheCompanySecretariesandencourage
many youngsters to take up the Company Secretary
Course.

Page 94

Committees
as per Companies Bill 2012

PoojaRKukreja
ProfessionalProgramme
Pooja.k@sundharesan.com

Section292oftheCompaniesAct,1956(Act)dealswith
the powers of the Board and proviso to the section
mentionsthattheBoardmay,byaresolutionpassedata
meeting, delegate the power to any committee of
Directors to borrow moneys otherwise than on
debentures, to invest funds of the Company and to make
loans.

Meaning:

ThetermCommitteemeansgroupofpersonsorDirectors
appointedbytheBoardandtypicallyconsistingofpersons
appointed to carry out specified functions, programs or
projectsinanorganization.

TypesofCommittees:

Compulsory/Mandatory:
AsperSection292AoftheAct,theAuditCommitteeshall
be constituted by every public Company having a paid up
capital of Rupees Five Crore or more and a Shareholder
GrievanceCommitteeistobeconstitutedwhereclause49
ofthelistingagreementisapplicable.
The new Companies Bill, 2012 (Bill) provides for
constitutionofCommitteessuchas:
CorporateSocialResponsibilityCommittee(Clause135),
AuditCommittee(Clause177),
NominationandremunerationCommittee(Clause178),
StakeholdersRelationshipCommittee(Clause178).

Voluntary/NonMandatory:
As per the Act, constitution of committees such as
Remuneration Committee, Nomination Committee and
CorporateGovernancecommitteearenotmandatory.
As per the Bill, constitution of committees such as
Advisorycommittee(Clause287),CommitteeofCreditors
(Clause257),windingupcommittee(Clause277readwith
clause315)isnotmandatory.

Directorsandmembersinvariouscommittees:

Committees include a combination of executive directors,

nonexecutive directors and/or independent directors or
such other persons as may be decided by the board or
tribunalasthecasemaybe.

Significanceandimportance:

Why: Committees help the board in handling issues that

require expertiseandfocus.They help todevelopspecific
expertise on areas like compliance management, risk
management,financialreportingandalsohelptoenhance
the objectivity and independence of the boards
judgment.

When: A Committee is constituted to avoid issues in

becomingtoocomplexornumeroustobehandledbythe
boardand/orwhentheyaremandatoryinnature.
Thefunctionsofeachofthecommitteesmentionedabove
areexplainedinbriefbelow:

a) Auditcommittee

The bill makes it mandatory for every listed Company to

constitute a committee who shall be responsible for
liaison with the management and compliance with
statutory auditors and internal controls. The committee
shall consist of 3 directors out of which 2 shall be
independentdirectorsandthesamehastobedisclosedin
theBoardsReportpreparedaspersubsection3ofclause
134 of the Bill. The members who constitute the

Page 95

committee shall be financially literate and shall
understandthefinancialstatementsoftheCompany.

Auditcommitteeisgivenarighttobeheardinthegeneral
meetingsoftheCompany,buttheyshallnothavearight
tovoteatthemeeting.

Penaltyfornoncomplianceshallbeasfollows:

the Company shall be punishable with fine of Rupees

One lakh and which may extend to five lakh rupees
and
the persons in default shall be punishable with
imprisonment for a term which may extend to one
yearorwithfinewhichshallnotbelessthantwenty
five thousand rupees but which may extend to one
lakhrupees,orwithboth:

b) NominationandRemunerationCommittee

Thisclauseshallbeapplicabletoeverylistedcompanyand
shall consist of three ormore nonexecutive directors out
of which at least half shall comprise of Independent
Directors. The chairperson of the company whether
executiveornonexecutivecanbeamemberbutshallnot
have the right to chair the committee. They have to
mainly put together the criteria in determining the
qualifications, positive attributes and independence of a
director,evaluateandrecommendapolicytotheboardto
be disclosed in the Boards report relating to the
remunerationofdirectors,KMPandemployees.

Penaltyfornoncomplianceissameasmentionedincl.177.

c) StakeholdersRelationshipCommittee

This committee shall be set up by the Board of Directors

when the company comprises of more than 1000
shareholders, debenture holders, deposit or any other
security holders during any time in a financial year to
mainly resolve the grievances of security holders of the
Company. The chairperson shall be a nonexecutive
directorandtheboardshallhavethepowertodecidethe
othermembersoftheCommittee.

The chairperson or any authorized representative is

requiredtoattendthegeneralmeetingsoftheCompany.

d) CorporateSocialResponsibilitycommittee

ThisisanewconceptwhereinbothPublicCompaniesand
Private Companies are treated alike and every company
having a net worth exceeding rupees five crore or
turnover of rupees one thousand crore or net profit of
rupees five crore will be required to constitute this
committee.Theboardofthiscommitteeshallcompriseof
threeormoreDirectorsoutofwhichatleastonedirector
shallbeanindependentDirector.

Thecommitteeisrequiredtoprepare apolicywhichshall
include activities like promotion of education, eradicate
extreme hunger and poverty, empower women, ensure
environmentalsustainability,socialbusinessprojectsetc.

e) CommitteeofCreditors

In case of sick companies the interim administrator

appoints this committee comprising of seven members
who represent each class of creditors. The interim
administrator decides the procedures to be followed at
suchmeetingsandalsothechairpersontobeappointed.

f) AdvisoryCommittee

In case of winding up, an advisory committee shall be

constituted by an order of the tribunal to advise the
Company Liquidator (who shall chair the meeting) and
report such matters as required by the tribunal. The
committee shall comprise of twelve members and shall
consist of creditors and contributories. The company
Liquidator is required to convene a meeting of the
creditors and contributories within 30 days from the date
of the order to help the tribunal decide the members of
theCommittee.

g) WindingupCommitteeincaseofliquidation

Thiscommitteeshallbeconstitutedtoassessandmonitor
the proceedings of liquidation when the Company
Liquidator makes an application to the tribunal within
three weeks from the date of passing the order. The
committee shall comprise of the official liquidator,
nominee of secured creditors and a professional
nominatedbythetribunal.

Page 96

Withholding Tax

AmithK.
ManagementTrainee@Hemanth,Biswajit&Co.,
amith.k@hbcs.in

In a broad sense, the concept of Withholding tax, by its

virtue, is being developed as an effective antidote for
evasion of tax throughout the world. It is generally a
government requirement for the payer of an item of
income to withhold or deduct tax from the payment, and
paythattaxtothegovernment.

WithholdingtaxinIndia

Chapter XVIIB of the Income Tax Act, 1961 provides for

deduction of tax at source on payments made by any
assessee. These provisions are also applicable in case of
payment made to nonresidents. Section 195 of the Act
castsanobligationonthepersonresponsibleforpayment
to nonresident to deduct tax at source at the time of
paymentoratthetimeofcreditofthesumtotheaccount
ofthenonresident.

WithholdingtaxforNRIsandforeigncompanies

Withholding Tax Rates for payments made to Non

Residents are determined by the Finance Act passed by
theParliamentforeachfinancialyear.Theseratesarealso
based on the Double Taxation Avoidance Agreements
between the Government of India with that of the other
countriesoftheworld.

DirectorofIncomeTax(InternationalTaxation)
Statutory functions in respect of taxation of foreign
companies and nonresidents and withholding tax on
remittances abroad are performed by the Director of
IncomeTax(InternationalTaxation).

TherearefiveDITsinDelhi,Mumbai,Kolkata,Chennaiand
Bangalore.

PermanentAccountNumberandfilingofreturns
The amendment made applicable from April 1, 2010
relatestotherequirementofaforeigncompanybeingthe
recipient of income to obtain a Permanent Account
Number (PAN) i.e. to register with the Indian Tax
authorities.

Now, the foreign company is required to furnish a

Permanent Account Number to the payer in India as
prescribed by the law. If the recipient fails to provide the
PAN, the withholding tax rate would be the higher of the
existing rate as per the ITA or treaty, or 20 percent. This
would result in additional withholding taxes in India, for
which there may not be any credit available in foreign
country.

Also, in the absence of a PAN, the Indian Tax authorities

will not entertain any application from the recipient for a
lower withholding tax rate. Currently though, the Indian
lawrequiresallforeigncompaniestofilereturnofincome,
with respect to income being earned from India even if
theapplicabletaxeshavebeenpaidinIndia.

It would thus be advisable for foreign companies to

initiate the process for obtaining a PAN especially if they
are receiving certain royalties/fees/interest from their
Indiangroupcompanies/collaborators.

Taxability of technical, managerial or consulting services

provided by foreign companies to the Indian clients
performedoutsideIndia

Anotherimportantamendmentrelatestothetaxabilityof
technical, managerial or consulting services provided by
foreign companies to the Indian clients; when such
services are performed outside India. Foreign companies

Page 97

were taking a stand that such services should not be
taxable in India, since they were not performed in India
and had no territorial nexus with India. Their stand was
vindicated by the Supreme Court in the case of
IshikawajimaHarima Heavy Industries Ltd., Vs DIT (2007)
[288ITR408],theapexcourtheld that servicesshouldbe
rendered as well as used in India for being taxed in India.
Itthereforeheldthatifbothconditionswerenotfulfilled,
the fees for technical services were not chargeable to tax
inIndia.

Recentdevelopments

Samsungcase

On 24 September, 2009, the High Court of Karnataka

reversedtheorderoftheBangaloreIncomeTaxAppellate
Tribunal (ITAT) on the applicability of withholding tax on
the purchaseof"shrinkwrap"or "offtheshelf"software.
This issue has been very controversial, with the ITAT
concluding that payments made for the purchase of such
software are not a royalty and, consequently, there was
noliabilityforthepayertowithholdtax.Whiletheappeal
addressed separate ITAT decisions affecting different
taxpayers/years, the High Court considered the facts of
SamsungElectronicsCo.Ltd(assessee)inholdingthatany
paymenttoanonresidentwouldattractwithholdingtaxin
theabsenceofanorderfromthetaxauthoritiesproviding
for a zero or reduced rate of withholding (Samsung
ElectronicsCo.Ltdandothers,ITANo.2808of2005).

Thus, in this case, the Karnataka High Court held that

every overseas payment would be liable to withholding
tax, whether or not that payment was ultimately taxable
asincomeinIndia.

VanOordcase

In the case of Van OordAcz India (P) Ltd, the Delhi High
Court had the opportunity to examine the withholding
obligationinthecaseofanIndianentityremittingmonies
to its overseas parent towards reimbursement of
mobilization and demobilization costs. In a landmark
ruling,theDelhiHighCourtalsoheldthattheobligationto
deduct tax at source arises only if the nonresident is
chargeable to tax in India as against the Karnataka High
CourtdecisionintheSamsungcase(statedabove).

Vodafonecase

VodafoneInternationalHoldingsBV(Vodafone)entered
into a Share Purchase Agreement (SPA) with Hutchison
Telecommunications International Limited (HTIL), a
Cayman Island entity, for purchasing the shareholding of
CGP Investment (Holdings) Ltd (CGP), a Cayman based
subsidiaryofHTIL.

CGP, directly and indirectly, owned approximately 52

percent of the share capital of Hutchison Essar Limited
('HEL"), an Indian entity. In addition, under separate
frameworkagreements,Vodafonealsobecameentitledto
certain call options on shares in HEL held by some other
entitieshavingindirectshareholdinginHEL.TheSPA,with
the framework agreements resulted in acquisition by
Vodafoneofapproximately67percenteffectiveeconomic
interestinHEL.

The Revenue authorities issued a notice to Vodafone,

holding it indefault for failure to withhold taxes on gains
arisingtoHTILonthetransferofsharesofCGPwhichlater
had to be reversed by the Supreme Court of India
considering the facts of the case and provisions of law in
force.

TheSupremeCourtofIndiapronouncedalandmarkruling
thatVodafoneGroup ('Vodafone') was not liable for
withholdingtaxesonits11billion$acquisition,in2007,of
asingleshareofaCaymanIslandscompany.

TheVodafonecaseisaneyeopenerofwhatIndialacksin
regulatory laws and what measures India has to take to
meet the various unprecedented situations without
sacrificingnationalinterest.TheDTCenvisagescreationof
an economically efficient and effective direct tax system
byproposingaGAAR(GeneralAntiAvoidanceRules)

Conclusion

Tax treaties: The nonresident beneficiaries can yet take

shelter under the tax treaties, especially Indias tax
treaties with countries like Singapore, USA, UK, etc. that
haveanarrowdefinitiononfeesfortechnicalservices.

Page 98

Charges

MeetalMJain
CSExecutive
mitaljain92@gmail.com

IntroductiononCharges:

Charge is a security given for securing loans and

debentures by way of mortgage on the assets of the
company. As per section 124 of companies act, 1956
charges includes a mortgage, a lien and an equitable
charge whether created by an instrument in writing or by
thedepositoftitledeed.

KindsofCharges:

a. Fixed charges: Fixed charges are those charges which

are made to cover specific assets or are capable of being
ascertained and defined at a time of creating charges. Ex:
Land&Building.

b. Floating Charge: Floating Charges are not attached to

any definite property but covers the property of
fluctuatingtype.Ex:Stockintrade.

As per Section 125 of companies act, 1956 requires a

company to file with Registrar Of Companies in Form8,
within 30days after the date of the creation of charge,
withcompleteparticularstogetherwiththeinstrument,if
any, creating evidence or modifying the charge or a copy
thereof verified in prescribed manner for registration,
otherwise charge shall become void, the money there by
shallimmediatelybecomespayable.Howevertheregistrar
may allow the particulars and instrument or a copy as
aforesaid to be filled within 30days next following the
expiryofthesaidperiodof30daysonthepaymentofsuch
additional fees not exceeding ten times the amount of
fees specified in schedule X and if the company specifies
the registrar that it had sufficient cause for not filling the
particulars and the instrument or a copy within the
specifiedperiod.Banksshallinsisttocreatechargeforthe
loans provided to the company and such charge should
havebeenregistered(filed)withRegistrarOfCompanies.
Thefollowingchargeswhicharerequiredtoberegistered:

1. A charge for the purpose of securing any issues of

debenture.
2. Achargeonuncalledsharecapitalofthecompany.
3. Achargeonanyimmovablepropertywhereversituate
oranyinteresttherein.
4. Achargeonanybookdebtsoftheassets.
5. AChargenotbeingapledgeonanymovableproperty
ofthecompany.
6. A floating charge on the undertaking or any property
ofthecompanyincludingstockintrade.
7. Achargeoncallsmadebutnotpaid.
8. Repetitive
9. A charge on goodwill or patent or license under a
patentoronatrademark,oroncopyrightoralicense
underacopyright.

As per section 610B Form8 has to be filed by the

company or any person therein within 30 days from the
date of creation or modification of charge separate e
Form8 is to be filled for each charge.EForm10 with a
copy of resolution has to filed within period of 30 days
from the date of creation or modification of charge for
debenture.TheeFormisrequiredtobedigitallysignedby
the trustee or debenture holders as well as managing
directors or director, manager or secretary of a company
in case of an Indian company and by an authorized
representative, in case of a foreign company. Further the
eForm is required to be precertified by CA or CS (In
wholetimepractice).

In case of default the company or every officer of a

company or other person who is in default shall be
punishable with fine which may extent to Rs. 5000/ for
everydayduringwhichdefaultcontinues,afurtherfineof
Rs. 10000/ may be imposed on the company and every

Page 99

officer of the company for any other default relating to
theregistrationofcharges.

Satisfactionofcharges:

Section138oftheactrequiresthatthecompanyshallgive
intimation to the registrar, of the payment or satisfaction
in full, of any charge relating to the company within 30
days from the date of such payment or satisfaction. The
company shall intimate satisfaction of the charge in e
Form17within30Daysfromthedateofsatisfaction.

If failed to file the said form 17 within 30 days from the

date of satisfaction no grace period of 30 days shall not
allowed by the Registrar Of Companies. In such
circumstances the company has to file condonation of
delay with the Company Law Board and get permission
(order) for filing the satisfaction of charge with Registrar
OfCompanies.

Provisionsformodificationofcharges:

As per Section 135 of

companies act, 1956
Whenever the terms or
conditions, or the extent or
operation, of any charge
registered under this Part
are or is modified, it shall
bethedutyofthecompany
tosendtotheRegistrarthe
particulars of such
modification, and the
provisions of this Part as to
registration of a charge
shall apply to such
modificationofthecharge.

Rectification by central government of register of

charges:

Aspersection141ofcompaniesact,1956

(1)TheCentralGovernment,onbeingsatisfied

(a) That the omission to file with the Registrar the

particulars of any charge created by a company or of any
chargesubjecttowhichanypropertyhasbeenacquiredby
thecompanyorofanymodificationofanysuchchargeor
ofanyissueofdebenturesofaseries,orthattheomission
toregisteranychargewithinthetimerequiredbythisPart
or that the omission to give intimation to the Registrar of
the payment or satisfaction of a charge, within the time
requiredbythisPart,orthattheomissionormisstatement
of any particular with respect to any such charge,
modification or issue of debentures of a series or with
respecttoanymemorandumofsatisfactionorotherentry
made in pursuance of section 138 or section 139, was
accidental or due to inadvertence or some other sufficient
cause or is not of a nature to prejudice the position of
creditorsorshareholdersofthecompany;or

(b)Thatonothergrounds,itisjustandequitabletogrant
relief, may on the application of the company or any
person interested and on such terms and conditions as it
may seem to the Central Government just and expedient,
direct that the time for the filing of the particulars or for
the registration of the charge or for the giving of
intimationofpaymentorsatisfactionshallbeextendedor,
as the case may require, that
the omission or mis
statementshallberectified.

(2) The Central Government

may make such order as to
the costs of an application
under subsection (1) as it
thinksfit.

(3) Where the Central

Government extends the time
for the registration of a
charge, the order shall not
prejudice any rights acquired
in respect of the property concerned before the charge is
actuallyregistered.]

AsMinistryOfCorporateAffairsintroducedMCA21Portal
system filing of forms are electronical and data of
companies maintained in electronic mode, so that
transference is maintained as these are available for
publicview.Socompaniesandstakeholdersarebenefited
immensely.

Page 100

Insider Trading

HSandhya
ManagementTrainee
Hemanth,Biswajit&Co.
sandhya.h@hbcs.in

Introduction:

It was only about three decades back that insider trading

was recognized in many developed countries as what it
wasaninjustice;infact,acrimeagainstshareholdersand
markets in general. At one time, not so far in the past,
inside information and its use for personal profits was
regarded as a perk of office and a benefit of having
reachedahighstageinlife.

The insider trading controversy involving Hindustan Lever

Limiteds (HLL) purchase of 8 lakh shares of Brooke Bond
Lipton India Limited (BBLIL) in March 1996, two weeks
prior to the public announcement of the merger of the
two companies has inspired this paper. The notice to HLL
is the first time that SEBI has brought an insider trading
action. An attempt has been made to analyze the Indian
insiderdealingprovisionsastheystand.

Insider trading essentially denotes dealing in a companys

securitiesonthebasisofconfidentialinformationrelating
towhichisnotpublishedornotknowntothepublicused
to make profit or loss. It is fairly a breach of fiduciary
dutiesofofficersofacompanytowardstheshareholders.

Whoareinsiders?

It is defined under the SEBI Prohibition of Insider Trading

regulation 2 (e) Insider is the person who is connected
withthecompany,whocouldhavetheUnpublishedprice
sensitive information or receive the information from
somebodyinthecompany.Forthepurposethisdefinition,
words connected person shall any person who is a
connected person six months prior to an act of insider
trading
Corporate officers, directors, and employees who
traded the corporations securities after learning of
significant,confidentialcorporatedevelopments.
Friends, business associates, family members, and
othertypesofsuchofficers,directors,andemployees,
who traded the securities after receiving such
information.
Employees of law, banking, brokerage and printing
firms who were given such information to provide
services to the corporation whose securities they
traded.
Government employees who taught of such
information because of their employment by the
government other persons who misappropriated, and
tookadvantageof,confidentialinformationfromtheir
employers.

Whyforbidinsidertrading?

The prevention of insider trading is widely treated as an

importantfunctionofsecuritiesregulation.Insidertrading
appears unfair, especially to speculators outside a
company who face difficult competition in the form of
insider trading. As per SEBI the Prohibition of Insider
Trading is required to make Securities Market Fair &
Transparent to have a level playing field for all the
participants in the market For free flow of information &
avoidinformationasymmetry.

Whatispricesensitiveinformation?

The Price sensitive information is defined in Regulation

2(h)(a)oftheprohibitionofInsiderTrading.Itmeansany
information which relates directly or indirectly with the
company&whichifpublishedislikelytomateriallyaffect
thepricesofthesecuritiesofthecompany.

Theinformationwhichisdeemedtobepricesensitiveare
likePeriodicalfinancialresults,Intendeddeclarationofthe
dividends(bothInterim&Final),Issueofsecuritiesorbuy
back of securities, any major expansion plans or
execution of new projects, Amalgamation & mergers or
takeovers,disposalofthewholeorsubstantialpartofthe
undertaking, any significant changes in policies, plans or
operationsofthecompany.(ContinuedinPage104)

Page 101

Forensic Audit: Necessity
or an Option?

AashishJain
ProfessionalProgramme
J.SundharesanandAssociates
aashish@jsundharesan.com

Introduction

In the last Decade major corporate scams shocked the

worldlikeEnron,Satyam,Worldteletc.Inallthecasesthe
financial statements were manipulated to benefit a few.
Companies (Auditors Report) Order, 2003, requires
Auditors to report, amongst others, Whether any fraud
on or by the company has been noticed or reported
during the year. If yes, the nature and the amount
involved are to be indicated. In this background, the
techniquesofForensicauditinghavegainedimportance.

Forensic auditing, sometimes referred to asforensic

accounting,isusedtoinvestigatethefinancialrecordsofa
company in order to detectfraud,corruption,
ormisappropriation of assets. It is mainly used afterthe
fact when companies suspect that fraud has occurred
withintheirorganization.Forthoseprogressivecompanies
that want to prevent fraud before it occurs then arisk
analysisisthebestcourseofaction.

Forensic auditing utilizes traditional accounting and

auditing techniques combined with detectivestyle
analysis.Financialtransactionstellastoryandtheforensic
accountant gathers the pieces together that form the
storys plot. They perform a complex series of tests that
identify potential problem areas for further investigation.
Forensicauditorsnotonlyinvestigatethefinancialrecords
of a company they normally offer litigation support in a
court of law should the findings result in legal
proceedings.

Motives of Fraudulent Financial Reporting By

Management

Peer Pressure: Management is under pressure, from

sources outside or inside the entity, to achieve (perhaps
unrealistic) target, where consequences of failure are
significant.

PriceManipulation:Toincreasetheentitysstockpriceor
earningstrend.

Commitment: To keep the results attuned to knowingly

unrealistic/nonachievable forecasts/commitment made
tocreditorsandlenders.

Wrongful Gains: Corporate frauds are results of

manipulation of accounts and accounting jugglery
designedtodeceiveothersforwrongfulgains.

Concealment of Truth: Absolute theft of money or

moneysvalue(mainlyrelatingtoemployeesfrauds).True
results of operations, or financial position of the entity
with a view to prevent timely detection of corporate
frauds.

ObjectiveofForensicAudit

Objective of forensic audit is to find whether or not a

fraud has taken place. Forensic auditor shall have to
examine voluminous and in totality, records and
witnesses, if permitted by law. Proper documentation is
vital in substantiating the findings. The outcome shall
focusonthefollowing,incaseoffrauds:

Proving the Loss / Proving the responsibility for the

loss

Page 102

Proving the method/motive, establishing guilty
knowledge
Identifyingotherbeneficiaries.

BenefitsofForensicAudit

A forensic audit will investigate and identify fraudulent

behavior but can also serve as a springboard to
establishing control mechanisms that help mitigate the
riskofpotentialfraud.Forensicaccountingcanalso:

a) Identify areas of waste and to improve operational

efficiency
b) Calculatethelosscausedbythefraud.
c) Investigateintoanyinfringement.
d) Ensureregulatorycompliance.
e) Investigate and quantify professional negligence
claim.
f) Identifyemployeetheftsorfrauds.

DrawbacksofForensicAudit

a) A poorly managed forensic audit could consume

excessiveamountsofmanagementtimeandcould
become an unwelcome distraction for the
business.
b) Forensic audits can have wideranging scope
across the business. Under certain circumstances,
the scope of the audit may need to be extended,
withacorrespondingincreaseinthebudget.
c) Some employees can interpret a proactive
forensic audit as a slight on their integrity, rather
than as a means to improvecontrol
proceduresforthebenefitofthebusiness.

DetectionTechnique

Critical Point Auditing: Critical point auditing technique

aims at filtering out the symptoms of fraud. From regular
and normal transactions in which they are mixed or
concealed. For this purpose, financial statements, books,
records,etc.areanalyzedmainlytofindout:
Trendanalysis by tabulating significant financial
transactions.
Unusualdebits/creditsinaccountsnormallyclosingto
credit/debitbalancesrespectively
Discrepancies in receivable or payable
balances/inventory as evidenced from the non
reconciliation between financial records and
corresponding subsidiary records (like physical
verificationstatement, pricedstoresledgers,personal
ledgers,etc.)
False credits to boost sales with corresponding debits
tononexistent(dummy)personalaccounts
Crossdebitsandcreditsandinteraccounttransfers
Weaknesses/inadequacies in internal control/check
systems, like delayed/nonpreparation of bank
reconciliationstatements,etc.

ProprietyAudit

ProprietyauditisconductedbySupremeAuditInstitutions
(SAI) to report on whether Government accounts, i.e., all
expenditure sanctioned and incurred are needbased and
all revenues due to Government have been realized in
time and credited to the government account. In
conducting the propriety audit, Value for Money audit
technique aims at lending assurance that economy,
efficiency and efficacy have been achieved in the
transactions for which expenditure has been incurred or
revenue collected is usually applied. The same analogy,
with modifications to the principles of propriety of public
finance, applies in forensic audit to establish fraudulent
intentions if any, on the part of the management.
Financial frauds are results of wasteful, unwarranted and
unfruitful expenditure or diversion of funds by the
investigatedentitytoanotherentity.

Conclusion

Forensic auditing combines legalities alongside the

techniques of propriety (VFM audit), regularity,
investigative, and financial audits. The main aim is to find
outwhetherornottruebusinessvaluehasbeenreflected
in the financial statements and whether any fraud has
taken place. It differs, altogether, in form and content
from the statutory audits of financial statements. It may
bebeneficiallyappliedinotherareaswhereduediligence
exerciseisrequiredtobecarriedout.

Page 103

Suggested Agenda for BM &
SHM
DivyaS.
ProfessionalProgramme
TraineewithCSVivekHegde
Sdivya_in@yahoo.com

Introduction:

Agenda points which are discussed in the Meeting of a

Company registered under the Companies Act, 1956
depends upon the business requirements, regulatory
requirements arising from various statutes, rules and
regulations as well as the Articles of Association and
ShareholdersAgreement/JointVentureAgreement,ifany.

Boardmeeting:

Board meeting is a formal meeting of the Board of

DirectorsofaCompany,whichisnormallyheldatdefinite
intervals to consider strategic issues, policy matters,
operational and regulatory issues. As per section 285 of
the Companies Act, 1956 a company must hold its Board
of Directors meeting at least once in three calendar
months and there should be at least four meetings every
year. There could be more number of meetings if
required.

NowaspertheCompaniesBill,2012(shortlytobeenacted
as law) the time gap between two consecutive meetings
shouldnotexceed120days.Aminimumnoticeperiodof7
days is envisaged which can be sent now by electronic
means.

Directors can attend the meetings through video

conferencing (VC) or other audio visual (AV) modes, and
suchpresencewillbecounted asquorumforthemeeting,
subjecttotheconditionthattheyarerecordedandstored.
However the Central Government may prescribe the
matterswhicharenottobediscussedinVCandAC.
In the First Board meeting (under clause 173 of
CompaniesBill,2012,itneedstobeheldwithin30daysof
Incorporation)
Toappointthechairmanofthemeeting
To note the Certificate of Incorporation,
MemorandumandArticlesofAssociation
ToconfirmthefirstDirectorsoftheCompany
ToconsidertheappointmentoffirstAuditors
ToadopttheCommonSealoftheCompany
ApprovalforopeningtheBankAccount
ToauthorizeprintingofShareCertificates
To authorize to allot shares and issue share
certificatestosubscriberstoMOAsubjecttoreceiptof
subscriptionofmoney
Approval of declaration given by director in the
prescribed form to the Registrar providing that the
subscribershavepaidthevalueofsharesasagreedin
MOA for issue of Commencement of Business
Certificate
To take approval for various statutory registrations
likePAN,TAN,PT,IEC,VAT&CST,ServiceTax,Central
Excise etc., and authorizing a person responsible to
signtherelevantapplicationandformsrequired
To consider the appointment of Key Managerial
Personnel such as Chief Executive Officer, Managing
Director, Manager, Company Secretary, Wholetime
Directorandsuchotherofficerasmaybeprescribed

IntheSubsequentmeetings

All the matters which needs Shareholders approval

needstobeapprovedintheBoardMeeting
FillingupofcasualvacancyofBoardu/s262
To make calls on shares, issue debentures, borrow
loanandinvestfundsoftheCompanyu/s292
Taking on record the declaration given by the
Directorsu/s274(1)(g)
TakingonrecordthedisclosuremadebytheDirectors
u/s299inForm24AA
AnyalterationinMemorandumofAssociationsuchas
increase in Authorized Capital, change in objects
clauseetc.,

Page 104

Appointment of Cost Auditor u/s 233(b) Prior
approval needs to be taken by Central Government
by filing Form 23 C to MCA.as per Companies (Cost
AccountingRules),2011,ifapplicable
Approval of Policy and Procedures such as Travel
policy, Employee Compensation policy, HR policy,
Purchasepolicyetc.,
ApprovalforapplyingforallotmentofLandunderSEZ
andrelatedsanction
ApprovalforExternalCommercialBorrowing
Action taken reports ( action taken points from
previousmeeting)
Review of operations MD / CEO need to brief the
Board
ApprovalofCompanyStandards
QuarterlycomplianceReport
PurchaseofFixedAssets,Baddebtswrittenoff
Annualoperatingplanandbudgets
Other Business related matters like major expansion,
executionofnewprojects,newjointventure

AnnualFiling

Approval and Authentication of Balance Sheet and

Profit&LossAccountu/s215
Approval of Directors Report u/s 217 proposed act
requires to even include explanation in the Directors
Report on the remark made by the Auditor in his
report and Company Secretary in Practice in his
SecretarialAuditReport
Thereafter every year within 6 months of the close of
the F/Y an AGM must be convened, unless an
extensionisgrantedbytheRegistrar(ROC)

Insider Trading (ContinuedfromPage100)

Regulation 3(B): This regulation states that there should

be Chinese Wall within the company and one
department should not know about what other
departmentsaredoing.

DisclosuresforprohibitionofInsiderTrading

InitialDisclosurelikebuyingthestakegreaterthanthe
5% of the paid up capital of the company, within 2
working days intimation shall be given to Stock
Exchange.
The new director should disclose all its trade position
in equity or derivatives within 2 days of its
appointment.
Continuous Disclosure If the director changes its
holdingby2%.
InvestmentofRs5Lacsor25,000sharesorbuyingthe
1% stake of the paid up capital whichever is the least
shouldbedisclosed.
Annualstatementofallholdings
Any other disclosure of the company to stock
exchanges.

SEBIs Power to make inquiries and inspection

(Regulation4A)
Chapter III of the SEBI Regulations contains provisions
regarding SEBI's powers of investigation into insider
trading and matters incidental thereto. If the SEBI
suspects that any person has violated any provision of
these regulations, it may make inquiries with such
persons. The SEBI may appoint officers to inspect the
books and records of insider(s) for the purpose of
inspection.TheSEBIcaninvestigateandinspectthebooks
ofaccount,recordsanddocumentsofaninsideronprima
facie. SEBI can investigate into the complaints received
frominvestors,intermediariesoranyotherpersononany
matter having a bearing on the allegations of insider
trading.

Conclusion The smooth operation of the securities

market,itshealthygrowthanddevelopmentdependstoa
large extent on the quality and integrity of the market.
Such a market can alone inspire the confidence of
investors. Insider trading, as it involves misuse of
confidentialinformation,isunethicalamountingtobreach
offiduciarypositionoftrustandconfidence.Theobjective
of the Securities and Exchange Board of India (Insider
Trading) Regulations, 1992 is to prevent and curb the
menaceofinsidertradinginsecurities.

The company secretary has onerous obligations in the

matterofpreventinginsidertradingbycompanydirectors,
officersandothers,intermsofdisclosureandreporting.

Page 105

NATURE The Best Getaway
(Inspired by the wonderful movie Zindagi Na Milegi Dobara)


Every day is a grind, for life is so hectic,
I ponder over ways to free myself of this crazy cryptic.
Things around me may make my existence look rosy,
Yet these things hardly make me feel content and cozy.

In these busy days and the restless night,
Theres a need for something to keep me bright.
With this mad quest to earn more Money,
Have I forgotten to admire flowers and the Honey?

When the hours seem like waves of a rough sea,
It is the calm breeze that brings in me a sense of glee.
There are days when I get stressed out,
Its a cool swim in the pool that helps me chill out.

Whilst in moments when I live life just for its sake,
I wonder how serene it would be to stroll by a blue water lake.
Days when life resembles a room with a keyless lock,
I wonder how itd be to have a peaceful day on a hillock.

Amidst all the citys deafening noise,
I realize that Nature is the best getaway to regain my poise.
Amazing are the views of sunset and sunrise
I dream of a life filled with natures pleasant surprise !!




Leading Lights of Life...


At birth, God gives us Angels; we call Mother and Father,
Then He introduces us to blessed souls; we call TEACHER!
TEACHERS help us learn math and words,
And train our brains to resemble sharp swords!

With their immense patience and intellectual prowess,
They teach us to survive under any duress!
Our transformation under their guidance is no less than a miracle,
For, they are our lifes leading lights to reach the pinnacle!

We may soar to any dizzy height,
Yet, we ought to bow before a TEACHERs might!
For, even the greatest rulers of Rome,
Began their journeys with a TEACHER at home!!
Sagar Prakash Kulkarni
CSProfessionalProgramme
Bellary
coooolkarni@gmail.com

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