After waiting for nearly three years, Mumbai is all set to get its first monorail that would link Wadala to Chembur in the first phase
After a delay of more than two-and-half years, the Mumbai monorail is all set to begin its journey from Sunday. Maharashtra chief minister Prithviraj Chavan will inaugurate the first route of monorail on Saturday. However, the services will be open for public only on Sunday for a limited time.
The 8.26-km route will connect Wadala in Central Mumbai with Chembur in suburban Mumbai. The services will run from 7am to 3pm, which would be increased gradually. From March onwards, mono rail will operate in the second shift.
One monorail train has four coaches and can carry 560 passengers that would be increased to six gradually.
According to a report from Business Standard, initially, the frequency between the two monorails will be 15 minutes and it will be reduced subsequently to nine minutes, and finally to three minutes, once the entire stretch of 19.17 km is completed. During the second phase additional 10 trains with six coaches will operate. There will be in all 19 stations after the completion of two phases, the report added.
At present the fares are between Rs5 to Rs11 with six stations on the way. Although there is no facility available for monthly pass like the Mumbai suburban railways, commuters of monorail would be provided a system to use smart cards.
An Indian subsidiary of a foreign company may remain private by its own choice as far as its internal matters are concerned such as not inviting public to subscribe in shares. But in the eyes of law, it will be public
This article analyses the relevant sections of the old and new legislations in order to determine the true nature of an Indian subsidiary of a foreign company—whether they are public or private companies under the law—and its negative consequences on the foreign direct investment (FDI).
Starting from a baseline of less than $1 billion in 1990, a 2012 United Nations Conference and Trade and Development (UNCTAD) survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. The sectors that attract higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, UAE, USA and UK are among the leading sources of FDI.
Foreign companies have for long operated in India by opening their subsidiary companies in India. These subsidiary companies have enjoyed the status and privileges of a private company. However, with the passage of the Companies Act, 2013 in August 2013, the position of an Indian subsidiary of a foreign company has been thrown into sharp relief and has left the FDI sector in utter shock.
What was the position under the Companies Act, 1956?
Let us see what the Companies Act 1956 says. Section 3 mandates that a private company which is a subsidiary of a public company shall be deemed to be a public company. So there are private companies, there are public companies and then there are deemed public companies. The deemed public companies are viewed by the law as public companies and are subject to all compliances applicable to public companies, even though these companies may be operating as private companies do.
Section 4(7) states that a private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India. This meant two things:
Thus, the position of a private company is quite simple and clear. And using this saving grace, most foreign companies have operated in India without having to bear the burden of increased regulatory oversight and compliance that is applicable to all public companies.
What the new Companies Act says?
Under the new Act, the existing provisions of section 4 (7) have been dropped. That might have been unintentional but it has lead to much confusion over the position of an Indian subsidiary’s treatment under the Act. Two sections of the new Act, namely section 2(71) and section 2(87) throw light upon this matter.
Section 2(71): “Public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.
Since a foreign company is not a company under the Act (it is a body corporate), this proviso is clearly applicable to foreign companies. Now this leads to a search for the definition of a subsidiary which is given in Section 2(87).
Section 2(87): “Subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company), means a company in which the holding company....
Explanation.—For the purposes of this clause,—
(c) the expression “company” includes any body corporate;
If we carefully look at the proviso to Section 2(71) and Explanation (c) of Section 2(87), we find that the use of the words “not being a private company” is troublesome. A subsidiary company will be a deemed public company if the holding company is NOT a private company. The holding company can be anything else. It could be a body corporate also. Also Explanation (c) says that the expression ‘Company’ includes body corporate. That means a subsidiary of a body corporate incorporated outside India will surely be treated as a deemed public company. Although it can be argued that the Explanation says “for the purposes of this clause”, it goes without saying that this clause id nothing but the definition of a subsidiary.
Upon reading the proviso to Section 2(71) one more thing comes out to the fore. Even if the subsidiary company, by its articles, choose to remain a private company, it will be treated as a deemed public company for all purposes of the Act. Thus a subsidiary may remain private by its own choice as far as its internal matters are concerned (such as not inviting public to subscribe in shares etc.), but in the eyes of law, it will be public.
Impact on FDI
This will drastically affect a large section of foreign companies because they will now have no choice but to observe the requirements and restrictions of a public company and forgo the benefits of being a private company, even if the company chooses to remain private by its articles. In fact, many foreign companies may choose not to open subsidiaries in India. If implemented in this fashion, then FDI inflows are sure to fall. Last year saw the central banker and the Ministry of Finance taking crucial steps to relax the norms for entry of foreign investors in India to drive organic growth in our economy because FDI does not have the volatility that stocks and bonds have. However the Ministry of Corporate Affairs (MCA) seems to be at cross purposes with the bigger aim of the government towards opening the economy to foreign entities.
If foreign companies cannot incorporate themselves as private companies, then much of their enthusiasm will be lost and most of them will be deterred from coming to India. In a country that is in scrambling competition for a share of global fund flows, is facing an enormous current account deficit and is trying to improve its tarnished image to foreign investors, the provisions of the Companies Act 2013 are only worse than discouraging.
(Shambo Dey is a student at the Government Law College, Mumbai and also works as a researcher for Vinod Kothari & Company)
The political and currency crises of Latin America and Turkey are likely to affect Indian companies, notably Bajaj Auto, United Phosphorus and Aban Offshore. Even engineering goods, pharma and auto companies are likely to be affected
Credit Suisse has come up with a research note on the adverse impact of currency markets as well as stock market sell off in certain emerging markets, particularly Argentina and Turkey. Recently, Argentina and Turkey have resorted to desperate measures to sustain their currencies, but have failed. They are also facing political backlash and nation-wide protests from their citizens. Also, the tapering effect is likely to exacerbate the situation. The research note said, “The turbulence in currency/stock markets of several EMs may have stemmed but is unlikely to be over. After all, the 'taper' is still very much on, and each of these EMs has political turmoil/uncertainty, and many have macroeconomic stresses.” Indian companies, particularly from engineering goods, pharma and auto are likely to be affected. However, it is bullish on information technology (IT).
Credit Suisse expects what is known as a ‘contagion’ phase, wherein trade might get disrupted or bank losses might run, fund sell-off and so on. The research note says, “In the evolution of these episodes of de-risking, the next phase is usually the contagion phase: markets wake up to inter-linkages and attempt to de-risk from a potential disruption in trade or capital flows.”
According to Credit Suisse, the medium-term exposure (i.e. excluding commodity exports) of Indian companies to select emerging markets is “US$7 bn and near-term exposure is US$37 bn.” The chart below shows the geographical exposures to emerging markets.
The following Indian companies are at the most exposed to risks of an emerging market fallout (refer to table below). It makes particular note to Bajaj Auto and sees adverse outcomes. It says, “The ASEAN/LatAm exposure for Bajaj only compounds domestic market issues.” However, it feels that Godrej Consumer Products Limited is “overdone” and it has “concerns” over Torrent Pharma’s exposure in Brazil. With over a quarter of revenue coming from Latin America, United Phosphorus looks risky as does Aban Offshore.