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With every new legislative act one would hope that the law will be simpler, more transparent and will be for the larger good of the citizens. Will these changes lead to better governance and more investment opportunities?
The new Companies Act has made many sweeping changes regarding governance, transparency, disclosures, responsibilities of directors, class action suits and a more powerful Serious Fraud Office. On the face of it, the new company law has fewer provisions—with only 470 sections compared to the present Companies Act, 1956 which has nearly 700 sections. However, the new law has many more provisions by way of rules. Separately, amendments to the SEBI Act have made it one of the most powerful market regulators in the world, given it the power to search, seize and freeze accounts and assets, with very little oversight on its actions. Will these changes lead to better governance and more investment opportunities? At an exclusive Moneylife Foundation event, two very knowledgeable and independent-minded people in the business— Savithri Parekh, Head of Legal & Secretarial, Pidilite Industries and Jayant Thakur, Chartered Accountant, shared their views on these two momentous legal changes
Ms Parekh discussed the highlights of the Companies Bill 2012. Given the recent corporate scandals there has been a greater focus on corporate governance and transparency. There have been substantial changes in the restructuring provisions with greater focus on disclosure and compliances. The Director’s Report will contain enhanced disclosures such as number of meetings of the board, policy on Directors’ appointment, remuneration including qualification, positive attributes, independence and other matters, particulars of loans guarantee and investments and details about CSR policy and initiatives.
While the earlier Act had no provisions on insider trading, under the new Act insider trading is prohibited and penal provisions under the corporate laws will also be applicable. This would mean the guilty would be subject to imprisonment up to 5 years or fine of minimum Rs. 5 lakhs and maximum Rs. 25 crores or three times amount of profits or both. It is not uncommon to find companies taking their minority shareholders for granted; some even go to the extent of virtually short-changing investors who put their faith in the company. Knowing the limitation of individual investors to fight against a company’s might, many a company has taken them for granted. To overcome this weakness in the law, the Companies Bill has now proposed a new Clause 37 that provides for action by a group of shareholders
Mr Thakur, who has advised listed and non listed companies and intermediaries on SEBI laws, other corporate laws, etc, spoke on the new provision for independent directors. The new provision states that a listed company should have at least one-third independent directors and no stock options can be given to independent directors. This move ensures that rotation of independent directors is envisaged. It ensured improved transparency in the conduct of business.
Speaking on related party transactions, Mr Thakur said, there was limited scope for transactions and persons covered under the earlier Companies’ Act. The new provisions have an enhanced scope of reporting transactions. ‘Related parties’ would include relative, directors with certain shareholding, persons in advisory capacity to the board. This ensures greater transparency in operations with key persons.
While the existing law has no provision for the tenure of auditors, the maximum tenure of auditors under the new provision individual auditors to be rotated every five years and audit firms every 10 years. The auditors would need to comply with the auditing standards. There are also restrictions on the auditors which is inline with global audit norms. The provisions also introduce an increased liability of auditors if found involved in fraud or has abetted or colluded in any fraud. Auditors can also act as whistleblowers.
For the first time, a provision has been made for class action suits. It is provided that specified number of members, depositors or any class of them, may, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors. Knowing the limitation of individual investors to fight against a company’s might, many a company has taken them for granted. To overcome this weakness in the law, the Companies Bill has now proposed a new Clause 37 that provides for action by a group of shareholders.
The Nifty has to stay above 5,455 for the upmove to continue
The improved factory output in the euro area which was more than what the economists estimated and the fewest US workers in more than five years applying for jobless benefits boosted the market sentiments. The indices could overcome the initial weakness on the bourses and went into the positive zone and ended in the green for second consecutive trading session. At the close, the indices hit their respective highs and closed near to that level.
As we mentioned, the index has to manage keeping itself above any previous day high for the upward momentum to gain strength. The indices today made a higher high and a higher low. The Sensex opened at 18,387 and moved in the range of 18,211 and 18,547 and closed at 18,519 (207 points up, 1.13%), while the Nifty opened at 5,429 and moved in the range of 5,378 and 5,479 and closed at 5,472 (63 points up, 1.17%). The National Stock Exchange (NSE) recorded a volume of 62.10 crore shares.
Except for India Vix (fell 6.97%) all other major indices rose today with CNX Smallcap (1.87%); Lix 15 (1.50%); CNX Nifty Junior (1.42%); Nifty Midcap 50 (1.27%) and CNX Midcap (1.23%) were the top five gainers.
Among the other indices except for Realty (fell 2.02%) and Media (fell 0.14%) all the other indices rose with Bank Nifty (2.17%); Finance (1.76%); Auto (1.72%); IT (1.49%) and PSE (1.40%) were the top five gainers.
Of the 50 stocks on the Nifty, 32 ended in the in the green. The major gainers were BHEL (8.10%); Tata Power (5.09%); HCL Technologies (5.06%); Jaiprakash Associates (4.20%) and Jindal Steel (3.64%). The major losers were DLF (4.87%); UltraTech Cement (3.58%); Sesa Goa (2.21); Bharti Airtel (1.73%) and Cipla (1.35%).
Finance Minister P Chidambaram and Reserve Bank of India Governor D Subbarao on Thursday, 22 August 2013, said in separate news conferences that India doesn't plan to introduce capital controls.
Finance Minister P Chidambaram said on Thursday that revival and encouragement of growth will continue to be the focus of the government. He said that there is no cause for the panic that seems to have gripped the currency markets and that is feeding into other markets. Chidambaram believes that the rupee is undervalued and has overshot what is generally believed to be a reasonable and appropriate level. Capital inflows will, in due course, correct the position. India's debt indicators are within prudent limits.
India's inflation could accelerate in the current fiscal year due to the rupee's sharp depreciation, the Reserve Bank of India (RBI) said in a report on Thursday. The RBI will continue with measures to cut exchange-rate swings and revisit its steps once the currency stabilizes, Governor Duvvuri Subbarao said yesterday
The rupee today reached upto 64.75 against dollar. The rupee had hit record low of 65.56 in intraday trade on Thursday, 22 August 2013. Barclays expects the rupee at 61 in six to 12 months, which partly reflects an improvement in the current account deficit. Barclays' forecast is less bearish than many recent forecasts. Deutsche predicted USD/INR to go to 70 in a month or so, while Credit Agricole said it does not see fundamental value below 70.
Lower real or nominal interest rates may not be enough to stimulate growth when non-monetary factors impede revival in growth, Deepak Mohanty, executive director at RBI, said on Friday. The negative impact of increase in policy rate is first felt on output before moderating impact on inflation, he said in a speech.
Finance Minister P. Chidambaram sought parliamentary approval on Friday for 1.27 billion rupees of extra spending in the current fiscal year, signaling his determination to keep the fiscal deficit under tight control. The finance minister told the lower house of parliament that gross extra spending of about 75 billion rupees would be mainly funded from savings under different schemes, leaving just $19.62 million that adds to the budget burden.
HSBC downgrades Indian equities to "neutral" from "overweight", citing a sharp rise in the cost of equity for companies and a slowing growth. JPMorgan also downgraded Indian shares on Tuesday to "neutral" from "overweight", citing strain in balance of payments.
Asian market had a mixed performance. Shanghai Composite fell the most, 0.47% while Nikkei 225 was the top gainer, 2.21%.
European indices were mostly in the green. Germany's economy sharply rebounded in the second quarter from a weak start to the year, gaining steam from a pickup in investment and robust consumption, official data showed Friday. Gross domestic product swelled 0.7%, corresponding to an annualized rate of 2.9%, the national statistics office said. The figures confirm official estimates issued last week. That makes Germany the fastest growing of the world's largest industrialized economies in the second quarter.
Investors are keeping a close watch on the Federal Reserve's three-day annual monetary conference in Jackson Hole, Wyo which begins today, 23 August 2013, on whether Fed officials give any indication of the timing of the potential tapering of the Fed's bond purchases.
Market awaits sales of new homes in the US. US Futures were trading lower.
Lupin’s US-based subsidiary Lupin Pharmaceuticals Inc has received US health regulator's approval to market a generic version of Sanofi Aventis' Rifadin capsules in 150 mg and 300 mg strengths, used to treat tuberculosis, in the American market. As per the IMS sales data, Rifadin Capsules had annual US sales of around $18.5 million. The stock rose 2.42% to close at 795.90 on the NSE.