How new company law can be a boon to the CEO and Company?

ByCA Santhanakrishnan

1THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

ICAI Bhawan, Indraprastha Marg, New Delhi – 110 002

That’s not how we think, right?

• We all know change is the only permanent thing• So why keep cribbing? • Why not act?• Now that we do have the Company law, how can that be used

to maximum advantage?

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CSR –the great goodwill creator

• We should thank MCA for giving us a great tool to increase goodwill, create brand awareness, get the friendship of the local areas we operate from and generally be part of Nation building

• Who are we talking about in the local area• Many contractors and their families• Own employees and their families• Many suppliers/ sub suppliers and their families• Many people whose livelihood depends on your office or factory

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Improve the livelihood of the neighborhood

• What ever you do for local community will come back to benefit you

• Look what one Jamshedpur has done to Tatas and how much Tatas have done for Jamshedpur –it’s mutual

• My take is that• If all industries had spent 2% of project cost on CSR they would

have never faced any trouble from locals

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Use CSR for maximum benefit

• Use your funds judiciously• Use it to improve overall carbon footprint• Use it to improve hygiene, health, education in the area

surrounding• You will end up with more customers!

• Make all group companies join together to arrive at a sizeable amount which can make real change

• Connect with employees who already have good projects or are thinking of one and make them the champions• Your employee morale will also go up

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Use technology for CSR

• Use latest technology to do revolutionary changes in the lives of people around you• Just take one technology- 3D Printing or 3D Layering

• You make 3D printers available locally so almost all needs can be met locally

• As we speak , 3D printers that make Pizza are being made• You have the chance to really eradicate hunger –literally!

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Woman Director

• Great women, unfortunately, have come to surface only when their father or husband had expired or gone out of action

• Think of Anu Aga and how many Anu Agas are hidden from public eye

• Indian women are now in great positions • Aarti Prabhakar heads Military technology in DARPA for the US

army• Indira Nooyi became the most powerful woman on earth

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Go get the best woman on your board

• As a co director of great women like Irina Vittal, Mallika Srinivasan I know the contribution women can make in the Board room

• This is the single best thing to happen to India Inc. in a very long time

• Get the smart , intelligent, participative woman director you deserve and

• see how they change/transform your business for the better

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Deposits

• Worried you can’t accept deposits?• Good for you• Who wants to deal with fickle minded unprofessional jittery

retail investors?• Ask anyone who has faced the wrath of unpaid deposit

holders• Your banker will understand what downturn and CDR mean;

your average depositor will arrange a run on your company.• Good riddance

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Related party transactions

• If you want to purchase good exceeding 25% of your Turnover and they are not at arm’s length!

• It is but fair that you explain to your minority shareholders why you think it is fair!

• I do not know why some people crib about this also!

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Isn’t it great you don’t have to deal with babus

• India Inc has to raise as one man and salute MCA for removing (their own powers) all those Central Government approvals which took ages and which were a pain and lot of expenditure

• It should be a great feeling that you will be dealing with your co-shareholders and not some Babus in Delhi to explain your business and why the approval is necessary

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Think of all the vanishing Cos

• Yes, many of us are honest• But how do we deal with those black sheep that get away,

which bleed all stakeholders dry?• Was it fair that Satyam shareholders in USA got compensated

but Indian shareholders were left high and dry?• Some deterrent was needed to rein in people who thought

they could away with murder.

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Yes we need to work hard

• This is not to say there are no pin pricks• But pinpricks will be there in whatever we do• MCA has proved that they can and will listen –as proved by so

many amendments –some even beyond law!• If you have a problem take it to them • It will get a fair hearing.

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A REVIEW OF SOME KEY AREAS

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Relatives

• Category of relatives come down from 24 to 11• 16 categories of relatives dropped • New Relatives added - Step Father, Step Brother, Step Sister• Previously step daughter was a relative but not step father who is

now a relative. Shows times have changed• Even in new Rule 4 in Chapter 1 under S 2(77) of the new act,

would be better that only dependents are included under relatives. Though it will be a sweeping change, that would ensure to make this improvement to include only dependent Brother and sister

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Related Parties

• Not complicated, contrary to general belief• Major changes:• Various clauses in various sections for different regulatory

purposes – consolidated into one place for all transactions – “Related Party” is referred only in 4 sections

• Disclosure requirements have gone up substantially• Compliance with Related Party requirements significantly

reduced by• Excluding companies with Paid up share capital less than Rs. 10

crores• For companies above this limit – substantially higher transaction

limit prescribed in rules, considering Materiality.

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Key Managerial Personnel

• Clubbed positions of CEO /MD / WTD Manager / CEO and CS as under the old Act and added CFO and treated them as KMP

• No new additional responsibilities• No qualification requirements for CEO/ CFO• Could become an overload in small Private

companies• To explore possibility of CG prescribing any one

person as KMP• Theme is to fix responsibility in the event of any

issue – otherwise, these positions are just similar to directors and there is no new material impact arising from this

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Special Resolutions

• Definition same as 1956 Act• Except that In Related Party transaction, related

parties cannot vote• 75% voting from non related parties for Related

party transactions• Majority approval from minority through special

resolutions - Operational difficulty, possible loss of objectivity

• Member approval instead of CG approvals

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Issues concerning the profession

• NFRA• Penal Provisions on the Auditors• Rotation of Audits• Limit on number of audits• Fraud reporting• Related Parties (for the purpose of audits)

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THANK YOU

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