About this Site

About

My Notes(Up to Oct '03)

My Notes(From Oct '03)

MyUAE Visit 2003

Letters

Letters to Me

Lettersfrom Me-General

Lettersfrom Me-Co. Law

 

 

My Favourites

SpiritualGems

Father-ChildRelations

Quotations

InterestingFacts

 

 

Humor

Graffitti

Jokes

ComptuerHumor

 

 

Computer

ComputerTips

GJU MCA Syllabus/Q.

ComputerCourses Stuff

 

 

Misc

GoingAbroad

Links

Personalities

Law

MyCity : Barnala

My Country : India

EnglishLanguage

 

 

 

 

 

 

 

Fax/ Courier / e-mail
                                  11th June 2000

 

ShTapan Chatterjee

DeputySecretary

RajyaSabha Secretariat

RoomNo. 006, Ground Floor

ParliamentHouse Annexe

NEWDELHI

 

FaxNo. 3014948 / 3015585

Tel.No. 3034187 /3034262 (O) 6259328 (R)

e-mailrsc ha@sansad.nic.in / tapanda@sansad.nic.in

 

Reg: Suggestionfor Companies Bill 1997 and

Companies(Second Amendment) Bill,1999

DearSir,

Beingactively involved in corporate and secretarial sector, I am keen to give somesuggestions for your kind consideration.

 

Iam of the firm belief that laws of the land should be as simple as these can be.At the same time these should be aimed at to provide for maximum framework andeverything should be conspicuously clear. Even a man of general integrity shouldbe able to understand the law as it is. The law should provide speedy and quickdisposal.

 

Iwish to appear personally before committee and to give oral evidence. Pleaseinform me about the time and place for such appearance.

 

Iwould like to be associated in any process of formation of Company Law and togive constructive suggestions. I am in fairly a good position to seeksuggestions, clarifications and views from the personalities concerned with theCompany Law.

 

Followingare some of my suggestions:

Sr. No.

Suggested Provisions

1.      

Companiesshould be required to disclose the amount of listing fees paid stock-exchangewise.

2.      

Companiesshould be required to disclose the turnover data stock-exchangewise. This willalso enable the shareholders to instruct the company to get its shares delistedfrom the stock exchanges wherever turnover is very thin.

3.      

Detailsof no. of cases filed against the company should required to be given inDirectors’ Report. Further segregated data should be given based on the natureof the case.

4.      

Auditors’Comments should be given in bold letters (Font size at least 18) in theirReport. These qualifications should be compulsorily replied by the Directors intheir report to the shareholders. It is observed that some Directors’ Reportsdo not reply Auditors’ qualifications or without proper explanation. TheDirectors’ Report should reply qualifications in bold letters (font size maybe normal) in full details and short-term and long-term implications should bestated in the Directors’ Report itself.

5.      

Fulldetails of investments made in subsidiaries / private limited companies /companies in which Directors are interested in any capacity should be given ininvesting company’s Directors’ Report.

Followingdetails should be given:

1.Name of Investee Co.;
2. Investing Co.’s Interest;
3. Amount of Investment;
4. Date of Investment;
5. Return on Investment

6.Compound rate of return.

6.      

Atpresent, Companies Act, 1956 permits a time limit of two months for registrationof transfer. After the introduction of depository system, this seems to beexorbitant. This time limit should be reduced to a maximum of two weeks. Furtherif an investor furnishes the proof of having received duly transferred shares ornon-receipt of duly transferred shares beyond the prescribed time limit, suchcompanies should be punished and investors should be entitled for examplerydamages from the company.

7.      

Marketlots is 1 share only in respect of the companies whose shares are compulsorilyrequired to be traded in demat mode. Further some companies have reduced facevalue of their shares to less than Rs 10. Both of these factors have led toincrease the folios of such companies. Investors are purchasing even singleshares in these companies. Companies have to send the dividend warrants ofminiscule amounts to such shareholders. This has led to a considerable anddisproportionate burden on companies and load on banking and postal channel. Itis therefore suggested:

a)                 The investors should have the option to get the dividend warrants thro’their Depository Participant i.e. the company should give the credit to DP andDP should in turn credit the amount to the investor’s a/c with DP. DP canoffset this amount against its other charges receivable from the investor.Companies’ workload of printing and despatching the dividend warrants will belighter, workload on banking channel and postal system will lessen, loss orinterception of dividend warrant in postal transit and banking channel will notbe there and investors’ workload of keeping the track of dividends andpresenting them to bankers for encashments will be negligible. Investorsresiding in small towns will be particularly benefitted as it will save themfrom incurring collection charges.

b)                  In case the dividend amount is less than say Rs 25, the amount should notbe paid to the investors for the reasons stated above, instead it should betransferred to any fund maintained for the benefit of investors.

c)                  Interim dividends should not be allowed. It encourages some companies tomanipulate their share prices. Companies at the time of public or rights issuegenerally prefer to declare interim dividends. Secondly, it put undue mailingand other burdens on the company. Moreover, whereas final dividend is a debtagainst the company after the expiry of forty-two days, interim dividend is notso.

d)                  Dividend warrants should required to be mailed to investors within 7 daysof approval of members at annual general meeting. As dividend warrants arecomputer printed and all the data is updated on computer, there should be nodifficulty to send the warrants within this period.

e)                 If investor has provided ECS mandate to his DP, dividend amount may becredited directly as per ECS mandate.

8.      

Preferenceshares are long viewed as wall-flowers. There should not be any provision forissue of preference shares. Even the preference shares already issued should becompulsorily redeemed within a period of say two years. It is of commonknowledge that promoters generally issue preference shares to themselves to havetheir own money secured and to get good and assured returns. Preference sharesare generally neither issued to general public and nor general public generallyprefers it. No provision for preference shares will also enable us to deletemany sections of the Companies Act.

9.      

Similarly,issue of shares at discount should not be allowed. If a company is not in aposition to issue shares even at par, how it is expected to be in a betterposition by issuing shares at discount. Moreover, it will help in reducing thenumber of sections in Companies Act.

10.  

Introductionof postal ballot has certain in-built shortcomings. The system does not permitdiscussion or debate, which indeed is sine qua non of democratic society. Further the companies wouldhave to incur hefty expenses on sending registered letters to shareholders.Moreover, what would be the guarantee that the companies would prefer to showthe actual responses of shareholders. They can easily skip some of the responsesand their own response would but naturally permit them to adopt the resolutionthough at expense which would be beneficial to nobody. Postal department isalready finding it difficult to cope with the volume of work it handles.

11.  

Non-VotingShares (NVS):

Thereason often extended for issue of NVS is that most shareholders are onlyinterested in receiving a return on their investment; that they are neitherinterested nor properly equipped to exercise their voting rights. But that viewwas summarily rejected by Justice Jessel; he said “that the rights to vote isan exercise of rights to their property… and I cannot deprive him of hisproperty, although he may not make use of that right of property in a way Imight altogether approve. There is, if I may say so, no obligation on ashareholder of a company to give his vote merely with a view to what otherpersons may consider the interests of the company at large.

Theproposed legislation does not assure regular payment of dividends to thenon-voting shareholders. Further, there is no provision for the accumulation ofdividends if, in any particular year, no dividend is declared by the company.Why in such circumstances a person would be keen to invest in non-voting equitywhen, as an alternative, one could make a deposit with the company and beassured of a regular return. In the case of most companies the return fetched bysuch a deposit would be higher than the dividend they declare. Moreover whilenon-return or delay in deposit invites penal consequences against the companymanagement u/s 58-A of the Companies Act, 1956, there is no such consequence fornon-declaration of dividend. So it makes fear that the proposed amendment mayeven be availed of by errant companies to dilute their legal obligations.

InEngland, there is no bar on issuing non-voting shares, but such a provision wascriticised even in the report of Jenkins Committee (1948) where the minoritytook a view that there should be prohibition on the listing of non-votingshares. Although English stock exchange rules do no ban NVS altogether, they dono encourage listed companies to create NVS either.

Soissue of NVS should not be allowed.

12.  

Clause2(60) of the Companies Bill 1997 states : ‘shares with differential rights’means a share that carry with it differential rights as to voting, return ofcapital, or combination or any of them’. This clause permits issue of equitywith full voting power, or with no rights to vote, or with, say, only 10 percent voting rights. However, clause 76 defines ‘equity capital means … allshare capital which is not preference shares.’

13.  

Clause98 proposes to discontinue the current system, viz., that a company whichrefuses a registration of share transfer is required to apply to the CLB forconfirmation and leaves the onus on the share transferee to appeal. This changeis against investor interest. Investors generally lack knowledge and resource toapproach judicial authorities. So it is suggested that where there is anyquestion of law, it should be the responsibility of the company to refer thematter to CLB. However, procedural objections like signature difference,incomplete transfer form etc should allowed to be rejected by the company itselfand without referring it to any authority. For example, some time ago, ashareholder Mr Deepakkumar Jayantilal Shah had lodged 5 transfer forms with oneshare certificate. This case involved consideration of fact of law and was notof routine nature.

14.  

Sharevalues are no longer restricted merely to the earlier denominations of Rs 10 orRs 100 provided shares of the company are in compulsory demat list. Although itis providing freedom to the companies, at times it creates very anomaloussituations. Zee TV seems sheer cheaper at Rs 500 in comparison to king HindLever at Rs 2500. Companies should allowed to issue only Rs 10 face valueshares.

15.  

Atpresent, number of buyers in shares can be a maximum of three. After theintroduction of nomination facility, shares can preferred to be held in the nameof one person. So if the number of buyers are restricted to only one, it will bea great relief for companies because some persons prefer to hold shares in jointnames in different orders to make more persons eligible for attending generalmeetings for gift purposes. Multiplicity of folios makes useless burden oncompanies for sending annual reports, dividend warrants and other communiqués.

16.  

Itshould be made obligatory for companies to mention about the status and amountof payment of PF.

17.  

Theprocedure for obtaining duplicate share certificates against not tracable / lostshares should be definite one and be prescribed in the Companies Act itself.Further, duplicates in respect of shares of small value say Rs 5000 should beissued after some minimal formalities. Some time ago, I had lodged one equityshares of some company (market price around Rs 50) and the same was got losteither by the company or in transit. The company required me to executeindemnity bond, affidavit and further to send them a demand draft of Rs 500towards advertisement cost.

18.  

Itis a much debated question that the companies have to incur a hefty sum onsending annual reports to its shareholders. Companies are treating it asunavoidable evil. The annual report, which is a waste booklet for most of theinvestors, costs companies even in crores. Let aside monetary value, it has agreat grand negative effect on our already degraded and degrading environment. Iam very much concerned and interested to reduce this wasteful expense to thecompany, save the environment and at the same time, to offer full opportunity tohave complete information and annual report to interested shareholders. It issuggested:

Acolumn should be inserted in transfer deed in lower buyer’s portion, inaccount opening form with DP, in application forms in case of public issues, inrenouncee’s portion in case of rights issue requiring the option to be filledin by the investors as to whether the investor is interested in having copies ofannual report. Further, by adopting this mechanism, since copies of annualreport would be sent only to interested persons, abridged annual reports shouldnot be permitted.

19.  

Themost common problem being faced by the transferors is objection of signaturediffer. Various measures have been taken up by many authorities to solve thisinsurmountable problem. Yet it could not be fully solved. So some definitemeasure should be specified in the Companies Act. The measure may be:

a)     Purchase and execution of an affidavit declaring the sale of shares inquestion by transferor. Affidavit should be purchased by seller from his owncity and to be attested also from same city where he resides.

b)      Thereafter registered notice should be given to transferor by company.

20.  

Theamount of listing fees paid stock exchangewise should required to be mentionedin Directors’ Report.

21.  

Everyshareholder is not in a position to attend the AGM personally due togeographical widespread and paucity of time and resources. Further AGM is aone-time-affair-in-a-year. If a shareholder is desirous of obtaining someadditional information from the company by correspondence, it has been noticedthat most of the companies refuse to provide the required information to theshareholders saying that there is no specific provision in the Companies Actwhich forces companies to provide such information. So suitable amendment inCompanies Act is requested.

22.  

Ithas been noticed that minutes of general meetings contain only the resolution,name of the proposer and seconded by. The deliberations and debates carried onin the meetings are conveniently skipped from the minutes. This is not a healthypractice. Companies should required to give all the factual information aboutthe conduct of the meeting and not merely text of resolutions and yes, no withregard thereto. Further if any shareholder wishes to get his dissent recorded,it should be. Specific amendments in Companies Act are required.

23.  

Unclaimeddividend warrants are required to be transferred to Investor Education andProtection Fund after the expiry of 7 years from the date of declaration. Thisperiod of 7 years should be reduced to 1 year. Before transfer, it should bemade obligatory for the companies to send individual information to suchshareholders advising them to claim the dividend amount before the transfer.

24.  

Thereshould be no provision for conversion of shares into stock and vice-versa. Theseprovisions are useless and are useful only for academic exams.

25.  

Allowingcompanies to buy-back their own shares certainly offers tremendous opportunityto companies to manipulate their share prices. Some time ago, Atlas CycleIndustries Ltd was very quick to announce its decision to buy its shares back @Rs 300 per share. Market price at the time of announcement was around Rs 60.Thereafter, the share price had regular kiss with upper circuit breaker for manydays consecutively. Now again the vibrations in shares price of Atlas havesettled and price again has settled at Rs 60 after touching a high of Rs 200.Who have benefitted? Not the shareholders who have to tender the shares forbuy-back, but the operators only. Buy-back is a great mistake allowed by CompanyLaw. Companies are increasing their equity by issuing bonus and / or rightsshares and we are talking of buy-back. Who is interested in these petty matters.Apparently nobody.

26.  

Theshareholders should have the opportunity to receive copy of Memorandum andArticles of Association of the company at the earlier price i.e. Re 1 u/s 39 ofthe Companies Act, 1956. This price is nothing if we consider the costs to thecompany. However, it is not demanded by every shareholder. Average is less thaneven one share per company per year.

27.  

Thecharges for obtaining extracts of various types of registers have been fixed atRe 1 for every hundred typed words. Now data is not typed on manual typewriters.Either computer print-outs or photocopies are provided. So the charges should belinked not to the number of words but to the quantity such as at the rate of Re1 for every printed / xeroxed page.

28.  

Theprocedure for approaching CLB or any other concerned authority should be simpleand personal attendance of aggrieved or opposite party should not be compulsory.Parties should be free to lodge their written statements by post. Aggrievedparty should be allowed to file complaint with charges of say, Rs 1000. In casethe aggrieved party is able to establish his claim, the charges paid by itshould be reimbursed by the opposite party. In case the aggrieved party fails toprove its claim, the charges should be forfeited.

 

Tothese suggestions, I expecting your immediate response by registered post /courier.

 

Withkind regards,

 

Yourssincerely,

 

(B.B.GÖYÀL)

 

 

 

To

   Mr  Vinod Bansal

    Managing Director

    Kinetic Trust  ltd

    1406, Vikram  Towers

    16, Rajendra  Place

    NEW DELHI- 110 008

 

    011 - 5730009, 5783224

    Fax #  5750460

 

 

Dear Mr  Bansal,

 

I am in receipt of a copy of annual report of the Company.  I  am  giving  herein below  some  of  my  observations:

 

VENUE OF  THE  MEETING

Last year,  AGM  was  held  at  Hotel  Cheveron, Ludhiana.  This  year,  the  AGM  is  going  to be  held  at  some  D - 85, Phase VI, Focal  Point, Ludhiana,  which  if  I  am  not  wrong,  is the  Registered  Office  of  M/s  D.D. Steel  Castings Ltd.

 

I had the privilege of meeting with your goodself at Delhi  last  year.  You  have  told  that  money of  shareholders  is  Holy-Money  for  the  Management and  all  your  efforts  are  towards  service and  profit-maximisation  for  shareholders.  If  that is  so,  why  you  have  chosen  “Focal  Point” for  AGM.  There  is  no  doubt  that  the Company  will  be  making  a  saving  of  few hundred  or  thousand   rupees  by  holding  AGM at  such  a  distant  and  industrial  place, but  you  will  kindly  agree  that  the  Company will  be  losing  the  faith  and  confidence of  shareholders  in  this  way,    who, I  agree,  are  very  meager  in  number.

 

AGENDA ITEMS

 2nd  and  3rd  items  of  agenda  for  AGM  read as  under :

 

QUOTE

2.  To  appoint  Mr  Rajesh  Arora  who.....................

3.  To  appoint  Mr  Deepak  Gupta  who...................

UNQUOTE

 

From the  notice,  it  is  very  difficult  to  ascertain that  for  which  office  and  designation,  Mr Rajesh  Arora  and  Mr  Deepak  Gupta  are  to be  appointed.  So  these  two  items  are  very vague  and  imprecise  in  nature.  Though  these cannot  be  treated  as  unlawful,  these  can safely  be  assumed  of  no  value and significance.

 

Further, as  you  are  well  aware  that  as  per provisions  of  Section  256 (3),  a  Company  may fill  up  the  vacancy  of a director by  appointing the  retiring  director  or  some  other  person in place thereto.  This  is  the  reason  that  resolutions for  reappointment  are  drafted  in  following  way :

 

“To appoint  a  Director  in  place  of  Mr............., who  retires  by  rotation  and  being  eligible, offers  himself  for  reappointment.”

 

For the  aforesaid  two  reasons,  it  can  be  treated that  there  is  no  specific  item  for  appointment of  directors  in  place  of  those  who  are retiring  by  rotation.

 

Will you  kindly  issue  fresh  notice  to  the  members carrying  abovenoted  amendments?

 

 

CLOSURE OF  REGISTER  OF  MEMBERS

The Register  of  Members  is  to  be  closed  between 19th  and  22nd  September  1997,  whereas  the AGM  is  to  be  held  at  25th  September 1997.

 

As you  know,   every  Company  closes  its  Register of  Members  starting  on  any  date  but  ending with  the  date  of  AGM,  though  I  agree it  is  not  statutorily  required.  Then  why the  Company  has  closed  the  Register  between other  dates ?

 

Further one  more  question  arises  as  to  who  will entitled  to  attend  the  AGM  if  the  shares are  sold   and  subsequently  lodged  for  transfer on  23rd  September  1997.  It  can  be  said that  its  Register  of  Members  as  on  25th September  1997  is  to  be  ascertained  for this  purpose.  As  you  know  that  in  such a  case,  entitlement  to  attend  the  AGM  will depend  upon  the  Company  as  whether  it  register transfer  of  shares  before  that  date  or not.

 

DIRECTORS’S REPORT

The Directors’  Report  is  addressed  to  M/s Kinetic Trust  Ltd  and  it  starts  with  “Dear  Shareholders”. Kinetic  Trust  Ltd  is  not  a  shareholder of  the  Directors.  The  report  should  be addressed  to  the  shareholders.

 

 

FINANCIAL RESULTS

Financial Results  as  reported  in  Directors’  Report  are as  follows :

 

Particulars

Y.E. 31.03.97

(Rs. in Lacs)

Y.E. 31.03.96

(Rs. inLacs)

Sale

1336

1148

Profit before  depreciation

7.67

19.43

Less : Depreciation

6.16

1.98

Net Profit  tfd. to B/Sheet

5.89

11.00

Dividend

Nil

5%

 

As per  above  figures,  Profit  Before  Depreciation is  Rs  7.67  lacs  and  Depreciation  amount is  Rs  6.16  lacs.   If  we  deduct  Rs 6.16  from  Rs  7.67  lacs,  the  figure  will be  Rs  1.51  lacs.  However,  the  Directors’ have  chosen  to  show  Net  Profit  as  Rs 5.89  lacs  in  their  Report.

 

PERFORMANCE OF  COMPANY

Increase in  turnover  from  Rs  1148  to  Rs  1324 lacs  have  been  stated  as  “Your  Company has  continued  with  the  trend  of  growth”.

 

The Company  is  not  engaged  in  any  production activities.  So  increase  in  turnover  cannot  be termed  as  ‘Growth’.  Further  as  you  know, Stock-in-trade  as  on  31.03.97   is  nil  as against  RS  34.23  lacs  at  the  commencement of  the  year.

 

PARTICULARS OF  EMPLOYEES  U/S  217 (2a)

There  is  no  heading  to  the  information  provided regarding  Particulars  of  Employees  u/s  217 (2a).

 

BALANCE SHEET

APPROPRIATIONS- PROPOSED  DIVIDEND

Proposed dividend  for  both  the  years  i.e.  for  1995 - 96 and  for  1996 - 97  is  given  as  nil.  However, there  is  an  entry  for  Rs  7,18,815  towards Dividend  Paid  (F/Y 1995 - 96).

 

DCA Circular  :  A  company  is  statutorily  required to  provide  for  proposed  dividend  in  its profit  and  loss  accounts  to  show  the  same under  the  head  “Current  Liabilities  and  Provisions” in  the  Balance  Sheet.   Failure  to  make such provision in the accounts amounts to contravention of scheduleVI read with Section 211. It is also the duty of  the  auditors to bring outclearly in their  report  (Circular  NO.  3/124/75-CL-V, dated 22.11.1976)

 

ICAI Guidelines  :  Where  the  provision  for  proposed dividend  has  not  been  made,  the  fact  should be  disclosed  by  way  of  note  in  the accounts  and  the  auditor  should  make  a suitable  qualification  in  this  regard.  (ICAI Guidance  Note  on  Provision  for  Proposed  Dividend).

 

Auditors’ Failure  :  As  you  know  that  besides  the Board,  Auditors,  M/s  Kathpalia &  Associates,  too failed  to  point  out  this  deficiency.

 

These queries are required to be replied within aperiod of 7 days from the receipt of this communiqué.

 

Thanking you,

 

Yours sincerely,

 

 

(B.B.GOYAL)

 

Copyright © 2003 www.bbgoyal.com    Best viewed at 800x600 resolution