SEBI & Corporate Laws

Corporate Laws: Recent News Snippets

MCA plans system in 2 months to detect fraud in early stages

According to an official of the ministry of corporate affairs, who did not wish to be identified, a seven-member internal committee headed by an additional secretary of the ministry of corporate affairs (MCA) has been working to evolve a mechanism of early detection of corporate frauds.  “The idea is to find out a set of parameters to identify the symptoms of fraud at its early stage so that no bigger debacle takes place at a later stage. A group of people in my ministry are already on the job,” minister of state (independent charge) for corporate affairs and minorities Mr Salman Khurshid said. He further said that the ministry would also look into past major events where there were indications of any irregularities.

Government reintroduces Companies Bill in LS

The government has re-introduced the Companies Bill, 2009, in the Lok Sabha, or lower house of Parliament. When enacted, this will bring about significant changes in the way business is done in India, make it easier to start and close businesses, and protect shareholders.  “The main objective is to delink the procedural aspects (of company law regulations) from the substantive law and provide greater flexibility in rule making to enable adaptation to the changing economic and technical environment,” said a statement issued by the ministry of corporate affairs, or MCA. The statement added that the new Bill would not have provisions in the older legislation that had become redundant.  “The new Bill is same as that was introduced last year and no new changes have been made,” said an official at MCA who did not want to be identified.  Work on the new Bill, which will replace a 53-year-old law, began five years ago.

MCA to ensure LLPs aren’t limited by law

The ministry of corporate affairs wants other ministries, state governments and sectoral regulators to recognise limited liability partnerships (LLP) after the LLP Act enacted last year.  The ministry will soon write to state governments to recognise LLPs for purposes of stamp duty. It will also ask various ministries such as commerce and the department of industrial policy & promotion (Dipp) to amend their respective laws, so as to accept LLP as a recognised business form.  In Budget 2009, the government announced that LLPs would be taxed like partnerships firms. The taxation of LLP income will be in the hands of the entity and the profit accruing to the partners will be exempt from income tax.

Sebi may let cos switch to international accounting norms

According to a Sebi executive privy to the development, listed companies will be shortly given the option to prepare their consolidated financial statement using IFRS while for standalone financials, the Indian GAAP will continue. Sebi’s move to offer the option to companies to switch is also in line with the mandatory requirement for public interest entities in India to comply with the IFRS from 2011.

An easier exit route in the works for LLPs

Within a year of allowing limited liability partnership (LLP) firms to be established in India, the government is revisiting their closure norms to permit more flexible and easier winding up of these entities. The ministry of corporate affairs (MCA) is doing this to make it consistent with the winding-up rules proposed in the Companies Bill, 2009. Under the proposed Companies Bill, a company can be wound up either by a tribunal or on a voluntary basis. Voluntary winding-up can be done by passing a resolution in a board meeting that declares that the directors have made full inquiry into the affairs of the company and either the company has no debt or the debts would be cleared by selling its assets. A tribunal is needed when a company is unable to pay its debts, if the company has acted against the sovereignty of the country or conducted the affairs of the company fraudulently. It is also needed if the company has defaulted in filing its financial statements, annual reports or other statutory statements.

Corporate affairs ministry set to repeal MRTP Act

It’s the beginning of the end for the Monopolies and Restrictive Trade Practices Commission (MRTPC) with the ministry of corporate affairs (MCA) set to notify section 66 of the Competition Act which will mean repealing the Monopolies and Restrictive Trade Practices Act (MRTP Act). Now, the Competition Commission of India (CCI) will take up cases relating to monopolies, and restrictive and unfair trade practices. CCI will be able to impose a penalty on companies it finds guilty of being part of a cartel or abusing their position. Such fines can be up to 10% of the average (three-year) turnover of the firm or companies involved. That is in contrast to MRTPC’s powers. MRTPC can only ask companies to refrain from such activities. CCI will also start looking at issues such as mergers and acquisitions (M&As) which MRTPC hasn’t been doing since 1991 after provisions relating to probing M&As were repealed.

Expert panel to draw road map for IFRS

The ministry of corporate affairs has formed an expert group comprising members from the Reserve Bank of India, capital markets regulator Sebi and the Insurance Regulatory Development Authority (Irda) to draw a road map towards India’s convergence with the international financial reporting standards (IFRS). The group, which also has representations from corporate bodies, will help in charting out an action plan for making regulatory changes that are required to harmonise Indian accounting norms with the IFRS. IFRS is a set of accounting standards already adopted by about 100 countries. India has committed to adopt IFRS by 2011. With less than two years for the country’s present accounting standards to get in line with the International Financial Reporting Standards (IFRS), the expert group will ensure that the government takes up timely changes on the legislative front so as to enable a smooth transition to IFRS.

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