Discussion 1 - Doing Business in India is Hard - Proposed Solutions

Hi Rajendra Sir, i am waiting for Response/Suggestions how to prevent misuse of Govt vehicles for personal Use. Best Regards Marthesh.G.S. 9886264750

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Lot of detailed info. I thought the published white paper in Thought Leadership covered the key issues pretty well. God job to all.

Scrap the Companies Act, 2013 as it is un-constitutional I am making a white paper to be presented to the new PM and the concerned ministers. I have jotted the main points. You are requested to go through the same and suggest changes/ corrections/ additions/ deletions/ examples as you deem fit to make it effective to serve the purpose. It is the need of the hour to undo the wrong done by the previous government. Your help will be highly appreciated. The new company law i.e The Companies Act, 2013 is a defective piece of legislation. It needs to be scrapped right away and the Companies Act, 1956 should be restored right away for the following reasons: 1 It has drafting errors/ anomalies/ defects; Some examples as under: “Independent director” is defined in section 2 sub section (47): “independent director” means an independent director referred to in sub-section (5) of section 149. Sub-section 5 of section 149 reads: (5) Every company existing on or before the date of commencement of this Act shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of the provisions of sub-section (4). The definition is actually placed in sub-section 6 of section 149: “(6) An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director, . . . . .” It may be a typing mistake. However, is it expected from a legislation of parliament? In table F sub clause (ii) of clause 39 reads: “(ii) The sum aforesaid shall not be paid in cash but shall be applied, subject to the provision contained in clause (iii), either in or towards— . . . . .” However, there is no sub clause (iii) in clause 39. 2. it is un-constitutional; A private limited company’s membership is limited to 200 members, it is prohibited from issuing shares to public and it can put restriction on transfer of its shares. Apart from this it does not enjoy any privileges it used to enjoy under the Companies Act, 1956. Without giving any reasonable cause, a private company which is normally a family owned organization is required to operate with the stringent laws applicable to public and listed companies. It cannot even accept loans from shareholders and the family members of directors. Interested directors cannot participate or vote. To appoint a director a security deposit of Rs. 1 lakh is mandatory. The MD/ WTD can be appointed for only five years. The notice period for General meeting is 21 days. It cannot have differential voting shares. Loan to directors is prohibited. Anyone can be appointed a proxy. Auditor rotation in five years. In addition there is a plethora of resolutions to be filed with RoC on different matters. Effectively there is no difference between a private company and a public company. A public or listed company has so many professionals at its disposal to look after its affairs and can afford to incur huge cost. However, a small company cannot sustain all these and surely going to collapse with the huge burden of compliance. 3. It was implemented in a wrong way; A mammoth piece of business administration law was implemented in piece meal way, like an insignificant thing. First 98 sections (in part) were notified. The reason given was that these provisions did not need any rule making and therefore it was justified. It created more confusions as experts had no clue how to comply with or interpret the new law. When you are taking your lunch if roti and rice are served first and the dal and curry are served next day, would you be able to take your lunch? 4. it was implemented during the currency of election code of conduct; More than 180 sections were implemented wef 1st April, 2014 when the elections for the Lok sabha were underway and the election code of conduct was in operation. Even though the special permission of the election commission was obtained, it is not justified by an outgoing government to implement such an important legislation which affect the business. Already the businesses were looking down due to the wrong policies of the UPA2. 5. the rules are over-riding in many cases; In many cases the rules are over-riding the main law. A delegate cannot do something for which he has no power. However, the Central Government has overstepped its authority and did things for which it had no power to do. Examples: 6. the draft rules were changed without any reason; The draft rules were published for the comments of the public. However, many rules were changed without any reason. Example: Draft rules: The Companies (Acceptance of Deposits) Rules, 2013 (b) “Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include- (viii) any amount received by a private company from a person who, at the time of the receipt of the amount, was a director of the company or any amount received from its shareholders: Notified Rules: The Companies (Acceptance of Deposits) Rules, 2014 (c) “deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include – (viii) any amount received from a person who, at the time of the receipt of the amount, was a director of the company: Comment: In the draft rules deposit from shareholders of private companies were not included in the definition of deposit. In the notified rules deposit from “shareholders” of private companies were included in the definition of deposit. 7. the forms are defective; The forms have not been drafted properly. 1. Form INC 1: An applicant seeking name for a new company need to provide his land line telephone number compulsorily. How come in an era or cell phones, it can be made to compulsory to have a land line number. 2. A director has to furnish his identification details and much more if he takes shares as a subscriber at the time of incorporation. While taking DIN a person gives all his identification details. Further, director plays a bigger role in a company as compared to a shareholder. One fails to understand why he has to give the same and more details again to become a shareholder. 8. multiple forms are required to be filed for one single event; For appointment of KMP one needs to file three forms i.e. MR 1, MGT14 and DIR 12. In an electronic era of online filing and databases, it looks childish and highly un-acceptable as it requires companies to file multiple forms, pay more fees and incur liabilities on multiple points which are un-necessary and avoidable. Only a monopolist like a government can afford to do that and get away with it. 9. It was implemented to create fear in business community and punish them; It was implemented to create fear and to punish business community who was largely supporting the present PM. 10. It is unreasonable; A new director contesting election is required to deposit Rs. 1 lakh as security. It is mandatorily applicable to private, public and listed companies, equally. However, all these categories are distinct and cannot be made to follow similar provisions. A better way would have been to give choice to the company to include a provision in its articles. 11. Filing of a number of resolutions of the Board; There is a big list of resolutions to be filed with RoC day in and day out. Even small and private companies have to file all of these resolutions which may not serve any big purpose. However, it creates a lot of work for the management of small and private companies who have no adequate expertise to do all this and shall go on spending a fortune to stay compliant.

Why not the Govt agencies like District industries Centers develop land, sheds and provide electricity and water with good roads to prospective entrepreneurs for a long lease like in China. This will allow the technocrats to concentrate on machinery, process and marketing areas instead of infrastructure.