COMMON SEAL – Relevance in Today’s Corporate World

The Common Seal – often referred to as the signature of the corporate entity is more often than not deemed as the substantial mark of identification for the corporate entity in question. However, in today’s computerized corporate scenario, Common Seal has lost its gloss and has come to exist more as a ritual than a requirement. Today, Common Seal hardly used in any document other than the Share Certificates and even this is been reduced on a day by day basis with the advent of “Demat Accounts”.

Common Seal and the Provisions in Law:

a) Section 34 of the Companies Act, 1956 specifies that every company on incorporation should have common seal for corporate use.
b) Article 84 of Table A of Schedule I of the Act also indicates that the board shall provide for a Common Seal and this seal shall be affixed on a document only on the authority of the Board or a Committee of the Board, and also specifies the process to be adopted for any such affixation.
c) Section 50 empowers the companies to have official seal for use outside India.
d) The guidance note on Compliance Certificate also specifies that the companies should maintain a register of documents sealed containing the information on date of sealing, details of the document, people in whose presence such document was sealed, etc.
e) Companies (Issue of Share Certificate) Rules, 1960, provides that all share certificates of a company are required to be issued under the Common Seal.
f) SS-8 Common Seal of the company has a very critical importance in the functioning of the company. It is the signature of the company to any document on which it is affixed and binds the company for all obligations undertaken in the document.

Rules and Regulations around the usage of Common Seal

1. At the first Board Meeting of the Company, the common seal of the company is adopted by means of a resolution.
2. The common seal of the company must be under the safe custody of authorised director/officer.
3. A Board Resolution should be passed for affixing the Common Seal in any instrument. A committee of directors may also authorise the affixing of Common Seal. The resolution must also authorise at least two directors and the secretary or other persons who shall sign the instrument in token of their presence.
4. The authorised person shall sign and affix the Common Seal on the document/ share certificate(s) in the presence of the authorised directors/secretary.

The provisions above indicate that the framers of law expected the management of companies to seal every document requiring the approval of the company in line with the then prevailing English Law. This might have been relevant and apt during the pre-computer era, but with the electronic communication gaining momentum and the rise of dematerialized share certificates, the need to have a Common Seal needs to be revised. The seal in fact, is a relic of the days when medieval barons used their rings to make a characteristic impression as their approval.

It is not compulsory that common seal should be of specific shape or metal but the company name should be engraved on it. The use of seals, whether in wax, lacquer or embossed on paper to authenticate documents is a practice as old as writing itself. Apart from preventing forgery, the presence of an unbroken seal indicated that the sealed document had not been tampered with.

A look into the purpose and usage of common seal in current transactions is warranted to examine the real need for the law to have the concept of Common Seal.

Although the Companies Act continues with the regulations for a Common Seal, it is clear that failure to affix the Common Seal on any deed or document by itself will not absolve the directors of their liability. Failure to affix the Common Seal cannot be a ground on which the company can escape its obligations.

For all practical purposes, the common seal is as good as dead. Eventually, it is the overall circumstances of a given case that would weigh with the courts and not the mere affixation or otherwise of the Common Seal on a document or an agreement. Thus, the Common Seal of a company is no more as revered as it used to be. According to the Apex court, merely due to the absence of a resolution, the contract could not have been held to be invalid or illegal. Panchanan Dhara & Others vs Monmatha Nath Maity (Decd.) thru L.RS. [2006] 131 Comp Cas 577 (SC).

The Act does not say that it is compulsory for a Company to have a Common Seal. If a company is floated without share capital or with shares in electronic form, then it is not illegal for such company to operate without a Common Seal. There is no concept of Common Seal in partnership form of businesses. But in company form of business, it denotes the signature of the company and every company shall have its own Common Seal. Limited Liability Partnership form of business may have its own Common Seal, depending upon the terms of the Agreement.

The transactions today are just a click–away where real-time execution of documents takes place across various time zones, without even the requirement of face-to-face meet of the parties involved. There are very few cases today, where one of the parties insists on affixing the Common Seal, but that is not necessarily based on the requirement of a statute. Of course, in some cases where pre-structured documents mandate affixing the Common Seal, the use of seal cannot be dispensed with, unless by mutual consent of the parties involved.

The Government is currently finalizing significant and widespread changes to the Companies Act, 1956 through Companies Bill, 2009 in line with recommendations from various committees. As a part of this process, the merits of retaining the Common Seal as part of the statute book can be reviewed and probably dispensed with, to be in line with the existing global practices. However, it may be noted that in the New Companies Bill, 2009 Section 48 of the Companies Act, 1956 is retained as clause 21, while Section 50 of the same Act is scrapped.

Enactment to Law – Need, Viability and Implementation

The other day I received an email forward detailing approximately 1074 Enactments in force in India. It took almost an hour just to read the title of the Act and understand the subject to which it relates. The number is mind boggling when we realize that each Enactment has sections, sub sections, explanations, provisions and amendments.

Given the background, it is not surprising if one wakes up a fine morning and finds himself receiving a notice for violation of law, a law that he has never heard of!!! It is highly impossible for human mind to keep a track of all the enactments that apply to him in personal/ professional life. Even an expert may fail at times to comply with the laws of the land in such complex scenario.

On a lighter vein, an erstwhile judge, Justice Nani Palkhiwala mentioned that the law is made difficult for the layman to enable the survival of legal professionals. But today, the number of Enactments has increased to such a number, that it is impossible even for a legal professional to survive without the threat of non-compliance.

The constitutional ideology of India believes in passing an Enactment for each and every trivial issue, thus increasing Enactments in high numbers. These Enactments when combined with amendments, press notes, circulars, notifications and the specific terminology used in these contexts, make it highly impossible for human minds to comprehend.

The complicated Indian law further complicates the process of legal drafting thus making it impossible for a common man to either understand the law or draft a legal document. The skill of draftsmen lies in making his draft very clear with simple language restricting the use of complicated legal terms. More often than not, a new draft is just a variation of a previously prepared draft with minimal changes in the particulars section.

The Indian Constitution and law were drafted way back when India became independent. Though the constitution was “inspired” by the British law, it was well applicable to the erstwhile independent India. However, the scenario in the country changed over the past 60 years wherein India witnessed a transformation from agriculture based country to an industry based country and now to a technological base for the world.

In this scenario, most of the rules, regulations, laws and Enactments enforced on 26th January 1950 have become obsolete in every sense. There was an Enactment drafted in 1956 with a cross reference to a different Act. However, the Act in question is not available in black and white even with the law houses. In this case, the Enactment could not be put into practical use without actually referring to the Act.

In view of the same, there is an urgent need to make Indian Law more practical and sensible to cope with the current state of affairs. However, the law makers of the country turn a blind eye towards implementing new laws in the place of obsolete ones because it works best to support their political motives. As a result, an “Amendment Act” was passed whenever a law was found unsuitable for a particular situation.

Adding to the woes, implementing of the Acts passed by the Parliamentarians is an achievement in itself. The members on the Committees formed to draft the Bill are drawn from different classes who, in most cases lack the practical knowledge about the industrial trends and hence, in most cases; such drafts seem to be a write-up rather than a practical law. The drafts are passed by the Parliament and Bills once passed are thrust upon the users who end up cracking their brains to understand the brains behind the law.

When such a law comes into force, there is a general unrest in the industry and the lead Associations of the particular industry make a representation to the Law-makers who come up with Amendment, Rules or Clarifications adding up to the bulk of already existing law books in India.

On the other side, when such Act is passed, non-compliant parties pool in their resources to find a loophole in the law and ward off punishment as the law makers have to find how to deal with such a situation. Law Breakers are intelligent than Law Makers – True in every sense.

This is the very reason why most of the MNCs would insist on adopting their law subject to the jurisdiction of a court in their country in case of disputes before inking a deal with Indian companies particularly in the IT and ITES sectors, where India is a stalwart. This is a proof of non-belief that global majors shared about the Indian legal system when they have complete faith in manpower and the intellectual resources of India.

Instead, it would be more prudent for the law makers to repeal the existing law, and pass a totally new Enactment corresponding to practical requirements to the industry. Before passing a Bill, a draft can be circulated to the persons of high standing in the society like Associations who can foresee the difficulties at the proposal stage itself. The suggestions received from such wider circulation, can be incorporated in the draft and then passed by the Parliament. Such an approach will, to a large extent reduce the requirement of passing the Amendments, or issuing Departmental Clarifications or the like.

Also, it would be prudent to conduct a critical review of the existing laws in India and take steps towards reducing the Acts by repealing the obsolete ones, consolidating the similar ones, draft a single Act in place of numerous Amendments and so on.

A shorter list of Acts applicable to an individual or an entity will be easier to implement and restrict non-compliances and escapades from law. This would pave way for clearing all the pending cases in various Indian courts and a belief in the Indian legal system could be reinforced lest Indian legal system becomes a laughing stock in the days when India is shining in the global market.

ADHERING TO NON-MANDATROY SECRETARIAL STANDARDS????

Secretarial Standards – recommendatory but not mandatory!!! This in itself provides adequate reason and scope for non-adherence to Secretarial Standards. And this is the common scenario in almost every company today where in the Executive Management decides to cut-down costs by doing away with the ‘recommendatory’ Secretarial Standards. However, Accounting Standards are followed to the point because these are ‘mandatory’.

In such situations, what should be the ideal response from a Company Secretary – to invoke legal parameters or implement ideal practices? The best-suited response should be a combination of both.

The Companies Act and rules are procedural legislations, which provide the following framework:
- What a company can do??
- How the same can be done?
- What is not allowed?

This has paved way for the emergence of a “technical solution”, which is a viable solution within the framework of the prevailing law and then may add what would be a prudent corporate practice in line with the high professional standards, ethics, and the Secretarial Standards.

The Company Secretary should be more of a Conscious Keeper of Corporate Standards than being an intelligent and glorified clerk who keeps an account of legal compliance technically. The role of a Company Secretary is to find out the best possible procedure to cater to the requirements of the company all the while being within the framework of the Companies Act. A balancing act between rules, regulations, laws and Secretarial Standards is the prominent role of a Company Secretary in today’s corporate world.

Most of the practices outlined in Secretarial Standards such as approving the accounts by Circular Resolution, are “legal but not ethical”. However, after the extensive deliberations, the consensus is in favour of giving the legal/technical solutions coupled with what should be prudent corporate/ good governance practice.

In the Indian corporate sector, the unspoken word from the Company Management to the Company Secretary is observing law is your job; earning profit is our job. In such situations, the right course of action for the Company Secretary would be to provide a legal solution and depending on the counter-party’s inclination, advising on the applicable prudent practice would be the right decision.

However, the crux of the job is to justify the need for implementation of the Secretarial Standards initiated for the first time by the ICSI. It is crucial to prove that the proper implementation of the Secretarial Standards will usher in uniformity in divergent corporate practices. It is essential to understand that Secretarial Standards will facilitate good corporate governance in the country. Further, it is critical to convince that adherence to the Secretarial Standards will elevate the company's reputation in the corporate sector.

In the era where Corporate Governance is the buzzword in the corporate sector, it is not difficult to convince the managements about the utility and results of adopting the Secretarial Standards in the functioning of the company.

If the Company Secretary profession is to grow, have a respectable place in the corporate world then one has to follow legal jurisprudence. The Profession of Company Secretaryship has grown from Government Diploma to a full-fledged course and professional membership.

The onus is on the Company Secretaries to establish the Secretarial Standards as not only a pioneering movement, but also a noble endeavor. Standardization of practices is the need of the hour to establish a professional outlook about the Indian Corporate Secretary in the global economy. The progressive Corporate Houses in the country tend to make special efforts to show that they practice good corporate governance and implementing the Secretarial Standards has been one of the significant components of these efforts.

With more and more companies opting to implement Secretarial Standards, it should be easier for ICSI to convince the regulators to take into consideration the real practices in the sphere and give statutory mandate for the same.

Commercial and Legal Standing of Executive Directors vis-à-vis Non-Executive Directors

As per practical definition, Non-executive Director means any director who is not paid a salary. However, the Managing Director is termed as an Executive Director, even if he is not entitled for any salary emoluments. In view of these definitions, is there actually any significant difference between the Executive Director and the Non-Executive Director?

On commercial parlance, many companies practice to designate employees as Executive Directors, who are actually not on the Board of the company. In the absence of clear definitions in the Companies Act, 1956, it is a general understanding that any employee who is also a Director is called an Executive Director. But according to the regulatory requirements, an Executive Director is an individual holding managerial position and bestowed with decision-making powers for his whole-time service to the company. Further, Form 25C is required to be submitted for appointing a person as Whole-time Directors and the same is not required for Executive Directors.

Explanation to section 197A, it is cleared that a Non-Executive Director does not undertake to devote his whole working time to the company. Whereas an Executive Director in the nature of a whole-time director, extends his professional service to the company


The latest trend in the corporate sector is the appointment of an “Associate Director” of a particular department. However, there is no clear explanation as to whether an Associate Director will join the Board of Directors, whether Form 32 needs to be filed, and is this individual considered a Whole-time Director as he is engaged in the day-to-day business activity of the company? As the company cannot induct all the top Executives to the Board or designate them as Whole-time Directors, the idea of a new role called Chief Executive Officer (CEO) was initiated.

In the absence of any provision in the Articles of Association of the company, the Non-Executive Director is not obligated to tender his resignation to the Board and seek the acceptance from the Board. To ward off any future complications, such Non-Executive Director can send a copy of the resignation to the relevant Registrar of Companies.

Remuneration:

1. The company can pay up to 1% of its profits as remuneration to the Non-Executive Director without breaching the provisions of Schedule XIII, as the this Schedule makes provisions for the remuneration to be paid to Managing Director, Whole-Time Director and Executive Director.

2. Also, in case there is more than one Executive Director, then as per Schedule XIII the total managerial remuneration should not exceed 10% of the profits. However, the corresponding tabular representation should be followed for each individual separately as per the terms of the appointment.

3. An approval from the Central Government is required if the remuneration paid to the Non-Executive Director exceeds the limit set forth in Schedule XIII. If any Director holds any key responsibilities in the company, the prime test for payment of remuneration would be to check whether such Director be considered as a Non-Executive Director; because by virtue of the nature of work, such Director will be automatically treated as an Executive Director.

4. Only a Whole-time Director or an Executive Director is eligible for Sweat Equity Shares as per the provision of Section 79A

5. The premium paid by the company on "Employer – Employee Insurance Policy" for its Executive Directors and handing over the same to such Directors after three years will be treated as perquisite and will for a part of the relevant Directors' remuneration.

Conclusion:

However, in practice the appointment of Non-Executive Independent Director has become a arrangement of convenience with the idea of “Good Corporate Governance” going for a toss. Unless such Independent Directors have significant stakes in the company, it will be naïve to assume that they would be allowed / willing to assert their independence. After all, Non-Executive Directors do get attractive remuneration, not to boast of a good standing in the corporate society, and they would not jeopardize this opportunity by being too assertive or independent in real sense. Also, only directors with real involvement will take active interest in the affairs of the company and contribute to its obligations to shareholders, employees, customers, suppliers, etc.

Green Revolution- the Road Ahead

Green Revolution, the concept which made Punjab self-sufficient in food supply was one of the most successful initiatives in post-independent India. However, the success of this imitative was short-lived primarily due to the uncertainty looming largely over the complete agricultural sector. Insufficient supply of fertilizers, seeds, and pesticides, antiquated farming practices, declining yield and productivity, exploitative middle men, and un-remunerative prices to name a few, have clouded the success of the First Green Revolution in a big way. The next phase of agricultural development, euphemistically called the Second Green Revolution, will hinge on `Sustainable Agriculture'. With the advent of a ‘Corporate Culture’ in the agricultural sector, profitability is one of the most important elements of `sustainable agriculture'.

Role of Corporate Sector

It is widely considered that large-scale corporate agriculture is more effective than the present system of peasant farming. It is believed to greater efficiency, higher private investment and higher output, income and exports. The radically changing scenario in the agriculture sector after the liberalization of the economy has brought about greater market focus in the whole gamut of agricultural activities.

Second Green Revolution has brought about the changes in the farming methodology by introducing new technology to the agricultural sector. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras, Godrejs and MNCs like PepsiCo. All of these major Corporate Houses have enormous resources at their disposal and who have the technical know-how to change the face of Indian agriculture.

More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. The Corporate Houses are targeting at all aspects of this value chain – research and development, distribution of seeds, fertilizers and pesticides, enabling farmers to employ latest technologies, providing market information and credit facilities, contract farming, processing the produce, setting up cold chains and warehouses, transportation, retailing and exporting the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.

Corporate farming, most experts acknowledge, could be the answer to India’s agricultural crisis. This is true because it involves high expertise from the Corporate Houses that have the capability to manage risks and sustain losses as compared to small farmers. The biggest positive aspect of this approach is that is provides an assurance to the farmers that their produce will be purchased on a later date at a pre-determined price. This spreads the loss, if any, across to the Corporate Houses, who are well-equipped to manage the losses arising out of market and weather conditions.

Contract Farming – Future of Green Revolution

The future success of Green Revolution depends on the proper implementation and end-to-end acceptance of Contract Farming. This will ensure that the corporate sector will build backward linkages between agricultural research and development with seed selection and variety evolution and forward linkages between processors, marketers, retail chain, exporters, and consumers. It will generate gainful employment in rural communities and a steady source of income at the individual farmer's level with assured prices and markets.

The seasonality associated with rural employment will be neutralized with round-the-year agriculture-related activities, which in turn will reduce migration from rural to urban areas. Eventually, the food production in the country would increase making India less dependent on imports in the food sector.

The corporate sector will ensure that the farmers are exposed to world class technology, which would lead to better output of agriculture produce. It will also ensure crop monitoring on a regular basis to avoid untoward incidents arising out of pests and other malice. Uninterrupted and regular flow of raw material and protection from fluctuations in market pricing will be some of the other benefits of contract farming.

Regulatory Framework – Assured Success

A regulatory framework should be in place for implementing contract farming so that farmers are not short-changed by the big Corporate Houses. On the other hand, Corporate Houses should be assured of a return on their huge investment as a large number of small farmers come into the picture thus increasing the risk factor. Also, there is no comprehensive and deregulated crop insurance scheme in the country to secure farmers or Corporate Houses from the losses incurred on farming as a result of natural disasters.

Implementing tax deductions on investments made in creating extended services for participating farmers linked to the procurement of output will create new opportunities in the farming sector. The comprehensive legislation should be put in place to decide whether or not it is permissible to procure agricultural produce directly from the farmers. Waiving-off taxes or duties on import of agricultural equipment in a registered contract-farming program would introduce new technologies to a larger mass of people in the country. Measures have to be taken to abolish all fees, taxes, cess duties, and levies on procurement by a registered contract-farming program.

The number of corporations-domestic and MNC-making a beeline for the agriculture sector is on the rise. Making the most out of this new trend would ensure success of the metamorphic Second Green Revolution in India.

e-Choupal – Setting in new trends

Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was tobacco major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customized knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".

The globalization of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialize in supply logistics. Many companies are sourcing millions of dollars worth of fruits and vegetables all the year round as the market is very lucrative.

Conclusion

There is a visible change in the approach of the farmers, policymakers, intermediaries in the agricultural process and all other stakeholders for ushering in the `Second Green Revolution'. However, only those corporations that are equipped with technology, management expertise and financial resources are willing to face the challenges of the `Second Green Revolution'. Addressing the challenges would mean introducing a comprehensive legislative measure to create a win-win situation for the farmers and the Corporate Houses.

National Agricultural Policy, which envisages a big role for private sector through contract farming is expected to accelerate the capital inflow, which will assure a market for crop production within a fixed timeframe.

• U Padma Shenoy
• Company Secretary

LAW FOR MERGER AND ACQUISITION- A CRITICAL REVIEW

Introduction

The recent years has seen a considerable increase in the Merger and Acquisition (M&A) activity across the Indian Corporate Sector. India Inc., has emerged as the most strategic market for M&A for foreign players at the same when Indian Corporate bigwigs are eyeing major players on a global level. At the end of the day India, Inc., stands to be the largest gainer.

The M&A activity in India is governed by numerous cumbersome laws and regulations that it leaves ample space for misinterpretation. Even the largest of the Investment Banks lives in the fear of that it might overlook one of the basic rules of compliance and attract negative coverage in the media.

Recently, the Indian Income Tax Act, 1961 entered the Guinness book of world records for registering maximum number of amendments. The amendments to the Income Tax Act, 1961 is so cumbersome and unclear that it leads to many interpretations. In one of the high-profile cases a local tribunal erred in interpreting the judicial decision of a higher court and as a result the company had to file and re-file the tax applications. In the meantime, the permissions granted by other regulatory authorities lapsed and the company had to repeat the exercise resulting in enormous wastage of time and money.

Cases such as the above actually keep out the foreign players from being the strategic players in the M&A activity in India. In India, the M&A activity takes approximately six to seven months to reach completion. The reason being the long list of compliance requirements, which calls for liaising with various regulatory bodies to complete the M&A activity.

Overview of the Regulations

A broad overview of such compliance requirements includes the following:

The Ministry of Corporate Affairs: Regulates compliance under the Companies Act, 1956. The Ministry is governed and still dwells into law that was enacted five decades earlier and maintains a long list of documents for every small change in the nature of company and its management.

Rules of Taxation: Draws the power from the Indian Income Tax Act, 1961. The slabs for taxing the capital gains and treatment for accounting entries during M&A are very complicated. Ensuring compliance with all the listed provisions, sub-clauses, and amendments is a Herculean task.

SEBI: Regulates the Indian Stock Markets and draws power from the SEBI Act to ensure proper functioning of the Stock market. Ketan Parekh made a fortune by cheating the investors in a big way under the nose of the very watchful SEBI. During M&A activity, it becomes extremely necessary for the participating companies to comply with the SEBI rules with considerable time being devoted to be safe from “intelligent” people like Harshad Mehta and Ketan Parekh.

Competition Commission: Took over the ‘traditional’ MRTP Commission but Competition Commission is still in the budding stages and is always the target for carrying out trial and error process in a move to ensure healthy competition in the Indian Corporate Sector.

FEMA: Enactment that regulates Foreign Exchange in India with FIPB and the RBI being the regulatory Authorities. The regulated cap for foreign investment is highly volatile. In a recent case, a medical equipment company of US wanted to set up its base in India. Mid-way through the process the company realized that it missed out on the long list of reserved items in the SSI category. The company intended to make equipments made of stainless steel for use in the dental clinic, which is a reserved item for SSI. The company applied for exemption and the Ministry is yet to respond

Indian Stamps Act: Compliance with act is a difficult task for foreign investors as each State has its own set of enactment for Stamp duties. The Stamp-duty regulations change at regular intervals and the companies have to assess the deal regularly to be safe for mistaken under-valued registration of the deal. In certain cases, there are huge differences in stamp value between two states within Indian Territory.

Apart from the ones discussed above, there are several Labour Laws, Sales Tax, Custom Duties, etc. that require clearance at every stage. And compliance with sector specific regulators such as TRAI for Telecom industry and IRDA for Insurance sector, add up to the woes.

Each regulating body has its own set of enactment and regulating rules that makes compliances a real nightmare. Each Ministry issues a Press Note/ circular or notification, which are not in tune with those issued by their other relevant Ministry. This increases the chances of landing in a situation where compliance to the notification from one Ministry might end-up in non-compliance to the notification from another Ministry. Additionally, there exists clarification or corrigendum, which complicates the issue further. The requirement for approval from High Courts in addition to the approval of stakeholders, make the complete M&A activity in India a long-thought process.

Cause and Comparison

The governing laws in India today were drafted during the early days of Independence when India was not even an industrial nation lest being the emerging economic super power. All the laws and regulations were drafted in line with the prevailing conditions during late 1940s with a vision up to the early 1960s. India Inc., has come a long-way during these years and has gone on to become one of the leading players in the global corporate sector. The sad part is that the “good old” governing law prevailing today proves to be obsolete in many cases with the base matrix having evolved long ago.

This is not to say that there are no such laws and regulations in other countries. The laws and regulations may be many but the time take to complete the process is very easy in developed countries such as the US or the UK and even in emerging super powers such as China and Japan. Most of the countries follow a single-window concept to provide all the necessary clearances. Also, any amendments to the law are made only after assessing the total impact on all other related laws.

The Indian Law mandates a waiting period of 210 days after the Merger plan is reported to the government before completing the deal as against the 30 day waiting period in the US. The US law also provides for reducing the waiting period if there are no competitive problems and the parties request an early termination; such a provision is not available in the Indian law.

Required Initiatives

J J Irani Committee Report proposed upgrading the Companies Act three years ago; however it is yet to see the light. There have been many instances where the Company Law is in conflict with the Listing Agreement and there is an urgent need to address such overlapping issues.

A single window clearance system can resolve many issues related to clearances from various authorities and a dedicated body to provide such service to M&A activity can help improve the situation. Further liberalization of Indian economy is required to ensure smooth transitions during M&A activity. This can be achieved by abolishing sectoral caps and approval of FIPB for share swap.

The most important thing required in this chaotic scenario is regularizing Stamp Duty slabs. A single slab for Stamp duty must be introduced to ensure uniformity in M&A transactions across all the States in the Indian Republic. Simplifying the tax procedures and reducing the tax incidence would attract more foreign investment.

The new Competition Law is not yet properly in place and all the regulators discuss is that the new law is sure to pose a threat to commerce in the country. The regulators have failed to introduce strong governing laws to bring India's M&A control regime in line with prevailing global trends.

Board Meetings through Tele/Video Conferencing

The latest technological developments have made their way into the corporate Board Rooms with more and more companies preferring to hold their Board Meetings via teleconference or video conference. The governing Act that regulates the manner in which the Board should be functioning is the Companies Act, 1956. This was drafted way back in 1956 when teleconference was unknown to the society and hence, there are no provisions or prohibitions pertaining to remotely conferencing Board Meetings in this piece of legislation.

Section 287 of the Companies Act, 1956 prescribes quorum i.e. minimum number of directors at Board meeting and section 288(1) prescribes procedure for adjournment for want of quorum. Section 299 requires disclosure of director’s interests at meetings. Section 301 requires placing register of contracts at meeting and signing it by directors. Regulation 71 of Table A requires every director to sign attendance register at the meeting of Board or Committee.

It is quite possible to comply with all the above-mentioned regulations and still hold a Board Meeting via teleconference. The Companies Act makes no specific provision that the Board Meeting must ensure physical presence of directors at a specified place. In fact, law-making authorities never perceived this problem when the law was actually made. Except for signing the register, all other requisites specified in the Companies Act with reference to a Board Meeting can be held if such a meeting is held via teleconference. Videotaping the Board Meeting is possible which in itself vouches for the presence of the quorum, thus serving to achieve the rationale behind the law to sign the register. There are many people in the industry who advocate Board Meetings to be held via teleconference or videoconference.

Definition: "conducting a meeting involving participants at two or more locations through the use of audio-video equipment which allows participants at each location to hear and see each meeting participant at other location, including public input. Interaction between meeting participants shall be possible at all meeting locations."

Department’s take on the issue as per Press Release dated 15.04.2002

1. The Ministry of Corporate Affairs (erstwhile Department of Company Affairs) proposes to make an amendment in the Companies Act, 1956 to enable companies to hold the Board Meetings through electronic devices such as video conferencing and telephone conferencing to take advantage of information technology.

2. The Department has received proposals to allow such meetings and it has held extensive consultation with various shades of opinion.

3. The Department has decided to allow such meetings of the Boards and its Committees.

4. However, DCA has also decided that there are some subjects of special importance that should only be decided or transacted by meetings in person i.e. "physical meetings". It is proposed to notify such subjects from time to time.

5. The Department feels that considering the advantage of "physical meetings”, it should prescribe a certain minimum number of Board meetings must be held in person. This would also be notified from time to time.

6. It proposes to regulate the new provisions through promulgation of Rules, which can be progressively liberalized or modified in accordance with the experience gained from time to time. These decisions have been taken on 'demands' received from various sectors keeping in mind the progressive globalization of the Indian economy.

An analysis of the pros and cons of holding Board Meeting through remote conference highlights the following points amongst others.

Advantages:

1. Frequency of meetings can be increased

2. Time and costs incurred on travel can be reduced

3. Fully interactive with all sites and the same can be recorded for the future requirements

4. Photos and color graphics look great on video and can help convey a difficult concept or simplify complexities

5. Some systems allow application sharing, allowing users at each site to see and edit a document. This kind of sharing encourages collaboration and real-time feedback

Disadvantages:

1. Technical problems such as connectivity, quality of voice and picture, authenticity of proceedings can cause disturbance

2. Costs incurred on taping and saving the meeting is considerably high

Video Conferencing in Other Countries:

Source: NEBRASKA OPEN MEETINGS ACT (1999, Cum. Supp. 2004)

Board Meetings can be held via teleconference or videoconference, provided the following conditions are met

1. Advance public notice is issued

2. Complete arrangements are made to accommodate the public's right to attend, hear and speak at the meeting

3. Arrangements are made for seating, recording the proceedings by audio and visual recording devices, and an reasonable opportunity for inputs from the public

4. At least one copy of all documents being discussed is available to the public at each site of the videoconference

5. At least one member of the public body is present at each site of the videoconference, and

6. No more than one-half of the public body's meetings in a calendar year are held by videoconferencing.

Conclusion

The Government may consider forming a committee of a Group of Experts to frame rules pertaining to remotely conferencing Board Meetings. The E-meeting should be permissible, if specific provision is made in Articles of a company by suitably amending the regulations. Normal resolutions may be passed in such meeting but not where disclosure by director or signing of register is required. An amendment to the existing law would ensure more and more companies to leverage the potential of information technology. This would ensure a whole new dimension to the traditional Board Meetings (that were held in a closed room) by increasing the participation. This would also ensure voluntary participation from the members rather than the mandatory participation and reduce overheads on travel expenses incurred on such meetings.

U Padma Shenoy

Company Secretary

CSS Technergy Limited

Hyderabad