Page 39 - Banking Finance June 2017

ARTICLE

What's more, the new company law also eases procedures Going by the Corporate Affairs Ministry's assessment: if ev-
for mergers and acquisitions within India. Without going to ery company that is qualified for doing CSR actually does so,
a court or tribunal, a holding company and a wholly-owned then Rs.15,000 to Rs.20,000 crore would be spent in a year
subsidiary can merge with just the Union Government's on various projects such as environment, skill development,
permission. There will be faster decisions on approvals for water and sanitation, with built-in safeguards to ensure
M&As, making corporate restructuring smooth and effi- they are not circumvented. Rajesh Dedhia, Director, Van-
cient. tage Institute of Financial Markets, a listed BSE entity, ob-
serves that the CSR provisions could have a "cascading im-
On a macro basis, the new Company Law is slimmer with pact" on philanthropy.
470-odd sections. But the subordinated legislation - Draft
Rules - will be the real test on whether the new corporate Even in case of donations made to external agencies or a
framework is truly heralding a shift from control to self-regu- foundation set up by the company, it can be argued that it
lation. Experts maintain that almost 75 per cent of the pro- is a bonafide business expenditure which should be allowed
visions in the new law are to be administered through the fully as a deduction under section 37 of the I-T Act.
Rules, a clear pointer that Parliament and Indian law mak-
ers will have little to do regarding Company Law per se in Avers KPMG's co-head (tax) Punit Shah: "The Supreme
coming years with most changes possible through the ex- Court, in case of a donation made by a company to a public
ecutive. welfare fund, had held that the donation was directly con-
nected or related to the company's business. It resulted in
More empowerment a benefit to the carrying on of the business and was allowed
as a business deduction. The same tenet should apply to do-
Another interesting facet of the new law is that it has de-
fined "fraud" and dealt extensively with it. The earlier Com- nations under the company's CSR policy."
panies Act did not define "fraud" or corporate misconduct.
With an increase in corporate frauds in India, this may be Concluding Remarks
the right approach as this law gives more statutory powers The Companies Act, 2013 is a progressive and forward look-
to the government's investigative arm Serious Fraud Inves- ing which promises improved corporate governance norms,
tigation Office (SFIO) to tackle corporate fraud. enhanced disclosures and transparency, facilitation of re-
sponsible entrepreneurship, increased accountability of com-
Even as CSR spending envisaged in the new law is not spe- pany managements and auditors, protection of interest of
cific to benefiting only employees of the company or their investors particularly small and minority investors, better
family members, it is seen as employee-friendly in some ways shareholder democracy, facilitation of corporate social re-
because it stipulates that firms must disclose the difference sponsibility (CSR) and stricter enforcement processes.
in salaries of directors and that of the average employee.
In turn, this will protect the interests of shareholders as well By all means, the new Companies Act, 2013 is a step to-
as employees. To safeguard workmen, the new law also wards globalization and successful attempt to meet the
mandates payment of two years' salary to employees in changing environment. It is expected to facilitate business
companies that wind up operations. friendly corporate regulation, improve corporate gover-
nance norms, enhance accountability on the part of corpo-
Based on available data, the new regulation would mean rate and auditors, raise levels of transparency and protect
that the top 100 companies by annual net sales in 2012 will interest of investors, particularly small investors. As Indus-
spend Rs 5,611 crore on CSR activities, compared with Rs try Body FICCI says that the New Company Law will revolu-
1,765 crore that they are spending now, according to a tionize the administration and management of businesses
Forbes report. The state-run firms account for a significant in times to come.
portion of current CSR spending. So much so, that central
public sector enterprise which were subject to CSR norms Now, let us see the Change that is going to Change the entire
under separate guidelines, have now come within the pur- corporate affairs with sustainable growth and great ac-
view of these new provisions. countability besides transparency. T

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