Companies Act relaxations for GIFT City

They include 5-yr exemption from setting aside funds for CSR, easier norms for appointing directors

The Union ministry of corporate affairs has issued two notifications, giving major relaxations aimed at more 'ease of doing business' for companies wanting to operate in the GIFT City-based International Finance Service Centre (IFSC).

Gujarat International Finance Tec-City or GIFT is under construction on 360 hectares between Ahmedabad and Gandhinagar in Gujarat. The aim is to get finance and infotech companies from elsewhere to relocate here.

The relaxations include a five-year exemption from setting aside funds for corporate social responsibility, easier norms for appointing of directors, audit and other legal compliance.

Several companies, especially from abroad, have been waiting for relaxations in application of the Companies Act before taking a decision to come or not.

The two notifications, for private and public companies, have been issued under Section 462 of the Act.

The companies in IFSC have also been given administrative flexibility regarding filing of returns, forms, board reports, holding shareholder meetings, structure of holding company and key managerial personnel. General and board meeting rules have been relaxed and boards can pass certain resolutions through circular resolutions, without physical presence.

Restrictions regarding voting on related party transactions have also been relaxed. Also from internal audit requirements, on certain conditions. Public companies at IFSC have been exempted from appointment of a woman as director and of independent directors.

Nitin Potdar, partner at J Sagar Associates, who drafted many proposed amendments to the Companies Act for the GIFT IFSC, said, "There had to be a legal framework that would offer ease of corporate compliance in India and at least parallel to those prevailing in competing international finance centres like Dubai and Hong Kong." The Companies Act relaxations were a good beginning, he said. "Ideally, there should have been a separate Companies Act for IFSC companies."

The companies in GIFT IFSC will need to have their registered office there. At least one director should have stayed in India for a total of not less than 182 days in the previous calendar year.

Nishith Desai, founder of law firm Nishith Desai Associates and member of the Singapore International Arbitration Centre (SIAC), said: "This is a good beginning and efforts should now be made to set up a special court for dealing with the Companies Act and other disputes, including with regulatory authorities and for advance rulings." GIFT IFSC has already tied up for arbitration with the SIAC.

To attract more of private equity/venture capital funds and other investment funds, Desai suggested: "They should be allowed to redeem 100 per cent of shares and even pay dividend without the need to have profits or reserves, subject to solvency tests, as is the case in many developed jurisdictions."