Assocham Seeks Cos Bill Changes To Give Domestic Firms An Edge

The Associated Chambers of Commerce and industry (Assocham) has called for enactment of the new company law during the winter session of Parliament after incorporating a few changes in the companies bill, 1997, to sharpen the competitive edge of domestic corporates.

A background paper, prepared by the chamber for the two-day All India Tax & Company Law conference starting in New Delhi on November 21, has pointed out that inordinate delay in its enactment has put industry to considerable disadvantage as the present Companies Act is not in tune with the new economic regime of decontrol and deregulation.

The conference will discuss the Income-Tax Act, Companies Bill, 1997, insider trading, redrafting central excise law etc. According to Assocham, while the flexibility proposed in inter-corporate loans and investment by merging limits and making them interchangeable within the overall ceiling is welcome, the ceilings should be removed altogether to facilitate corporate restructuring.

The bill has not incorporated recommendations with regard to buy-back of shares either for treasury operations or reducing the share capital. Allowing buy-back of shares for treasury operations would help firms fight hostile take-over bids and in restructuring to increase competitiveness, says Assocham.

The bill requires that the shares be extinguished after they are bought back subject to the debt-equity ratio not exceeding 2:1. Since the ratio is bound to be different for different industries, the restriction is uncalled for, says Assocham.

According to the chamber, alignment of the two sets of depreciation rates as proposed in the new bill will have detrimental consequences for companies, share prices, capital markets, shareholders, small industries, banks as well as financial institutions.

The practice of having different rates and methods of providing for depreciation under the Income Tax Act and the Companies Act has served a useful purpose and should continue, says Assocham.