Panel Wants Companies Act Reviewed Every 5 Years

1.2 In the early 1990s, the Government of India recognised that many provisions of the Companies Act had become anachronistic and were not conducive to the growth of the Indian corporate sector. Consequently, it made an attempt to recast the Act, which was reflected in the Companies Bill of 1993. Unfortunately, almost every constituent of the corporate sector, as well as banks, financial institutions and capital markets, felt that the 1993 Bill did not address the substantive issues affecting corporate functioning in a rapidly changing economic environment. Not surprisingly, the 1993 Bill was withdrawn.

1.3 In his Budget Speech of July 1996, Mr. P. Chidambaram, the Union finance minister, announced that a Group would be set up to re-write the Companies Act, and present it for public debate by early 1997. In August 1996, a Working Group was constituted. This is the Unanimous Report of the Working Group.

 

1.4 Before explaining the objectives of the Report, and the economic context in which the Act is proposed to be altered, it is necessary to state the composition of the Group. Unlike most committees or groups that are set up by the government, this Working Group has no chairman, and has functioned smoothly without any such titular head by pooling the Groups expertise. The members of the Working Group, in alphabetical order, are:

1. Dr K.R. Chandratre, the then President, The Institute of Company Secretaries of India.

2. Dr Omkar Goswami, Indian Statistical Institute, New Delhi.

3. Mr Rajendra S. Lodha, Senior Partner, Lodha & Co.

4. Mr D.S. Mehta, Advisor, Bajaj Auto Limited.

5. Mr S. Ramaiah, Retired Secretary (Legislative), Government of India.

6. Mr M.K. Sharma, Director (Legal and Secretarial), Hindustan Lever Limited.

7. Mr Shardul S. Shroff, Partner, Amarchand & Mangaldas & Suresh A. Shroff & Co.

Mr B.B. Tandon, the then Additional Secretary, Department of Company Affairs Convenor.

Mr Tandon was with the Working Group (or Group) until the very last month, when he left for a new assignment in government. The Group wishes to place on record its appreciation of Mr Tandons signal contribution. He was replaced as the Convenor by Mr T.S. Krishna Murthy, the new Secretary of the Department of Company Affairs. Mr Krishna Murthy participated in the last six meetings of the Group. In addition, work of the Group was aided by the participation and support of Mr S.B. Mathur, Director (Inspection and Investigation), Department of Company Affairs.

1.5 The Group, which held its first meeting on 12th August, 1996, has had 34 meetings. In the process, it has interacted with, and received responses from, representatives of RBI, Sebi, banks and financial institutions, merchant bankers, capital market players, stock exchange officials, industry associations, professional bodies, and others who significantly contribute to todays corporate environment.

Objective

1.6 The main objective of the Group was to re-write the Companies Act to facilitate a healthy growth of the Indian corporate sector under a liberalised, fast changing and highly competitive environment. The need of the day is to bring out the latent dynamism of Indian companies so that they can consolidate and grow, as also enhance shareholder value and thus become significant players in an environment that will result in even greater competitiveness with the advent of capital account convertibility.

1.7 While this objective is fine in principle, it is difficult to implement. In the past, many laws pertaining to the corporate sector, financial sector and capital markets have been characterised by a plethora of economically counter-productive controls with minimal enforcement. The Group has sought to achieve a balance that recognises an international trend: more flexibility and greater self-regulation, subject to better disclosure, more efficient enforcement and tougher penalties. Growth and flexibility are to be catalysed through many novel provisions and procedure introducing a more appropriate re-classification of companies, expediting mergers and de-mergers, enabling fast-track restructuring, removing barriers to creating economies of scale and scope, allowing for greater flow of inter-corporate loans and investments, recognising hybrids, derivatives and options as means of corporate funds, to name a few.

1.8 These enabling facilities are accompanied by judicious checks and balances. In the last five years, there has been a distinct move towards greater corporate transparency, thanks to the Securities and Exchange Board of India (SEBI), the Public Financial Institutions, credit rating agencies, electronic stock exchanges and, most fundamentally, the quality of the financial press and research analysts. The Group recognises this, and has proposed norms that will accelerate the trend of greater disclosure of relevant financial information.

Plan of the Report

1.9 In most part, the Report is structured as if a company were an organic entity, and looks at it through its life cycle from birth to eventual demise. Thus, Chapter 2 focuses on matters relating to the classification and incorporation of companies. This is followed by Chapter 3, which deals with issues that relate to raising of capital. Chapter 4 looks at the internal management of companies and non-financial disclosures to shareholders. In essence, it examines the role of management, the constitution and working of the Board of Directors, conduct of meetings and proceedings and some basic disclosures that must be made to shareholders. Chapter 5 makes important recommendations regarding accounts, audits and financial disclosures. Chapter 6 analyses issues relating to corporate restructuring of essentially viable companies, while Chapter 7 focuses on winding-up basically non-viable ones. Chapter 8 looks at monitoring and enforcement and the role of the Central Government. Chapter 9 concludes the report with

a summary of major recommendations.

Basic recommendations

a) First, the corporate scene is changing very rapidly, and will do so at an even faster pace in the future. Hence, it is essential that the Companies Act be reviewed once every five years. This will ensure that the Act retains the flexibility which is vital for sustained corporate growth.

b) Second, despite the best of intentions and adept drafting, laws tend to have the characteristic of being carved in stone. Laws do not change seamlessly with the times, while businesses do. Thus, desirable corporate governance and practices need legal support as well as evolution of internal standards where the more progressive elements of the corporate sector design best practices that are constantly up-dated to complement and enhance the legal provisions. Nations that have good corporate practices do not rely exclusively upon law; conversely, those with poor records have never evolved internal codes of best practice. Keeping this in mind, the Group has sought to distinguish between legal provisions that will be incorporated in the draft Bill and recommendations which ought to be followed by Indian companies in their best interests.

c) Third, it is desirable that the Report be widely disseminated and discussed in the course of the next few months. The Group commits itself to consider the various suggestions and responses before finalising the Bill that is to be eventually tabled in Parliament.

Chapter II: Classification of Companies

The new Act would have a more relevant three-fold classification of companies:

1. Private companies largely self-governing.

2. Public unlisted companies lesser government regulations than public listed companies.

3. Public listed companies greater flexibility in their operations than before, but with stricter compliance norms.

The new Act should make an explicit provision to allow Group Resource Companies to be incorporated with the objective of making available to the constituent members of the group the relevant services and expertise described above. To ensure that such a system does not become exploitative:

1. Group Resource Companies must operate strictly on cost sharing principles no profit no loss rather than on the basis of a share of the percentage of profits or turnover.

2. The costs incurred (if any) in using the services of a Group Resource Company must be clearly disclosed in the financial statement of the user company.

3. The definition of a Government Company should continue, as it is in consonance with Article 12 of the Constitution of India.

4. By virtue of his fiduciary position, the Comptroller and Auditor-General (CAG) can exercise his right to appoint the statutory auditor and to conduct supplementary or test audits, if so required.

5. The Annual Report of such a company should continue to be placed before both Houses of Parliament.

6. But, no Government Company should get any concessions or privileges through special exemptions and notifications. Thus, Section 620 of the Act should be deleted.

Deemed Public Companies Eliminated

The Group recommends that the concept of deemed public companies the abolish and recommends concomitant deletion of section 43A.

Memorandum & Articles of Association.

In the interest of genuine flexibility as well brevity, Schedule I be eliminated altogether from the Bill and the same may be modified and prescribed by rules.

1. The objects should be kept as broad and flexible enough as shareholders so desire.

2. Altering the objects should be allowed subject to (i) the passing of a special resolution by the shareholders of a company, and (ii) the altered Memorandum being registered with the appropriate Registrar of Companies.

Change of Registered Office simplified.

For changing the registered office of private and public unlisted companies, passing of a special resolution to that effect should suffice.

This is a conscious deviation from the 1997 Companies (Amendment) Act, and is justified on the ground that the relatively limited impact of such a change in the case of small and medium sized unlisted companies does not warrant an additional approval from a quasi judicial authority.

Chapter III: Raising Capital

SEBI sole authority for listed companies

The regulation and disciplinary control over public listed companies for the purpose of issue of securities and related matters should be unified to the extent possible, and that SEBI should be the sole authority entrusted with these monitoring regulatory and policing functions.

Schedule II of the Act (Prospectus) should be under the domain of SEBI. Accordingly, Schedule II would be taken out of the new Bill and shifted to Rules.

Freedom to transfer and acquire shares

1. The provisions of Sections 108A through 108I of the Act which require companies to obtain prior approval from the Central Government for the acquisition and transfer of shares should be deleted.

a) Section 108 of the Act should be amended in respect of endorsement and validity of a share transfer instrument.

Hybrids derivatives and options introduced

1. Indian companies should be enabled to issue hybrids, derivatives, options, as well as shares and quasi-equity instruments with differential rights.

2. For private limited companies and unlisted public companies, the Department of Company Affairs (DCA) would issue guidelines regarding such securities.

3. For public listed companies, SEBI would issue guidelines on the norms and for protection of the interests of investors for such new instruments/securities.

4. Wherever applicable, the guidelines issued by DCA for private and public unlisted companies should be in consonance with SEBIs for public listed companies.

5. In framing such guidelines, both SEBI and the DCA should avoid trying to anticipate what the risk of a potentially new instrument may be. This is because such risks are rarely quantifiable. Instead, both authorities should insist on detailed disclosure of corporate information, and then let the potential investor decide whether or not such an investment makes portfolio sense.

Buy-back of shares permitted.

The new Act should provide for buy-back of shares subject to certain provisions:

1. Prior approval by shareholders through special resolution that clearly states (i) the amount allocated for buy-back, (ii) time period for concluding buy-back operations, and (iii) the funds allocated for buy-back are from free reserves and share premium account.

2. In the event of buy-back, the company shall not issue any new shares, which includes rights issues but excludes bonus, for a period of 12 months after the buy-back is completed.

3. Since Buy-back is for extinguishing share capital it should not lead to an increase in debt-equity ratio in excess of 2:1.

4. In the case of buy-back is for treasury operations, such shares will not be re-issued for 24 months after the last date of buy-back, and will be subject to the restrictions given in the table below.

5. In the case of non-secondary market buy-back from specific class of share holders, the potential sellers will not vote on the special resolution;

6. The buy-back will be accompanied by a declaration of solvency by the Board which will be signed by the Managing Director and at least one more Director, and will be in force for one year after the buy-back;

7. Any deviation from such compliance will be punishable by a substantial fine and/or imprisonment.

In the event of any person, group or body corporate acquiring 95% of the shares of a public listed company either through a take-over or otherwise and the company getting de-listed, residual shareholders should sell their shares to the 95% owner at a price based upon SEBI guidelines.

Indian Depository Receipts.

Indian Depository Receipts should be set up, like American Depository Receipts or Global Depository Receipts. This would imply that:

l Foreign companies could issue IDR, where the underlying security is the equity or any other security of a foreign company.

l Depository and custodial activities must be encouraged to achieve international standards.

Provisions regarding issue of prospectus by foreign companies already existed in Part XI of the Companies Act (Section 603 to 605). Therefore, a new scheme for Indian Depository Receipts can be easily introduced with minor modifications.

Issue of ADRs and GDRs to be recorded with ROC.

Issuers of GDRs or ADRs should file with the Registrar of Companies (i) the foreign offering circular or prospectus after any such issue, (ii) basic data on the issue such as the price of the depository receipt and the amount subscribed, and (ii) material details after conversion to shares.

Shelf prospectus.

The concept of a shelf prospectus should be incorporated in the new Act. It should have a validity of 365-days, subject to updates on material facts, material litigation and changes in financial position between the previous offering and the next one.

In the first instance, this shelf prospectus facility could be limited to public sector banks and financial institutions and those companies specialising in infrastructure finance. If the procedure succeeds and demonstrates that the interest of investors are protected, then the facility may be gradually extended by SEBI to other sections of corporate India.

Book building.

An amendment be made to the definition of prospectus in Section 2(36) of the Act which would

a) exclude the information memorandum that is issued prior to the prospectus at the time of book-building, but

b) require that, after formal closure of book-building, such a memorandum be submitted with the formal prospectus to the Registrar of Companies.

Employee Stock Options.

1. Employee Stock Options (ESOP) should be explicitly incorporated in the new Act. These options can be in the form of warrants or other securities that have pre-specified dates of conversion in the future.

2. This will require amending Section 81 of the Act. In order to prevent misuse, ESOP should be permitted up to 5% of the increased capital of a company (i.e. existing capital plus proposed issue).

3. The capital market rules for ESOP should be framed by SEBI for public listed companies, and by the Central Government for all other companies.

4. Such rules should allow for buy-back of options according to the principles of buy-back that have been discussed earlier in the chapter.

5. In addition, the Government should consider taxing these options as long term capital gains.

Chapter IV: Internal Management and Non-Financial Disclosures

Disclosure of remuneration to Directors relative

Schedule IA be explicitly incorporated in the Act itself, and a detailed, comprehensive report on the relatives of directors either as employees or Board members be given as an integral part of the Directors Report of all public limited companies.

Disclosure of interest by Directors.

The fact that such a register is maintained by the company in its registered office, and is open for inspection by any shareholder of the company should be explicitly stated in the notice of the AGM of all public limited companies.

Disclosure of Directors shareholders at AGM

The existence of the Directors share register and the fact that it can be inspected by members in any AGM should be explicitly stated in the notice of the AGM of all public limited companies.

Loans to Directors.

1. Loans to Directors will be limited to only three categories namely, education for family, housing and medical assistance.

2. This facility will be available to only the full-time working or executive directors of companies and not to non-executive directors.

3. The right to grant any such loan will be subject to norms that are approved of by the shareholders in a general meeting.

4. The maximum loan will be five times a working directors current annual remuneration.

5. No full-time working director will be eligible for a second loan in any of the three categories when a previous loan remains overdue.

Appointment of sole selling agent without government approval provided. Not a relative Related to any director or director having interest

Sole selling agent for India

Should require prior approval of a special resolution in a general meeting of shareholders. Should require prior approval of a special resolution in a general meeting of shareholders; in addition this fact has to be fully disclosed as a separate item in the Annual Accounts.

Sole selling agent for foreign markets

May be decided by the Board, and the information be passed on to shareholders together with Annual Accounts. Should require prior approval of a special resolution in a general meeting of shareholders; in addition this fact has to be fully disclosed as a separate item in the Annual Accounts.

The maximum fee per sitting should be increased from Rs.2,000 to Rs.5,000; and this should be revised at least once every five years to account for inflation. This change should be incorporated in the Rules.

Sitting fee and commission to non executive directors retained at present level.

Officer in default clearly defined.

There should be an explicit proviso in Section 5 (officer who is in default) which excludes non-executive directors, except in cases where such a person is a signatory of any declaration made by the company.

The list of persons who can be officers in default should include the existing personae in the Act; and in the case of issuing or transfer of any securities, merchant bankers, share transfer agents, registrars to the issue and bankers to the issue; but exclude non-executive directors unless they happen to be signatories to any declaration made by the company.

Disqualification of Directors who contravene Takeover Code.

Such Directors should be disqualify from being Director of acquiror or target company for a period of two years.

Managerial remuneration and its disclosures.

The present regime of managerial remuneration has worked satisfactorily. Sections 198, 309 and Schedule XIII of the Act are ample enough to give sufficient flexibility to profitable companies to attract and retain the best talents.1 Moreover, the Act allows a company to go beyond these limits subject to approval by the DCA. Therefore, the core of these provisions should remain unaltered, at least for the next five years. However, Sections 310, 311 and 637AA are to be deleted.

The format as it exists must continue. In addition, a tabular form of directors remuneration and commissions should form a part of the Directors Report of all public limited companies.

Secretarial Compliance Certificate.

There should be a Secretarial Compliance Certificate forming part of the Annual Return filed with the Registrar, which would certify, in a prescribed format, that the secretarial requirements under the Companies Act have been adhered to. This would be governed by the following norms:

1. For listed companies having a paid-up capital of Rs.2 crores or more, it would be mandatory to have a whole-time Company Secretary. For others, it would be optional.

2. Since a whole-time Company Secretary falls under the category of officer who is in default, it is presumed that he has every reason to discharge his obligations as per the Act. Therefore, companies with a whole-time Secretary would not require to submit a Separate Compliance Certificate to the Registrar.

3. Submitting the Secretarial Compliance Certificate to the Registrar would be mandatory for companies having a paid-up capital in excess of Rs.10 lakhs but below Rs.2 crores.

4. For companies having a paid-up capital of less than Rs.10 lakhs, the Secretarial Compliance Certificate is optional.

Inter-corporate loans and investments procedure.

The provisions of Sections 370 and 372 of the Companies Act should be merged and radically altered.

Companies should be permitted investment of up to an aggregate limit 60% of the capital and free reserves, or 100% of the free reserves of the company, whichever is higher, as either inter-corporate investment or loans.

The right to investment either in equity or securities or by making loans up to the above limit should be a matter of corporate decision by the Board of Directors.

In case a company wishes to invest in excess of this limit prior permission should be obtained from the general body of shareholders by passing of a special resolution. In the interest of shareholder protection, such a special resolution should clearly state the amount that is to be invested and the purpose of such investment.

Registrars to grant extension for registration of charges.

The registration of charges and the delegation of the function of certifying the creation of charges should be empowered to the statutory auditor, who would be liable in the event of false certification. Moreover, the Registrar of Companies would be empowered to grant extensions of time for registration of charges, according to prescribed guidelines.

Nominations facility for security holders

Section 82 of the Act would be amended according to the lines of the Companies Bill, 1993, and would provide for nomination facilities for such securities.

Proxy holders permitted to speak and vote at meetings.

Given the present state of postal services, postal ballots should not be introduced as a substitute to the current system. At the same time, the role of proxies should be strengthened by permitting two rights: to vote in show of hands and to speak at general meetings.

Voting according to financial stake.

There should be no deviation from the principle of voting according to stake. Consequently, the existing provision of Section 391(2), i.e. if a majority in number representing three-fourths in value be substituted by the usual mode of voting on any special resolution.

Operation of majority shareholders by strategic minority prevented.

1. Section 257 of the Act should be amended so that any member must have the consent of 100 shareholders or of 1% of the voting rights before he can suggest his or someone elses candidature as director.

2. The candidature should be accompanied by a deposit of Rs.50,000, which would be forfeited only in the event of the candidate not getting the votes of even 1% of the voting shareholders present in the AGM.

3. There should be restriction with respect to removal of directors, removal or re-appointment of statutory auditors.

4. The demand for poll at the General Meeting would be permissible by one or more shareholders holding shares of the Face Value of Rs. 5,00,000 or holding of 1% of the paid up capital of the company whichever is lessor.

5. Petition for injunctions on the holding of Annual or Extraordinary General Meetings/or issue of securities of by a company should be heard only in the High Court which has jurisdiction over the registered office of a company.

Chapter V: Accounts Audit and Financial disclosure.

Reporting of Business Segments and divisions by listed companies.

A listed public limited company must give certain key information on its divisions or business segments as a part of the Directors Report in the Annual Report. This should encompass (i) the share in total turnover, (ii) review of operations during the year in question, (iii) market conditions, and (iv) future prospects. For the present, the cut-off may be 10% of total turnover.

End use of funds raised from the capital market to be disclosed.

1. Where a company has raised funds from the public by issuing shares, debentures or other securities, it shall be required to give a separate statement showing the end-use of such funds, namely:

a) how much was raised versus the stated and actual project cost;

b) how much has been utilised in the project upto the end of the financial year; and

c) where are the residual funds, if any, invested and in what form.

1. This disclosure would be in the balance sheet of the company as a separate note forming a part of accounts.

Debt disclosure in balancesheet

In the schedule, there should be clear demarcation between long term loans (falling due at least after 12 months from the date obtained) and others. In addition to giving the aggregate amount of long term and short term loans, certain important sub-heads should be categorised as:

Long Term Loans Short Term Loans Secured (giving nature of security) Banks and financial institutions, debentures (with rate of interest, date of issue, and date and term of redemption or conversion), subsidiaries and others sources (specifying nature) Banks and other financial institutions, subsidiaries and others (specifying nature) Unsecured Fixed deposits, banks, subsidiaries and others Banks and other financial institutions, subsidiaries, others (specifying nature)

Foreign Exchange information disclosure.

1. At present, paragraph 4.D of Part II of Schedule VI requires companies to comply with considerable disclosure on foreign exchange earning and outflow. This should continue.

2. In addition, there should also be a note containing separate data on of foreign currency transactions that are germane in todays context: (i) foreign holding in the share capital of the company, and (ii) loans, debentures, or other securities raised by the company in foreign exchange.

Investment classification in balance sheet.

1. The 2x2 classification of investment and current assets in Schedule VI (i.e. trade versus non-trade, and quoted versus unquoted) be retained in the new Act.

2. While the cell totals are important, it is not necessary to give details of every single small investment sometimes as low as Rs.1000 in the note. Instead, there should be the total under the four heads, and details of those investments that account for 5% or more of each total. This is an example of focusing on the quality of disclosures, which is sometimes forgotten in order to maximise quantity.

Directors Responsibility Statement

Companies Act requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the company at the end of the year and of the profit or loss of the company for that period. In preparing these annual accounts, the directors are required to select suitable accounting policies, apply them consistently and make judgements and estimates that are reasonable and prudent.

The directors must also specify whether applicable accounting standards have been followed and, if not, disclose and explain any material departures in the financial statements. The annual accounts must be prepared on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.

The directors are also responsible for the maintenance of adequate accounting records in compliance with the Companies Act, 1997, for safeguarding the assets of the Company, and for preventing and detecting fraud and other irregularities.

Protection to holder of company deposit strengthened

Section 58A of the Act should be modified so that companies who fail to repay the principal or pay interest would be banned from declaring dividends until the default is made good.

Consolidation of Group Accounts Optional

1. For the present, consolidation of accounts of the holding and subsidiary companies should be optional.

2. Before consolidation is made mandatory for holding and subsidiary companies, the banks and financial institutions should agree to lend on the basis of group leverage, and the Income Tax Act should recognise consolidation for tax purposes.

3. If a group chooses to consolidate on a voluntary basis, then it should not be required to annex the accounts of its subsidiary companies under Section 212 of the Act.

Chief Financial Officer appointment in Companies

A listed company having issued capital of Rs.3 crores and above should have a CFO, who may be a chartered accountant or a cost accountant. A CFO would be legally responsible for proper maintenance of the Books of Account, and should ensure disclosure of all required information in the Offer Documents and Annual Financial Statements of the Company.

Cost audit.

The provisions under Section 233B concerning mandatory cost audit at the directives of the Department of Company Affairs should be removed. However, the requirement to maintain cost records should continue as before.

Depreciation

The existing practice of having different rates and methods of providing for depreciation under the I T Act and the Companies Act has served a useful purpose and needs to continue.

Any attempt to align the two sets of rates will have severely detrimental consequences for companies, share prices, capital markets, shareholders, small investors, banks as well as financial institutions. Our economy may be spared from such shocks.

Chapter VI: Mergers, De-mergers And Corporate Restructuring

Safe guards for recognition of de-mergers and sub-divisions by Income Tax Law recommended and to be made tax neutral.

(1) There is substantial identity between persons owning various parts of the business both before and after the restructuring.

(2) The restructuring is for bonafide business reasons.

(3) That none of the original companys/former shareholders is contemplating the sale or cessation of business in post restructuring period.

(4) New owners are only a sub divided part of the old owners and the old owners should have substantially held their shares for a minimum period of immediately preceding two/three years.

Chapter VII: Winding up of Companies.

Winding up of companies outside purview of IDRA provided.

In respect of companies engaged in the activities outside the purview of IDRA, a regime for rehabilitation and revival, similar to that of SICA may be provided for Act. Such a step will go a long way in effectively dealing with the problems of sickness of such companies.

Time Bound winding up of Companies

1. High Courts will have exclusive jurisdiction in the matter of liquidation of company.

2. Encouragement of voluntary winding-up, which is generally a more cost- and time-efficient manner of liquidation.

3. Distinct separation of the two aspects of liquidation: (i) first, asset sale and (ii) then, distribution of the proceeds.

4. Clarity in winding-up order which should coherently describe the steps that have to be taken along with time frames for each action.

5. Clear enunciation of the manner in which the Act shall catalyse rapid, transparent, market-determined sale of assets which would not only allow for their profitable re-use, but also increase the pool for distribution to claimants, including workers.

6. Well-defined and non-subjective norms to ascertain whether a companys assets should be sold in totality as a going concern, or in parts as individual asset sale.

Chapter VIII Monitoring and Enforcement

Jurisdiction of Court and Company Law Tribunal.

1. The new Act shall provide for establishment of the Company Law Tribunal (CLT) as a Quasi-Judicial Tribunal.

2. It shall be mandatory for the CLT to have a judicial member and a technical member of each Bench. This would be on the familiar lines of the Income Tax Appellate Tribunal.

3. The CLT shall have multiple Benches set up in five zones.

4. The CLT shall be empowered to function with much greater administrative, financial and judicial independence compared to the existing Company Law Board.

5. The CLT shall be under the Ministry of Law, as is the case with the Income Tax Appellate Tribunal.

6. In order to give concrete shape to independence, the Group recommends that the Tribunal Benches should be housed in separate premises independent of the DCA

7. The orders and judgment of the CLT shall be reported and published. These shall have precedent value irrespective of the zoning. Close co-ordination between separate zones is to be achieved in order to create uniformity.

8. Although it is desirable to have fresh appointments for filling the Benches of CLT, in the interegnum and for continuity, the existing Chairman and members of the Company Law Board may constitute the CLT.

Extracted from the report of the working group on The Companies Act, 1956.

arved out jurisdiction of Courts and Company Law Tribunal

1. Matters concerning mergers, acquisitions, de-mergers, re-structuring and schemes of arrangement or reconstruction, and winding up shall be exclusively dealt with by the Court, with the assistance of a panel of experts acting as a Commission under Order XXVI of the Code of Civil Procedure.

2. The CLT shall have jurisdiction in relation to all other matters, so long as these are not within the original jurisdiction of the Company Court.

3. The CLT would have powers of contempt, review and power to condone delay under Section 5 of the Limitation Act, 1963.

4. The jurisdiction of the District Court as a Company Court would be removed. Thus, no Civil Court would have jurisdiction in any matter relating to the Companies Act, unless specifically stated otherwise in the Act.

5. In cases of take-overs

Neither any Civil Court nor the Company Court shall have jurisdiction to entertain or try any proceedings arising out the SEBI Takeover Code.

SEBI will have a right to be heard in all matters of Takeover of Listed Public Companies.

SEBI would retain its right to issue clarifications, circulars and directions from the judgements of CLT. This should help in keeping the Code in tune with the adjudicated decisions of the CLT.

6. The jurisdiction for buy-back of shares and disputes arising from solvency certificates or failure of companies in a buy-back will lie with the CLT.

Licensed registrar subject to safe guards.

1. Government must permit the setting up of private licensed Registrars.

2. The selection of a licensee will be based on: