Financial Daily from THE HINDU group of publications
Thursday, May 02, 2002
ICSI moots changes in Bill provisions on sick units
KOLKATA, May 1
THE Institute of Company Secretaries of India (ICSI) welcoming the provisions for facilitating expeditious winding up of companies and revival/rehabilitation of sick companies in the Companies Amendment Bill, 2001, now pending before Parliament has sought certain changes in clause 35 (new Sections 424A and 424B) for reference to a tribunal and inquiry into working of sick industrial company), clause 2 (f) (definition of a sick industrial company), Clause 14 (Transfer of powers of court to Tribunal), clauses 27, 28 and amendment of Section 391.
Clause 35 (Section 424A(2)) now requires that the application for reference to Tribunal for revival and rehabilitation of a sick company is required to be accompanied by a certificate from an auditor, chosen from a panel of auditors prepared by the Tribunal, indicating the reasons of the net worth being less than 50 per cent; or the default in repayment of debt, as the case may be. ICSI has suggested that company secretaries can also issue this certificate, keeping in view their knowledge and expertise in corporate matters.
Mr S. Gangopadhyay, President of ICSI, making a presentation at a recent workshop here on the Companies Amendment Bill, 2001, suggested that instead of a panel of auditors, the proposed panel should comprise chartered accountants, company secretaries and cost accountants. A similar provision, he felt, should also find place in the case of appointment of official liquidator from the panel comprising CAs, CSs and cost accountants.
The cases now pending before the Bureau for Industrial and Financial Reconstruction (BIFR) would require fresh presentations to the proposed National Company Law Tribunal (NCLT). It is suggested that for a smooth transition from BIFR to NCLT, instead of dismantling the BIFR immediately, it should be allowed to continue till all cases pending with it are disposed of. The proposal is to transfer the pending cases with the Company Law Board to the NCLT immediately upon its constitution.
Pointing out that a "sick industrial company," under the new Section 2 (46AA), has been defined as a company which has accumulated losses in any financial year equal to 50 per cent or more of its average net worth during four years immediately preceding such financial year, or, failed to pay its debts within any three consecutive quarters on demand, ICSI has stated that the amount of debt under sub-clause (ii) has not been specified. The institute wants the above sub-clause to be re-worded.
It is pointed out that the default of repayment of any amount of debt within the specified period will render the company liable to be treated as a sick company. Mr Gangopadhyay said some amount (of the debt) should be specified, which will also be in consonance with a similar provision proposed in clause 40 (Section 434 of Companies Act 1956).
He said as the term "demand" is not defined in sub-clause (ii), it may lead to different interpretations such as whether a normal collection notice would be considered as "demand" or a special notice for demand would be required.
At present, powers to confirm reduction of share capital under Sections 100 to 103, and to consider objections of dissentient shareholders in respect of variation in their rights under 107 of the Act is vested in court. Suggesting that the Bill was now silent on the transfer of powers of court to Tribunal under Sections 100 to 103 and 107, Mr Gangopadhyay said that clause 14 be suitably amended to vest the NCLT the power to confirm reduction of share capital and decide cases of shareholders dissenting on variation of their rights.
Section 424E (5), under clause 35, provides that once a scheme is okayed, concerned FIs and banks designated under sub-section (4) shall release the financial assistance to the sick company. According to ICSI, keeping in view the past experience in case of SICA 1985, it may be desirable to put some restrictions on these agencies from obtaining injunction against such release of funds. ICSI has recommended that a suitable provision should be inserted in the proposed section.
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