The Hindu Business Line : New norms for new names

THIS is the age of disclosures for corporates. Corporate governance norms require them to disclose an eclectic variety of information in their reports. For listed companies, the Securities and Exchange Board of India (SEBI) acts as the regulator and has been issuing norms at frequent intervals.

The latest, Circular No SEBI/MRD/Policy/AT/Circ-20/2004 dated April 30, 2004, issued by the Market Regulation Department, specifies the duties of companies that intend to change their name. The previous Circular on this topic, No SMDRP/POLICY/CIR-8/99 issued on April 26, 1999, required companies who change their names suggesting any new line of business to disclose the turnover and income, and so on, from such new activities separately in the quarterly/annual results.

Also, companies which have changed their names after January 1, 1998, or does so hereafter shall make such disclosures for a period of three years from the date of change in name. The requirements of the previous circular still remain but the latest adds three more caveats:

A time period of at least one year should have elapsed from the last name change;

At least 50 per cent of its total revenue in the preceding one year period should have been accounted for by the new activity suggested by the new name; and

The new name along with the old shall be disclosed through the Web sites of the respective stock exchanges where the company is listed and also through the EDIFAR Web site for a continuous period of one year from the date of the last name change.

The first and third caveats should cause no sweat to companies since one does not normally expect companies to rechristen themselves at every annual general meeting, but, the second caveat practically shuts out companies that intend to change their name whenever they start a new line of business. Companies with large turnover who diversify into a new activity and decide to change their name would find it hard to match the turnover benchmark. Both the circulars are mum about companies that intend to change their name for the purpose of changing their name and not necessarily because they intend to start a new line of activity.

The bourses too have duties to perform:

make necessary amendments to the relevant byelaws, rules, regulations and the listing agreement for the implementation of the above decision immediately;

bring the provisions of this circular to the notice of the member brokers/clearing members and listed companies of the exchange and also to disseminate the same on the Web site; and

communicate to SEBI the status of the implementation of the provisions of this circular in Section II, item No. 13 of the Monthly Development Report for the month of May 2004

SEBI obviously believes that there is much more to companies that change names than meets the eye.