The Hindu Business Line : Let's plod through Concept Paper

THE concept paper on the Companies Act is out as promised. And if it goes through all the ifs and buts, soon enough we would have a slim law, because what we now have is a fat tome with nearly 800 sections.

Since 1956, the law has seen 24 amendments, driven by recommendations of committees ranging from Bhaba to Eradi. "Looking at the proliferation and diversity of amendments which have been made to the Act, an attempt to recodify the law appears inevitable," concedes the Ministry of Company Affairs.

Though the Ministry is keen to stimulate the "widest possible public debate" on the draft, it is doubtful if many would venture to read all the provisions. What follows is an attempt to plod through the proposed Section 2, that too, partially.

That's because definitions are a good place to start. Sec 2(2) in the draft is the definition of `Accounting Standards.' Quite a special number, one may say, for the bean counters, though there is no reference here to the Institute of Chartered Accountants of India, but to the National Advisory Committee on Accounting Standards.

The current definition of "book and paper" includes accounts, deeds, vouchers, writings and documents. Keeping with the times, the phrase now also includes "minutes and registers."

There is an elaborate definition of "books of accounts" similar to what's now available in Sec 209 except that it could include "such other records as may be prescribed." Similarly, the definition of "charge" charges all the way down from Sec 125.

Instead of the current curt entry for `company' as "a company defined in Sec 3," you have an understandable definition in the concept paper: "A company formed and registered under this Act or an existing company formed and registered under any of the previous Companies Laws." Sec 2(16) is for the evergreen CA, and he is followed by "Chief Accounts Officer" - and the phrase "means the chief accounts officer ... by whatever name called."

A new entry among the definitions in Sec 2 is "deposit"; it means any deposit of money with, and includes any amount borrowed by, a company. That doesn't suggest that you go to HDFC, say, and say: "Thought I would take a deposit from you, instead of your usual loan."

Like the CAO, "director" includes any person occupying the position of director, "by whatever name called," and you may already be wondering if these are the ones whom everybody likes to call names.

Dividend was defined at the end of 2000 with only four words: "includes any interim dividend." The concept paper offers a more elaborate definition to supplement the above: Dividend means a return on the shares held in the company and payable out of distributable surplus.

It's good to see `expert' too: he could be "an engineer, a valuer, an accountant and any other person whose profession gives authority to a statement made by him". No politicians or journalists here, thankfully, though their professions give them undue authority to what they say.

"Gross Receipt" of a company, means the aggregate value of the realisation made from the sale, supply or distribution of goods or on account of services rendered and includes income accruing from investments or loans, profit on sale of assets or investments and other unclassified receipts of revenue nature. If you wonder why this definition is required, you'd have to see the next occurrence of `gross receipt' in the concept paper: That's half-way down the concept paper where it talks about a cess at "not less than 0.005 per cent and not more than 0.1 per cent on the value of annual turnover or annual gross receipt, whichever is more," as in Sec 441A of the present law. What for? "For the purposes of rehabilitation or revival or protection of assets of the sick industrial company."

Feeling sick already, or just gross?

ExParte@TheHindu.co.in

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