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Tuesday, Nov 09, 2004

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Conversion of MNC arm into public co — `Concept paper proposal needs to be modified'

Richa Mishra

New Delhi , Nov. 8

THE proposals in the concept paper on company law that requires foreign body corporates operating through a private subsidiary company in India to convert into a `public company' and undergo a change in board composition has irked India Inc.

Once the proposals are put into effect, a private company in India that is a subsidiary of a foreign entity will compulsorily become a public company, legal experts explained. The paper also stipulates that the board of directors of such a private company, once it becomes a public company, should include almost 50 per cent of independent directors.

This in effect will mean many of the multinational companies, which have set up their manufacturing base in India by incorporating a private subsidiary company, will not only have to undergo a makeover in their management but also be required to make mandatory disclosures to Government agencies. Currently, such companies enjoy certain exemptions under the Companies Act.

The Federation of Indian Chambers of Commerce and Industry (FICCI) in a representation to the Ministry of Company Affairs stated that the provision should be reworded to limit it to the subsidiaries of a public company in India.

"Private subsidiary companies of Indian public companies and foreign body corporates should not be considered at par," the chamber said.

In the prevalent FDI regime, foreign investment of funds and technologies are invited and encouraged to a substantial extent, particularly in sectors that are not strategic ones. Multinational companies, while setting up their manufacturing bases in India, bring in funds and technology into the country. Further, they prefer to operate through private subsidiary companies, the chamber elaborated.

The chamber said a company that has been established as a private company under the existing Companies Act also satisfies the conditions of `private company' as defined in the concept paper. Therefore, such companies should not be considered as a `public company' merely because it is a subsidiary of a body corporate incorporated outside India. The decision to convert to public companies should be left to the discretion of the concerned private companies, rather than force the conversion through the proposed legal mechanism, the chamber said.

Further, in case the intended control envisaged in respect of public companies is statutorily made applicable to subsidiary private companies of foreign conglomerates, the very existence of such companies in India shall be threatened, the chamber pointed out.

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