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My City : Barnala

My Country : India

English Language

Sr. No.

Suggested Provisions

1.       

Companies should be required to disclose the amount of listing fees paid stock-exchangewise.

2.       

Companies should be required to disclose the turnover data stock-exchangewise. This will also enable the shareholders to instruct the company to get its shares delisted from the stock exchanges wherever turnover is very thin.

3.       

Details of no. of cases filed against the company should required to be given in Directors’ Report. Further segregated data should be given based on the nature of the case.

4.       

Auditors’ Comments should be given in bold letters (Font size at least 18) in their Report. These qualifications should be compulsorily replied by the Directors in their report to the shareholders. It is observed that some Directors’ Reports do not reply Auditors’ qualifications or without proper explanation. The Directors’ Report should reply qualifications in bold letters (font size may be normal) in full details and short-term and long-term implications should be stated in the Directors’ Report itself.

5.       

Full details of investments made in subsidiaries / private limited companies / companies in which Directors are interested in any capacity should be given in investing company’s Directors’ Report.

Following details should be given:

1. Name of Investee Co.;
2. Investing Co.’s Interest;
3. Amount of Investment;
4. Date of Investment;
5. Return on Investment

6. Compound rate of return.

6.       

At present, Companies Act, 1956 permits a time limit of two months for registration of transfer. After the introduction of depository system, this seems to be exorbitant. This time limit should be reduced to a maximum of two weeks. Further if an investor furnishes the proof of having received duly transferred shares or non-receipt of duly transferred shares beyond the prescribed time limit, such companies should be punished and investors should be entitled for examplery damages from the company.

7.       

Market lots is 1 share only in respect of the companies whose shares are compulsorily required to be traded in demat mode. Further some companies have reduced face value of their shares to less than Rs 10. Both of these factors have led to increase the folios of such companies. Investors are purchasing even single shares in these companies. Companies have to send the dividend warrants of miniscule amounts to such shareholders. This has led to a considerable and disproportionate burden on companies and load on banking and postal channel. It is therefore suggested:

a)                  The investors should have the option to get the dividend warrants thro’ their Depository Participant i.e. the company should give the credit to DP and DP should in turn credit the amount to the investor’s a/c with DP. DP can offset this amount against its other charges receivable from the investor. Companies’ workload of printing and despatching the dividend warrants will be lighter, workload on banking channel and postal system will lessen, loss or interception of dividend warrant in postal transit and banking channel will not be there and investors’ workload of keeping the track of dividends and presenting them to bankers for encashments will be negligible. Investors residing in small towns will be particularly benefitted as it will save them from incurring collection charges.

b)                   In case the dividend amount is less than say Rs 25, the amount should not be paid to the investors for the reasons stated above, instead it should be transferred to any fund maintained for the benefit of investors.

c)                   Interim dividends should not be allowed. It encourages some companies to manipulate their share prices. Companies at the time of public or rights issue generally prefer to declare interim dividends. Secondly, it put undue mailing and other burdens on the company. Moreover, whereas final dividend is a debt against the company after the expiry of forty-two days, interim dividend is not so.

d)                   Dividend warrants should required to be mailed to investors within 7 days of approval of members at annual general meeting. As dividend warrants are computer printed and all the data is updated on computer, there should be no difficulty to send the warrants within this period.

e)                  If investor has provided ECS mandate to his DP, dividend amount may be credited directly as per ECS mandate.

8.       

Preference shares are long viewed as wall-flowers. There should not be any provision for issue of preference shares. Even the preference shares already issued should be compulsorily redeemed within a period of say two years. It is of common knowledge that promoters generally issue preference shares to themselves to have their own money secured and to get good and assured returns. Preference shares are generally neither issued to general public and nor general public generally prefers it. No provision for preference shares will also enable us to delete many sections of the Companies Act.

9.       

Similarly, issue of shares at discount should not be allowed. If a company is not in a position to issue shares even at par, how it is expected to be in a better position by issuing shares at discount. Moreover, it will help in reducing the number of sections in Companies Act.

10.   

Introduction of postal ballot has certain in-built shortcomings. The system does not permit discussion or debate, which indeed is sine qua non of democratic society. Further the companies would have to incur hefty expenses on sending registered letters to shareholders. Moreover, what would be the guarantee that the companies would prefer to show the actual responses of shareholders. They can easily skip some of the responses and their own response would but naturally permit them to adopt the resolution though at expense which would be beneficial to nobody. Postal department is already finding it difficult to cope with the volume of work it handles.

11.   

Non-Voting Shares (NVS):

The reason often extended for issue of NVS is that most shareholders are only interested in receiving a return on their investment; that they are neither interested nor properly equipped to exercise their voting rights. But that view was summarily rejected by Justice Jessel; he said “that the rights to vote is an exercise of rights to their property… and I cannot deprive him of his property, although he may not make use of that right of property in a way I might altogether approve. There is, if I may say so, no obligation on a shareholder of a company to give his vote merely with a view to what other persons may consider the interests of the company at large.

The proposed legislation does not assure regular payment of dividends to the non-voting shareholders. Further, there is no provision for the accumulation of dividends if, in any particular year, no dividend is declared by the company. Why in such circumstances a person would be keen to invest in non-voting equity when, as an alternative, one could make a deposit with the company and be assured of a regular return. In the case of most companies the return fetched by such a deposit would be higher than the dividend they declare. Moreover while non-return or delay in deposit invites penal consequences against the company management u/s 58-A of the Companies Act, 1956, there is no such consequence for non-declaration of dividend. So it makes fear that the proposed amendment may even be availed of by errant companies to dilute their legal obligations.

In England, there is no bar on issuing non-voting shares, but such a provision was criticised even in the report of Jenkins Committee (1948) where the minority took a view that there should be prohibition on the listing of non-voting shares. Although English stock exchange rules do no ban NVS altogether, they do no encourage listed companies to create NVS either.

So issue of NVS should not be allowed.

12.   

Clause 2(60) of the Companies Bill 1997 states : ‘shares with differential rights’ means a share that carry with it differential rights as to voting, return of capital, or combination or any of them’. This clause permits issue of equity with full voting power, or with no rights to vote, or with, say, only 10 per cent voting rights. However, clause 76 defines ‘equity capital means … all share capital which is not preference shares.’

13.   

Clause 98 proposes to discontinue the current system, viz., that a company which refuses a registration of share transfer is required to apply to the CLB for confirmation and leaves the onus on the share transferee to appeal. This change is against investor interest. Investors generally lack knowledge and resource to approach judicial authorities. So it is suggested that where there is any question of law, it should be the responsibility of the company to refer the matter to CLB. However, procedural objections like signature difference, incomplete transfer form etc should allowed to be rejected by the company itself and without referring it to any authority. For example, some time ago, a shareholder Mr Deepakkumar Jayantilal Shah had lodged 5 transfer forms with one share certificate. This case involved consideration of fact of law and was not of routine nature.

14.   

Share values are no longer restricted merely to the earlier denominations of Rs 10 or Rs 100 provided shares of the company are in compulsory demat list. Although it is providing freedom to the companies, at times it creates very anomalous situations. Zee TV seems sheer cheaper at Rs 500 in comparison to king Hind Lever at Rs 2500. Companies should allowed to issue only Rs 10 face value shares.

15.   

At present, number of buyers in shares can be a maximum of three. After the introduction of nomination facility, shares can preferred to be held in the name of one person. So if the number of buyers are restricted to only one, it will be a great relief for companies because some persons prefer to hold shares in joint names in different orders to make more persons eligible for attending general meetings for gift purposes. Multiplicity of folios makes useless burden on companies for sending annual reports, dividend warrants and other communiqués.

16.   

It should be made obligatory for companies to mention about the status and amount of payment of PF.

17.   

The procedure for obtaining duplicate share certificates against not tracable / lost shares should be definite one and be prescribed in the Companies Act itself. Further, duplicates in respect of shares of small value say Rs 5000 should be issued after some minimal formalities. Some time ago, I had lodged one equity shares of some company (market price around Rs 50) and the same was got lost either by the company or in transit. The company required me to execute indemnity bond, affidavit and further to send them a demand draft of Rs 500 towards advertisement cost.

18.   

It is a much debated question that the companies have to incur a hefty sum on sending annual reports to its shareholders. Companies are treating it as unavoidable evil. The annual report, which is a waste booklet for most of the investors, costs companies even in crores. Let aside monetary value, it has a great grand negative effect on our already degraded and degrading environment. I am very much concerned and interested to reduce this wasteful expense to the company, save the environment and at the same time, to offer full opportunity to have complete information and annual report to interested shareholders. It is suggested:

A column should be inserted in transfer deed in lower buyer’s portion, in account opening form with DP, in application forms in case of public issues, in renouncee’s portion in case of rights issue requiring the option to be filled in by the investors as to whether the investor is interested in having copies of annual report. Further, by adopting this mechanism, since copies of annual report would be sent only to interested persons, abridged annual reports should not be permitted.

19.   

The most common problem being faced by the transferors is objection of signature differ. Various measures have been taken up by many authorities to solve this insurmountable problem. Yet it could not be fully solved. So some definite measure should be specified in the Companies Act. The measure may be:

a)      Purchase and execution of an affidavit declaring the sale of shares in question by transferor. Affidavit should be purchased by seller from his own city and to be attested also from same city where he resides.

b)       Thereafter registered notice should be given to transferor by company.

20.   

The amount of listing fees paid stock exchangewise should required to be mentioned in Directors’ Report.

21.   

Every shareholder is not in a position to attend the AGM personally due to geographical widespread and paucity of time and resources. Further AGM is a one-time-affair-in-a-year. If a shareholder is desirous of obtaining some additional information from the company by correspondence, it has been noticed that most of the companies refuse to provide the required information to the shareholders saying that there is no specific provision in the Companies Act which forces companies to provide such information. So suitable amendment in Companies Act is requested.

22.   

It has been noticed that minutes of general meetings contain only the resolution, name of the proposer and seconded by. The deliberations and debates carried on in the meetings are conveniently skipped from the minutes. This is not a healthy practice. Companies should required to give all the factual information about the conduct of the meeting and not merely text of resolutions and yes, no with regard thereto. Further if any shareholder wishes to get his dissent recorded, it should be. Specific amendments in Companies Act are required.

23.   

Unclaimed dividend warrants are required to be transferred to Investor Education and Protection Fund after the expiry of 7 years from the date of declaration. This period of 7 years should be reduced to 1 year. Before transfer, it should be made obligatory for the companies to send individual information to such shareholders advising them to claim the dividend amount before the transfer.

24.   

There should be no provision for conversion of shares into stock and vice-versa. These provisions are useless and are useful only for academic exams.

25.   

Allowing companies to buy-back their own shares certainly offers tremendous opportunity to companies to manipulate their share prices. Some time ago, Atlas Cycle Industries Ltd was very quick to announce its decision to buy its shares back @ Rs 300 per share. Market price at the time of announcement was around Rs 60. Thereafter, the share price had regular kiss with upper circuit breaker for many days consecutively. Now again the vibrations in shares price of Atlas have settled and price again has settled at Rs 60 after touching a high of Rs 200. Who have benefitted? Not the shareholders who have to tender the shares for buy-back, but the operators only. Buy-back is a great mistake allowed by Company Law. Companies are increasing their equity by issuing bonus and / or rights shares and we are talking of buy-back. Who is interested in these petty matters. Apparently nobody.

26.   

The shareholders should have the opportunity to receive copy of Memorandum and Articles of Association of the company at the earlier price i.e. Re 1 u/s 39 of the Companies Act, 1956. This price is nothing if we consider the costs to the company. However, it is not demanded by every shareholder. Average is less than even one share per company per year.

27.   

The charges for obtaining extracts of various types of registers have been fixed at Re 1 for every hundred typed words. Now data is not typed on manual typewriters. Either computer print-outs or photocopies are provided. So the charges should be linked not to the number of words but to the quantity such as at the rate of Re 1 for every printed / xeroxed page.

28.   

The procedure for approaching CLB or any other concerned authority should be simple and personal attendance of aggrieved or opposite party should not be compulsory. Parties should be free to lodge their written statements by post. Aggrieved party should be allowed to file complaint with charges of say, Rs 1000. In case the aggrieved party is able to establish his claim, the charges paid by it should be reimbursed by the opposite party. In case the aggrieved party fails to prove its claim, the charges should be forfeited.

Particulars

Y.E. 31.03.97

(Rs. in  Lacs)

Y.E. 31.03.96

(Rs. in Lacs)

Sale

1336

1148

Profit  before  depreciation

7.67

19.43

Less : Depreciation

6.16

1.98

Net  Profit  tfd. to B/Sheet

5.89

11.00

Dividend

Nil

5%