FDI boosters on cards

The government is considering a series of measures to liberalize the country’s foreign direct investment (FDI) policy.

As part of this, it is looking at permitting 26 per cent FDI in insurance broking through the automatic route, which would mean a nod from the Foreign Investment Promotion Board (FIPB) would not be necessary.

The Department of Economic Affairs has also suggested that activities covered under the non-banking financial company list be enlarged to include financial services such as insurance agencies and services auxiliary to insurance. It is also seeking to allow up to 100 per cent FDI in commodity broking under the automatic route, subject to certain capitalization norms.

Many of these proposals would be incorporated in the consolidated FDI policy, which is modified every six months. The latest version is expected soon.

In a major boost to FDI in wholesale retailing, the government is set to clarify the definition of a group company. Under the definition, group companies would mean two or more enterprises that directly or indirectly are in a position to exercise 26 per cent or more of the voting rights of another company, or can appoint more than 50 per cent of the members of the board of directors.

Walmart had approached the government for a clarification on the definition of what constituted a group.

The government had earlier scrutinized the relationship between Bharti Walmart - a 50-50 joint venture for cash-and-carry between the Bharti group and Walmart - and Bharti Retail - a wholly owned front-end retail company of the Bharti group.

Branded international retail stores in the fashion and jewellery businesses have been stymied from setting up stores through the single-brand retailing window due to a clause that makes it mandatory for these to sell only those products “which are branded during manufacture”. The government is planning to put a clarificatory guideline exempting such firms from this rider.

The government is also looking at permitting a foreign company that has picked up the entire stake in a pharma company to make additional investment through the automatic route, but with a few riders. It can now infuse fresh capital or convert external commercial borrowing in the Indian company into equity without going to the FIPB every time. But the money invested must not be used for acquisition of a domestic pharma company.

Foreign route

ü      What the government is planning

ü      26% FDI in insurance broking through the automatic route

ü      Up to 100%  FDI in commodity broking under the automatic route

ü      Clarify what is a group company in policy on FDI in wholesale trading

ü      Exempt single-brand retailers in jewellery from selling only products “which are branded during manufacture”

ü      Permit a foreign company that has picked up 100% stake in an existing pharma firm to make additional investment through the automatic route, but with a few riders

ü      Warrants and partly paid shares to be allowed as instruments of FDI

Courtesy: Surajeet Das Gupta

Winding up of a Company

Compulsory winding up

As the name suggests, in this kind of winding up, the situation of the company becomes as such that there would be no other option left but to wound up the company. The grounds on which a company is to be compulsorily wound up are given in section 433 of the Companies Act, 1956. The general procedure to be followed in such kind of winding up is:

·Filing of a petition for winding up – may be by the company, any creditor, contributory, Registrar or any person authorized by Central Government in case of oppression mismanagement [sec 439]

·If petition is admitted, winding up commences [sec 441]

·Intimation by court to an Official Liquidator (OL) for his appointment and taking charge of the company [sec 444]

·Notice to the company for filing Statement of Affairs (SOA) and filing of SOA with the OL [sec 454]

·Submission of preliminary report by OL to court within 6 months from the date of the order [sec 455]

·On satisfaction with the report of the OL, dissolution of the company is to be initiated [sec 481]

Voluntary winding up

1.Members Voluntary Winding up

2.Creditors Voluntary Winding up

A company may opt for voluntary winding up either by passing an ordinary resolution, where the object or the time limit for which the company was formed has achieved or by passing a special resolution. Once the resolution is general meeting is passed, the company may go either for members or for creditors voluntary winding up. The only difference between the two is that in case of members voluntary winding up, the directors are required to furnish a declaration of solvency in Form 4A which is not required in the other case.

The general procedure in a voluntary winding up is:

·Passing of requisite resolutions in a general meeting and appointment and fixation of remuneration liquidator [sec 490(1) and (2)]

·Notice of appointment of liquidator to the Registrar within ten days of appointment [sec 493]

·Filing of Declaration of Solvency with the Registrar within five weeks of passing resolution for winding [Sec 488]

· Report of the liquidator on statement of affairs of the company in a general meeting duly called by publishing the notice of the meeting in newspaper and in Official Gazette [sec 497(1) and (2)]

·Liquidator’s report to the Registrar and the Official Liquidator within a week from the meeting [sec 497(3)]

·Company deemed to be dissolved from the date of the report to the court, if the Official Liquidator has no objection on the report [sec 497(6)]

Winding up under the supervision of court

Winding up subject to supervision of court, is different from "Winding up by court."Here the court only supervises the winding up procedure. Resolution for winding up is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also. However, liberty is granted to creditors, contributories or other to apply to court for some relief. [sec 522]. The procedure involved is as follows:

·Filing of winding up petition

·Appointment of liquidator as per the instruction of the court

·Liquidator to have all the powers as if the company is being wound up voluntarily

·Submission of SOA with the Liquidator by the company

·Liquidator’s report to the court on SOA

·Application of assets of the company on priority of payments basis [sec 529/529A/ 530]

·Dissolution of the company [sec 481]

Winding up in the light of recently issued circulars

Above are the procedures to be followed by the companies, professionals for getting the company dissolved. However, the process is quite time consuming which sometimes do not even have a favorable order from the court. To hasten the process with better governance and compliance, Ministry has issued some circulars for its various departments opening another field for practicing professionals.

Accelerating the process of winding up

It is clear that in the whole winding up proceeding, the role of the liquidator is very vital. Ministry has issued a General Circular 54/2011 dated 26^th July, 2011 to expedite the winding up proceeding. As per the Circular, the petitions filed before the high courts without providing adequate information can now be closed in lesser time with the help of the Official Liquidators (OL). The OL will be taking the following additional steps in order to fasten the disposal of the winding up petitions:

·Keeping a track of all the pending cases by appointing a staff of company court

·Obtain information from “institution register” maintained with high courts

·Application to court praying to direct the management of the company to file the following information duly verified by a chartered accountant or a company secretary or a cost accountant in practice.

oCurrent Addresses of directors, secretary and statutory auditor of the company

oLocation and physical details of each immovable asset of the company along with its current valuation;

oDetails of all the debtors and creditors with their complete addresses and occupations;

oDetails of each movable asset of the company along with value;

oDetails of workmen/employees and any amount outstanding to them;

oDetails of all movable and immovable assets held in the personal names of director by providing its location, value, dates of acquisition and nature of right, title and interest therein;

oCopies of last three years audited balance sheet of the company;

oDetails of location of the registered office of the company.

The Circular also binds the RDs for the winding up cases. It will be the duty of the RD to ensure that all the pending applications are moved before the Court before the next date of hearing and in all new cases, these are filed before the Hon’ble Court before the second hearing of the case. RDs will also ensure that a standard draft is prepared by them after taking legal advice and the same is used in all cases by OLs.

Inspection and investigation in all winding up cases

Vide General Circular 55/2011 dated 26^th July, 2011[1][3], the Ministry has prescribed some stringent steps to be followed while dealing with the malpractice and mismanaged companies. There are many winding petitions filed by the companies after having committed major violations of Companies Act and involving misappropriation of funds. In order to curb such malpractices, following guidelines have been prescribed for the OL while dealing with winding up petitions for such companies:

1. OL will obtain a copy of the petition as soon as the same is filed before the court and forward the same to the Registrar for their report

2. RoC will conduct a detailed scrutiny of the details and documents available in its records for the previous five years and will submit a preliminary report to the Ministry within a week

3. MCA will take its view based on the preliminary report of the RoC within 15 days and any inspection under section 209A and/or investigation under section 235/237, if directed by the Ministry, is to be carried out by the RoC within 30 days.

4. If found guilty, necessary actions may be initiated against the directors, ex-directors and other key managerial personnel of the company for any violation under Companies Act or any other law.

5. As the last step, the OL will submit the final report with the High Court for passing necessary order.

The RD is entrusted to supervise all these actions of RoC and the OL prescribed above and to monitor all such cases of malpractices.

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