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Assocham wants buyback ordinance to ward off takeovers

The Associated Chambers of Commerce and Industry of India has suggested issuance of an ordinance for incorporation of buyback of shares for treasury operation to facilitate companies combat hostile takeovers.

In a memorandum submitted to Minister for Law, Justice and Company Affairs M Thambidurai, Assocham president L Lakshman said the provision will help in restructuring the companies leading to increase in their competitiveness in the present liberalised economic scenario.

The Assocham chief has further suggested that buyback of shares should be allowed with the sanction of the shareholders of a company by way of special resolution and there should be no need for government approval.

Any requirement for government approval could be against the concept and spirit of liberalisation and deregulation. The need for companies to seek government approval should be eliminated from the Companies Act as far as possible, he said.

The chamber has also suggested introduction of a new clause in the Companies Act with minimum conditionalities to convert a portion, not exceeding 25 per cent of its existing share capital with the consent of shareholders, into non-voting shares.

All over the developed world corporate growth has been pre-dictated upon flow of funds from one company to another.

Cash rich firms invariably have used their reserves to lend to or invest in other companies. The experience of developed economies had clearly demonstrated the positive role of intercorporate loans and investments.

Lakshman feels the current limit of 30 per cent of paid-up capital plus free reserves for loans and a similar one for inter-corporate investments has stifled industrial growth and has needlessly raised the cost of capital.

However, it does not go far enough and, therefore, the limit of 30 per cent should be raised to 50 per cent and the board of directors should have the power to grant such loans or make such investments. The shareholders, by a special resolution, should have the powers to authorise inter-corporate loans and advances with interchangeable limits up to a further ten per cent of the paid-up capital and reserves and the provision regarding the central government's approval for loans and investments in excess of the prescribed limits should be discontinued.

The existing section with regard to nomination facility should be substituted by the shares, debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the Articles of Association of the company.

Every holder of shares in, or holder of debentures of, a company may at any time nominate, in the prescribed manner, a person to whom his shares in, or debentures of, the company shall vest in the event of his death.

Where the shares in, or debentures of, a company are held by more than one person jointly, the joint holders may together nominate, in the prescribed manner, a person to whom all the rights in the shares or debentures of the company shall vest in the event of death of all the joint holders.

Where the nominee is a minor, it shall be lawful for the holder of the shares in or holder of debentures, making the nomination to appoint in the prescribed manner any person to become entitled to shares in or debentures of the company, in the event of his death, during the minority.

UNI