In liberalized India, corporations and the market have assumed a new prominence. The small Ministry of Corporate Affairs regulates corporations, protects lenders, investors, and consumers, and otherwise works to build a functioning market.
History
The ministry dates back to the passage of the Indian Companies Act of 1956. This was the first significant piece of legislation dealing with company law created by independent India. In keeping with the spirit of the times, it was designed to protect investors, ensure ethical conduct and promote social justice. The Ministry of Commerce and Industry subsumed the Department of Company Law Administration, which oversaw corporations.
Over the past fifty years, the Department of Company Law Administration has shifted from ministry to ministry and renamed various times. It has functioned under what are now the Ministries of Finance, Law and Justice, and Commerce and Industry. In 2004, it became an independent ministry, and, in 2007, it was renamed the Ministry of Corporate Affairs.
The ministry is currently updating the framework for Indian corporate law, which is rooted in 1956’s Indian Companies Act. Over the last five decades, the act has been periodically updated. Some have argued for further updating of India’s corporate law; to that effect, the Companies Bill was passed in 2012 by the Lok Sabha and is likely to be made law in the summer of 2013, superseding the 1956 law. Among its provisions are steps to increase the allowable size of private companies, to establish one-person companies, to mandate 2% of corporate spending on corporate social responsibility (CSR) by large companies, and to introduce class action lawsuits. A number of its provisions would not come into immediate effect, but only be made law when notified by the government.
The ministry is responsible for keeping watch over large companies to ensure their business viability. Its duties include adopting rules and regulations to promote a healthy private sector. The ministry attempts to ensure competitive business practices, particularly through the Competition Commission of India. It also promotes e-Governance within the ministry, and provides statistics on the corporate sector. In addition to educating and protecting investors, the ministry is supposed to investigate white-collar crime, particularly through its Serious Fraud Investigation Office. Its Official Liquidators auctions the assets of moribund companies as directed by the courts.
Attached Bodies or Autonomous Bodies
The Company Law Board is a quasi-judicial attached body that was first constituted in 1991 to rule on issues of company law. These include such matters as whether a company can auction its assets, how a company restructures its management, and whether a company can move its head office from one state to another. The board is based in New Delhi and Chennai and has additional regional offices in New Delhi, Mumbai, Kolkata, and Chennai.
Competition Appellate Tribunal
The Competition Appellate Tribunal, based in New Delhi, is a statutory body that was created as a result of the Competition Act of 2002. It hears appeals to actions by the Competition Commission of India.
Competition Commission of India
The Competition Commission of India was established in 2003 following the passage of 2002’s Competition Act. It attempts to protect consumers, and ensure free trade.
Indian Institute of Corporate Affairs
The Indian Institute of Corporate Affairs (IICA) is a knowledge center on corporate regulation and governance. It involves schools, a think tank, expert groups, a knowledge management system, and partnerships with other institutes.
Official liquidators are government officers attached to high courts. They oversee the affairs of companies that are ordered to liquidate by a High court. Among their work on behalf of a moribund company is to sell off assets, to pay debt, and to dissolve the company once its final affairs are concluded.
Serious Fraud Investigation Office
The Serious Fraud Investigation Office is the Ministry’s arm for tackling white-collar crime. It says it selectively chooses cases that are large, complex, in the public interest and/or would assist in improving law and policy. It was established in 2003.
The ministry’s budget is Rs. 255.28 crore ($45.44 million USD). Just under half of this sum is spent on the secretariat. This includes general administrative work, as well as funding for the Investors Education and Protection Fund (IEPF) as well as a number of e-governance projects.
Other small funding streams are spent on such tasks as scrutinizing corporate documents filed with the government and administration of liquidated companies. The ministry also funds the Indian Institute for Corporate Affairs (IICA).
Salman Khurshid Implicated in Scam[D1]
Former Corporate Affairs Minister Salman Khurshid has been accused of misappropriating funds Rs. 71 lakh ($0.12 million USD) through the Zakir Hussain Memorial Trust, an NGO run by his wife, Louise. (The trust is named after Khurshid's grandfather, Zakir Hussain, India’s first president.) The minister and his wife allegedly forged signatures of officials in several districts of Uttar Pradesh to misappropriate funds from a government program. The funds were earmarked for the handicapped. India Against Corruption (IAC), led by Arvind Kejriwal, launched an extensive campaign demanding the minister’s resignation from the cabinet.
Kejriwal further charged that at a closed door meeting Khurshid issued a veiled threat, saying that if he were to visit Khurshid's home district he might not return. Kejriwal accused Khurshid of behaving like a “mafia don.” The government faced harsh criticism for appointing Khurshid as the External Affairs Minister in October 2012.
Khurshid Dares Kejriwal To Visit Farrukhabad (The Hindu)
After Controversy, Crowning Glory For Khurshid (by Smita Gupta, The Hindu)
Salman Khurshid Trust Accused Of Cornering Funds Via Forgery (Economic Times)
CAG Inspection Report Validates Charges Against Khurshid's Trust (Times of India)
Should Corporations be Forced to Earmark 2% for Social Welfare?
One of the provisions of the new Companies Bill requires that large companies spend 2% of their profits on “corporate social responsibility” (CSR) or explain why they have not.
Corporations Should Earmark 2% for Social Welfare
Advocates of the “comply or explain” strategy argue that this provision of the bill responds to contemporary conditions: it allows companies the flexibility to decide what to spend on CSR while at the same time providing a way to enforce the bill without the government’s heavy hand. They point out that government guidelines for voluntary CSR spending have failed to have a significant impact, and, as a result, this stronger measure is needed.
India’s Corporate Social Responsibility Proposal (by Kiran Desai, Mayer Brown)
Are You Game For Some Community Good? (by Sreelatha Menon and N Sundaresha Subramanian, Business Standard)
Corporations Should Not Earmark 2% for Social Welfare
Many critics feel that what companies should spend on—i.e. what the concept of corporate social responsibility means—is ill defined. Corporate critics argue that the bill goes too far in mandating CSR; they feel that philanthropic spending should be voluntary, not required, and that the CSR provision of the legislation essentially constitutes a tax on businesses. Pro-market commentators have argued that mandating CSR will introduce market inefficiencies that, over the long run, would damage the economy.
India’s Mandatory Corporate Social Responsibility Proposal: Creative Capitalism Meets Creative Regulation in the Global Market (by Caroline Van Zile)
Should the Government Pass Amendment to Go After Corporate Tax Cheats?
Background
In January 2012, with the fiscal deficit overshooting its estimate, the government began identifying tax evaders and recovering dues. One of the government's biggest potential hauls were capital gains tax worth Rs. 1191.58 crore ($2.19 billion USD) on Vodafone’s 2007 purchase of Hutchison Essar’s India operations. Vodafone, however, took the government to court. The government won in the Bombay High Court, but the Supreme Court came to Vodafone’s rescue. The basis of the apex court’s judgment was that neither of the companies was registered in India—Hutchison in the Cayman Islands and Vodafone in the Netherlands—and the deal were struck in Mauritius, and thus the government was not entitled to the tax.
The court asked the Department of Revenue to return the deposit it had sought from the cell phone service giant, plus the interest. The department petitioned the Supreme Court seeking a review of the judgment but the court stood firm. In response, the government passed a retroactive amendment of the Income Tax Act, 1961, making similar transactions from the fiscal year 1962-63 onward taxable. This has created a debate over whether this strategy to make corporations stop ducking taxes is smart policy or whether it discourages foreign investment.
Pro-Government Passing Amendment to Go After Corporate Tax Cheats
Vodafone and corporate bosses welcomed the Supreme Court’s decision but many called the retroactive amendment to the tax laws unfair. They said the judgment could do wonders to the confidence of potential foreign investors. Delivering the judgment, Chief Justice S.H. Kapadia, who, incidentally, was once a standing counsel for the Department of Revenue, had put the onus on the government and the Parliament to bring clarity to the laws in question if they hoped to continue to attract investment from abroad.
Vodafone-Hutch deal: Retrospective change to I-T Act (by Nikhil Kanekal & Kian Ganz, Mint)
The Flawed Vodafone Verdict (by Buroshiva Dasgupta, Tehelka)
How India’s Biggest Tax Battle Was Won And Lost (by Nikhil Kanekal & Kian Ganz, Mint)
Anti-Government Passing Amendment to Go After Corporate Tax Cheats
Manmohan Singh’s United Progressive Alliance (UPA) has been criticized for “giving away the 2G spectrum on the cheap” and doing “little to bring back the billions of Indian dollars stashed away in tax havens.” And now it was taking on companies that had exploited loopholes in India’s tax regulations to base themselves in tax havens. This seemed a wise decision given the dominant sentiment in the country. However, experts pointed out how the government was unaware the laws are inadequate and that its lacks a tax avoidance treaty with Mauritius.
Vodafone Tax Law Unbelievable: Goldman CEO (by Mayur Shetty, Times of India)
Retrospective Changes In Tax Laws Unfair: Vodafone (The Hindu)
Stop Giving Premature Clean Chits
Corporate scandals are common in liberalized India. As one of the primary regulators of business, the ministry has sometimes come under fire for prematurely giving a “clean chit”: denying that a law had been broken without a proper investigation. For example, the ministry asserted that two telecom companies had not violated the law, only to be rebuffed by the CBI and the Supreme Court. Similarly, when Priyanka Gandhi’s husband Robert Vadra came under scrutiny for real estate transactions, the Ministry was accused of ruling out law breaking before completing a proper investigation.
Corporate Affairs Ministry Says Essar-Loop Issue Was Just a Misunderstanding (by Trisha Thomas, RTN)
Corporate Affairs Ministry Gives Clean Chit To Loop Telecom (Indo Asian News Service, Yahoo! News India)
Backpage (by Harsh Sethi, Seminar)
- Table of Contents
- Overview
- History
- What it Does
- Where Does the Money Go
- Controversies
- Debate
- Suggested Reforms
- Former Directors
- Comments
- Leave a comment
Ministry of Corporate Affairs
In liberalized India, corporations and the market have assumed a new prominence. The small Ministry of Corporate Affairs regulates corporations, protects lenders, investors, and consumers, and otherwise works to build a functioning market.
History
The ministry dates back to the passage of the Indian Companies Act of 1956. This was the first significant piece of legislation dealing with company law created by independent India. In keeping with the spirit of the times, it was designed to protect investors, ensure ethical conduct and promote social justice. The Ministry of Commerce and Industry subsumed the Department of Company Law Administration, which oversaw corporations.
Over the past fifty years, the Department of Company Law Administration has shifted from ministry to ministry and renamed various times. It has functioned under what are now the Ministries of Finance, Law and Justice, and Commerce and Industry. In 2004, it became an independent ministry, and, in 2007, it was renamed the Ministry of Corporate Affairs.
The ministry is currently updating the framework for Indian corporate law, which is rooted in 1956’s Indian Companies Act. Over the last five decades, the act has been periodically updated. Some have argued for further updating of India’s corporate law; to that effect, the Companies Bill was passed in 2012 by the Lok Sabha and is likely to be made law in the summer of 2013, superseding the 1956 law. Among its provisions are steps to increase the allowable size of private companies, to establish one-person companies, to mandate 2% of corporate spending on corporate social responsibility (CSR) by large companies, and to introduce class action lawsuits. A number of its provisions would not come into immediate effect, but only be made law when notified by the government.
The ministry is responsible for keeping watch over large companies to ensure their business viability. Its duties include adopting rules and regulations to promote a healthy private sector. The ministry attempts to ensure competitive business practices, particularly through the Competition Commission of India. It also promotes e-Governance within the ministry, and provides statistics on the corporate sector. In addition to educating and protecting investors, the ministry is supposed to investigate white-collar crime, particularly through its Serious Fraud Investigation Office. Its Official Liquidators auctions the assets of moribund companies as directed by the courts.
Attached Bodies or Autonomous Bodies
The Company Law Board is a quasi-judicial attached body that was first constituted in 1991 to rule on issues of company law. These include such matters as whether a company can auction its assets, how a company restructures its management, and whether a company can move its head office from one state to another. The board is based in New Delhi and Chennai and has additional regional offices in New Delhi, Mumbai, Kolkata, and Chennai.
Competition Appellate Tribunal
The Competition Appellate Tribunal, based in New Delhi, is a statutory body that was created as a result of the Competition Act of 2002. It hears appeals to actions by the Competition Commission of India.
Competition Commission of India
The Competition Commission of India was established in 2003 following the passage of 2002’s Competition Act. It attempts to protect consumers, and ensure free trade.
Indian Institute of Corporate Affairs
The Indian Institute of Corporate Affairs (IICA) is a knowledge center on corporate regulation and governance. It involves schools, a think tank, expert groups, a knowledge management system, and partnerships with other institutes.
Official liquidators are government officers attached to high courts. They oversee the affairs of companies that are ordered to liquidate by a High court. Among their work on behalf of a moribund company is to sell off assets, to pay debt, and to dissolve the company once its final affairs are concluded.
Serious Fraud Investigation Office
The Serious Fraud Investigation Office is the Ministry’s arm for tackling white-collar crime. It says it selectively chooses cases that are large, complex, in the public interest and/or would assist in improving law and policy. It was established in 2003.
The ministry’s budget is Rs. 255.28 crore ($45.44 million USD). Just under half of this sum is spent on the secretariat. This includes general administrative work, as well as funding for the Investors Education and Protection Fund (IEPF) as well as a number of e-governance projects.
Other small funding streams are spent on such tasks as scrutinizing corporate documents filed with the government and administration of liquidated companies. The ministry also funds the Indian Institute for Corporate Affairs (IICA).
Salman Khurshid Implicated in Scam[D1]
Former Corporate Affairs Minister Salman Khurshid has been accused of misappropriating funds Rs. 71 lakh ($0.12 million USD) through the Zakir Hussain Memorial Trust, an NGO run by his wife, Louise. (The trust is named after Khurshid's grandfather, Zakir Hussain, India’s first president.) The minister and his wife allegedly forged signatures of officials in several districts of Uttar Pradesh to misappropriate funds from a government program. The funds were earmarked for the handicapped. India Against Corruption (IAC), led by Arvind Kejriwal, launched an extensive campaign demanding the minister’s resignation from the cabinet.
Kejriwal further charged that at a closed door meeting Khurshid issued a veiled threat, saying that if he were to visit Khurshid's home district he might not return. Kejriwal accused Khurshid of behaving like a “mafia don.” The government faced harsh criticism for appointing Khurshid as the External Affairs Minister in October 2012.
Khurshid Dares Kejriwal To Visit Farrukhabad (The Hindu)
After Controversy, Crowning Glory For Khurshid (by Smita Gupta, The Hindu)
Salman Khurshid Trust Accused Of Cornering Funds Via Forgery (Economic Times)
CAG Inspection Report Validates Charges Against Khurshid's Trust (Times of India)
Should Corporations be Forced to Earmark 2% for Social Welfare?
One of the provisions of the new Companies Bill requires that large companies spend 2% of their profits on “corporate social responsibility” (CSR) or explain why they have not.
Corporations Should Earmark 2% for Social Welfare
Advocates of the “comply or explain” strategy argue that this provision of the bill responds to contemporary conditions: it allows companies the flexibility to decide what to spend on CSR while at the same time providing a way to enforce the bill without the government’s heavy hand. They point out that government guidelines for voluntary CSR spending have failed to have a significant impact, and, as a result, this stronger measure is needed.
India’s Corporate Social Responsibility Proposal (by Kiran Desai, Mayer Brown)
Are You Game For Some Community Good? (by Sreelatha Menon and N Sundaresha Subramanian, Business Standard)
Corporations Should Not Earmark 2% for Social Welfare
Many critics feel that what companies should spend on—i.e. what the concept of corporate social responsibility means—is ill defined. Corporate critics argue that the bill goes too far in mandating CSR; they feel that philanthropic spending should be voluntary, not required, and that the CSR provision of the legislation essentially constitutes a tax on businesses. Pro-market commentators have argued that mandating CSR will introduce market inefficiencies that, over the long run, would damage the economy.
India’s Mandatory Corporate Social Responsibility Proposal: Creative Capitalism Meets Creative Regulation in the Global Market (by Caroline Van Zile)
Should the Government Pass Amendment to Go After Corporate Tax Cheats?
Background
In January 2012, with the fiscal deficit overshooting its estimate, the government began identifying tax evaders and recovering dues. One of the government's biggest potential hauls were capital gains tax worth Rs. 1191.58 crore ($2.19 billion USD) on Vodafone’s 2007 purchase of Hutchison Essar’s India operations. Vodafone, however, took the government to court. The government won in the Bombay High Court, but the Supreme Court came to Vodafone’s rescue. The basis of the apex court’s judgment was that neither of the companies was registered in India—Hutchison in the Cayman Islands and Vodafone in the Netherlands—and the deal were struck in Mauritius, and thus the government was not entitled to the tax.
The court asked the Department of Revenue to return the deposit it had sought from the cell phone service giant, plus the interest. The department petitioned the Supreme Court seeking a review of the judgment but the court stood firm. In response, the government passed a retroactive amendment of the Income Tax Act, 1961, making similar transactions from the fiscal year 1962-63 onward taxable. This has created a debate over whether this strategy to make corporations stop ducking taxes is smart policy or whether it discourages foreign investment.
Pro-Government Passing Amendment to Go After Corporate Tax Cheats
Vodafone and corporate bosses welcomed the Supreme Court’s decision but many called the retroactive amendment to the tax laws unfair. They said the judgment could do wonders to the confidence of potential foreign investors. Delivering the judgment, Chief Justice S.H. Kapadia, who, incidentally, was once a standing counsel for the Department of Revenue, had put the onus on the government and the Parliament to bring clarity to the laws in question if they hoped to continue to attract investment from abroad.
Vodafone-Hutch deal: Retrospective change to I-T Act (by Nikhil Kanekal & Kian Ganz, Mint)
The Flawed Vodafone Verdict (by Buroshiva Dasgupta, Tehelka)
How India’s Biggest Tax Battle Was Won And Lost (by Nikhil Kanekal & Kian Ganz, Mint)
Anti-Government Passing Amendment to Go After Corporate Tax Cheats
Manmohan Singh’s United Progressive Alliance (UPA) has been criticized for “giving away the 2G spectrum on the cheap” and doing “little to bring back the billions of Indian dollars stashed away in tax havens.” And now it was taking on companies that had exploited loopholes in India’s tax regulations to base themselves in tax havens. This seemed a wise decision given the dominant sentiment in the country. However, experts pointed out how the government was unaware the laws are inadequate and that its lacks a tax avoidance treaty with Mauritius.
Vodafone Tax Law Unbelievable: Goldman CEO (by Mayur Shetty, Times of India)
Retrospective Changes In Tax Laws Unfair: Vodafone (The Hindu)
Stop Giving Premature Clean Chits
Corporate scandals are common in liberalized India. As one of the primary regulators of business, the ministry has sometimes come under fire for prematurely giving a “clean chit”: denying that a law had been broken without a proper investigation. For example, the ministry asserted that two telecom companies had not violated the law, only to be rebuffed by the CBI and the Supreme Court. Similarly, when Priyanka Gandhi’s husband Robert Vadra came under scrutiny for real estate transactions, the Ministry was accused of ruling out law breaking before completing a proper investigation.
Corporate Affairs Ministry Says Essar-Loop Issue Was Just a Misunderstanding (by Trisha Thomas, RTN)
Corporate Affairs Ministry Gives Clean Chit To Loop Telecom (Indo Asian News Service, Yahoo! News India)
Backpage (by Harsh Sethi, Seminar)
Comments