The Hindu Business Line : Pyramid structure ban weighs on India Inc

CHANGE is often met with resistance and so is the case with the corporate sector. The proposed ban on adopting the `pyramid structure' in the Companies (Amendment) Bill, 2003, has not gone down well with a section of corporates. It is now been proposed in the Bill, that no company which is a subsidiary of another company shall become a holding company.

"This proviso is going to have a far-reaching effect on corporate structures. It bans pyramid type of corporate structure, which is of utmost necessity in today's business environment," a Federation of Indian Chambers of Commerce and Industry (FICCI) official said.

The chamber in its internal paper on the proposed Bill has said the pyramid structure refers to several layers of holding subsidiary company structure, which are used by promoters to raise finances, while at the same time retaining management control.

"The proposed proviso would put the Indian companies in a disadvantageous position compared to companies in other parts of the world in the matter of joint venture projects insofar as the foreign companies will be in a position to have multiple layers of subsidiary companies whereas Indian companies will not be able to do so," the paper said.

This is certainly going to slow down the pace of industrial growth and in fact, is a retrograde step as it goes against the basic need of providing level playing field to the Indian companies, FICCI said.

Another provision which has irked the Indian industry is the proposal in the Bill to restrict the board from selling, leasing or disposing more than 20 per cent of the subsidiaries' total assets or 10 per cent of the company's total assets in a given financial year. "The proposed amendment curtails the powers of the board and is a retrograde step. A company's investment in a subsidiary should be over 5 per cent of its net worth," the paper said.

The Bill has also proposed that no person would be eligible to hold office as managing director, whole-time director or other director or manager of the company, if he has attained the age of 75 years.

"The imposition of age limit for such managerial personnel will deprive the services of persons who, though old in years, yet retain their mental powers to the full and by reason of their knowledge and experience may be able to render valuable advice to the company to improve upon efficiency. In fact, it should be the prerogative of the shareholders to appoint such persons on merit irrespective of the age," the paper said.

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