UPA'S -5POINT PLAN...OLD NEWS REFRESHING FOR G.K...VQ: Give me an illustration?After the great election verdict last weekend, it has been a week of great expectations. Fiscal stimuli, relaxing foreign direct investments (FDI) limits, energy policy reform, rationalization of subsidies, fiscal responsibility, taxation changes, infrastructure building, judicial and police reforms, banking and insurance liberalisation, education reform, job creation among others. The list of demands facing the Manmohan Singh government has now gone into many pages and may need many terms to fulfil.IBHA

UPA agenda: The five point plan! Published on Sat, May 23, 2009 at 15:13 | Source : CNBC-TV18 Updated at Wed, Jul 08, 2009 at 14:01 UPA agenda: The five point plan! Nifty BSE | NSE 06/07/12 Are Mutual Funds betting on Nifty? After the great election verdict last weekend, it has been a week of great expectations. Fiscal stimuli, relaxing foreign direct investments (FDI) limits, energy policy reform, rationalization of subsidies, fiscal responsibility, taxation changes, infrastructure building, judicial and police reforms, banking and insurance liberalisation, education reform, job creation among others. The list of demands facing the Manmohan Singh government has now gone into many pages and may need many terms to fulfil. Cyril Shroff of Amarchand Mangaldas and Bharat Vasani, Corporate Counsel at the Tata Group, draw up a list of achievable targets in corporate law. Here is a verbatim transcript of the exclusive interview with Cyril Shroff and Bharat Vasani on CNBC-TV18. Also see the accompanying video. Q: What would you like to see this government adopt as its priority agenda when it comes to the space of corporate law and regulation? Shroff: There is a historic opportunity for legal and policy reforms both at a legislative level as well as at a regulatory level. I don�t think we should miss that. This can be used to drive many agendas forward. The way I look at it is this should be a comprehensive view on what is required for growth and for driving business forward to look at it from a correct process point of view as well as from a quality of regulation point of view. I would like to see this both in a long-term, medium-term and a short-term context and lay down four-five key themes around which this effort should be structured where there is a risk of trying to do too much and in that process not achieve anything at all. I look at it from the point of view of business � what is it that they actually require in order to get going to create a more conducive atmosphere. So my five themes which I thought would be relevant are firstly entire area of entry into India and establishment of a new business which applies equally for Indian businesses as well because to have to get something going, we know how difficult it is. So the entire area of business establishment and organization would be my first theme. Within this theme one would capture the things like FDI regulation, business organization principles such as Limited Liability Partnership (LLP) law - things of that nature. That is theme number one. My theme number two would be issue surrounding the normal governance and administration of enterprises once they are up and running that would pick up various aspects of corporate governance - clause 49, things of that nature as well which deal with the normal day-to-day business. The third big area which requires to be properly thought risk capital formation and that covers the entire area of our securities market. The issuance procedure � are we on the right track on all of them, are principles of market integrity being properly observed or not, new classes of investors, new instruments, things of that nature would be picked up within that bucket as well. The fourth theme would be the entire area of mergers and acquisitions (M&A) activity because we know as market gets more sophisticated and as economies grow, M&A activity is very critical in achieving both the health of the market and to make sure that investor interest is actually protected. There are lots of hurdles in smooth M&A activity both in the public as well as on the private side. So that entire area requires to be thought through in a very strategic kind of way. Lastly, bankruptcy and insolvency � the true test of capitalism is the bankruptcy regime because a bankruptcy regime ensures that risks lie where they should fall. If you would have an inefficient bankruptcy regime, you have an incentive to be inefficient so that is one big area which requires to be properly thought through and we need a world class bankruptcy regime. Continued on next page ... UPA agenda: The five point plan! Published on Sat, May 23, 2009 at 15:13 | Source : CNBC-TV18 Updated at Wed, Jul 08, 2009 at 14:01 UPA agenda: The five point plan! Nifty BSE | NSE 06/07/12 Are Mutual Funds betting on Nifty? Q: What you are saying is what you don�t want is any sort of knee-jerk broad policy action in the next two-three months in fact you would rather have them move within time period of 10 months or a year or a year and a half but move with a well thought out policy response to these four-five issues that you have led out? Shroff: Completely because we know as practitioners that poorly thought-out and badly drafted regulation leaves long-term damage on the country and it takes generation sometimes to reform this. So I would like to see something more deeply thought through and implemented because we have this historic opportunity to do it right once and for all. Q: Corporate India is very impatient, you have seen CEO after CEO come on to our channel in the last one week and lay out this long list of demands. So how would you reconcile what India Inc needs and the speed in which it needs it to what Mr Shroff is saying which is �don�t move too fast, don�t come out with half baked policy measures, take your time, take a year, think about it and come out with well thought-out policy moves, would you agree? Vasani: Completely, I would like to emphasize one aspect which bothers investors whether domestic or international and that is the clarity on the rules of the game. I think this is one fundamental area where we have not come out very prominently in the past. In fact the certainty of the regime and the clarity of the rules of the game that what is written we will get is one area government should think of seriously and when it comes to press note 2, 3 and 4, there is a serious apprehension that there will be one more clarificatory note and many of the things which have been promised, some of them maybe taken away. So if the government can seriously decide on a regime which is stable, consistent not necessarily a knee-jerk reaction as Mr Shroff says but a regime where everybody knows what are the rules of the game whether it is in terms of entry into India, exit from India, M&A, capital raising whichever is said I think this is a kind of a fibre on which the government of India should work. Q: Starting with Mr Vasani - I think on the issue that Mr Shroff made on the entry and establishment of businesses in India both domestic and foreign. What do you think needs to be addressed in a longer-term policy? Vasani: Any foreigner when he enters the country he wants to see the ease of entry as also the ease of exit. While I think as far as the first part is concerned - the ease of entry � the government has done considerably over the last few years. Q: The ease of exist still seems to be sticky issue? Vasani: Very sticky issue and there is absolutely no clarity on that and I think any good country should have a good provision for very safe and easy exit for any foreign company which is trying to setup a big place in India and that is one part which is not addressed. Second thing is that even at the time of entry or exit Reserve Bank of India still regulates the pricing for the foreigners. Do we need to now -with a comfortable foreign exchange reserves that we have and that�s a very source of irritation to most of the investors that � why do we need to have a pricing. I know that I can�t get a handsome margin because ultimately the pricing, the cap is decided by the Reserve Bank of India and I cannot get more than the cap. So these are some of the areas where I think the government needs to seriously think through the FDI policy regime entirely which deals with the entry and exit of the foreigners as also the corporate regime. Shroff: There is lot of it is just process irritation because you can just streamline processes in terms of simplification. For instance if one want to form a company one would think that one could do it in a matter of a week. We know that very often it takes six-eight weeks to get a company form with all the processes that are involve. These are fairly simple procedural things which nobody should swath about but can be just simplified in order to ease the entry process. Q: What is it? Shroff: Exactly and just at the bureaucratic level there are still a lot of hurdles. I think they are working in the right direction but I think we now need to set an agenda and achieve certain measurable benchmarks that a company formation shouldn�t take more than a week and it should be a fairly straightforward process - this is just an illustration or the whole bunch of approvals that are required for so many fairly simple things that need to be done. Those are areas where procedurally as well as substantively a lot can be done. We have made good progress, I agree with Bharat on the FDI (Foreign Direct Investment) regime. If you take a historical perspective, we are far more liberal than many other countries. UPA agenda: The five point plan! Published on Sat, May 23, 2009 at 15:13 | Source : CNBC-TV18 Updated at Wed, Jul 08, 2009 UPA agenda: The five point plan! Nifty BSE | NSE 06/07/12 Are Mutual Funds betting on Nifty? Q: I won�t ask you to elaborate on that but the whole issue of FDI caps also needs considerable rethinking really how open do we want to be and if we decide to be partially close than lets freeze that for a period of a few years so that there is clarity on that entire process, its not back and forth and left to bureaucratic interpretation? Shroff: On that point the conceptual change made in Press Notes 2, 3, 4 on FII (Foreign Institutional Investor), FDI and all other firms of investment being in the same bucket, that I think is a fundamental mistake. We need to get that thought through properly in terms of whether these are on the same variety, the equal or not. I don�t think they are. Q: The second point that you brought out and this could be very broad, it could go back to some of the motherhood issues that we have been talking about in the last three-four years which is governance and administration. To me the most immediate thought that comes to mind is the fact that for instance independent directors, the whole institution of independent directors � that concept needs rethinking in this country because at one level we have not put in any roles or responsibilities on the other there are very high expectations and definitely very high legal liabilities as we have discussed in detail. So are those the points that you are talking about? Shroff: That�s a very good example of that and all sorts of administration issues which impact a company in its normal day to day operation, there is so much irritation there. Q: Give me an illustration? Shroff: I saw so many forms that had to be filed for no purpose at all and it�s not an easy process many of them of course have been converted into e-format so it has got better but it still not � and there is a whole industry surrounding these forms and processes some of which is completely futile. Vasani: Just to supplement his point, one classic example �for 20 years we have been debating that whether the directors who are residing outside should be allowed to participate through video conference in the board meeting � nothing has happen. Q: They are allowed to participate through video conferencing, right? Vasani: No. It�s a mistake. That�s a proposal pending before the Parliament. Q: Is that right because in the last two Satyam board meetings in December? Vasani: That�s not counted for the purpose of quorum. You can participate but you are not counted as the legal process is not changed. So, something as simple as that needs correction. Shroff: This is an illustration of the normal stuff that needs to be fixed on corporate law. Q: The third point that you brought up was capital formation and efficiency of market � again this can be a very large issue but specifically in that what are the action points that you would like to see being tackled both in a thought process and then finally culminating in a policy process? Shroff: I think you should look at more varieties of instruments. We have too few in the menu of options that are available even this discussion on non-voting and differential rights that has gone on for too long. I do not know why the debate is still taking place. Sophisticated economy you should have a range of options in terms of instrument and so long as you have a good disclosure and enforcement regime let the market decide what they want. It should not be so prescriptive. So more varieties of instruments, a greater variety of investors� for instance family offices � that�s a huge area of capital, huge source of capital and I think we need to have some view on that on long-term basis as to whether we are going to allow them and in so and what terms for e.g. I think we need more reform in terms of market integrity principles. Q: Doesn�t this all fall under the purview of SEBI (Securities and Exchange Board of India)? Shroff: I am looking at capital market; I am not looking at this only as a company law and also securities market. Q: But can we break this up on what we need the government to do because Sebi�s business continues day after day irrespective to who is in power so to speak and we do know that they are looking at insider trading norms and all of that they had come out with new rules in last two years or so? Shroff: I do not want to look at it only in terms of what the government of India can do but really what the system can do and when it has a right political backing from the government, it�s easier to implement a lot of these things. Q: Diversity of instrument, diversity of investors and then basic ease of market principles and then like you said market integrity systems? Shroff: Correct and insider trading is a good example where we have rules where � if you are due diligence for instance on a large M&A (Merger and Acquisition) transaction you could be hit under the insider trading level. So that doesn�t make sense at all. UPA agenda: The five point plan! Published on Sat, May 23, 2009 at 15:13 | Source : CNBC-TV18 Updated at Wed, Jul 08, 2009 at 14:01 New Projects in Noida Best Properties to Live in Noida. Great Location to Invest. Like this story, share it with millions of investors on M3 UPA agenda: The five point plan! Nifty BSE | NSE 06/07/12 Are Mutual Funds betting on Nifty? Q: Let me come to company�s bill: two-three changes that you would like to see in the bill that you would like to see in the bill that was introduced then lapsed and will now be introduced again eventually? Vasani: Yes, the first part classic one is the non-voting shares. I don�t know why they want to delete it in � in fact it was recommended by Dr. Irani Committee that this would be there. Q: I think one of the Tata Group companies already has one DVR (Differential Voting Rights) Vasani: Tata Motors� has already in the market. The second major change is � I think the entire process of M&A which I believe needs a kind of fast track approach. Nowhere in the world holding a subsidiary companies M&A will require a court approval. So contractual mergers we need to allow and that part needs to be properly articulated in the new company�s bill. In the minority squeeze out they have brought the provisions but I do not think they are adequately drafted well. Q: The minority squeeze out again goes into the delisting provisions because they are all part of the same. Vasani: They are interlinked but company�s act provision also should be there � if minority squeeze out today is almost impossible. We tried in one case and we failed. So these are some of the key issues which they need to change and also the entire gamut of this Inter corporate Investment Laws Section 372A. Today you do a cross border deal and you have to use a route of a subsidiary to go overseas and then do the transaction because you require a shareholders approval, you have to disclose everything in the explanatory statement which your competing bidders from other jurisdiction are not required to disclose. So these are whole host of reforms. Q: Would you like to add anything to that or should I come to the next issue which needs immediate attention which is competition, the competition bill. I think there have been lots of concerns on behalf of corporate India when it comes to the merger control aspect. You would like a rethink on that before it get action? Shroff: Yes and I hope it�s not too late already. Q: No, it hasn�t been action as yet? Vasani: My view is slightly different. I feel that industry does need two year moratorium. The current global economic crisis we have a very serious situation that Indian industry would need to consolidate. Q: A two year moratorium on the competition bill, is it � merger control not dominance? Those have come into force this week. So it is basically merger control that you think needs - I think maybe companies are asking easier way out that. What do you say? Shroff: At least we need clarity over there, may not go to the same extent that Mr Vasani went but probably lot more procedural clarifications, thresholds should be more reasonable looking at what has happened to the economy. Vasani: Why I am recommending the moratorium is that today there are many attractive targets availability at very attractive price because of the current global meltdown and you would be depriving an Indian corporate from acquiring those targets by putting one more gatekeeper in India which would take 210 days. Q: I am surprised that Tata Group still has an appetite for M&A. Vasani: I am talking for corporate India. I think it is very attractive and why not if some target is available at a good price. Q: Three things, competition commission and merger control, company�s bill and a re-look at some of the clauses and a quick clarification on press note 2,3 and 4 when it comes to the FDI policies. Shroff: I think something on governance and independent directors. Q: Mr Parekh of the primary market advisory committee at SEBI said that they are re-looking at the entire concept of independent director. So hopefully something should come out of that in the next 2-3 months. Vasani: But it is not easy to fix because you may fix it under company�s act but there are a whole host of other laws where the liabilities fixed on the directors and they need to bring out something which is a kind of an umbrella legislation which deals with this issue. Shroff: All independent directors are running away from their directorships.