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Corporate - Company Law


India Inc not for restriction on pyramidal structure

Richa Mishra

New Delhi , Feb. 6

INDIA Inc continues to be perturbed over the possibility of a restriction on a pyramidal structure creeping into the corporate statutes of the country. Corporate sector has been pitching against the possibility of the enactment of such provisions in the law books.

Though the Companies (Amendment) Bill, 2003, which had proposed restrictions on holding subsidiary company structure and inter-corporate investments\ loans has been withdrawn by the Government for a thorough review, these issues continue to haunt the corporate sector. In fact, they have been arguing that this would make the Indian corporate sector uncompetitive.

Commenting on whether there should be any such restrictions under law, a Federation of Indian Chambers of Commerce and Industry (FICCI) official said, "It is a well-known fact that India is a capital starved country. In India, if we want capital formation to take place and are looking for entrepreneurship in a major way, it is important that restrictions should not be imposed on holding subsidiary company structure."

Stressing further, a FICCI official pointed out, "Nobody can doubt that governance issues need to be looked into, but governance is not the only issue that the legislation of a country needs to address. The laws have to address the issues on a larger plane and that is from where the capital will come from - especially in a risk averse country like India."

Capital formation in India currently is not commensurate to the growth objectives of the Indian economy and imposition of any restrictions would make capital even more scarce, he said.

"It is a well-established practice in the international business that resources, assets (including manufacturing assets) are being ring framed or ring faced in separate entities or companies. This may be required for various reasons to create the most efficient and practical environment/structure for doing business including to achieve the operational objectives, tax issues, strategic purposes, and retaining control over business," FICCI said.

On the issue regarding whether there should be any restrictions for inter-corporate investments and loans, a FICCI official said, "Any restriction of this sort would limit the ability of companies to grow `laterally and horizontally.'"

The chamber proposes to deliberate on these issues at a conference on `Legal compliance for sustainable business growth' to be held next week. FICCI would also be advocating for a separate law for small and private companies, so that such companies are subjected to minimal compliance.

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