The new Companies Bill 2012, which is awaiting approval by the Rajya Sabha before it becomes law, permits the merger of Indian companies with foreign companies but those eyeing such an option should tread cautiously.

This was stated by R.K. Padmanabhan, Executive Director, Securities and Exchange Board of India (SEBI), Mumbai.

He said the Bill, which has already been passed by the Lok Sabha, also lays emphasis on the appointment of independent directors.

Speaking on ‘Corporate Governance Norms in India as per Companies Bill, 2012’ at a meeting organised by the Indian Chamber of Commerce and Industry, Coimbatore, on Thursday, he said the Bill approved cross-border merger of Indian companies with foreign companies. Already, merger of foreign companies with Indian outfits were permitted.

Money laundering

However, while this was a “very crucial thing’ for several small companies, Padmanabhan said this had a “lot of implications’’ for people having overseas operations.

This was because the angle of prevention of money laundering would come into play. Companies should be “very careful’’ when they contemplated this and how they structured the merger, the SEBI ED, who is an IPS officer of Maharashtra cadre, said.

Independent directors

He said the Bill has specified that one third of the directors appointed in listed companies should be independent directors. They will be eligible only to receive sitting fee, reimbursement of expenses and commission linked to profit earned by the companies.

A databank of independent directors would be maintained by a body notified by the Central Government.

CSR activities

He said the Bill also laid emphasis on Corporate Social Responsibility (CSR) of companies by mandating certain specific sum to be spent.

The Bill stipulates that companies with a net worth in excess of Rs 500 crore or a turnover of more than Rs 1,000 crore or a net profit of Rs 5 crore or more should spend a minimum of 2 per cent of the average net profit of the preceding three years on CSR.

If companies were not able to spend the sum on CSR, which should preferably be on activities in areas where the companies were operating, they should explain the reasons for their failure to do so in their Board’s report.

Padmanabhan explained: “we are in the process of discovering ourselves, in the process of evolving’’ and the new Companies Bill was one part of that process.

K.N.V. Ramani, Senior Advocate and Corporate Lawyer, referring to the CSR, said that there should be a provision for set-off and set-on relating to the spending on CSR activities.

Project outlay

This was because the planned outlay on projects taken up under CSR cannot always exactly match the money to be spent as a percentage of the profit earned and they might not be completed during the time specified.

In such cases, any excess sum spent or a shortfall in spending should be allowed to be adjusted during subsequent period.

He said while this provision on CSR was a soft legislation, it was “commendable’’. He was of the view that the task of getting independent directors would become tougher because of the strict norms specified.

R.R.Balasundharam, President, ICCI, Coimbatore, also addressed the gathering.