Thursday, 19 December 2019

Book Review - Company Law for Private Companies [Marathi Edition]

Book Review
Company Law for Private Companies [Marathi Edition]


Shri. Mahesh Janardhan Risbud, Practising Company Secretary, Pune has authored a book on Company Law in Marathi Language. The book covers compliances and procedures for Private Companies and also covers a separate chapter on Limited Liability Partnerships (‘LLP’).

Considering the convenience of decision making, Private Companies – as a form of business organisation is preferred by many businessmen and entrepreneurs. In a private company, the minimum number of directors and shareholders are two. Generally, the decisions are taken mutually by the two directors & shareholders. In private companies, it is very convenient and cost-effective process to call and conduct a meeting of directors and shareholders and take the necessary decisions. Also, private companies are exempted from compliances of strict regulations under the Companies Act.

Under the Companies Act, 1956, there were specific exemptions given to private companies w.r.t. calling of meetings, directors / directors relative funding the private companies, drafting the Articles of Association of the company, disclosures to the shareholders and Government, etc.

Under the Companies Act, 2013, there were very few exemptions given to private companies. With an objective of ‘ease of doing business’ and promote entrepreneurship, the Government has issued several notifications and introduced certain exemptions for private companies.

The book ‘Company Law for Private Companies’ authored by Shri. Mahesh Janardhan Risbud is a compilation of the relevant provisions for private companies in Marathi language. The author has explained the provisions of the Companies Act and LLP Act is simple and lucid language. Initially, the author has explained the concept of ‘company’, its features and advantages. This part of the book will help the businessmen and entrepreneurs to decide whether to incorporate a partnership firm or company. The author has also explained different types and classes of companies, e.g. One Person company, private companies, companies with charitable objects, small companies, start-ups, etc.

Considering that the reader has decided to incorporate a company, the author then provides a detailed process for its incorporation. In simple language, he explains the process of selecting the name of the company, online application and its approval. Then he explains the Memorandum of Association and Articles of Association, which are the constitution documents of the company. Recently, the Govt. has re-introduced a concept of ‘commencement of business’, wherein the promoters are required to report to the Govt. about their infusion of share capital in the company after its incorporation. The author has rightly captured the latest amendment which would ensure timely compliance of the new regulation by business and entrepreneurs.

The directors are responsible for day-to-day functioning of the company. The author has lucidly explained the various provisions relating to appointment of directors, their tenure, duties and responsibilities. The author has also explained in simple language about the procedure of conducting and convening board meetings. 

On the share capital of the company, the author explains the different types of share capital, i.e. authorised share capital, issued share capital, subscribed share capital, paid-up share capital etc., along with different types of shares i.e. equity shares, preference shares, equity shares with differential voting rights, etc. With an objective of having a basic understanding of raising of finance by companies, the author has explained the different ways of raising it, i.e. Rights Issue, Private Placement, Preferential Issue, ESOPs. In a different chapter, the author has explained the various provisions relating to acceptance of loans and deposits by a company. The author has pointed out important aspects from the perspective of compliance under the Companies Act, 2013 and the Rules made thereunder. In a separate Chapter, the author has discussed some important aspects about the appointment of Statutory Auditor and Company Secretary and their role in functioning of company.

Running a business comes with its own challenges. Sometimes when things do not work out, necessary steps shall be taken for closure of company. In this part of the book, the author has adequately covered the provisions relating to winding-up of company, dormant companies, striking off of companies, liquidation of company. 

For the convenience of the readers, the author has presented the special provisions applicable to private companies, list of Registrar of Companies along with their updated addresses, list of applicable e-Forms, etc. in tabular format. This part of the book will be helpful for corporate law professionals from the perspective of routine compliance and audit.

The Author has also covered another important topic – Limited Liability Partnership. In this topic, the author has explained the process of incorporation, points to be considered in the LLP agreement, working and operations of LLP, roles and responsibilities of the partners and designated partners of the LLP. From the perspective of restructuring, the author has also covered important topics relating to conversion of company into LLP, conversion of partnership firm into LLP, closure of LLP, etc. This topic will help the readers in comparing the advantages and disadvantages of incorporating a company vis-à-vis LLP.

The book will be quite helpful for businessmen, entrepreneurs, non-commerce students, corporate law professionals and non-corporate law professionals for understanding the basic provisions of the companies and LLP. The book will be good addition to the Marathi curriculum and libraries of school/college/university. The book is presented in a very lucid and comprehensible manner to provide the readers an insight of the Companies Act as applicable to small private companies and LLP Act.


The book can be purchased from:
Vyapari Mitra
Parshuram Kuti 106/9, Erandwana, 
Near Old Shamrao Kalmadi High School,
Pune – 411004, Maharashtra, IN.
+91 94218 80290
https://www.vyaparimitra.com/ 
sampadak@vyaparimitra.com 

Book review prepared by Gaurav Pingle, Company Secretary, Pune.

Monday, 3 September 2018

Whether examination for aspiring Independent Directors serves any logical purpose?


Background: Government plans to have examinations for individuals who want to become independent directors (‘IDs’) as part of bolstering the corporate governance framework, according to Union Minister P P Chaudhary. While there are stringent provisions under the Companies Act, 2013 to ensure good governance standards, the roles of IDs has come under the scanner in certain instances of corporate misdoings. Also, at a time when the Government is making efforts to make its role minimal in the affairs of corporates, the role of IDs is more vital. Asserting that the Government is committed to improve the fabric of corporate governance in the country, Chaudhary said strengthening the role of IDs in the affairs of companies is one of the steps in that direction. “The requirement with respect to IDs to have minimum reasonable qualifications and a certification course/ exam are also being considered,” Chaudhary told in an interview. [Key excerpts from ET News story].

Provisions under Companies Act, 2013 & SEBI Listing Regulations: Presently, there is no provision in the Companies Act and SEBI Listing Regulations of an examination for individuals who want to become independent directors.

Databank of independent directors: Section 150 of the Companies Act relates to ‘Manner of selection of IDs and maintenance of databank of IDs’ [effective from April 1, 2014 but not practically implemented]. Pursuant to the provisions, ID may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as IDs, maintained by any body, institute or association, as may be notified by the Central Government, having expertise in creation and maintenance of such data bank and put on their website for the use by the company making the appointment of such directors. The responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an ID shall lie with the company making such appointment.

Recommendation of the Kotak Committee on Corporate Governance: The Kotak Committee noted that the Companies Act provides general clauses pertaining to training, induction, etc. of directors and SEBI Listing Regulations requires familiarization of IDs relating to certain specified matters. However, specific provisions on induction training and periodicity of continuous updation are lacking. Based on this background, Kotak Committee recommended: (i) A formal induction should be mandatory for every new ID appointed to the board; and (ii) Formal training, whether external/internal, especially with respect to governance aspects, should be required for every ID once every 5 years, the onus of which shall be on the director. However, such recommendation was not accepted by the SEBI.

Moot question is whether examination for aspiring Independent Directors serves any logical purpose? Considering the examination for aspiring Independent Directors, in my view, the entire thrust is on ‘examination’ and not ‘training’. The outcome of this would be ‘well-qualified IDs’ but not ‘well-trained IDs’ or ‘capable IDs’. The examination would be in MCQ format covering general syllabus relating to law, finance, accounts and management (just guessing, based on on-going trend). However, in practice, an ID has to confront the challenges w.r.t. disclosures, compliances, fiduciary duties, approval process w.r.t related party transactions, appointment of auditors, approval of financial statements, etc.

Considering the dynamic changes in law (Companies Act, Securities Law, IBC, Foreign Exchange Laws, GST, etc.) one-time examination would not serve the real purpose in the long run. The IDs need ‘training’ and not ‘examinations’. The trainings should be from the perspective of the industry specific laws, company’s practice, company’s implementation process, regulatory updates, recent case laws (India and abroad), global practices, peer-practices etc. All these practical and relevant aspects will not be part of the examination which is proposed by the Government.

The Government, in my view, shall re-consider this proposal. The Kotak Committee on Corporate Governance has made some important and relevant recommendations which should be considered by SEBI and MCA.

Sunday, 12 August 2018

Whether Related Party Transactions really need a relook?

By Gaurav Pingle, Company Secretary, Pune
(E-mail id: gp@csgauravpingle.com)

Background: Recently, an article was published in Economic Times on the topic of Related Party Transactions (titled, Related Party deals in Companies Act need a relook). The article was in relation to the Annual General Meeting of Tata Sponge Iron Limited wherein the company had proposed 3 resolutions relating to related party transactions for shareholders approval. The company faced defeat on all the 3 resolutions. Out of the 45.5% non-promoter shareholders, only 12.43% participated in the voting; of which 66.76% opposed the resolution. The company faced defeat on all 3 resolutions for approval of RPTs with just 3.77% of the total shareholders opposing it. It can be said that the shareholders holding 3.77% virtually bulldozed the wishes of 96.23%.

Provisions under Companies Act, 2013 & SEBI Listing Regulations: Under the extant provisions of the Companies Act, 2013, a related party is prohibited from voting on the resolution as a shareholder where the related party is party to the contract. Whereas, under SEBI Listing Regulations all the related parties are prohibited from voting, irrespective whether the shareholder is a related party or not.

Presently, under the Companies Act, 2013 (section 184), every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed. Such director shall not participate in the meeting of the board of directors.

Under the Companies Act, 2013 (section 184), where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interest forthwith when he becomes concerned or interested or at the first meeting of the Board held after he becomes so concerned or interested.

Analysis: After notification of the Companies Act, 2013 and introduction of the SEBI Listing Regulations, related party transactions have been at the center stage of corporate governance arena. The crux of the entire issue is – Whether prohibition on voting by related parties is constitutionally valid? In my view, such prohibition amounts to depriving a person of his right to vote and it is a well settled principle of the company law that depriving a voting right is depriving the property, since vote is property. The shareholders vote is a right of property, and prima facie may be exercised by a shareholder as he thinks fit in his own interest. A member can exercise this right even in a manner adverse to what others may think the interest of the company, provided his vote is bona fide and contrary to public policy. It is settled in company law that right to vote attached to a share is property. In my view, neither Companies Act, 2013 nor SEBI Listing Regulations shall take away such right of a shareholder (whether as a promoter or non-promoter, whether related party or not).

I am of the opinion that the Companies Act, 2013 and SEBI Listing Regulations shall enhance the disclosure requirements for such related party transactions. Such disclosures can be part of Explanatory Statement to the Notice of the general meeting. The law may also direct the companies to give a public notice / advertisement of such related party transactions. The law may also direct the board of directors to provide a declaration that such related party transaction is in the interest of the company with requisite reasoning. The declaration may also contain a provision that all the necessary disclosures by the directors have been made to the shareholders. In my view, not all RPTs are against the interest of the company. Some RPTs may be a requirement of the company to focus on its core business activity. Better disclosures and transparency by the board of directors will also eliminate the possibility (which is now a reality as well!) of majority shareholders being at the mercy of minority shareholders.

In my book on Related Party Transactions, in one of the Chapters, I have compared the RPTs provisions under the Companies Act, 2013 and SEBI’s Listing Regulations. There are 26 comparative points on the provisions relating to RPTs. The other RPT provisions includes scope of related party, type of specified transaction, ‘pricing parameter’, reference of ‘ordinary course of its business’, Audit Committee’s approval, recommendation to the board of directors where RPT is not approved by Audit Committee, ratification of RPTs by Audit Committee, material RPTs, trigger point for shareholders’ approval, provisions relating to royalty payment, annual disclosures, etc. The regulators shall harmonize the said provisions which will ultimately address the real issues in RPTs.

Book on RPTs can be purchased from: Flipkart & Amazon .

Thursday, 9 August 2018

Milkha Singh, The Race of My Life






Milkha Singh, popularly known the Flying Sikh, is an inspirational story of India’s most iconic male athlete. Bhaag Milkha Bhaag is a biographical film that depicted his early life and career. The book ‘The Race of My Life’ is an autobiography of the Flying Sikh. I feel that the book is more inspirational than the movie. This write-up / blog is a review of the book ‘The Race of My Life’. It captures the real life of Milkha Singh, his challenging experiences and inspiring moments. Wherever necessary I have given the excerpts of his life-time experience, which no one can explain better than him. It is a 150 page book divided into 20 Chapters. He has explained the pre-independence era, partition time which had a very significant impact in his life, his life before and his life after army, his experiences as an athlete and most importantly his PASSION for running! The book is beyond a ‘self-help book’. It is a must read for any person who wants to achieve any goal in life. The book will definitely establish self-belief in a person.

The Foreword for the book is written by Shri Rakeysh Omprakash Mehra (Director, Bhaag Milkha Bhaag) and Introduction to the book is written by Milkha Singh’s son – Jeev.

In the half-page Prologue, Milkha Singh stated that “When I reflect upon my life I clear see how my passion for running has dominated my life. The images that flash through my mind are those of me running … running …. Running…
·                    Sprinting from one shady patch to another to escape the blistering heat of the sun on my journey to school,
·                    Feeling the massacre on that fearsome night when most of my family was slaughtered
·                    Racing trains for fun,
·                    Outrunning the police when I was caught stealing in Shahdara,
·                    Leaving everyone behind in my first race as an army jawan so that I could get an extra glass ofmilk,
·                    Surging past my competitors in Tokyo when I was declared Asia’s Best Athlete,
·                    Running in Pakistan and being held as ‘The Flying Sikh’,
Each of these moments brings back bittersweet memories as they represent the different stages of my life, a life that has been kept afloat by my intense determination to triumph in my chosen vocation.”

The Prologue really moved me and made me more serious about reading the book at one go. J

Faith on his Coach
(Morale boosting attitude and clever strategies that Dr. Howard gave me, equipped me with the confidence that I badly needed)

In almost all chapters on his running, Milkha Singh has touched upon the contribution of his coaches in his career. He has explained the way his coaches mentally prepared him for every match. The American Coach, Dr Howard had accompanied the Indian Team[1]. About Dr. Howard, Milkha Singh has stated that “He was an outstanding trainer, who was very well acquainted with international training patterns and techniques. He was also very astute and could easily judge the strengths and weaknesses of the other athletes. For an entire day he mentored me, giving me pointers on what to expect. More than anything he was trying rid me of my inferiority complex and instill self belief. I had convinced myself that there was no way that I could be among the six finalists, let alone win a gold medal. What chance did I have against superbly fit professionals Malcolm Spence from South Africa, George Kerr from Jamaica, Keven Gosper from Australia, Terry Tobacco from Canada and John Salisbury from England.
However, because of Dr. Howard’s motivation and advice, I won heat after heat and effortlessly reached the finals. The night before the race, Dr. Howard reiterated the tips he had drilled into me. He revealed that Spence had more stamina than speed, and that I should stick to me own style of running the 400 mts. race, i.e. to start in top gear. He emphasized that I must not start slowly, that I must maintain my speed for first 300 meters, and then give it my all in the last 100 mts. He said that if I ran first 300 mts. at full speed, Spence would do the same, although that was not his running strategy.
The morale boosting attitude and clever strategies Howard gave me, equipped me with the confidence that I badly needed. I started believing that I could be the best. Another constant motivation was a burning desire to do well for the country – I was well aware that my good performance would lead to the glory of India.”

Life-time title ‘The Flying Sikh’
(Athlete running before you is Milkha Singh. He does not run, he flies! His victory will be recorded in Pakistan’s history)

Soon after the National Games at New Delhi, India received an invitation from Pakistan Government for the Indo-Pak Sports Meet. About this visit, Milkha Singh stated that “What an ironic twist of fate. I was returning to the land where I was born, where I had lost my home and most of my family in the inhuman savagery that followed Partition”. Milkha Singh didn’t want to go, but Pandit Nehru intervened, saying that this visit was for the honour of country and that Milkha Singh was going there as an ambassador of India.

Just before the race at Pakistan, Milkha Singh has described the entire event, as “There was pin drop silence as we stood at the starting line waiting for the race to begin. The silence was oppressive. The starter, dressed in white shirt and trousers, a red overall, white peaked cap and black shoes, stood on a table behind us. He shouted, ‘On you marks’, fired the gun and the race begun. The audience suddenly awoke and began to chant: ‘Pakistan Zindabad: Abdul Khaliq Zindabad.’ Khaliq was ahead of me but I caught up before we had completed the first 100 mts. We were shoulder to shoulder then surprisingly, Khaliq seems to slacken and I surged ahead as if on wings. I finished the 200 mts. about 10 yards ahead of Khaliq, clocking 20.7 seconds that equaled the world record. My coach, Ranbir Singh, the manager and all my team members leapt to their feet in jubilation. I was embraced, thumped on the back and then lifted on to their shoulder as they expressed their happiness both vocally and physically …. After the race, I ran a victory lap of the stadium, while loud speakers announced: ‘The athlete running before you is Milkha Singh. He does not run, he flies! His victory will be recorded in Pakistan’s history and we confer the title of ‘Flying Sikh’ on him’. It was General Ayub Khan who coined the titled ‘Flying Sikh’, when he had congratulated me, saying ‘Tum daude nahi, Udhey ho’ – You do not run, but fly! As I passed in front of the woman section the ladies lifted their burqas from their faces so that they could have a closer look at me – an incident that was widely reported in the Pakistani press. And so, with this victory I became the Flying Sikh. A title that soon became synonymous with my name all over the word.

Once an Athlete, Always an Athlete:
(Coach has the power and influence to build a sportsperson’s stamina, prowess and self-confidence)

In this Chapter, Milkha Singh has touched upon the sports industry and selection criteria at a national and international level. He has raised and addressed few critical issues in the selection process. He has mentioned about the international level of coaching, sports infrastructure and scientific training methods. He has given a reference of the productivity of National Institute of Sports. Importantly, he has discussed about the accountability in sports industry. This Chapter will be very relevant and interesting for the coaches, sports management students and sportsman.

Milkha Singh has stated that “How very different this systematic approach is from the lackadaisical manner in which we try to develop our sports people. Selection in India are adhoc, often dictated by political diktats, or through personal contacts and connections. What India needs today is a firm goal to aspire towards, and what could be more prestigious than aiming for an Olympic gold? Success in the Olympic should be our ambition but to achieve that end, we international level coaching, and for that, I would strongly recommend emulating the Chinese, right from creating a world class sports  infrastructure to spotting and grooming kids with talent. We need to overhaul our selection process and training methodology and chose on the most talented young boys and girls who show promise and have the potential to produce results. Give them professional guidance, give scientific training methods, discipline them if their standards fall, and above all, inspire and motivate them. What needs to be instill in them right from beginning is: toil hard to increase efficiency, stamina and strength, be resolute in thought, word and deed, and most important of all take pride in your performance.

But no sportsman can achieve results without an equally dedicated and committed coach. Thousands of coaches graduate from the National Institute of Sports (NIS) every year, but what has been their contribution to the development of our sports people? Unlike China, they are not held accountable if their trainees do not produce the expected results. The sad truth is that no can question them, neither the government who employs them nor the association who sponsor them, not even their students whose careers depends upon them. As a result, they have grown complacent in their jobs.”

He has compared the present sports industry scenario and coaches with his own time. He has once again appreciated the contribution of his coaches from his journey from Milkha Singh to Flying Sikh. In the book, he has stated that “The lethargy or apathetic coach can only impede the growth and progress of an athlete. If there were no Gurudev Singh, Ranbir Singh or Doctor Howart when I first started running, would I have ever achieved the success I did? No. And I will reiterate what I have always said that it is only the coach who has the power and influence to build a sportsperson’s stamina, prowess and self-confidence.”

The politics of sports
(No other sport gets the kind of exaggerated coverage that the cricket does)

In this Chapter, Milkha Singh has candidly discussed about the reasons why sports standards are declining in last few decades. He has very rightly criticized cricket. In this Chapter, he has mentioned that in India, if a sportsperson (other than cricketer) wins or breaks a record then the attention will focus on them only for a short while. He has stated that Media can change this scenario and encourage other sports in every possible way.

Milkha Singh stated that “Another reason why sports standards are declining is that over the last few decades, cricket has over shadowed every other sport in India. Open any newspaper, put on the television, and what first grabs the persons attention are the screaming headlines and images of star cricketers in action. No other sport gets the kind of exaggerated coverage that the cricket does. Besides, there is a constant cycle of cricket – test matches, one dayers, IPL and what not – taking place throughout the year, so many events that there seems to be very little respite between one match and the next. Compelling images, swashbuckling exploits, glamorous lifestyles, and most important, the money are the lures that attract young children towards the game.
Just a handful youngsters are interested in any other sports. Even if a sportsperson wins or breaks a record in any other game, be it athletics¸ hockey, boxing, wrestling, shooting, tennis or badminton, attention will focus on them only for a short while. For example, our medalist at the 2012 London Olympics, including Saina Nehwal, Sushil Kumar, M.C. Mary Kom, were greatly feted for their success when they returned. But then the attention was back to cricket once again. I think the media should help encourage other sports in every possible way.”

As mentioned earlier, this book is a must read. The book will surely instill self belief. J


[1] Reference: British Empire and Commonwealth Games, 1954. Chapter 10 – ‘Come on Singh’, Page 70

Monday, 9 October 2017

Book Review – 5th Edition of the book “Transfer and Transmission of Shares”




Recently, Bharat Law House published the 5th Edition of the Book “Transfer and Transmission of Shares”. The book is authored by Dr. KR Chandratre, Practising Company Secretary and Past President of the Institute of Company Secretaries of India. It covers a special chapter on Depository System.

In the Preface to the 5th Edition, the author states:
The book has always been acclaimed and received well by the companies and professionals as an authoritative commentary and practical handbook on the subject. It had once received appraise from one of the Chairman of the Company Law Board during nineties.”
The first Edition of the book was written by Dr. KR Chandratre in 1990. On October 5, 2017, I received following message from the author:
I’m happy to inform you about the release of the 5th edition of one of my books. The first edition of this book, released in 1990, was the first book I wrote in my life and I had written the entire manuscript of the book by hand and someone had typed it for me on manual typewriter.”
5th Edition of the book is based on the provisions of Companies Act, 2013 and the Rules made there under. It also covers relevant cases decided by Courts, CLB, NCLT/NCLAT reported after the release of 4th Edition until August 2017. The changes proposed by the Companies (Amendment) Bill, 2017, as passed by the Lok Sabha, are also incorporated at appropriate places. The book has a separate chapter on “Section 236 of Companies Act, 2013 – as proposed to be amended by the Companies (Amendment) Bill, 2017: Whether it mandates forced buyout of minority shareholders”.

The book covers commentary and case laws on shares, types of shares, forfeiture of shares, lien on shares, debentures, member, eligibility criteria to be a member of company, joint shareholders, share transmission and nomination, holding of shares in a wholly owned subsidiary company, share certificate. There is an exhaustive chapter on “Transferability of shares: Basic Principles” and “Transfer of shares: Law & Procedure”. Stamp duty is always an important and critical aspect for any instrument and there is a separate chapter on this topic. Declaration of beneficial interest in shares is an important issue where shares of the company are held by nominee and trust and there is a separate topic on the same covering commentary and case laws.

The Chapter on “Depository System – Law and Mechanism” covers exhaustive commentary on the Depositories Act, 1996 and SEBI (Depository Participants) Regulations, 1996 with necessary references to Banker’s Books Evidence Act, 1891. This part of the book, along with other Chapters, will be a great value addition for professionals working in listed companies and Regulators like SEBI and Stock Exchanges. In the book, there is an exclusive section on the gist of cases on Refusal to Register Transfer and Transmission of shares and the Remedies and Rectification of Register of Members. The section covers gist and analysis cases decided by CLB, NCLT/NCLAT, High Court and Supreme Court. It covers gist of cases on 417 issues, like nature and scope of jurisdiction of tribunals and Civil Court, power to grant injunction, ‘sufficient cause’, ‘unnecessary delay’, refund of consideration when transfer of refused, fraud or misrepresentation, forfeiture of shares, rectification when company goes in winding-up, arbitration, cancellation of stamps, refusal in respect of pledged shares, transferee member of rival group, transfer of shares of a sick company, etc. This part of the book, along with other chapters, will be a great value addition for professionals having litigation practice. For professionals working in the corporate secretarial department of companies, this section of the book will help you to understanding the judicial aspect of the transfer / transmission related provisions.

The book will be useful to corporate executives, professionals and also to law enforcing agencies such as MCA, SEBI, Stock Exchanges and the judiciary – NCLT and NCLAT.

For me, it is always an honor and privilege to contribute in updating the chapters of the book.

The book can be purchased here.


Preface to the Fifth Edition


Sunday, 1 October 2017

RBI’s James Bond on Demonetization, Bankruptcy Code & more…

(Image Source: Livemint )

RBI’s James Bond on Demonetization, Bankruptcy Code & more…

The book “I do What I do” has been one of the most awaited books (for me, at least) for 2017. The book is not just a compilation of the prominent speeches and research papers of Dr. Raghuram G Rajan but it gives adequate background of the same. In the commentary part of the book (i.e. background), Dr. Rajan explains the economic scenario, challenges faced by the Govt. / RBI at that point of time. For some of the speeches, he has given a reference to the media / social media hype that was created. Inspite of the fact that the book is a compilation of Dr. Rajan’s speeches, I feel that this book is a must read for all law, commerce and finance students and professionals. He gives a rationale of the decisions taken by RBI w.r.t. Foreign Exchange inflows and outflows, fight against inflation, economic growth, currency risks, Non Performing Assets, Monetary Policies, Jan DhanYogana, competition in Banking sector, debt markets, resolving stress in the banking system, independence of Central Bank, Financial Sector Legislative Reforms Committee Report (FSLRC) & many more..

Primarily, the book is divided into 3 parts viz. (i) RBI days, (ii) Global Financial Crises, (iii) Occasional Pieces. The first part, i.e. the RBI Days,covers almost 2/3rd of the book. It covers the first speech of Dr. Rajan as the RBI Governor and ends with his last official e-mail addressed to the RBI staff. For law and commerce students and professionals, this part of the book will be very interesting and relevant. The other parts of the book (‘Global Financial Crises’ and ‘Occasional Pieces’) will be relevant (and interesting) for finance students and professionals, as the information is quite ‘technical’.

Being a corporate law consultant, author and trainer, I have ensured the write-up focuses on Dr. Rajan’s view point on Insolvency and Bankruptcy Code (‘IBC’), large loan defaulters and demonetization. In fact, the purpose of purchasing the book was to understand the rationale of Dr. Rajan on the same.

Why the title “I do What I do”: The title of the book is quite attractive. Like other people, I was also very curious to know the purpose of having such title. Dr. Rajan explains the reason in the “Introduction” of the Book.In one of the press conference, Dr. Rajan was asked whether he was dovish like Yellen or hawkish like Volcker. He replied as “I understood what the reporter was asking, but I wanted to push back on the attempt to pigeonhole me into existing stereotypes. Somewhat jokingly, I started in a James Bond-ish vein, ‘My name is Raghuram Rajan…’ To my horror, mid-sentence I realized I did not know how to end in a way that did not reveal more on monetary policy than I intended. So with TV cameras trained on me, I ended lamely ‘…and I do what I do’”.

The sentence became the financial press headline the next day, with the details of monetary policyrelegated to the inside columns. On his daughter’s comments on the statement, he said “The commentary on social media even reached my usually supportive daughter, who emphasized her negative reaction to my unwitting sentence with repeated thumbs-down emojis!

Dosanomics: In late 2015 and early 2016, the inflation rate had come down and the banks had lowered deposit rates. However, few savers were unhappy, inspite of the fact that inflation had fallen much more than the rates on deposits. Earlier, the savers argued that they got paid 10% on their fixed deposits at banks, now they get 8%. Was that fair? Dr. Rajan explained that it was indeed fair, as the inflation had come down faster, so the real returns (in terms of goods and services they could purchase) on their savings were now higher. In his lecture at NCAER in Jan. 2016, Dr. Rajan gave an example of Dosa in relation to inflation. The media termed it as Dr. Rajan’s ‘Dosanomics’.

Job of the Governor: Dr. Rajan was the 23rd Governor of the Central Bank of India. His term was from Sep. 4, 2013 to Sep. 4, 2016. During his tenure as RBI Governor, he had regular meetings with Prime Minister Dr. Manmohan Singh and Finance Minister Chidambaram, and then when the Govt. changed, with Prime Minister Narendra Modi and Finance Minister Jaitley. On the least pleasant aspect of his job as RBI Governor, he stated that it was dealing with bureaucrats who were trying to undercut the RBI so as to expand their turf. In his last speech as the RBI Governor, he offered suggestions to the Govt. on how to reduce these unproductive frictions.

On RBI Governor’s work profile in relation to other public administration job, he states that “The job of Governor is probably the most fulfilling job any Indian economist could aspire for. There were many days when I went home tired but happy that we had really made a difference. There are very few jobs in public administration where one can say this because one is always hemmed in by the need to get the concurrence of other organizations, and turf battles make it hard to move forward. At the RBI, on many issues the decision was ours, and ours alone, so progress was feasible and continuous. This also meant that the job weighed constantly on my mind, for I had to keep asking what more we could do, given the possibilities were endless. Putting a policy economist in the Governor’s job is like letting a kid loose in a candy shop!

Demonetization: Dr. Rajan was asked many questions by Reporters on Modi Govt.’s bold move of demonetization, but he refused toanswer for sometime. In the book, Dr. Rajan has given a summarized opinion and background to such ‘bold’ move. He has stated that:

“I was asked by the government in February 2016 for my views on demonetization, which I gave orally. Although there might be long-term benefits, I felt the likely short term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals. I made these views known in no uncertain terms. I was then asked to prepare a note, which the RBI put together and handed to the government. It outlined the potential costs and benefits of demonetization, as well as alternatives that could achieve similar aims. If the government, on weighing the pros and cons, still decided to go ahead with demonetization, the note outlined the preparation that would be needed, and the time that preparation would take. The RBI flagged what would happen if preparation was inadequate.
The government then set up a committee to consider the issues. The deputy governor in charge of currency attended these meetings. At no point during my term was the RBI asked to make a decision on demonetization.”

Incidentally, such a revelation comes at a time when the RBI report’s claim that 99% of the demonetized notes were returned to the banks. This may have an impact on the NDA Govt.’s performance in the upcoming general elections.

Resolving Stress in Banking System: The Insolvency and Bankruptcy Code, 2016 was not effective during Dr. Rajan’s tenure as RBI Governor. Therefore, with an objective to resolve the stress in banking system, RBI had introduced number of Schemes for facilitating bank resolution of distress. The Schemes were repeatedly re-examined to see how they could be tweaked to facilitate resolution. Dr. Rajan, in his commentary, said that “Unfortunately, with the exception of a few hard-charging and conscientious bankers, the general mood among the bankers was to continue to extend and pretend. They feared they would be held accountable for any concession they made, and constantly (and perhaps understandably) avoided taking decisions

In the postscript to one of his speech, Dr. Rajan has appreciated the efforts taken by the NDA Govt. in enacting Bankruptcy Code and amending various acts governing debt recovery by making them less easy to game. He concludes by stating that “These are important steps forward in rectifying the balance between borrower and lender in India. However, the operational effectiveness of these changes needs to be tracked, and further amendments enacted if necessary, until we have a resolution system that works in a rapid, fair and transparent way.

Large Promoter Defaults: In one of his lectures, Dr. Rajan deliberated on the large borrowers, their defaults, role played by the public sectors banks and taxpayer’s money. He said that the reason we are willing to protect the borrower against the creditor is that the hated moneylender looms large in our collective psyche. He stated that the large borrower today is not a helpless illiterate peasant and the lender today is typically not the “sahukar” but a Public Sector Bank. He opined that “When the large promoter defaults wilfully or does not co-operate in repayment to the Public Sector Bank, he robs each one of us taxpayers, even while making it costlier to fund the new investment our economy needs”.

In a very interesting conclusion, which has an importance in the present economic scenario, he said that the solution is not more ‘draconian laws’ (which the large borrower may well circumvent and which may entrap the small borrower), but a more timely and fair application of current laws. He said that India needs new institutions such as Bankruptcy Courts and turn around agents. He concluded that “We need a change in mindset, where the willful or non-co-operative defaulter is not lionized as a captain of industry, but justly chastized as a freeloader on the hardworking people of this country”.

Indeed, Dr. Rajan rightly points out that it is quintessential, we need a change in the mindset to resolve the ever increasing problems of NPA’s or else it will also be rendered like any other law with laudatory intent. It remains to be seen how far does the Bankruptcy Code remains true to its intent and objective.

Good Bye RBI: The book contains the letter addressed by Dr. Rajan to the RBI staff. He stated that RBI has done far more than what was laid out in the initial statement, including helping the Govt. reform the process of appointing public sector bank management through the creation of the Bank Board Bureau, creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (‘AQR’).

He stated that, internally, RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. He said that “We are strengthening the specialization and skills of our employees so that they are second to none in the world” In the letter addressed to the RBI staff, he states that “I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three-year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished.

As I said earlier, this book is a must read for all law, commerce and finance students and professionals. As a reader, you will know more about the RBI, its working, co-ordination with other Ministries, etc.

Special Thanks to Aayush Mitruka, a lawyer based in Delhi, for his valuable inputs and suggestions.

Saturday, 18 June 2016

Whether Social Media Regulations is necessary for ICSI elected professionals? - Question is in the larger interest of the CS Profession.

Yesterday (June 18, 2016) was the AGM of Pune Chapter, ICSI. The Chairman elaborated the activities undertaken in the last 6 months and the activities that would be undertaken in next 6 month by ICSI, Pune Chapter. The efforts of Pune Chapter are much appreciated on that front.
I raised an issue (which is not specific to any CS professional), however it was in the larger interest of the CS profession, its sustainability and the long-term impact on the other professional. The issue was “Whether ICSI needs to have social media usage Regulations for its elected central council members, regional council members and city committee members (‘elected CS Professional’)”. The issue is specifically with respect to usage of Facebook in the recent past by certain elected CS Professional.

There are certain representations made by ICSI to various Govt. Dept./Ministry and MoUs are signed with certain Universities/Institutes. ICSI communicates such initiatives through e-mail or through Chartered Secretary. I personally don’t think that such representation by elected CS Professional should be made by Facebook check-in, with photos and brief description about the representation made or MoU signed. The elected CS Professional is representing ICSI, and not in personal capacity, and hence such publicity or announcement on Facebook is unwarranted. ICSI will do, and has been doing for many years, about the announcement of such initiative taken. It is not apt for such elected CS Professional to report such initiative on their own on Facebook, because of which the whole sanctity of ICSI and ICSI’s reporting is not maintained. With respect to any decision taken or initiative taken, it’s time of announcement is the prerogative of ICSI and not of any elected CS Professional. It can also be said that the fiduciary duty is breached by elected CS Professional, wherein he / she acts in competition to the ICSI w.r.t. reporting mechanism and dissemination of information.

Also, this particular activity may go against the elected CS Professional in the long-term, when he / she is again contesting elections, wherein his ‘competitor’ or whoever will ask him / her or ICSI about the status of the representations made by him / her to the Govt./Ministry.

Secondly, CS members actively participate in various national seminars, national conventions, regional conferences and conclaves. The chief guest for the functions are CEOs/CFOs/Chairman of BSE-30 / NSE – 50 companies, Ministers of various States, BSE Chairman, NSE Chairman and many dignitaries are present on the dais for such esteemed functions. At the same time, there certain elected CS Professional present on the dais. In my personal views, selfies with such heavy dais should be avoided by posting on the Facebook. I personally opine that the sanctity of the dais, the members present on it and ICSI is diminished because of such social media updates. Please note, I am not against taking selfies, however, I am against updating the social media with such selfies. I feel that such updates needs to severed as early as possible.

Also, such social media updates are not the appropriate examples for young CS who would contest elections in near future. It may happen (in the long term) that the performance of elected CS Professionals may be measured by social media updates and not the actual recognitions received by ICSI by the efforts of elected CS Professional. It is necessary to break such trend, in the larger interest of the profession.


It’s time for ICSI to think whether Social Media Regulations is necessary or the internal Code of Conduct is sufficient to take care of such issues. I repeat, the issue not against any elected CS Professional, however it is in the larger interest of CS profession.