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Turnover-based levy on corporates likely

Richa Mishra

S. Muralidhar

NEW DELHI, Feb. 25

CORPORATES who have been complaining about high tax rates and other levies will have to brace themselves for a new annual levy -- a turnover-based contribution to a fund for revival of sick companies.

The report of the Justice V. Balakrishna Eradi Committee on insolvency has suggested the creation of a separate fund under the supervision of the Union Government for revival and rehabilitation of sick companies.

An amendment to the Companies Act, 1956, has been proposed to give effect to the separate fund. The fund was to be utilised, inter alia, for protection of assets of the company and for its revival in a time-bound manner, sources said.

All the companies incorporated under the Companies Act shall contribute annually a specified percentage of their turnover to the fund. Further details regarding the percentage of contribution and whether loss-making companies will be exempt are awaited.

Moreover, certain provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, (SICA) are also proposed to be inserted in the Companies Act, 1956 with appropriate modifications. Apart from this, the proposed National Company Law Tribunal ( NCLT) based on the recommendations of Eradi Committee, will exercise the jurisdiction and powers of the Company Law Board (CLB).

The Government had constituted a committee to examine the existing law relating to winding-up of companies. The main recommendation of the committee was to set up a NCLT which will have the jurisdiction and power presently exercised by CLB under various provisions of the Companies Act, powers vested under SICA and the jurisdiction and powers relating to winding-up of companies, which is at present vested with High Courts.

In the proposed amendment to the Companies Act, where a company's networth has been eroded by 50 per cent or more due to accumulated losses at the end of the financial year, a mandatory reference to the tribunal by the board of directors of the company ( other than a Government company), has been suggested.

The company will be bound to submit a reference to the NCLT after obtaining the necessary certificate from the auditor appointed from a panel maintained by the tribunal. ``This will help in avoiding frivolous references to the NCLT,'' sources said.

Further, to avoid manipulations, no change in the opening and closing date of financial year will be permitted, sources added. The provisions of Section 620 of the Companies Act which provides power to the Central Government to modify the Act for the pur pose of granting exemption in relation to the Government companies, will be available to the public sector undertakings from the relevant provisions of the Act.

In the proposed amendment, it has been suggested that the Central Government will make separate and adequate budgetary allocation to provide for meeting necessary expenditure including salary and allowances of the NCLT.

On the issue of whether any amendment to Article 323B of the Constitution would be necessary for the creation of NCLT, the opinion of the Attorney-General was sought, sources said, adding that the Attorney-General opined that no such amendment would be n ecessary. It will suffice if the provisions of the Companies Act were suitably amended.