source Business standard
CS A Rengarajan
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Food recall norms catch companies off guard |
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Mumbai, 17 December Food companies have expressed their inability in implementing the food recall norms laid out by the country´s apex food regulator in the eventaproduct is found defective. The norms, issued last month, put the entire onus of food recalls on companies, mandating the firms to take the primary responsibility of developing and implementing such plans. The Food Safety &Standards Association of India (FSSAI) said it would only monitor the process and would conduct periodic checks, according to the guidelines. It also said that if the recall was related to serious defects in the manufacturing process, it could review the licence of the food company. Food companies that Business Standard spoke to said putting the entire onus ofarecall on them was impractical inamarket where retail trade was not as organised as it is in the West. “Unlike abroad, where much of the retail trade is organised, in India there arealarge number of momandpop stores, making it difficult to managearecall process down to the last mile,” Siraj Chaudhry, chairman, Cargill India, said. The FSSAI has laid outa10step plan as part of the recall process. This included assemblingarecall management team, giving detailed information on products being recalled to the regulator, informing consumers and others stakeholders of the process and ensuring the defective product was removed across the value chain. Ajay Gupta, managing director, Capital Foods, maker of Ching´s Secret noodles, said while the guidelines did provideabroad framework for companies when recallingaproduct, implementing it would not be easy. "While firms can track their stock in modern trade, how do you do it in wholesale and retail channels? That is huge,” he said. Almost 8590 per cent ofafood company´s sales in India comes via general trade, with 1015 per cent coming from modern trade. With general trade,asignificant chunk (in terms of sales) comes from momandpop stores, whose number in India´s retail universe is estimated to be almost 10 million. Ashwin Bhadri, chief executive officer, Equinox Labs,afood, water and air testing major in India, said companies could conduct mock drills to prepare them shouldarecall be needed in the future. “Conductingamock recall inacontrolled environment could give firmsasense of what is expected and what is not in the event of an actual recall,” he said. “This isacommon practice in the West. Though, in India, no company has done it yet. Maybe this could be an opportune time to start one, since guidelines have been framed.” Companies privately admit doing this is not feasible, since it could create confusion within trade. India first sawamasslevel recall ofafood product two years ago, when the popular instant noodle brand Maggi was withdrawn for containing lead and MSG (monosodium glutamate) beyond permissible limits. The process cost Nestlé India, which makes Maggi, ~320 crore, which it had to write off its books. Food companies say putting the entire responsibility of food recalls on them is impractical This has mainly to do with the unorganised nature of retail trade in India Monitoringarecall in wholesale and retail channels will be difficult, companies say General trade gives food companies the bulk of their sales in India as opposed to modern trade INASPOT |
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When govt enters the boardroom |
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There´sanew takeover tycoon in the town; one who doesn´t come with bags of money, but wields the sword of ´public interest´. Ten days ago, the Centre moved the National Company Law Tribunal (NCLT) to replace the board of cashstrapped real estate firm Unitech. The tribunal found merits in its arguments, which included the allegation that the affairs of the company were conducted against “larger public interest,” and ordered the sacking of directors, restrained them from selling or otherwise encumbering properties and asked the government to name the people it wanted to nominate on the new board. Though the NCLT order has since been stayed by the Supreme Court on the ground that the case was already under its consideration, the sword of ´public interest´ hangs ominously over corporate India. Experts say the government´s willingness to enter the boardroom ofacashstrapped, debtladen firm, where thousands of homebuyers are baying for the management´s blood for its failure to deliver on projects, has wider legal and regulatory implications for India Inc. There is growing apprehension among businesses on the contours of what constitutes ´public interest´ and the conditions under which it could be invoked by the government to take control ofacompany. “The recent action in the case of Unitech has alarmed many other similar companies which will now follow corporate governance in true spirit,” says PavanKVijay, managing director, Corporate Professionals. The provisions of Section 241 of the Companies Act, 2013 —which deals with remedies for oppression and mismanagement inacompany —were always there in the company law. Two past cases come to mind when the government sought to use the coercive provisions. Both were instances whereaserious issue suddenly came to the fore. In 2009, it was the Satyam Computer Services scandal and five years later it was the National Spot Exchange (NSEL) payment crisis. While the government was successful in the first case, its move is caught in multiple proceedings in the latter one. Legal experts sayarecent favourable judgment by the Bombay High Court in the matter of the merger of the NSEL and its parent has bolstered the government´s position in such matters. But, the sovereign has to tread cautiously. It has to have its resolution and exit plans drawn out clearly before such expeditions, experts say. For companies, this would mean they have to become more conscious of their environment, which is beyond their immediate stakeholders. Sai Venkateshwaran, partner and headAccounting Advisory Services, KPMG in India, notes there has been growing debate within both the government and the judiciary on what constitutes public interest. “This isamatter that will certainly have an impact on how companies are being governed and the roles that boards play in the governance.” Much like other geographies, the focus for corporate India is changing from good corporate governance to Environment, Social and Governance (ESG) factors. According to Hetal Dalal, chief operating officer, Institutional Investors Advisory Services, which has been fighting for minority shareholder rights, companies need to take responsibility for their actions and recognise their impact on the average person. “In Unitech´s case, this isaclassic social impact issue —and public interest has outweighed others. Therefore, it is incumbent upon boards to haveamore holistic approach, rather than just focus on operating within legal requirements,” she says. Experts say what sets the Unitech case apart was the trigger or the absence of it. Atul Dua, partner, Advaita Legal, points out the problems with Unitech began surfacing as early as 2010. Several complaints and cases were filed across various forums, besides with the Ministry of Corporate Affairs. In fact, the NCLT orderedaprobe into the affairs of the company in October 2016. The latest order observed that the probe could not be completed due to noncooperation. But, the government´s move to take over management of the company came more thanayear later. Often shareholders´ rights and that of the larger public interest are not seamlessly aligned. In some cases, they might run against each other. Shailesh Haribhakti, chairman, Haribhakti &Co LLP, points out the provisions of law on oppression and mismanagement are wellenshrined. “Past examples have shown thatarescue of an endangered organisation is possible. The balance to be achieved is between respect for private and corporate rights and the rights of the public which deals with corporations.” By taking over the management of suchacompany, the government does not become automatically liable for the liabilities of the company or the contractual obligations. “The government taking over the management is akin to an operating agency being appointed oraresolution professional taking overaweak asset,” Dalal says. The liabilities finally rest with the company and the ultimate impact of the liabilities will be borne by shareholders. Taking control ofacompany citing public interest could have wider legal and regulatory implications for businesses and the government, say experts Section 241 of the Companies Act, 2013, deals with remedies for oppression and mismanagement inacompany It empowers the central government, under Section 241 (2), to step in if affairs ofacompany are run prejudicial to public interest Section 242 provides foranumber of remedies for conducting the affairs of the company The NCLT has the power to provide for any remedy which is just and equitable The nature of the order would depend on the facts and circumstances of the case and the remedies sought by the government in its application ILLUSTRATION: BINAY SINHA KEEPINGATAB |
Practising Company Secretary
Chennai
Mobile 93810 11200/97909 80331
CS A Rengarajan
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Banks´ certificates notmust for triggering insolvency
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New Delhi, 18 December Inamajor relief to foreign operational creditors seeking to invoke the Insolvency and Bankruptcy Code, the Supreme Court has heldacertificate fromafinancial institution confirming nonpayment of debt was not mandatory for triggering the insolvency process. It further allowed lawyers to issue demand notices on unpaid operational debt on behalf of such creditors. Legal experts said many foreign operational creditors who did not haveabank account in the country faced challenges in procuringacertificate from the financial institutions concerned. “This judgment now allows such foreign entities to take recourse under the Code even in the absence ofacertificate fromafinancial institution,” said Mustafa Motiwala, partner and head of the litigation and disputes practice at Clasis Law,afirm that represented Macquarie Bank, in the case against Shilpi Cable Technologies. Senior advocates Mukul Rohatgi and Arvind Datar appeared on behalf of Macquarie Bank. In July, the National Company Law Appellate Tribunal (NCLAT) had turned down an National Company Law Tribunal (NCLT) order in another case, admitting initiation of insolvency process by Macquarie against Uttam Galva Metallics on technical grounds. The NCLAT had noted that Macquarie Bank had no office in the country or any bank account withafinancial institution. Absence ofacertificate fromafinancial institution made the application for initiation of the insolvency process incomplete, the NCLAT had said. Legal experts said the SC order in Macquarie Bank Vs Shilpi Cable Technologies case, issued by judgesRFNariman and Navin Sinha, would help to do away with discrimination against foreign operational creditors that did not haveabank account in the country. The apex court order rejected the argument that such persons ought to be left out of the process of triggering the IBC against their corporate debtor, said Economic Laws Practice inanote to its clients. The Supreme Court also ruled in the same case thatanotice byalawyer on behalf of the operational creditor would be in order according to the provisions of the Insolvency and Bankruptcy Code. Earlier, the NCLAT had questioned the practice of lawyers representing operational creditors issuing demand notices for unpaid debts. Supreme Court order offers relief to foreign operational creditors who do not have bank account in the country SIGH OF RELIEF Legal experts point out that many foreign operational creditors faced challenges in procuring the certificate fromafinancial institution Earlier in July this year, the NCLAT had turned down an NCLT order in another case, admitting initiation of insolvency process by Macquarie against Uttam Galva Metallics on technical grounds The NCLAT had noted that Macquarie Bank had no office in the country or any bank account with financial institution Absence ofacertificate made the application for initiation of the insolvency process incomplete |
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Eway bill adds to companies´ GST woes |
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Mumbai/New Delhi, 18 December Burdened with greater documentation and compliance, consumer goods companies say the issue of interstate transfer of goods has not got easier with the eway bill. On Saturday, the Goods and Services Tax (GST) Council decided to make the eway bill compulsory for interstate movement of goods from February 1, replacing the transit pass system followed by individual states. The move is expected to act as an electronic surveillance of factory output and actual consumption of goods. But companies Business Standard spoke to argue the system may actually not aid smooth transfer of goods. An eway bill, for the uninitiated, isatransport document showing whether goods have reached their destination or not. Companies and traders fear there could be increased harassment of truck drivers in the absence ofabill, coming atatime when firms in general have been grappling with challenges pertaining to stock transfers between states. Stock transfers here pertain to movement of goods from factory or place of manufacturing in one state to depot or warehouse in another state. While companies have to pay integrated GST (IGST) in full for this interstate movement of goods, they receive input tax credit only on sale (of these goods), implying their working capital remains blocked till then. “The pressure to clear inventory in warehouses grows asaresult of this andIam not sure whether firms are happy about the situation,” Sumit Malhotra, managing director, Bajaj Corp, the maker of Bajaj Almond Drops Hair Oil, says.Asenior executive fromaconsumer goods company says that slowmoving items inafirm´s portfolio are particularly impacted on account of the stock transfer regime under the GST as opposed to fastmoving items. The introduction of eway bills now has added to the confusion, he says. “The GST Council had initially decided that the eway bill system would be rolled out inaphased manner from January of next year. The endeavour was to give businesses time to adjust to the system. But that clearly doesn´t seem to be happening now,” Sachin Menon, partner and head, indirect tax, KPMG, says, adding that while accountability would grow there was need to simplify the process at the same time. This point is endorsed by the Confederation of All India Traders, an apex body of general traders, which says the eway bill should be introduced in April rather than in February. “There is frequent supply of goods and not all of this has to do with actual sale. Goods sometimes are shipped for sample purpose or could be returns on account of excess quantity or quality issues. How will such movement of goods be treated?” asks Praveen Khandelwal, general secretary, CAIT. Transporters and traders instead have proposed introduction ofaquick response code to be printed on every invoice, which can be validated by scanning it. “This mechanism can be selfgenerated and can ensure smooth transfer of goods,” Khandelwal says. Firms, traders fear there could be increased harassment of truck drivers in absence ofabill The eway bill isatransport document, meant to act as an electronic surveillance But companies say it will not aid smooth transfer of goods, adding to confusion The biggest issue pertains to likely harassment of truck drivers in the absence ofabill The other issue is increase in documentation and compliance ATAGLANCE |