CII suggests easier demerger guidelines

NEW DELHI, MAR 9: The Confederation of Indian Industry CII has suggested that demerger proposals should be approved by two-third majori...

NEW DELHI, MAR 9: The Confederation of Indian Industry CII has suggested that demerger proposals should be approved by two-third majority of the shareholders of a company and not only be restricted to those cases covered by provisions of Section 391 to 394 of the Companies Act.

This forms part of several changes that the association has proposed to be carried out in the provisions relating to demergers announced in budget 1999 so as to facilitate corporate restructuring. CII will take up the issues at an industry interaction with finance minister Yashwant Sinha on Wednesday.

CII said the amalgamated company should be required to retain only 50 per cent of the assets of the amalgamating company so that it can recycle the remaining assets, instead of the current provision of the amalgamated company retaining 75 per cent value of the assets of the amalgamating company.

The chamber has also made a case for the amalgamated company to have an option to change the line of manufacturing as per market needs,instead of the stipulation that the company concerned must carry on the business of the amalgamating company for at least five years from the date of merger.

According to CII, it is also necessary to have a consolidated view regarding demerger situations under the Income Tax Act and the Companies Act in order to have a simpler law concerning demergers and synchronisation of relevant provisions.

Also, there should be an attempt to bring in a synchronisation of the same terms, such as undertaking8217; used in both the acts.

In the context of demerger transactions, where the transferee company should issue shares to shareholders of the transferor company, CII said there was need for a clarification whether tax exemption would continue if in addition to the shares, cash or debt instrument are also issued to shareholders.

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On the indirect-tax front, CII has suggested that the exemption of 4 per cent special additional duty SAD on core sectors and traders should be removed. In case of traders who have to paysales tax too, CII said SAD should be levied but sales tax paid on submission of documentary evidence be refunded.

About the customs notification permitting ONGC and OIL to import their requirements of specified goods at nil8217; duty, CII has suggested imposition of a minimum customs duty of 5 per cent plus a CVD of 16 per cent, besides 4 per cent SAD. Domestic suppliers should also be given deemed export status, the chamber said.