Green Revolution- the Road Ahead

Green Revolution, the concept that made Punjab self-sufficient in food supply was one of the most successful initiatives in post-independent India. However, the success of this imitative was short-lived primarily due to the uncertainty looming largely over the complete agricultural sector. Insufficient supply of fertilizers, seeds, and pesticides, antiquated farming practices, declining yield and productivity, exploitative middle men, and un-remunerative prices to name a few, have clouded the success of the First Green Revolution in a big way. The next phase of agricultural development, euphemistically called the Second Green Revolution, will hinge on `Sustainable Agriculture'. With the advent of a ‘Corporate Culture’ in the agricultural sector, profitability is one of the most important elements of `sustainable agriculture'.

Role of Corporate Sector

It is widely considered that large-scale corporate agriculture is more effective than the present system of peasant farming. It is believed to greater efficiency, higher private investment and higher output, income and exports. The radically changing scenario in the agriculture sector after the liberalization of the economy has brought about greater market focus in the whole gamut of agricultural activities.

Second Green Revolution has brought about the changes in the farming methodology by introducing new technology to the agricultural sector. Riding this wind of change are the bigwigs of India Inc, from the Reliance Group to the Bhartis to the Mahindras, Godrejs and MNCs like PepsiCo. All of these major Corporate Houses have enormous resources at their disposal and who have the technical know-how to change the face of Indian agriculture.

More importantly, with their big-ticket investments, these entrepreneur-farmers are all set to change the fortunes of an industry that has consistently lagged the GDP growth for decades but still employs 67% of the country's population. The Corporate Houses are targeting at all aspects of this value chain – research and development, distribution of seeds, fertilizers and pesticides, enabling farmers to employ latest technologies, providing market information and credit facilities, contract farming, processing the produce, setting up cold chains and warehouses, transportation, retailing and exporting the produce. And they are throwing in big money in what is being described as the "farm-firm-fork" triangle by most experts.

Corporate farming, most experts acknowledge, could be the answer to India’s agricultural crisis. This is true because it involves high expertise from the Corporate Houses that have the capability to manage risks and sustain losses as compared to small farmers. The biggest positive aspect of this approach is that is provides an assurance to the farmers that their produce will be purchased on a later date at a pre-determined price. This spreads the loss, if any, across to the Corporate Houses, who are well-equipped to manage the losses arising out of market and weather conditions.

Contract Farming – Future of Green Revolution

The future success of Green Revolution depends on the proper implementation and end-to-end acceptance of Contract Farming. This will ensure that the corporate sector will build backward linkages between agricultural research and development with seed selection and variety evolution and forward linkages between processors, marketers, retail chain, exporters, and consumers. It will generate gainful employment in rural communities and a steady source of income at the individual farmer's level with assured prices and markets.

The seasonality associated with rural employment will be neutralized with round-the-year agriculture-related activities, which in turn will reduce migration from rural to urban areas. Eventually, the food production in the country would increase making India less dependent on imports in the food sector.

The corporate sector will ensure that the farmers are exposed to world class technology, which would lead to better output of agriculture produce. It will also ensure crop monitoring on a regular basis to avoid untoward incidents arising out of pests and other malice. Uninterrupted and regular flow of raw material and protection from fluctuations in market pricing will be some of the other benefits of contract farming.

Regulatory Framework – Assured Success

A regulatory framework should be in place for implementing contract farming so that farmers are not short-changed by the big Corporate Houses. On the other hand, Corporate Houses should be assured of a return on their huge investment as a large number of small farmers come into the picture thus increasing the risk factor. Also, there is no comprehensive and deregulated crop insurance scheme in the country to secure farmers or Corporate Houses from the losses incurred on farming as a result of natural disasters.

Implementing tax deductions on investments made in creating extended services for participating farmers linked to the procurement of output will create new opportunities in the farming sector. The comprehensive legislation should be put in place to decide whether or not it is permissible to procure agricultural produce directly from the farmers. Waiving-off taxes or duties on import of agricultural equipment in a registered contract-farming program would introduce new technologies to a larger mass of people in the country. Measures have to be taken to abolish all fees, taxes, cess duties, and levies on procurement by a registered contract-farming program.

The number of corporations-domestic and MNC-making a beeline for the agriculture sector is on the rise. Making the most out of this new trend would ensure success of the metamorphic Second Green Revolution in India.

e-Choupal – Setting in new trends

Of all the changes that have been part of this new green revolution, perhaps the one that has made the biggest difference to the lives of the smaller farmers has been the induction of information technology. It was tobacco major lTC's e-Choupal model that broke new ground in the early 2000s, showcasing the power of IT to the farmers. By delivering real-time information about market prices and customized knowledge and resolving the crop related problems of farmers through its IT kiosks and information database, it has managed to build tremendous equity among farmers across the country. In addition, the new storage and handling system offered as part of the initiative preserves the identity of different varieties right through "the farm gate to the dinner plate".

The globalization of trade along with the rising need of most food retailers in the country for high-speed transportation means the emergence of a huge market for companies that specialize in supply logistics. Many companies are sourcing millions of dollars worth of fruits and vegetables all the year round as the market is very lucrative.

Conclusion

There is a visible change in the approach of the farmers, policymakers, intermediaries in the agricultural process and all other stakeholders for ushering in the `Second Green Revolution'. However, only those corporations that are equipped with technology, management expertise and financial resources are willing to face the challenges of the `Second Green Revolution'. Addressing the challenges would mean introducing a comprehensive legislative measure to create a win-win situation for the farmers and the Corporate Houses.

National Agricultural Policy, which envisages a big role for private sector through contract farming is expected to accelerate the capital inflow, which will assure a market for crop production within a fixed timeframe.

- U Padma Shenoy

- Company Secretary

- CSS Technergy Limited

- Hyderabad

ADHERING TO NON-MANDATROY SECRETARIAL STANDARDS????

Secretarial Standards – recommendatory but not mandatory!!! This in itself provides adequate reason and scope for non-adherence to Secretarial Standards. And this is the common scenario in almost every company today where in the Executive Management decides to cut-down costs by doing away with the ‘recommendatory’ Secretarial Standards. However, Accounting Standards are followed to the point because these are ‘mandatory’.

In such situations, what should be the ideal response from a Company Secretary – to invoke legal parameters or implement ideal practices? The best-suited response should be a combination of both.

The Companies Act and rules are procedural legislations, which provide the following framework:
- What a company can do??
- How the same can be done?
- What is not allowed?

This has paved way for the emergence of a “technical solution”, which is a viable solution within the framework of the prevailing law and then may add what would be a prudent corporate practice in line with the high professional standards, ethics, and the Secretarial Standards.

The Company Secretary should be more of a Conscious Keeper of Corporate Standards than being an intelligent and glorified clerk who keeps an account of legal compliance technically. The role of a Company Secretary is to find out the best possible procedure to cater to the requirements of the company all the while being within the framework of the Companies Act. A balancing act between rules, regulations, laws and Secretarial Standards is the prominent role of a Company Secretary in today’s corporate world.

Most of the practices outlined in Secretarial Standards such as approving the accounts by Circular Resolution, are “legal but not ethical”. However, after the extensive deliberations, the consensus is in favour of giving the legal/technical solutions coupled with what should be prudent corporate/ good governance practice.

In the Indian corporate sector, the unspoken word from the Company Management to the Company Secretary is observing law is your job; earning profit is our job. In such situations, the right course of action for the Company Secretary would be to provide a legal solution and depending on the counter-party’s inclination, advising on the applicable prudent practice would be the right decision.

However, the crux of the job is to justify the need for implementation of the Secretarial Standards initiated for the first time by the ICSI. It is crucial to prove that the proper implementation of the Secretarial Standards will usher in uniformity in divergent corporate practices. It is essential to understand that Secretarial Standards will facilitate good corporate governance in the country. Further, it is critical to convince that adherence to the Secretarial Standards will elevate the company's reputation in the corporate sector.

In the era where Corporate Governance is the buzzword in the corporate sector, it is not difficult to convince the managements about the utility and results of adopting the Secretarial Standards in the functioning of the company.

If the Company Secretary profession is to grow, have a respectable place in the corporate world then one has to follow legal jurisprudence. The Profession of Company Secretaryship has grown from Government Diploma to a full-fledged course and professional membership.

The onus is on the Company Secretaries to establish the Secretarial Standards as not only a pioneering movement, but also a noble endeavor. Standardization of practices is the need of the hour to establish a professional outlook about the Indian Corporate Secretary in the global economy. The progressive Corporate Houses in the country tend to make special efforts to show that they practice good corporate governance and implementing the Secretarial Standards has been one of the significant components of these efforts.

With more and more companies opting to implement Secretarial Standards, it should be easier for ICSI to convince the regulators to take into consideration the real practices in the sphere and give statutory mandate for the same.

Board Meetings through Tele/Video Conferencing

The latest technological developments have made their way into the corporate Board Rooms with more and more companies preferring to hold their Board Meetings via teleconference or video conference. The governing Act that regulates the manner in which the Board should be functioning is the Companies Act, 1956. This was drafted way back in 1956 when teleconference was unknown to the society and hence, there are no provisions or prohibitions pertaining to remotely conferencing Board Meetings in this piece of legislation.

Section 287 of the Companies Act, 1956 prescribes quorum i.e. minimum number of directors at Board meeting and section 288(1) prescribes procedure for adjournment for want of quorum. Section 299 requires disclosure of director’s interests at meetings. Section 301 requires placing register of contracts at meeting and signing it by directors. Regulation 71 of Table A requires every director to sign attendance register at the meeting of Board or Committee.

It is quite possible to comply with all the above-mentioned regulations and still hold a Board Meeting via teleconference. The Companies Act makes no specific provision that the Board Meeting must ensure physical presence of directors at a specified place. In fact, law-making authorities never perceived this problem when the law was actually made. Except for signing the register, all other requisites specified in the Companies Act with reference to a Board Meeting can be held if such a meeting is held via teleconference. Videotaping the Board Meeting is possible which in itself vouches for the presence of the quorum, thus serving to achieve the rationale behind the law to sign the register. There are many people in the industry who advocate Board Meetings to be held via teleconference or videoconference.

Definition: "conducting a meeting involving participants at two or more locations through the use of audio-video equipment which allows participants at each location to hear and see each meeting participant at other location, including public input. Interaction between meeting participants shall be possible at all meeting locations."

Department’s take on the issue as per Press Release dated 15.04.2002

1. The Ministry of Corporate Affairs (erstwhile Department of Company Affairs) proposes to make an amendment in the Companies Act, 1956 to enable companies to hold the Board Meetings through electronic devices such as video conferencing and telephone conferencing to take advantage of information technology.
2. The Department has received proposals to allow such meetings and it has held extensive consultation with various shades of opinion.
3. The Department has decided to allow such meetings of the Boards and its Committees.
4. However, DCA has also decided that there are some subjects of special importance that should only be decided or transacted by meetings in person i.e. "physical meetings". It is proposed to notify such subjects from time to time.
5. The Department feels that considering the advantage of "physical meetings”, it should prescribe a certain minimum number of Board meetings must be held in person. This would also be notified from time to time.
6. It proposes to regulate the new provisions through promulgation of Rules, which can be progressively liberalized or modified in accordance with the experience gained from time to time. These decisions have been taken on 'demands' received from various sectors keeping in mind the progressive globalization of the Indian economy.

An analysis of the pros and cons of holding Board Meeting through remote conference highlights the following points amongst others.

Advantages:

1. Frequency of meetings can be increased
2. Time and costs incurred on travel can be reduced
3. Fully interactive with all sites and the same can be recorded for the future requirements
4. Photos and color graphics look great on video and can help convey a difficult concept or simplify complexities
5. Some systems allow application sharing, allowing users at each site to see and edit a document. This kind of sharing encourages collaboration and real-time feedback

Disadvantages:

1. Technical problems such as connectivity, quality of voice and picture, authenticity of proceedings can cause disturbance
2. Costs incurred on taping and saving the meeting is considerably high

Video Conferencing in Other Countries:

Source: NEBRASKA OPEN MEETINGS ACT (1999, Cum. Supp. 2004)

Board Meetings can be held via teleconference or videoconference, provided the following conditions are met

1. Advance public notice is issued
2. Complete arrangements are made to accommodate the public's right to attend, hear and speak at the meeting
3. Arrangements are made for seating, recording the proceedings by audio and visual recording devices, and an reasonable opportunity for inputs from the public
4. At least one copy of all documents being discussed is available to the public at each site of the videoconference
5. At least one member of the public body is present at each site of the videoconference, and
6. No more than one-half of the public body's meetings in a calendar year are held by videoconferencing.

Conclusion

The Government may consider forming a committee of a Group of Experts to frame rules pertaining to remotely conferencing Board Meetings. The E-meeting should be permissible, if specific provision is made in Articles of a company by suitably amending the regulations. Normal resolutions may be passed in such meeting but not where disclosure by director or signing of register is required. An amendment to the existing law would ensure more and more companies to leverage the potential of information technology. This would ensure a whole new dimension to the traditional Board Meetings (that were held in a closed room) by increasing the participation. This would also ensure voluntary participation from the members rather than the mandatory participation and reduce overheads on travel expenses incurred on such meetings.

U Padma Shenoy
Company Secretary
CSS Technergy Limited
Hyderabad

INDEPENDENT DIRECTORS – NOT JUST COMPLIANCE BUT A REQUIREMENT

Introduction

With India emerging as a prominent player in the global economy, there is an urgent need in the Indian Corporate Sector to upgrade the Corporate Governance System on par with the international norms. It has been widely observed that the Indian MNCs are way ahead than the PSUs in terms of quality of management; the PSUs, however, have an edge in terms of transparency of management.

Foreign Institutional Investors are investing heavily in India and it is for sure that the Corporate Sector in India has to inculcate a lot of professionalism in their functioning methodology. The Corporate Governance in the Indian Corporate Sector has to change rapidly in order to remain a strong force in the global economy.

Barring a few exceptions, the Indian Corporate Houses continue to function in the same conventional manner as they used to over a couple of decades ago. The quarterly Board Meetings have become a mandatory ritual, where trivial issues are discussed. It has also been observed that the Promoters prefer to appoint their acquaintances to the Board of Directors, in order to restrict the external interference in the management. Law is enforced to bring about a change and that very same Law is usually tweaked to ensure compliance as well as preference. Voluntary compliance to the regulations in strict sense is the only option to ensure a good Corporate Governance system.

Independent Director

The term "Independent Directors" became a part of the Indian Corporate dictionary after the publication of the Kumar Mangalam Birla Committee Report, which led to the introduction of Clause 49 in Listing Agreements.

The appointment of an Independent Director (Non-executive Directors) in the Indian Corporate Sector has become a matter of mere legal compliance. It is very common to have a retired bureaucrat, a celebrity like a film artist, a retired major general from the army, a retired judge from the High Court or the Supreme Court, etc. as the Independent Director on the Board. There is nothing wrong in this approach per se but more often than not these Independent Directors end up as a decoration on the Christmas tree.

Even today, in most of the companies, Independent Directors have no say in management issues. Over the years, “Manpower” played a key role in making or breaking a Corporate Structure. The Independent Director needs to have a prominent role in the management affairs of the Company and should be able to devote considerable amount of time to do the same rather than just remain a Namesake.

The rationale for requiring an Independent Director on the Board is to ensure a special check on the finances and functioning of the company particularly through the Audit Committee. The appointment of an Independent Director just to comply with the law defeats the complete rationale behind enforcing such a law.

The Legal Provisions do not define the required qualifications for a person to be appointed as an Independent Director, but rather specify grounds on which a person could be disqualified from being an Independent Director. The Law requires the Independent Directors to have discretion to think and act independently in the management affairs. The Law also mandates that the shareholders should elect an Independent Director.

In practice, however, the Promoters nominate or rather choose the candidates to be elected as an Independent Director. This transforms the “election” of an Independent Director to just “selection” of an Independent Director for the Shareholders point of view.

The ideal methodology to be employed in appointing an Independent Director should be based on certain values encompassing a proper mix of specialization in the areas of accounting and finance, technology relevant to the Company, Corporate Management, marketing and industry knowledge, etc. Perhaps, a skill matrix, which lists desirable competency versus those presently available on the Board, is useful in determining the gaps, which could be filled in by appointing a person with the required competencies.

It would be more appropriate that the Code of Conduct for Corporate Governance of a Company should specifically include the qualifications and attributes that the Company seeks of an Independent Director. A critical element for a person to be an Independent Director is being independent of the pressures exerted by the Management, in true sense and also as perceived by the general public.

Independent Director’s independence should include the will and ability in terms of knowledge and experience to ask the hard questions required to provide effective foresight in general, and especially in dealing with potential Conflict of Interests.

Conclusion

The appointment of truly Independent Director to the Board of Directors is not a panacea for all the evils. An Independent Director, however, if truly independent, can bring about transparency in management and can help avoid situations like the not so old Enron scandal on a global level and Global Trust Bank scandal back at home.

The Corporate Sector in India today, is largely governed with people’s money. A common man is also a shareholder in an Indian MNC today and most of the Equity Capital comes from the pockets of a common man in the society. In such a situation, the Indian economy cannot afford to witness another scandal of bankruptcy, where the root cause is corrupt management. This would affect the Indian society at a ground level, bringing the complete economy to its knees both in terms of finances as well as credibility in terms of global exposure.

The writing on the wall is very clear: unless Ethics are as important as Economics, unless Fair Play is crucial as Financial Success, unless Morals are as vital as Market Share, we cannot emerge as the global Corporate Leaders.

LAW FOR MERGER AND ACQUISITION- A CRITICAL REVIEW

Introduction

The recent years has seen a considerable increase in the Merger and Acquisition (M&A) activity across the Indian Corporate Sector. India Inc., has emerged as the most strategic market for M&A for foreign players at the same when Indian Corporate bigwigs are eyeing major players on a global level. At the end of the day India, Inc., stands to be the largest gainer.

The M&A activity in India is governed by numerous cumbersome laws and regulations that it leaves ample space for misinterpretation. Even the largest of the Investment Banks lives in the fear of that it might overlook one of the basic rules of compliance and attract negative coverage in the media.

Recently, the Indian Income Tax Act, 1961 entered the Guinness book of world records for registering maximum number of amendments. The amendments to the Income Tax Act, 1961 is so cumbersome and unclear that it leads to many interpretations. In one of the high-profile cases a local tribunal erred in interpreting the judicial decision of a higher court and as a result the company had to file and re-file the tax applications. In the meantime, the permissions granted by other regulatory authorities lapsed and the company had to repeat the exercise resulting in enormous wastage of time and money.

Cases such as the above actually keep out the foreign players from being the strategic players in the M&A activity in India. In India, the M&A activity takes approximately six to seven months to reach completion. The reason being the long list of compliance requirements, which calls for liaising with various regulatory bodies to complete the M&A activity.

Overview of the Regulations

A broad overview of such compliance requirements includes the following:

The Ministry of Corporate Affairs: Regulates compliance under the Companies Act, 1956. The Ministry is governed and still dwells into law that was enacted five decades earlier and maintains a long list of documents for every small change in the nature of company and its management.

Rules of Taxation: Draws the power from the Indian Income Tax Act, 1961. The slabs for taxing the capital gains and treatment for accounting entries during M&A are very complicated. Ensuring compliance with all the listed provisions, sub-clauses, and amendments is a Herculean task.

SEBI: Regulates the Indian Stock Markets and draws power from the SEBI Act to ensure proper functioning of the Stock market. Ketan Parekh made a fortune by cheating the investors in a big way under the nose of the very watchful SEBI. During M&A activity, it becomes extremely necessary for the participating companies to comply with the SEBI rules with considerable time being devoted to be safe from “intelligent” people like Harshad Mehta and Ketan Parekh.

Competition Commission: Took over the ‘traditional’ MRTP Commission but Competition Commission is still in the budding stages and is always the target for carrying out trial and error process in a move to ensure healthy competition in the Indian Corporate Sector.

FEMA: Enactment that regulates Foreign Exchange in India with FIPB and the RBI being the regulatory Authorities. The regulated cap for foreign investment is highly volatile. In a recent case, a medical equipment company of US wanted to set up its base in India. Mid-way through the process the company realized that it missed out on the long list of reserved items in the SSI category. The company intended to make equipments made of stainless steel for use in the dental clinic, which is a reserved item for SSI. The company applied for exemption and the Ministry is yet to respond

Indian Stamps Act: Compliance with act is a difficult task for foreign investors as each State has its own set of enactment for Stamp duties. The Stamp-duty regulations change at regular intervals and the companies have to assess the deal regularly to be safe for mistaken under-valued registration of the deal. In certain cases, there are huge differences in stamp value between two states within Indian Territory.

Apart from the ones discussed above, there are several Labour Laws, Sales Tax, Custom Duties, etc. that require clearance at every stage. And compliance with sector specific regulators such as TRAI for Telecom industry and IRDA for Insurance sector, add up to the woes.

Each regulating body has its own set of enactment and regulating rules that makes compliances a real nightmare. Each Ministry issues a Press Note/ circular or notification, which are not in tune with those issued by their other relevant Ministry. This increases the chances of landing in a situation where compliance to the notification from one Ministry might end-up in non-compliance to the notification from another Ministry. Additionally, there exists clarification or corrigendum, which complicates the issue further. The requirement for approval from High Courts in addition to the approval of stakeholders, make the complete M&A activity in India a long-thought process.

Cause and Comparison

The governing laws in India today were drafted during the early days of Independence when India was not even an industrial nation lest being the emerging economic super power. All the laws and regulations were drafted in line with the prevailing conditions during late 1940s with a vision up to the early 1960s. India Inc., has come a long-way during these years and has gone on to become one of the leading players in the global corporate sector. The sad part is that the “good old” governing law prevailing today proves to be obsolete in many cases with the base matrix having evolved long ago.

This is not to say that there are no such laws and regulations in other countries. The laws and regulations may be many but the time take to complete the process is very easy in developed countries such as the US or the UK and even in emerging super powers such as China and Japan. Most of the countries follow a single-window concept to provide all the necessary clearances. Also, any amendments to the law are made only after assessing the total impact on all other related laws.

The Indian Law mandates a waiting period of 210 days after the Merger plan is reported to the government before completing the deal as against the 30 day waiting period in the US. The US law also provides for reducing the waiting period if there are no competitive problems and the parties request an early termination; such a provision is not available in the Indian law.

Required Initiatives

J J Irani Committee Report proposed upgrading the Companies Act three years ago; however it is yet to see the light. There have been many instances where the Company Law is in conflict with the Listing Agreement and there is an urgent need to address such overlapping issues.

A single window clearance system can resolve many issues related to clearances from various authorities and a dedicated body to provide such service to M&A activity can help improve the situation. Further liberalization of Indian economy is required to ensure smooth transitions during M&A activity. This can be achieved by abolishing sectoral caps and approval of FIPB for share swap.

The most important thing required in this chaotic scenario is regularizing Stamp Duty slabs. A single slab for Stamp duty must be introduced to ensure uniformity in M&A transactions across all the States in the Indian Republic. Simplifying the tax procedures and reducing the tax incidence would attract more foreign investment.

The new Competition Law is not yet properly in place and all the regulators discuss is that the new law is sure to pose a threat to commerce in the country. The regulators have failed to introduce strong governing laws to bring India's M&A control regime in line with prevailing global trends.