Addressing a conference organised by the Associated Chambers of Commerce & Industry of India, DCA secretary TS Krishnamurthy said the government will soon issue clarifications on a number of contentious provisions of the ordinance. The modified guidelines would require financial institutions to give approval for intercorporate deposit proposals within a stipulated time frame. Krishnamurthy said the DCA would fix this time frame in consultations with the financial institutions. It is expected that FIs may be required to give their clearance for intercorporate investments proposals within 30 days of referral.

On relaxing certain conditions for intercorporate investment, the DCA secretary said the government may exempt investing companies from obtaining prior approval of the public financialinstitutions when they are investing in fully-owned subsidiaries. This exemption would not be granted for investing in subsidiaries where shareholding patterns differ from that of the investing company.

The DCA had imposed the stringent conditions for intercorporate deposits as companies had, in the past, frittered away funds by routing it into bad investments, Krishnamurthy added. "Such investments had led to the downfall of many companies." The DCA will hold discussions with the Reserve Bank of India on determining the applicable lending rate for intercorporate investment, he added. A decision on rate would be notified soon, he said.

The ordinance stated that "no loan to anybody corporate shall be made at a rate of interest lower than the prevailing bank rate."

Krishnamurthy stated that the law ministry had also taken the view that the bank rate was a fairly acceptable rate for such investment.

Referring to the provisions on the buyback of shares, the DCA secretary said further clarifications wouldbe issued shortly. As for issue of fresh securities after buyback of equity shares, he said, companies would be allowed to issue any securities other than fresh equity shares during the twenty-four month period. This will imply that companies shall be allowed to replace bought back equity shares with instruments like debentures.

Also the official position on increase in foreign institutional investors (FII) stake in a company which has gone through a buyback of shares would be notified soon. Krishnamurthy stated that the government was aware of the implications of buyback on the FII holding in a company. "We will provide a framework soon."

Responding to objections taken to solvency rate being stated in the ordinance instead of being prescribed from time to time, Krishnamurthy said, this had been done to ensure that there will be no pressures on the government to make amendments periodically. "These laws are not permanent fixtures. Changes could be made as one gains experience." On ambiguity of terms suchas `debt', `securities' and `capital' used in the draft of the ordinance, Krishnamurthy said these would also be clarified soon. On the applicability of accounting norms set by the Institute of Chartered Accountants of India (ICAI), the DCA secretary said, all accounting standards of the institute would be applicable to all companies. The department is, however, willing to consider a transitory provision for the period prior to the setting up of the national advisory committee on accounting standards. The government plans to bring the short amendment bill to replace the ordinance with these changes in the winter session.

The main bill, which has been pending before the house, is expected to be considered only in the budget session. This will be done after the standing committee report is received and cabinet approves all the changes suggested in the bill.

The bill had been referred to the standing committee on home which is chaired by Pranab Mukherjee in July this year. The bill is expected to be modifiedto allow at least two layers of subsidiaries for the holding companies. This change is being incorporated to enable multinational companies which operate in India through holding company structure to carry on their business. Krishnamurthy further stated that a notification to raise the turnover limit for deemed public companies to Rs 25 crore is on the anvil. The notification is awaiting clearance of the minister for law, justice and company affairs.