Duncans Industries Ltd's senior managing director Bhaskar Banerjee felt that the ordinance has been "drafted hastily". He pointed out that there are several grey areas which need clarifications and also suggested amendments.

According to Banerjee, the ordinance has virtually by-passed the accounting treatment required for a company intending to buy back its shares. He said that this is a complicated accounting method. In comparison, the companies law in the United Kingdom has devoted 20-odd sections on the treatment of accounting of share buyback.

He opined that the companies are likely to face problems regarding taxation matters also. Sections 2(22)A and 115(O) of the Income-Tax Act define and state the definition and ambit of dividend paid bythe companies. Also amended Section 77(S) of the Companies Act states three sources of funding buyback of which two are free reserve fund and share premium corpus.

Banerjee said that it will be difficult to prove whether the company has funded its buyback from free reserves which is taxable or from the share premium fund, which is not taxable.

The third source of funding -- out of proceeds of an earlier issue other than fresh issue of shares made for buyback -- needs to be clarified, he said.

Banerjee who is also the president of the Bengal Chamber of Commerce & Industry, was also critical of the clause prohibiting companies from issuing any securities for 24 months after buyback; keeping negotiated deals out; and the need to extinguish shares bought back.

He said that companies will face problems funding expansion or diversification programmes if they are unable to issue securities for 24 months after buyback.

Instead of extinguishing shares bought back, Banerjee said that this could be utilisedfor treasury operations. These shares could be used to thwart any hostile takeover. United States allows such shares to be used as treasury operations while Britain does not.

He suggested the incorporation of a penalty clause in case of companies which backtracks after announcing a buyback.

Legal expert on corporate tax Amitav Kothari agreed with Banerjee on the tax and accounting problems highlighted by him. With the inclusion of a new sub-clause in Section 227 of the Companies Act, 1956, 4.60-odd lakh companies in India will have to follow the 32 accounting standards laid down by the Institute of Chartered Accountants of India. He felt that a number of balance sheets of companies for 1998-99 are likely to have qualifying remarks by auditors for not abiding by any of the 32 accounting standards.

This will be evident especially in case of companies which faced a dimunition in the value of the investments.

Kothari was critical about the large number of restrictions tagged in respect of advancingintercorporate loans. He pointed out that under the new proposed provisions, loans have to be given at existing bank rate which keeps on fluctuating and is likely to create problems later.

Kothari said that with a number of restrictions placed investing in companies in excess of 60 per cent of the company's share capital will need the permission of the board, shareholders and even the financial institutions which is likely to delay the process.

Also subscription in the rights issue of another company above the threshold limit of 60 per cent will need the shareholder's permission. This needs to be reviewed, Kothari felt.

He along with former Assocham president HL Somany were critical of the fixation of the debt to equity ratio at 2:1. It will be problematic for companies with capital intensive projects. Both said that generalisations like this is not possible.