The Hindu Business Line : Debate over cess on cos for reviving sick units

THE proposal to impose cess on companies for revival of sick entities may again become a thorny issue between the Ministry of Company Affairs and India Inc.

Corporates had strongly opposed the incorporation of the provision when amendments to the chapter on winding up were brought in by the Companies Amendment Act, 2000.

The proposal now finds a mention in the `concept paper' for revamped Company Law circulated by the Ministry to elicit response from all stakeholders.

According to the concept paper, "The provisions of the Companies Amendment Act, 2000 are yet to be implemented.

In view of this, no major changes were brought in the chapter except clubbing of various related provisions and shifting of procedural aspects to rules."

Arguing against why a healthy company be penalised for the faults of others, a Federation of Indian Chambers of Commerce and Industry (FICCI) official said: "The imposition of cess on companies to build up a fund for rehabilitating or protecting the assets of the sick companies is not warranted.

``It would also result in extra cost for any company irrespective of its profitability".

The provisions stipulate that for the purpose of rehabilitation or revival or protection of assets of a sick company, a cess be imposed at a rate not less than 0.005 per cent and not more than 0.1 per cent on the value of annual turnover of every company or its annual gross receipts, whichever is more.

It also envisages formation of a Rehabilitation and Revival Fund (RRF).

It further stipulates that the proceeds of the cess levied and collected shall be credited to the Consolidated Fund of India and the Centre may pay to the National Company Law Tribunal from time to time, out of such proceeds, any amount it may think fit for being utilised for the purposes of the RRF.

While urging deletion of the provision, the Associated Chambers of Commerce and Industry of India (Assocham) said that it was not necessary that companies having large turnover or gross receipt would have surplus resources to pay cess for formation of the Fund.

Besides, the Companies Act is not meant for revenue-raising, the chamber said, adding, "The Investor Protection Fund can be used for rehabilitation and revival of sick companies."

Echoing similar views, the PHD Chamber of Commerce and Industry (PHDCCI) said: "The provision is against the principle of equity and will have wide implications for the corporate sector."

Although in terms of percentage, the amount of cess proposed is small, in absolute terms it can be substantial, depending on the size of the company, it said.

"While there is no penalty for the failure of the management in a sick company, well-managed companies are proposed to be made liable to pay for the same," a PHDCCI official elaborated.

"Also, the contribution will first go to the Consolidated Fund of India and not directly to the designated fund, thus there may be a situation where the amount collected by the Government may not be actually used for the specified objectives," the chamber official pointed out.