While the earlier ordinance, for example, had said that corporates required permission from the financial institutions (FIs) for any investments or loans they made, this was seen by corporates as being unduly restrictive. Especially since, prior to the ordinance, they did not require special permission from the FIs. This has now been relaxed, and corporates will not require any permission from FIs if they are not defaulters, either in terms of interest payments or loanrepayments. Any company which has defaulted will continue to require prior permission of the FIs for any intercorporate loan or investments.

Similarly, corporates will once again be free to invest or give loans to wholly-owned subsidiaries. This was allowed under the Companies Act originally, but was changed by the ordinance. The ordinance brought such loans/investments to subsidiaries under the ambit of sections 370 and 372 which lay down limits up to which companies can make investments freely. The ordinance laid down that companies are free to invest up to 60 per cent of their net worth without prior permission of the Department of Company Affairs (DCA). Prior to the ordinance, separate limits of 30 per cent each were laid down for investments and loans -- the ordinance clubbed these two limits.

Today's Cabinet meeting also cleared the confusion over what rate of interest companies would have to charge for loans made by them. This has been fixed at the bank rate as defined by the RBI, that is the rateof interest at which the RBI lends to banks. This means that corporates will be able to provide loans to sister concerns at rates lower than commercial rates -- this was a major demand of industry, as lower-interest loans are vital especially for purposes of restructuring.

The Government rejected the demand to reduce the cooling off period which prevented companies from issuing fresh equity after they had done a buyback -- the cooling off period remains at two years. They also rejected Sebi's suggestion to liberalise the debt-equity ratio from the present 2:1, but said that industry-specific debt-equity ratios will be allowed -- so, if the debt-equity ratio allowed in the case of hotels is higher, this ratio will be used for hotel companies wanting to go in for buyback.

Following industry's protests, the DCA had tried to suggest various changes that needed to be made to the ordinance, but Company Affairs Minister M Thambi Durai refused to clear the file, saying that industry's demands to remove allrestrictions was unwarranted. Thambi Durai, in fact, had communicated his stance to the Prime Minister's Office (PMO) which was trying to pressure him to agree to the changes as early as possible.