MUMBAI, Aug 14: The Finance Ministry has dramatically simplified the depreciation norms for Indian industry in the new Companies Bill which was finally tabled in Rajya Sabha here today.

The norms have been recategorised into five broad segments - buildings, plant and machinery, office equipment, ships and vessels and specified machinery - without further sub-categorisation.

The Bill introduces establishement of an Investor Education and Protection Fund for promotion of investor awareness. The Fund will be created by transfer of unclaimed or unpaid dividends, unclaimed fixed deposits or debentures and interest accrued on these.

To carry out the objectives of the fund, central government will specify an authority to administer the fund.

In a significant move, the Bill also allows companies to access bank finance for buy back of shares. It has shot down the proposal to allow re-issue of bought out shares at a later date.

The Bill has otherwise accepted all the major recommendations of the Working Draft of Companies Bill, including categorisation of companies as private, public listed and unlisted entities, delineation of powers between the high court and the CLB, delineation of powers between DCA and SEBI, stronger boards and increased accountability to shareholders, new instruments for hedging and raising funds, non-voting shares and optional consolidation of group companies and tighter dividend norms.

Departing from the suggestion of the draft report, the Bill has substantially increased the depreciations provisions for buildings under the Straight Line Method from 1.63 per cent to two per cent though factory buildings will attract a lower rate of three per cent as against 3.34.

The rates for the two categories under the Writen Down Value (WDV) method remains the same at five and 10 per cent as recommended inthe draft.

The multiple segmentation suggested by the draft under the plant and machinery head has been sliced to just one rate in the Bill. Under WDV, the rate will be 15 per cent and 25 per cent under the single and multiple categories.

Whereas, under SLM, the two rates are 5 and 9 per cent respectively. Under the ships and vessels head, the new depreciation norm has only two sub-heads, ocean going and other vessels as compared to five categories recommended in the draft.

Ocean going vessles will have a WDV of 15 per cent and a SLM of five per cent whereas for other vessels the rates are 20 per cent and seven per cent respectievly. "The idea is to cut down on the confusing array of depreciation rates and their varying interpretation," a department of company affairs official said.

Conceding to the demands of the Institute of Company Secretaries of India (ICSI), the Bill has brought down the paid-up capital of a company from Rs two crore to Rs one crore at which it will need to employ a whole time company secretary.

ICSI has represented to the finance ministry that the recommended Rs two crore ceiling will render around 7000 company secretaries jobless.

The Bill leaves out the re-issue of bought out capital clause because companies will be allowed to go for a fresh issue of capital within 12 months.

Companies will have to forthwith cancel the securities bought back instead of having the option of keeping them in supended animation in case there is a decision to re-issue them at a future date. What is more, the draft had suggested that a company after completing a buyback has to necessarily have a debt-equity ratio not exceeding 2:1 or such higher equity ratio as may be prescribed. But the new Bill does not allow the option of a higher ratio than 2:1.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.