Delegation of Power to Govt. Companies (CPSEs)- a comparative analysis

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After highlighting the provisions of Corporate Social Responsibilities and Corporate Governance in Central Public Sector Enterprises (CPSEs), now its turn to discuss the division of CPSEs, delegated powers to CPSEs and terms & conditions attached thereto. psu-main

I. DIVISION OF CENTRAL PUBLIC SECTOR ENTERPRISES (CPSES) 

With a view to grant enhanced autonomy and to delegate powers, the Government of India has divided different CPSEs into Maharatna, Navratna, Miniratna Category-I & II, and other profit making CPSEs. The CPSEs have been divided into the following criteria based on their financial performances:

  1. Maharatna (Introduced on 19th May, 2010)
  2. Navratna (Introduced on 22nd July, 1997)
  3. Miniratna Category –I & II (Introduced on 9th October, 1997)
  4. Other Profit Making CPSEs (Introduced on 6th May, 1997)
  1. Eligibility Criteria for Maharatna

a. Having Navratna status

b. Listed on the Indian stock exchange, with a minimum prescribed public shareholding under SEBI regulations

c. An average annual turnover of > Rs. 20,000 crore during the last 3 years

d. An average annual net worth of > Rs.10,000 crore during the last 3 years

e. An average annual net profit of > Rs. 2,500 crore during the last 3 years

f. Significant global presence or international operations

2. Eligibility Criteria for Navratna

Not specified by Department of Public Enterprises.

3. Eligibility Criteria for Miniratna

(i)       Category –I

Profit in last 3 yrs. continuous, Pre-Tax Profit > Rs.30 Crores in at least one of the 3 years and positive net worth

 (ii)     Category- II

 Profit in last 3 years continuous and positive net worth

4. Eligibility Criteria for Other Profit Making CPSEs

Have shown a profit in each of the 3 preceding accounting years and have a positive net worth.

II.  POWERS DELEGATED TO DIFFERENT CPSEs

The Department of Public Enterprises (DPE) has delegated various power to the Board of Directors of CPSEs.

Delegated powers to Maharatna, Navratna, Miniratna and other profit making CPSEs have been analysed in a comparative table which I hope will enable the readers to effortlessly identify with difference of power amid the above said CPSEs. It is the delegated power which provides enhanced autonomy to the CPSEs and that’s the object every CPSE hunger for.

Since the comparative table is too large to fit here, the same has been attached in below link which everyone must go through. Please click on the below link to go through the attachment.

Delegation of Power to CPSEs

III. TERMS & CONDITIONS

CPSEs have to ensure the compliance of terms & Conditions specified below in order to avail the enhanced delegation of powers. An effort has been made to simplify the terms & conditions specified by DPE by dividing the same into different heads:

A.    Terms & conditions common for Maharatna, Navratna and Miniratna CPSEs

1. All the proposals, whether they pertain to capital expenditure, investment or other matters involving substantial financial or managerial commitments or where they are likely to have a long-term impact on the structure and functioning of the CPSE, should be prepared by or with the assistance of professionals and experts and should be appraised, in suitable cases, by financial institutions or reputed professional organizations with expertise in the area. The financial appraisal should also preferably be backed by an involvement of the appraising institution through loans or equity participation.

2. The proposals must be presented to the Board of Directors in writing and reasonably well in advance, with an analysis of relevant factors and quantification of the anticipated results and benefits. Risk factors, if any, must be dearly brought out.

3. All the Government Director(s), the Financial Director and the concerned Functional Director(s) must be present when major decisions are taken, especially when they pertain to investments, expenditure or organizational/capital restructuring and exercise of powers.

4. The decisions on proposals listed in the above point should preferably be unanimous. In the event of any decision on such matters not being unanimous, a majority decision may be taken, but at least two-thirds of the Directors should be present. In addition, all the Government Director(s), the Financial Director and the concerned Functional Director(s) should invariably be present when such decisions are taken. The objections, dissents, the reasons for over-ruling them and those for taking the decision should be recorded in writing and minuted.

5. No financial support or contingent liability on the part of the Government should be involved. These CPSEs shall not depend upon budgetary support or Government guarantees. The resources for implementing their programmes should come from their internal resources or through other sources, including capital markets. However, budgetary support to implement Government sponsored projects of national interest and Government-sponsored Research and Development (R&D) projects will not disqualify CPSEs from retaining their status and for such projects, investment decisions will be taken by the Government and not by the concerned CPSE. Further, wherever Government guarantee is required under the standard stipulations of external donor agencies, the same may be obtained from the Ministry of Finance through the Administrative Ministry and such Government guarantee shall not affect their status.

6. These CPSEs will establish transparent and effective systems of internal monitoring, including the establishment of an Audit Committee of the Board with membership of non-official Directors.

7.1 The exercise of authority to enter into technology JVs and strategic alliances shall be in accordance with Government guidelines as may be issued from time to time.

7.2 Guidelines and parameters for the Board of Directors of Maharatna, Navratna and  Miniratna CPSEs to enter into technology joint venture and strategic alliances.

These guidelines are:-

(i) The selection of the partner for technology joint venture or strategic alliances and its processes etc. should be transparent. All such proposals must be presented to the Board of Directors in writing and should contain evaluation in terms of commercial expediency, techno economic parameters, quantification of the likely benefits and risk factors, if any.

(ii) The proposal should be examined and appraised by the Board of Directors when the Finance Director concerned functional Director(s) and at least two non-official part time Directors are present in the meeting.

(iii) The rationale for approving or rejecting the proposal must be recorded in writing giving full justification.

(iv) In the event of the decision on such proposals, not being unanimous, the objections, dissents, the reasons for over-ruling them and those for taking the decision should be recorded in writing and minuted.

(v) The policy and procedures of authorities like RBI, Foreign Investment Promotion Board (FIPB), Environment, etc., as laid down from time to time to be complied with.

(vi) It must be ensured that the proposal should not be entirely to the benefit of the MNC(s) to enter into the Indian market.

(vii) All the proposals involving investment over and above delegated powers, shall be submitted for approval of CCEA.

(viii) The Board shall ensure that adequate representation is given to the company in the management and operation of its joint venture/strategic alliance. The extent of representation should be in proportion to their contribution.

(ix) Joint ventures may be formed with such companies/MNC(s) where there is synergy between production/business line of the two partners and where both stand to gain, especially the Indian partner.

(x) A comprehensive list of joint ventures formed and status thereof be submitted to DPE on half yearly basis. The yearly status on the progress and performance of the joint ventures formed would be submitted by DPE to the Committee of Secretaries.

B. Terms & conditions specific to Maharatna CPSEs

1. The Boards of these CPSEs should be restructured by inducting requisite number of non-official Directors as per SEBI guidelines, subject to a minimum of four.

2. These CPSEs shall follow the highest standards of Corporate Governance and Corporate Social Responsibility applicable to CPSEs.

C. Terms & conditions specific to Navratna CPSEs

The Boards of these PSEs should be restructured by inducting at least three non-official Directors as the first step before the exercise of enhanced delegation of authority.

D.    Terms & conditions specific to Miniratna CPSEs

1. Enhanced delegation of powers are subject to the condition that the CPES has not defaulted in the repayment of loans/interest payment on any loans due to the Government.

2. The Boards of these PSEs should be restructured by inducting at least three non-official Directors as the first step before the exercise of enhanced delegation of authority.

3. Before taking decisions involving long-term or major financial commitments, including and especially for new projects and joint ventures, the internal and extra-budgetary resource position and projections should be assessed realistically.

E.     Terms & conditions specific to Other Profit Making CPSEs

1. inclusion of the project in the approved Five Year and Annual Plans and outlays provided for.

2. the required funds can be found from the internal resources of the company and the expenditure is incurred on schemes included in the capital budget approved by the Government.

With this the major provisions relating to delegation of powers and their terms & conditions are covered. Hope the above stated contents would have simplified the provisions of the DPE and would be useful for the readers.

And finally, happy new year, 2014 in advance with all the best wishes…… may the information technology get upgraded in every minute of 2014 and we remain connected on social media and ………… obviously in real life as well….

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