Where the Things Are Going Wrong? updated 7-Nov-08

Responsible Person

Narendra Modi, Chief Minister of Gujarat

Ref No:

08-001

Country

India

Date:

2008/11/07

Affected Region

India, Indian and Foreign Investors, SENSEX, NIFTY, Indian Stock Market

Event:  Mr. Narendra Modi ordered that partly Gujarat state owned listed corporations be asked (forced) to pay voluntary charitable contribution @ 30% before Income Tax (Statutory)  for the development of the state and governments’ other welfare programs. The listed companies have been asked to pass Share Holder’s resolution authorizing the company to make such contributions. Mr. Modi never mentioned under what authority he was imposing his will on the partly owned state owned companies, against the interest of all minority shareholders. He also did not specify on what legal and constitutional basis he was imposing Income Tax payable to the state which is not permissible under the Constitution of India. Income Tax is not a state subject. It is a Central subject.

& Effects: An extremely dangerous and arrogant stand, and if allowed to continue, it may ring death bell on the already difficult Indian stock market. Many other states, there are 27 more, who might raise their head and impose state level Income Tax not permitted under the Constitution of India. Government of India also controls over 300 public listed corporations. If GOI also adopts similar style, the whole stock market might come crashing down to less than 1000. This madness must be stopped. Charging 30% state level tax under the disguise of voluntary contributions will reduce Earning Per Share (EPS) by 30% that will cause sharp fall in the value of shares held by ordinary investors. Already, damage has been evident. Some of the strongest companies like GSPL saw its share price whittled down by 35% in few days (not because of weaker stock market. It may be noted that –

1. This is unconstitutional. Imposing tax on income is the prerogative of the Central Government. The state government shares this revenue with Central government as per pre-defined formula under the Constitution of India.
2. The listed corporations are not the exclusive property of the Gujarat state. There are other investors from India all across the nation and also foreign investors. These are nationally listed companies – Gujarat State is only a shareholder. It should not be allowed to abuse its power of majority to the detriment of minority shareholders.
3. It is violative of Companies Act, 1956. No company contributes to charity thousands of crores. These are commercial organizations for profit, and under this express charter, the investors have invested into such companies.
4. It is also violation of listing rules of NSE and BSE.
5. It may also encourage other listed companies controlled by private citizens to make charitable contributions towards their private charities meant to benefit their families or communities.
6. All investors must write to the Finance Ministry, Prime Minister of India, President of India (who is the protectorate of Constitution of India) Reserve bank of India, National Stock Exchange, Bombay Stock Exchange and Supreme Court of India and High Court of Gujarat, lodging strongest protest.
7. If Mr. Modi does not withdraw this controversial proposal, he should be sacked immediately, imposing emergency Rule on the State of Gujarat to protect the constitution and the interest of all investors.

Filed under: Where the things are going wrong?