RBI RESTRICTS BANKS TO CHURN THEIR INVESTMENT PORTFOLIO

Making changes in the existing investment norms for the banks, the Reserve Bank of India (RBI) has
decided that banks may shift investments to/from permanent category with the approval of their board of directors only once a year. Such shifting may normally be allowed at the beginning of the accounting year. No further shifting to/from permanent category will be allowed during the remaining part of that accounting year.

SEBI TO PAY FIRST-YEAR PEER REVIEW

The Securities and Exchange board of India (SEBI) will pay auditors fees for the first year of peer review of accounts of companies in the 50-index Nifty and the 30-index BSE.

DRAWER OF CHEQUE NOT TO BE LIABLE

The Supreme Court has set aside the Delhi high court judgment and ruled that the drawer of a cheque would not be liable under Section 138 of the Negotiable Instruments Act if he had reported to the police that his cheques have been lost. Under the law, a person who issues a cheque which is dishonored by the bank for want of sufficient funds would be criminally prosecuted. In this case, Raj Kumar Khurana vs. State of Delhi, Khurana filed a first information report before the police that two cheque leaves have been stolen from his office. However, the cheques were filled up and presented at
the bank. It rejected them stating that the cheques were reported stolen by the drawee.

SEBI FIAT ON LISTING OF DEBT SECURITIES

SEBI has advised that the issuer of debt will have to forward to the debenture trustee a half yearly certificate regarding maintenance of 100 per cent security cover in respect of listed secured debt securities by a practicing chartered accountant, within one month from the end of the respective half year.

GOVT. NOTIFIED MCX AS RECOGNIZED EQUITY BOURSE

The government has notified MCX Stock Exchange, a part of Jignesh Shah-led group that also owns country's largest commodity bourse MCX, as a “recognized stock exchange” where trading would not be deemed as speculative transactions. The group, Financial Technologies, had set up MCX Stock Exchange (MCX- SX) in October last year with the launch of trading in currency futures. Besides, MCX-SX also initiated trading in stock future and options contracts last year. It is still awaiting necessary approvals from equity segment and the commencement is likely to take time.

MANDATORY PAN REQUIREMENT FOR TRANSFER OF PHYSICAL SHARES

SEBI has clarified that for securities market transactions and off-market/private transactions involving transfer of shares in physical form of listed companies, submission of copy of PAN Card by the transferee(s) to the Company/RTAs shall be mandatory for registration of such transfer of shares.

CERTIFICATION MANDATORY FOR CURRENCY DERIVATIVE TRADING

Securities and Exchange Board of India (SEBI) has made it mandatory for the “approved users and sales personnel” of trading members of the currency derivatives segment of stock exchanges to clear the currency derivatives certification examination to be conducted by National Institute of Securities Market (NISM).

SERVICES CONSUMED WITHIN SEZs GET TAX EXEMPTION

The government has allowed service tax exemption to Special Economic Zones (SEZs) for services consumed within the tax-free industrial enclaves. As per the clarification issued by the Central Board of Excise and Customs (CBEC), services consumed outside the zones, companies (including the developer) operating within an SEZ will have to file for refund.

NHAI LAUNCHES TAX FREE BONDS

The National Highways Authority of India (NHAI) has launched tax free bonds to raise upto Rs 4,000 crore. The three year bond, priced at Rs 10,000 each, carries a coupon rate of 6.25% per annum and will qualify for income -tax exemption under Section 54 EC of the Income-Tax Act, 1961. The subscription for bonds which opened on May 11, 2009 would be closed on March 31, 2010. The minimum application for the non- transferable bonds has been fixed at Five bonds (Rs 50,000) and maximum at 500 bonds (Rs 50 Lakh)

TAX REFUNDS IN FOUR MONTHS

With the refund banker scheme, individual and small corporate tax payers will get income or corporate tax refunds in four months. The refunds, arousing out of tax payments and TDS collections, usually takes more than a year to reach the average tax payers. According to senior finance ministry official, the refund- banker scheme may also be implemented across the country. Tax payers who have filed their return for the assessment year 2008-09 may now write to their area income-tax
assessment officers quoting their magnetic ink character recognition (MICR) codes (used in the bank industry for cheques processing) and vital bank account details. This will help the department to send refunds quickly in any part of the country.

FOREIGN TIE-UPS OF TRUSTS ARE TAXABLE IN INDIA

In a verdict that will have a bearing on tax exemptions given to Indian trusts, especially educational trusts, the Authority for Advance Ruling has held that tax is to be paid in India on all cross-border transactions, even if the parties involved are exempt from taxation in their respective countries. The I-T department claimed that though Sri Ramachandra trust is exempt from the Indian Income-Tax Act, the US based Harvard Medical International is not exempt from taxation in India. Further, Sri Ramachandra Education & Health Trust may be exempt under section 12AA of the I-T Act, which
exempts tax on teaching/educational activities, but the "annual alliance development and administrative / maintenance fees" that the trust has agreed to pay to Harvard Medical International do not come under the classification of payment for teaching or educational purposes.

REPAYMENT OF LOAN NOT TO EXEMPT CRIMINAL PROCEEDINGS - SUPEREME COURT

The Supreme Court has set aside the judgment of Madras High Court and declared that mere repayment of loan according to a settlement would not exempt a person who has cheated the bank from criminal proceedings. The High court had quashed action by the CBI against A Ravishankar Prasad stating that they had settled their dispute to the tune of Rs 157 crore to Indian Bank, though they had been charged with forgery and fabrication of documents. The debt recovery tribunal
had dismissed the complaint as settled out of the court. The high court then quashed complaint because of the settlement. The CBI appealed to the Supreme Court. It stated that the high court should not have exercised its discretionary powers to quash proceedings when there is a prima facie case for prosecution. It was alleged in the complaint that the accused person had conspired
with the CMD of the bank, Chennai, for recommending, sanctioning and disbursing of huge credit facilities

RBI SAYS NO TO BANK GUARANTEES FOR BONDS

The Reserve Bank of India (RBI) had asked banks not to provide guarantees or commitments for issues of bonds or debt instruments by companies. Under the existing rules, banks are only allowed to issue guarantees for loans taken out by corporate. Guarantees by the banking system for a corporate bond or any debt instrument not only have significant systematic implications, but also impede the development of a genuine corporate debt market.

EQUITY CAP FOR PENSION FUNDS TO STAY AT 50%

The pension fund regulator (Pension Fund Regulatory Development Authority) has said that it will not review the 50% cap prescribed for investing the public's savings in equities under the New Pension Systems (NPS). The regulator will wait for a year before it reviews the investment norms for the fund managers appointed under the New Pension Scheme. In the US, equity exposure is allowed in the range of 50-70%.

NO BOUNDARIES FOR SEZ MERGERS

As per the SEZ (second amendment) rules published in the Gazette of India:-

• Cap on SEZs is no more sacrosanct
• Developer can set up 2 or more adjacent SEZs and merge them without worrying about the 5,000 hectares cap
• As individual caps remain, developers have to move judiciously instead of buying large chunks of land in one go
• Clarity on the definition of vacant land will help SEZs avoid legal hassles
• Developers can now build zones in areas with structures having no ongoing commercial activity

DRAFT NORMS TO DEVELOP G-SEC MARKET LAUNCHED BY RBI

The Reserve Bank of India (RBI) launched draft guidelines for introduction of STRIPS (Separate Trading of Registered Interest and principal of Securities) in government securities. This is in order to develop the government securities market. Stripping is a process of converting periodic coupon payments of an existing government security into trad able zero-coupon securities, which will usually trade in the market at a discount and are redeemed at face value. Thus, stripping a five-year security would yield 10 coupon securities (representing the coupons), maturing on the respective coupon date and one principal security representing the principal amount, maturing on the redemption date of
the five year securities.

BANKING COMPANIES (NOMINATION) RULES

Banks are advised to acknowledge nominations and indicate the name of the Nominee in the Pass Book/ Statement of Accounts/ FDRs, in case the customer is agreeable to the same, as this would be helpful to the customers/nominees.

RBI NORMS FOR VALUATION OF PROPERTIES BY BANKS

Policy for valuation of properties

• Banks should have a Board approved policy in place for valuation of properties including collateral's accepted for their exposures.
• The valuation should be done by professionally qualified independent valuers i.e. the valuer should not have a direct or indirect interest.
• The banks should obtain minimum two Independent Valuation reports for properties valued at Rs.50 crore or above.

Revaluation of bank's own properties

As the revaluation should reflect the change in the fair value of the fixed asset, the frequency of

revaluation should be determined based on the observed volatility in the prices of the assets in 

the past.

Policy for Empanelment of Independent valuers

• Banks should have a procedure for empanelment of professional valuers and maintain a register of 'approved list of valuers'.
• Banks may prescribe a minimum qualification for empanelment of valuers. Different qualifications may be prescribed for different classes of assets (e.g. land and building, plant and machinery, agricultural land, etc.). While prescribing the qualifications, banks may take into consideration the qualifications prescribed under Section 34AB (Rule 8A) of  the Wealth Tax Act, 1957.

JUDICIAL REFORMS IN INDIA – A PRE-REQUISITE FOR INCLUSIVE GROWTH

The judicial system in India has been inherited from the English Law. There are several archaic laws which were enacted some around 100 years before India's independence and which are still operational and some of them are time tested for their efficiency and effective legal framework. The Civil Procedure Code, the Criminal Procedure Code and the Indian Evidence Act and various other legislation's governing the delivery of justice have been amended from time to time by successive Governments. None of these reforms, in most cases done halfheartedly in piecemeal, have been able to bring solution to some fundamental issues including -

• Delay in delivery of justice and mounting of court cases for years after years at various levels of judicial hierarchy. It is the biggest hurdle in bringing justice to book.
• The 21 high courts reported a pendency of 38.7 lakh cases as of January 1, 2009. At the trial level the pendency figure was 2.64 crore. In the Supreme Court, around 50,000 cases are reported pending in April 2009, here  also the cases languish for years and some time for decades.

Justice Delayed is Justice denied.

• The Civil Procedure Code, the Criminal Procedure Code and principles of natural justice, as being currently practiced in India permit adjournments after adjournments.
• With highest regards to judiciary and to the Indian judicial system, in a large number of cases, the judges are busy in considering matters again and again for short duration and on very fickle grounds adjournments are granted, in view of large number of cases listed for the day. This process gets repeated every time. Some time respondent’s lawyer seek adjournment and some time Hon’ble judge may not be available on the day of hearing for various personal or official reasons, which is quite natural, without any advance intimation or planning for adjournment.
• There are a large number of vacancies in the judiciary at various levels. In the high courts 635 judges are functioning against the sanction strength of 886 whereas 13,556 judges function against the sanction positions of 16,685. Even the sanctioned posts are not enough to take the load of work.

The Hon’ble Supreme Court as well as various High Courts and the bureaucracy at the helm along with the top Indian leaders, all are aware of the difficulties being faced by the society at large due to the aforesaid delay. There is no adequate fear for judicial or legal system due the aforesaid delay. These delays result into lack of justice, unfair compromises, corruption and unfair practices prevalent in the entire system. The biggest result of the weakness in the judicial system is the mounting level of corruption. The biggest and most important deliverable by the government is social security law and

order. The absence of timely justice defeats various economic initiatives and severely impact inclusive growth. It is the commoner who is to suffer. It is suggested that the following actions may be undertaken by the new Government as its biggest priority:

• Amendment to Criminal Procedure Code and Civil Procedure Code to reduce adjournments
• Requiring presentation of all evidences / arguments at initial stages before judicial hearing

This can be checked by a strong judicial secretariat/ registry that need to ensure that cases come up for hearing only on completion of all necessary papers and evidences to be brought on record.

• Guidelines by the apex court on invoking principles of natural justice without base and amendments to Indian Evidence Act.
• Codification of law of torts
• Extensive training of judicial secretariat and members of judiciary
• Extensive use of e-governance, e-communication and e-filing to improve transparency
• Appointment of adequate number of judges at various levels
• Mandatory payment of adjournment fee by the parties
• Mandatory detailed hearing of the case on all dates. Minor administrative, filing or documentation requirement may be completed by the parties in between 2 days, duly monitored by the judicial secretariat.
• Prescribing maximum 4 or 5 hearings for majority of the cases barring few exceptions that the special approval of Chief Justice of the relevant High Courts.
• Sanctioning the role of Registrar, Munshies and officials of the court.

BANK AUDITORS TO BE APPOINTED ONLY BY THE RESERVE BANK – GOVERNMENT DECISION – A WELCOME MOVE

The Government of India has decided that the auditors of banks will continue to be appointed by
Reserve Bank of India and the power to appoint auditors will not be delegated in the name of autonomy. The government of India has finally taken a view, on the basis of persistent follow up and representation by President of the Institute and several Central Council Members and All India Chartered Accountants Society. An incessant persuasion to implement this in principle decision by RBI is being made to ensure that all the banks adhere to the directive with immediate effect. We congratulate the profession of Chartered Accountants and each Chartered Accountant brethren who contributed towards the noble cause of safeguarding independence of auditors. We are sure that the profession will gain from strength to strength by united efforts by all of us towards achieving excellence, independence and integrity. Needless to say, it all will ultimately benefit the nation.