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Sunday, December 15, 2013
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Section 68: Cash Credit

The Gujarat High Court has held that partners  having declared unsecured loan given to assessee-
firm in their independent returns, said amount could not be added in hands of assessee-firm.

Section 37(1): General Expenditure

The Bombay High Court has held that payment on account of gratuity, retrenchment
compensation and leave encash ment made to workers in connection with VRS on closure of

business was allowable as revenue expenditure.

The Allahabad High Court has held that where  by providing scholarship, business of assessee-
coaching institute was expanded, same would be allowable as business expenditure.

Section 43B: Deduction on payment basis

The Punjab & Haryana High Court has held  that where assessee deposited employer’s and
employees contribution to PF and ESI after expiry of due date but prior to filing return of income
under section 139(1), amount so deposited could not be disallowed by invoking provisions of section


Section 40A(3): Dis allowance for cash payments exceeding Rs 20000

The Karnataka High Court has held that payment  made to government concern in cash in excess of amount prescribed under section 40A(3) would be allowable.

Section 45, read with section 2(47): Income from Capital Gains

The Allahabad High Court has held that Capital  gains would be charged only on receipt of sale
consideration after development of land; and not when agreement was signed for development of


Section 271(1)(c): Penalty for concealment of  Income

The Allahabad High Court has held that where  assessee admitted undisclosed income found during search and he was ready to make payment of  tax, no penalty was to be levied.

Section 54EC, read with section 50: Exemptions  from Capital Gains

The Gujarat High Court has held that where capital  gain arose out of long-term capital asset was invested in specified assets, exemption under section 54EC could not be denied on account of fact that deeming fiction of short-term capital gain was created under section 50.

Section 50C: Capital Gains on sale of land or  building or both

The Mumbai ITAT bench has held that Section 50C cannot be invoked to a transfer of leasehold rights.

Section 92C: Computation of Arm Length Price

The Ahmedabad ITAT bench has held that where assessee granted loan to its foreign subsidiary
company which was subsequently converted into equity capital, in view of fact that as per loan agreement interest was not chargeable in such a situation, addition made by TPO/Assessing Officer on account of notional interest was to be set aside.
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Government plans concessional GST

The following changes are made in the proposed Goods & Service Tax (GST) bill :

Earlier proposal: no tax for business with annual sales below Rs 25 lakhs

Proposed Additional SOP: Lower than standard  GST rate for manufacturers, service providers, dealers in Rs 25-75 lakh bracket

Objective: Making new tax regime acceptable to small businesses

The Caveat: Lower rate applicable only on intra – state sales by manufacturers, service providers and traders, all of whom will be categorized as dealers

Benefit: Service providers of Rs 10 lakh turnover can expand sales 7-fold and still pay only
compounded rate. For manufacturers with Rs 25 –75 lakh sales, impact may be cushioned to some extent. Traders with Rs 5- 10 lakh sales who pay state VAT need not pay GST upto Rs 25 lakhs sales, those with Rs 25 – 75 lakh sales to pay lower rate.
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E-payment of tax above Rs 1 lakh a must

Threshold of mandatory e-payment reduced from Rs 10 lakh to Rs 1 lakh for both central excise and
service tax payment. The revised changes are applicable from January 1, 2014. The threshold
annual turnover above which traders have to pay central excise tax is Rs 1.5 crore; for service tax, it
is Rs 10 lakh
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Latest draft rules issued by ministry outrage cost auditors

The latest draft rules issued by the Ministry of Corporate Affairs (MCA) related to the cost records
and audit mechanism could substantially curb the scope of the cost audit profession and have outraged its practitioners.

The salient features of the draft rules are as under:

  • Number of industries covered is reduced.
  • Turnover and Net worth thresholds have been increased substantially. The threshold has been threshold from net worth of Rs 5 crore to Rs 500 crore and the threshold of turnover from the specified product is fixed at Rs 100 crore.
  • Apart from companies required to undergo cost audit, all others have been exempted from maintaining even cost accounting records
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No overkill in cheque bounce cases: SC

The Supreme Court of India has said that once the amount in a dishonored cheque is paid with
interest and compensation, the payee cannot insist on criminal prosecution of the directors of a firm
who issued the cheque. The object of Section 138 of the Negotiable Instrument Act, which makes
issuing of cheques without sufficient balance in the account an offence, is meant to “inculcate faith
in the efficacy of banking operations and credibility of transactions". It is not meant only to punish the guilty, as directed by the supreme court in Lafarge Aggregates & Concrete India Ltd vs Sukarsh Azad.
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EPFO caps pension contribution of firms

Employees Provident Fund Organisation (EPFO) has decided to not allow employers contribute
higher than the mandatory amount towards its pension scheme in fresh cases. This amounts to
capping the employers’ contribution to employees’ pension at Rs 541 per month The Supreme Court of India has said that medical profession is a noble profession dedicated to the service of society and therefore doctors cannot be classified as “workmen” entitled to invoke the Industrial Disputes Act.
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After ESOPs, SEBI eyes regulating other employee benefits

To bring all types of employee benefit schemes under its ambit, a Securities and Exchange Board
of India (SEBI) discussion paper has proposed that trusts set up managed and financed directly
or indirectly by companies, should be regulated. Trusts include those managing general employee
benefits such as education, scholarship, medical, retirement benefits such as superannuation,
gratuity or any other schemes. Currently, SEBI regulates only employee stock option plans (ESOP) and employee stock purchase schemes.
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SEBI needs to step up criminal enforcement in markets: ESMA

European market watchdog European Securities  and Markets Authority (ESMA) has noted that the legal authority of SEBI (Securities and Exchange Board of India) has been strengthened and it now has broad regulatory, licensing, investigation, supervision and enforcement powers.
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SEZ Board to give licences for defence goods production

Special Economic Zone (SEZ) units producing defence related items will no longer have to go to
the Department of Industrial Policy & Promotion (DIPP) for an industrial licence.The Board of Approval (BoA) for SEZs, which approves proposals for setting up these zones and takes decisions on matters related to their operation, will now also issue industrial licences for producing defence related goods.
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Reporting Platform for OTC Foreign Exchange and Interest Rate Derivatives

The Reserve Bank of India (RBI) has decided to operationalise the CCI platform with effect from
December 30, 2013 for the following OTC derivative instruments: -

  • Inter-bank and client transactions in Currency  Swaps
  • Inter-bank and client transactions in FCY FRA/  IRS
  • Client transactions in INR FRA/IRS
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Third party payments for export / import transactions

The Reserve Bank of India (RBI) has said that normally payment for exports has to be received
from the overseas buyer named in the Export Declaration Form (EDF) by the exporter and the
payment shall be received in a currency appropriate to the place of final destination as  mentioned in the EDF irrespective of the country of residence of the buyer. Similarly, the payments for the import should be made to the original overseas seller of the goods and the AD should ensure that the importer furnishes evidence of import, such as, Exchange Control copy of the Bill of Entry to satisfy itself that goods equivalent to the value of remittance have been imported. AD banks may allow payments for export of goods / software to be received from a third party (a party other than the buyer) subject to conditions as specified. AD banks are also allowed to make payments to a third party for import of goods, subject to conditions as specified.
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Provide loans to women’s self help groups at 7%: RBI

The Reserve Bank of India (RBI) has directed public sector banks to provide credit to women
self help groups at a rate of 7% per annum so as to get the benefit of interest subvention scheme
under the Swarnajayanti Gram Swarozgar Yojana Aajeevika (SGSY) scheme.
RBI has also said that Public Sector Banks (PSBs) will be subverted to the extent of difference between the Weighted Average Interest charged and 7% subject to the maximum limit of 5.5%,
for the FY-2014.
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SIDBI given Rs 5,000 crore to refinance receivables of MSEs: RBI

The Reserve Bank of India (RBI) will provide refinance of Rs. 5,000 crore to the Small Industries Development Bank of India (SIDBI) for direct liquidity support for finance receivables to micro and small industries (MSEs), by SIDBI or selected intermediaries like banks, NBFCs and state finance corporations. The refinance will be available against receivables, including export receivables, outstanding as on November 14, 2013 on wards.
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RBI questions on FC arbitrage

The Reserve bank of India (RBI) has questioned Foreign Currency (FC) arbitrage transactions. Dollars bought from Mumbai branch of a foreign bank and sold to same bank in Singapore. Such trades allow companies to profit from arbitrage in forward trade in two markets. But forward trades such as dollar buying weakens the spot rupee as well. RBI is unhappy with the banks undertaking such transactions.
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Mandatory filing of records of equitable mortgages with the Central Registry

The Reserve Bank of India (RBI) has said that the institutions notified under the SARFAESI Act have to mandatory register with Central Registry of  Secularization Asset Reconstruction and the Security Interest of India (CERSAI), the records of the mortgages created in their favor by deposit of title deeds. All NBFCs are advised to file and register the records of all equitable mortgages created in their favor on or after 31st March 2011 with the Central Registry and they shall also register the records with the Central Registry as and when equitable mortgages are created in their favor.
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Exchange Traded Cash Settled Interest Rate Futures (IRF) permitted

The Securities and Exchange Board of India (SEBI) has decided to permit stock exchanges
to introduce cash settled Interest Rate Futures on 10-Year Government of India Security. Two
different designs (Option-A: Coupon bearing Government of India security as underlying and
Option-B: Coupon bearing notional 10-year Government of India security with settlement
price based on basket of Securities as underlying) are permitted for cash settled futures on 10-year
Government of India (GoI) Security. Exchanges are permitted to launch contracts on either one
or both of these options.
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SEBI says issuers can opt for shelf prospectus

The Securities and Exchange Board of India  (SEBI) plans to allow frequent issuers of non-convertible debentures with credit rating of AA and above to raise money using a shelf prospectus.
The issuers include public financial institutions, banks and issuers authorised by the Central Board
of Direct Taxes to issue tax-free bonds and RBI-regulated infra debt funds and NBFCs.Other NBFCs and listed companies with a credit rating of AA and above subject to minimum net worth of Rs 500 crore, besides distributed profit (three years for NBFCs and five for listed companies) with no default on deposit/interest payments also would be allowed.
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Foreign Banks free to enter India

The Reserve Bank of India (RBI) has released guidelines stating that wholly owned Subsidiaries
(WOSes) of foreign banks could acquire domestic private-sector banks, as well as set up branches
anywhere in the country. The Central Bank also said that these WOSes might be permitted to enter into merger & acquisition (M&A) transactions with any private bank in India, subject to the overall foreign investment limit of 74 per cent. The following are the main highlights of the guidelines: -

  • The Subsidization is not mandatory but foreign banks with complex structures and concentrated shareholding will have to create wholly-owned subsidiaries (WOSes)
  • Foreign banks opting for branch presence must  convert into WOSes when it becomes systemically important.
  • Foreign banks creating subsidiaries to be permitted to acquire local banks
  • Restriction is to be placed on entry of new WOSes and capital infusion when capital & reserves of WOSes and foreign bank branches exceed 20% of the banking system’s capital & reserves
  • Rs 500 crore prescribed as initial minimum paid-up voting equity capital for a WOS
  • The Priority Sector Lending requirement for WOSes to be on a par with Indian banks —40%
  • Corporate governance norms for WOSes to be stringent, including two-thirds of directors to be non-executive
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FDI in financial sector – relaxed

The Reserve bank of India (RBI) has decided that the requirement of NoC(s) will be waived from
the perspective of Foreign Exchange Management Act, 1999 and no such NoC(s) need to be filed
along with form FC-TRS. However, any ‘fit and proper/ due diligence’ requirement as regards the non-resident investor as stipulated by the respective financial sector regulator shall have to be complied with.
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Corporate Debt: Placement with FII, QFI, etc.

The Reserve Bank of India (RBI) has decided to allow Securities and Exchange Board of India (SEBI) registered Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and
long term investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, foreign Central Banks - to invest in the credit enhanced bonds, up to a limit of $ 5 billion within the overall limit of $ 51 billion earmarked for corporate debt.
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ECB – Liberalised

In order to strengthen the flow of resources to infrastructure sector, the Reserve Bank of India (RBI) has decided to permit Holding Companies / Core Investment Companies (CICs) coming under the regulatory framework of the Reserve Bank to raise ECB under the automatic route/approval route, as the case may be, for project use in Special Purpose Vehicles (SPVs) with the specified terms and conditions.
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The recent announcements of election results are historic and has brought to light serious concerns of the nation, the economy, society and most importantly public at large about the current political as well as economic state of affairs. This is very clear from active involvement a record turnout of voters for the election. Almost uprooting of the ruling party in Delhi and Rajasthan is a very strong message to all political parties, bureaucrats, judiciary and specially to those who device policy and administer them that nation and Indian society cannot be taken for granted and the general public is
seriously concerned about price rise and inflation, corruption, lack of employment opportunities, complete dismantling of confidence of investors. The Indian economy is negatively impacted by too many procedures, hyper active tax legislations, prosecution of senior business leaders, severely impairing business sentiments and several such factors. The nation as a whole, have expressed that the decision makers and administrators need to act firmly, strongly and a decisive manner with a clear vision and direction. It is important to address all major and minor issues, troubling the public at large. The Company law is interfering in private sector in the name of corporate Governance, restrictions to even undertake financial transactions among group companies even by private limited companies. Severe penalties and prosecutions with imprisonment are prescribed even in those cases where no public interest is involved. SEBI has been given sweeping powers of raids, searches, asset attachment etc, without any checks and balances. The scenario on the front of foreign exchange as well as current account deficit is also a matter of concern. Reserve Bank of India has been able to arrest the free fall of rupee by some temporary effective but cosmetic measures including permission to Indian banks to borrow internationally and a special FCNRB Swap Scheme, wherein RBI has agreed to take the risk of exchange fluctuation indirectly. The real issue of balance of payment, current account deficit and pressure on Indian rupee exchange rate are critical issues not adequately addressed. The GDP and IIP low growth rates are matters of very serious concern.

It is very important for the government to learn the tough lesson immediately. The Government need to address all issues with compassion , positive attitude and concern for the common man and all the actions, policies and procedures need to be redesigned and implemented to bring a soft-touch to restore confidence in every echelon of the society.
Friday, November 15, 2013
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Listing of specified securities of small and medium enterprises on the Institutional Trading Platform in a SME Exchange without making an initial public offer.

The Securities & Exchange Board of India (SEBI) has decided to permit listing without an Initial
Public Offer and trading of specified securities of small and medium enterprises(SMEs) including start-up companies on Institutional Trading Platform (ITP) in SME Exchanges. The following are the features of the amendments: -

  1. The Institutional Trading Platform (ITP) shall be available to informed investors who are either individuals or institutions and the minimum trading lot shall be ten lakh rupees on this platform. Companies listed on ITP shall not make IPO of securities.
  2. Eligibility of Listing: -

  • Company, Directors and Promoter group should not appear in the wilful defaulters list of RBI and CIBIL
  • No winding up petition against the company
  • The company has not been referred to BIFR up to 5 years from the date of application
  • At least one year audited financials.
  • Company has not completed 10 years of its operations with revenues not exceeding Rs 100 crores in any of the year.
  • Paid up capital has not exceeded Rs 25 crores.
  • Certain minimum investment requirements as mandated by SEBI.
Process of Listing: -
  • Application to Recognized Stock Exchange.
  • Approval by Recognized Stock Exchange
Capital Raising:

  • No IPO during the time period in which company is listed on ITP
  • Capital raised through Private Placement or Rights Issue, within no option of renunciation.
  • Letter of Offer to shareholders
Minimum Shareholding for promoters kept at 20% with a lock in period of 3 years
Exit from ITP: -
  • Voluntary exit by passing a special Resolution through postal ballot with majority support of non-promoters, 90% assenting shareholders & SME exchange approval.
  • Automatic exit within 18 months on occurrence of any of the conditions of eligibility as laid down in clause 2 or has created a market cap of Rs 500 crores.
  • Permanent removal on occurrence of any of the following: -

Failure to file periodical filings for more than one year.
Failure to comply with corporate governance norms for more than one year.
Non compliance of conditions of listing as mandated by Recognized Stock Exchange.

The SMEs are liable to give a Board Resolution regarding approval of draft & final memorandum
and its disclosures.

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IRDA allows insurers more flexibility to invest

Insurance companies will now have more leeway to invest in sectors such as IT and Pharma. The
Insurance Regulatory and Development Authority has increased the sector specific exposure limit
for investments by insurers from 15 per cent to 20 per cent of their total investment, with the
exception of banking and financial services where the limit is 25 per cent and infrastructure where
there is no exposure limit.
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NFRA to get powers to investigate, audit firms

Apart from laying down accounting and auditing policies and standards for India Inc, the proposed
National Financial Reporting Authority (NFRA) envisaged in the new Companies Act, 2013, will
also conduct quality review of audit of listed and unlisted companies, according to the draft rules
released by the ministry of corporate affairs (MCA). With powers to lay down accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, the
proposed NFRA will be able to take over a bulk of the work currently being executed by the Institute of Chartered Accountants of India, experts said. NFRA will also undertake investigation or conduct
quality review of audit of listed companies, unlisted companies with net worth not less than Rs500 crores or paid-up capital not less than Rs500 crores or annual turnover not less than Rs1,000 crores as on March 31 of immediately preceding financial year. It will also undertake audit review of companies having securities listed outside India. The proposed entity will also be responsible for
monitoring and ensuring compliance with accounting and auditing standards. The NFRA, as per the draft rules, will have three committees - Committee on Accounting Standards, Committee on Auditing Standards and the Committee on Enforcement. The government has proposed mandatory insurance cover for company deposits as part of the suggestions outlined in the draft rules to Companies Act, 2013. As per the draft rules, defaulting firms will have to pay additional 18% annual interest on principal amount.
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Relaxation in cheque bouncing cases

The stringent provisions in the Negotiable Instruments Act providing punishment for issuing cheques without sufficient funds in the bank is not a means of seeking retribution, but is more a means to ensure payment of money. The threat of jail is only a mode to ensure recovery, the Supreme Court stated last week in its judgment, Somnath Sarkar vs Utpal Basu.
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Regulator announces new norms for listing start-up ventures

The market regulator Securities and Exchange Board of India (SEBI) has come out with new norms for listing of start-up ventures and small and medium enterprises on the Indian bourses, which would offer exit opportunities to investors.

Norms, eligibility

A start-up or SME cannot make an IPO while its specified securities are listed on ITP but can raise
capital through private placement or rights issue "without an option for renunciation of rights."
Also, a SME will be eligible to list on the ITP, in case the company, its promoter, director, group
company does not appear in the defaulters list of the RBI and there is no winding up petition against

the firm, it added.

Exit opportunity

The minimum amount for trading or investment on the ITP would be Rs 10 lakh, which would

offer exit opportunities and alternate buyers.
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Govt relaxes outsourcing norms for SEZ units

In a bid to facilitate manufacturing and augment exports, the commerce ministry has allowed
manufacturing units in special economic zones (SEZs) to sub-contract work for up to three
years, instead of just one year allowed at present. The relaxation would apply to only those manufacturing units that have substantial exports, with average annual shipment of Rs 1,000 Crores
or more in at least 2 out of 4 years.
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Pre-emption rights in M&As get SEBI nod

To make mergers and acquisitions (M&A) more flexible, the Securities and Exchange Board of
India (SEBI) allowed shareholder agreements and articles of association of companies to have
contracts for pre-emption. This includes the right of first refusal, tag-along or drag-along rights.
The right of refusal gives one of the parties in an M&A deal the first option to buy out its partner
in the event of the latter wishing to exit from the agreement at a later stage. Tag-along is a contractual obligation used to protect a minority shareholder. If a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company. On the other hand, drag-along rights enable a majority shareholder to force a minority shareholder to join in the sale of a company. In addition, SEBI also allowed companies the use of call and put options with conditions. It said that the seller of the underlying securities should have been their owner for a minimum of one year from the contract date. The price of the underlying securities bought or sold on exercise of the option should be according to existing laws and the contract should be settled by actual delivery of the underlying securities.
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Scheme to convert foreign banks into wholly- owned units

The Reserve Bank of India (RBI) said that it will outline a scheme by mid-November to encourage
existing foreign banks to convert their Indian operations into wholly-owned subsidiaries (WoSs).
While it will not be mandatory for existing foreign banks in India such as Citibank, DBS, Deutsche
Bank, Standard to Chartered and HSBC convert their existing operations into subsidiaries, RBI will
come out with incentives to attract them for conversion.
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Infra status gives hotels room to raise cheap funds

The Centre has extended 'infrastructure' status for all hotel projects, fulfilling a long-pending demand of large hoteliers. This means projects with a capital cost of Rs 200 crore or more will be able to access cheaper funds. This will be applicable with prospective effect from the date of modification and available for eligible prospects for three years from the date of notification. The new notification includes convention centres with project cost of more than Rs 300 crores each.
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StCBs/CCBs - Housing Sector: Innovative Housing Loan Products - Upfront disbursal of housing loans

has observed that some banks have introduced certain innovative Housing Loan Schemes in association with developers/builders, e.g. upfront disbursal of sanctioned individual housing loans to the builders without linking the disbursal's to various stages of construction of housing project, interest/EMI on the housing loan availed of by the individual borrower being serviced by the builders during the construction period/specified period, etc. Such housing loan products are likely to expose
the banks as well as their home loan borrowers to additional risks. StCBs and CCBs are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects
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Section 23 of the Banking Regulation Act, 1949 - Relaxations in Branch Authorisation Policy

The Reserve Bank of India (RBI) has said that domestic scheduled commercial banks (other than RRBs) are permitted to open branches in Tier 1 to Tier 6 centres without having the need to take permission from Reserve Bank of India Detailed Guidelines in this regard including reporting requirements have been issued.
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Election in 4 States: Expectations from the Government

The Indian democracy is in an active mode in the backdrop of November-December Election in 4 important States. The performance of the State Government as well as of the Central Government is under active analysis. The national economic and political scenario will have a major bearing on the voting pattern.

The entire nation is concerned about the current business and economic scenario and indecisiveness at the political and policy level. The economic sentiments have swiftly moved from "Feel Good" to "Feel Bad Factor" during last two years. The poor economic performance is further evident from substantial growth in non-performing assets with banking sector and substantial losses (reduction in
profit) to almost all public sector banks. Most of the infrastructure projects, specially projects of national highways, large and medium size power projects, ports, railways, water body developments have also stagnating. The mining sectors, led by iron ore and coal mining issues have further aggravated the economic scenario. Free fall of rupee vis-à-vis all foreign currencies during
July-September 2013 also indicate a very severe lack of economic intelligence, precautionary steps, advance planning, lack of political will and failure to take timely decisions. The aggressive activism of the taxation wing of the government by widespread litigating ,high pitched assessments, retrospective amendments, proposal to disregard DTAA, introduction of GAAR impacting significant number of international investors and local corporate have resulted into complete lack of faith and
trust of the business community in the Indian Government. Large scale prosecutions, FIR and arrests of senior politicians, bureaucrats and most worriedly of many leading highly reputed businessmen have completely spoiled the working atmosphere. Topmost business houses like Birlas, Ambanis, Tatas, Jindals and many others are under investigation or inquiry on one pretext or the other. This
has resulted into very bad business sentiment. A large number of Indian businesses are now thinking in terms of investing outside India, rather than investing in India.

The latest statement of the Prime Minister that political leaders and bureaucracy cannot be investigated and prosecuted for taking policy or administrative decisions. It is not appropriate to allege motives on all decisions. This stand of the government need to be fine tuned and implemented in letter and spirit. The political Government need to strongly put forward in letter and spirit that all
decisions at various levels will be taken in a completely professional manner and financial impropriety of any kind will not be tolerated.

At the political level there is a big mistrust and lack of mutual respect between the ruling party and the opposition. To bridge this gap, several major initiatives will have to be taken by all the political parties. The party in power, need to clearly demonstrate not only by words but by sincere and serious action that the government proposes to work with political consensus and all necessary action will be
taken to restore honesty, ethics and integrity in the working of polity as well as bureaucracy. The government has announced several new decisions taken by the Cabinet Committee and various levels of the government but their implementation is still not seen. A serious action plan need to be implemented to bring back active growth and development in all major industrial and service sectors
and it is most important to restore confidence in the system at all levels. We need active debate on all the issues and also need to ensure active participation in the election process to enable exercise of voting rights in a very careful manner. Any error could be fatal for the entire polity and economy of the country. We need a strong, non-corrupt visionary government at all levels.
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Overseas Foreign Currency Borrowings by Authorised Dealer Banks

The Reserve Bank of India has said that AD Category  - I banks may borrow funds from their Head Office, overseas branches and correspondents and avail overdraft in the Nostro accounts up to a limit of hundred per cent of their unimpaired Tier I capital as at the close of the previous quarter or USD 10 million (or its equivalent), whichever is higher (excluding borrowings for financing of export credit in foreign currency and capital instruments). Authorised dealers may borrow from their Head Office or overseas branches or correspondents outside India or any other entity as permitted by RBI. RBI permission is hereby granted to AD Category I banks to borrow from international / multilateral financial institutions for a limited period up to November 30, 2013. Such borrowings should be for the purpose of general banking business and not for capital augmentation and shall be subject to the
conditions stipulated in the A.P. (DIR Series) circular no. 40, 2013 dated September 10, 2013.
Further, such borrowings shall be eligible for the concessional swap facility of RBI as per A.P. (DIR
Series) circulars no. 40, 2013 dated September 10, 2013 and 54 dated September 25, 2013.
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Foreign Direct Investment (FDI) in India - Definition of 'Group Company'

In respect of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified 'Group company' means two or more enterprises
which, directly or indirectly, are in position to:

  • exercise twenty-six per cent, or more of voting rights in other enterprise; or
  • appoint more than fifty per cent, of members of board of directors in the other enterprise.
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IRDA allows insurers more flexibility to invest

Insurance companies will now have more leeway to invest in sectors such as IT and Pharma. The
Insurance Regulatory and Development Authority (IRDA) has increased the sector specific exposure
limit for investments by insurers from 15% to 20% of their total investment, with the exception
of banking and financial services where the limit is 25% and infrastructure where there is no
exposure limit.
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SEBI amends disclosure norms for pledged shares

The Securities and Exchange Board of India  (SEBI) has modified the format of disseminating information under the takeover code (substantial acquisition of shares and takeover). Entities
acquiring five per cent or more have to disclose change in their shareholding in prescribed format.
Those already having a stake of five per cent or more, have to disclose change in shareholding of
two per cent or more. This would apply even if the shareholding of such an entity falls below
five per cent as a result of sale of shares. The SEBI directive asks promoters to provide details of events that led to the shares being pledged (creation of encumbrance), released or invoked along with the date.
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SEBI eases rules for foreign portfolio investors to boost inflows

The Securities and Exchange Board of India (SEBI) has proposed grant of registration to Foreign Portfolio Investors (FII, QFI, Foreign citizens) within 10 days of application under the new Foreign Portfolio Investor (FPI) regime. The FPIs would be allowed to invest across a host of the capital market segments, including in shares, debentures, warrants, mutual funds, collective investment schemes, derivatives, treasury bills and government securities. Besides, they can also invest in the commercial papers, security receipts of asset reconstruction companies, perpetual debt instruments, non- convertible debentures, infrastructure debt funds and Indian Depository Receipts. However, one FPI can hold a maximum of 10% equity shares in a company, subject to the applicable sectoral caps.
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SEBI plans new norms for default proceedings

The Securities and Exchange Board of India (SEBI) has proposed new norms for settlement of administrative and civil proceedings against suspected market defaulters, except in cases of serious violations like illicit pooling of funds from investors, insider trading and fraudulent and unfair trades.
The list of violations that can't be settled has been expanded widely under the new norms, which also provide for the involved entity to file settlement plea within 60 days of the Show Cause Notice served by the SEBI. It has said that a plea to settle pending cases, upon payment of settlement charges and related costs, will not be considered if the applicant has already been party to two earlier settlements.
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Finance Ministry to relax ADR norms for Indian firms

After allowing unlisted India-registered companies  to list on exchanges abroad, the government is all set to ease norms for companies to raise money through American Depository Receipt (ADR)
issues in overseas equity markets. Sources in finance ministry said companies will now be allowed to issue level 2 and level 1 ADRs, which are easier and less expensive ways to raise money. Currently, Indian-listed companies are allowed to issue what is known as level 3 ADRs. Level 2 ADRs have easier listing requirements and can be listed on NASDAQ, while level 1 ADRs have the loosest listing requirements by the SEC and do not need to be listed. They can be traded over-the-counter level 3 ADRs means the company has to fulfil all conditions placed by the US Security and Exchange Commission (SEC) to list such an instrument on exchanges like NASDAQ and New York Stock Exchange (NYSE).
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SEBI issues draft guidelines for realty investment trusts

The Securities and Exchange Board of India  (SEBI) has pegged the initial offer size at Rs 250
crore and made listing of units mandatory for all REITs (Real Estate Investment Trusts). A minimum public float of 25% has been specified to ensure adequate public participation and float in the units.
SEBI has further said that the size of assets under REIT should not to be less than Rs 1,000 crores,
which "is expected to ensure that initially only large assets and established players enter the market". However, initially, till the market develops, SEBI has proposed that the units of the REITs may be offered only to high net worth individuals/institutions.
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SEBI eases share transfer norms for deceased holders' accounts

The Securities and Exchange Board of India  (SEBI) has simplified the procedure for transfer of securities from the account of a deceased person and raised the threshold limit for such transactions in demat format to Rs 5 lakh. The move is aimed at making transmission of securities in both dematerialised and physical modes more efficient and investor friendly.
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Facilitating transaction in Mutual Fund schemes through the Stock Exchange Infrastructure.

The Securities and Exchange Board of India  (SEBI) has said that a mutual fund Distributor registered with Association of Mutual Funds in India (AMFI) and who has been permitted by the concerned recognised stock exchange, (MF distributor) shall eligible to use recognised stock exchanges' infrastructure to purchases and redeem mutual fund units directly from Mutual Fund/Assets Management Companies.
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General Information Document

The Securities and Exchange Board of India (SEBI) has notified generic disclosures to be brought out in the General Information Document (GID). Accordingly, generic information need not be provided in the Abridged Prospectus. This will substantially reduce unnecessary printing cost. Lead Manager(s) shall ensure that the updated GID is made available to investors and the updated GID is made available on the websites of the Stock Exchange(s) and lead manager.
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Centralized Database for Corporate Bonds/ Debentures

The Securities and Exchange Board of India (SEBI) has decided to create a centralized database regarding corporate bonds which are available in demat form for public dissemination. Both the depositories' viz. NSDL and CDSL, jointly, shall be the repository of information pertaining to the corporate bonds/debentures.
Tuesday, October 15, 2013
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Forward Markets Commission brought under FinMin control

The commodity forward trading regulator Forward Markets Commission (FMC) will be
under the administrative control of the Finance Ministry. With this, all financial sector regulators
- Securities and Exchange Board of India, Reserve Bank of India, Insurance Regulatory and
Development Authority of India and Pension Fund Regulatory Development Authority besides FMC
- have been brought under one umbrella.
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Don't make up-front disbursals for incomplete projects: RBI

The Reserve Bank of India (RBI) instructed banks not to make upfront disbursal in case of incomplete, under-construction or Greenfield housing projects. The central bank asked lenders
to link the disbursal of loans to stages of completion of the project, rather than giving the entire amount upfront.
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SEBI notifies rules to classify illegal CIS schemes as fraud

Tightening the noose around entities running illegal collective investment schemes (CIS), SEBI
has notified new norms to classify such activities as frauds and impose penalties of up to three times
of their profits. Besides, the new rules expand the list of activities to be covered under fraudulent
and unfair trade practices to hold individuals as well as companies equally guilty for manipulations.
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RBI tightens norms for lending against jewellery

The Reserve Bank of India (RBI) has asked NBFCs: -

  • To value gold received as collateral at the average closing price of 22-carat gold for last 30 days
  • Gold loan offering NBFCs to create safe storage infrastructure at all branches
  • NBFCs told to get RBI nod to expand gold loans beyond 1000 branches
  • NBFCs must keep records on verification of jewellery ownership
  • NBFCs told to stop ads promising gold loans in 2-3 minutes.
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RBI relaxes NRI investment norms

The Reserve bank of India (RBI) has eased foreign direct investment (FDI) norms and allowed banks
to provide guarantees on behalf of NRIs to acquire shares and debentures in Indian companies. To provide operational flexibility and ease the procedures, it has been decided by RBI to permit banks to issue bank guarantee, without prior approval of the Reserve Bank, on behalf of non-resident acquiring shares or convertible debentures of an Indian company though open offers, delisting and exit offers.
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RBI asks NBFCs to give branch details

The Reserve bank of India (RBI) has asked non-banking financial companies (NBFCs) to give
information of their branches in their periodical returns to the central bank. RBI said within one
month, NBFCs should update the branches as of June to RBI. Thereafter, within 10 days of quarter
ending, NBFCs shall submit the details of the branches opened/closed during the quarter to RBI.
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External Commercial Borrowings (ECB) Policy - Refinancing / Rescheduling of ECB

The Reserve Bank of India (RBI) has decided to discontinue the facility allowing eligible borrowers
to raise ECB at a higher all-in-cost to refinance/ reschedule an existing ECB with effect from
01.10.2013. The scheme of refinance of existing ECB by raising fresh ECB at lower all-in-cost,
subject to the condition that the outstanding maturity of the original ECB is either maintained or extended, will continue as hitherto under the automatic route and approval route as the case may be.
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ECB for disinvestment of PSUs

The Reserve Bank of India (RBI) has said that ECB is allowed for all subsequent stages of acquisition of shares in the disinvestment process under the Government's disinvestment programme of the PSU shares; in other words, facility of ECB is available for multiple rounds of disinvestment of PSU shares under the Government disinvestment programme.
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Dedicated Bank coming soon for Infrastructure lending

With infrastructure creation slowing down on part because lenders have become increasingly wary
of lending to the sector, the center is planning to set up a dedicated bank to fund exclusively to the
core sector projects. It is also ready to roll out an infrastructure trust fund aimed at mobilizing long-
term foreign investment within the next two months.
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The Central Board of Direct Taxes has rightly initiated and implemented electronic administration of tax department including filing of Income Tax Returns, assessments, refunds. The tax deduction at source, issuance of certificates, availability of data on the website in form 26 AS are some very significant achievements. The electronic filing of returns has brought some very serious teething problems, which are required to be addressed immediately including:

  1. Issuance of large number of notices for non-payment of tax deduction at source and creating demand, in spite of full compliance due to technical errors in the system or in typing.
  2. MAT credit not being adjusted in next year processing in a number of cases.
  3. Carry forward losses, assessed in previous years, not being carried forward for future assessment.
  4. Tax Deduction at Source by the deduct or not being reflected in form 26 AS. This is not being corrected for several months even after rectification procedure.
  5. In number of cases even though TDS credit is available in form 26 AS, the demands are still created, without giving full credit of TDS and in a number of cases even tax paid credit is not given.
  6. All larger refunds of more than Rs 50, 000 are not being remitted to the tax payers, who are entitled to refund. In certain cases, in spite of written communications with Central Processing Cell as well as the concerned assessing officers, refunds are still not being credited. Refunds are pending for years.
  7. The I T department site is showing a number of unpaid taxes or demands due, although no basis is ever communicated for several years.

The government need to initiate a help line including a proper procedure for resolving the
aforesaid issues in a simplified manner. Some senior officers need to be deputed to bring solutions to the problems tele phonically or electronically,in a time bound manner. In addition to guidelines, simple FAQ, it is mandatory that a personal guidance or assistance is available from the tax administration.

Tax Assessment:

We have been taking up to the Government that even scrutiny assessment should be undertaken
electronically through video or audio conferencing along with electronic communication of queries, to completely eradicate the chances of corruption in assessment, refund and rectification application.The personal hearing should be by a committee in camera, in case assesse still need justice. The corruption has to be eradicated from the system. We sincerely hope that the leadership will take up such important issues more effectively and efficiently.
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The Government of India has already notified 98 sections of the new Companies Act and has also announced draft rules in 1st phase as well as in 2nd phase on most of the chapters of Companies Act, 2013. It may be an interesting debate to examine certain issues having wider implications.

Appointment and Rotation of Auditors:

In terms of the revised law, auditors are to be appointed for a period of 5 years at a time, annual ratification to be undertaken by the shareholders. In case a company wish to retire or remove an auditor before a period of 5 years, an approval of Central Government will become necessary. The statement of ordinary business at the AGM, for the 4 intervening years will be "ratification of appointment" rather than "appointment" as ordinary business of an AGM, contained in Section 102 (erstwhile section 173). The auditors of all companies rather than one person company and small company having turnover of Rs 2 crore and above or capital of more than Rs 50 lakhs has to be
mandatory rotated. In case of individual auditors, the auditors need to retire mandatory after 5 years and in case of partnership firm of auditors, the audit firm has to mandatory retire on completion of 10 years. In view of this provision and the 3 year period being prescribed for implementing this provision, a large number of audit firms will retire after completing audit for the year ending 31st
March, 2016. The period already served as auditor will also be counted as per the draft rules. The draft rules have very important implication and to apply mandatory rotation to auditors, even in companies in which public is not substantially interested will not be appropriate. The rule makers should realise the principles laid down by the Honorable Justice Krishna Aiyer as a Supreme court judge that the distinction or classification need to meet the ultimate objective to sustain constitutional validity. The government has always justified rotation of auditors on the ground of public interest and rotation is proposed as a control mechanism of manipulation or fraud. The government need to consider to restrict rotation only to public limited listed companies and to companies beyond a large turnover say Rs 1000 crore or deposits or borrowings beyond Rs 100 crore.

Maximum Number of Audits:

Maximum number of audits which can be undertaken by a chartered accountant have been restricted to 20 companies other than one Person Company or company with paid up capital of Rs 50 lakhs or turnover less than Rs 2 crore. These limits require re-consideration.

Corporate Social Responsibility:

The initiative of mandatory spending of 2% of net profit by larger corporate on social initiative is a
welcome move. The rule making has diluted non utilization to only disclosure of the reasons for not
spending of money. This will not be enough to push corporate sector mind set. It is important to create a fund.

Mandatory Valuation:

Section 62 of the new Act require all preferential issue of shares (other than right issue or issue of shares under ESOP), to be undertaken at a price based on valuation report of a registered valuer. The Chartered Accountants and other professionals have been recognized to be registered as a valuer. This will bring a new direction to corporate governance including need for adherence to valuation standards issued by Institute of Chartered Accountants of India.

Public Co. - Private Co. Distinction:

The law makers have not taken adequate care while drafting the rules, to differentiate between public
company and private company. The rule brought in for loan by a private company to a related party or to a director and also restriction even on issuance of shares with differential rights are some of the
examples, where private limited companies will be subjected to tough regulation, same as are applicable to public limited companies. This list is long and will need a conceptual change in approach of Government.

Prescription of Rules

The government has announced rules even on sections which do not specifically empower the government to prescribe rules. Some of the rules have also even gone beyond powers delegated to the government, including certain rules are prescribing substantive law rather than procedure or disclosures, while certain rules are providing for exceptions of the law passed by the Parliament. The aforesaid exercise on the part of the government will be beyond legal powers of the government and will be struck down in terms of established principles of jurisprudence and our constitutional framework. We need to continue a debate in the profession and among industrial and business circles to achieve the objective of a better corporate culture and effective channelization of investment to corporate with reasonable checks and balances.
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I-T Dept freezes Nokia's immovable assets

Nokia India's assets have been frozen by the Tax Department even as the handset maker is in the process of completing its $7.2-billion deal with Microsoft. The Indian tax authorities froze Nokia's
mobile phone manufacturing plant in Chennai, certain other buildings and bank accounts last week.
Following the Tax Department's action, Nokia moved the Delhi High Court which lifted the sanction on the company's bank accounts, but its immovable assets remain frozen. The move has been taken by the Tax Department after the handset maker disputed a Rs 4,000-crore tax notice. The Department sought to ensure that the company had sufficient funds to pay the amount before assets are sold to Microsoft.
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Exemptions from Service Tax

Any services provided by,

  1. the National Skill Development Corporation set up by the Government of India;
  2. a Sector Skill Council approved by the National Skill Development Corporation;
  3. an assessment agency approved by the Sector Skill Council or the National Skill Development Corporation;
  4. a training partner approved by the National Skill Development Corporation or the Sector Skill Council.
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Removal of Capital Goods on which CENVAT credit has been taken

If the capital goods, on which CENVAT credit has been taken, are removed after being used,
the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit
taken on the said capital goods reduced by the percentage points calculated by straight line
method as specified below for each quarter of a year or part thereof from the date of taking the
CENVAT Credit, namely:-

for computers and computer peripherals:
for each quarter in first year @ 10%
for each quarter in second year @ 8%
for each quarter in third year @ 5%
for each quarter in fourth & fifth year @ 1%

for capital goods, other than computers and computer peripherals @2.5% for each quarter
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Education out of service tax net

The finance ministry has clarified that all services provided to educational institutions are exempt
from tax. There are certain auxiliary services, which would also not be taxable if provided to education institutions in relation to education. For example, if a school hires a bus from transport
operator to ferry students to and from school,the services provided by the operator in this connection would not be levied tax.
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Clarification - Companies Act, 2013

Section 102:- All companies which have issued notices of general meeting on or after 12.09.2013,
the statement to be annexed to the notice shall comply with additional requirements as prescribed
in section 102 of the said Act.

Section 133:- Till the Standards of Accounting or any addendum thereto are prescribed by central
Government in consultation and recommendation of the National Financial Reporting Authority, the
existing Accounting Standards notified under the Companies Ac! 1956 shall continue to apply.

Section 180:- In respect of requirements of special resolution under Section 180 of the said
Act, as against ordinary resolution required by the Companies Act 1956, if notice for any such
general meeting was issued prior to 12.9.2013, then such resolution may be passed in accordance
with the requirement of the Companies Act 1956.
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Canteen allowance part of basic wages for PF deduction

The Delhi High Court has said that Canteen allowance paid by the employer to employees is
part of basic wages and is required to be taken into account while computing the provident fund
contribution. A circular in November last year had redefined the meaning of "basic wages" for
the purpose of provident fund deductions. It said:"All such allowances which are ordinarily,
necessarily and uniformly paid to the employees are to be treated as the basic wages."
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Suspension should be last step for cos

SEBI said that corp orates would first be fined on a daily basis. After two quarters of non- compliance, the company would be shifted to 'Z' Category, where the trades would be settled on a
trade-to-trade basis. Continued non-compliance would lead to freezing of shares of the promoters and promoter group. This would be done before suspension of trading in shares of the company. To provide an exit window for the non-promoters, after 15 days of suspension, trading in the shares
of a non-compliant entity will be available on the 'trade-for-trade' basis, on the first trading day of every week for six months.
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Enhancement of limit of Overseas Foreign Currency Borrowings by Banks

The Reserve Bank of India (RBI) has said that it has been decided to lower the requirement of
minimum maturity from three years to one year for the aforesaid borrowings made on or before
November 30, 2013 for the purpose of availing of the Swap facility from the Reserve Bank of
India. It may be noted that after the said date, foreign currency borrowing by AD Category I
banks beyond 50% of their Tier I Capital shall have to be of a minimum maturity of three years.
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Trade Credits for Import into India

The Reserve Bank has decided to allow companies in all sectors to avail of trade credit not exceeding
USD 20 million up to a maximum period of five years for import of capital goods. It has also been
decided to relax the ab-initio contract period of 15 months for all trade credits to 6 months. Banks
are, however, not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /
Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the
extended period beyond three years.
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Overseas forex trading through electronic/ internet trading portals prohibited

The Reserve Bank of India (RBI) has said that any person resident in India collecting and
effecting / remitting payments directly /indirectly outside India in any form towards overseas
foreign exchange trading through electronic/internet trading portals would make himself/herself / themselves liable to be proceeded against with for contravention of the Foreign Exchange
Management Act (FEMA), 1999.
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Revision in definition of control

The Reserve Bank of India (RBI) has revised the definition of "Control" in the Foreign Direct
Investment (FDI) policy. 'Control' shall include the right to appoint a majority of the directors or
to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.
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Foreign Investment in India - Downstream investment by Indian Companies

For the purpose of downstream investment, the Indian companies making the downstream investments would have to bring in requisite funds from abroad and not use funds borrowed in the
domestic market. This would, however, not preclude downstream operating companies, from
raising debt in the domestic market. Downstream investments through internal accruals are permissible by an Indian company, subject to the provisions of clause 6(i)
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RBI issues norms to use dollar-rupee swaps

  • The swap window would be operational from September 10 to November 30.
  • A bank can sell dollars in multiples of a million to RBI. At the end of the swap period, the bank would have to buy the same amount of dollars. The tenure of the swap would be three years or in line with the tenure of the underlying FCNR-B deposits.
  • The swap would be carried out at a fixed rate of 3.5 per cent a year. In the first leg of the deal, a bank would sell dollars to RBI at the central bank's reference rate or any other rate, as mutually agreed.
  • The settlement of the first leg would take place on a spot basis from the date of the transaction. In the reverse leg, banks have to return rupee funds to RBI, along with the swap premium, to get back the dollars.
  • Underlying deposits would have a lock-in period of at least a year. However, premature withdrawal of these deposits would be permitted after a year. Therefore, swaps with RBI cannot be cancelled before a year.
  • For pre-termination of a swap, the swap cost would be re-fixed at 400 basis points above the contracted rate (3.5%) and the prevailing dollar/rupee swap rate in the market for the residual tenure of the original swap.
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Overseas Direct Investments - Corporate Gaurantee

The Reserve Bank of India (RBI) has decided that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.
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Preference Shares/ Warrants to be permitted as FDI

The Reserve Bank of India, SEBI and the finance ministry has endorsed that Companies issuing preference shares and warrants to foreign investors will soon not require prior permission through the Foreign Investment Promotion Board (FIPB). The relaxation, which is expected to encourage merger & acquisition activity and boost foreign capital inflows, will be available to all sectors in which foreign direct investment is allowed on the automatic route.
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RBI eases rules for foreign and NRI promoters to raise stake in listed firms

Offshore parents of such local companies can now freely purchase shares by using the services
of registered Indian brokers. Such acquisition of shares can also be funded with dividend amounts
paid by Indian companies to these non-resident promoters. The new rule will apply to all non-
resident entities, including non-resident Indians (NRIs). The central bank opened another door to encourage inflows by adding all nonresident promoters to the list.
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Lok Sabha nod for bill to protect urban street vendors

Street Vendors (Protection of Livelihood and Regulation of Street Vending) Bill, 2012 provides
for security and protection of livelihood to all street vendors having a vending certificate to be issued by the Town Vending Committee. Those markets which have been functional for more than 50 years will be considered natural markets and vendors located there will be protected.
Saturday, September 14, 2013
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Lease deeds, power of attorney to be compulsory under new Bill

The Bill also makes it mandatory for every person presenting the document at the registration office to affix his passport size photograph and get photographed by a digital camera on the document. It also provides mandatory registration of power of attorney transfers, lease deeds of immovable properties, registration of property in the state where it is located and allowing inspection of registered documents
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Companies Bill enacted into Law

The Companies Bill 2013 has received Presidential assent on 29th August 2013, thereby becoming the 18th Act for the year 2013. With this move, India has now got a new company law that has replaced the erstwhile Companies Act 1956. The Ministry of Corporate Affairs (MCA) has come up with draft rules for public comments also. MCA has also notified 98 sections of the new Companies Act, 2013, which are effective from 12th September, 2013.
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Amendment in norms for ODIs

The Reserve Bank of India (RBI) has said that that issue of corporate guarantee on behalf of second generation or subsequent level step down operating subsidiaries will be considered under the Approval Route, provided the Indian Party indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued.
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Enhancement of limit for Overseas Foreign Currency Borrowings by Banks

The Reserve Bank of India (RBI) has said that AD Category - I banks may henceforth borrow funds from their Head Office, overseas branches and correspondents and overdrafts in nostro accounts up to a limit of 100 per cent of their unimpaired Tier I capital as at the close of the previous quarter or USD 10 million (or its equivalent), whichever is higher, as against the existing limit of 50 per cent (excluding borrowings for financing of export credit in foreign currency and capital instruments).
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Swap Window for Attracting FCNR (B) Dollar Funds

The Reserve Bank of India (RBI) has decided to introduce a US Dollar-Rupee swap window for fresh FCNR (B) dollar funds, mobilised for a minimum tenor of three years and over. Under the swap arrangement, a bank can sell US Dollars in multiples of USD one million to RBI and simultaneously agree to buy the same amount of US Dollars at the end of the swap period. The swap will be undertaken at a fixed rate of 3.5 per cent per annum. In the first leg of the transaction, the bank will sell US Dollars to RBI at RBI Reference Rate or any other rate as may be mutually agreed upon. The settlement of the first leg of the swap will take place on spot basis from the date of transaction. In the reverse leg of the swap transaction, Rupee funds will have to be returned to RBI along with the swap premium to get the US Dollars back.
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ECBs from foreign equity holder relaxed

The Reserve Bank of India (RBI) has permitted all eligible borrowers to avail of ECB under the approval route from their foreign equity holder company with minimum average maturity of 7 years for general corporate purposes subject to the following conditions:

  • Minimum paid-up equity of 25 per cent should be held directly by the lender;
  • Such ECBs would not be used for any purpose not permitted under the extant ECB guidelines (including on-lending to their group companies / step-down subsidiaries in India); and
  • Repayment of the principal shall commence only after completion of minimum average maturity of 7 years. No prepayment will be allowed before maturity.
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Clarification on ODIs

The Reserve Bank of India (RBI) has clarified that all the financial commitments made on or before August 14, 2013, in compliance with the earlier limit of 400% of the net worth of the Indian Party under the automatic route will continue to be allowed. In other words, such investments shall not be subject to any unwinding or approval from the RBI. It has been decided further to retain the limit of 400% of the net worth of the Indian Party for the financial commitments funded by way of eligible External Commercial Borrowing (ECB) raised by the Indian Party as per the extant ECB guidelines issued by the Reserve Bank of India from time to time. An Indian Party (IP) can make fresh financial commitments in the existing JV / WOS (including for the purpose of setting up of/acquiring step down subsidiaries outside India) only up to the revised limit of 100%, under the automatic route. Any financial commitment beyond the 100% cap shall require prior approval of the Reserve Bank under the approval route for ODI.
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Issue of Bank Guarantee for FDI transactions

The Reserve Bank of India (RBI) has permitted AD Category-I banks to issue bank guarantee, without prior approval of the RBI, on behalf of a non-resident acquiring shares or convertible debentures of an Indian company through open offers/ delisting/exit offers, provided :

  • the transaction is in compliance with the provisions of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations;
  • the guarantee given by the AD Category -I bank is covered by a counter guarantee of a bank of international repute.

It may be noted that the guarantee shall be valid for a tenure co-terminus with the offer period as required under the SEBI (SAST) Regulations.
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Forex Risk Management - liberalised

The Reserve Bank of India (RBI) has decided to:

  • allow exporters to cancel & re book forward contracts to the extent of 50 percent of the contracts booked in a financial year for hedging their contracted export exposures, and
  • allow importers to cancel and re book forward contracts to the extent of 25 percent of the contracts booked in a financial year for hedging their contracted import exposures.
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Deregulation of Interest Rates on NRE Deposits

The Reserve Bank of India (RBI) has said that banks are free to offer interest rates without any ceiling on NRE deposits with maturity of 3 years and above. The extant ceiling on NRO Accounts shall continue. These instructions will be valid up to November 30, 2013, subject to review.
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PPIs issued by banks as a Point of Sale (POS)

The Reserve Bank of India (RBI) has said that open system Prepaid Payment Instruments (PPIs) issued by banks is perceived to be a subset of debit cards. Hence the facility of cash withdrawal at POS with debit cards may be extended to such open system prepaid payment instruments issued by banks in India. The limit of cash withdrawal will remain Rs 1000/- per day subject to the same conditions as applicable hitherto to debit cards.
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Foreign Investments in ARCs

The Reserve Bank of India (RBI) has amended FDI policies in respect of Asset Reconstruction Companies (ARC). The following are the changes:

  • The ceiling for FDI in ARCs has been increased from 49% to 74% subject to the condition that no sponsor may hold more than 50% of the shareholding in an ARC either by way of FDI or by routing through an FII. The foreign investment in ARCs would need to comply with the FDI policy in terms of entry route conditional and sectoral caps.
  • The foreign investment limit of 74% in ARC would be a combined limit of FDI and FII. Hence, the prohibition on investment by FII in ARCs will be removed. The total shareholding of an individual FII shall not exceed 10% of the total paid-up capital.
  • The limit of FII investment in SRs may be enhanced from 49% to 74% of the paid up value of each tranche of scheme of Security Receipts issued by the Asset Reconstruction Companies.
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Two options for Secured Creditor in SARFAESI

A secured creditor has two options when the borrower or the guarantor defaults in repaying the loan. Under Section 13 of SARFAESI, the creditor can either take possession of the asset on his own or employ Section 14 and seek the help of the magistrate to get possession. It is not necessary that the first course should be adopted and having failed, the second course should be resorted to. This was stated by the Supreme Court last week while allowing the appeals of Standard Chartered Bank and State Bank of India in two appeals against the Madras High Court judgment. The Supreme Court stated that the high court view was wrong and observed: "No doubt that a secured creditor may initially resort to Section 13 and on facing resistance he may still approach the magistrate under Section 14. But it is not mandatory for the creditor to make attempt to obtain possession on his own before approaching the magistrate." The judgment also ruled that the argument of bypassing Section 13 would deprive the borrower of a right to appeal is a misconception of the law."
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SEBI working on norms for new powers

  • A team at Securities & Exchange Board of India (SEBI) is working on two new set of regulations that will enable it to conduct search and seizure operations and recover money through disgorgement
  • New systems are being put in place for early detection and crackdown of collective investment schemes
  • Earlier, SEBI had to conduct search and seizure operations with the approval of a magistrate.
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SEBI notifies buyback norms

The Securities & Exchange Board of India (SEBI) has notified buyback norms under which it will be mandatory for companies to repurchase at least 50 per cent of their offers. The norms aim at safeguarding the interest of public shareholders. The companies will now have to complete their buyback offers within six months, from 12 months currently. Those not able to meet the target will be barred from launching another offer for a period of one year.
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Govt to Allow LIC to Hold 20% in a Co

The government will soon allow Life Insurance Corporation of India to raise its single company exposure limit to 25% from the current 15%. Rajiv Takru, secretary, Department of Financial Services has said that they have settled for 20% (exposure in a single company), and in special cases it can go up to 25% after approval from the board.
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Generation-based sops announced for struggling wind power sector

After a hiatus of one and a half year without any subsidy or incentive scheme, the wind power sector would now be able to avail GBI with a retrospective effect. All the wind power projects launched after April 1, 2012 are eligible for GBI. The government would pay the producers Rs 0.50 for every unit of wind power generated. The maximum amount of incentive that could be availed has been increased to Rs 1 crore from Rs 62 lakh during 2011-12.
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RBI approves reforms in primary co-ops

RBI has accepted that assets and liabilities of primary cooperatives will now stand transferred to central/state cooperative banks. In States where the central/state cooperative banks are fully computerized and on core banking systems, primary cooperatives will function as their business correspondents.
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Clarifications on Liberalized Remittance Scheme

The Reserve Bank of India (RBI) has clarified on various points on Liberalised Remittance Schemen (LRS), which are given as under: -

  • In terms of the extant FEMA provisions LRS can be used to acquire both listed and unlisted shares of an overseas company.
  • Resident individuals are permitted to make remittances for acquiring immovable property within the annual limit of USD 75000 for already contracted cases, i.e. only for those contracts which were entered into on or before the date of the circular, i.e., August 14, 2013, subject to satisfaction of the genuineness of the transactions by the AD bank. Such cases should be immediately reported post fact  to the Reserve Bank of India by the A D banks.
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Upfront disbursal of housing loans

The Reserve Bank of India (RBI) has said that in a view of the higher risks associated with such lump-sum disbursal of sanctioned housing loans and customer suitability issues, banks are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/under-construction/green field housing projects.
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Land Bill Passed

  • Condition: Land can be acquired by govt. for private and PPP projects, provided there is 80% consent of land owners (70% for PPP)
  • Social Impact: Land acquisition will be preceded by social-impact assessment to identify affected families to be compensated and whose consent has to be sought
  • Compensation: Affected families will get four times the market value of land acquired in rural areas and two times in urban areas, land losers and livelihood losers to get compensation
  • R&R: Includes a house, Rs 5 lakh or a job (if available), an allowance of Rs 3000 a month for a year, and miscellaneous allowances of up to Rs 1.25 lakh
  • Retrospective: The new rules will apply retros-pectively to cases where no land acquisition award has been made, besides those where land was acquired 5 years ago but no compensation was paid or no possession took place.

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Defence FDI Scrutiny

  • FII through portfolio investment not permitted
  • All applications for FDI in defence to be made to secretariat of FIPB
  • Cabinet Committee on Economic Affairs (CCEA) to okay projects with FDI up to 26% with inflows of Rs 1200 crores or more
  • Defence Ministry to examine projects with FDI more than 26%
  • Cabinet Committee on Security (CCS) to take call based on FIPB, defence ministry advice
  • Proposals with more than 26% FDI and Rs 1200 crore inflows to not need CCEA nod as they will go to CCS.
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Government Back in Action Mode: Can we Revive sentiments and Growth? ATTEMPTS TO PERK UP THE DWINDLING ECONOMY

Are the decisions symptomatic or formative? Is the incumbent government eyeing 2014 elections or seriously trying to bring the economy back on track? Well the arguments may be numerous but whatever may come whether these steps collectively are capable of breathing new life into the system remains the critical concern.

After a long wait the government has finally started taking action on key policies, several bills and projects which were pending or standstill for quite some time.

The government has been able to pass the crucial -

  • The Companies Act, 2013
  • The National Food Security Act, 2013
  • The Land Acquisition, Rehabilitation and Resettlement Act, 2013

The government and the RBI are apparently working in partnership to revitalize the investment.The Prime Minister also mandated FIPB to clear all pending applications for brown field pharmaceutical projects under the existing guidelines, in spite of recommendation of parliament committee to not to permit FDI in existing projects. The cabinet committee has also cleared project worth Rs 1.9 lakh crore in power, steel, road, port and other infrastructure sectors and has directed immediate environment approval as well as finalization of coal linkage wherever stuck. The Reserve Bank of India has announced several liberal initiatives including freedom to use External Commercial Borrowing from equity owners, private sector mobile valet and several other initiatives are in the pipeline. The import of gold has been restricted, outbound investment limited to 100% of net worth, Liberalized remittance scheme restricted to 75000$ p.a., permitting banks to borrow internationally up to 100% of NOF etc.

The fall of Indian rupee to a level of Rs 70/- to US Dollar has jolted the entire economy including bureaucracy, polity, political leaders, economists, industries, businesses and of course the Indian society. The economic terrorist attack has been severe and we are actually in an emergency situation warranting to take swift and deeper action.

The investors' confidence took a severe beating from Rs 5,500 crore Scam of National Spot Exchange
misusing commodity transactions for lending borrowing and ready forward. This is much larger than Harshad Mehta scam and Ketan Parekh scam. We are very hopeful that the government will take tough action against the guilty including those who allowed such an open misuse of the system, when the same was in common knowledge, in black and white in several representations to the industry bodies. The action should be exemplary to act as a deterrent for the wrongdoers in future and to revive the confidence of investors.

We wish Good Luck to the Indian Economy.
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Companies Act 2013 and the draft Rules: towards better corporate Governance

The Companies Act 2013 has already been passed by both the houses of the Parliament and has also received the assent of the President. The government is expected to announce the date from which the specific section of the new Act will come in force. The government has also notified on 9th September, 2013 the draft rules for 16 chapters of the Companies Act, seeking public comments by 8th October, 2013, so that the Rules can be notified, probably simultaneously to the notification of relevant section. The Government has notified certain sections already. It is important for the chartered accountants fraternity and the society to appreciate the major challenges and opportunities arising out of the new law:

  1. Consolidated Financial Statements have been made mandatory for all companies having one or more subsidiaries.
  2. Cash flow now mandatory for all companies.
  3. A new Schedule-III has been prescribed in the Act for preparation of financial statements and consolidated financial statements, in place of currently prevailing Schedule-IV.
  4. Appointment of Chief Financial officer in specified companies.
  5. Limit of 20 maximum number of companies a CA can Audit
  6. Every listed Company, every Public Company having a paid up capital of Rs10 crore or more or Public company having loans from banks / financial institutions of Rs 25 crore or more shall mandatory appoint an Internal Auditor.
  7. The auditors will be appointed for a period of 5 years subject to annual ratification. Even an LLP can also be appointed as Auditor.
  8. In case of listed companies and the specified class of companies mandatory auditors' rotation will apply. In case of an auditor who is holding office as auditor prior to commencement of this act, such holding period shall be taken into account in calculating the period of 5 years or 10 years as the case may be, as has been provided for mandatory rotation of individual or firms of auditors respectively. The break in terms for a continuous period of 5 years is required, after rotation.
  9. Audit firms working under the same network or are operating under the same trade mark or brand or associated with outgoing auditors will not be allowed to perform non audit services.
  10. The auditors once appointed for a period of 5 years can be rotated or retired only with prior approval of Central Government and prior special resolution of the shareholders.
  11. The auditors and their relatives or partner should not be indebted to the company or subsidiary or associate company in excess of Rs One lakh. The relatives should not hold security of face value or interest in the company in excess of Rs One lakh.
  12. Auditors report shall mandatory include the views and comments on:

  • Impact of any pending litigation on financial position
  • Foreseeable losses on long term contracts/ derivative contracts;
  • Delay in depositing money in Investor Education and Protection Fund (IEPF) of the Company
  • Auditors have been mandated to report any offence involving fraud which is likely to be reported to the Central Government
  • Material fraud has been defined, even immaterial fraud need to be reported in case the Audit committee or Board is not taking any action. Such report should be submitted by the auditor by registered post or email to the Govt. in the prescribed format.
The desire of the Government is to improve corporate Governance by increased compliance's and heavy penalties and punishments in case of fraud. The growth of corporate sector will pave the way for sustained growth of Indian economy. We welcome the new law.