Subscribe to the Bombay Chartered Accountant Journal Subscribe Now!

Category: Corporate And Other Laws

Limitation – Acknowledgement of debt – By email – constitutes valid and legal acknowledgement: Information Technology Act, section 4.

fiogf49gjkf0d
Sudarshan Cargo P. Ltd. vs. M/s. Techvac Engineering P. Ltd. AIR 2014 Karnataka 6.

On account of non-payment of the amounts due under the invoices by respondent to the petitioner there was exchange of correspondence by email between the parties. Respondent company by its email dated 14-01-2010 has informed the petitioner that on account of delay in tie up of its funds payments were not made and respondent has also informed the petitioner that it would be sending its statement of accounts for reconciliation and will make arrangements of funds to pay the dues of the petitioner. Subsequently, on 06-04-2010 there was one more email from respondent to petitioner, whereunder, it has categorically admitted that it is in a position to make a commitment of settling the dues of the petitioner starting from the said month. It is also agreed to, thereunder, that first payment would be made between 10th and 15th of the said month namely April, 2010. Respondent has also categorically stated that it would clear all the dues by the end of May, 2010. Having said so, respondent did not pay the amounts to the petitioner and as such a statutory notice came to be issued by the petitioner on 04-12-2012

The petition was filed u/s. 433(e), (f) and 436 read with section 434 of the Companies Act, 1956 seeking winding up of the respondent Company on the ground that it is unable to pay debt due to petitioner.

An objection was raised that alleged debt due to the petitioner by respondent was time barred. It was contended that invoices were raised by the petitioner during September, October and November, 2008 and present petition has been filed in 2013 and as such debt in question is barred by limitation. Elaborating the submissions it was contended that alleged acknowledgement of debt from respondent to petitioner by email dated 06- 04-2010 is not duly signed by respondent and as such it cannot be construed as an acknowledgement of debt since it does not satisfy the criteria prescribed u/s. 18 of The Limitation Act, 1963. Hence, the petitioner is not entitled to recover the amount alleged to be due from respondent.

The Hon’ble Court observed that the word ‘sign’ or ‘signed’ employed in explanation (b) to section 18(2) has not been defined under the Limitation Act, 1963. Explanation merely says ‘signed’ means either personally or by a agent duly authorised in this behalf. It requires to be noticed that even u/s. 3(56) of the General Clauses Act, 1897 the word ‘sign’ has not been defined but has its extended meaning with reference to a person who is unable to write his name to include mark with its grammatical variation and cognate expressions. Undisputedly, an email is a communication addressed to a definite person and it means a person who is intended by ‘originator’ to receive such electronic record as per section 2(b) of IT Act, 2000 and the ‘originator’ would mean a person who sends or transmits any electronic message to any other person as defined u/s. 2(za) of IT Act, 2000. Thus, if an acknowledgment is sent by a ‘originator’ to the ‘addressee’ by email, without any intermediary, it amounts to electronic communication by email which is an alternative to the paper based method of communication. This mode of transaction is legally recognised u/s. 4 of the IT Act, 2000.

A harmonious reading of section 4 together with definition Clauses would indicate that on account of digital and new communication systems having taken giant steps and the business community as well as individuals are undisputedly using computers to create, transmit and store information in the electronic form rather than using the traditional paper documents and as such the information so generated, transmitted and received are to be construed as meeting the requirement of section 18 of the Limitation Act, particularly in view of the fact that section 4 contains a non-obstante clause. Since respondent did not dispute the information transmitted by it is in electronic form to the petitioner by way of message through the use of computer and its network as not having been sent by it to the petitioner, the acknowledgement as found in the emails dated 14-01-2010 and 06-04-2010 originating from the respondent to the addressee namely, petitioner, such emails have to be construed and read as a due and proper acknowledgement and it would meet the parameters laid down u/s. 18 of the Limitation Act, 1963 to constitute a valid and legal acknowledgement of debt due.

Thus, the Hon’ble Court held that an acknowledgement of debt by email originating from a person who intends to send or transmit such electronic message to any other person who would be the ‘addressee’ would constitute a valid acknowledgment of debt and it would satisfy the requirement of section 18 of the Limitation Act, 1963 when the originator disputes having sent the email to the recipient.

levitra

Precedent – Law settled by Supreme Court or Division Bench of High Court – Binding Nature – In case of doubt by another bench, matter to be referred to larger bench: However, the Binding effect will prevail court should not wait for Larger Bench decision:

fiogf49gjkf0d
Masusmi SA Investment LLC vs. Keystone Realtors P. Ltd. & Ors (2013) 181 Comp Cas. 525 (Bom)

The law laid down by the Supreme Court and the Division bench of the High Court will prevail and is binding on a single judge of the court. An order referring certain issues to be decided by a larger bench does not lay down any law. Only because the correctness of a portion of a judgement has been doubted by another bench, that would not mean that the court should wait for the decision of the larger bench.

levitra

PART B: THE RTI ACT, 2005

fiogf49gjkf0d
12-10-2011 was the RTI Foundation Day.

RTI instrument completed six years of its glorious use to make India’s democracy participative and meaningful, in exposing many scams and for the first time in the history of our nation, put some of the MPs, MLAs, Ministers (including CM) and business magnets in jail.

BCAS foundation, PCGT and IMC held a function on 12-10-2011. The keynote address was delivered there by Justice (Retd.) Shri C. S. Dharmadhikari. We also brought out two-page supplement in MID DAY on 12-10-2011, the same is available to glance at in BCAS & PCGT Library.

This was followed by 6th Annual Convention 2011 on 14th & 15th October at Vigyan Bhavan, New Delhi.

I was invited by the Central Information Commission who organises this convention each year and I attended it.

Delegates from Maharashtra along with two Maharashtra Information Commissioners and a Central Information Commissioner here under at the 6th Annual Convention held a New Delhi.

Four speeches were delivered at the Inaugural session:

Welcome speech by Shri Satyananda Mishra, Chief CIC

Prime minister’s Inaugural Address

Address by Shri V. Narayanasamy, Hon’ble Minister of State (PMO & Personnel, Public Grievances & Pensions)

Vote of Thanks by Shri M. L. Sharma, CIC. There were 4 technical sessions as under:

Group I : Transparency and accountability: with special reference to Public-Private Partnership Projects

Group II : RTI Act: potential and efficacy in curbing corruption and grievance redressal

Group III : RTI Act, exemption provisions and Second Schedule

Group IV : Experiences and Prospects of Information Commissions

Finally, presentations were made by chair persons and panelists of each of 4 groups, mostly through power-point presentations.

The Convention concluded with valedictory address by Shri Nitish Kumar, Chief Minister of Bihar.

levitra

Part A: ORDER of the Supreme Court

fiogf49gjkf0d
Education:
Section 8(1)(e) of the RTI Act: The Supreme Court has delivered a detailed judgment running into 23 printed pages. It is a landmark decision. Aditya Bandopadhyay had appeared for the Secondary School Examination, 2008 conducted by the Central Board of Secondary Education (for short ‘CBSE’ or the ‘Appellant’). When he got the mark-sheet he was disappointed with his marks. He thought that he had done well in the examination but his answer-books were not properly evaluated and that improper evaluation had resulted in low marks. Therefore, he made an application for inspection and re-evaluation of his answer-books. CBSE rejected the said request by letter dated 12-7-2011, holding that it was exempt u/s.8(1)(e) of the RTI Act since CBSE shared fiduciary relationship with its evaluators and maintains confidentiality of both manner and method of evaluation and further the Examination By-laws of the Board provided that no candidate shall claim or is entitled to re-evaluation of his answer-book(s) or disclosure or inspection of answer-book(s) or other documents and further that the larger public interest does not warrant the disclosure of such information sought.

The appellant filed a writ petition before the Calcutta High Court. A Division Bench of the High Court heard and disposed of the said writ petition along with the connected writ petitions (relied by West Bengal Board of Secondary Education and others) by a common judgment dated 5-2-2009. The High Court held that the evaluated answerbooks of an examinee writing a public examination conducted by statutory bodies like CBSE or any University or Board of Secondary Education, being a ‘document, manuscript record, and opinion’ fell within the definition of ‘information’ as defined in section 2(f) of the RTI Act. It held that the provisions of the RTI Act should be interpreted in a manner which would lead towards dissemination of information rather than withholding the same; and in view of the right to information, the examining bodies were bound to provide inspection of evaluated answer books of the examinees.

Consequently, it directed CBSE to grant inspection of the answer books to the examinees who sought information. The High Court however rejected the prayer made by the examinees for re-evaluation of the answer-books, as that was not a relief that was available under RTI Act. The RTI Act only provided a right to access information, but not for any consequential reliefs.

On the above decision, CBSE came to the Supreme Court contending that they were holding the ‘information’ (in this case, the evaluated answer-books) in a fiduciary relationship and therefore exempted u/s.8(1)(e) of the RTI Act.

Decision:
Every examinee has the right to access his evaluated answer-books, by either inspecting them or taking certified copies thereof, unless the evaluated answer-books are found to be exempted u/s.8(1)(e) of the RTI Act.

Section 22 of RTI Act provides that the provisions of the said Act will have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore the provisions of the RTI Act will prevail over the provisions of bye-laws/rules of the examining bodies in regard to examinations. As a result, unless the examining body is able to demonstrate that the answer-books fall under the exempted category of information described in clause (e) of section 8(1) of the RTI Act, the examining body will be bound to provide access to an examinee to inspect and take copies of his evaluated answer-books, even if such inspection or taking copies is barred under the rule/bye-laws of the examining body governing the examinations.

The SC then extensively discussed what is the meaning of ‘fiduciary relationship’ as in section 8(1)(e), dictionary meaning and as stated in number of Indian and US Court’s decisions and concluded: “We, therefore, hold that an examining body does not hold the evaluated answer-books in a fiduciary relationship. Not being information available to an examining body in its fiduciary relationship, the exemption u/s.8(1)(e) is not available to the examining bodies with reference to evaluated answer-books. As no other exemption u/s.8 is available in respect of evaluated answer books, the examining bodies will have to permit inspection sought by the examinees.”

The SC then also extensively and beautifully analysed the provisions of the RTI Act and its real purport, scope and meaning and concluded: “In view of the foregoing, the order of the High Court directing the examining bodies to permit examinees to have inspection of their answer-books is affirmed, subject to the clarification regarding the scope of the RTI Act and the safeguards and conditions subject to which ‘information’ should be furnished. The appeals are disposed of accordingly.

[The above decision was delivered on 9-8-2011: Central Board of Secondary Education and Anr. v. Aditya Bandopadhyay and Ors. It is reported in number of law magazines/journals, etc. including at 2011(8) SCALE 645]

[As it is one of the finest decisions to read and understand the real scope of the RTI Act, photo copy of the full decision will be made available both at BCAS and PCGT]

[This decision is followed by another very interesting, decision in the case of Institute of Chartered Accountants of India v. Shaunak H. Satya & Ors. delivered on 2-9-2011 by the same two judges. It will be reported next month.]

levitra

Suggested methodology for obtaining audit evidence while reporting default of Directors u/s. 274(1)(g) available online.

fiogf49gjkf0d
The MCA has enabled the viewing of companies in which a person is/was a director by using the DIN or details such as full name of the Director (as given in DIN), father’s last name and date of birth. The list shows the default, if any, of the companies in filing the Annual return and Balance Sheet which is one of the requirements u/s. 274(1)(g). The facility is available after logging in on the MCA portal using your user name and password under the head ‘Services’ — in the ‘Companies in which a person is/was a director’.

levitra

Waiver of approval of Central Government for payment of remuneration to professional managerial person by companies having no profits or inadequate profits.

fiogf49gjkf0d
The Ministry vide Notification dated 14th July 2011 made amendments to Schedule XIII part II section II pertaining to remuneration payable by companies having no profits or inadequate profits. Conditions to be fulfilled for waiver of approval of the Central Govt. for managerial personnel of subsidiary companies have also been listed.

Approval is now waived if managerial personnel do not have any interest in the capital of the company or its holding company, directly or indirectly or through other statutory structures or related to the directors or promoters of the company or its holding company at any time during the period of two years prior to the date of appointment and have a graduate-level qualification with expertise in the field of their profession.

levitra

Vide Notification dated 3rd June 2011, the MCA has issued the Companies (Cost Accounting Records) Rules, 2011. They will apply to every company which is engaged in the production, processing, manufacturing, or mining activities and wherein,

fiogf49gjkf0d
? the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crore rupees;

? or wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crore rupees;

? or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India. Cost records need to be maintained for all units and branches thereof in respect of each of its financial year commencing on or after the 1st April, 2011.

For further information:

http://www.mca.gov.in/Ministry/notification/pdf/ Common_Record_Rules_03jun11.pdf

levitra

Vide Circular No. 37/2011, dated 7th June, 2011, the Ministry has mandated the following companies to financial statements in XBRL form only from the year 2010-11

fiogf49gjkf0d
(1) All listed companies of India and their Indian subsidiaries

(2) All companies having a paid up capital of Rs. 5 cores and above

(3) All companies having a turnover of Rs.100 crores and above. Further all the above companies as above whose balance sheets are adopted at AGM’s held before 30-9-2011 are permitted to file up to 30-9-2011 without additional filing fees but those that hold the meeting in September 2011, will file within 30 days from date of adoption in the AGM.

For further information:

http://www.mca.gov.in/Ministry/pdf/Circular_37-2011 _07jun2011.pdf

levitra

In order to give an opportunity for fast track exit to a defunct company i.e., for getting its name struck off from the Register of Companies, the MCA has decided to modify the existing route through e-form 61 and has prescribed the guidelines for ‘Fast-Track Exit mode’ for such defunct companies, vide General Circular No. 36/2011, dated 7th June 2011. The Guidelines will be implemented with effect from 3 July 2011.

fiogf49gjkf0d
For further information:

http://www.mca.gov.in/Ministry/pdf/Circular_36-2011 _07jun2011.pdf

levitra

Vide Circular No. 35/2011, dated 6th June 2011, the MCA has issued clarification to the General Circulars No. 27/2011 and 28/2011, dated 20-5-2011, with regard to participation by shareholders or Directors in meetings held under the Companies Act, 1956, through electronic mode. In respect of shareholders’ meetings to be held during financial year 2011-12, video conferencing facility for shareholders is optional. Thereafter, it is mandatory for all listed companies.

fiogf49gjkf0d
http://www.mca.gov.in/Ministry/pdf/Circular_35-2011 _06jun2011.pdf

levitra

Vide General Circular No. 33/2011, dated 1st June 2011, the Ministry has notified various forms that would be accepted by the ROC of defaulting companies — that is companies which have not filed their annual forms but are filing only event based forms

fiogf49gjkf0d
For further information:
http://www.mca.gov.in/Ministry/pdf/Circular_33-2011 _01jun2011.pdf

levitra

Vide Circular No. 32/2011, dated 31st May 2011, the Ministry has decided that w.e.f. 12th June 2011 all DIN-1 and DIN-4 applications will be signed by practising Chartered Accountants, Company Secretaries or Cost Accountants, who will verify the particulars given in the applications. To avoid duplicate DINs all existing DIN holders require to submit their PAN details by filing DIN-4 e-form by 30th September, failing which their DIN will be disabled and be liable for heavy penalty.

fiogf49gjkf0d
For further information:
http://www.mca.gov.in/Ministry/pdf/Circular_32-2011 _31may2011.pdf

levitra

Vide Ciruclar No. 32/2011, dated 31st May 2011, the Ministry has issued clarifications u/s. 616 (C) the Companies Act, 1956 pertaining to depreciation for the purpose of declaration of dividend u/s. 205 in case of Companies engaged in the generation or supply of electricity

fiogf49gjkf0d
For further information:

http://www.mca.gov.in/Ministry/pdf/Circular_32-2011 _31may2011.pdf

levitra

Vide Circular No. 30A/2011, dated 26th May 2011, the MCA has clarified that Limited Liability Partnership (LLP)’s of Chartered Accountants will not be treated as body corporate for the limited purpose of section 226(3) of the Companies Act.

fiogf49gjkf0d
For further information: http://www.mca.gov.in/Ministry/pdf/Circular_30A- 2011_26may2011.pdf

levitra

A.P. (DIR Series) Circular No. 70, dated 9-6-2011 — Remittance of assets by foreign nationals — Opening of NRO Accounts.

fiogf49gjkf0d
Presently, foreign nationals employed in India are eligible to maintain resident accounts with banks in India. On their leaving the country they are required to close their resident accounts with banks in India and transfer the balances to their accounts abroad.

This Circular permits these foreign nationals, subject to certain terms and conditions, to redesignate their resident accounts with banks in India as NRO account on leaving the country. Only bona fide dues of the account holder, when he/ she was resident in India, can be deposited in the NRO account. Debits to the account should only be for the purpose of repatriation of funds to the overseas account of the account holder under the US $ 1 million per financial year scheme and after payment of appropriate taxes.

levitra

A.P. (DIR Series) Circular No. 69, dated 27-5-2011 — Overseas Direct Investment — Liberalisation/Rationalisation.

fiogf49gjkf0d
This Circular has liberalised/rationalised the regulations relating to Overseas Direct Investment as under:

(1) Performance Guarantees issued by the Indian Party:

Presently, ‘financial commitment’ of the Indian Party includes contribution to the capital of the overseas Joint Venture (JV)/Wholly-Owned Subsidiary (WOS), loan granted to the JV/WOS and 100% of guarantees issued to or on behalf of the JV/WOS.

This Circular provides that only 50% of the amount of performance guarantee will be reckoned for the purpose of computing financial commitment to its JV/WOS overseas, within the 400% of the net worth of the Indian Party as on the date of the last audited balance sheet. Further, the time specified for the completion of the contract may be considered as the validity period of the related performance guarantee.

In cases where invocation of the performance guarantee breaches the ceiling for the financial exposure of 400% of the net worth of the Indian Party, the Indian Party will have to obtain prior approval of RBI before remitting funds from India, on account of such invocation.

(2) Restructuring of the balance sheet of the overseas entity involving write-off of capital and receivables:

Presently, there is no provision for restructuring of the balance sheet of the overseas JV/WOS not involving winding up of the entity or divestment of the stake by the Indian Party.

This Circular provides that Indian promoters who have set up WOS abroad or have at least 51% stake in an overseas JV, can write off capital (equity/preference shares) or other receivables, such as, loans, royalty, technical know-how fees and management fees in respect of the JV/WOS, even while such JV/WOS continue to function as under:

(i) Listed Indian companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Automatic Route; and

(ii) Unlisted companies are permitted to write off capital and other receivables up to 25% of the equity investment in the JV/WOS under the Approval Route.

The write-off/restructuring have to be reported to the Reserve Bank through the designated AD bank within 30 days of write-off/restructuring. The Indian Party must submit the following documents along with the applications for write-off/restructuring to the bank under the automatic as well as the approval routes:

(a) A certified copy of the balance sheet showing the loss in the overseas WOS/JV set up by the Indian Party; and

(b) Projections for the next five years indicating benefit accruing to the Indian company consequent to such write off/restructuring.

(3) Disinvestment by the Indian Parties of their stake in an overseas JV/WOS involving write-off:

Presently, all disinvestments involving ‘write-off’, i.e., where the amount repatriated on disinvestment is less than the amount of original investment, need prior approval of RBI. However, in the following cases disinvestment is permitted under the automatic route, subject to the following conditions:

(i) In cases where the JV/WOS is listed in the overseas stock exchange;

(ii) In cases where the Indian promoter company is listed on a stock exchange in India and has a net worth of not less than Rs.100 crore; and

(iii) Where the Indian promoter company is an unlisted company and the investment in the overseas venture does not exceed US $ 10 million.

This Circular: (i) Has expanded the list of corporates eligible for disinvestment under the automatic route. As a result, listed Indian promoter companies with net worth of less than Rs.100 crore and investment in an overseas JV/WOS not exceeding US $ 10 million, can now go for disinvestment under the automatic route. They are however, required to report the disinvestment to RBI through their designated bank within 30 days from the date of disinvestment.

(ii) Clarifies that disinvestment, in case of eligible corporates, under the automatic route will also include cases where the amount repatriated after disinvestment is less than the original amount invested.

(4) Issue of guarantee by an Indian Party to step down subsidiary of JV/WOS under general permission:

Presently, Indian Parties are permitted to issue corporate guarantees only on behalf of their first level step-down operating JV/WOS set up by their JV/WOS operating as a Special Purpose Vehicle (SPV) under the automatic route, subject to the condition that the financial commitment of the Indian Party is within the extant limit for overseas direct investment.

This Circular provides that:

(i) Indian Party may extend corporate guarantee on behalf of the first generation step-down operating company under the automatic route, within the prevailing limit for overseas direct investment, irrespective of whether the direct subsidiary is an operating company or an SPV.

(ii) Indian Party may issue corporate guarantee on behalf of second generation or subsequent level step-down operating subsidiaries under the approval route, provided the Indian Party directly or indirectly holds 51% or more stake in the overseas subsidiary for which such guarantee is intended to be issued.

levitra

A.P. (DIR Series) Circular No. 68, dated 20-5-2011 — Hedging IPO flows by Foreign Institutional Investors (FIIs) under the ASBA mechanism.

fiogf49gjkf0d
Presently, FIIs are allowed to hedge currency risk on the market value of their entire investment in equity and/or debt in India as on a particular date using forward foreign exchange contracts with rupee as one of the currencies and foreign currency — INR options.

This Circular permits FII to, in addition to the above, hedge risk related to transient capital flows in respect of their applications to Initial Public Offers (IPO) under the Application Supported by Blocked Amount (ASBA) mechanism, subject to the following:

(i) FII can undertake foreign currency — rupee swaps only for hedging the flows relating to the IPO under the ASBA mechanism.

(ii) Amount of the swap should not exceed the amount proposed to be invested in the IPO.

(iii) Tenor of the swap should not exceed 30 days.

(iv) Contracts, once cancelled, cannot be rebooked. (v) No rollovers will be permitted under this scheme.

levitra

E-filing of statutory Forms with ROC.

fiogf49gjkf0d
The Ministry of Corporate Affairs has issued the following filing schedule to avoid the rush and system congestion in MCA 21 due to heavy filing in last 10 days of the months of October and November 2011. It is requested that filing of balance sheet and annual return may preferably be done in the following order:

During this period, ROC facilitation centres/help desks would give priority in e filing/answering queries of companies falling under the above alphabetical order.
levitra

Filing of certain forms by Directors of defaulting Companies for Defaulting Companies/Dormant Companies/Active Companies.

fiogf49gjkf0d
The Ministry had issued General Circular No. 33/2011, dated 1-6-2011 wherein it was informed that in order to ensure corporate governance and proper compliances of provisions of the Companies Act, 1956, no request, whether oral or in writing or through e-forms, for recording any event-based information/changes shall be accepted by the Registrar of Companies from such defaulting companies, unless they file their updated Balance Sheet and Profit & Loss Accounts and Annual Return with the Registrar of Companies.

However, in the interest of stakeholders, certain event-based information/changes were being accepted by the Registrar from such defaulting companies. Now, on the requests received from various quarters of the corporates & professionals, certain forms will be accepted by the Registrar as per the General Circular No. 63/2011, dated 6th September 2011 for:

(a) Filing by Directors of defaulting Companies in respect of such companies.

(b) Filing by Directors of defaulting Companies in respect of Companies having the status of Dormant Companies.

(c) Filing by Directors of defaulting Companies in respect of Companies having the status as active in progress companies.

This Circular shall be effective from 18th Sept., 2011.

levitra

Applicability of Revised Schedule VI for Companies having IPO/FPO.

fiogf49gjkf0d
The Ministry of Corporate Affairs vide Circular has clarified that the Notification No. S.O. 447(E), dated 28-2-2011 pertaining to the Revised Schedule VI, will apply to accounts for the year ending on 31st March 2012. The Ministry has now clarified that the Financial Statements made for the limited purpose of IPO/FPO during financial year 2011-12 may be made in the revised Schedule VI to avoid administrative difficulties and unrealistic comparison.
levitra

Online incorporation of companies within 24 hours will not be implemented.

fiogf49gjkf0d
The Ministry of Corporate Affairs by General
Circular No. 61/2011, dated 5-9-2011, after re-examination of Circular
No. 49/2011 for incorporation of a company, has decided, that since
currently companies are being incorporated within 24-48 hours, online
approval of incorporation forms i.e., STP mode of approval of e-forms 1,
18 and 32 on the basis of certification and declarations given by the
practising professional will not be implemented as yet.
levitra

A.P. (DIR Series) Circular No. 20, dated 16-9-2011 — Meeting of medical expenses of NRIs close relatives by Resident Individuals.

fiogf49gjkf0d
Presently, a resident can make payment in rupees for meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India.

This Circular has expanded the meaning of ‘services related thereto’ as stated in Regulation 2(i) of Notification No. FEMA 16/2000-RB, dated May 3, 2000 by including medical expenses therein. As a result, a resident individual can now pay for the medical expenses incurred in India by his NRI close relative (relative as defined in section 6 of the Companies Act, 1956).

levitra

A.P. (DIR Series) Circular No. 19, dated 16-9-2011 — Repayment of loans of nonresident close relatives by residents.

fiogf49gjkf0d
Presently, a close relative, resident in India, can repay the housing loan availed by his Non-Resident Indian (NRI) relative.

This Circular permits a resident close relative (relative as defined in section 6 of the Companies Act, 1956), of the NRI to repay the loan availed by the NRI by crediting the borrower’s (NRI) loan account through the bank account of such relative.

levitra

A.P. (DIR Series) Circular No. 18, dated 16-9-2011 — Loans in Rupees by resident individuals to NRI close relatives.

fiogf49gjkf0d
This Circular permits a resident individual to give an interest-free loan with a minimum maturity period of one year under the Liberalised Remittance Scheme (LRS) to Non-Resident Indian (NRI)/Person of Indian Origin (PIO) close relative (means relative as defined in section 6 of the Companies Act, 1956) by way of crossed cheque/electronic transfer. The loan is subject to the following conditions:

(1) The loan amount must be within the overall limit under the LRS of US $ 200,000 per financial year. The lender has to ensure that the amount of loan is within the LRS limit.

(2) The loan can be utilised for meeting the borrower’s personal requirements or for his own business purposes in India.

(3) The loan must not be utilised, either singly or in association with other person(s), for any of the activities in which investment by persons resident outside India is prohibited, namely:

(a) The business of chit fund, or

(b) Nidhi Company, or

(c) Agricultural or plantation activities or in real estate business, or construction of farm houses, or

(d) Trading in Transferable Development Rights (TDRs).

Explanation: For the purpose of item (c) above, real estate business shall not include development of townships, construction of residential/commercial premises, roads or bridges.

(4) The loan amount must be credited to the NRO account of the NRI/PIO.

(5) The loan amount must not be remitted outside India.

(6) Repayment of the loan must be made by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/Non-resident External (NRE)/ Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.

levitra

A.P. (DIR Series) Circular No. 17, dated 16-9-2011 — Gift in Rupees by Resident Individuals to NRI close relatives.

fiogf49gjkf0d
This Circular permits a resident individual to make a rupee gift to a NRI/PIO who is a close relative of the resident individual (close relative as defined in section 6 of the Companies Act, 1956) by way of crossed cheque/electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) account of the NRI/PIO.

The gift amount must be within the overall limit  of US $ 200,000 per financial year as permitted under the Liberalised Remittance Scheme (LRS) for a resident individual. The resident donor will have to ensure that the gift amount being remitted is under the LRS and all the remittances under the LRS during the financial year including the gift amount have not exceeded the limit prescribed under the LRS.

levitra

A.P. (DIR Series) Circular No. 16, dated 15-9- 2011 — Credit of sale proceeds of Foreign Direct Investments in India to NRE/FCNR (B) accounts — Clarification.

fiogf49gjkf0d
Presently, in terms of Schedule 3, 4 and 5 of the FEMA Notification No. 20/2000-RB, dated May 3, 2000, sale proceeds of Foreign Investments in India are eligible for credit to NRE/FCNR(B) accounts, where the purchase consideration was paid by the Non-resident Indians/Persons of Indian Origin out of inward remittance or funds held in their NRE/FCNR(B) accounts and subject to applicable taxes, if any.

This Circular has extended the said facility of credit of sale proceeds of Foreign Investments in India to NRE/FCNR(B) accounts, where the purchase consideration was paid by the Non-resident Indians/ Persons of Indian Origin out of inward remittance or funds held in their NRE/FCNR(B) accounts and subject to applicable taxes, if any, to NRI/PIO under Regulation 11 of the said Notification.

levitra

A.P. (DIR Series) Circular No. 15, dated 15-9-2011 — Exchange Earners Foreign Currency (EEFC) Account and Resident Foreign Currency (RFC) account — Joint holder — Liberalisation.

fiogf49gjkf0d
This Circular permits resident in India to include their non-resident close relative(s) (relatives as defined in section 6 of the Companies Act, 1956) as joint holder(s) in their EEFC/RFC bank accounts on ‘former or survivor’ basis. However, such nonresident Indian close relatives are not permitted to operate the said bank accounts during the life-time of the resident account holder.
levitra

A.P. (DIR Series) Circular No. 14, dated 15-9-2011 — Foreign Investments in India — Transfer of security by way of gift — Liberalisation.

fiogf49gjkf0d
Presently, a person resident in India can transfer, by way of gift, to a person resident outside India any security including shares/convertible debentures up to the value of US $ 25,000 during a calendar year after obtaining prior approval of RBI.

This Circular has increased the said limit from US $ 25,000 to US $ 50,000. As a result, a person resident in India can now transfer, by way of gift, to a person resident outside India any security including shares/convertible debentures up to the value of US $ 50,000 per financial year after obtaining prior approval of RBI.

levitra

A.P. (DIR Series) Circular No. 67, dated 20-5-2011 — Forward cover for Foreign Institutional Investors — Rebooking of cancelled contracts.

fiogf49gjkf0d
Presently, Foreign Institutional Investors (FII) are permitted to cancel and rebook up to 2% of the market value of the portfolio as at the beginning of the financial year.

This Circular has increased this limit from 2% to 10% with immediate effect. As a result, FII can now cancel and rebook up to 10% of the market value of the portfolio as at the beginning of the financial year.

levitra

A.P. (DIR Series) Circular No. 60, dated 16-5-2011 — Comprehensive Guidelines on Over-the-Counter (OTC) Foreign Exchange Derivatives and Hedging of Commodity Price and Freight Risks.

fiogf49gjkf0d
This Circular has changed the eligibility criteria for users of Over-the-Counter (OTC) cost reduction structures and option strategies.

Presently, listed companies or unlisted companies with a minimum net worth of Rs.100 crore, subject to certain conditions, are eligible to use OTC structures/strategies.

As per the new criteria, listed companies and their subsidiaries/JV/associates having common treasury and consolidated balance sheet or unlisted companies with a minimum net worth of Rs.200 crore, subject to certain conditions, are eligible to use OTC structures/strategies.

levitra

A.P. (DIR Series) Circular No. 58, dated 2-5-2011 — Opening of Escrow Accounts for FDI transactions.

fiogf49gjkf0d
Presently, banks can open Escrow account and Special account on behalf of non-resident corporates only for acquisition/transfer of shares/convertible debentures of an Indian company through open offers/delisting/exit offers, subject to compliance with the relevant SEBI [Substantial Acquisition of Shares and Takeovers (SAST)] Regulations, 1997 and other applicable SEBI regulations.

This Circular permits, banks to open and maintain, without prior approval of the Reserve Bank, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of residents and/or non-residents, towards payment of share purchase consideration and/or provide Escrow facilities for keeping securities to facilitate FDI transactions. Similarly, permission has been granted to SEBI authorised Depository Participants, to open and maintain, without prior approval of the Reserve Bank, Escrow accounts for securities.

These facilities will be applicable for both issue of fresh shares to the non- residents as well as transfer of shares from/to the non-residents and is subject to the terms and conditions given in the Annex to this Circular.

levitra

A.P. (DIR Series) Circular No. 57, dated 2-5-2011 — Pledge of shares for business purpose.

fiogf49gjkf0d
Presently, banks can convey ‘no objection’ to resident eligible borrowers, subject to certain conditions, for pledge of shares held by the promoters, in accordance with the Foreign Direct Investment (FDI) policy, in the borrowing company/domestic associate company of the borrowing company as security for the ECB. Pledge of shares in respect of all other FDI-related transactions requires prior permission of RBI.

This Circular has given powers to banks to permit pledge of shares of an Indian company held by non-resident investor(s) in accordance with the FDI policy in the following cases, subject to compliance with the conditions indicated below:

(i) Shares of an Indian company held by the non-resident investor can be pledged in favour of an Indian bank in India to secure the credit facilities being extended to the resident investee company for bona fide business purposes subject to the following conditions:

(a) In case of invocation of pledge, transfer of shares should be in accordance with the FDI policy in vogue at the time of creation of pledge;

(b) Submission of a declaration/annual certificate from the statutory auditor of the investee company that the loan proceeds will be/have been utilised for the declared purpose;

(c) The Indian company has to follow the relevant SEBI disclosure norms; and

(d) Pledge of shares in favour of the lender (bank) would be subject to compliance with the section 19 of the Banking Regulation Act, 1949.

(ii) Shares of the Indian company held by the non-resident investor can be pledged in favour of an overseas bank to secure the credit facilities being extended to the non-resident investor/nonresident promoter of the Indian company or its overseas group company, subject to the following conditions:

(a) Loan is availed of only from an overseas bank;

(b) Loan is utilised for genuine business purposes overseas and not for any investments either directly or indirectly in India;

(c) Overseas investment should not result in any capital inflow into India;

(d) In case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and

(e) Submission of a declaration/annual certificate from a Chartered Accountant/Certified Public Accountant of the non-resident borrower that the loan proceeds will be/have been utilised for the declared purpose.

levitra

A.P. (DIR Series) Circular No. 56, dated 29-4- 2011 — Foreign Exchange Management Act, 1999 — Advance remittance for import of goods — Liberalisation.

fiogf49gjkf0d
Presently, banks in India are required to obtain an unconditional, irrevocable stand-by Letter of Credit (LC) or a guarantee from an international bank of repute situated outside India or a guarantee of an AD Category-I bank in India, if a guarantee is issued by them against the counterguarantee of an international bank of repute situated outside India, for an advance remittance exceeding US $ 100,000 or its equivalent.

This Circular has increased this limit of US $ 100,000 to US $ 200,000 or its equivalent, with immediate effect for importers. However, in the case of a Public Sector Company or a Department/ Undertaking of Central/State Governments special permission from the Ministry of Finance, Government of India, for advance remittances exceeding US $ 100,000 or its equivalent where the requirement of bank guarantee is to be specifically waived.

levitra

A.P. (DIR Series) Circular No. 13, dated 15- 9-2011 — NRIs PIOs holding NRE/FCNR(B) accounts jointly with Indian resident close relative — Liberalisation.

fiogf49gjkf0d
This Circular permits Non-Resident Indian (NRI), as defined in FEMA Notification No. 5, to open NRE/ FCNR(B) account with their resident close relative (relative as defined in section 6 of the Companies Act, 1956) on ‘former or survivor’ basis. The resident close relative is permitted to operate the account as a Power of Attorney holder during the lifetime of the NRI/PIO account holder.
levitra

Timelines for Company Law Settlement Scheme extended.

fiogf49gjkf0d
The Ministry of Corporate Affairs vide General Circular No. 65/2011, dated 4th October 2011 has extended the Company Law Settlement Scheme till 15-12-2011. All the terms and conditions of the General Circulars No. 59/2011, dated 5-8-2011 and No. 60/2011 dated 10-8-2011 will remain the same.

levitra

Timelines for submission of PAN extended.

fiogf49gjkf0d
The Ministry of Corporate Affairs vide General Circular No. 66/2011, dated 4th October 2011 has extended the time for filing DIN-4 by DIN holders for furnishing the PAN and to update PAN details till 15-12-2011.

levitra

Architects denied registration of companies/ LLPs.

fiogf49gjkf0d
Vide Notification dated 10th October 2011, the Ministry of Corporate Affairs has denied the Registration of Companies or LLP’s which have one of their objectives to do business of Architect as it contravenes the provisions of sections 36 and 37 of the Architect Act, 1972 whereby only an architect registered with the Council of Architecture or a firm (Partnership Firm under the Partnership Act, 1932 comprising of all architects) can be so registered. The matter is under examination in consultation with the Department of Legal Affairs.

levitra

Timelines for clearance/approvals for ROC defined.

fiogf49gjkf0d
The Ministry of Corporate Affairs has on 22nd September 2011 amended Regulation 17 of the Companies Regulations 1956. With effect from 27th September 2011, whereby, except as otherwise provided in the Act, the Registrar cannot keep any document pending for approval and registration or for taking on record or for rejection or otherwise for more than 60 days from the date of filing, excluding cases where approval from Central Government or Regional Director or Company Law Board or Court or other competent authority is required.

levitra

XBRL Filing Rules notified.

fiogf49gjkf0d
The Ministry of Corporate Affairs has issued the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2011 on 5th October 2011. They shall be applicable to:

(i) all companies listed with any stock ex-change(s) in India and their Indian subsidiaries; or

(ii) all companies having paid-up capital of rupees five crore or above; or

(iii) all companies having turnover of rupees hundred crore or above.

It is provided that the companies in banking, insurance, power sectors and non-banking financial companies are exempted for Extensible Business Reporting Language (XBRL) filing for the financial year 2010-11.

XBRL reports (instance documents) would be an attachment to the new e-forms. The MCA has also released a revised validation tool aligned to the recently revised taxonomy and business rules. This validation tool provides a human-readable output for companies to review in addition to conducting validation checks on the XBRL output.

The XBRL filing should include the directors’ report except the management discussion and analysis and the corporate governance report. These are required to be attached in pdf format. Chartered accountants, company secretaries and cost accountants in whole-time practice are required to certify the financial statements prepared in XBRL mode for filing on the MCA-21 portal. The certificate wordings are a part of the new e-Forms.

The Annexure for Extensible Business Reporting Language (XBRL) Taxonomy for Balance Sheets and Profit and Loss Accounts as required u/s.220 of the Companies Act, 1956 from the year 2010-11 can be accessed at IMCA website.

levitra

Circular No. 2 — D/o IPP F. No. 5(19)/2011- FC-I Dated 30-9-2011 — Consolidated FDI Policy.

fiogf49gjkf0d

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India has issued Circular No. 2 containing the Consolidated FDI Policy. The Policy has come into effect from October 31, 2011 and subsumes and supersedes all Press Notes/Press Releases/ Clarifications/Circulars issued by DIPP, which were in force as on September 30, 2011.

levitra

A.P. (DIR Series) Circular No. 31, dated 3-10-2011 — Appointment of Agents/Franchisees by Authorised Dealer Category-I banks, Authorised Dealer Category-II and Full Fledged Money Changers — Revised guidelines.

fiogf49gjkf0d
Annexed to this Circular are the amendments to certain instructions mentioned in the guidelines for appointment of Agents/Franchisees by Authorised Dealers Category-I, Authorised Dealers Category-II and FFMC.

levitra

A.P. (DIR Series) Circular No. 30, dated 27-9-2011 — External Commercial Borrowings (ECB) in Renminbi (RMB).

fiogf49gjkf0d
This Circular permits Indian companies which are in the infrastructure sector, to avail of ECB in Renminbi (RMB), under the approval route, subject to an annual cap of US $ 1 billion. This approval of RBI will be valid for a period of three months from the date of issue of the approval letter and the loan agreement must be executed within this period.

Application in Form 83 for allotment of loan registration number (LRN) must be made within 7 days from the date of signing the loan agreement. In case the borrower fails to obtain LRN within the above period, the approval granted by RBI will stand cancelled.

levitra

A.P. (DIR Series) Circular No. 29, dated 26-9- 2011 — External Commercial Borrowings (ECB) from the foreign equity holders.

fiogf49gjkf0d
Presently, a ‘foreign equity holder’ to be eligible as a ‘recognised lender’ under the automatic route must hold minimum paid-up equity in the borrower company as follows:

(i) For ECB up to US $ 5 million — minimum paidup equity of 25% held directly by the lender.

(ii) For ECB more than US $ 5 million — minimum paid-up equity of 25% held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e., the proposed ECB does not exceeds four times the direct foreign equity holding).

This Circular clarifies that:

(i) Now onwards the term ‘debt’ in the debtequity ratio will be replaced with ‘ECB liability’ and the ratio will be known as ‘ECB liability’ — equity ratio to make the term signify true position as other borrowings/debt are not to be considered in working out this ratio.

(ii) Presently, only the paid-up capital contributed by the foreign equity holder is taken into account for the purpose of calculation of equity for ECB of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet will be considered for the purpose of calculating the equity of the foreign equity holder. However, where there are more than one foreign equity holders in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned will only be considered for calculating the ECB liability-equity ratio for reckoning quantum of permissible ECB.

(iii) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be considered.

Henceforth, ECB proposals from foreign equity holders (direct/indirect) and group companies will be considered under the Approval Route as under:

(i) Service sector units, in addition to those in hotels, hospitals and software, will also be considered as eligible borrowers if the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R & D, miscellaneous service companies, etc.

(ii) ECB from indirect equity holders may be considered, provided the indirect equity holding by the lender in the Indian company is at least 51%.

(iii) ECB from a group company may be permitted, provided both the borrower and the foreign lender are subsidiaries of the same parent.

However, it must be ensured that total outstanding stock of ECB (including the proposed ECB) from a foreign equity lender does not exceed 7 times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent will be reckoned).

levitra

A.P. (DIR Series) Circular No. 28, dated 26-9-2011 — External Commercial Borrowings (ECB) Policy — Structured obligations for infrastructure sector.

fiogf49gjkf0d
Presently, credit enhancement can be provided, under the Approval Route, by multilateral/regional financial institutions and Government-owned development financial institutions for domestic debt raised through issue of capital market instruments, such as debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFC).

This Circular permits direct foreign equity holder(s) holding a minimum of 25%t of the paid-up capital and indirect foreign equity holder, holding at least 51% of the paid-up capital, to provide credit enhancement to Indian companies engaged exclusively in the development of infrastructure and to IFC. As a result, credit enhancement by all eligible non-resident entities will henceforth be permitted under the automatic route and no prior approval will be required from RBI.

levitra

A.P. (DIR Series) Circular No. 27, dated 23-9-2011 — External Commercial Borrowings (ECB) — Rationalisation and liberalisation.

fiogf49gjkf0d
This Circular rationalises and liberalises ECB guidelines as follows:

(i) Enhancement of ECB limit under the automatic route

(a) Eligible borrowers in real sector, industrial sector, infrastructure sector can now avail of ECB up to US $ 750 million or equivalent per financial year under the automatic route as against the present limit of US $ 500 million or equivalent per financial year.

(b) Corporates in specified service sectors viz. hotel, hospital and software, can avail of ECB up to US $ 200 million or equivalent during a financial year as against the present limit of US $ 100 million or equivalent per financial year, subject to the condition that the proceeds of the ECBs should not be used for acquisition of land.

(ii) ECBs designated in INR

(a) ‘All eligible borrowers’ can now avail of ECB designated in INR from foreign equity holders under the automatic/approval route, as the case may be, as per existing ECB guidelines.

(b) NGO engaged in micro-finance activities can continue to avail of ECB designated in INR, as hitherto, under the automatic route from overseas organisations and individuals as per existing guidelines.

(iii) ECB for Interest During Construction (IDC)

Interest During Construction (IDC) will be considered as a permissible end-use for Indian companies which are in the infrastructure sector, under the automatic/approval route, as the case may be, subject to the following conditions: (a) That the IDC is capitalised; and (b) Is part of the project cost.

levitra

A.P. (DIR Series) Circular No. 26, dated 23-9-2011 — External Commercial Borrowings (ECB) — Bridge Finance for Infrastructure Sector.

fiogf49gjkf0d
This Circular permits, under the Approval Route, Indian companies which are in the infrastructure sector, to import capital goods by availing of shortterm credit (including buyers’/suppliers’ credit) in the nature of ‘bridge finance’, subject to the following conditions:

(i) The bridge finance must be replaced with a long-term ECB;

(ii) The long-term ECB must comply with all the extant ECB norms; and

(iii) Prior approval must be obtained from RBI for replacing the bridge finance with a long-term ECB.

levitra

Filing of Statement of Affairs for Companies under Liquidation.

fiogf49gjkf0d
The Ministry of Corporate Affairs has vide General Circular No. 56/2011, date 28th July 2011 informed that DIN (Directors Identification Number) would be blocked consequent to the non-filing of the Statement of Affairs (SOA), pursuant to the winding up orders passed by the Court u/s. 454. The SOA is required to be submitted within twenty-one days from the relevant date (i.e., in a case where a provisional liquidator is appointed, the date of his appointment, and in a case where no such appointment is made, the date of the winding up order), or within such extended time not exceeding three months from that date as the Official Liquidator or the Court may, for special reasons, appoint.

levitra

Filing of Balance Sheet for Phase-I Companies in XBRL mode without any additional fee up to 30-11-2011.

fiogf49gjkf0d

The Ministry of Corporate Affairs has vide Circular No. 57/2011, dated 28th July 2011, has allowed the filing of Balance Sheet and Profit and Loss account in XBRL mode for companies falling in Phase-I without any additional fee up to 30th November 2011 or within 60 days of their due date, whichever is later. Further in supersession of the Circular No. 43/2011, dated 7th July 2011, it is informed that the verification and certification of the XBRL document of financial statements on the e-forms would continue to be done by the authorised signatory for the company and professionals like Chartered Accountant, Company Secretary or Cost Accountant in whole-time practice. [Circular_58-2011 _01aug2011.pdf]

levitra

Certification of Information for Companies under Liquidation.

fiogf49gjkf0d
The Ministry of Corporate Affairs vide General Circular No. 58/2011, dated 1st August 2011, has in view of the representation from professional institutes decided to allow Chartered Accountants/ Company Secretary/Cost Accountant in practice to submit information duly verified by them in case the Official Liquidator has filed such application to the Court.

levitra

Launch of Company Law Settlement Scheme 2011.

fiogf49gjkf0d
The Ministry of Corporate Affairs has vide General Circular No. 59/2011, dated 5th August 2011, launched the Company Law Settlement Scheme 2011 for condoning the delay in filing documents pertaining to the Annual Return, Compliance Certificate and Balance Sheet and Profit and Loss Account only, which were due for filing till 30th June 2011, with the Registrar granting immunity from prosecution and charging additional fee of 25% of actual additional fee payable for filing belated documents under the Companies Act, 1956 and the rules made thereunder. The Scheme is in force from 12th August 2011 to 31st October 2011. It is further informed that on conclusion of the Scheme, the Registrar shall take action against those companies who have not availed the Scheme and are in default in filing the documents in timely manner. Vide General Circular No. 60/2011 dated 10-8-2011, the MCA has clarified that the Scheme will also be applicable to Form 52 (filing of annual accounts by a foreign company).

levitra

Family Arrangement Document not compulsorily Registrable – Memorandum of family arrangement – Admissible in evidence without being registered or stamped:

fiogf49gjkf0d
Rasbihart and another vs. The Additional District Judge (Fast Track), Sawai Madhopur, Rajasthan & Others.

The plaintiffs instituted a suit for declaration and cancellation of a registered sale deed dated 11-08- 2004 and mutation No. 1216 dated 20-08-2004 in favour of Bithaldas and consequential injunction. It was the claim of the plaintiff that the suit property was ancestral in nature and hence their predecessor Ballabhdas, arrayed as defendant No. 1 in the suit, had no right to execute the release deed dated 11-08-2004 in favour of Bithaldas defendant No. 3 in the suit.

The plaintiff claimed that this document was a partitition deed and for want of stamp and registration was inadmissible in evidence. According to the plaintiff, from the language of this document, it clearly emerged that it was not a recording of a past event but partition was effected through the document itself and hence as per the provisions of the Stamps Act and Registration Law, the document ought not only to be liable to be properly stamped but registered as well and as the document fell short of both these mandatory requirements, it was inadmissible for all purposes.

The defendant claimed that the document in question was not a partition deed but merely a memorandum of family arrangement and hence was neither required to be stamped nor registered and was admissible for all purposes. It was further contended that the family arrangement had already been acted upon and consequently a second family arrangement was executed and hence the plaintiff cannot challenge the validity of the document dated 23-09-1972.

The court observed that for a document, to be termed as an instrument of partition, leviable to be stamp duty it must be a document effecting transfer. The title to the property in question has to be conveyed under the document. The document has to be a vehicle for the transfer of the right, title and interest. The document has to be the sole repository for the ascertainment of the rights. Each and every document involving the fact of partition cannot be included within the expression ‘instrument of partitition’. A paper, which is recording a fact or attempting to furnish evidence of an already concluded transaction under which the title has already passed, cannot be treated to be such an instrument.

In the instant case, the writing in question was merely a memorandum of family arrangement and not an instrument of partititon requiring levy of stamp duty or required to be compulsorily registered. The property involved was the joint family property of ‘B’ and his three sons and the said fact was admitted in the writing. So, the rights of sons were not created for the first time through this document. The document was not the vehicle for transfer of rights. By the mere fact that the document contained the word like ‘today’ does not make it an instrument of partition, therefore, the writing has held to be a memorandum of family arrangement and admissible in evidence without it being stamped or registered.

levitra

Authorisation Notice not served – Chartered Accountant received the notice on behalf of assessee without authorisation:

fiogf49gjkf0d
ABG Infralogistics Ltd. vs. State of Maharashtra & Ors Writ Petition (L) No. 2935 and 2936 of 2013 Bombay HC dated 25-11-2013

The Petitioner has raised various contentions including the contention that the petitioner was never served with the notice for the relevant years and that the petitioner or its representative had never appeared before the AO and still the impugned assessment order refers to a Chartered Accountant having attended on 24th June, 2011 and requesting the Assessing Officer for adjournment and considering his request the said Chartered Accountant was called on 26th June 2013, but he did not appear till the date of passing of the asst. order nor any communication was received from him. Hence, the orders were passed u/s. 23(2) of the Maharashtra Value Added Tax Act.

The respondents opposed the petition and submitted that the representative of the petitioner did appear before the Assessing Officer on 24th June, 2013 as mentioned in the ‘roznama’ for the aforesaid two asst. years, 2005-06 and 2008-09, and has therefore received the notice for the asst. years 2005-06 and 2008-09.

The Learned Counsel for the petitioner submits that those two authorisations for the asst. years 2006-07 and 2007-08 were purportedly issued on 28th June 2013, but according to the AO, the said Chartered Accountant appeared for the petitioner on 24th June, 2013 without any authorisation having been produced at the hearing before him.

The Hon’ble Court observed that the petitions involve serious disputed questions of fact as well as questions of law on merits of the controversy and, therefore, it would be appropriate for the petitioner to avail the alternative remedy of filing appeal before the Dy. Commissioner of Sales tax (Appeals). The court directed the petitioner to file appeals before the Dy. Commissioner of Sales Tax (Appeals) within 2 weeks and directed the appellate authority to entertain the appeals and examine all contentions without raising the plea of limitation as far as the filing of appeals was concerned and decide the appeals in accordance with law as expeditiously as possible.

The court further directed that till the appellate authority decided the appeals, the impugned demand notices shall not be implemented or enforced.

As regards the contention of the petitioner that the petitioner had not received any notice for the aforesaid years and had not issued any authorisation in favour of the concerned Chartered Accountant, learned counsel for the respondents has relied upon the authorisation issued by the petitioner in favour of the said Chartered Accountant for the asst. years 2006-07 and 2007-08. The Learned Counsel for the respondents submitted that since the Chartered Accountant was appearing for the petitioner for those two years, the AO proceeded on the basis that the same Chartered Accountant was appearing for the petitioner for the two years under consideration, i.e., 2005-06 and 2008-09.

levitra

Transportation of goods from outside India to destination outside India exempted — Notification No. 08/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification, services of transportation of goods by air or road or rail provided to person located in India have been exempted when goods are transported from a place outside India to a final destination outside India.

levitra

Insurance under Rashtriya Swasthya Bima Yojna exempted — Notification No. 07/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification, insurer of general insurance service has been exempted for providing insurance service under Rashtriya Swasthya Bima Yojna.

levitra

Works Contract services for Rajiv Awass Yojna and JNURM — Notification No. 06/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification works contract services rendered for construction of residential complexes under Rajiv Awass Yojna and JNURM have been exempted.

levitra

Press Note No. 3 (2011 Series) — D/o IPP File No.: 1/16/2010-FC-I, dated 8-11-2011 — Review of the policy on Foreign Direct Investment in pharmaceuticals sector insertion of a new paragraph 6.2.25 to ‘Circular 2 of 2011-Consolidated FDI Policy’.

fiogf49gjkf0d

Presently, Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector. This Circular has made the following changes, with immediate effect, to the said policy:

(i) FDI, up to 100%, under the automatic route, will continue to be permitted for greenfield investments in the pharmaceuticals sector.

(ii) FDI, up to 100%, will be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route. As a result, ‘Circular 2 of 2011 — Consolidated FDI Policy’, dated 30-9-2011, issued by the Department of Industrial Policy & Promotion stands amended with the insertion of the following new Para
6.2.25: 

6.2.25       Pharmaceuticals     
6.2.25.1   Greenfield                        100%       Automatic
6.2.25.2    Existing companies          100%       Government

levitra

A.P. (DIR Series) Circular No. 47, dated 17-11-2011 — ‘Set-off’ of export receivables against import payables — Liberalisation of procedure.

fiogf49gjkf0d
Presently, set-off of export receivables against import payables are considered by RBI. This Circular now delegates that power to banks. As a result banks can now deal with cases of set-off of export receivables against import payables subject to fulfilment of certain conditions:

(a) The import is as per the Foreign Trade Policy in force.

(b) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the bank.

(c) Payment for the import is still outstanding in the books of the importer.

(d) The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted/received.

(e) The ‘set-off’ of export receivables against import payments must be in respect of the same overseas buyer and supplier and that consent for ‘set-off’ must have been obtained from him. (f) Export/import transactions with ACU countries are not covered by this arrangement.

(g) All relevant documents are submitted to the concerned bank which will have to comply with all the regulatory requirements relating to the transactions.

levitra

A.P. (DIR Series) Circular No. 46, dated 17-11-2011 — Overseas forex trading through electronic/internet trading portals.

fiogf49gjkf0d
This Circular clarifies that any person resident in India collecting margin payments for online forex trading transactions through credit cards/deposits in various accounts maintained with banks in India and effecting/remitting such payments directly/ indirectly outside India will make himself/herself liable for contravention under FEMA, 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms/Anti-Money Laundering (AML) standards.

levitra

A.P. (DIR Series) Circular No. 45, dated 16-11- 2011 Foreign Direct Investment — Reporting of issue/transfer of ‘participating interest/ right’ in oil fields to a non-resident as a Foreign Direct Investment transaction.

fiogf49gjkf0d
Presently, transfer of equity shares/fully and mandatorily convertible debentures/fully and mandatorily convertible preference shares (hereinafter referred to as ‘shares’) of an Indian company, from a person resident outside India (non-resident) to a person resident in India (resident) or vice versa, has to be reported to an Authorised Dealer within 60 days of transactions. Similarly, receipt of consideration for issue of shares as well as the issue of shares of an Indian company, to a non-resident has to be reported to RBI through an Authorised Dealer within 30 days from the date of the respective transaction.

This Circular provides that issue/transfer of ‘participating interest/rights’ in oil fields to a non-resident will be treated as a Foreign Direct Investment (FDI) transaction under the FDI policy and FEMA regulations. Hence, transfer of ‘participating interest/rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS (the same is Annexed to this Circular) and issuance of ‘participating interest/rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

levitra

A.P. (DIR Series) Circular No. 44, dated 15-11-2011 — Trade credits for imports into India — Review of all-in-cost ceiling.

fiogf49gjkf0d
This Circular has revised the all-in-cost ceiling for Trade Credits as under:

Maturity period        All-in-cost over 6 month LIBOR*
                                Existing                                               Revised

Up to one year           200 bps                                            350 bps

More than one year and up to three years

* For the respective currency of credit or applicable benchmark

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/processing charges, out-of-pocket and legal expenses, if any. This increased all-in-cost ceiling is applicable up to March 31, 2012.

levitra

A.P. (DIR Series) Circular No. 24, dated 19-9-2011 — Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards — Cross-Border Inward Remittance under Money Transfer Service Scheme.

fiogf49gjkf0d
This Circular requests Authorised Persons (Indian Agents) to consider the information contained in the Statement issued by FATF on June 24, 2011 calling upon certain jurisdictions to complete the implementation of their action plan within the time frame.

levitra

A.P. (DIR Series) Circular No. 23, dated 19-9-2011 — Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards — Money changing activities.

fiogf49gjkf0d
This Circular requests Authorised Persons to consider the information contained in the Statement issued by FATF on June 24, 2011 calling upon certain jurisdictions to complete the implementation of their action plan within the time frame.

levitra

A.P. (DIR Series) Circular No. 22, dated 19-9-2011 —Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards — Cross- Border Inward Remittance under Money Transfer Service Scheme.

fiogf49gjkf0d
This Circular informs that the:

1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons (Indian Agents) are not precluded from entering into legitimate trade and business transactions with Iran.

2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons (Indian Agents) are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.

levitra

A.P. (DIR Series) Circular No. 21, dated 19-9-2011 — Anti-Money Laundering (AML) standards/Combating the Financing of Terrorism (CFT) Standards — Money changing activities.

fiogf49gjkf0d
This Circular informs that the:

1. Financial Action Task Force (FATF) has issued a Statement on June 24, 2011 calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and Democratic People’s Republic Korea (DPRK). However, Authorised Persons are not precluded from entering into legitimate trade and business transactions with Iran.

2. FATF has also identified the following countries — Bolivia, Cuba, Ethiopia, Kenya, Myanmar, Sri Lanka, Syria and Turkey — as jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies and calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction. Authorised Persons are advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.

levitra

NEW SEBI TAKEOVER REGULATIONS — important changes

fiogf49gjkf0d
Part 1
SEBI has notified the substantially rewritten Takeover Regulations — the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘the Regulations’) — to come into effect from 22nd October 2011.

Takeover Regulations hit the front pages of newspapers for wrong reasons. Takeover of companies in India is relatively lesser in number but takeovers have a glamour attached to them, hence changes to law relating to takeovers get disproportionate attention. At the same time, the manner in which the Regulations are framed ensure that not only the listed company and its promoters are affected but even the shareholders are affected. Promoters and other specified persons have to carry out certain regular or ad hoc compliances, reporting, etc., though even at that stage there is no takeover involved. Non-compliance of these requirements can result in stiff penalties and even an open offer. Further, many corporate restructuring transactions are structured keeping these Regulations in mind.

Now that SEBI has notified the long-awaited revised Regulations last month, listed companies, their promoters and those concerned with legal aspects of corporate laws relating to listed companies need to examine them closely.

In this article, some important changes are highlighted. It must be emphasised though that the Regulations are substantially rewritten and hence it is not as if there is a list of specified amendments that can be identified and discussed. And though the outline of the Regulations remains the same, there have been changes, major and minor, at several places. To begin with, it is worth reviewing generally what the Regulations are concerned with. The Regulations essentially intend that if there is a change of control of a listed company, whether through acquisition of controlling interest or otherwise or even a substantial acquisition of its shares, the public shareholders should be given an option to exit. This usually happens when a new promoter acquires the controlling stake from the existing promoter(s). However, the acquirer may simply acquire substantial shares in the company. The public shareholders are required to be paid a minimum price which is not less than what the outgoing promoters get, but the price for public shareholders can be higher. There are requirements of disclosure when a person acquires substantial quantity of shares and generally many other related requirements to ensure that this basic intent is achieved.

The Takeover Regulations were originally issued in 1994 and then revised in 1997. Several amendments were made from time to time and, recently, a committee was set up to recommend draft new Regulations under the leadership of Late Shri C. A. Achuthan who gave a detailed and elaborate report (‘the Committee Report’) but, sadly, left the world soon thereafter.

The new Regulations should be seen in the light of this Report. However, care should be taken since some of the recommendations have not been accepted or accepted only partially.

The most significant change is that the minimum threshold for making an open offer has been increased from 15 to 25%. The link of 25% with the percentage required to block a special resolution is obvious. Taking into account the fact that, in most Indian companies, the Promoters hold much more than 25%, even this 25% limit may sound low. For strategic investors, this higher limit would help and thus this increase would help the Company, its Promoters and shareholders since the Company can accept higher strategic investments without such investors having to make an open offer.

The other major change is that the minimum open offer percentage has been increased from 20 to 26%. Again this 26% can be logically understood as if we add 25 and 26%, we get a majority holding of 51%, though one could have argued that 1 share above 50% is sufficient to have a majority. Public shareholders would be rightly disappointed as the Committee Report recommending making an open offer for 100% of the public holding has not been accepted. This, in my view, is unfair as while the whole of the holding of the Promoters is usually acquired, only partial acquisition of public holdings is made. The argument made is that this would make the open offers unduly expensive for an acquirer. However, this can not be a sufficient reason to deprive public shareholder of getting a price that the Promoters receive. If an acquirer seeks to acquire, say, 51%, he can simply acquire such percentage from all shareholders including the Promoters by offering to acquire 51% of each person’s holdings. It is sad that the main purpose of these Regulations of protecting the interest of the public shareholders has been sidelined.

Certain regular and ad hoc compliances are required to be made under the Regulations. They mainly serve the basic objective of protecting shareholders’ interests in case of significant change in shareholding. Thus, an early intimation system provides that if a person acquires more than 5% shares, he should inform the Company and the stock exchanges immediately. Such person should thereafter keep informing if his holding changes by 2% in either direction. This provision has been substantially maintained. However, it is now made explicit — which was otherwise confirmed by court decisions under the 1997 Regulations — that it is the holding of the acquirer along with persons acting in concert as a whole that would be counted and not just the separate holding of an individual acquirer.

Creeping acquisition is a popular term, though not a legal one, to refer to the slow and gradual increase in holding allowed by law to a substantial holder of shares without being required to make an open offer. A substantial shareholder consolidates its holding by acquiring more shares and the law believes that such consolidation should also require an open offer under certain situations. The 1997 Regulations allowed 5% increase per financial year for acquirers who held more than 15% shares provided that the cumulative holding is not more than 55%. Beyond 55%, an additional 5% can be acquired in specified manner but no further without an open offer. The amended law allows creeping acquisition of the same 5% every financial year but all the way up to the maximum holding they can hold without reducing the minimum public holding required under law. Thus, for example, where minimum public holding is prescribed to be 25%, an acquirer can make creeping acquisitions up to 75% by acquiring 5% each financial year.

There was a minor controversy as to whether the 5% incremental acquisition was allowed as a net or gross increment. For example, if an acquirer acquires 7% in a year but sells 3%, has he acquired 4% or 7% ? The Regulations now specifically clarify that it will be the gross acquisition and not net and thus in the above example, the acquisition will be considered as 7% and thus beyond the 5% limit.

It is also clarified that in case of acquisition by issue of fresh shares (e.g., preferential allotment) where the capital of the Company also expands, the percentage in the expanded capital will be considered.

This leaves one group of existing promoters in a strange situation. There are Promoters, albeit small in number, who hold between 15% and 25%. As explained above, the 1997 Regulations allowed creeping acquisition of 5%. However, as the minimum threshold of 15% has been raised to 25%, such Promoters now would have to make an open offer if they cross 25% even if they are holding, say, 23% and acquire another 3%. Under the 1997 Regulations, they would not have been so required. Of course, the other side is that a person holding, say, 14% can acquire another about 11% without being required to make an open offer.

An important concept of Takeover Regulations is of ‘persons acting in concert’. This concept is a part of the Regulations to ensure that if a group of persons acquires shares with a common understanding or agreement, all such acquisitions are counted together to check whether the Regulations are attracted or not. Further, reporting of shareholding is also to be made of the total holding of such group. The question then is whether transfers within such group should be allowed or should such inter se transfers be considered as acquisitions. Logically, a transfer within the group is a zero sum transaction if the group as a whole is considered. Even the wording — of the 1997 Regulations as well as the 2011 Regulations — on the face of it should not apply since the holding of the acquirer along with persons acting in concert does not increase in such a case. However, SEBI has, by curious reasoning, which is upheld in appeal, taken a view that since inter se transfers are exempt under certain circumstances, then it must be held that inter se transfers otherwise amount to acquisition ! This reasoning is likely to continue even under the new Regulations though it would have been more elegant in law if the Regulations had expressly provided for this. However, what has been now changed is that inter se transfers, to qualify for exemption, need to comply with stricter conditions. For example, inter se transfers between persons acting in concert or Promoters will require that both parties should have been declared in relevant filings as such for at least three years. The exemption to inter se transfers within the ‘group’ has been dropped.

Earlier, there was an exemption from open offer for acquisition of control, without the minimum acquisition of shares, of a company if such acquisition was approved by the shareholders by a special resolution. Now this exemption is dropped. Perhaps this was necessary as the threshold limit has been increased from 15 to 25%.

A change worthy of appreciation is that non-compete fees are now to be counted as part of the acquisition price paid by an acquirer to the existing promoters. Earlier, the law allowed an acquirer to pay up to 25% of the acquisition price as non-compete fees to existing promoters and such amount was not to be counted as part of the acquisition price. To give an example, say, an acquirer pays Rs.100 as price for acquisition of shares and Rs.25 as non-compete fees to the Promoters. The law, which otherwise requires that the open offer should be made at a price that is at least the price paid to the Promoters, allows in such a case the open offer to be made at Rs.100. This resulted in cases where on the face of it, an exact non -compete fee of 25% was paid and was excluded from the open offer price. The new Regulations have rightly dropped this exemption to non-compete fees.

A major new feature is the voluntary open offer that is allowed. Normally, an acquirer is required to make a minimum open offer of 26% if he crosses the specified threshold limit or creeping acquisition. However, if a person, who is already having 25% shares and desires to increase his holding by more than 5% a year can now make a voluntary open offer of at least 10% to all the shareholders. This also ensures that all shareholders are able to participate and not just a selected few.

Then there is an infrequent but interesting situation that arises which earlier SEBI handled it a little arbitrarily. This is a situation where a Company carries out a buyback of shares. Simple mathematical calculation will show that if a Company carries out buyback of shares, the shareholding of a person who did not participate in the buyback increases though he has not acquired a single share. For example, if the Company’s share capital is Rs.10 crore and a person is holding Rs.2.40 crore. If the Company carries out a buyback of 20% with such person not participating, his new percentage holding would be higher at 30% (Rs.2.40 crore as a % of Rs.8 crore) without he having acquired a single share. SEBI took a view that open offer was required to be made by such person. This was of course absurd and even if SEBI intended that an open offer should be required, it should have provided for it. The new Regulations now provide that such an increase will not result in open offer provided certain conditions are satisfied failing which the differential percentage of shares should be sold within 90 days.

Increase in Filing Fee for Name Availability.

fiogf49gjkf0d
The Ministry of Corporate Affairs has vide General Circular No. 48/2011, dated 22nd July 2011, revised the Name Availability Guidelines and the Form 1A pertaining to the Availability of Name for Company and increased the fee to Rs.1000 w.e.f. 24th July 2011.

levitra

NBFCs not to be partners in partnership firms

fiogf49gjkf0d
RBI has noticed that some NBFCs have made large investments in the capital to partnership firms. In view of the risks involved in NBFCs associating themselves with partnership firms, RBI has now decided to prohibit all NBFCs from contributing capital to any partnership firm or to be a partner in partnership firms. In cases of existing partnerships, NBFCs may seek early retirement.

levitra

IFRS developments.

fiogf49gjkf0d
The IFRS Foundation has published a set of 12 illustrative examples in XBRL for the IFRS Taxonomy, 2011. The examples are intended to help preparers of financial statements to understand how to apply the taxonomy to create instance documents and entity- specific extensions using both block tagging and detailed tagging, and also XBRL and Inline XBRL.

Visit the IASB website for a list of the illustrative examples and the IFRS Taxonomy 2011 guide.

The IFRS Foundation has announced that it will publish supplementary tags for the IFRS Taxonomy that reflect disclosures that are commonly reported by entities in their IFRS financial statements.

levitra

Clarification regarding easy-exit schemes.

fiogf49gjkf0d
The Ministry of Corporate Affairs has notified the simplified procedure for dealing with the applications received under Easy-Exit Scheme for striking off the name of a company u/s. 560 of The Companies Act, 1956 vide its general Circular No. 12/2011, dated 7th April 2011.

For complete text of the Notification visit:

http://www.mca.gov.in/Ministry/pdf/Circular_12- 2011_7apr2011.pdf

levitra

Single-Window Registration — a new approach

fiogf49gjkf0d
Presently, most of the Indians think that corruption is a problem bigger than pollution, poverty, poor infrastructure, delayed judgments, etc. It seems true to a great extent because we would have been in a better condition, had there not been corruption.
It is a known truth that bureaucrats or politicians work only when they have some personal interest. Likewise it is also well known that we the public make bureaucrats or politicians corrupt for our personal benefits. The result is that the two parties involved are benefited, but India suffers.
The public becomes a part of corruption willingly or unwillingly due to unnecessary legal requirements and tedious procedures at government departments, which lead to the need of a mediator, hence corruption.
If we take a look at working in our field i.e., chartered accountancy, we will find that to set up a business a client needs to get various permissions from government departments in the form of registrations, licences, NOCs, etc.

 To be more specific, to start a business as a private limited company, a client has to apply for the following registrations, licences and numbers:

  •  Registration — Company registration, Industry registration, Service tax registration, VAT & CST, Gumashta or Nagar Nigam, STPI registration, etc.

  •  Numbers —Director Identification Number, Permanent Account Number and Tax Account Number.

  •  Codes and Certificates — Import export code, Digital signature certificate. The main problems in getting the above are:

  •  All these are government agencies, but act as independent to each other.

  •  Most of the documents needed by the various government departments are the same and the businessman has to resubmit them again and again to these departments/agencies. A businessman collects registration from one department and submits it to another department for further registration or licensing.

  •  The businessman also has to fill registration forms in various formats and deposit the registration fees in various challan forms with typical challan number system at pre-nominated deposit centres or banks.

  •  This is a tedious process and leads to birth of agents or mediators, which in turn leads to bribery or corruption.
It will be a repetition to say that technology can control or stop corruption in the government departments. The government has already taken successful steps by making Income tax, service tax, and registration of company work (MCA) online. A solution can come if a centralised system can be designed:

  •  where documents once submitted or generated by one government agency can be used again and again by various departments.

  •  where available information can be automatically used to fill various registration forms and challans.

  •  where a businessman can amend his details and they are automatically intimated to various authorities.

  •  where a businessman can himself apply for registration and pay the required fee online through credit card or online bank account.

In my view all the above are possible through a single-window (SW) registration website. This Single Window Registration website will be an attempt to expedite and simplify information flows between trade and the government and bring meaningful gains to all parties.

In practical terms, an SW environment will provide one entrance (either physical or electronic) for the submission and handling of all data and documents related to the release and clearance of a transaction. This entry point is managed by one agency (may be like NSDL) which informs the appropriate agencies and/or performs combined controls. Centralised registration server may work in the following way :
It is important to mention here that many state governments have worked and are already working through single-window registration. So, the new website will be an attempt to link all departmental websites with single-window registration website. In turn the new website will provide all necessary details directly to the concerned government department.
Public key and private key concept may also be implemented. Public key will be given to various departments to view business details and private key will be given to business for alterations or modifications in its details.

 (Paper formalities for registrations, licensing, etc. in the proposed system is illustrated in Annexure.)

Conclusion:
If this suggestion is implemented, then in my opinion this would be a great relief to businessmen and will lead to lesser dependency on mediators, resulting in less corruption.
levitra

A.P. (DIR Series) Circular No. l8, dated 9-8-2011 — Investment in units of Domestic Mutual Funds.

fiogf49gjkf0d

Presently, a SEBI-registered Foreign Institutional Investor (FII) and a Non-Resident Indian (NRI) can purchase on repatriation basis, subject to such terms and conditions, units of domestic Mutual Funds (MFs). This Circular has now created a new category of Non-Resident Investors — ‘Qualified Foreign Investors’ (QFI). QFI are non-resident investors, other than SEBI-registered FII and SEBI-registered FVCI, who meet the Know Your Ctomer (KYC) requirements prescribed by SEBI.

A QFI can purchase, on repatriation basis:

(1) Up to INR620 billion in Rupee-denominated units of equity schemes of SEBI-registered domestic Mutual Funds.

(2) Up to INR186 billion in units of debt schemes which invest in infrastructure (‘Infrastructure’ as defined under the extant ECB guidelines) debt of minimum residual maturity of five years, within the existing ceiling of 25 billion for FII investment in corporate bonds issued by infrastructure companies.

They can invest under two routes:

(i) Direct Route — SEBI-registered Depository Participant (DP) route.

(ii) Indirect Route — Unit Confirmation Receipt (UCR) route.

levitra

A.P. (DIR Series) Circular No. 2, dated 15-7-2011 — Regularisation of Liaison/Branch Offices of foreign entities established during the pre-FEMA period.

fiogf49gjkf0d
Presently, prior approval of RBI is required for establishing a Liaison Office (LO)/Branch Office (BO) in India by a person resident outside India. This Circular advices persons resident outside India who have established LO/BO in India and have not obtained permission from RBI to do so within a period of 90 days from the date of issue of this Circular, for regularisation of establishment of such offices in India, in terms of the extant FEMA provisions.

Similarly, foreign entities who may have established LO or BO with the permission from the Government of India, must also approach RBI along with a copy of the said approval for allotment of a Unique Identification Number (UIN).

These applications/requests must be submitted to the Chief General Manager-in-Charge, Reserve Bank of India, Foreign Exchange Department, Foreign Investment Division, Central Office, Fort, Mumbai-400001 in form FNC and should be routed through the bank where the account of such LO/ BO is maintained. A.P. (DIR Series) Circular No. 3, dated 21-7- 2011 —Facilitating Rupee Trade — Hedging facilities for non-resident entities.

This Circular permits non-resident importers and exporters to hedge their currency risk in respect of exports from India and import to India, respectively, where invoices are raised in Indian Rupees. The operational guidelines, terms and conditions, etc. are annexed to this Circular.

levitra

PROPOSED CONSOLIDATED REGULATIONS FOR PRIVATE INVESTMENT FUNDS — Draft Regulations for Alternate Investment Funds issued by SEBI

fiogf49gjkf0d
SEBI has issued, on 1st August 2011, fairly comprehensive draft Regulations to regulate all private funds that invest in any type of securities whether registered outside India or in India and whether their investors are from outside India or within India. These Regulations thus are intended to be very broad and will cover all funds that are not specifically governed by existing Regulations on certain funds. The possible concern is that certain private investment vehicles may get covered unintended though the purpose is to cover only the funds that raise monies for investment, albeit privately. A more serious concern is that the funds are categorised and restrictions are put on each category on their investment pattern, etc.

One of the stated purposes is of course that such comprehensive Regulations covering all types of funds will help them being granted exemptions from other statutes. However, the detailed control over them as proposed seems disproportionate to the needs of the exemptions. The other benefit of registration and regulation stated is that such control and supervision of SEBI may increase the credibility of such funds in the eyes of the investors in such funds.

Alternative Investment Fund (‘AIF’) means funds other than which are governed by specific Regulations such mutual funds, Collective Investment Schemes, etc. Many of such AIF are specifically identified, such as private equity funds, real estate funds, private pooled investment vehicle (‘PIPE’), etc. But generally, it is an inclusive definition covering all such funds except those specifically excluded.

Importantly, new venture capital funds will be covered by the AIF Regulations. Existing venture capital funds shall continue to be governed by the present Regulations till they are wound up.
What is an AIF? Regulation 3 gives a primary definition stating that it (i) invests in securities markets, (ii) having domicile anywhere, whether in India or abroad and (iii) (a) collects its funds from institutional or high net worth investors in India or (b) the manager of such fund is in India. Some points are worth highlighting. The AIF should invest in securities markets. This of course is required since this gives jurisdiction to SEBI that is a securities regulation body. However, it is not clarified as to whether the investments would be within India or abroad and the better view seems to be that the investment can be anywhere. Strangely, the AIF may invest in assets other than securities too.  For example, real estate funds are also covered though their investments may be wholly in real estate projects.
The other important aspect is that the fund could be based abroad or even have its investors abroad. However, it appears that some Indian link is necessary. It is not sufficient that the investment is made in India. Either the funds should be raised from India or the manager of such AIF should be in India. While an Indian link has been retained, this is an area to which many funds have a primary objection. It may be noted that the SEBI Regulations relating to foreign venture capital funds will continue to apply on such funds, though these Regulations are much tamer.
Another requirement is that the funds should be collected from institutional or high net worth investors. While the term institutional investors’ is not defined (though this term can be interpreted from other SEBI Regulations), the term HNI does not mean that the investor should have a high net worth — rather it is an entity or individual that invests at least Rs.1 crore in the AIF. The intention seems to be that the funds that accept investments by smaller retail investors should be covered by other Regulations such as the mutual fund regulations, while AIFs should be restricted to large or institutional investors subject to a different set of regulations.
All existing AIFs, whether registered or not, will be required to register themselves when the Regulations are notified. New AIF will not be able to start business without prior registration.
The AIF may be formed as a company, an LLP or as a Trust.
The minimum fund size is to be Rs.20 crore. Interestingly, at least 5% of such amount should be invested by the Sponsors, etc. and this minimum shall be locked in till the fund is fully wound up and all investors are paid off. Minimum investment size by investors has to be 0.1% of the Fund size or Rs.1 crore, whichever is higher.
Unlike corresponding laws abroad, under the proposed Regulations as the introductory note to the proposed Regulations itself suggests, there is no exemption based on minimum size. Thus, the Regulations abroad do not apply to AIF of a minimum size and above. But the proposed Regulations apply to all entities that carry on business of AIF. The minimum fund size works as a minimum entry barrier. No AIF can function below the minimum fund limit of Rs.20 crore. Thus, unlike the prevailing laws abroad, though they significantly form the basis of the proposed SEBI Regulations, there is mandatory registration for all AIFs and detailed regulation and control over them.
The number of investors if the fund is structured as a company or LLP is limited to fifty.
This number is obviously derived from the limit under the Companies Act, 1956, for private companies and for private placement. But this could be restrictive. This also seems to be inconsistent with the minimum investment size of 0.1% of the fund size. By this percentage, the maximum number of investors should be 1000. In fact, the introductory note to the draft Regulations states that the maximum number of investors shall be 1000, but the Regulations provide for a low number of fifty.
Another important policy aspect is that that every AIF shall have only one Scheme. Thus, a fresh Scheme would require a fresh AIF with fresh registration and a totally fresh process.
The minimum term of the AIF shall be five years. Again, this seems to be an arbitrary provision, interfering with what parties may contractually decide.
The AIF is prohibited from investing more than 25% of its fund in one investee company. This is yet another legislature-mandated arbitrary policy interfering with discretion of the fund even if the investors support it.
Another requirement that can create practical problems is that the manager, etc. cannot coinvest in any investee company and that the whole of the equity investment should be through the fund. However, it is often seen that a form of sweat equity is given, quite transparently, to the manager, etc. of a small portion of the amount invested in a company which helps the manager/ key employees to participate in the appreciation of the investment. This reduces the fund costs also since the fund can pay lesser cash remuneration and at the same time motivates the manager, etc. Such co-investment should have been permitted with a requirement that it is transparent.
For each of the categories of AIFs, detailed requirements have been laid down. How much minimum percentage shall be invested in certain types of industries, in what type of investment such investment shall be made, etc. are specified. The aim seems to be that each category should specialise in a particular type of investment. At the same time, investment in some industries are barred. Certain types of instruments are also restricted for investment. Take the example of the proposed framework for Venture Capital Funds. The total fund size shall not be more than Rs.250 crore. Investment is permitted only in companies at an early stage of their business life by way of seed capital or minority stake in new ventures using new technology or innovative business ideas. Investment is not permitted in any company promoted by any of the 500 top listed companies or their promoters. At least 2/3rd of the investments shall be in equity shares of unlisted companies.
For each of the categories of AIFs, detailed requirements have been laid down. How much minimum percentage shall be invested in certain types of industries, in what type of investment such invest-ment shall be made, etc. are specified. The aim seems to be that each category should specialise in a particular type of investment. At the same time, investment in some industries are barred. Certain types of instruments are also restricted for investment.

Take the example of the proposed framework for Venture Capital Funds. The total fund size shall not be more than Rs.250 crore. Investment is permitted only in companies at an early stage of their busi-ness life by way of seed capital or minority stake in new ventures using new technology or innovative business ideas. Investment is not permitted in any company promoted by any of the 500 top listed companies or their promoters. At least 2/3rd of the investments shall be in equity shares of unlisted companies. There are further restrictions regarding investments of the remaining 1/3rd. Investment in Share Warrants is not permitted.

Debt Funds need to invest at least 60% of its corpus in debts of unlisted companies and not more than 25% of which shall be in convertible For each of the categories of AIFs, detailed requirements have been laid down. How much minimum percentage shall be invested in certain types of industries, in what type of investment such investment shall be made, etc. are specified. The aim seems to be that each category should specialise in a particular type of investment. At the same time, investment in some industries are barred. Certain types of instruments are also restricted for investment.

There are similar quite rigid conditions on what should be the investment mix for various types of funds. Further, an AIF cannot change the nature/ category of its fund mid-way. Thus, a set of fairly rigid conditions apply to each AIF even though the funds are raised from large and knowledgeable investors and on a private-placement basis after due disclosure.

Unfortunately, there is no free category in which, even if agreed between the AIF and its investors, the AIF could invest in any type of securities in any mix/proportion it desires.

It is stated in the introductory note to the proposed Regulations that portfolio managers who pool their clients’ assets would also be required to be registered as an AIF. However, this is not part of the Regulations. Apparently, this provision will come through separately by an amendment to the Regulations relating to portfolio managers.

The AIF Regulations will also give relief from certain possibly unintended technical violations of law by some funds. For example, having access to inside information during diligence process by PIPE funds shall not be deemed to be violation of the SEBI Regulations prohibiting insider trading. However, an important condition is that the investment made pursuant to such diligence shall be locked in for five years.

An interesting category is of Social Venture Funds. These are for those types of investments where a useful social purpose, rather than merely profit, is the theme of the fund. The nature of such social purposes is left for the AIF to decide with the investors.

A    glaring omission is of the so-called art funds where investments are made in paintings, antiques, etc. These have come under scrutiny in recent years for various reasons. It is not one of the specific categories of AIF under the Regulations. It is not totally clear whether they would be governed under the SEBI Regulations for Collective Investment Schemes (‘CIS’) or whether SEBI intends to cover them under these AIF Regulations. Earlier, SEBI had taken a view that these are governed under the SEBI CIS Regulations. However, there is a residuary category for registration and perhaps under such category, they may be required to be registered. However, the conditions of investment, etc. of such funds are not specified.

To conclude, the draft Regulations show the tendency to overregulate. Without any need, all funds, without a basic exemption are sought to be covered. The control over investment pattern is perhaps too restrictive and in some aspects even too minute. The Regulations instead could have provided an overseeing role for SEBI to ensure transparency as well as avoidance of systemic risks. That has not happened and one hopes that the final Regulations achieve these objectives instead of micro-regulating this sector.

A.P. (DIR Series) Circular No. 52, dated 6-4-2011 — A.P. (FL/RL Series) Circular No. 14 — Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT) Standards — Cross Border Inward Remittance under Money Transfer Service Scheme.

fiogf49gjkf0d
This Circular advices banks to consider the information in respect to implementation of action plan by jurisdictions listed in the Statement issued on 22nd October, 2010 by FATF in respect of Cross Border Inward Remittance under Money Transfer Service Scheme while dealing with them.

levitra

FCRA Act 2010 comes into force

fiogf49gjkf0d
The Foreign Contribution (Regulation ) Act 2010 has come into force with effect from 1st May 2011, The Foreign Contribution (Regulation ) Rules 2011 have also been notified. For full text of the Act and Rules please visit the website of the Ministry of home affairs http://mha.nic.in/

levitra

A.P. (DIR Series) Circular No. 53, dated 7-4-2011 — Overseas forex trading through electronic/internet trading portals.

fiogf49gjkf0d
This Circular reiterates that remittances under the Liberalised Remittance Scheme are allowed only in respect of permissible capital or current account transactions or a combination of both. All other transactions, which are otherwise not permissible under FEMA, 1999, including the transactions in the nature of remittance for margins or margin calls to overseas exchanges/overseas counterparty, are not allowed under the Scheme.

This Circular advices banks to exercise due caution and be extra vigilant in respect of remittances under scheme so as to avoid payments towards margin money for online foreign exchange trading transactions as these derivative transactions can only be undertaken by persons resident in India based on the presence of an underlying price risk exposure.

Further, any person resident in India collecting and effecting/remitting such payments directly/indirectly outside India would make himself/herself liable to be proceeded against with for contravention of FEMA, 1999 besides being liable for violation of regulations relating to Know Your Customer (KYC) norms/Anti Money Laundering (AML) standards.

levitra

A.P. (DIR Series) Circular No. 51, dated 6-4-2011 — A.P. (FL/RL Series) Circular No. 13 — Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT) Standards — Money-changing activities.

fiogf49gjkf0d
This Circular advices banks to consider the information in respect to implementation of action plan by jurisdictions listed in the Statement issued on 22nd October, 2010 by FATF in respect of Money changing activities while dealing with them.

levitra

A.P. (DIR Series) Circular No. 50, dated 6-4-2011 — A.P. (FL/RL Series) Circular No. 12 — Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT)/Obligation of Authorised Persons under Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009 — Cross-Border Inward Remittance under Money Transfer Service Scheme.

fiogf49gjkf0d
The Financial Action Task Force (FATF) has issued a statement dividing the strategic AML/CFT deficient jurisdictions into two groups as under:

(a) Jurisdictions subject to FATF call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdiction: Iran

(b) Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the FATF to address key deficiencies as of October 2010. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction: Democratic People’s Republic of Korea (DPRK).

This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.

This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.

levitra

A.P. (DIR Series) Circular No. 49, dated 6-4-2011 — A.P. (FL/RL Series) Circular No. 11 — Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating the Financing of Terrorism (CFT)/Obligation of Authorised Persons under Prevention of Money Laundering Act, (PMLA), 2002, as amended by Prevention of Money Laundering (Amendment) Act, 2009 — Money-changing activities.

fiogf49gjkf0d
The Financial Action Task Force (FATF) has issued a statement dividing the strategic AML/CFT deficient jurisdictions into two groups as under:

(a) Jurisdictions subject to FATF call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/ FT) risks emanating from the jurisdiction: Iran

(b) Jurisdictions with strategic AML/CFT deficiencies that have not committed to an action plan developed with the FATF to address key deficiencies as of October 2010. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction: Democratic People’s Republic of Korea (DPRK).

This Circular advices banks to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including legal persons and other financial institutions) from or in these countries/jurisdictions.

levitra

A.P. (DIR Series) Circular No. 48, dated 5-4-2011 — Acquisition of credit/debit card transactions in India by overseas banks — payment for airline tickets.

fiogf49gjkf0d
Foreign airline companies are permitted to repatriate the surplus arising from sale of air tickets through their agents in India only after payment of the local expenses and applicable taxes in India. However, in some cases where the payment for the tickets are made by the residents using credit/ debit card, card companies have been providing arrangements to the foreign airlines operating in India to select the country and currency of their choice, in respect of transactions arising from the sale of the air tickets in India in Indian Rupees (INR).

This Circular clarifies that this practice adopted by foreign airlines is not in conformity with the provisions of the Foreign Exchange Management Act, 1999 and foreign airlines are advised to immediately discontinue the same.

levitra

Government of India, Ministry of Commerce & Industry Department of Industrial Policy & Promotion (FC Section) — F. No. 5(1)/2011-FC, dated 31-3-2011 — Circular 1 of 2011 — Consolidated FDI Policy.

fiogf49gjkf0d
Circular 1 of 2011 is the third edition of the Consolidated FDI Policy. This Circular will take effect from 1st April, 2011. The following major changes have been incorporated in the latest consolidation:

(i) Pricing of convertible instruments:

Instead of specifying the price of convertible instruments upfront, companies will now have the option of prescribing a conversion formula, subject to FEMA/SEBI guidelines on pricing.

(ii) Inclusion of fresh items for issue of shares against non-cash considerations:

The existing policy provides for conversion of only ECB/lump-sum fee/Royalty into equity. This Circular now permits issue of equity, under the Government Route (Approval Route), in the following cases, subject to specific conditions:

(a) Import of capital goods/machinery/equipment (including second-hand machinery)

(b) Pre-operative/pre-incorporation expenses (including payments of rent, etc.)

(iii) Removal of the condition of prior approval in case of existing joint ventures/technical collaborations in the ‘same field’:

With a view to attract fresh investment and technology inflows into the country and to also reduce the levels of Government intervention in the commercial sphere the Government has decided to abolish this condition of obtaining prior approval in case of existing joint ventures/technical collaborations in the same field.

(iv) Guidelines relating to down-stream investments:

The guidelines have been comprehensively simplified and rationalised. Companies will now been classified into only two categories — ‘companies owned or controlled by foreign investors’ and ‘companies owned and controlled by Indian residents’. The earlier categorisation of ‘investing companies’, ‘operating companies’ and ‘investingcum- operating companies’ has been done away with.

(v) Development of seeds:

In the agriculture sector, FDI will now be permitted in the development and production of seeds and planting material, without the stipulation of having to do so under ‘controlled conditions’.

levitra

A.P. (DIR Series) Circular No. 47, dated 31-2-2011 — Export of goods and software — Realisation and repatriation of export proceeds — Liberalisation.

fiogf49gjkf0d
Generally, export proceeds in respect of export of goods and software (except in cases of exports from units in SEZ or exports to exporters’ own warehouses outside India) are required to be realised and repatriated within six months from the date of export. However, this period of six months was enhanced to twelve months in case of exports up to 31st March, 2011.

This Circular has relaxed the six months’ rule for a further period up to 30th September, 2011, subject to review. Hence, export proceeds in respect of export of goods and software (except in cases of exports from units in SEZ or exports to exporters’ own warehouses outside India) up to 30th September, 2011 can be realised and repatriated within twelve months from the date of export.

However, there is no change in the provisions in regard to period of realisation and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to exporters’ own warehouses outside India.

levitra

Part A: ORDERs of SIC & CIC

fiogf49gjkf0d
RTI Act and RTI Rules: RTI Rules of Bombay High Court

In the September issue of BCAJ, I covered a decision of three-member Bench of Maharashtra State Information Commission. In this issue, I cover one more.

Under the RTI Act, there are two types of authorities to which the Act is applicable: Public Authority and Competent Authority. The latter is defined u/s.2(e) as under:

“Competent authority means —

(i) the Speaker in the case of the House of the People or the Legislative Assembly of a State or a Union Territory having such Assembly and the Chairman in the case of the Council of States or Legislative Council of State;
(ii) the Chief Justice of India in the case of the Supreme Court;
(iii) the Chief Justice of the High Court in the case of the High Court;
(iv) the President or the Governor, as the case may be, in the case of other authorities established or constituted by or under the Constitution;
(v) the Administrator appointed under Article 239 of the Constitution;
This case deals pertains to the Bombay High Court, Mumbai. It is the decision of three-member Bench comprising the then State Chief IC (Shri Vilas Patil), SIC, Amravati (Shri M. L. Shah) and SIC, Aurangabad (Shri D. B. Deshpande).

Shri Anandnatraj submitted an RTI application to PIO, in the office of the Registrar, Bombay High Court (BHC) seeking the information in respect of writ petition Nos. 2650 of 95 and 2689 of 95. He asked for photocopies of all papers filed and orders issued in respect of the petition.

The PIO expressed his inability to furnish the information, stating that “the application was not complete in all respects as received as per the Bombay High Court Right to Information Rules, 2006. As per the said Rules, a Court Fee Stamp of Rs.12 is required on the application, however, Rs.10 Court Fee Stamp is affixed. Hence there is deficit of Court Fees of Rs.2. As per the said Rules, the applicant has to submit the application in prescribed format. Please see High Court website ‘bombayhighcourt.nic.in’ for the said Rules. Moreover, in view of the provision to Rule 9 and Rule 19 of the Bombay High Court Right to Information Rules, 2006 the information in respect of judicial proceeding or records cannot be supplied under Right to Information, but you may obtain the said Information as per the procedure prescribed in the Bombay High Court Rules and Orders”.

The applicant preferred an appeal to the First Appellate Authority (FAA). The grounds of appeal were: “the BHC RTI Rules, 2006 are not consistent and in agreement with the provisions of the Right to Information Act, 2005. As provided in Rule 9 of the said Rules, that is, Rule 9 in para 1 obtaining information in respect of third party is permissible by submission of application in Form ‘A’ as per Rule 3, the same rule in para 2 forbids the information of 3rd party in respect of judicial proceedings and records. The said contradiction in clause 9 needs proper interpretation/classification by the Public Information Officer in his reply.”

FAA responded “it is clear that the reply sent by the Public Information Officer cannot be faulted with. The information sought is relating to record of judicial proceedings and copies of the same can be obtained by applying at the facilitation centre of the High Court.” The appeal was disposed of accordingly.

The applicant then furnished the second appeal to Maharashtra Information Commission. First the appeal was heard by a single member by one SIC, Shri Ramanand Tiwari. However he passed on order that “since the issues involved are very important, I suggest that the case should be heard by the full Bench of the Commission or least a Bench consisting of three Commissioners and directed to the Secretary of the Commission to obtain the orders of the CIC and do the needful.”

Accordingly a three-member Bench heard the matter on 14-3-2011. The appellant submitted his written statement and argued also as briefly noted hereinafter.

The respondent PIO also submitted written statement and argued that the PIO and FAA have acted according to BHC RTI Rules which are made by the Chief Justice of the HC, being the ‘Competent Authority’ u/s.28 of the RTI Act.

The main contention before the Commission was that “rules framed by the Competent Authority u/s.28 of the Act, can only be for giving effect to and for carrying out the provisions of the Right to Information Act and cannot be contrary to the provisions of the Right to Information Act. They would be ultra vires and illegal and consequently unenforceable in view of the provisions of section 22 of the Act”.

“The Chief Justice of the Bombay High Court cannot negate the provisions of the Right to Information Act, since neither section 8, nor section 24 gives exemption in respect of providing information related judicial proceeding and records.”

The Commission made the following decision:

“Hence, it is necessary to examine the rules of Interpretation of the statutes.

Once the Legislature has passed the Act, it is subject to judicial review in respect of the constitutionality and the implementation of the provisions of the said Act.

No doubt, the rules made in exercise of the powers delegated under the principal Act, for carrying out the purpose laid down in the principal Act, cannot travel beyond the scope of the Act, nor can they, themselves, enlarge the scope of statutory provisions. They cannot also militate against the provision under which they were made (AIR 1956 SC, AIR 1957 SC 532).

However, the Rules framed under the Act have the force of the Law. (AIR 1954 All 639).

Therefore, the function of the Court is to apply the law as it stands. It is not for the Court to re-write the law, even though the Court notices anomalies and omission and considers the provision as they stand unreasonable (AIR 1982 Ker. 126).

In view of such principles of interpretation of statutes, the Commission has to give the decision as per the rules framed by the Chief Justice High Court of Judicature of Bombay as a Competent Authority u/s.28 of the Act.

Therefore, the decision of the First Appellate Authority is upheld and there is no necessity to interfere with the order of the First Appellate Authority.

However, in view of the points raised by the appellant, the Commission, in view of provisions of section 25(5) of the RTI Act, recommends to the Public Authority, that is the High Court to examine judicially the rules framed by the Chief Justice of the Bombay High Court, whether they are in conformity with the provisions or spirit of the RTI Act, and if found not to be in conformity with the provisions or spirit of the Act, then take such steps to promote such conformity”.

[Shri S. Aanandnatraj, Mumbai v. FAA and PIO of High Court of Mumbai, decision dated 29-4-2011 under Appeal No. 5842/02]

levitra

Master Circular for Prosecution of Officer in Default. [Circular_1-2011_28july2011.pdf]

fiogf49gjkf0d
Master Circular regarding the Prosecution of Directors. i.e., in identifying the ‘Officer in default’. In supersession of all earlier Circulars, it is clarified that the Registrar of Companies should take extra care to identify the Officer in default based on the Form 32, Din3 and Annual Return. Director cannot be held liable for any act of omission or commission by the company or by any officer of the company which constitute a breach or violation of any provision of the Companies Act, 1956, and which occurred without his knowledge attributable through Board process and without his consent or connivance or where he has acted diligently through the Board process. Full Circular can be accessed on http://www.mca.gov. in/Ministry/pdf/

levitra

Recognised agent or pleader cannot appear as witness in place of principal — CPC order 3.

fiogf49gjkf0d
[(Smt.) Kulshree & Anr. v. Smt. Shanta Meena, AIR 2011 Rajasthan 99]

It is a case where matter was fixed for the plaintiff’s evidence in which the plaintiff submitted affidavit. She could not appear in the Court for cross-examination. In her place, her husband filed affidavit in the capacity of power of attorney. Objection was taken by the respondents that her husband can be examined as a witness, but cannot be examined as the plaintiff. The application aforesaid was allowed. The only rider was that he should not be treated as the plaintiff. The Court observed that if the interpretation of Order 3, Rules 1 and 2 is to mean that appearance of recognised agents or pleader is permissible for all purposes including deposition of statement in place of the principal, then it would mean that the pleader can also depose for the principal.

The Court should give interpretation to the provisions which are not only harmonious, but remain applicable in all situations with same interpretation. If the interpretation of Order 3, Rules 1 and 2 is that power of attorney can depose in place of principal in all circumstances, then the same interpretation will apply to the pleader, in view of the heading of the provision.

The purpose of Order 3, Rule 1 is not for appearance of a recognised agent or pleader as witness in place of the principal. They are authorised to appear as representative of the party to the extent it is permissible, but not in the manner that they may replace the principal itself. If the power of attorney has acted in place of principal prior to filing of the suit, he can depose for the principal, but not in all circumstances.

levitra

Slum Redevelopment part II

fiogf49gjkf0d
Slum Rehabilitation Schemes

The
Slum Rehabilitation Authority (SRA) is empowered to prepare a Slum
Rehabilitation Scheme for areas within its purview. This would cover all
slums and hutment colonies within such area. The actual mechanics of
the Slum Rehabilitation Scheme are prescribed under the Development
Control Regulations of Greater Bombay, 1991 (‘DCR’) issued under the
Maharashtra Regional & Town Planning Act, 1956. Two types of Slum
Rehabilitation Schemes are permissible under the DCR and they are known
by the Regulations under which they are approved. These are:

33(10)
Scheme
In these schemes the slums are rehabilitated on the same site.
This is also known as an in-situ scheme. The salient features are as
follows:

  •  Slum inhabitants who are on the electoral rolls of 1st January 1995 or before are covered for rehabilitation.

  •  Actual inhabitants of the hutments are eligible for the rehabilitation
    and the actual structure owner is not eligible even if his name appears
    on the electoral rolls.

  •  The DCR defines the term slums as
    slums censed or declared and notified under the Act. 33(14) Scheme In
    this scheme, the landowner is allowed to consume the existing Floor
    Space Index (FSI) potential of the land, owned by him. The developer
    constructs transit tenements out of a prescribed part of this additional
    potential. The balance of the additional potential is allowed as free
    sale component. This is also known as transit scheme.

The salient features of a transit scheme are as follows:

  •  The FSI which can be exceeded for construction of transit camps is as
    follows: Suburbs and extended suburbs — 2.5 Anup P. Shah Chartered
    Accountant laws and Biness Difficult areas, such as Dharavi — 2.99
    Island City (only for government or public sector plots) — 2.33

  •  The normally permissible FSI on the plot may be used for the purposes
    designated in the Development Plan prepared under the DCR.

  •  The
    additional FSI could be used for constructing transit camp
    accommodations having which will be used for accommodating hutment
    dwellers in transit on account of Slum Rehabilitation Scheme for 10
    years on rent. After that period, the owner may use the tenements for
    any purpose.

  •  In the alternative, the additional FSI can also be used as specified in Table-A below:

  •  Once the transit camps are handed over free of cost to the SRA, the
    occupation certificate and water/electricity connection would be given
    for the free-sale component. 

Appendix IV to DCR

Appendix IV specifically
deals with Slum Rehabilitation Schemes. It applies to redevelopment/
construction of accommodation for hutment/ pavement dwellers through
owners/developers/ co-operative housing societies, such as MHADA, MIDC,
etc. The key features of this Appendix are summarised below:

  • Eligible hutment dwellers are entitled to, in exchange for their
    structure, a free of cost residential tenement having a carpet area of
    225 sq.ft. including balcony and toilet but excluding common areas.

  •  At least 70% of the slum dwellers must agree to a Scheme for it to be approved by the SRA.

  •  Provisions are made for slum dwellers who do not co-operate.

  •  Tenements obtained under the Scheme are nontransferable (other than succession by heirs) for 10 years.

  •  FSI ratio for sale component and rehab component is laid down.

The
ratio is as follows:

Suburbs and extended suburbs — the sale
component is equal to the rehab component
Difficult areas, such as
Dharavi — the sale component is 1.33 times the rehab component
Island
City — the sale component is 0.75 of the rehab component

  •   The
    maximum FSI which can be used on any slum site for the project shall be
    2.5. If a higher FSI is sanctioned, then the excess over 2.5 would be
    allowed as TDRs. TDRs can be used —(i) on any plot in the same ward as that in which the TDR originated but not in the Island City; (ii) on any plot north of the originating plot but not in the Island City; (iii)
    in any zone irrespective of the zone in which it was generated. TDRs
    cannot be used in areas under CRZ, NDZ, MMRDA areas, plots where slum
    rehabilitation is undertaken, areas where permissible FSI is less than
    1, notified heritage buildings.

  •  The minimum density of the
    rehab component on a plot shall be 500 tenements per net hectare, i.e.,
    after deducting all reservations. In case of the minimum number not
    being met, the balance shall be handed over free of cost to the SRA.

  •  Provisions are made for providing units to commercial/office spaces,
    shops which existed prior to 1st January 1995 in the slums. They are
    eligible for carpet area of 225 sq.ft.

  •  Concessions are provided in the building construction requirements which would have been otherwise applicable under the DCR.

  •  Slum rehab can also be taken up on Town Planning Scheme Plots if they have been declared as slums.

  •  If the slums are spread over more than one CTS/ CS number, then it is
    treated as a natural subdivision. Similarly, clubbing or more than one
    slum in the same zone is allowed.

  •  Slum pockets on BMC/MHADA
    lands, if adjoining to non-slum lands, can also be taken up for joint
    development under DCR 33(7) and 33(10).

  •  Welfare halls,
    balwadis, society offices, religious structures, etc. must be
    constructed free of cost and would form part of the rehab portion.

  •  An amount of Rs.20,000 per tenement for rehab component and Rs.840 per
    sq.mt for entire builtup area must be paid by the developer to the SRA
    in such instalments and such manner as may be decided by the SRA. These
    would be used by the SRA for the Schemes to be prepared for the
    improvement of infrastructure in slums.

  •  By a very recent
    Circular, the SRA proposes to do away with the height restrictions on
    buildings which are imposed in CRZ II Areas provided they are a part of a
    33(10) or a 33(14) Scheme. The SRA has invited suggestions/objections
    from the public to this proposal. Procedure under Slum Rehabilitation
    Schemes


A typical Slum Rehabilitation Scheme involves the following steps:

(a) All slum/pavement inhabitants on electoral rolls on or before 1st January 1995 and who are actual occupants are eligible.

 (b)
70% of such eligible occupants must come together to form a
co-operative housing society and pass a resolution appointing a chief
promoter who can apply for name reservation for the society. The chief
promoter can collect share capital of Rs.50 per member for slum
societies and Re.1 as entrance fees and to open a bank account in any
co-operative bank.

(c) The proposed society should get the plot surveyed and a map prepared showing the slum structures.

(d)
The proposed society must then take a decision to appoint a competent
developer for the society. He would act as the promoter.

(e) The
promoter can enter into an agreement with every eligible slum-dweller
while putting up a slum rehabilitation proposal to SRA for approval.

(f)
The Promoter has to appoint an architect to prepare the plans under DCR
33(10). He would submit the plans and proposal along with the scrutiny
fee. The SRA has recently decided that it would only permit contractors
registered with them to carry out slum rehabilitation schemes. The
decision follows complaints by slum-dwellers and non-government
organisations about the poor quality of construction in the
rehabilitation buildings.

(g) SRA would then scrutinise the plans and the proposal.

(h)    SRA would give the letter of intent conveying approval to the scheme, approval to the layout, building-wise plan approval (Intimation of approval) and commencement certification. Earlier, these 4 were issued in instalments but now to speed up the process, they are issued in one go at least for the rehab proposal. The approval is valid for three months.

(i)    The scheme must provide for temporary transit accommodation to the slum-dwellers, during the construction of rehab portion.

(j)    Transit camp accommodation is provided by drawing of lots. Slum-dwellers are shifted to transit camps and huts are demolished. If these members do not agree to participate within 15 days of the approval of the proposal, they are physically evicted from the site under the provisions of sections 33 and 38 of Maharashtra Slum Areas (Improvement, Clearance and Redevelopment) Act, 1971, to ensure that there is no obstruction to the scheme.

(k)    After demolition of the structures, work up to plinth is completed. After checking the plinth dimensions, further permission to carry out construction beyond plinth is granted.

(l)    The architect submits the building completion certificate.

(m)    While applying for the occupation certificate of the rehab building, the architect is expected to give the details of tenement allotments done by the society by drawing lots in the joint names of the household head and his spouse. SRA issues computerised ID cards.

(n)    Sale building construction is taken up.

(o)    Separate property cards are issued for the rehab and sale portion.

(p)    Once all the buildings are constructed, the land is leased to the society of slum-dwellers.

In a very important decision in the case of Lokhandwala Infrastructure P. Ltd. & Others v. Om Omega Shelters & Others, Writ Petition No. 95 of 2011, the Bombay High Court has held that it was not open to the slum-dwellers’ proposed society to enter into agreements with developers as per their whims and fancies.

The High Court did not accept arguments made by two proposed societies of 500 slum-dwellers in Worli that they were entitled to enter into or terminate development agreements without scrutiny or regulation by government bodies. The Court held that “Such a proposition would lead to a chaotic situation in the implementation of slum rehabilitation schemes. Managing committee members of proposed societies would then be at liberty to pursue their private ends and switch loyalties between rival builders on considerations of exigency. Many slum rehabilitation projects land in Court with disputes over the appointment of rival builders by slum-dwellers, with each developer claiming majority. The HC said these development agreements are not purely private contracts and have a ‘public character’ to them as the aim is to rehouse slum-dwellers with dignity. “Often the land belongs to the state, the BMC or the housing board. The state has a vital public interest in ensuring that the schemes are not trammelled by private interests,” the court observed. “Once a developer has made a proposal to redevelop a slum, authorities have to scrutinise whether a proposal involving change of developer is in the interest of slum-dwellers and whether or not the new developer would fulfil the needs and requirements of the scheme and has the necessary capacity to do so and whether the new developer has the consent of 70% of slum-dwellers,” said the Judges, adding that the authorities have to determine if the new developer would be able to fulfil all the requirements. “The second developer cannot ride on the 70% consent given to the first developer as it would only lead to ‘misuse of the scheme.’ “The dispute between a society and the developer does not lie purely in the realm of a private contractual dispute. The dispute has an important bearing on the proper implementation of the slum rehabilitation scheme and its consequences go beyond the private interests of the society and the developer. The scheme involves other stakeholders, including public bodies which own the land, whose interest ought to be protected too.”

In the present case, the dispute was between Lokhandwala Infrastructure Pvt. Ltd. and Om Ome-ga Shelters. In 2002, Lokhandwala was appointed to redevelop a plot in Mumbai. 500 slum-dwellers, who resided on the plot, formed two societies. In 2003, it applied for sanction.

Nothing moved for six years. In 2009, the two societies issued a letter terminating their agreement with Lokhandwala. The SRA called for a meeting of the slum societies in February 2010. In November 2010, the two societies, at a general body meeting, claimed that 343 of 401 eligible slum-dwellers present had consented to Omega. Based on this, the SRA CEO approved Omega as the developer instead of Lokhandwala. Lokhandwala, which challenged the SRA order, as ‘perverse’ said its proposal had never been rejected. It argued, and the Court up-held, that the new developer cannot do away with the requirement of 70% majority consent. Omega said it had individual agreements with over 80% slum-dwellers. The slum-dwellers argued that they were entitled to make a proposal and that the “developer is merely an agent of the cooperative society” to provide tenements.

The Bombay High Court held that the SRA order left much to be desired and set aside the SRA’s order favouring Omega and asked the SRA to again hear both sides and decide whether Lokhandwala continues to enjoy the support of 70% slum-dwellers and, if not, whether Omega does.

Income-tax concession

Section 80-IB(10) of the Income-tax Act, 1961 provides for a deduction from the gross total income of profits derived by an undertaking from developing and building housing projects approved before 31st March 2008. The following two conditions which are normally applicable for claiming such a deduction are not applicable in the case of a slum rehabilitation project which has been notified by the CBDT:

(a)    such undertaking completes the construction in a case where a housing project has been, or, is approved by the local authority on or after the 1st day of April, 2004, within four years from the end of the financial year in which the housing project is approved by the local authority.

(b)    the project is on the size of a plot of land which has a minimum area of one acre.

Thus, the Act provides a relaxation to slum rehabilitation schemes.

The CBDT has by Notification No. 67/2010 [F.No. 178/37/2006-IT(A-I)]/SO 1898(E), dated 3-8-2010 notified the Scheme contained in Regulation 33(10) of Development Control Regulation for Greater Mumbai, 1991 read with the provisions of Notification No. TPB-4391/4080(A)/UD-11(RDP), dated 3rd June, 1992, as a scheme for the purposes of the said section subject to the following conditions, —

(i)    slum development falling in Category VII mentioned in Notification No. TPB-4391/4080(A)/UD-11(RDP), dated 3rd June, 1992 shall be excluded from the Scheme;

(ii)    slum development falling within clause 7.7 of the Appendix IV of regulation 33(10) which provides for joint development of slum and non-slum areas shall be excluded from the Scheme; and

(iii)    any amendment in the Scheme hereby notified shall be required to be re-notified by the Board.

The CBDT has by Notification No. 01/2011 [F. No. 178/35/2008-IT(A-I)]/SO 14(E), dated 5-1-2011 notified, the Scheme for slum redevelopment prepared by the Maharashtra Government under sub-section (2) of section 37 of the Maharashtra Regional Town Planning Act, 1966 and published vide Notification No. TPS-1893/973/CR-49/93A/UD-13, dated the 26-2-2004, as a scheme for the purposes of the said section subject to the condition that any amendment to the Scheme hereby notified shall be required to be re-notified by the CBDT.

By a subsequent Notification, the CBDT has clarified that as the provisions of section 80-IB(10) apply only to housing projects approved before 31st March, 2008, the above Notifications would also be deemed to apply to housing projects approved by a local authority under the aforesaid scheme on or after the 1st April, 2004 and before 31st March, 2008.

Stamp duty concession

Under the Bombay Stamp Act, 1958, the Maharashtra Government has reduced the stamp duty chargeable under Article 5(g-a) (Development Rights Agreement), Article 25 (Conveyance) and Article 36 (Lease) executed for the purpose of rehabilitation of slum-dwellers as per the Slum Rehabilitation Schemes. The duty is reduced to Rs. 100 instead of the ad valorem rates specified under these Articles. However, the reduction of duty is permissible only in respect of instruments relating to tenements allotted to the slum-dwellers for residential purpose under the Slum Rehabilitation Schemes and is not allowed for the sale/free component buildings.

Service tax concession

No service tax is payable on the taxable service of construction of residential complex referred to in section 65(105)(zzzh) of the Finance Act provided to the Rajiv Awaas Yojna. Thus, any construction for slum rehabilitation under the RAY is exempt from service tax.

FDI

Foreign Direct Investment in companies engaged in slum rehabilitation schemes is governed by the conditions specified in the Consolidated FDI Policy of 2011/ erstwhile Press Note 2 of 2005. No relaxations or concessions are provided from these conditions to a company engaged in slum rehabilitation and any FDI in a company engaged in slum redevelopment needs to comply with the following key conditions:

(a)    The minimum area to be developed under each project would be as under:

(i)    In case of development of serviced housing plots, a minimum land area of 10 hectares/25 acres.

(ii)    In case of construction-development projects, a minimum built-up area of 50,000 sq.mts

(iii)    In case of a combination project, any one of the above two conditions would suffice.

(b)    Minimum capitalisation of US$10 million for wholly-owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the company.

(c)    The original investment cannot be repatriated before a period of three years from the completion of minimum capitalisation.


Property tax concessions

The BMC has granted a concession in property taxes to any building constructed under a slum rehabilitation scheme under the Act. The concession was given in a phasewise manner. For the period of 2011 to 2015 the property taxes levied on such buildings would be 80% of the rate levied in a particular year.

Auditor’s duty

The Auditor should enquire of the auditee, in case the auditee is into slum rehabilitation, whether the terms and conditions of the Act have been duly complied. In case of any doubts, he may ask for a legal opinion. Non-compliance with this could have serious repercussions for the developer.

By broadening his peripheral knowledge, the Auditor can make intelligent enquiries and thereby add value to his services. He can caution the auditee of likely unpleasant consequences which might arise. It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise of ‘due care’.

Registration — Partition deed or memorandum of oral partition — Registration Act, 1908 section 17(1)(b), 49.

fiogf49gjkf0d
[Pilla Muniyappa & Ors v. H. Anjanappa & Ors., AIR 2011 Karnataka 103]

The plaintiffs were residents of Bangalore. They claim that the suit properties were their joint family properties. The family consisted of over one hundred and twenty members. It was the case of the plaintiffs that in order to enjoy the family properties separately a ‘panchayath partition’ was effected and was reduced to writing on 20-2-1990. The particulars of the items of the property allotted to the plaintiffs’ branch forms the suit properties. The plaintiffs as well as the other members of the several branches of the family had subscribed their hand to the family arrangement and settlement and the respective parties had over a period of time enjoyed their respective shares. The revenue records were similarly effected in the names of the respective parties. It is the plaintiffs’ claim that they have secured one acre of land as their share. The defendant No. 4, who is a stranger to the family sought to interfere with the a part of land. It was found that the claim of the fourth defendant was that he had purchased the same from the first defendant without the knowledge or consent of the plaintiffs, though it was allotted to the share of the plaintiffs. The first defendant had no right or interest which he could convey in favour of the fourth defendant. It was in that background that the suit was filed for declaration in respect of the said item of land. The moot question was whether the document of panchayath partition was a memorandum of partition or it was to be construed as a partition deed, and whether it was invalid for want of registration, in which event, it could not be relied upon in evidence and could not be the basis for the appellant’s case.

The Court observed that as per the tenor of the document in question, it is not as if there was an oral arrangement between the parties several years prior to the execution of the document. Such an agreement preceded the execution of the document. Therefore it was a continuous process whereby the parties had discussed the terms of settlement and had reduced it into writing, dividing the properties amongst themselves and therefore, it was in the nature of a partition deed and cannot be construed as a memorandum of oral partition. If that position is accepted, the law of the land would require that the document be registered. Though partition amongst the Hindus may be effected orally, if the parties reduce it in writing to a formal document which is intended to be evidence of partition, it would have the effect of declaring the exclusive title of the coparcener to whom a particular property was allotted in partition and thus the document would be required to be compulsorily registered u/s. 17(1) (b) of the Registration Act, 1908. However, if the document did not evidence any partition by metes and bounds, it would be outside the purview of section 17(1)(b) of the Registration Act.

In view of the above, there is no substance in the contention put forth that the document in the case on hand was a mere record of a family arrangement that had taken place much earlier. It was a partition deed which was compulsorily registerable u/s. 17(1)(b) of the Indian Registration Act, 1908. Therefore, it was inadmissible in evidence for want of registration and could not have been relied upon as the basis to claim that there was an earlier partition.

levitra

International Commercial Arbitration — Jurisdiction of Indian Court — Arbitration and Conciliation Act 1996 section 9.

fiogf49gjkf0d
[ Videocon Indus. Ltd. v. UOI, AIR 2011 SC 2040]

A production sharing contract was executed between the 5 parties in regards to exploration of natural resources. As per the contract, the seat of arbitration was Kuala Lumpur (Malaysia). In 2000, disputes arose between the respondents and the contractor with respect to correctness of certain cost recoveries and profit. Since the parties could not resolve their disputes amicably, the same were referred to the Arbitral Tribunal as per the contract. The Arbitral Tribunal fixed the date of hearing at Kuala Lumpur (Malaysia), but due to outbreak of epidemic SARS, the Arbitral Tribunal shifted the venue of its sittings to Amsterdam in the first instance and, thereafter to London where on 31-3-2005 partial award was passed. The respondent No. 1 (Govt. of India) challenged the partial award by filing a petition in the High Court of Malaysia at Kuala Lumpur. The appellant questioned the maintainability of the case before the High Court of Malaysia by contending that in view of the contract, only the English Courts have the jurisdiction to entertain any challenge to the award. At that stage, the respondents filed a petition u/s. 9 of the Arbitration and Conciliation Act, 1996 in the Delhi High Court for stay of the arbitral proceedings. The High Court held that it had jurisdiction to entertain the petition filed u/s. 9 of the Act. The said order was challenged before the Supreme Court.

The first issue which arose for consideration was whether Kuala Lumpur was the designated seat or juridical seat of arbitration and the same had been shifted to London. The issue was important as the procedure for the conduct of arbitral proceeding would depend upon the procedural law of the country where the seat of arbitration is seated. The Court observed that as per the terms of the contract entered into by five parties, the seat of arbitration was Kuala Lumpur, Malaysia. However, due to outbreak of epidemic SARS, the Arbitral Tribunal decided to hold its sittings first at Amsterdam and then at London and the parties did not object to this. In the proceedings held at London, the Arbitral Tribunal recorded the consent of the parties for shifting the juridical seat of arbitration to London. Whether this amounted to shifting of the physical or juridical seat of arbitration from Kuala Lumpur to London?

As per the terms of agreement, the seat of arbitration was Kuala Lumpur. If the parties wanted to amend clauses of the contract they could have done so only by written instrument which was required to be signed by all of them. Admittedly, neither any agreement was there between the parties to the contract to shift the juridical seat of arbitration from Kuala Lumpur to London, nor was any written instrument signed by them for amending clause of the contract. Therefore, the mere fact that the parties to the particular arbitration had agreed for shifting of the seat of arbitration to London cannot be interpreted as anything except physical change of the venue of arbitration from Kuala Lumpur to London. Under the English law the seat of arbitration means juridical seat of arbitration, which can be designated by the parties to the arbitration agreement or by any arbitral or other institution or person empowered by the parties to do so or by the Arbitral Tribunal, if so authorised by the parties. In contrast, there is no provision in the Act under which the Arbitral Tribunal could change the juridical seat of arbitration which, as per the agreement of the parties, was Kuala Lumpur. Therefore, mere change in the physical venue of the hearing from Kuala Lumpur to Amsterdam and London did not amount to change in the juridical seat of arbitration.

The next issue for consideration was whether the Delhi High Court could entertain the petition filed by the respondents u/s. 9 of the Act. It was held that once the parties had agreed to be governed by any law other than Indian law in cases of international commercial arbitration, then that law would prevail and the provisions of the Act cannot be invoked questioning the arbitration proceedings or the award. The parties had agreed that the arbitration shall be governed by the laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. It was held that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the respondents u/s. 9 of the Act and the mere fact that the appellant had earlier filed similar petitions was not sufficient to clothe that the High Court had the jurisdiction to entertain the petition filed by the respondents. The appeal was allowed.

levitra

Professional conduct and Etiquette of Advocates — Duty of Advocate towards Court and client.

fiogf49gjkf0d
[O. P. Sharma & Ors. v. High Court of P & H, AIR Dr. K. Shivaram Ajay R. Singh Advocates Allied laws 2011 SC 2101]

In a criminal matter an accused was remanded to police custody. When the order of the police remand was not found favourable, his advocate started hurling abuses and detrogatory remarks against the Magistrate. The advocate uttered unparliamentarily words and also threatened the Magistrate with dire consequences. The Magistrate requested fellow advocates who were called, also abused the Magistrate and wanted to assault him physically.

The High Court initiated contempt proceedings. The High Court found the advocates guilty of criminal contempt and convicted them u/s. 12 r.w.s. 15 of the Contempt of Court Act, 1971. On appeal, the Supreme Court accepted the unconditional apology and discharged the contemnors.

The Court observed that a Court, be that of a Magistrate or the Supreme Court, is sacrosanct. The integrity and sanctity of an institution which has bestowed upon itself the responsibility of dispensing justice is ought to be maintained. All the functionaries, be it advocates, Judges and the rest of the staff, ought to act in accordance with morals and ethics.

An advocate’s duty is as important as that of a Judge. Advocates have a large responsibility towards the society. A client’s relationship with his/her advocate is underlined by utmost trust. An advocate is expected to act with utmost sincerity and respect. In all professional functions, an advocate should be diligent and his conduct should also be diligent and should conform to the requirements of law by which an advocate plays a vital role in preservation of society and justice system. An advocate is under an obligation to uphold the rule of law and ensure that the public justice system is enabled to function at its full potential. Any violation of the principles of professional ethics by an advocate is unfortunate and unacceptable. Ignoring even a minor violation/ misconduct militates against the fundamental foundation of the public justice system. An advocate should be dignified in his dealings to the Court, to his fellow lawyers and to the litigants. He should have integrity in abundance and should never do anything that erodes his credibility. An advocate has a duty to enlighten and encourage the juniors in the profession. An ideal advocate should believe that the legal profession has an element of service also and associates with legal service activities. Most importantly, he should faithfully abide by the standards of professional conduct and etiquette prescribed by the Bar Council of India in Chapter II, Part VI of the Bar Council of India Rules.

As a rule, an advocate being a member of the legal profession has a social duty to show the people a beacon of light by his conduct and actions rather than being adamant on an unwarranted and uncalled for issue.

Compilers Comment — The ratio is equally applicable to other professionals.

levitra

Concession made by counsel on facts — Binds his client.

fiogf49gjkf0d
[ Vimaleshwar Nagappa Shet v. Noor Ahmed Sheriff & Ors., AIR 2011 SC 2057]

An agreement was entered to sell a house by all co-owners except one. As the parties failed to execute the sale deed, a suit for specific performance by the plaintiff purchaser was filed. The co-owner who was not party to the agreement proposed to purchase shares of other co-owners. The counsel for the plaintiff gave consent to such purchase by the co-owner, not party to agreement, at reasonable market value within a stipulated period. The valuation of property at reasonable market value was agreed to, by both parties. Order was passed to execute sale deed in favour of the co-owner not party, by a consent order. Against this, an appeal was filed before the Supreme Court.

The Court observed that apart from both parties including the plaintiff-appellant had agreed for a reasonable market valuation. The statement made by the counsel before the High Court, as recorded in the impugned judgment and order, cannot be challenged before this Court. It was also clear that the High Court had recorded in the impugned judgment that the counsel agreed with instructions from the plaintiff. A concession made by a counsel on a question of fact is binding on the client, but if it is on a question of law, it is not binding.

It is a consent order. As per section 96(3) of the Code of Civil Procedure Code, no appeal lies from a decree passed by the Court with the consent of the parties. For all the reasons, more particularly, the statement of fact as noted in the impugned judgment under Article 136, the Apex Court would not interfere with the order of the High Court which has done substantial justice.

levitra

Interbank foreign currency transaction exempted — Notification No. 27/2011, dated 31-3-2011.

fiogf49gjkf0d
By this Notification taxable services provided in relation to interbank transactions of purchase and sale of foreign currency have been exempted.

levitra

Units located in SEZs to get benefit — Notification No. 17/2011, dated 1-3-2011.

fiogf49gjkf0d
Central Government has notified simplified measures for the benefit of units located in SEZs to enable them to obtain tax-free receipt of services to be consumed within the Zone and to get refunds through simplified procedures, subject to the fulfilment of the conditions specified in the said Notification.

levitra

25% abatement for transportation of coastal goods — Notification No. 16/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification, an abatement of 25% of the goods amount charged has been provided from the taxable value of service of transportation of costal goods, goods through National Gateway and transportation through inland water.

levitra

Interest on delayed payment of service tax hiked to 18%. — Notification No. 14/2011, dated 1-3-2011.

fiogf49gjkf0d
The interest rate on delayed payment of service tax has been increased from 13% to 18% p.a.

levitra

Notification No. 10/2011 & 11/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification services provided in relation to execution of works contract have been exempted when such services are provided within a port/ other port/airport.

levitra

Notification No. 09/2011, dated 1-3-2011.

fiogf49gjkf0d
By this Notification, taxable service of transportation of goods by air has been exempted to the extent of air freight included in the custom value of goods.

levitra

A.P. (DIR Series) Circular No. 25, dated 23-9-2011 — External Commercial Borrowings (ECB) for the Infrastructure Sector — Liberalisation.

fiogf49gjkf0d
Presently, repayment of existing Rupee loans is not a permissible end-use for ECB.

This Circular permits, under the Approval Route, Indian companies in the infrastructure sector, to utilise 25% of the fresh ECB raised by them towards refinancing of the Rupee loan(s) availed by them from the domestic banking system, subject to the following conditions:

(i) At least 75% of the fresh ECB proposed to be raised must be utilised for capital expenditure towards a ‘new infrastructure’ project(s), where ‘infrastructure’ is as defined in terms of the extant guidelines on ECB.

(ii) In respect of remaining 25%, the refinance shall only be utilised for repayment of the Rupee loan availed of for ‘capital expenditure’ of earlier completed infrastructure project(s); and

(iii) The refinance shall be utilised only for the Rupee loans which are outstanding in the books of the financing bank concerned.

Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with the following documents:

(i) Details of the project(s) completed duly certified by the designated AD Category I bank;

(ii) Certificate from the Statutory Auditor as well as from the domestic lender bank(s) regarding the utilisation of Rupee term loans with respect to ‘capital expenditure’ for the completed infrastructure project(s);

(iii) Certificate from the designated Authorised Dealer bank mentioning the outstanding Rupee loans; and

(iv) Details of the proposed end-use of the new infrastructure project.

levitra

A.P. (DIR Series) Circular No. 74, dated 30-6-2011 — FDI in India — Issue of equity shares under the FDI Scheme allowed under the Approval Route

fiogf49gjkf0d
Presently, an Indian company can, subject to compliance with certain guidelines, issue equity shares/preference shares to a person resident outside India, for consideration other than cash, against payment of royalty/lump sum fees for supply of technology/technical know-how under the Automatic Route.

This Circular, in addition to the above, permits issue of equity shares/preference shares to persons resident outside India for consideration other than cash under the Approval Route in the following cases:

1. Import of capital goods/machineries/equipments (including second-hand machineries), subject to compliance with all the following conditions:

(a) The import of capital goods, machineries, etc., made by a resident in India, is in accordance with the Export/Import Policy issued by the Government of India.

(b) There is an independent valuation of the capital goods/machineries/equipments (including second-hand machineries) by a third party entity, preferably by an independent valuer from the country of import along with production of copies of documents/certificates issued by the customs authorities towards assessment of the fair value of such imports.

(c) The application should clearly indicate the beneficial ownership and identity of the importer company as well as the overseas entity.

(d) All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.

2. Pre-operative/pre-incorporation expenses (including payments of rent, etc.), subject to compliance with all the following conditions:

(a) Submission of FIRC for remittance of funds by the overseas promoters for the expenditure incurred.

(b) Verification and certification of the preincorporation/ pre-operative expenses by the statutory auditor.

(c) Payments should be made directly by the foreign investor to the company. Payments made through third parties citing the absence of a bank account or similar such reasons will not be eligible for issuance of shares towards FDI.

(d) The capitalisation should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.

levitra

A.P. (DIR Series) Circular No. 73, dated 29-6-2011, Overseas Direct Investment — Liberalisation/Rationalisation.

fiogf49gjkf0d
This Circular restates and consolidates the existing guidelines relating to:

(1) Transfer by way of sale of shares of a JV/ WOS not involving write-off of the investment.

(2) Transfer by way of sale of shares of a JV/ WOS involving write-off of the investment.

If the transaction does not fulfil the conditions mentioned under the Automatic Route, prior permission of RBI will need to be obtained before undertaking the same.

Indian Party is required to submit the details of divestment within 30 days from the date of divestment to RBI through its bank.

levitra

Supreme Court upholds depositors’ protection laws of States

fiogf49gjkf0d
The Supreme Court recently (K. K. Baskaran v. State rep. by its Secretary, Tamil Nadu & Ors., C.A. 2341 of 2011) upheld a fairly drastic, even if wellintended, State law for protection of depositors. This law was held to be unconstitutional by a Full Bench of the Bombay High Court and this decision has now been overturned by the Supreme Court. The importance of this decision for this column is particularly due to the fact that it applies to raising funds from the public in almost any form and not just in the form of ‘deposits’ as conventionally understood.

It is worth recounting briefly the background of this law, the circumstances of those times to understand the implications better.

The last few years of the preceding millennium saw a lot of companies and other entities raising monies in various forms at very ‘attractive’ rate of return and then defaulting. The monies were raised in innovative forms and not merely in the conventional form of raising of deposits, though of course, huge amounts were raised as deposits too. The series of defaults that followed revealed several things. Firstly, the promised ‘returns’ were high enough to be impossible to maintain at all times. Secondly, the businesses in which they were invested were risky, partly because the rate of return promised was high. Of course, some monies were straightaway siphoned off and huge commissions/ incentives were paid to agents. Thirdly, many of the schemes were purely ‘Ponzi’ schemes where fresh monies raised were the source of payment of ‘returns’ to earlier deposits, apart from return of principal.

The series of defaults and the resulting uproar resulted in several drastic laws being passed. The Reserve Bank of India Act was amended with strict provisions being inserted to regulate non-banking financial companies. SEBI notified its Regulations relating to Collective Investment Schemes which, ensured the closure of most of such schemes. However, at the State level, various States, over the following few years, passed laws for protection of depositors. Maharashtra, Tamil Nadu, Bihar, Gujarat, etc. were amongst such States [in Maharashtra, it was “the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act, 1999]. The broad model and most of the details of the laws of each of such States were more or less the same.

The basic scheme of the State Law was to give relief to the depositors where the monies were raised from them with a fraudulent intent. In case there was default due to this, the law provided for wide-ranging reliefs and punishment. The assets could be traced and attached, even if in other entities or in the names of the promoters/employees, etc. of the company. The definition of fraudulent intent was made artificially wide by including two situations. If monies were raised at returns that were commercially unviable, then the law deems that there was a fraudulent intent. Further, if the monies so raised were invested in businesses that were inherently risky, then, too, the law deems that the there was a fraudulent intent. The law covered corporate as well as several non-corporate entities such as individuals, firms, etc. Importantly, it covered even — corporates governed u/s. 58A of the Companies Act, 1956, and non-banking financial companies governed by regulations of the Reserve Bank of India.

The term ‘deposit’ is widely defined and would include monies in any form and not merely ‘public deposits’ or loans. However, there were certain exceptions provided for, but still, the definition was far wider than the word may normally convey. The law provided for appointment of an authority to take charge of the assets to ensure their disposal for meeting the liabilities to the depositors.

Stringent punishment was also provided. The State laws typically provide that in absence of special and adequate reasons, the punishment shall not be less than imprisonment of three years. The promoter, partner, director, manager or any other person or an employee responsible for the management or conducting the business of such entity is liable to be punished.

In case of default, not only the assets of the entity are to be attached, but if they are not sufficient, the properties of the director, partner or member of such entity can also be attached, if the State Government deems fit.

This law was challenged, inter alia, in the Bombay High Court. The Bombay High Court, by a Full Bench decision, held the law in Maharashtra to be unconstitutional (Shri Vijay C. Puljal v. State of Maharashtra, WP No. 5186 of 2001). However, a Full Bench decision of the Madras High Court upheld the constitutionality of the law in Tamil Nadu.

The decision of the Madras High Court was appealed against and the decision of the Bombay High Court was cited. The Supreme Court upheld the decision of the Madras High Court and held that of the Bombay High Court as not correct.

Various grounds were raised for holding the law to be unconstitutional including that the State had no power to enact such a law and that the other laws relating to deposits such as section 58A of the Companies Act, 1956, the Reserve Bank of India Act, etc. covered this field.

The Court gave the background in which the law by various States was enacted and particularly highlighted that the object of the Act and the reliefs provided thereunder were different from those under the RBI Act.

First, it described the background of the circumstances which necessitated such a law in the following words:

“The present case illustrates what has been going on in India for quite some time. Non-banking financial companies have duped thousands of innocent and gullible depositors of their hardearned money by promising high rates of interest on these deposits, and then done the moonlight flit, often disappearing into another State or even foreign countries leaving the depositors as well as the State police high and dry.”

The next contention was that: “the said Act is beyond the legislative competence of the State Legislature as it falls within Entries 43, 44 and 45 of List I of the Seventh Schedule to the Constitution. It was also submitted that the impugned Act is liable to be struck down as the field of legislation is already occupied by legislation of the Parliament, being the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, the Indian Companies Act, 1956 and the Criminal Law Amendment Ordinance, 1944 as made applicable by Criminal Law (Tamil Nadu Amendment) Act, 1977.”

It was also contended that the Tamil Nadu Act was arbitrary, unreasonable and violative of Articles 14, 19(1)(g) and 21 of the Constitution.

The Court, applying the doctrine of pith and substance to consider under whose powers the field belonged, held that the State did have power to enact laws covering the field.

“12. As noted in the impugned judgment, the Tamil Nadu Act was not focussed on the transaction of banking or acceptance of deposits, but it is designed to protect the public from fraudulent financial establishments who defraud the public by offering lucrative returns on deposits and then disappear with the depositors’ money or refuse to return the same with interest. In our opinion, the impugned Tamil Nadu Act is in pith and substance relatable to Entries 1, 30 and 32 of the State List (List II) of The Seventh Schedule.”

“20. It may be noted that though there are some differences between the Tamil Nadu Act and the Maharashtra Act, they are minor differences, and hence the view we are taking herein will also apply in relation to the Maharashtra Act.”

“26. The doctrine of pith and substance means that an enactment which substantially falls within the powers expressly conferred by the Constitution upon a Legislature which enacted it cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another Legislature.”

The Court then highlighted the objective of the State Law and also its different scope to distinguish this law from the other laws. It observed,:

“30. The Tamil Nadu Act was enacted to find out a solution for the problem of the depositors who were deceived on a large scale by the fraudulent activities of certain financial establishments. There was a disastrous consequence both in the economic as well as social life of such depositors who were exploited by false promise of high return of interest.

31.    By the impugned Act the State not only proposed to attach the properties of such fraudulent establishments and the mala fide transferees, but also provided for the sale of such properties and for distribution of the sale proceeds amongst the innocent depositors. Hence, in our opinion, the doctrine of occupied field or repugnancy, has no application in the present case.”

The Court even more specifically said that the other statutes that also provided for certain matters relating to depositors had different scope even if overlapping. However, since the State Law had a different angle and purpose, it had to be upheld.

“35. The Reserve Bank of India Act, the Banking Regulation Act and the Companies Act do not occupy the field which the impugned Tamil Nadu Act occupies, though the latter may incidentally trench upon the former. The main object of the Tamil Nadu Act is to provide a solution to wipe out the tears of several lakhs of depositors to realize their dues effectively and speedily from the fraudulent financial establishments which duped them or their vendees, without dragging them in a legal battle from pillar to post.”

Thus, the Supreme Court upheld the constitutionality of the Tamil Nadu and the Maharashtra State laws for protection of depositors. Implicitly, this should mean that the corresponding laws in other States, being pari materia, may also be held to be constitutional.

The implications are quite far reaching because of the wide scope of the State Laws and the powers granted and also the deeming provisions contained therein. While the other laws restricting deposits provide for quantitative restrictions in the form of maximum interest rates, maximum deposits, etc., this law considers qualitative aspects. It considers the intent of the entity raising deposits including the unreasonableness of the returns promised and the nature of investments made. Further, the law can be invoked not just when there is a default, but even earlier if the conditions specified by the law are met.

In conclusion, an old, harsh and wide-ranging law is brought alive again and any entity raising monies in any form need to consider this law, though apparently it is intended to cover entities with fraudulent intent.