Business standard updates

Sebi may act on PwC’s MCX audit

JAYSHREE PYASI Mumbai, 30 April The Securities and Exchange Board of India ( Sebi) will soon direct the BSE to independently check for violations of listing agreement norms at Multi Commodity Exchange ( MCX), following PricewaterhouseCoopers’ adverse findings, said sources. The capital market watchdog is also likely to approach the Union ministry of corporate affairs to probe allegations of breach of various clauses in the Companies Act, they said. Separately, the commodity markets regulator, the Forward Markets Commission, on Wednesdaysent the PwC audit report to MCA and the Enforcement Directorate ( ED). The ED is going to examine allegation of money laundering at MCX, sources said. The special audit report by PwC, a summary of which was made public on Tuesday, has highlighted serious corporate governance lapses and non- compliance with regulations. For instance, the audit revealed MCX had only disclosed names of 235 related party entities, while PwC’s background checks revealed at least 670 more known or related parties. Also, the PwC audit summary noted payouts to trading members or related parities worth millions “ without adequate substantiation”. BSE will have to verify whether any of the PwC findings breach any listing agreement clauses. The latter agreement is a contract between a stock exchange and a listed company. It comprises a little more than 50 clauses — on corporate governance and information- based disclosures such as filing of results, shareholding data and related party deals — which listed companies have to follow. Failure to disclose related party business dealings is a violation of Clause 32 of the listing agreement. MCX is the country’s only listed commodity bourse. It is listed solely on the BSE; it also trades on the National Stock Exchange, under the permitted to trade category. At present, ensuring compliance with the listing agreement has to be done by the exchanges. Typically, they order suspension of trading in companies for repeated violations of the agreement. Violators also face a penalty of up to ₹ 25 crore under the Securities Contracts Regulation Act. “ Sebi will not like to undermine the authority of BSE and will want the exchange to verify facts before taking any action on the alleged violations,” said a person in the know. Corporate governance experts said the role of independent directors and the audit committee at MCX can be questioned, given the adverse findings in the PwC audit. Shares of MCX on Wednesday ended at ₹ 533.55, down ₹ 40.55, or 7.1 per cent. |Sebi might ask BSE to probe violation of listing norms at MCX |Regulator might also approach MCA to check for breaches in the Companies Act |PwC report has noted payouts to related parties |Failure to disclose related party business dealings is a violation of Clause 32 of the listing agreement |Listed entity violating listing agreement norms faces suspension in trading, penalty Regulator likely to write to BSE, corporate affairs ministry on alleged violations of listing norms

SEBI updates

PR No. 12/2014

SEBI Board Meeting

The SEBI Board met in New Delhi today and inter-alia took the following important decisions:

I. Review of Corporate Governance norms in India for listed companies

The Board has approved the proposals to amend the Listing Agreement with respect to corporate governance norms for listed companies. The amendments, inter-alia, propose to align the provisions of Listing Agreement with the provisions of the newly enacted Companies Act, 2013 and also provide additional requirements to strengthen the corporate governance framework for listed companies in India. The amendments shall be made applicable to all listed companies with effect from October 01, 2014.

The Board approved the following proposals:

 (i)         Exclusion of nominee Director from the definition of Independent Director

 (ii)        Compulsory whistle blower mechanism

 (iii)       Expanded role of Audit Committee

 (iv)       Prohibition of stock options to Independent Directors

 (v)        Separate meeting of Independent Directors

 (vi)       Constitution of Stakeholders Relationship Committee

 (vii)      Enhanced disclosure of remuneration policies

 (viii)     Performance evaluation of Independent Directors and the Board of Directors

 (ix)       Prior approval of Audit Committee for all material Related Party Transactions (RPTs)

 (x)        Approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting

 (xi)       Mandatory constitution of Nomination and Remuneration Committee. Chairman of the said committees shall be independent.

 (xii)      At least one woman director on the Board of the company

 (xiii)     It has been decided that the maximum number of Boards an independent director can serve on listed companies be restricted to 7 and 3 in case the person is serving as a whole time director in a listed company

 (xiv)     To restrict the total tenure of an Independent Director to 2 terms of 5 years. However, if a person who has already served as an Independent Director for 5 years or more in a listed company as on the date on which the amendment to Listing Agreement becomes effective, he shall be eligible for appointment for one more term of 5 years only.

 (xv)      The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards.

 In addition to the above, the Board also approved the proposal to put in place principles of Corporate Governance,  policy on dealing with RPTs, divestment of material subsidiaries, disclosure of letter of appointment of Independent Directors and the letter of resignation of all directors, risk management, providing training to Independent Directors, E-voting facility by top 500 companies by market capitalization for all shareholder resolutions and Boards of companies to satisfy themselves that plans are in place for orderly succession for appointments to the Board and senior management.

 II. Long Term Policy for Mutual Funds in India

SEBI Board has approved a Long Term Policy for Mutual Funds in India. The long term policy includes all aspects - including enhancing the reach and promoting financial inclusion, tax treatment, obligation of various stakeholders, etc. to deal with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy. The recommendations of long term policy has been bifurcated in two buckets, tax incentive related proposals and non-tax related proposals.

 (a) Tax related proposals:

The objective of giving tax benefits is to incentivize and channelize savings into long term investment products. Schemes offering tax benefits are a powerful approach world over that helps channelize household savings into long term investment products. The tax incentives for Mutual Fund schemes are recommended as under:

(i)         A long term product such as Mutual Fund Linked Retirement Plan (MFLRP) with additional tax incentive of Rs.50,000/- under 80C of Income Tax Act may be introduced.

(ii)        Alternatively, the limit of section 80C of the Income Tax Act, 1961, may be enhanced from INR 1 lakh to INR 2 lakh to make mutual funds products (ELSS, MFLRP etc.) as priority for investors among the different investment avenues. RGESS may also be brought under this enhanced limit.

(iii)       Similar to merger/consolidation of companies, the merger/consolidation of equity mutual funds schemes also may not be treated as transfer and therefore, may be exempted from capital gain taxation.                   

(b) Non-Tax incentive proposals:

In the long run, the objective is to ensure that Mutual Funds achieve a reasonable size and play an important role in achieving the objective of financial inclusion while further enhancing the transparency so that investors can take informed decision. Towards this objective the following has been decided:

(i)            Capital Adequacy i.e. minimum networth of the Asset Management Companies (AMC) be increased to INR50 crore.

(ii)           The concept of seed capital to be introduced i.e. 1% of the amount raised (subject to a maximum of Rs.50 lacs) to be invested by AMCs in all the open ended schemes during its life time.

(iii)         EPFOs be allowed to invest upto 15% of their corpus in Equities and Mutual Funds. Further, the members of EPFOs who are earning more than INR6500 per month be offered an option for a part of their corpus to be invested in a Mutual Fund product of their choice.

(iv)         Presently, Navratna and Miniratna Central Public Sector Enterprises (CPSEs) are permitted to invest in Public Sector Mutual Funds regulated by SEBI. It has been recommended that all CPSEs be allowed to choose from any of the SEBI registered Mutual Funds for investing their surplus funds.

(v)          In order to enhance transparency and improve the quality of the disclosures, it has been decided that AUM from different categories of schemes such as equity schemes, debt schemes, etc., AUM from B-15 cities, contribution of sponsor and its associates in AUM of schemes of their mutual fund, AUM garnered through sponsor group/ non-sponsor group distributors etc. are to be disclosed on monthly basis on respective website of AMCs and on consolidated basis on website of AMFI. 

(vi)         In order to improve transparency as well as encourage Mutual Funds to diligently participate in corporate governance of the investee companies and exercise their voting rights in the best interest of the unit holders, voting data along with rationale supporting their decision (for, against or abstain) be disclosed on quarterly basis on their website. This is to be certified by Auditor annually and reviewed by board of AMC and Trustees.

(vii)        Towards achieving the goal of financial inclusion, a gradual approach to be taken such that initially the banked population of the country may be targeted with respect to Mutual Funds investing.  SEBI will work towards achieving the goal that the basics of capital markets and financial planning may be introduced as core curriculum in schools and colleges. Printed literature on Mutual Funds in regional languages be mandatorily made available by Mutual Funds. Investor awareness campaign in print and electronic media on Mutual Funds in regional languages to be introduced.

(viii)      In order to develop and enhance the distribution network PSU banks may be encouraged to distribute schemes of all Mutual Funds. Online investment facility need to be enhanced to tap the internet savvy users to invest in Mutual Funds. Also,  the burgeoning mobile-only internet users need to be tapped for direct distribution of Mutual Funds products.

The proposals relating to tax incentives, allowing EPFO to invest in equities/mutual funds and allowing all CPSEs to invest their surplus fund in mutual funds will be sent to the Government for its decision.

III. Amendment to SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011

SEBI (KYC Registration Agency) system ('KRA system') has evolved and stabilized over a period of two years and with inter-operability in place, there is easy exchange of KYC data among five SEBI registered KRAs. The client who has already done the KYC with any SEBI registered intermediary need not undergo the same process again when he approaches another intermediary. The system has benefited the investors as well as the intermediaries.

However, as per existing KRA Regulations, there is an option available to the intermediary that he may access the centralised KRA system in case of a client who is already KYC compliant or carry our fresh KYC process. As the KRA system has been working well, it is felt that there may not be a need to provide this option in the Regulations.

Board has now approved the amendment to KRA Regulations and the option of taking fresh KYC has been done away with.   However, as provided in the Regulations, the intermediary can undertake enhanced KYC measures commensurate with the risk profile of its clients.

This would further facilitate the KYC process for the investors.

New CBDT press release for change of PAN allotment process w. e. f. 03.02.2014

New CBDT press release for change of PAN allotment process w. e. f.03.02.2014

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

Dated 24th January, 2013

 Press Release

The procedure for PAN allotment process will undergo a change w.e.f. 03.02.2014. From this date onwards, every PAN applicant has to submit selfattested copies of Proof of Identity (POI), Proof of Address (POA) and Date of Birth (DOB) documents and also produce original documents of such POI/POA/DOB documents, for verification at the counter of PAN Facilitation Centres. The copies of Proof of Identity (POI), Proof of Address (POA) and Date of Birth (DOB) documents attached with PAN application form, will be verified vis a vis their original documents at the time of submission of PAN application at PAN Facilitation Centre. Original documents shall not be retained by the PANFacilitation Centres and will be returned back to the applicant after verification.

(Rekha Shukla)

Commissioner of Income Tax (M&TP)

Official Spokesperson, CBDT

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Bipul Kumar
FEMA & Tax Advisory Services
Wisdom Management Consultancy Private Limited
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source Business standard and business line updates 22-12-2013

Source  Business Standard

Govts can’t tell India Inc how to spend on CSR, says Pilot

PRESS TRUST OF INDIA New Delhi, 21 December With the new law requiring certain class of companies to spend on CSR efforts, Union Minister Sachin Pilot on Saturday said neither the central nor state governments can tell corporates on how to spend money towards social welfare activities. The new Companies Act, 2013, requires certain class of profitable entities to shell out at least three per cent of their three- year annual average net profit towards corporate social responsibility ( CSR) activities. Pilot, who is at the helm of Corporate Affairs Ministry, which is implementing the legislation, said the ultimate decision on how to spend money towards CSR activities would be with the board of the company. “I am very clear that it cannot be the ministry or the secretary or the state government that will tell you on how to spend the ( CSR) money,” Pilot said at an event here. “We don’t want to be the judge and jury on how to spend the CSR money,” he said. The government is in the process of finalising the new Companies Act. “ We have made sure that environment, ecology, wildlife... all of these have been put as part of areas where companies can spend the money if they wish,” the minister said. Under the Companies Act, 2013, that replaces the nearly six- decade old legislation governing the way corporates function and are regulated in India, profitable companies with a sizeable business would have to spend every year at least two per cent of three- year average profit on CSR works. This would apply to the companies with a turnover of ₹ 1,000 crore and more, or net worth of ₹ 500 crore and more, or net profit of ₹ 5 crore and more. The new rules, which would be applicable from 2014- 15 financial year, also require the companies to set up a CSR committee of their board members, including at least one independent director. Emphasising that the priority is to protect the interest of investors, Pilot said all options are available before the government to deal with the NSEL crisis and its fall out. The Corporate Affairs Minister said the ministry is expected to receive the final report on the issue in the “ next few days”. “All options are available in front of us... Like in company law there are many provisions that can be invoked depending on what the ( final) report says,” Pilot said. National Spot Exchange Ltd ( NSEL) promoted by Jignesh Shah- led Financial Technologies is grappling with ₹ 5,600- crore payment crisis. The Exchange, Financial Technologies, Shah as well as some other group companies are already under the scanner of various authorities. On the NSEL crisis, Pilot said his ministry is also looking at “ fit and proper aspects” of certain entities, adding the government has already taken " enough steps" in this regard. Corporate Affairs Minister Sachin Pilot speaks at 86th Annual General Meeting of Ficci in New Delhi on Saturday. PHOTO: PTI

Withhold TDS when purchasing property from builder PRAMOD ACHUTHAN When I met my friend Ameya Joshi last weekend over coffee, he excitedly informed me that he had recently booked a fourbedroom apartment in an upcoming scheme of a reputed builder. He went on to explain how good a deal he had bagged, both from the builder and the bank financing his loan, and how he had no need to worry at all since the bank had taken full responsibility to disburse the loan instalments to the builder as and when the project was completed over the next couple of years. My tax brain immediately spun into action and I asked him whether he had made any provision to withholding income tax on the payments to be made to the builder. Upon finding that he was completely unaware about this requirement, I went on to explain. Effective June 1, 2013, the income tax rules require the purchaser of any immovable property ( except of agricultural land) of value exceeding ₹ 50 lakh to withhold income tax at the rate of 1 per cent and deposit it with the government at the time of credit or payment of such sum (whichever was earlier) to a seller who was a tax resident of India. This provision was introduced by the government to improve reporting in the real estate sector and to collect income tax at the earliest. Hearing this, Joshi mentioned that since his bank would make direct payment to the builder, he need not worry about this statutory requirement even though the value of his apartment crossed ₹ 50 lakh. Iduly warned him, nevertheless, that the law casts the responsibility on the ‘ transferee’, that is, the buyer, to withhold income tax at source. And that the bank might not always withhold the tax since it was only acting as his disbursing agent. Since, non- deduction of tax at source might attract penalties, it was Joshis duty to ensure that the tax was paid. Seeing that Joshi was turning worried about the number of compliances he would need to undertake, I assured him that the government had already considered this, and that he would not be required to obtain a tax- deduction account number ( TAN) nor to file a quarterly tax withholding statement. Instead, he would simply be required to fill up the requisite challan in Form 26QB and deposit the appropriate tax within seven days from the end of the month in which the amount was deducted. Ifurther explained that in Form 26QB, one needed to indicate relevant particulars such as name, address and PAN of the buyer and seller; particulars of transaction such as date of agreement, value of property, date and amount of tax deducted. The good thing is that the tax so withheld could also be paid electronically by logging onto this website https:// onlineservices. tin. egovnsdl. com/ et axnew/ tdsnontds. jsp, selecting Form 26QB and following the instructions. Ialso asked Joshi to check with his bank whether it would agree to deposit an amount equal to the withholding tax to the Government Treasury on his behalf and release the net instalment due to the seller. Joshi then shot the following questions at me: Is this new provision ( i. e., Section 194- IA of the Act) applicable to agreements entered into prior to June 1, 2013? The new provision applies to agreements entered prior to June 1, 2013 ( where the value of the immovable property is more than ₹ 50 lakh) only for payments made on or after June 1, 2013. The provision is applicable even if the payments to be made on or after June 1, 2013 are less than ₹ 50 lakh, when the overall consideration is more than ₹ 50 lakh. Is the tax needed to be deducted on the entire amount at one time or on payment of instalments? The tax is required to be deducted on earlier payment or credit of such sum to the account of the seller. Thus, in payment by instalment, tax needed to be deducted at the time of every instalment. Is the tax needed to be deducted on the amount paid towards indirect taxes ( such as service tax, VAT, etc)? Conservatively, tax is required to be deducted on the full sale consideration including the indirect tax component. Is there any other provision which needs to be complied with in addition to payment of income tax in Form 26QB? Yes, the purchaser ( of the property) is required to issue to the seller a “ certificate of tax deducted at source” in Form 16B, which can be downloaded from https:// www. tdscpc. gov. in/ after allowing the system about a week from payment in order to process the matter. Of course, one needs, however, to first register on this website. Does this provisions apply to a non- resident Indian purchaser? Yes. It applies to all persons purchasing such property from aresident seller. By the time we had been thoroughly caffeinated, Joshi had come to the conclusion that the procedure would not be too difficult to implement. The author is Tax Partner, Ernst& Young. The views expressed are personal Your financier might not always withhold income tax at source. Ensure you do so TDS RULES [1]Tax- at- source has to be deducted when you make payments to the seller for property worth over ₹ 50 lakh [1]Non- deduction of tax at source when making payments to builders might attract penalties [1]Buyers have to withhold tax at source even when the payment is made through housing finance companies [1]One does not require to have a tax- deduction account number to file taxes, but just has to fill the requisite challan Source  Business line Know your gratuity benefits ANAND KALYANARAMAN Job-hopping can increase your pay, but good old loyalty also has its perks. Stay on with your employer for five years or more, and you are entitled to gratuity when you resign, retire or are retrenched. This monetary reward to be paid by your employer in recognition of your years of service is mandated by the Payment of Gratuity Act. Most establishments employing 10 or more workers fall under the Act. The amount you get as gratuity depends on the number of years you have served and the last drawn monthly salary. Roughly, you get half a month’s Basic and DA for every completed year of service. Here’s the formula to calculate gratuity: (Number of years of service) * (Last drawn monthly Basic and DA) *15/26. So, if you have served 30 years and draw monthly Basic and DA of Rs 20,000 when you leave the job, you get gratuity of Rs 3,46,154 calculated as (30 * 20,000 *15/26). Your employer can choose to pay you more but the maximum amount of gratuity according to the Act cannot exceed Rs 10 lakh. Amount paid above this will be in the nature of ex-gratia — something voluntary and not mandated according to law. If you serve more than six months in the last year of employment, it is considered as a full year of service. For instance, if your tenure is 30 years and 7 months, the years of service for gratuity calculation will be rounded off to 31. But if you serve 30 years and 5 or 6 months, then the number of years of service will be considered as 30. Waiving the rule Going by the book, gratuity is payable only if you have been with the employer for five years or more. But this rule is waived if an employee dies or is disabled. In such cases, gratuity is paid to the nominees or to the employee, even if the tenure is less than 5 years. Even employees not covered under the Payment of Gratuity Act are entitled to gratuity. But in such cases, the formula for gratuity calculation differs. It is computed as the (number of years of service) * (average monthly salary in the last 10 months of employment) * (15/30). This computation makes the gratuity amount lesser than that under the Act. For instance, in the above example, an employee not covered by the Act will be entitled to Rs 3,00,000 as gratuity, calculated as (30 * 20,000 * 15/30). This is Rs 46,154 lower than employees covered under the Act are entitled to. Another difference is that only fully completed years of service are considered in the calculations, and partial service in the last year, even if it in excess of six months, is ignored. For instance, service of 30 years and 7 months, will be considered as 30 years and not 31 years. Another positive is the favourable tax treatment that gratuity receipt enjoys. Tax treatment If you are a government employee, then the entire amount you get is exempt from tax. If you are not a government employee but are covered under the Act, you get tax deduction for an amount which is the lower of the following: a) Actual gratuity received b) 15 days Basic and DA for each completed year of service (according to calculations in the example above) c) Rs 10 lakh Say, in the instance above, your employer paid you gratuity of Rs 5,00,000, which is more than the Rs 3,46,154 actually payable under the law. You will enjoy tax deduction on Rs 3,46,154 and the surplus Rs 1,53,846 will be subject to tax. Note that the total tax deduction on gratuity amounts received, including those from previous employers in earlier years, cannot exceed Rs 10 lakh. Employees not covered under the Payment of Gratuity Act are also entitled to tax deduction on the amount they receive. The deduction rules are similar to those applicable for employees covered by the Act. anand.k@thehindu.co.in (This article was published on December 21, 2013) Keywords: gratuity benefits, job-hopping, stay with your employer, entitled to gratuity, resign, retire, retrenched

Consumer inflation linked bonds finally here

ANAND KALYANARAMAN

BL RESEARCH BUREAU

December 21, 2013:  

The much-anticipated inflation indexed bonds, linked to consumer prices, will be available for sale for a week beginning Monday. Inflation Indexed National Savings Securities - Cumulative, as these bonds are called, seek to protect your savings from price rise, by offering returns over and above inflation at the retail level. Drawbacks on taxation and liquidity fronts dilute the hedge, but the bonds could still merit a place in your portfolio.

The deal: Only retail investors can buy these bonds. The minimum investment size is Rs 5,000. The interest rate is the sum of the prevailing inflation based on the combined consumer price index (CPI) and a fixed rate of 1.5 per cent annually. The inflation rate will be reckoned with a lag of three months, with the September CPI used in December, and so on. Interest on the bonds will not be paid out but compounded on a half-yearly basis. To illustrate, if CPI inflation is 6.67 per cent for six months, add 0.75 per cent to arrive at the interest rate (7.42 per cent). So, an investment of Rs 5,000 in December will earn interest of Rs 371 and stand at Rs 5,371 in June. This in turn will earn interest for the next six months based on the inflation during that period. This continues for 10 years (the bond tenure) when the principal and the compounded interest is get paid back.

Pros & cons: The bond’s unique selling point – that it tracks retail inflation – can come in quite handy, if retail level inflation remains high. In November, CPI-based inflation was 11.24 per cent. At this level, the pre-tax return on the bond works out to nearly 12.75 per cent, far more than rates on long-term bank deposits (9.25 per cent). But if inflation falls, the pre-tax return on the bond could be lower than that on bank fixed deposits.

Note that the tax on interest will also reduce your returns. After taxes, the 12.75 per cent pre-tax return on the bond will fall to 11.4 per cent in the 10 per cent slab, 10.1 per cent in the 20 per cent slab, and 8.8 per cent in the 30 per cent slab. That said, other safe investment options today such as tax-free bonds and bank fixed deposits also do not provide positive real returns (post-tax returns minus inflation). The bonds, however, carry no TDS and tax experts say retail investors can offer their interest income to tax either annually or at the time of maturity.

Liquidity on the bonds is not great either. Premature redemption is allowed after one year for investors above 65 years, and after three years for other investors. But if you redeem early, you will lose half the last payable coupon.

It is critical for your portfolio to beat inflation over the long-term and these bonds provide a partial hedge. The returns are better at lower tax slabs. But the bonds are not useful for regular income seekers. The issue is open till December 31. To invest, approach SBI and its associates, nationalised banks, HDFC Bank, ICICI Bank, Axis Bank and Stock Holding Corporation.

(This article was published on December 21, 2013)

Keywords: inflation indexed bonds, bonds linked to consumer prices, Inflation Indexed National Savings Securities, price rise, inflation, Investment Focus

Business standard news update 15-10-2013

Now, book online for your railway food

ANUSHA SONI New Delhi, 14 October Each time Ajita Singh, aspiring to become a chartered accountant, travels from Delhi to her home town, Lucknow, she prefers to munch chips and biscuits rather than buy food on the train, being sceptical about the quality. This time, though, she tried something different — placed an order online and the food was delivered to her, at her berth, for less than ₹ 150. The ₹ 4,000- crore railway catering sector, a subject of debate on the quality of food served, is witnessing a change. Responding to the need are a couple of websites that have come up with a ‘ market place model for railway catering’. Travelkhana. com and Merafoodchoice. com are among the leading players in this space. Both have a tie- up with over 200 restaurants spread across 100 cities, where they can serve meals for individuals or groups. The cost could vary starting at around ₹ 130. All one has to do is provide the PNR number on the ticket or the originating and destination station, along with the date of travel. The websites will let you choose from multiple cuisines and prices. The delivery boy will have to buy a platform ticket to give you the food. Both these companies started with an investment of under ₹ 1 crore and expect venture capitalist funding in the coming months. “We are in a very advanced level of talks with the Railway Board for making us a recognised partner in rail catering,” says Pushpinder Singh who started travelkhana. com in August 2012. He plans to soon start a mobile application. “We serve about 500 meals in a day and reach 158 cities. People want quality food and affordable prices”, says Piyush Kasliwal, a software professional who started merafoodchoice.com in November 2012. The websites usually get a cut of 15- 30 per cent in the profits of the restaurant. Pushpinder expects large fast- food chains to tie- up with him soon. Currently, under the standard prices decided by the Railway Board, the caterers must serve a vegetarian meal at amaximum of ₹ 50 and a nonvegetarian at 55. But, usually, charges go up to ₹ 85 and above, according to railway officials. “Most of them overcharge as they say that in the current inflation, it’s very difficult to provide food at the rates decided by the railways,” says an official. In 2010, the catering of Indian Railways was taken away from Indian Railway Catering and Tourism Corporation. Currently, a little over 30,000 catering units take care of food in the trains and at stations. Dinesh Trivedi, who was railway minister in early 2012, had announced he’d start asimilar ‘ book a meal policy’, where people could book a meal of their choice before boarding. There have been success stories earlier, too. For instance, Comesum, a vendor for IRCTC, has about 20 outlets at railway stations and serves 70- 80 trains but its reach is limited. It’s here that the online model can perhaps fill the gaps. The railway catering sector has been a subject of debate on the quality of food served

Mumbai Police wing seeks powers to attach properties of Shah, others

SANJAY JOG Mumbai, 14 October The Economic Offences Wing (EOW) of the city police has sought recommendations of the Mumbai and Mumbai Suburban district collectors for invocation of the provisions under the Maharashtra Protection of Interest of Depositors Act, 1999, ( in financial establishment). The invocation, if it happens, will give EOW the powers to attach the properties of NSEL promoter Jignesh Shah, besides former directors, in connection with the ₹ 5,600crore payment fraud at the bourse. Balsing Rajput, deputy commissioner of police in the EOW, told Business Standard: “ We expect the two district collectors’ recommendations within a day or two. We have sought invocation of the Maharashtra Act, which mainly covers the functioning of financial establishments. The invocation of its provisions will enable EOW to attach properties of Shah and others who could have gained out of the crime.” On conviction for fraudulent default, according to the Act, imprisonment for up to six years and a fine of up to ₹ 1 lakh can be imposed on promoters, partners, directors or employees of a financial establishment. The Act gives the state the powers to attach properties of firms that fail to return deposits after maturity or on demand from depositors. Properties can also be attached if a financial establishment does not pay interest or other assured benefits, fails to provide the service promised against such deposit, or where the government has reasons to believe it is acting in a calculated manner against the interest of depositors with an intention to defraud them. Pending order from the designated court, the government can conduct the attachment through appointment of a competent authority. EOW’s action has come within days of the arrests of former NSEL vice- presidents Jai Bahukhandi and Amit Mukherjee over alleged fraud and bribery. These arrests were made on the basis of an FIR lodged against them, NSEL promoters, the board and other key employees. Meanwhile, EOW on Monday recorded the statements of former NSEL director B D Pawar and a director of Delhi- registered Namdhari Food International and Harayanabased Namdhari Rice and General Mills were also recorded. Asks for invocation of the Maharashtra Protection of Interest of Depositors Act, 1999 NSEL PAYMENT FRAUD FINANCE 7 > >Returns thatweren’t cost NSEl ~ 1,700 cr THE SMART INVESTOR 14 > >Compass: Petchem saves the day for RIL GK Pillai nominated on MCX- SX board MCX- SX, part of Financial Technologies group, on Monday said former home secretary, Gopal Krishna Pillai, had been nominated public interest director on its board. No question of govt taking over NSEL: FM Finance Minister P Chidambaram has said NSEL’s parent group, Financial Technologies, and related entity, MCX- SX, are underwatch and people responsible for the alleged irregularities will have to pay the price. “ There’s no question of the government taking over NSEL,” he said.

To unlock FDI, govt to ease lock- in period for realty NAYANIMA BASU New Delhi, 14 October Much to the cheer of foreign real estate developers, those investing in India’s construction sector might be allowed to exit before the mandatory three years stipulated at present. However, for that, they would have to complete the project and procure completion occupancy certificates from local authorities. Currently, they can exit before three years of putting in money only with permission from the Foreign Promotion and Investment Board ( FIPB). That’s not all. According to a Cabinet note, being prepared by the Department of Industrial Policy and Promotion ( DIPP), foreign developers will be allowed to take back the entire invested amount before three years, after obtaining the government’s approval. A senior official involved in the process confirmed this to Business Standard. According to the current FDI policy, the lock- in period of three years applies to every tranche of investment brought in by aforeign player from the date of receipt of investment or from the date of ‘ completion’ of minimum capitalisation, whichever is later. Developers had long been complaining that restrictions, such as the lockin norms, deterred them from investing in the Indian market. At present, at least $ 10 million of paid- up capital is required in whollyowned subsidiaries and $ 5 million in joint ventures. “There will be general easing of conditions in the lock- in norms. If they ( foreign developers) want to exit, they should not be scared to come to us for an approval,” the official said. DIPP, which has received approvals from most departments, is now in the process of firming up its proposal. It is expected to shortly finalise the final Cabinet note. With investors proposed to be allowed to exit earlier on receipt of completion occupancy certificate, there would be an incentive for players to complete the projects. India allows 100 per cent FDI through the automatic route in townships, housing, built- up infrastructure and construction- development projects, subject to certain conditions. Between 2000 and 2013, the construction development sector has received about $ 22 billion of FDI — about 11 per cent of the country’s total FDI inflow during the period. However, since 2012, FDI in the sector has slowed down significantly. In 201213, it was down to $ 1.33 billion, against $ 3.14 billion the previous year. In the first four months of the current financial year, only $ 0.36 billion foreign direct investment has flowed into this sector. But completion occupancy certificates to be mandatory BUILDING BRIDGES FDI inflows in the construction sector 2011- 12 $3.14 bn 2012- 13 $1.33 bn 2013- 14* $0.36 bn *April- July Source: Department of Industrial Policy &Promotion Returns thatweren’t cost NSEL ₹ 1,700 cr NSUNDARESHA SUBRAMANIAN New Delhi, 14 October Aforensic audit commissioned by the Forward Markets Commission (FMC) has found National Spot Exchange Ltd ( NSEL) gave away ₹ 1,700 crore as returns during its life span. According to regulatory officials, this sum, around 30 per cent of the ₹ 5,600 crore the exchange owes to 13,000 investors, was paid using the money brought in by new investors, as trades on the platform did not generate actual returns. “An unpermitted financing scheme was being run on the NSEL platform, wherein NSEL was allowing the defaulting buyers to get more money and fresh money was being brought in to ensure the earlier members were not exposed,” said a senior regulatory official. While some borrowers are prepared to pay the original amount they borrowed, they are not prepared to pay the extra amount the exchange has added to their dues as “ rollover costs”, leading to disputes. In negotiations with the aggrieved investors over the past few weeks, the exchange’s promoters, led by Jignesh Shah, have asked them to take ahair- cut. But investors have not agreed to this which has caused a deadlock. Now, the settlement of investors’ dues could not be completed, unless there was a decision on who would foot this ₹ 1,700- crore bill, the officials said. Asked by Business Standard if NSEL had taken any decision on how to generate this sum, a spokesperson of the exchange indicated NSEL was not responsible for the repayment. “ This is not correct. When an old investor exited, he exited with returns. His returns were funded by new investors, instead of defaulters. This way, the old investor got the returns; it’s not NSEL that got the money. In a way, old investors enjoyed the financing platform. Now, it is part of the defaulting members’ dues,” the spokesperson said in an emailed response. The sum grew over the years as NSEL went on filling in payout defaults by one party by using cash generated by others. The liability of members who had already defaulted also went on increasing. In his affidavit confessing his role in the scam, Anjani Sinha, former MD & CEO of NSEL, estimates “ rolling over costs” to be ₹ 1,200 crore. He also gives a member- wise break up of these costs. According to Sinha, “ It is a fact that these buyers have used part of these funds towards repayment of their interest component and other exchange charges. Besides, members have also used this fund for giving it back to the exchange as cash- margin deposit. Considering all these factors, the cost of funds comes to 21- 22 per cent a year. So, the total amount payable by the members as on date includes the principal amount utilised by them, plus the cost of funds paid by them through rolling over of their liability by way of compounding.” He goes on to add: “ The situation was such that if we did not allow rollovers, buyers would have defaulted on huge amounts. On the other hand, if we continue to allow a member to roll over his position position, his exposure keeps on increasing every year by 2025 per cent due to the impact of rollover cost and exchange fees.” Exchange used new investors’ money to pay returns to old ones, finds FMC’s forensic audit How it unfolded |Exchange paid regular returns to investors |Returns were paid despite defaults by borrowers |The payments were made using money brought in by new investors |The return payments added as rolling- over costs to borrowers’ dues |These rolling- over costs run into hundreds of crores of rupees NKProteins ₹ 388 crore PD Agro Processors ₹ 215 crore ARKImports ₹ 165 crore LOILgroup ( 3 firms) ₹ 117 crore Mohan India/ Tavishi ₹ 70 crore Yathuri ₹ 55 crore Top rolling- over cost of funds Source: Anjani Sinha’s affidavit Madras HC bars ARCIL from taking possession of SPIC land BS REPORTER Chennai, 14 October The Madras high court has set aside earlier orders allowing Asset Reconstruction Company ( India) Ltd ( ARCIL) to take possession and sell the 168.35 acres in Tamil Nadu it had acquired as part of the restructuring of SPIC Petrochemicals Ltd, a subsidiary of Southern Petrochemical Industries Corporation ( SPIC). The order was related to a petition by Chennai Petroleum Corporation Ltd ( CPCL), which had formed a joint venture with SPIC to float a project on 1,655.92 acres, including the disputed land. Judge V Ramasubramanian said the issue involved public interest, as despite the acquisition of more than 1,655 acres by the government, invoking the emergency clause, the industry for which the acquisition was made hadn’t come up. Allowing CPCL’s application, the court recalled the earlier order passed in December 20, 2010, which allowed ARCIL to take possession of the 168.35 acres. In January 1985, CPCL had signed a memorandum of understanding with SPIC for a joint venture to float a public limited company— National Aromatics and Petrochemicals Corporation— after the former received an industrial licence to manufacture o- xylene, benzene and purified teraphthalic acid. The project was named Arochem. In September 1989, the Tamil Nadu government accorded administration sanction for the acquisition of 1,655.92 acres of patta and poramboke lands in various villages. NSEL probe gets wider RAJESH BHAYANI Mumbai, 14 October The probe in the National Spot Exchange Ltd ( NSEL) payment crisis is being widened, with more agencies joining the investigations. Also, the Forward Markets Commission ( FMC) is considering aspecial audit of the Multi Commodity Exchange (MCX), NSEL’s sister concern. The Department of Company Affairs has already begun an inspection of NSEL under Section 209- A of the Companies Act, 1956. The probe would include inspection of the exchange’s books, with a specific reference to “ all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place”. The Enforcement Directorate is probing the exchange’s operations under the Prevention of Money Laundering Act ( PMLA), after securing information in this regard from the economic offences wing of the Mumbai Police. When contacted, an NSEL spokesperson said, “ Since investigations are on, we cannot comment on this.” After issuing a show- cause notice to the promoters and directors of the crisis- ridden exchange, the FMC is now focusing on MCX, India’s leading commodity futures exchange. It is considering a special audit of MCX operations since the inception of the exchange in 2003, focusing on related party transactions and on probing whether any special treatments were given to these, in terms of margins. In response to a query, an MCX spokesperson said, “ MCX has not yet received any communication from FMC with regard to a special audit. MCX is open to any scrutiny from FMC or any other authority.” MCX has already admitted the Indian Bullion Merchants’ Association ( IBMA) was found to be trading on MCX, despite the fact that it was a subsidiary of NSEL and, therefore, a related party. Trading by related parties isn’t allowed by regulations governing commodity futures. The MCX spokesperson clarified, “MCX has an automated trading system, with virtually no human interference. Calls for margin money are automated, with adequate provisions for informing members about their margin requirements and settlement dues. Moreover, the system does not waive or lower margin money for members’ leveraged trades. Members are not allowed to take new positions without the requisite margin requirements, and the system automatically squares off all such outstanding positions.” Sources privy to the development said a special audit would cover issues related to trading by IBMA — whether any related party traded on it or not, whether favourable margins were given to related parties and whether proper procedures were followed in case of NSEL defaults. In its show- cause notice to NSEL promoters, FMC had said there were 2,000 defaults. A source said FMC would soon finalise who would conduct the special audit. The audit is aimed at ascertaining whether corporate governance norms were adhered to. “ If nothing serious comes out, that will inspire confidence among other stakeholders and if some discrepancies are found, prompt action will be taken to restore the confidence,” said a government official. Inspection under Companies Act launched; ED starts money- laundering probe; FMC mulls special audit of MCX