Fema Updates

Dear Friends,


Please find herewith latest FEMA Update regarding RRB-Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR (B) Deposits:


RBI/2011-12/277
RPCD.CO.RRB.BC.No. 36/03.05.33 (C) /2011-12November 24, 2011Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR (B) Deposits
1. Interest Rates on Non-Resident (External) Rupee (NRE) DepositsPlease refer to paragraph 1 of our circular RPCD.CO.RRB.BC.No. 63/03.05.33(C) /2008-09 dated November 17, 2008 on Interest Rates on Deposits held in Non-Resident (External) Rupee (NRE) Accounts. In view of the prevailing market conditions, it has been decided that until further notice and with effect from close of business in India as on November 23, 2011, the interest rates on Non-Resident (External) Rupee (NRE) Term Deposits will be as under:
Interest rates on fresh Non-Resident (External) Rupee (NRE) Term Deposits for one to three years maturity should not exceed the LIBOR / SWAP rates plus 275 basis points, as on the last working day of the previous month, for US dollar of corresponding maturities (as against LIBOR / SWAP rates plus 175 basis points effective from the close of business on November 15,2008).The interest rates as determined above for three year deposits will also be applicable in case the maturity period exceeds three years. The changes in interest rates will also apply to NRE deposits renewed after their present maturity period.
Interest Rates on FCNR (B) DepositsPlease refer to paragraph 2 of our circular RPCD.CO.RRB.BC.No. 63/03.05.33(C) / 2008-09 dated November 17, 2008 on Interest Rates on Deposits held in FCNR (B) Accounts. It has also been decided that until further notice and with effect from the close of business in India as on November 23, 2011, the interest rates on FCNR (B) Deposits will be as under:
In respect of FCNR (B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturities (as against LIBOR/SWAP rates plus 100 basis points effective from close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months
All other instructions issued earlier shall remain unchanged.
4. An amending directive RPCD.CO.RRB.Dir.No.35/03.05.33(C)/2011-12 dated November 24, 2011 is enclosed.

RPCD.CO.RRB.Dir.No.35/03.05.33 (C) /2011-12
November 24, 2011
Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR (B) DepositsIn exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and in modification of the directiveRPCD.CO.RRB.Dir.No.62/03.05.33(C)/2008-09 dated November 17, 2008 on Interest Rates on Deposits held in Non-Resident (External) (NRE) Accounts and FCNR(B) Accounts, the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest so to do, hereby directs that Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR(B) deposits shall be as under:
Interest Rates on Non-Resident (External) Rupee (NRE) Deposits“With effect from close of business as on November 23, 2011, interest rates on fresh Non-Resident (External) Rupee (NRE) Term Deposits for one to three years maturity should not exceed the LIBOR/SWAP rates plus 275 basis points, as on the last working day of the previous month, for US dollar of corresponding maturities (as against LIBOR/SWAP rates plus 175 basis points effective from the close of business on November 15, 2008). The interest rates as determined above for three year deposits will also be applicable in case the maturity period exceeds three years. The changes in interest rates will also apply to NRE deposits renewed after their present maturity period.”
Interest Rates on FCNR (B) deposits“In respect of FCNR (B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturities (as against LIBOR/SWAP rates plus 100 basis points effective from the close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months.”
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With regards,
Manoj Pandey
Wisdom Management Consultancy Private Limited
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+91-9313649750 [Cell]
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corporate Democracy

CORPORATE DEMOCRACY
We should not wait for this until the Companies Bill 2011 passed and introduced
Recently we talk and discuss about CORPORATE GOVERNANCE but it is essential to have Corporate DEMOCRACY to implement corporate Governance.

Discussion is going on, with regard to Section 297 of the Companies Act, 1956 to implement the circular for authorizing Registrar of Companies to process the applications.
There are several sections in the Companies Act which we refer as bribe breeding sections. Section 297, 370 and 372 of the companies Act are some of them, Both Section 370 and 372 of the Companies Act, dealt with investments, guarantee and inter-corporate loans. Earlier over and above 30% of the limit prescribed under these sections, we are required to get approval from Central Government Department of Company Affairs located at New Delhi. For making investments, guarantees etc, we are not required to get approval from shareholders. This procedure was continued upto October 1998 . The then Government has brought an ordinance to amend these two sections discontinued approval from central govt instead insisted for members approval by means of Special Resolution. Thus, corporate democracy was introduced in these sections.. When Companies Amendment Act was passed during the year 1999, the same was incorporated and when you see the section giving retrospective effect i.e 31st October 1998 by introducing section 372A in lieu of sections 370 and 372 of Companies Act, 1956. Now there is no requirement to get approval under section 372A from Central Govt..Members approval by means of Special Resolutions is sufrficient for any amount . Members decide and not Government
In the similar way, Section 297 of the Companies Act, 1956 is another bribe breeding section wherein related party transactions , we are required to get approval from respective Regional Directors. The limit fixed under the section was paid up capital of Rs.1 crore which was fixed in the year 1956. After that so many amendments came into effect, the section was untouched. Some of the RD office officials say that Section 297 of the Companies Act, 1956 is A.T.M. i.e Any Time Money for them and how can Regional directors power will be transferred to Registrar of Companies.Is it corporate democracy? Is it necessary Regional Director has to decide from whom to purchase or sell the company’s products or avail services. I think it is not relevant at current economic liberalization and so many reforms process for automatic investment for country’s reform process. In this context the section 297 limit has to be increased to RS.15 crores.
Suggestion:

Currently Parliament is in Session, once after session is over,The Government should bring ordinance to that effect to increase the limit of Rs.1 crore to Rs.15 crore. Less applications will come to Regional Directors office and the bribe breeding section will also vanish atleast diminish.

or

The recent circular should be given effect and approval should be automatic and no question should be asked and approval should be given within SEVEN DAYS

Union Cabinet clears Companies bill 2011

New Delhi: The Union Cabinet on Thursday approved the Companies Bill, 2011 which, once approved by Parliament, will replace a half-a-century-old Act.

“The Cabinet has cleared Companies Bill, 2011. It is likely to be tabled (for consideration and passage) in the ongoing Winter Session,” a Corporate Affairs Ministry official said after the Cabinet meeting. The Bill, which has already been vetted by the Parliamentary Standing Committee of Finance and also by different Ministries, seeks to update the company law in line with the best global practices.

The Bill has introduced ideas like Corporate Social Responsibility (CSR), class action suits and a fixed term for independent directors. Among other things, it also proposes to tighten laws for raising money from the public. The Bill also seeks to prohibit any insider trading by company directors or key managerial personnel by treating such activities as a criminal offence.

Further, it has proposed that companies should earmark 2 per cent of the average profit of the preceding three years for CSR activities and make a disclosure to shareholders about the policy adopted in the process. The Bill, which was originally introduced in Lok Sabha in 2008, lapsed because of change of government. It was reintroduced in August 2009.

Cabinet approval on the Companies Bill, 2009, was pending as the Finance Ministry and MCA failed to reach a common ground on powers to be delegated to the Securities and Exchanges Board of India (Sebi) in case of regulatory overlaps. Finance Minister Pranab Mukherjee, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Corporate Affairs Minister Veerappa Moily were asked to discuss and iron out issues. The ministers have come to a consensus on the issue, sources in the know said.

According to them, the Finance Ministry and Sebi have sought review of the provisions which conflicted with the Sebi Act. Apparently, it has been decided that Sebi’s view will be upheld in cases where jurisdictions conflict.

Business standard updates 21-11-2011 and Legal digest

FDI JUMPS 77% ON M&A SPREE

ARIJIT BARMAN &NAYANIMA BASU Mumbai/New Delhi, 20 November
Even as moves are afoot to broaden its scope in the retail sector, foreign direct investments (FDI) are adding shine to the India growth story.
The latest available data from the Reserve Bank of India show a 77 per cent jump in the FDI in the first half of the current financial year (April-September), compared to what was $19.5 billion the same period a year ago. At this level, foreign investors have brought in as much money in the first six months of this year as as they did in the entire 2010-11.
Policymakers highlight these data point to allay fears of acrisis of confidence. FDI is more long-term versus fickle portfolio investments that can be repatriated in no time. That, in any case, has come down to a paltry $1.4 billion till September — a sharp 94 per cent fall.
While some key economic ministers have predicted that FDI would touch the $30-billion mark in this financial year, KPMG, the global network of professional firms providing audit, advisory and tax services, is even more optimistic; the professional services network’s consultants are looking at a $35-billion figure.
Some, however, are a little more circumspect about the FDI euphoria as they feel it’s largely riding piggyback on a handful of large mergers and acquisitions transactions like BP’s $7.2 billion stake acquisition of Reliance Industries’ oil and gas properties or Vodafone buying out Essar from their JV for a little over $5 billion.
Earlier this year, in May, in another headline transaction, Abbott bought out Piramal’s Healthcare’s domestic formulations portfolio for a whopping $3.72 billion, while PE major Apollo pumped in $500 million into Welspun group companies. Moreover, the $6-billion dollar Cairn-Vedanta deal is in the last leg of completion, awaiting ONGC’s nod and security clearance.
Even so, not all experts are keen to paint a rosy picture. Abheek Barua, chief economist, HDFC Bank, says the mega deals apart, there has indeed been an uptick on FDI inflows this financial year.
“The foreign institutional investors’ perception of gloom and doom, and policy paralysis in India are very different from long-term strategic FDI perception that is much more bullish and pro-investment. Only in mining or sectors involving large land acquisitions, there has been a reassessment of prospects,” he notes. “There have been quite a few new equity investments in India in the form of brownfield expansions across sectors — like auto and auto components, pharma and chemicals. Individually, they are small but the aggregate is areasonable sum.” So, is FDI more a matter of strategy? Investment bankers like Vedika Bhandarkar, vice chairman of Credit Suisse, who are typically involved in bulge bracket cross-border mergers and acquisitions agree, but have a word of caution.
“If the negative news flow continues for long, then even FDI sentiment may be affected. Compared to past few years, when there have been considerably more outbound deals from India, there has been more of a balance this year between inbound and outbound. Many North American firms have strong balance sheets, enough cash and are looking at new growth markets to invest in, and it’s the same with Japanese companies,” he notes.
“So, there will be continued interest in Indian technology, manufacturing and industrials and pharma” The leaders in the pack are pharma, services and telecommunications — in that order. It is clear from the department of industrial policy and promotion data, which gives figures from April to August (see table). Patni Computers finally got sold for close to a billion dollars in January this year. “FDI inflows in pharma,” points out Samiran Chakraborty, head of research, Standard Chartered Bank, “have risen disproportionately compared to other sectors. In the April-August period, the pharma sector’s share in total FDI inflows has gone up to 17.3 per cent versus the traditional three per cent average.” There are some interesting sidelights as well. For example, despite controversies, the telecom sector has already attracted $1.8 billion FDI, which is more than the inflows in the whole of 2010-11.
Paresh Parekh of Ernst & Young notes that this calendar year has, on an average, seen monthly inflows of a little over abillion dollars each. This is apart from April, May and June, when it jumped to anything between $3-5.5 billion, adds Parekh, who is partner (tax and regulatory services) of the accountancy firm.
FDI trackers and government officials say the surge is largely linked to a spate of clearances by the Foreign Investment Promotion Board. HDFC’s Barua agrees. “The clearances were reflected in the forex market as well,” he notes. The rupee then went below 44. Also there is a co-relation between the external commercial borrowing pickups and FDI. Most of these multinational corporations raise overseas debt too for their projects.” With the sudden government urgency on opening up of multi-brand retail or Indian aviation to foreign strategic players or even pension sector, the figure of $30 billion looks realistic. A section of industry, however, feels there is no reason to hype it up. Federation of Indian Chambers of Commerce and Industry cautions against euphoria. Reason: Last year was an exceptionally bad year for FDIs; so this is just the base effect. “Secondly,” points out Rajiv Kumar, the chamber’s secretary-general, “every month there is a capital outflow of a billion dollars from India. This explains the rupee depreciation.” Further, he thinks India has had a seven-year gestation period for key reforms initiative. “From Pension Fund Regulatory and Development Authority to banking regulations, retail FDI to the first round of telecom reforms or even the 1991 initiatives, they all more or less took seven years to get going,” he adds. But the real challenge will be to get political consensus on some of these reforms in Parliament.”
20 15 10 5 0 Apr-Sep ‘11 Source: RBI bulletin Apr-Sep ‘10 Drugs & pharma Services sector* Telecom Power Construction #19.5 11.0 2.9 2.8 1.8 1.1 0.78
DOLLAR DELUGE
Total FDI Inflows ($ billion)
THE BIG PICTURE
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 *Financial and non-financial #Including roads and highways Source: DIPP
DOLLAR MAGNETS
(The top 5 sectors attracting highest FDI inflows in April-Aug 2011-12) ($ billion)
LEGAL DIGEST

INTENT TO ARBITRATE CAN BE SEEN FROM CONDUCT OF PARTIES: SC

WHEN the terms of a contract are not clear as to the existence of an international arbitration agreement, the correspondence between the firms could indicate its existence, the Supreme Court held last week in the dispute between Powertech World Wide Ltd of Mumbai and Delvin International General Trading of Dubai. In this case, the Indian company sought arbitration, but the Dubai firm denied that there was a clear term in the agreement about arbitration. However, the court examined the correspondence between the two firms and the circumstances and concluded that there was an arbitration agreement. “Once the correspondence between the parties and attendant circumstances are read conjointly with the petition and with particular reference to the purchase contract, it becomes evident that the parties had an agreement in writing and were ad idem in their intention to refer these matters to an arbitrator,” the court said. It appointed retired Justice D R Dhanuka of the Bombay high court as the arbitrator.

Lending firms must follow norms before ‘re-possession’

The Supreme Court last week cautioned hire purchase firms not to take goods forcibly but follow the norms set by Reserve Bank of India. In the judgment, Citicorp Maruti Finance Ltd vs S Vijayalaxmi, it emphasised that “in case of mortgaged goods subject to hire purchase agreements, the recovery process has to be in accordance with law.” The court noted that the recovery process referred to in the agreements also contemplated such recovery to be effected in due process of law and not by use of force. “Till such time as the ownership is not transferred to the purchaser, the hirer normally continues to be the owner of the goods, but that does not entitle himon the strength of the agreement to take back possession of the vehicle by use of force. The guidelines which had been laid down by the Reserve Bank of India support and make a virtue of such conduct. If any action is taken for recovery in violation of such guidelines or the principles as laid down by this court, such an action cannot but be struck down.”


Insurance firm told to pay higher compensation

The Supreme Court last week raised the compensation amount steeply in a motor vehicle accident case in which a24-year-old carpenter was incapacitated due to multiple injuries. The motor accident claims tribunal awarded him `45,000 only. On appeal to the Karnataka high court, the amount was raised by `31,000. However, on further appeal to the Supreme Court, the amount was further raised to `8.37 lakh in the case, Sri Laxman vs Oriental Insurance Co Ltd. The youth had asked for only
`5lakh, but the court ruled that even if the victim asked for a lesser amount, the court could grant a “just” amount. The law does not limit the power of the tribunal to award a higher compensation. The judgment noted that the victim could not appoint a competent lawyer. The courts below also did not consider the pain and suffering of the young carpenter. Therefore, `1.5 lakh was awarded on that ground, apart from loss of livelihood. Further, `2lakh was awarded on the loss of amenities “including the loss of prospects of marriage, which has become an illusion for him.”

Demand for excise duty on caps of collapsible tubes quashed

If caps for collapsible tubes of a product are manufactured separately by a different firm, the value of the caps will not form part of the assessable value of the tubes manufactured for central excise purposes. In this case, Essel Propack Ltd vs Commissioner of Central Excise, Mumbai, the company manufactured plastic tubes in its factory and supplied them to Colgate. The caps for the tubes were supplied by Colgate. They are fitted to the tubes before removing them the factory of Essel. The revenue authorities issued notice to Essel stating that the caps should be included in the assessable value. The excise tribunal confirmed this view. On appeal, the Supreme Court set aside the tribunal’s order and stated that since the caps are not manufactured by Essel, but supplied to it by its customers, the value of the caps will not form part of the value of the tubes manufactured by it. MJ ANTONY

Business standard news update 19-11-2011

FDI IF RETAILERS PROCURE 30% STUFF FROM SMALL INDUSTRY

SURAJEET DAS GUPTA &NAYANIMA BASU New Delhi, 18 November
Multinational retailers such as Walmart, Tesco and Carrefour looking to open stores in the country may have to source almost athird of their merchandise from small Indian manufacturers as the government tries to make the opening of multi-brand retail to foreign players more politically palatable.

The draft cabinet note for permitting 51 per cent foreign direct investment (FDI) in multi-brand retailing, which may go for cabinet approval as early as tonight, includes anew clause under which at least 30 per cent of the procurement of manufactured and processed products has to be from ‘small industries’. Even single-brand retailing, where FDI is proposed to go up from the current 51 per cent to 100 per cent, will also be subject to the same sourcing rules. The note also clearly defines the FDI investment floor, approval dynamics, geographical restrictions and the riders and conditionalities thereof.

For the purpose of FDI in multibrand retail, the note defines small industries as units which have a total plant and machinery investment not exceeding $250,000, approximately `1.25 crore. This investment refers to the value at the time of installation, without providing for depreciation. However, if at any point, this valuation is exceeded, the unit will not qualify as a ‘small industry’ for the purpose of the policy. However, self-certification for compliance of this clause will be permitted and the government would undertake cross-checking if it wants to.

The draft cabinet note on FDI in multi- and single-brand retailing has been prepared by the Department of Industrial Policy and Promotion or DIPP after extensive consultations with various ministries. “We are sending the cabinet note on both FDI in single-brand and multi-brand retail by late tonight. All major ministries have given their recommendations on the draft note.

Now, it is up to the cabinet to take a call,” a senior DIPP official told

Business Standard .Currently, FDI is not allowed in multi-brand retail, though 100 per cent foreign investment is permitted in the cash-andcarry wholesale business and 51 per cent in single-brand retailing.

The new clause on sourcing from small industries was not part of the recommendations to allow FDI in multi-brand retailing cleared by the committee of secretaries (CoS) in July. The CoS recommendation did not include it because of concerns raised by the finance ministry’s department of economic affairs, which felt it could lead to harassment of small industries by government inspectors. Back then, even the DIPP went along with the view that including the mandatory sourcing condition would not be compliant with India’s commitment under the World Trade Organisation’s agreement on trade-related investment measures.

The sourcing clause, however, was reinserted in the current draft after concerns were raised by the ministries of agriculture, micro, small and medium enterprises, and the department of information & technology. They had concerns over the interests of farmers, the industries of food processing, electronics and textiles, and small and medium enterprises. In meetings to resolve these concerns, the ministry of agriculture suggested a provision be included for 60 per cent sourcing from ‘low-income resources and poor farmers’.

Turn to Page 16

Indian suppliers must be units with investment up to `1.25 cr, says draft before cabinet

WHAT THE DRAFT SAYS

ON FDI IN MULTI-BRAND RETAIL

Government permission for up to 51 per cent

Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded

The minimum amount fixed for a foreign investor is $100 million

At least 50 per cent of the total FDI must be invested in ‘back-end infrastructure’

At least 30 per cent of the procurement of manufactured and processed products should be sourced from ‘small industry’

Compliance through self-certification. Investors need to keep all records

Retail sale locations can be set in cities with more than one million population, based on the 2011 census

The government will have the first right to procure agricultural produce

ON FDI IN SINGLE-BRAND RETAIL

Permission of up to 100 per cent FDI from 51 per cent at present

Products to be sold should be of single brand only

Products should be sold under the same brand name internationally

Product retailing would cover only those brands which are branded during manufacturing

The foreign investor should be an owner of the brand

30 per cent sourcing from ‘small industries’ would be mandatory

‘The cabinet will now have to take a call’ p4

Traders ready for protest against retail FDI p4

Pantaloon shares surge on multibrand FDI hopes p4


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Retail FDI draft before cabinet
THEIT department wanted a clause for 30 per cent domestic sourcing and similar concerns were raised by the textiles and food processing ministries.

Subsequently, a consensus on the exact contours of the draft note was arrived at, and it was decided by DIPP an objective criterion for what constituted a ‘small industry’ would be defined so as not to violate the country’s WTO commitments. Though the agriculture ministry was in favour of inserting a condition these retailers sourced fresh produce like vegetables and fruits only from ‘poor local farmers’, the consensus view was it was unlikely big foreign retailers would go for large-scale imports for cost reasons. Therefore, it was felt there was no need to spell such a conditionality upfront in the policy draft.

The draft, however, more or less endorses most of the other conditions in the CoS recommendations such as allowing 51 per cent FDI in multi-brand retailing only with government approval, with the minimum amount to be brought by the foreign investor at $100 million, and at least 50 per cent of the total FDI to be invested in ‘back-end infrastructure’.

In order to remove any anomaly the draft clearly defines what constitutes ‘backend’. It includes investment made towards processing, manufacturing, distribution, design improvement, quality control and packaging, amongst others. However, the cost of land and rentals are excluded for this purpose. The calibrated approach for FDI is reflected in the clause that FDI will be allowed only in cities with a population of more than one million as per the 2011 census and may also cover an area 10 kms around the municipal limits of such cities. There are 51 cities with a population of more than one million, based on the 2011 census, and that provides foreign retailers a substantial scope for expansion. Another rider proposed in the CoS deliberations — reservation of aminimum percentage of jobs for the rural youth — has also not been included in the note.

While it has not added any clause that permission from state governments will be required (again proposed in the COS deliberations) the draft note makes it clear retail locations will be restricted to conforming areas as per the master or zonal plans of the concerned cities and a provision has to be made for requisite facilities such as transport connectivity and parking.

The government in the draft has also inserted some key conditions for allowing 100 per cent FDI in single-brand retail. So only products sold under the same brand name internationally will be allowed. Product retailing would cover only those products that are branded during manufacturing and the foreign investor should be the owner of the brand. The government decided to hike FDI in singlebrand retail after it was clear the current policy had not been very attractive. From February 2006, when the government allowed 51 per cent FDI in single-brand retail, to August 2011 FDI proposals through the route worth $137 million were cleared. But, actual inflows of only $44.55 million have come, accounting for only 0.03 per cent of total FDI inflows.

FROM PAGE 1

Service tax trade notice

Please find in detail Procedure and documents required in respect of Centralised registrations vide TRADE NOTICE No. 03 /2011-12–ST


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Sub:- Procedure and documents required in respect of Centralised registrations under Rule 4(2)(iii) of Service Tax Rules, 1994–reg.

Attention of the trade is invited to Trade Notice No. 25/2005-ST dated — September 2005 issued by this office where in the procedure for submitting application for Centralisedregistration under Rule 4(2)(iii) of Service TaxRules , 1944 (as amended) was laid down.

2. The existing procedure and documents required to be filed along with application for CentralizedRegistration has been reviewed. In order to simplify the procedure and to follow the uniform practice in all the Divisions, a new procedure has been devised. The salient features of the new procedure are given below:

(i) A Service Provider desiring to obtain Centralized Registration for the first time for all theirbranches or converting from single registration/s to Centralised Registration, shall make an online application in ST-1 Form on the website www.aces.gov.in. After making online application, the print-out of the ST-1 application along with required documents as given in Annexure – I, shall be filed to the office to the jurisdictional Divisional Deputy / Assistant Commissioner.

(ii) Along with the application, details of the Branches to be included in the CentralizedRegistration and other relevant information like details of Show Cause Notices pending adjudication, pending appeals, Audit conducted, Court cases etc. for each branch (which is an existing Service Tax registered assessee) should also be filled. These information are required to be given in Annexure– II. After grant of Centralized Registration, copy of said Annexure shall be sent by the Divisional Officer to the respective jurisdictional Service Tax office-in-charge of erstwhile branch office, to transfer the relevant records to this office for taking further action and to update the records. Applicants are requested to be careful in providing full and correct information. In case of incomplete or wrong information, the Centralized Registration may be considered for cancellation.

(iii) It is clarified that in terms of provisions of Rule 4(2)(iii) of the Service Tax Rules 1944 (as amended), the Centralized Registration can be requested only in the cases where there is system of Centralized Billing or Centralized Accounting system. The assessee shall provide a write-up stating as to how they are satisfying the condition of Centralized Billing or Centralized Accounting. For this purpose, certain information are also required to be filled, as per Annexure – III of the trade notice.

(iv) Further, the assessee seeking the Centralized Registration shall file an Undertaking on their Letter Head as per Annexure – IV of the Trade Notice. The main purpose of the said Undertaking is that after obtaining Centralized Registration, the assessee shall be bound to produce the required information to the Department for taking necessary action like issue of Show Cause Notice or conducting Audit, etc.

(v) As a measure of simplification, it is clarified that branches for which registration has already been obtained, no further documents regarding address proof would be called for, in case the address remains the same, as found available on Registration Certificate namely ST-2.

(vi) After the Centralized Registration is granted, the assessee shall surrender their singleregistration in respect of each branch and intimate to the jurisdictional Divisional Assistant Commissioner/Deputy Commissioner within a period of two months. They will also inform to the AC/DC, Service Tax, under whose jurisdiction Centralized Registration has been given, the amount of cenvat credit lying in balance in each branch, on the date of obtaining the CentralizedRegistration, with a period of 15 days of obtaining the Centralized registration.

(vii) In case of application for amendment in Centralized Registration Certificate, required documents to be filed have been given in Annexure –V.

3. Till the date of communication of granting of Centralized Registration, the assessee should continue to make service tax payment to the existing jurisdictional office and follow procedure as provided in the law for each of the premises regularly.

4. The Authorized Signatory of the applicant should ensure that all the columns in the ST-I, including the declaration are duly completed. The entries should be correctly and legibly filled in order to avoid delay in issuance of the registration. Only legible copies of the documents should be submitted to the department.

(SUSHIL SOLANKI)

COMMISSIONER,

SERVICE TAX-I, MUMBAI.

F.No.V/ST-I/Tech-II/CR/ReviewProcedure/347/11/

Mumbai, .10.2011.

_______________________

Annexure-(I)

LIST OF DOCUMENTS AND THE CHECK-LIST FOR APPLICATION OF CENTRALISEDREGISTRATION

(For fresh Centralised Registration or conversion from single registration to Centralized Registration)

Sr. No. PARTICULARS
YES/NO PAGE No.

1 Print out of the filled in ST-1 duly signed by the Director/partner/ proprietor/ authorized person at the end of the application,
2 Information with regard to the branches for which single registration has already been taken as per Annexure-II.
3







A.













B


Documents Required for new branches and Centralized Registration office which is notregistered with Service Tax Deptt:a. List of newbranches, which are not registered so far (Name and Address of branches sought to be centrallyregistered).b. Name and Address of the place from where centralized accounting/billing is sought to be donec. Address proof of (a) and (b) above.(No address proof required for existingbranches, for which ST-2 Certificate has been issued, if address remains the same as per the existing ST-2. Address proof is required only forbranches and office which are not registered withservice tax department)Proof of Address : Two documents are required. One document for each category A & B is required.

Any one of the following documents :

1.Land line Telephone Bill not older than 3 months,

2. Electricity Bill not older than 3 months,

3.Copy of Bank Account statement showing the name of the applicant and address of the premises as mentioned with application, not older than 3 months,

AND

(I) Any one of the following documents: In case of self owned property any document like Annual tax payment receipt showing name of applicant, or copy of sale deed etc. may be provided.

(II) In case of a rented premises :

(a) Leave License/rent agreement or rentreceipt of Registered Co. Op. Housing Society, at least for a tenure not less than one year from the date of application for Registration, and in case the Annual Rent amount payable is more than Rs. 10 Lakhs, the Service Tax Registration number of owner

OR

(b) In case the Leave License Agreement or RentReceipt is not made in the name of the applicant and the Lessee is related /associate person of the tenant / lessee, then the Rent Agreement between original lessor and applicant shall be produced along with following document/ details

(i) Relationship between applicant and lessee/ tenant, and

(ii) No objection Certificate for carrying out the business of applicant from the owner of the premises, and

(iii) Photo ID proof of the person giving NOC i.e. owner of the premises, and

(iv) If the Annual Rent payable by applicant to lessee/tenant and in case Annual Rent is more than Rs. 10 Lakhs, the Service Tax Registration Number of lessee/ tenant,

4 Details of the Director / Partners / Proprietors/Authorized Signatorya) Name and address of the Directors / Partners /Proprietor, (Note II),b) Name and address of Authorised signatory (Note I),c) Copy of PAN Card of (a) &(b) above,d) Identity Proof of (a) & (b)(submit any one of the following).

1.Passport,
2.Voter Identity Card,
3.Driving Licence,
4.Bank Passbook showing name and address, along with photograph,
Note – I) In case of Authorized Signatory please submit the Authorisation by the Partner / Proprietor/Director of the Firm. In the case of a Company, please submit Board Resolution,

Note – II ) In case of partnership Firm, Company under the Companies Act or Association of persons (Like Trust), Co-operative Societies, please give the identity proof and copy of PAN documents only for 3 partners/directors/trustees, who are actively involved in running the affair of business

5. Copy of PAN Card of the applicant -
6. Details of the three major Bank Accounts of the Applicant (attach photocopy of blank cheque)a)Name of the Bank and Addressb) Account Number
7. Questionnaire for Centralized Accounting / Billing in Annexure III
8. Undertaking in Annexure IV.


ANNEXURE-II

INFORMATION WITH RESPECT TO BRANCHES WHICH ARE ALREADY REGISTERED WITH SERVICE TAX

1) Details of branches for which S.T. registration has been taken (Please give the details in the table below)

Address of Branches STC No.(Please also attach copy of ST-2) Address of jurisdictional C.Ex./Service Tax Authorities (Commissionerate,Divn,Range) Date of Registration Date and Period for which last ST-3 return filed Closing balance of CENVAT credit as per last ST-3 return filed (as per col. 5)
1
2
3
4
5
6


2) Details of SCN issued which are pending adjudication-

Address of Branches STC No. SCN No. & Date Period covered Issue in brief Amount demanded (in Rs.) Authority to whom SCN is answerable i.e. Commr., /ADC /JC/DC/AC/Supdt.
1
2
3
4
5
6
7


3) Whether any case is pending with Appellate Authorities/Court. If yes, provide following details with regard to each authority as mentioned below, in the prescribed format as under:

Authorities

Commissioner (Appeals),
Tribunal,
Settlement Commission,
High Court,
Supreme Court ,
Addressof Branches STC No. Order No& Date appealed against Authority and place where appeal is pending Issue in brief Amount demanded(showing duty & penalty separately) Date of filing appeal If filed with Stay
Application, the Stay Order No. & date,

Business standard update18-11-2011

TAXMAN TO MILK 80K CR FROM TRANSFER PRICING

NSUNDARESHA SUBRAMANIAN &SANTOSH TIWARI Mumbai/New Delhi, 17 November
The ghost of transfer pricing has returned this year to haunt multinational companies doing business in India and Indian companies with a big presence abroad. The cashstrapped government is looking at huge adjustment orders, running into a few billion dollars in some cases, as a way to improve the tax mop-up.

Two income tax department officials said the department was very aggressive on transfer pricing. “We have been told to collect as much as possible through demands raised on transfer pricing,” said one of the officials. The finance ministry wants to collect `5.85 lakh crore in direct taxes by March —30 per cent more than what it did last financial year. So far, it’s well short of the halfway mark, having collected `2.19 lakh crore till October.

Consultants estimate the taxman is planning to raise

`80,000 crore from transfer pricing adjustment orders to make good on its direct tax shortfall for the financial year.

Transfer pricing refers to the adjustment of charges between related parties for goods, services or use of property. It is a recent phenomenon and an emerging area of taxation globally. It was brought into existence by the emergence of multinationals, which have led to billions of dollars moving across countries within a single company.

Companies and advisors are, however, not in the mood to put up the money without getting into lengthy litigation.

“They are finding new ways to raise claims. The numbers are ballooning. This is only going to result in disputes clogging the litigation channels,” said Sudhir Kapadia, partner and national tax leader, Ernst and Young Pvt Ltd.

3GSPL, a Vodafone group firm, has already said it will dispute a `8,500 crore adjustment order passed by the department recently. Global technology and telecom majors, consumer goods multinationals and foreign banks with support facilities in India are prime targets for these transfer pricing orders. One of the major sources of claims this year is lending to group firms, officials say. The tax department has raised tax demands on a host of companies for charging belowmarket interest rates on lending to subsidiaries.

According to officials, the I-T department has put a floor of 16 per cent interest rate for domestic lending here, and the difference of any rate below it (for example, if the lending to asubsidiary has been at 13 per cent, this will be 16 minus 13 i.e. three per cent) will be computed as income and, therefore, be liable for tax.

According to Kapadia, when the lending is made to an entity abroad, it has to be benchmarked with international rates, which are much lower. “How can you benchmark international lending with domestic rates? That is the economic argument here,” he said.

He added efforts for the recovery of transfer pricing tax dues from the companies were expected to intensify from December. The department has been tightening its noose around transfer pricing by making changes in the provisions in the past few years.

Turn to Page 16

Companies gear up for legal battle as govt makes a dash for cash

KEY DISPUTE AREAS

IT/telecom

Margins of captive, R&D facilities

Pharma

Intellectual property rights, supply chain

Banks

Support facilities/ BPO operations

FMCG

Royalty payments and advertising spends on global brands

Others

Pricing of imports, cross-border lending, corporate guarantees GRAPHIC: NEERAJ TIWARI


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Click here to read more...
Transfer pricing ...
Section 92CA of the Income Tax Act provides the Transfer Pricing Officer (TPO) can determine the arms length price (ALP) in relation to an international transaction, which has been referred to the TPO by the assessing officer. The law also empowers officials to conduct an inquiry or investigation while determining pricing and even raise further claims on issues that may come up during such a process.

While this has led to an increase in claims, it also has created a situation where different I-T field formations are using different figures to raise tax demands on companies.

A senior Central Board of Direct Taxes official, however, said, “More references would have come on transfer pricing from the assessing officers this year and that is why more notices have been going to companies. Notices are directly proportional to the references on transfer pricing tax dues calculations.” Experts say ambiguity in the provisions is leading to unreasonable demands and lengthy disputes.

Arun Jethmalani, managing director, Valuenotes Database Pvt Ltd, said, “Laws for transfer pricing are ambiguous and subjective. There are no set criteria for various costs. In such a situation, any time the government can say I don’t agree with your treatment. And when the government needs money, it will do it.” Officials say this is a vicious cycle created by the stress on tax collections due to the huge refunds issued this year. “Even if a substantial recovery is made on these demands this year, they would be rejected in the appeal. That will lead to refunds,” he explained. Jethmalani points out even companies that consciously want to keep away from trouble can’t do it. “Companies spend a lot and appoint big consulting firms. But, even they get into trouble because there is no consistency,” he said.

Kapadia of Ernst & Young pointed out the government had proposed an Advance Pricing Authority to help companies know the tax treatment of their transactions in advance. “It is high time we implemented the Budget recommendations. Companies can get into advance pricing agreements and avoid several hundred rulings going into disputes. That is the need of the hour.” According to a recent survey by E&Y on transfer pricing, the level of satisfaction with such advance pricing agreements as a controversy management tool is high — 90 per cent of those who have used them would do so again.

FROM PAGE 1
‘Pranab approved decision to set aside NSDL order’

NSUNDARESHA SUBRAMANIAN Mumbai, 17 November
FINANCE minister Pranab Mukherjee had approved the controversial decision taken by the Securities and Exchange Board of India (Sebi) to set aside a committee order on the National Securities Depository (NSDL) issue, say sources.

“The decision was approved by Mukherjee on the file put up to him prior to the board meeting,” said an official who was present at the said meeting. After C B Bhave took over as Sebi chairman in 2008, a panel constituting then part-time members Mohan Gopal and V Leeladhar was formed to investigate and adjudicate pending matters in the NSDL case. Bhave, who had headed NSDL till then, had formally recused himself from the matter.

The panel passed two critical orders on the matter, which were declared “null and void” by Sebi. The entire issue has been energised since there is a court challenge on appointment of Bhave’s successor and related matters.

The financial ministry’s response to the suit cites the controversy surrounding the NSDL case as the key reason for not granting an extension to Bhave. The suit alleges irregularities in not granting an extension. In a media interview, Gopal had accused the then board of pressurising him to reverse the order. However, speaking under cover of anonymity, senior officials said his committee took extraordinary interest in the NSDL matter and acted in a preconceived manner. “The committee members seemed to have made up its mind about what they wanted to write.” Officials said the committee had given new life to a sentence from an earlier order, which was deleted by the Securities Appellate Tribunal.

“There was a sentence in the earlier Sebi order on fixing professional and management and individual liability on the management of NSDL in the order by Anantharaman.
LIFE INSURANCE PREMIUM
GOVT’S THREE-WAY STRATEGY TO BOOST COLLECTION

NILADRI BHATTACHARYA Mumbai, 17 November
The finance ministry has prescribed a three-pronged strategy to arrest the slide in premium growth in the life insurance sector. This follows the industry asking the government to revive the sector, as business growth saw a decline since new regulations on unit linked plans were introduced in September 2010.

Sources said the finance ministry had identified the impasse surrounding pension plans as the main reason behind dwindling sales. The challenging economic scenario, high interest rates and a choppy equity market added to the woes. During the first six months of the current financial year, life insurance sales were down 22 per cent, while the number of policies issued by these companies declined 17 per cent.

The finance ministry has prescribes three measures: First, allowing more options to customers in terms of pension plans, without any guarantee. Second, erstwhile popular unitlinked plans may be revived, but under a different product category and third, relaxing debt investment norms by allowing insurance companies to invest outside AAA rated papers.


The move assumes importance, considering the Insurance Bill is still pending in Parliament. The Bill seeks to raise the foreign direct investment limit for the insurance sector from 26 per cent to 49 per cent.

"We have conveyed our deliberations on the current health of the industry to the ministry. It has assured us it would will look into the matter,” S B Mathur, secretary, Life Insurance Council, the representative body for the life insurance industry, told Business Standard .He added the primary reason behind the decline in industry sales was pension plans, which had no takers at the moment.

According to data collected by Life Insurance Council, premiums collected from pension plans stood at `600 crore in the first six months of 2011-12, compared with `18,000 crore in 2010-11. This was mainly due to the new regulations on pension products, mandating a minimum annual guarantee of 4.5 per cent, which came into effect in September 2010.

The industry failed to recover, even though the Insurance Regulatory and Development Authority (Irda) dropped the 4.5 per cent minimum guarantee clause from such products. To revive the sector, the government has asked Irda to consider allowing more choices to customers, and these may include products without guarantees. “The current guideline restricts investments in equities, as there is a guarantee element. So, young customers who can afford to take risks are shying away from the product. So, there must be some options,” said a source.

The regulator may also allow erstwhile popular unitlinked pension products, albeit under a different category. “Pension plans sold earlier did not fit the definition of pension. However, these products, which were accumulative in nature, can be treated as a different category,” Irda Chairman, J Hari Narayan, said at a recent industry seminar.

Another concern for the ministry is the decline in equity and debt inflows from insurance companies. Equity inflows fell, as the sales mix shifted in favour of traditional policies. Unlike unit-linked products, in which up to 95 per cent of the funds can be deployed in equity, traditional plans cap equity exposure at 25 per cent. After the new guidelines came into effect, the mix between unit-linked and traditional policies, which was earlier 80:20, reversed.

With more money to be invested in debt, insurance companies are also tied down by the regulation that mandates that 75 per cent of its debt investments be in AAA rated papers. Hence, the government has prescribed a relaxation in this norm, allowing investments in lower rated papers. “There are alot of good companies which have AA+, AA, AA- and A+ rated issues and these can be safe options for insurance companies,” said a source.

Prescription

Allowing more options to customers in terms of pension plans, without any guarantee

Erstwhile popular Ulip pension plans would come in New Avtar

Tweaking debt investment norms by allowing insurance firms to invest outside AAA rated papers

Concerns

New premium collection down 22% in 2011-12

No of policies issued down 17% in 2011-12

Collection under pension plan down to `600 crore

Ulips accounting for only 18% of the total sales

SNAPSHOT
FII CAPS ON G-SEC, CORPORATE BONDS UP

BS REPORTER New Delhi, 17 November
The finance ministry today decided to increase the investment limit for foreign institutional investors (FIIs) in government securities and corporate bonds by $5 billion each. FIIs would be able to invest up to $15 billion in government securities, compared with the current $10 billion ( `43,650 crore), and up to $20 billion ( `74,416 crore) in corporate bonds, compared with the current $15 billion.

“The incremental limit of $5 billion can be invested in securities without any residual maturity criterion,” the ministry said in an official statement. The Securities and Exchange Board of India is expected to issue a circular that would bring into effect these changes in the next few days.

As on October 31, against a ceiling of `43, 650 crore in government securities, FIIs had invested `41,253 crore, while against a cap of `74,416 crore in corporate bonds, FIIs had invested

`68,289 crore. “In view of this, there is little space available for further FII investments in government securities and corporate bond markets. The policy has been reviewed in the context of India’s evolving macroeconomic situation, the need for enhancing capital flows and making available additional financial resources for India’s corporate sector,” the ministry said.

The last enhancement in these investment limits for FIIs was carried out on September 23, 2010. The ministry hopes these enhancements would increase investments in debt securities and help further develop the government securities and the corporate bond markets in the country. Officials said the ministrys next focus would be allowing qualified foreign investors in equity.

Apart from government securities and corporate bonds, there is a limit of $25 billion ( `112,095 crore) for FIIs investing in long-term infrastructure bonds. In the wake of subdued response from FIIs for investment in such bonds, the finance ministry had recently eased the norms for investing in the scheme and had reduced the residual maturity limit and the lockin period for investment in such bonds.

Among other recent key decisions, the ministry had allowed high net worth individuals to invest in infra debt funds, said infrastructure finance companies were eligible issuers for FIIs debt limit for infrastructure and allowed the refinance of buyers/suppliers credit through extra commercial borrowings (ECBs). It had also permitted interest during construction under ECBs, allowed availing of ECBs denominated in rupee (since the borrower was insulated from the exchange rate risk) and given clarity on equity definition for ECBs from foreign equity holders.

With interest rates in the country ruling high, the finance ministry had also allowed Indian companies to raise cheaper funds abroad to refinance their rupee loans. It had also said Chinas renminbi was an acceptable currency under ECBs with aceiling of $1 billion.

AFTER THE NEW NORMS COME INTO EFFECT,

FIIs would be able to invest up to $15 billion in government securities, and up to $20 billion in corporate bonds

CLAIMING HRA? GET THE HOUSE OWNER’S PAN
due date, may

NEHA PANDEY
Kalpana Sinha, a tenant in a Mumbai suburb, often tells her house owner that her payment of rentals —

`30,000 a month — do not allow her to claim tax benefits. While the owner is willing to give her atemporary receipt, it contains little detail about the owner.

Sinha would be relieved at the latest circular from the Central Board of Direct taxes, which says that rentals of more than `1.8 lakh a year need to have proper documentation, with the owners permanent account number (PAN).

Similarly, many chartered accountant advise clients that they can claim house rent allowance (HRA) even if staying in their parents or spouses flat. That is, they can pay the rent to their spouse or parents and claim the same. And, often, parents or spouse (especially, if she is a housewife) do not have a PAN. Sometimes, when both are working, they pay rents to each other.

Such people now need to be more careful. Payment of HRA can be traced through their spouse or parents PAN numbers. As a result, taxes will have to be paid on such rentals by the recipient.

Amitabh Singh, tax partner at Ernst & Young, explains, "There are many who show they pay rent to their family member and claim HRA benefits. The employee may be doing this only to get HRA and the family member may not be reporting the rental income." This is mostly practised where the HRA in question is a big amount. Hence, the tax authorities have kept a threshold of `1.8 lakh or rent of `15,000 amonth.

In case the house owner does not have a PAN, a declaration to this effect from him/her, with name and address, should be filed by the tenant-employee, it further says. It should be signed by the landlord, with a valid identity proof such as passport details, ration card or voters card. A copy of the declaration format should be given to the tenant.

Since the circulars introduction in August, tax consultants say they have started advising clients to obtain the PAN of the house owner. They say if this is not furnished before the due dates for filing proofs on tax-saving investments, that is, before February 2012, the HRA benefits may be withdrawn, because there are no alternatives provided in the circular if the woners PAN/declaration is not available. And, the additional tax liability for 2011-12 may be recovered between January and March 2012.

However, the circular is silent on whether the employees HRA can be honoured in the absence of such documentation. "Because, the law or the Income Tax Act does not prohibit anyone from getting HRA benefits in the absence of landlords details," says Kaushik Mukherjee, ED (tax & regulatory practices), PricewaterhouseCoopers. Section 10 (13A) on HRA benefits does not have any clause where the claim will not be honoured if the house owners details are not attached by the tenant or HRA claimant.

Experts say as long as you can provide details like the rent receipt or rent agreement, there should not be any problem. And, rent agreements are supposed to also have the house owners PAN details. "The problem gets solved if you pay the rent online or through cheques. You can also show your bank account statements. These are good enough proofs and you cannot be denied your claim," says Homi Mistry, tax partner at Deloitte, Haskins and Sells.

A LOOK AT THE RULES

CBDT circular says rentals of over `1.8 lakh a year need the owner’s PAN

Those paying rent to parents’ or spouse’s flat will need to show PAN

Owner needs to give declaration in absence of PAN

HRA payment can be traced through owner’s PAN

Cash rentals mostly practised when HRA is huge, hence the threshold of `1.8 lakh

Owner’s PAN, if not furnished before result in HRA benefits being withdrawn

Business standard news update 17-11-2011

CABINET NOD TO PFRDA BILL
LAW WON’T SET TARGET FOR PENSION RETURNS

BS REPORTER New Delhi, 16 November
The Union cabinet today gave its nod to amendments in the Pension Fund Regulatory and Development Authority (PFRDA) Bill, which seeks to allow foreign players entry in the pension sector. Foreign direct investment (FDI) in the pension sector is likely to be kept at 26 per cent in line with the insurance sector. But, the cap will not be incorporated in the legislation.

The FDI cap will be communicated through an executive order to give flexibility to the government to change it whenever required. As a result, when the Insurance Bill proposing an increase in the FDI limit to 49 per cent is cleared, the government would have the flexibility to change the limit for pension, too.

The Bill also refrains from having a provision for assured returns to subscribers, as the government thinks it might involve huge, open-ended payments from its budget in case subscribers’ wealth doesn’t meet the minimum target.

“The government is of the view the FDI cap in pension should be 26 per cent, on a par with the insurance sector. However, it would like to retain the flexibility of changing the cap, which is why it has not been included in the Bill. The proposed legislation will not provide assured returns to the subscribers of pension schemes,” an official spokesperson said.

The clearance has paved the way for the Bill’s introduction in the Winter session of Parliament beginning on November 22.

The Bill has already been considered by a parliamentary standing committee. It will give statutory powers to the PFRDA to form rules on pension funds. At present, the PFRDA makes rules only for the new pension system.


The standing committee, headed by BJP leader Yashwant Sinha, had suggested prescribing the cap in the legislation itself and making a provision for minimum guaranteed returns. The government is of the view the foreign investment ceiling for the sector may not be specified under Foreign Exchange Management Act, 1999 (Fema) regulations.

Only for the insurance sector is the FDI cap determined, under the Insurance Act. For other sectors, including private sector banks, stock exchanges, depositories, asset reconstruction companies, clearing corporations and credit information companies, it is not determined under their respective legislation. The government also turned down the committee’s recommendation for allowing greater flexibility to subscribers for premature fund withdrawals from their accounts.

After the committee’s report came, the government has made only one amendment to the Bill. It proposed a pension advisory committee, with greater participation from employees and stakeholders, to have a look at the regulation on the lines of the insurance sector. Today’s approval was essentially for this amendment, as the rest of the Bill remains unchanged.

26% FDI cap in sector not incorporated in Bill as govt retains flexibility

THE GOVT HAS JUNKED THE RECOMMENDATION TO LET

subscribers have greater flexibility to make premature withdrawals of funds put in their accounts

ECONOMY, P4

Cabinet raises Exim Bank’s capital to `10,000 cr

Ashok Leyland to consolidate all group companies

TE NARASIMHAN Chennai, 16 November
COMMERCIAL vehicle major Ashok Leyland Ltd (ALL), aHinduja Group company, is planning to consolidate its associate companies into one.

This includes its light commercial vehicles (LCV) joint venture with Nissan and construction equipment manufacturing venture with John Deere. The company also said it was scouting for partners for building vehicle bodies in India and potential acquisition abroad. ALL is also planning to redesign sales strategy to regain lost market share.

KSridharan, chief financial officer, told Business Standard :“This (consolidation) will be one of the major steps we will take and it will be after the IFRS (International Financial Reporting Standards, which all companies have to adopt on a government-approved schedule) comes into effect. Six companies will be consolidated into one company and the financials of these companies will be taken into ALLs balance sheet.” The companies include Ashok Leyland Nissan Vehicles Ltd to manufacture LCV; Nissan Ashok Leyland Powertrain Ltd, manufacturers of powertrain to LCV vehicles, and Nissan Ashok Leyland Technologies Ltd, partner with Nissan to develop related automotive technology.

An ALL-Nissan developed LCV model, Dost, was launched recently and the partners have set a target of 140,000 vehicle sales over the next three years. Sridharan said production capacity was ready, but the supply chain needed to be ramped up.

Another JV is Ashok Leyland John Deere Construction Equipment Company Pvt Ltd. Its first product is to be rolled out next week. Then, there are Ashley Alteams India Ltd, a JV between Finland-based Alteams and ALL to manufacture aluminum die-casting, and Automotive Infotronics Pvt Ltd, to design and develop digital electronics products for the transportation sector. In all these joint ventures, ALL holds 48-50 per cent and its share of assets in these JVs were worth

`379.5 crore as on March 31, 2011, and earned income of around `51.3 crore, according to ALLs annual report.

ALL-John Deere is set to roll-out its first excavators from the Gummidipoondi facility near this city during the current calendar year.

Backhoe loaders would come first, followed by wheel loaders. “We will also supply engines to our partner,” said Sridharan.

ALL’s market share in the medium and heavy commercial vehicle segment was 22.2 per cent during the first quarter of the current financial year. It has said it is aiming for 25 per cent. The company has set a target of selling 100,000 vehicles in both the domestic and export markets.

“Non-availability of body building, for both buses and tippers, is one of the major growth constraints for the company and for the industry,” said Sridharan. He said ALL was open for strategic alliances for body building in India and for acquisitions outside India.

THE COMMERCIAL VEHICLE MAJOR ALSO WANTS PARTNERS FOR VEHICLE BODY MANUFACTURING,

and acquisitions abroad; sales strategy is being reviewed to stop market share slide

Business standard news update 16-11-2011

LABOUR WOES IN MANUFACTURING ZONES TO CONTINUE

AKSHAT KAUSHAL New Delhi, 15 November
The National Manufacturing Policy (NMP) aims to increase the percentage share of the sector in the gross domestic product (GDP) to 25 by 2025 from the present 16. Even so, the administrative step, which aims to create 100 million jobs over a decade, has not addressed the bureaucratic hurdles in getting labour clearances inside the national manufacturing zones (NMZ).

Sources in the labour ministry say minister Mallikarjun Kharge has had his way in the Cabinet to ensure that the NMZs did not curtail labour laws. Further, Kharge has managed to keep the trade unions happy by fetching legitimacy to workers’ unions inside the NMZs. Also, guidelines for framing of the exit policy inside the NMZs have been been kept in concurrence with the requirements of the labour ministry.

While the special economic zones have seen several labour laws being by-passed within their geographical confines, that is not the case with the NMP. As a labour ministry official, who was involved in the framing of the policy that got government nod three weeks ago, notes, the policy has succeeded in addressing all the concerns of the ministry. “The part relating to labour in the NMP is largely the input we had sent to the DIPP (Department of Industrial Policy and Promotion),” he adds. “There is no change in either any labour law or its implementation inside an NMZ.” Officials in the know of the development say there is only change that has been made in the policy when it comes to labour laws: to integrate various labour offices under a single vertical of the CEO.

Under the NMP, which the Union Cabinet approved on October 25, the powers to enforce and inspect labour laws have been transferred to the CEO of the NMZ. However, the powers of designing the enforcement mechanism have been retained by the labour ministry. According to the ministry’s officials, this meant no change in the functioning of the labour bureaucracy.

The ministry and the DIPP —it spearheads the NMP — had for long disagreed over the agency that would enforce the labour laws in the NMZs. Earlier, the ministry maintained that “under no circumstances” would it “outsource” labour inspection powers to any other agency, much to the displeasure of the DIPP. Finally, both reached an agreement after the ministry was allowed to handle the enforcement mechanism of labour laws. The DIPP was made happy after the clearance of its proposal that an NMZ CEO should be the head of the labour machinery.

UNION LABOUR MINISTER MALLIKARJUN KHARGE

has managed to keep the trade unions happy by fetching legitimacy to workers’ unions inside the national manufacturing zones

Scramble of creditors

It is not exactly like the Greek tragedy being played out in Europe, but the scramble of creditors when a company sinks could be messier still. There are queues of secured and unsecured creditors, taxmen from different revenue departments, claims from managers of provident fund, pension fund and other welfare schemes, and employees themselves demanding wages. Setting priority has been a contentious task for courts.
Though the Companies Act and various labour welfare laws have tried to bring order in the snarl-up, litigation could not be avoided. The problem is compounded by draftsmen giving precedence to their latest work by adding the phrase, “notwithstanding other laws”. When each law is conferred primacy, the court has to interpret and find out which law prevails over the other. Last week, the Supreme Court resolved such a conflict between provisions of the Companies Act and the Employees Provident Fund Act in the leading judgment, EPF Commissioner vs Official Liquidator .

In this batch of cases, the Gujarat High Court had passed winding up orders of certain companies and official liquidators had been appointed to look after the properties and clear debts. The EPF Commissioner approached the official liquidator for payment of dues but he did not get any response. Therefore, he moved the company judge for the amounts, arguing that that liability was the first charge on the assets of the company. The claim was rejected, leading to the appeal in the Supreme Court.

According to Section 529-A of the Companies Act, payments due to workers and secured creditors get equal priority “notwithstanding anything contained in any other law.” These rights shall march over those of others. This was the view of the high court.

The catch is that the EPF Act also contains a “notwithstanding” clause. According to Section 11(2), the amount due from an employer in respect of employees’ contribution is treated as the first charge on the assets of the company and is payable in preference to all other debts. Faced with this dilemma, the court had to interpret the laws according to the intent of the law-makers. Since priority is a moot question, various laws like the Recovery of Debts Due to Banks and Financial Institutions Act and the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, apart from sales tax laws, the Workmen’s Compensation Act and State Financial Corporations Act also come into play.

Every part of a statute, said the court, should be interpreted in the context in which it is enacted. The purpose of the legislation should be kept in mind while construing the provisions. They should be looked at with the “glasses of the statutemaker”. No part of the legislation can be looked at in isolation. This is so especially, as in this case, if two special enactments contain provisions that confer overriding effect to the provisions in the other. Viewed from that angle, the dues of the workers should be the first charge.

Moreover, the EPF Act is a welfare legislation, intended to protect the interest of the weaker sections of society, that is workers employed in factories and other establishments, “who have made significant contribution to the economic growth of the country,” the judgment emphasised. Therefore, a law made for their benefit must receive liberal and purposive interpretation in view of the Directive Principles of State Policy of the Constitution (Articles 38 and 43). A bare, mechanical interpretation will reduce most laws to futility.

Employees, facing the “superannuated winter of their lives”, thus, got protection from the court. It summarised the rule thus: All revenues, taxes, cesses and rates due from the company to the central or state governments or local authorities, all wages of any employee and all sums due to any employee from the provident fund, the pension fund, gratuity fund or any other fund for the welfare of the employees maintained by the company are payable in priority to all other debts. Further, the provident fund contribution will be the first charge on the assets of the establishment. However, other dues to the employees do not get the same priority. Those will be on par with those of the secured creditors as the company law stands.

Armed with these powers, the PF commissioner has acted dramatically sometimes. In the case,

Maharashtra State Co-op Bank vs

PF Commissioner ,two sugar mills had pledged their stocks with the bank for getting loans. However, they did not contribute to the provident fund. Therefore, the commissioner took over the sugar bags in the custody of the bank and sold them to recover the dues of the mills. The bank then moved the Bombay High Court arguing that the goods belonged to them. The high court rejected this contention. On appeal, the Supreme Court reiterated that the provident fund dues would take precedence over other secured debts.

Supreme Court sets order of precedence in recovery of dues

OUT OF COURT

MJ ANTONY

Business standard news updates 15-11-2011

Effective corporate governance vital, banks told
can be restricted to stakeBS REPORTER
holders. But if a bank fails, Mumbai, 14 November
the impact can spread rapid

BEING at centre of the economy, banks must ensure effective corporate governance to avoid the spread of failures to the financial system, the Reserve Bank of India (RBI) has said.
Issues related to corporate governance that need adequate attention include bank ownership, accountability, transparency and ethics compensation, RBI has said in the Report on Trend and Progress of Banking in India 2010-11.

Splitting the posts of chairman and chief executive officer in banks and corporate governance under a financial holding company structure also deserve adequate attention, it said.

Banks are interconnected in diverse, complex and opaque ways, underscoring their contagion potential. If acorporate fails, the fallout ly to other banks, with potentially serious consequences for the entire system, the central bank said. It added the corporate governance of banks was not only different, but also more critical.

Banks are the conduits of monetary policy transmission and constitute the economys payment and settlement system. Also, by the very nature of their business, banks are highly leveraged, the report said. Banks accept large public funds as deposits in a fiduciary capacity and further leverage these funds through credit creation, RBI said.

Regulation has a role to play in ensuring robust corporate standards in banks. However, though effective regulation is necessary, it is not a sufficient condition for good corporate governance, RBI added.

MERGINGIN

The newly-appointed Competition Commission of India (CCI) Chairman, Ashok Chawla, is ahead of our scheduled time of meeting. As I enter Spice Route – the dimly-lit restaurant at The Imperial – and ask the waiter to look for a quiet corner, I spot Chawla already seated and find that he has chosen a place that has more light than the rest of the restaurant. “You see, I came early because I was afraid that the traffic might delay me,” says Chawla, clad in his trademark dark suit and a crimson-red tie. A four-decade long stint in government service does not seem to have affected him in any way. He has neither lost that smile, nor have his mannerisms changed. He says he still prefers spending his evenings in a quiet corner of his home with his family, writes A K Bhattacharya .
Chawla was not an automatic choice for the job he holds now — overseeing mergers and acquisitions of companies as a regulator. After an M A in Economics from the Delhi School of Economics in 1972, Chawla did what most young men and women did those days — prepare for examinations to qualify as an Indian Administrative Service officer or as a State Bank of India probationary officer. He qualified for both. So, he served the country’s largest bank for a few months before joining the government as an IAS officer to be part of the famed steel frame. He was allotted Gujarat for his state posting, a state he had never been to and where he eventually spent the first 11 years as a civil servant. But very early in his career, fortuitous developments made him a collector in an important district like Ahmedabad.

As Chawla is about to reveal what those fortuitous developments were, I interrupt him to enquire about his food preferences. He is not averse to sea food and wants to go straight to the main course without much ado. I insist that he must have a soup at least. Chawla relents and after some more deliberation, we settle for Tom Kha with chicken for both of us. For the main course, Chawla goes for jumbo prawns in tomato sauce and steamed rice, and Ifollow suit. With the ordering out of our way, Chawla is back to narrating how he was made a collector of as large adistrict as Ahmedabad barely six years after his induction into the service. The new governor of Gujarat, Sharada Mukherjee, insisted on the Ahmedabad collector to be his secretary and that created a vacancy. The state government decided to fill that slot with Chawla since it did not want to disturb any other officer with elections around the corner.

The soup has arrived and Chawla likes it. His stints at the Centre, which all IAS officers long for, were very few and all of them were in key economic ministries. The first time he came to New Delhi was in 1983, as deputy secretary in the department of economic affairs in the finance ministry. He would return to this department twice later in his long career — in 2005 as additional secretary and again in 2008 as the finance secretary. Chawla does not suppress his sense of achievement in being associated with key economic ministries and departments throughout his career. His stint in Washington as an economic counsellor in the Indian embassy from 1986 to 1991 was an eye-opener for him since he was privy to various initiatives that the government was taking to avert a payments crisis. Jumbo prawns have arrived with abowl of steamed rice, but Chawla is keen on narrating how his return to Gujarat in the early 1990s honed his skills as a manager. In Ahmedabad, he was asked to take charge of the Sardar Sarovar Narmada Nigam that was to have implemented a massive irrigation project, but the funding of which became a big question mark, with the World Bank and the Japanese government pulling out of their commitment in the wake of environment concerns.

Chimanbhai Patel, chief minister of Gujarat at that time, asked Chawla to do whatever possible to raise funds. Chawla met many bankers and funding agencies in Mumbai. All of them met him for a cup of tea, but when it came to funding the project, beat a hasty retreat. “Only one man came out with a novel idea. Nimesh Kampani of JM Financial said the Nigam could offer deep discount bonds to raise `300 crore for the project,” Chawla says. Soon, the bonds were floated and they were a big success, raising almost `600 crore. The problem, now, was with the markets regulator that insisted that the Sardar Sarovar Narmada Nigam could retain only 25 per cent more than it had originally planned to raise. “The chief minister said, let us not be greedy and we settled for `375 crore and that was perhaps for the first time that long-term bonds were issued to finance irrigation projects in the country,”Chawla says with unconcealed pride.

There was another development that Chawla would never like to forget.

He has the rare privilege of being Mukesh Ambani’s predecessor. As a joint secretary in the ministry of petrochemicals, he had the additional responsibility of heading the Vadodarabased Indian Petrochemicals Corporation Limited (IPCL). That was 2001. The petrochemical giant was up for sale under the privatisation plan put in place by the Atal Bihari Vajpayee government. Reliance Industries Limited won the bid for acquiring a controlling stake in IPCL and one fine morning Mukesh Ambani walked into the company to take charge from Chawla. I ask him if, as the CCI head now, he feels that the acquisition of IPCL by Reliance Industries violated any norms. Chawla looks distracted. After abrief pause, he says the market dominance issues were examined by the government before the acquisition was allowed. “You see, it was then felt that the petrochemicals market was contestable with easy imports and, therefore, there was no fear on the market dominance front,” he says. I do not look convinced by his explanation. He then adds that of course today the situation could be different under a new architecture of a competition law.

Chawla is finished with his main course, but we have not had the time to discuss anything about his plans as head of CCI. I remind him that during his stint in the civil aviation ministry also, there was some controversy over the merger of Air India and Indian Airlines. Chawla admits that merger of two public sector companies is a big challenge and there are cultural issues that need to be understood before any such exercise is undertaken. Did the government allow private airlines to grow at the expense of the state-owned airlines? Chawla says it was a difficult call. Do you want to protect the market for a state-owned airline or allow private operators to grow to meet rising demand for air travel, he asks.

Iam keen on prolonging the discussion and ask Chawla what he’d like for dessert. No, he says, adding that he would only have Darjeeling tea. While we place the order, I ask Chawla if he is happy with the way different sector regulators are gradually encroaching into the territory earmarked for CCI by laying down their own rules of mergers and acquisitions. “Let me state the facts. Mergers in the banking space are already outside my purview, even though I, as finance secretary, had opposed the idea. As for other sector regulators, the rule is not clear, but what we want is that every sector regulator must seek our views on the merger and acquisition norms before giving them a final shape. If that happens, then we should be okay and in any case all these mergers and acquisitions would have to seek our clearance before they can take effect,” Chawla says quite confidently.

Tea has arrived and I ask my last question: What keeps him awake at night? Chawla is amused, but says he has three challenges. He has to build the architecture of competition law with caution and carefully. He has to ensure that the approval procedures are expeditious. And finally, he has to build human resources capacity so that the new system can be implemented fairly and efficiently. Chawla’s vision as the new head of CCI seems to be clear and as we wind up our lunch, I get the feeling that Chawla has not yet allowed the enormity of his new responsibility to get the better of him.

ILLUSTRATION: BINAY SINHA

LUNCH WITH BS ASHOK CHAWLA, CHAIRMAN, CCI

The man at the helm talks about his new role of overseeing M&As as a regulator and his four-decade long stint in government service

LEGAL DIGEST FROM BUSINESS STANDARD 14-11-2011

LEGAL DIGEST
ARBITRATION ALLOWED EVEN AFTER RECEIPT OF PAYMENT: SUPREME COURT


THE Supreme Court has ruled that disputes over payment for work done can be referred to arbitration even after receipt of payment without raising objections. In the judgment Durga Charan Rautry vs State of Orissa, the court stated that “despite receipt of payment on the preparation of the final bill, it was still open to him to raise his unsatisfied claims before an arbitrator, under the contract agreement.” In this case, the contractor undertook a project but there were several disputes over additional payments. The matter was referred to an arbitrator. His award was contested by the state government. The Orissa high court accepted the argument of the state that after the receipt of payment, there could be no arbitration. The contractor moved the Supreme Court, which allowed his appeal. It stated that the government participated in the arbitration and therefore the award has become final. The state was precluded from asserting that the claims raised could not be adjudicated upon by way of arbitration. “Once the disputes were referred for arbitration and the rival parties submitted to the arbitration proceedings without any objection, it is no longer open to either of them to contend that arbitral proceedings were not maintainable,” the judgment said.
Ex-director of company cannot be prosecuted in cheque bouncing case The Supreme Court last week set aside the judgment of the Delhi high court in a cheque bouncing case and ruled that an ex-director of a company cannot be prosecuted under the Negotiable Instruments Act. The Apparel Export Promotion Council had filed a case against Lalpareil Exports Ltd for issuing a cheque which was dishonoured by the bank. Three directors were also included as accused persons. However, Anita Malhotra, one of the accused persons, moved the high court seeking quashing of her prosecution as she had resigned from the company much before the cheque was issued. The high court rejected her prayer and asked to stand trial. She moved the Supreme Court, which quashed the high court order.

Land acquisition for govt corporation oppressive: Supreme Court The Supreme Court has once again called for a fresh land acquisition law as the present legislation does not adequately protect the interest of the land owners/persons interested in the land. Dismissing the appeal of Ramji Patel against the ruling of the Madras high court upholding the state acquisition of land for Cholan Roadways Corportion, the court remarked: “The Act does not provide for rehabilitation of persons displaced from their land although by such compulsory acquisition, their livelihood gets affected. For years, the acquired land remains unused and unutilised. To say the least, the Act has become outdated and needs to be replaced at the earliest by fair, reasonable and rational enactment in tune with the constitutional provisions, particularly, Article 300A of the Constitution. We expect the law making process for a comprehensive enactment with regard to acquisition of land being completed without any unnecessary delay.”

High court cannot fill post of dead arbitrator The Delhi high court has declined to appoint an arbitrator to substitute one who died during the pendency of the proceedings, as it was an international commercial dispute. In such cases, only the Supreme Court Chief Justice can appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, the judgment in the case, Hrd Corporation vs GAIL (India) Ltd, clarified. In this case, the US Corporation and the Indian firm, both dealing in petrochemicals and gas, had disputes regarding price fixation and other matters. Both sides nominated their arbitrators and a president was also appointed according to the agreement. However, one of the arbitrators died. Therefore, another dispute arose: whether the late arbitrator should be substituted and the proceedings should be continued with a new member or the whole tribunal should be reconstituted. The US firm approached the Delhi high court for substitution. However, the high court stated that Section 11 of the Act clearly conferred power on the Chief Justice of India or his designate in international commercial arbitration and the high court has no power under law.

Permanent injunction against Microsoft pirates The Delhi high court has passed permanent injunction against Nitya Infotech of Mumbai and ordered compensation for infringing the copyrights and other intellectual property rights of Microsoft Corporation by carrying on the business of unauthorized hard disk loading of the US company’s software programmes on to the branded computers sold by them to their customers. The high court passed a similar order against a Bangalore firm, M/s G-Net Technologies, on a petition by Microsoft.

Inclusion of valuer in panel at banks’ discretion The Madras high court has ruled that a public sector bank can drop the name of a valuer if it is dissatisfied with his performance. Indian Bank and other government banks had informed the valuer, who was facing CBI inquiry, that he could not be continued in their panel of valuers. V Subramanian, the valuer, moved the high court to set aside the banks’ decision, reinstate him and pay compensation for loss suffered. The banks submitted that the inclusion of valuers in their panels was after considering various norms regarding qualification, experience, membership in the Institution of Valuers and the needs of the banks. The high court agreed with them and stated: “The inclusion or exclusion of any name in the panel is a discretionary act of the banks. Only when discretion had been exercised improperly, this court can go into the issue in the matter of purely contractual in nature.” MJ ANTONY

INDIRECT TAX REFORMS SOURCE BUSINESS STANDARD

INDIRECT TAX REFORMS NOT TO WAIT FOR GST

VRISHTI BENIWAL New Delhi, 13 November
Without waiting any more for introduction of the much-debated Goods and Services Tax (GST), the Union finance ministry has decided to go ahead with indirect tax reforms, particularly those related to services. The ministry is planning to time the rollout of Place of Supply (PoS) rules with the negative list for services, to be put into force next year.

PoS rules would specify which state should get tax in case production and consumption of services are distributed among several states or jurisdictions. The place of supply is where consumption of service takes place. In the proposed rules, tax arising out of consumption within a jurisdiction should accrue there.

The ministry is in the advanced stages of finalising the draft rules and a discussion paper is likely to be put in the public domain by the end of this month or early next month. A final call will be taken after securing the finance minister’s nod for announcing a negative list in the Budget. Once approved, both negative list and PoS rules may come into effect from July 1 next year.

Two teams of the finance ministry, comprising a member of the Central Board of Excise & Customs, two joint secretaries and three directors, have just returned after studying the PoS rules and overall GST structure in New Zealand and Britain. This followed the September visit of the empowered committee of state finance ministers to Spain, France, Brussels and Luxembourg to study GST there.

WHY & WHAT

In the existing regime, the place of supply for services is not so relevant because these are only taxed by the central government and the place of taxation does not affect revenue receipts. Yet, the ministry believes having these rules early would prepare everyone for GST, under which the place of supply would directly affect a state’s revenue kitty.

However, the PoS rules even outside a GST framework will hold significance in case of cross-border service transactions, currently governed by rules on export and import for services. PoS will replace these rules, to align these with the negative list of services.

“Current export-import rules can’t work under the negative list, where services won’t be defined. We will withdraw those when PoS rules come...PoS is the logical progression, whether GST comes or not. Any VAT (value added tax) or GST system should stand on two legs. Time of Supply is one leg, which we introduced earlier this year, and PoS is another leg,” a finance ministry official told Business Standard .

The official said PoS would give help resolve many complicated issues such as supply of services to Jammu & Kashmir, which has a special status, and could otherwise be considered for exports; place of taxation in cases where multiple locations are used for a service; cases where a property is located abroad and services are provided by Indians; or services provided by a foreign telecommunications company to Indians.

Every country with GST or VAT has PoS rules. The Task Force of the 13th Finance Commission on GST had also given suggestions on PoS rules based on international tax practices, especially in the European Union. The PoS rules in New Zealand are very comprehensive.

The ministry will also change the Cenvat Credit Rules and Service Tax Rules for the negative list. Currently, the Centre has a positive list of services where a detailed description is provided for each taxable service and all other unspecified services are not liable to tax. In a negative list approach, barring the few services listed by the government, everything else will be taxed.

The proposed GST has already missed two deadlines and is set to cross the new timeframe of April 1, 2012. A constitution amendment bill to roll out GST is being currently debated by Parliaments standing committee on finance.

PoS RULES WOULD SPECIFY WHICH STATE SHOULD GET TAX

in case production and consumption of services are distributed among several states or jurisdictions

FDI policy

FDI : CONSOLIDATED FDI POLICY - REVIEW OF THE POLICY ON FOREIGN DIRECT INVESTMENT IN PHARMACEUTICALS SECTOR-INSERTION OF A NEW PARAGRAPH 6.2.25 TO CIRCULAR 2 OF 2011, DATED 30-9-2011
PRESS NOTE NO.3 (2011 SERIES), DATED 8-11-2011
1. Present Position:Foreign Direct Investment (FDI), up to 100%, under the automatic route, is permitted in the pharmaceuticals sector.

2. Revised Position:

The Government of India has reviewed the extant policy on FDI and decided as under:
(i) FDI, up to 100%, under the automatic route, would continue to be permitted for greenfield investments in the pharmaceuticals sector.

(ii) FDI, up to 100%, would be permitted for brownfield investments (i.e., investments in existing companies), in the pharmaceuticals sector, under the Government approval route.

3. Accordingly, the following amendment is made in 'Circular 2 of 2011- Consolidated FDI Policy', dated 30-9-2011, issued by the Department of Industrial Policy & Promotion:

Insertion of a new paragraph 6.2.25:

A new paragraph (6.2.25) is inserted as below :
6.2.25Pharmaceuticals
6.2.25.1Greenfield100%Automatic
6.2.25.2Existing companies100%Government

4. The above decision will take immediate effect. It would be reviewed after a period of six months.
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CUSTOMER SERVICE - NON-ISSUANCE OF PASSBOOKS TO SAVINGS BANK ACCOUNT HOLDERS (INDIVIDUALS)

CUSTOMER SERVICE - NON-ISSUANCE OF PASSBOOKS TO SAVINGS BANK ACCOUNT HOLDERS (INDIVIDUALS)
CIRCULAR NO. DBOD NO. LEG. BC 48/09.07.005/2011-12, DATED 4-11-2011

Please refer to our circular DBOD. No. Leg.BC.32/09.07.005/2006-07, dated October 4, 2006 on the captioned subject wherein banks were advised to invariably offer pass book facility to all its savings banks account holders (individuals) and in case banks offer the facility of sending statement of account and the customer chooses to get statement of account, banks must issue monthly statement of account. The cost of providing such pass book or statements should not be charged to the customer.

2. It has come to our notice that some banks are not issuing pass books to their savings banks account holders (individuals) and only issue a computer generated account statement even when the customer desires pass book facility. Banks are, therefore, advised to strictly adhere to the instructions contained in the above circular.

FEMA TRANSFER OF SHARES

FOREIGN DIRECT INVESTMENT - TRANSFER OF SHARES
A.P. (DIR SERIES) CIRCULAR NO. 43, DATED 4-11-2011
Attention of Authorized Dealers Category-I (AD Category-I) banks is invited to Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No.FEMA 20/2000-RB, dated May 3, 2000, as amended from time to time.

Accordingly, the transfer of shares from a Resident to a Non-Resident where (i) the transfer does not conform to the pricing guidelines as stipulated by the Reserve Bank from time to time; or (ii) the transfer of shares requires the prior approval of the FIPB as per the extant Foreign Direct Investment (FDI) policy; or (iii) the Indian company whose shares are being transferred is engaged in rendering any financial service; or (iv) the transfer falls under the purview of the provisions of SEBI (SAST) Regulations, require the prior approval of the Reserve Bank of India.

Further, transfer of shares from a Non-Resident to a Resident which does not conform to the pricing guidelines as stipulated by the Reserve Bank of India from time to time also requires the prior approval of the Reserve Bank of India.

2. As a measure to further liberalize and rationalize the procedures and policies governing FDI in India, it has now been decided to allow the following without the prior approval of the Reserve Bank of India :

A. Transfer of shares from a Non-Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-

i. The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

ii. The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition / SEBI SAST, buy back); and

iii. Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

B. Transfer of shares from Resident to Non-Resident :
(i) where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :

(a) the requisite approval of the FIPB has been obtained; and
(b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

(ii) where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

(iii) where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:-

(a) The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

(b) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations/guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/substantial acquisition/SEBI SAST); and

(c) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations/guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(iv) where the investee company is in the financial sector provided that :

(a) NOCs are obtained from the respective financial sector regulators/regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

(b) The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

3. Necessary amendments to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB, dated May 3, 2000 are being notified separately.

4. AD Category - I banks may bring the contents of the circular to the notice of their constituents.
5. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.
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