Business standard updates 12-4-2012

Apexcourtbreaks the ice, paves way forMCX-SX

BS REPORTER New Delhi/Mumbai, 11 April The dispute between the Securities and Exchange Board of India (Sebi) and MCX-SX has been resolved for the time being. Sebi agreed in the Supreme Court today to amend its rules and dispose of MCX-SX’s application for recognition as a stock exchange within three months. Attorney General G E Vahanvati, representing Sebi, said its board had already met and taken certain decisions regarding the amendment to rules following a Bombay high court judgment last month. The high court, on a petition moved by MCX-SX, had asked Sebi to consider the company’s application within a month. Sebi appealed to the Supreme Court against the high court order. The Attorney General submitted before a bench headed by Justice Aftab Alam that a month was not enough for the process of amendment to the Sebi (Manner of Increasing & Maintaining Public Holding in Recognised Stock Exchanges) Regulations 2006 (MIMPS Regulations) and sought three months for the process. All parties agreed to it. According to Sebi, the high court judgment had thrown up two issues related to the recognition of stock exchanges. It said it was aggrieved by the high court observations, firstly, regarding the illegality of the buyback agreements under the Securities Contracts Regulation Act and notifications under it. The second problematic area was whether commonality of objective was required to be proved when a person was deemed to be “a person acting in concert” for the purposes of Regulation 8 of MIMPS Regulations. Sebi argued the high court ruling on these two issues was “patently erroneous”. The Attorney General said the Sebi board had taken decisions concerning various issues raised by the stock exchange before the high court. “It will shortly begin the process of making necessary changes to the regulations in the light of the policy decisions." He said the matters involved were of great importance to Sebi as aregulator as well as to the market and public interest as they would have implications on other regulators and the general operations of the market. Sebi, at the beginning of this month, issued new guidelines on the working of stock exchanges and other market infrastructure companies. According to these rules, any shareholder who has exposure of more than the prescribed limit will have to reduce it in three years and bring it in line with the regulations. Currently, Multi Commodity Exchange and Financial Technologies hold more than five per cent each in MCX-SX through convertible warrants, which is not in compliance with Sebi norms. However, after the new rules, which will be implemented after Sebi makes changes to its guidelines regarding the shareholding structure of market infrastructure companies, promoters of MCX-SX may get three more years to bring down their holding. Turn to Page 14 >Market regulator to reconsider plea for stock exchange in three months OCTOBER 2008: MCX-SXlaunches currencysegment AUGUST 2009: Sebi renews recognition ofMCX-SXbutwants dilution ofpromoters’ stake before allowing stocktrading OCTOBER 2009: MCX-SXdevices a capital reduction scheme to reduce promoter holding APRIL2010: MCX-SXinforms Sebi of compliance after the scheme gets courtapproval; seeks approval to trade equities JULY2010: MCX-SXmoves Bombay HC, seeking to directSebi to respond to its applications AUGUST 2010: BombayHCdirects Sebi to decide bySept30, 2010 Sebi renews recognition ofMCX-SX for one more year, issues showcause on alleged violations SEPTEMBER 2010: Sebi passes order, rejecting MCX-SX’s application OCTOBER 2010: MCX-SXchallenges order MARCH 2012: HCsets aside Sebi order APRIL2012: SCdisposes Sebi SLP LONG BATTLE

Apex court... Senior counsel Harish Salve, representing MCX-SX, submitted that it was not its intention to fight with the regulator. It was agreeable to wait for three months for the new regulations to come into force and would comply with the rules. MCX-SX said, "We always had full faith in our regulatory and judicial institutions and systems. We remain committed to the growth and development of the Indian capital market, which has a significant role to play in the overall development of the economy." >FROM PAGE 1 Policy tailwind likely fordomestic carriers BS REPORTERS New Delhi, 11 April The Cabinet committee on economic affairs is likely to clear a proposal to allow foreign carriers to invest in their Indian counterparts tomorrow. It may also approve Air India’s financial restructuring plan. “The matter is likely to be discussed in the Cabinet meeting on Thursday and it may be cleared. The proposal is to allow foreign carriers to buy up to 49 per cent stake in our carriers,” said a Cabinet minister, on the condition of anonymity. A senior commerce department official said the note floated by the government was the “final” note for the Cabinet to consider, hinting that there was no scope for another round of inter-ministerial consultations. While the civil aviation and finance ministries have batted for 49 per cent FDI, the department of industrial policy and promotion, under the ministry of commerce and industry, has approved 26 per cent FDI. As of now, foreign carriers are not allowed to invest in India carriers but 49 per cent FDI is otherwise allowed. Kingfisher Airlines and SpiceJet are open to foreign money and have welcomed the move to allow foreign carriers being allowed to acquire stakes in airlines. Kingfisher chairman Vijay Mallya met commerce minister Anand Sharma this evening. Air India’s financial restructuring plan is also likely to be taken up by the Cabinet. The plan includes debt restructuring of ~18,000 crore by banks, along with committed equity infusion by the government. Of the ~22,000crore high-cost working capital debt of the government carrier, banks would restructure ~18,000 crore. Another ~10,500 crore would be converted into long-term debt, with a repayment period of 10-15 years. The remaining ~7,400 crore would be repaid to banks through a government-guaranteed bond issue. Under the second stage of the restructuring, the government would infuse equity into the airline till 2020-21. A group of ministers, headed by finance minister Pranab Mukherjee, had recommended infusion of ~23,000 crore into the airline till 2020-21. As part of the structuring, the government had, in the Budget, announced it would infuse ~4,000 crore in 2012-13, raising the airline’s equity base to ~7,345 crore. Cabinet may approve proposal to allow foreign airlines to invest in Indian firms; likely to take up Air India’s financial restructuring plan SpiceJet and Kingfisher Airlines have welcomed the move to allow foreign carriers to acquire stakes in the airlines The proposal is to allowforeign carriers to acquire up to 49 percent stake in domestic carriers Cabinet to decide on GSTN, DTAAs today SANJEEB MUKHERJEE & VRISHTI BENIWAL New Delhi, 11 April A meeting of the Union Cabinet tomorrow is likely to consider a proposal to allow acommon information technology network for all states. Called the Goods & Services Tax Network (GSTN), it is expected to become operational by August this year. This will set the stage for the much-awaited GST, by ensuring integration of the tax systems of both the Centre as well as states. Officials in the know say the government may seek Cabinet approval to set up the special purpose vehicle (SPV) with an initial corpus of ~2.3 crore. The structure of GSTN has already been approved by the empowered committee of state finance ministers. It will implement a common registration based on the permanent account number (PAN), besides filing on returns and processing of payments for all states on a shared platform. The use of PAN as a common identifier in both direct and indirect taxes is likely to enhance transparency and check tax evasion. Finance minister Pranab Mukherjee had said the GSTN would be set up as anational information utility. “It will become operational by August 2012,” he had announced in his Budget speech last month. The GSTN will work for value-added tax (VAT) till the GST comes. It will give the facility of a single portal for registration, filing return and payment of the VAT. It will automatically segregate the data that needs to go to the state system. Payments will be done through the Reserve Bank of India, thus clearing accounts for the central and state governments. The GSTN will work as an SPV. Its stakeholders will be the Union government, the states and technology partner National Securities Depository Ltd. The Empowered Committee will deliberate further on the GSTN in its meeting on April 18. Meanwhile, the Cabinet may also consider the proposal to allow signing a Double Taxation Avoidance Agreements (DTAAs) with three countries, including France and Morocco. India had already finalised 82 DTAAs and 17 Tax Information Exchange Agreements to check undeclared assets held by Indians abroad. The structure of GSTN has already been approved by the Empowered Committee of state finance ministers