SNG Editorial Team

FEBRUARY - 2013

Dear Readers,

It is the spirit and not the form of law that keeps justice alive Earl Warren It gives us great joy in sharing with you news highlights in form of Feb 2013 edition of SNG Updates. The edition has been divided into the following sections: NEWS UPDATES CORPORATE UPDATES RBI UPDATES SEBI UPDATES JUDGEMENT UPDATES LEGAL OPINION WORD OF THE MONTH

The second month of 2013 has been also a happening month, like its previous month with many new guidelines, circulars, notifications from the regulators along with introduction of new laws and also amendments to existing laws. It may be noticed that now issues related to KYC/determination of beneficial ownership is being taken very seriously by all Regulators, be it SEBI, RBI or IRDA. Last month in Jan 2013, RBI had issued a master circular on KYC Norms / AML Standards / Combating Financing of Terrorism / Obligation of banks under PMLA, 2002, SEBI issued guidelines on Identification of Beneficial Ownership and now in Feb 2013 not remaining behind of either regulators, even IRDA has issued a circular on AML/CFT guidelines related to Procedures for Determination of Beneficial Ownership. Further RBI has also issued two separate circulars addressing Authorized Persons carrying out Money Changing activities and all NBFCs and RNBCs providing their obligations under PMLA, 2002. RBI issued a long time awaited guideline on Licensing of New Banks in the Private Sector on 22nd Feb, 2013, which will allow new entrants in the Banking sector. There are many applicants ready to welcome the same and are working in full swing to get a Banking license. SEBI has recently come out with two different circulars in respect to illiquid scrips wherein one circular talks about enhancing liquidity in the illiquid scirps by promoting incentives by stock exchanges on trading in such scrips, another circular aims at curbing manipulations in the illiquid scrips by introducing Periodic Call Auction in illiquid scrips.

Bombay Stock Exchange Ltd (BSE) has entered into a long- term strategic partnership with Standard and Poor's Dow Jones Indices forming a new JV, S&P BSE Sensex . With this BSE will be able to use the S&P brand for Sensex and other indices such as BSE 200 and BSE 100. Accordingly the 30 stock benchmark index will now be managed and operated by S&P BSE Sensex which will in turn help the Sensex to get a wider international recognition.

SEBI has been sharpening its axe by bringing major changes in securities laws in order to nail down the manipulators. SEBI has also sought powers to conduct search and seizure operations and to demand information from any person in relation to its investigations. The Board has suggested that monetary fines be recovered via Income-Tax arrears mode and by setting up special courts to deal with criminal prosecution for violation of securities laws and recognition of SEBIs counsels as public prosecutors. By forwarding the proposal to the Finance Ministry, SEBI has proposed necessary amendments to the relevant securities laws.

Supreme Court has initiated action and has asked why contempt action should not be initiated against Sahara for not complying with the courts order. The apex court had on 31.08.2012 directed the two Sahara companies, i.e., Sahara India Real Estate Corporation and Sahara Housing Investment Corporation to refund around Rs. 24,000 crore to their investors within three months with 15% interest per annum, for raising the amount from its investors in violation of rules and regulations. The Supreme Court has clarified that, SEBI is free to freeze accounts and seize properties of Sahara's two companies for defying court orders and not refunding the amount to investors. The apex court also pulled up the SEBI for not taking action against the two companies since the order had asked it to attach properties and freeze bank accounts of the companies. The Reserve Bank has informed that there is a limited scope for easing of monetary policy over the next few months as there is a risk of inflation escalation as well as concerns over fiscal and current account deficits. In our Legal Opinion section, in keeping with the current market sentiments, we bring you an analysis of newly inserted Section 115BBE of Income Tax Act, 1961 and its Implications for Small Tax Payers. We also look forward to receiving valuable suggestions and queries, if any. Please feel free to write to us at info@sngpartners.com

Thanking you
Chetan Gandhi B.Com., LL.M., ACS Editor

AML/CFT guidelines-Procedures for Determination of Beneficial Ownership

In order to provide clarity on beneficial owner across the insurance industry in an insurance contract, Insurance Regulatory and Development Authority (IRDA) has advised that insurance companies should implement appropriate procedures for determining beneficial ownership. In order to have a uniform approach across the financial sector, Government of India, Ministry of Finance in consultation with various financial sector regulators has specified the procedures for determination of Beneficial Ownership. In September 2010, IRDA had issued a circular on the Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT)-Guidelines that required insurers to identity and verify the beneficial owner to an insurance contract. Beneficial owner means the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement. As per the guidelines, where the customer is a person other than an individual or trust, the insurer need to verify the identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest. It has been clarified that where the customer is a trust, the insurance company, shall identify the beneficial owners of the customer through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. Where the customer or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.

IRDA has stated that the above procedures shall be applied above a premium threshold in case of insurance contracts, which would be Rs 1 lakh/policy for KeyMan insurance contracts, Rs 2 lakh/policy for partnership policies and Rs 1 lakh/policy for others (which include HUFs, Trusts).

Further, employer-employee policies in the nature of group insurance policies shall be exempt from the requirements of identification of beneficial ownership. In cases where Employer-Employee policies are in the nature Individual business, thresholds laid down above, as relevant to the constitution of the juridical person taking insurance contract shall apply. IRDA added that the procedures prescribed above will have to be applied whenever the Know-Your-Customer (KYC) norms are to be carried out as per the requirements under the extant AML/CFT guidelines. Insurance companies have been advised by IRDA to amend their AML/CFT policy suitably and implement the above by 1st April 2013.

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Criminal Law (Amendment) Ordinance, 2013

This Ordinance has been promulgated by the President of India, Mr. Pranab Mukherjee, on 3 February 2013 which provides for amendment of Indian Penal Code, Indian Evidence Act, and Code of Criminal Procedure, 1973 on laws related to sexual offences. On 22 December 2012, a judicial committee headed by J. S. Verma, a former Chief Justice of India, was appointed by the Central government to submit a report, to suggest amendments to criminal law to sternly deal with sexual assault cases. The report indicated that failures on the part of the Government and Police were the root cause behind crimes against women. The Cabinet Ministers, on 1 February 2013; gave approval for bringing an ordinance, for giving effect to the changes in law as suggested by the Verma Committee Report. This new Ordinance has provided for new offences. These new offences like, acid attack, sexual harassment, voyeurism, stalking and assault to disrobe a woman has been incorporated into the Indian Penal Code (IPC). It amends the definition of existing sexual offences and their penalties. The amendments proposed seek to replace the offence of rape with sexual assault which has a wider definition. The Ordinance has increased the consent age from 16 to 18 years. This also amends the procedure to be followed in investigation and trial of sexual offences. The Ordinance protects the victim by penalizing public servants who fail to record FIRs relating to sexual offences. They also require the victims to be provided with legal and medical assistance. The Ordinance prescribes higher punishments for sexual assault resulting in death or persistent vegetative state, gang sexual assault and repeat offenders. The Ordinance requires certain steps to be taken when the statement of a victimized woman or a differently-abled person is being recorded in sexual offence cases. These are: (a) that the statements should be recorded at a place of the victims choice; and (b) that the victim should be provided with assistance from lawyers, health care workers or womens organizations. Furthermore, statements of physically or mentally disabled victims would have to be video-graphed and the victims have to be provided with special educators. The Bill also includes these provisions, however, it does not make special provisions for disabled persons.

Under the Ordinance, men below 18 years and above 65 years of age, and women cannot be required to attend as witnesses at any place other than the persons residence. Prior to the Ordinance, apart from women, this provision only applied to men below 15 years of age. Further the Ordinance also prescribes that the Court may take steps to ensure that victims of sexual offences, who are minors, should not be confronted by the accused at the time of taking the victims evidence.

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Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT)Guidelines for General Insurers

The Guidelines on Anti-Money laundering/Counter Financing of Terrorism (AML/CFT), issued in 2006 were made applicable to general insurance companies form effective from 1st January 2007. Based on various representations received from the industry in the matter, some of the stipulations, as applicable to the general insurance companies have been reviewed and revised in consultation with General Insurance Council. Accordingly on 7th Feb, 2013, IRDA has issued detailed Guidelines for General Insurers in respect of Anti-Money Laundering/Counter Financing of Terrorism and the same is effective from 1st April 2013. In order to ensure compliance Insurance companies have been advised to amend their AML/CFT policy suitably. The guidelines covers what is money laundering, along with the three common stages of money laundering. Further in order to discharge the statutory responsibility to detect possible attempts of money laundering or financing of terrorism, every insurer needs to have an AML/CFT program which should, at a minimum, include: (1) Internal policies, procedures, and controls; (2) Appointment of a Principal compliance officer; (3) Recruitment and training of employees/agents; and (4) Internal Control/Audit. Each insurance company has to establish and implement policies, procedures, and internal controls in its AML/CFT program covering (1) Know Your Customer (KYC) Norms, (2) Implementation of Section 51A of UAPA, (3) Reporting Obligations and (4) Record Keeping. The AML/CFT program envisages submission of Reports on certain transactions to a Financial Intelligence Unit-India (FIU-IND) set up by the Government of India to track possible money laundering attempts and for further investigation and action. This covers (i)Suspicious Transactions Reports; (ii)Monitoring and Reporting of Cash Transactions; (iii) Reporting of receipts by Non-Profit Organizations; and (iv) Reporting of Counterfeit Currency/Forged Bank notes (CCR). A detailed AML/CFT Policy should be drawn up encompassing aspects of Customer acceptance policy, Customer Identification procedure, Monitoring of transactions, Risk management framework as evolved by the insurer. The policy should have the approval of the board. The policy should be reviewed annually and changes effected based on experience.

Further it is also necessary that steps are taken to strengthen the level of control on the agents and corporate agents engaged by the insurers. A list of rules and regulations covering performance of agents and corporate agents must be put in place. A clause should be added making KYC norms mandatory and specific process document can be included as part of the contracts.

The companies should designate a Principal Compliance Officer (PCO) under AML/CFT guidelines whose name should be communicated to IRDA and FIU. The committee monitoring the agents should monitor sales practices followed by agents and ensure that if any unfair practice is being reported then action is taken after due investigation; Periodic risk management reviews should be conducted to ensure company's strict adherence to laid down process and strong ethical and control environment. Insurance companies should have adequate screening procedures when hiring employees. Instruction Manuals on the procedures for selling insurance products, customer identification, record-keeping, acceptance and processing of insurance proposals, issue of insurance policies should be set out by the Insurance Company. The concept of AML/CFT should be part of in-house training curriculum for agents. Records of training imparted to staff in the various categories detailed above should be maintained. Insurance companies' internal audit/inspection departments should verify on a regular basis, compliance with policies, procedures and controls required to be in place under these guidelines. The reports should specifically comment on the robustness of the internal policies and processes in this regard and make constructive suggestions where necessary, to strengthen the policy and implementation aspects. Exception reporting under AML/CFT policy should be done to Audit Committee of the Board.

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Employees Provident Funds (Amendment) Scheme, 2013

The Central Government has introduced Employees' Provident Funds (Amendment) Scheme, 2013 vide notification dated 1st Feb, 2013. The same will be effective on the date of its publication in the Official Gazette. Through this amendment the term Interest Account has been introduced. Accordingly in the Employees' Provident Funds Scheme, 1952, for paragraph 51, the following paragraph shall be substituted, namely:51. Interest Account.-- All interest, rent and other income realized, and net profits or losses, if any, from the sale or investments not including therein the transactions of the Administration Account, shall be credited or debited, as the case may be, to an account called "Interest Account", and the brokerage and commission of the purchase and sale of securities and other investments, shall be included in the purchase or sale price, as the case may be, and not separately charged to the "Interest Account".

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Filing of Balance Sheet and Profit and Loss Account in extensible Business Reporting Language (XBRL) mode for the financial year commencing on or after 01.04.2011
XBRL (Extensible Business Reporting Language) is another advanced reporting language of the XML family. XBRL ensures that the figures reported to government authorities and other organization does not remain dormant piece of papers but the figures can be used in data analysis. The Ministry of Corporate Affairs has extended the time limit to file the financial statements in the XBRL mode without any additional fee/penalty up to 28th February 2013 or within 30 days from the due date of AGM of the company, whichever is later.

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MCA Clarification regarding Debenture Redemption Reserve

MCA has provide a clarification on adequacy of DRR and other related matters No DRR is required for debentures issued by All India Financial Institutions (AIFIs) regulated by Reserve Bank of India and Banking Companies for both public as well as privately placed debentures. For other Financial Institutions (FIs) within the meaning of Section 4A of the Companies Act, 1956, DRR will be as applicable to NBFCs registered with RBI. For NBFCs registered with the RBI under Section 45-lA of the RBI (Amendment) Act, 1997,'the adequacy' of DRR will be 25% of the value of debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities) Regulations, 2008, and no DRR is required in the case of privately placed debentures. For other companies including manufacturing and infrastructure companies, the adequacy of DRR will be 25% of the value of debentures issued through public issue as per present SEBI (Issue and Listing of Debt Securities), Regulations 2OO8 and also 25% DRR is required in the case of privately placed debentures by listed companies. For unlisted companies issuing debentures on private placement basis, the DRR will be 25% of the value of debentures. Every company required to create/maintain DRR shall before the 30th day of April of each year, deposit or invest, as the case may be, a sum which shall not be less than 15% of the amount of its debentures maturing during the year ending on the 31st day of March next following in any one or more of the following methods, namely: (a) in deposits with any scheduled bank, free from charge or lien (b) in unencumbered securities of the Central Government or of any State Government; (c) in unencumbered securities mentioned in section 20 (a) to (d) and (ee) of the Indian Trusts Act, 1882; (d) in unencumbered bonds issued by any other company which is notified under section 20(f) of the Indian Trusts Act, 1882; The amount deposited or invested, as the case may be, above shall not be utilized for any purpose other than for the repayment of debentures maturing during the year referred to above, provided that the amount remaining deposited or invested, as the case may be, shall not at any time fall below 15% of the amount of debentures maturing during the 3lst day of March of that year.

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Bank Finance for Purchase of Gold

The Reserve Bank of India (RBI) has directed State and Central Co-Operative Banks not to grant loans for purchase of gold in any form in order to check the significant rise in import of the precious metal in recent years. In view of the concerns RBI has notified that the state and central co-operative banks should not grant any advance for purchase of gold in any form, including primary gold, gold bullion, gold jewelry, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds Presently, these banks are permitted to grant loans against pledge of gold ornaments, but not permitted to grant any advance for purchase of gold in any form. They grant loans for various purposes against the security of gold/gold ornaments as part of their lending policy. RBI has stated that considering the Second Quarter Review of Monetary Policy 2012-13, significant rise in import of gold in recent years was raising concerns and direct financing for purchase of the precious metal could fuel speculative activities. It was then proposed that other than working capital finance, banks will not be permitted to finance purchase of gold in any form.

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Gold Deposit Scheme

Reserve Bank of India has started a new gold deposit scheme. This scheme will be enhancing the features of previous gold deposit scheme. The Central Government, with a view to bringing privately held stock of gold in circulation, reduce the countrys reliance on import of gold and providing its owners with some income apart from freeing them from the problems of storage, movement and security of gold in their possession, had notified Gold Deposit Scheme 1999 on September 14, 1999. Accordingly, RBI in 1999 had formulated guidelines for Gold Deposit Scheme to enable banks authorized to deal in gold to prepare their own Gold Deposit Schemes. In order unfreeze idle gold, the RBI has made the Gold Deposit Schemes of banks more attractive by lowering the deposits maturing in 6 months to 7 years period compared with 3 years to 7 years earlier. The central bank also clarified that the banks does not need to obtain its approval for floating such schemes. Banks should, however, inform the details of the scheme including names of branches operating the scheme to RBI. Banks would be required to report the gold mobilized under the scheme by all branches in a consolidated manner on a monthly basis in the revised prescribed format. The Central Bank wants to channelize the idle gold for productive purposes and also check the demand for imports. Further RBI has provided that, SEBI registered mutual funds and exchange traded funds may deposit under the scheme. These changes follow the announcement of the Finance Ministry last month to link the gold Exchange Traded Funds (ETFs) of mutual funds with gold deposit schemes of banks with a view to increase domestic availability of physical gold.

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Guidelines on Fair Practices Code for NBFCs Grievance Redressal Mechanism - Nodal Officer
RBI has revised the guidelines on 18th Feb, 2013, for Fair Practice code for NBFCs and has directed that all NBFCs are required to display prominently, for the benefit of their customers, at their branches / places where business is transacted, the details of the Grievance Redressal Officer belonging to their company as also that of the local office of RBI. The FPC should be revised to include the following: The name and contact details (Telephone / Mobile nos. as also email address) of the Grievance Redressal Officer who can be approached by the public for resolution of complaints against the Company. If the complaint / dispute is not redressed within a period of one month, the customer may appeal to the Officer-in-Charge of the Regional Office of Department of Non-Banking Supervision (DNBS) of RBI (complete contact details), under whose jurisdiction the registered office of the NBFC falls. The NBFCs are required to make suitable amendments in their existing FPC and should be put in place by all NBFCs with the approval of their Boards within 1 (one) month from the date of issue of this circular and should be published and disseminated on the web-site of the company, if any, for the information of the public.

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Know Your Customer (KYC) norms/Anti-Money Laundering (AML) Standards/Combating the Financing of Terrorism (CFT) Standards Obligation of Authorized Persons under Prevention of Money Laundering Act (PMLA), 2002 as amended by PML (Amendment) Act 2009 Money Changing activities Know Your Customer (KYC) norms /Anti-Money Laundering (AML) Standards/Combating of Financing of Terrorism (CFT)/Obligation of banks under Prevention of Money Laundering Act (PMLA), 2002
Prevention of Money Laundering Rules 2005 requires that every Authorized Person under money changing activity / Banks and NBFCs shall identify the beneficial owner and take all reasonable steps to verify his identity while undertaking money changing activities. RBI has specified the procedure for determination of Beneficial Ownership. Where the client is a person other than an individual or trust, the Authorized Person / Banks and NBFCs, shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons. Where the client is a trust, the Authorized Person / Banks and NBFCs shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership. Where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies. These guidelines are also applicable mutatis mutandis* to all agents/ franchisees of Authorized Persons / Banks and NBFCs and it will be the sole responsibility of the franchisers to ensure that their agents / franchisees also adhere to these guidelines. Further necessary changes needs to be incorporated in the KYC Policy brining them in compliance with the said circular.

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Licensing of New Banks in the Private Sector

After the announcement made by the Honble Finance Minister in his Budget Speech for the year 2010-11, the Reserve Bank had put out a Discussion Paper on its website on August 11, 2010 inviting feedback and comments. Thereafter, the draft guidelines on the licensing of new banks were released on the Reserve Bank website on August 29, 2011 inviting views and comments. After the vital amendments to the Banking Regulation Act, 1949 were carried out in December 2012 and after consulting with the Government of India, the guidelines for Licensing of New Banks in the Private Sector have now been finalised. RBI released a guideline on Licensing of New Banks in the Private Sector on 22nd Feb., 2012. The salient features of the said guidelines could be summarized as below: Corporates and its group, PSUs and NBFCs can set up a bank. The group shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (NOFHC). The applicant should have 10 years of successful financial track record, sound credentials and integrity. RBI will seek feedback on applicants' background from other regulators, Income Tax, SEBI, CBI and ED. The NOFHC shall be wholly owned by the Promoter / Promoter Group. The NOFHC shall hold the bank as well as all the other financial services entities of the group. Minimum paid-up equity capital to be Rs. 500 crore. New banks to get listed within 3 years of the commencement of business. Foreign shareholding shall not exceed 49% for the first 5 years. The Board is required to have majority of independent directors. The prudential norms on similar lines as that of the bank will be applicable on stand-alone as well as on a consolidated basis. No bar on entities in sectors like brokerage, realty. The bank shall not invest in the equity / debt capital instruments of any financial entities held by the NOFHC. In order to comply with priority sector lending targets; they are required to open at least 25% branches in unbanked rural areas. Business plan should be realistic, viable and address financial inclusion. Applications will be screened by RBI and then referred to a High Level Advisory Committee. To ensure transparency, names of the applicants will be placed on RBI's website. Last date for applying for the licence is July 1, 2013.

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Security and Risk Mitigation Measures for Electronic Payment Transactions

With the increase in popularity of making payments through alternate payment products/channels among the customers with more and more banks providing such facilities to their customers it has not become necessary that the banks ensure those transactions effected through such channels are safe and secure and not easily amenable to fraudulent usage. Recently, there have been reports of frauds committed through the electronic payment channels and fraudulent usage of cards globally. Even while the frauds reported are not alarming compared to the total transactions effected through these channels, RBI, has proactively engaged with the stakeholders to ensure the security of such transactions. One such initiative taken earlier was the mandating of additional factor of authentication for all card not present (CNP) transactions. Measures for security of card present (CP) transactions have also been initiated by RBI through the implementation of recommendations of the Working Group on Securing Card Present transactions. With cyber-attacks becoming more unpredictable, and fraudsters moving to new methods, banks are required to put in place certain minimum checks and balances to minimize the impact of such attacks and to arrest/mitigate the damage. However, in order to ensure that customers of banks are not vulnerable to such attacks, RBI has issued new guidelines to the stakeholders to further strengthen the security and risk mitigation measures of cards and electronic banking transactions. RBI has prescribed necessary steps to be carried out for Securing Card Payment Transactions and for Securing Electronic Payment Transactions

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Liquidity Enhancement Schemes for Illiquid Securities in Equity Cash market

SEBI had permitted Liquidity Enhancement Schemes (LES) in derivatives segment to enhance liquidity in illiquid derivative products. On similar lines, there has been a demand for a similar scheme to be introduced for the Equity Cash market. Accordingly SEBI has decided to permit stock exchanges to introduce LES to enhance liquidity of illiquid scrips of Equity Cash Market Segment. As per the circular the stock exchanges will come out with the list of illiquid securities to qualify for LES. LES shall be applied to any of the following securities: a. Securities having a mean impact cost greater than or equal to 2% for an order size of Rs.1 lakh, where mean impact cost of the security on the stock exchange is calculated over the past 60 trading days. b. Securities introduced for trading in the permitted to trade category. Any security which is introduced under LES by one stock exchange may also be introduced by another stock exchange (even if such security in not eligible on that exchange). Discontinuance of any security from LES by any stock exchange shall be done after an advance notice of 15 days. The stock exchanges are required to ensure other requirements also i.e., necessary Board approval, incentives, its distribution and obligations of participating parties (i.e. stock brokers, market makers etc.) and shall ensure transparency, market integrity and compliance with all the relevant laws. From a market integrity perspective, Stock Exchanges are required to ensure the following: Not provide any incentives to trading members indulging in trades solely for seeking incentives No incentives will be provided for trades, where the counterparty is self (i.e. buy and sale by same entity)

The Stock Exchange shall submit half-yearly reports on the working of its LES for review of SEBI.

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Increase in FII debt limit for Government and Corporate Debt category
RBI had in January 2013 enhanced the limit for investment by FIIs in the government debt long term category by US$5 billion to US$15 billion and the corporate non-infrastructure debt category by US$5 billion. In addition to the changes prescribed in the said circular RBI has further summarized the changes vide circular dated 8.02.2013. In the government debt long term category, the provision regarding 3 years residual maturity at the time of first purchase shall no longer be applicable. However, within this category, FIIs shall not be allowed to invest in short term paper like treasury bills. The limit of US$5 billion in the corporate non-infrastructure debt will not be available for investment in Certificate of Deposits (CD) and Commercial Papers (CP). Investments in Certificate of Deposits are not permitted within the limit of US$20 billion. The US$1 billion limit for QFIs shall continue to be over and above the revised limit of US$25 billion available for FII investment in corporate non-infrastructure debt category. For the US$ 12 billion investment in Corporate Long Term Infra bonds restriction of 1 year lock-in period has been removed and the 5 year initial maturity restriction has been removed. At the time of first purchase by FIIs, the residual maturity shall be 15 months. For the sub-category of US$ 10 billion reserved for FII investments in Infrastructure Debt Funds (IDFs), the restriction of 1 year lock-in has been removed. The requirement of residual maturity of 15 months at the time of first purchase remains unchanged. SEBI had permitted QFIs to invest in those debt mutual fund schemes that hold at least 25% of their assets (either in debt or equity or both) in the infrastructure sector under the US$ 3 billion investment limit for debt mutual fund schemes. These schemes were required to invest in infrastructure debt having a minimum residual maturity of 5 years. This restriction of 5 years residual maturity has been removed while the restriction of 3 years initial maturity has been introduced. All the above changes in lock-in, initial maturity and residual maturity requirements shall apply for investments by FIIs and Sub-Accounts in debt securities to be made after the date of this circular.

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Introduction of Periodic Call Auction for Illiquid Scrips and Extension of Pre-open Session to all Scrips
In order to curb price manipulations and artificial and non genuine trades in illiquid scrips, SEBI has mandated trading only though periodic call auction mechanism in illiquid scrips in the equity market. The call auction facility for all scrips, including illiquid ones, would be effective from April 1, 2013. Besides, it is also available for Initial Public Offering (IPO) as well as re-listed shares. SEBI has decided to "extend the pre-open session to all other scrips in the equity market" as well as "introduce trading through periodic call auction for illiquid scrips in equity market". The preopen call auction session would be open to scrips in all exchanges. As per the norms for periodic call auctions for illiquid scrips, a scrip would be illiquid if its average daily trading volume in a quarter is less than 10,000, the average daily number of trades is less than 50 in a quarter and if it is classified as illiquid at all exchanges where it is traded. The illiquid scrips are required to be identified by the stock exchanges at the beginning of every quarter. These shares can exit from the call auction mechanism to the normal trading session provided they have remained in session for at least two quarters and are not illiquid. Further, a notice of two trading days would have to be submitted with the market for entry and exit of scrips. Accordingly, periodic call auction have to be conducted for one hour each throughout the trading hours with the first session starting at 9:30 am. SEBI has fixed the maximum price band of 20% on the scrips. However, exchanges may reduce the price bands uniformly based on surveillance related concerns. Penalties could be imposed on trades where "maximum of buy price entered by a client is equal to or higher than the minimum sell price entered by that client and if the same results into trades. The penalty shall be calculated and charged by the exchange and collected from trading members on a daily basis. Trading members may recover the penalty from clients. The penalty so collected shall be deposited to Investor Protection Fund.

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Gold Exchange Traded Fund Scheme (Gold ETFs) Investment in Gold Deposit Scheme (GDS) of Banks
In an attempt to boost Gold ETF's in the country, India's securities regulator, Securities and Exchange Board of India (SEBI) has allowed gold exchange-traded funds (ETFs) to invest in gold deposit schemes (GDS) of banks. The move would bring additional returns to gold ETFs allowing them to beat their benchmarks. As per SEBI guidelines, before investing in GDS, mutual funds will have to put in place a written policy related to the investment with due approval from the Board of the Asset Management Company and the Trustees. The policy should have provision to make it necessary for the mutual funds to obtain prior approval of their trustees for each investment proposal in GDS of any Bank. The policy shall be reviewed by mutual funds, at least once a year. The total investment in GDS cannot exceed 20% of the total assets under management of any scheme. Further mutual funds will hold Gold certificates issued by Banks in respect of investments made by Gold ETFs in GDS only in dematerialized form.

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Scheme of Arrangement under the Companies Act, 1956 Revised requirements for the Stock Exchanges and Listed Companies
Listed companies, desirous of getting their equity shares listed after merger / demerger / amalgamation etc., could seek exemption under Rule 19(7) of the Securities Contracts (Regulation) Rules, 1957 (SCRR) from strict enforcement of Rule 19(2)(b) provisions. Such companies are mandated by Clause 24(f) of the Listing Agreement to file any scheme/petition, proposed to be filed before any Court or Tribunal under sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange, for approval, at least a month before it is presented to the Court or Tribunal. However, in the recent past, SEBI has received applications, seeking exemption, from certain entities containing, inter alia, (a) inadequate disclosures, (b) convoluted schemes of arrangement, (c) exaggerated valuations, etc. SEBI is of the view that granting listing permission or exemption from the requirements of Rule 19(2)(b) of SCRR based on such applications may not be in the interest of minority shareholders. At the same time, if listing permission or such an exemption is delayed or denied, it would add to the uncertainty and would deprive shareholders of an exit opportunity. In order to avoid such situations, SEBI has revised the existing requirements for listed companies and the stock exchanges for Scheme of Arrangement under the Companies Act, 1956. In brief following are the revised requirements: 1. Obligation on listed companies a. Listed Companies need to file draft scheme of arrangement with the stock exchanges as per Clause 24(f) of the Listing Agreement (1 month before the scheme is presented to the Court) along with prescribed documents. b. Audit Committee to furnish a report recommending the Draft Scheme taking into consideration a valuation report obtained from an Independent Chartered Accountant. c. One of the stock exchanges having nation-wide trading terminals to be chosen as the designated stock exchange for the purpose of coordinating with SEBI. d. Observation letter of stock exchanges to be included in the notice sent to shareholders and also to bring the same to the notice of the High Court at the time of seeking shareholder approval.

2. Obligation on the stock exchanges for processing of the documents, release of observation letter etc. within stipulated timelines 3. Disclosure on the website of all material documents related to the Draft Scheme of arrangement 4. Provisions for Redressal of complaints. 5. Approval of shareholders to scheme through postal ballot and e- voting through a special resolution. 6. Obligations on listed companies and the stock exchanges after the Scheme is sanctioned by the High Court. 7. Compliance requirements for listing of equity shares with differential rights or for listing of warrants offered along with non convertible debentures (NCDs). The revised requirements shall be applicable to listed companies which have not submitted the Scheme with the High Court and shall also be applicable in cases where in the companies have submitted the Draft Scheme with the stock exchanges under Clause 24(f) of Listing Agreement and such schemes have not yet been submitted with the High Court for approval

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SEBI (ICDR) (AMENDMENT) REGULATIONS, 2013 - AMENDMENT IN REGULATION 100

Pursuant to the notification dated 27.02.2013 SEBI has amended Regulation 100 of SEBI (Issue of Capital and Disclosure Requirements), 2009. Previously Regulation provided that The Indian depository Receipts shall not be automatically fungible into underlying equity shares of issuing company. Now the regulation 100 shall be substituted with the following, namely Fungibility - 100 The Indian Depository Receipts shall be fungible into underlying equity shares of the issuing company in the manner specified by the Board and Reserve Bank of India, from time to time.

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Supreme Court
Lucknow Development Authority Vs Shyam Kapoor Civil Appeal No. 936 of 2013 (Arising out of SLP (C) No. 19556 of 2012) 05.02.2013 Brief Summary: The Respondent preferred a complaint before District Consumer Forum asserting that he had deposited a sum of Rs. 5,000/- with the Appellant. In order to defeat the claim of the Respondent-complainant the stand of the Appellant was that the complaint was barred by time. It was also contended that the complainant was not a consumer, and as such, the District Forum had no jurisdiction in the matter. Aggrieved with the order passed by the District Forum, the Appellant preferred an appeal before the Consumer Disputes Redressal Commission. While issuing notice, the State Commission stayed the order of the District Forum. Aggrieved with the order passed by National Commission, dismissing the Revision Petition preferred by the Appellant, the Appellant had approached this Court by preferring the instant appeal. It was held that, it was clear that the Tribunals were creatures of the Statute and derived their power from the express provisions of the Statute. The District Forums and the State Commissions had not been given any power to set aside ex- parte orders and power of review and the powers which had not been expressly given by the Statute could not be exercised. The legislature chose to give the National Commission power to review its exparte orders. Before amendment, against dismissal of any case by the Commission, the consumer had to rush to this Court. The amendment in Section 22 and introduction of Section 22A were done for the convenience of the consumers. In view of the above, the choice of the Appellant, in approaching the "National Commission" rather than the "State Commission" could not have been described as frivolous. Thus, the revision petition filed by the Lucknow Development Authority before the National Commission was procedurally in order. It was imperative for the Lucknow Development Authority to seek condonation of delay, for some justifiable reason as the National Commission was being approached after four and a half years. In the absence of valid justification for condoning delay, the National Commission had no other option, but to pass the order. Even before this Court, the Appellant had failed to express any valid justification for having approached the National Commission belatedly. Thus, this court found no good ground to set aside the order passed by the National Commission. Thus, instant appeal was disposed of. Click here for the Judgement

Supreme Court
State of Andhra Pradesh Vs State of Maharashtra and Ors. (Original Suit No. 1 of 2006, Writ Petition (C) Nos. 134 of 2006, 207 and 210 of 2007 and Contempt Petition (C) No. 142 of 2009 in Original Suit No. 1 of 2006) 28.02.2013 Brief Summary: A suit filed under Article 131 of the Constitution of India read with Order XXIII Rules 1, 2 and 3 of the Supreme Court Rules, 1966. The suit was filed by State of Andhra Pradesh (Plaintiff) complaining violations by Maharashtra (1st Defendant) of the agreements containing decision and final order given by the Godavari Water Disputes Tribunal. The violations alleged by Andhra Pradesh against Maharashtra were in respect of construction of Babhali barrage into their reservoir/water spread area of Pochampad project. Held, in the minutes of the technical committee meeting convened by Chairman, CWC, it was stated that the project report of the Babhali barrage had been prepared according to the standard guidelines of the Commission. The project report of Babhali barrage which had been approved from CWC clearly indicated that the monthly yield from November during post monsoon season was 2.64 TMC. The project report also showed that there was no scope for Maharashtra for withdrawing more than 2.73 TMC. Maharashtra's assertion that Babhali barrage would trap maximum 0.6 TMC of the Pochampad storage was not a new plea raised for the first time before this Court in the amended written statement. As a matter of fact, before filing the suit by Andhra Pradesh, the said aspect was highlighted by Maharashtra in the technical committee's meeting convened by Chairman, CWC. The minutes of that meeting record storage of Babhali barrage was well within the banks. There was no diminution of flow during monsoon irrespective of construction of Babhali barrage by Maharashtra.

The only difficulty was in respect of non-monsoon season which contributed about 10 per cent of the flows that too was not well defined and well spread. If this difficulty was taken care of, virtually there was no injury to Andhra Pradesh much less substantial injury in as much as the inhabitants of seven districts (Adilabad, Nizamabad, Karimnagar, Warrangal, Nalgonda, Khammam and Medak) should not be deprived of water for drinking purpose and irrigation which was the main concern of Andhra Pradesh. Apprehensions of Andhra Pradesh were bona fide and genuine. However, these apprehensions could be largely overcome and addressed. There was no reason why supervisory committee could not oversee the compliance of commitments which Maharashtra had made to this Court by way of pleadings and also in the course of hearing. Cases referred to: i.) Orient Papers and Industries Ltd. and Anr. v. Tahsildar-cumIrrigation Officer and Ors. Hence, writ Petitions were disposed of.

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Supreme Court
The Rajasthan State Industrial Development and Investment Corporation and Anr. Vs Diamond and Gem Development Corporation Ltd. and Anr.
Civil Appeal Nos. 7252-7253 and 8222-8223 of 2003 12.02.2013 Brief Summary: Present appeals were preferred against the impugned judgment passed by the High Court by which the High Court had allowed the writ petitions filed by the Respondent Company for quashing the order of cancellation of allotment of land and directing the Appellants for providing the approach/access road. Whether, the High Court had committed an error, by quashing the order of cancellation and, in issuing a direction for the restoration of possession and for the provision of the access road and thus appeals deserved to be allowed. It was held that, while providing justification for the non-completion of construction and commencement of production, it was submitted by the Respondent-company that extension of time was sought from statutory authorities. However, the said application did not specify how much more time the company was seeking, and that too, without meeting any requirements provided in the statutory rules. According to Clause 2(d) of the lease deed the entire project was to be completed within a period of five years. But it was evident from the material on record that construction was just made on the fraction of the entire land. Clause 2(i) contemplated that the lessee would not transfer nor sub-let nor relinquished rights without prior permission from the Appellant-RIICO. However, it was evident from the record that the Respondent-company had negotiated with a third party for development of the land. The cancellation of allotment was made by Appellant-RIICO in exercise of its power under Rule 24 of the Rules 1979 read with the terms of the lease agreement. Such an order of cancellation could have been challenged by filing a review application before the competent authority under Rule 24 (aa) and the Respondent-company could have preferred an appeal under Rule 24(bb)(ii) before Infrastructure Development Committee of the Board.

The Respondent-company ought to have resorted to the arbitration clause provided in the lease deed in the event of a dispute, and the District Collector would have then, decided the case. However, the Respondent-company did not resort to the statutory remedy, rather preferred a writ petition which could not have been entertained by the High Court. It was settled law that writ did not lie merely because it was lawful to do so. Thus, appeals were allowed. Judgment and order impugned were set aside and the order of cancellation of allotment in favor of the Respondent-company by the Appellant was restored.

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Bombay High Court

Tata Capital Financial Services Limited, 2. L & T Finance Limited Vs 1. M/S Deccan Chronicle Holdings Limited, 2. Mr. T. Venkatram Reddy
Arbitration Petition No. 1321, 1095 of 2012 21.02.2013 Brief Summary: Present petitions were filed under Section 9 of the Arbitration & Conciliation Act, 1996, wherein Petitioner sought appointment of Court Receiver in respect of various properties described in the petition, for injunction and for an order and direction against the respondents to secure, in favor of the Petitioner, its claim with interest. As the Respondents had raised various issues on maintainability of both these petitions, which were common in both the petitions, same were heard together and were being disposed of by a common order. Whether, before considering the grant of any interim measure under Section 9 of the Act, this Court would have to first decide the issue as to whether an interim order could be passed in favor of Petitioner when the dispute between the parties were non-arbitrable. It was held, perusal of the averments in the petition indicated that Petitioner had placed on record sufficient material, which indicated that financial condition of Respondents was in very bad shape and Respondents were proposing to take steps to sell its assets so as to deprive Petitioners of recovery of its legitimate dues. Petitioners had pleaded that there were large number of creditors and liabilities to Respondents which might be more than Rs. 3000 crores with multiple lenders, which averment was not disputed by Respondents in the affidavit in reply. Petitioners had also pleaded that there were several proceedings pending, including winding up proceedings against Respondents. On perusal of record, it indicated that Respondents were about to alienate its properties which were required to be protected. Petitioner had made out a case for attachment before judgment and satisfied the principles of order 38 Rule 5 in this case and deserved to be granted interim measures. Respondents had not replied to the legal notice issued by Petitioner. Even in the affidavit in reply, there was vague denial of the claim.

This Court had already appointed ad interim Receiver in respect of the Respondents and had already granted ad interim relief which had impugned by Respondents by filing any appeal. Record indicated proceedings were not filed on the basis of any newspaper reports, but independently and such averments were not disputed by Respondents. Hence, petition was disposed of.

assets of not been that the was filed

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Section -115BBE of Income Tax Act, 1961- Implications for Small Tax Payers
The Finance Act 2012, inserted Section 115BBE though applicable to all assesses, but it essentially denies the benefit of basic exemption limit to individual or HUF in respect of incomes referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C and 69D, and to charge tax thereon at flat rate of 30%. The rationale of bringing this provision is to curb practice of laundering of unaccounted money through marginal tax payers by taking advantage of basic exemption limit. A. Structure and working of Provisions of Section 115BBE 15BBE. (1) Tax on income referred to in section 68 or Section 69 or Section 69A or section 69B or Section 69C or Section 69D.(1) Where the total income of an assessee includes any income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D, the income-tax payable shall be the aggregate of (a) the amount of income-tax calculated on income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D, at the rate of thirty per cent. ; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1). Comments i. ii. This Section is under Chapter XII, containing provisions for levy of tax at specified rates on various kinds of incomes, treating such incomes as separate block. Clause (a) of sub-Section 1 of Section 115BBE provides that income referred to in Section 68, Section 69, Section 69A, Section 69B, Section 69C and 69D will be charged to tax @ 30%. However, surcharge and cess will be applicable as per the provisions of relevant Finance Act over and above such rate of 30%. Clause (b) of sub-Section (1) of Section 115BBE provides that assessees total income would be reduced by the income taxed under Clause (a) and the tax would be calculated on the balance of income as per the slab rate applicable thereto. The total tax liability would be on the amount of tax computed under Clause (a) and Clause (b).

iii.

iv.

Sub-Section 2 provides that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of the Act, while computing his income referred to Clause (a) of sub-Section 1. Legal issues involved The Assessee may be eligible for deduction in Chapter VI-A /set off of current years loss under the other heads as per the provisions of Section 71. However, the same would be ignored, while computing the tax liability under Section 115BBE, hence, total income may be actually less but the tax liability would be substantially higher. As the sub-Section (1) refers to income under Section 68, Section 69, Section 69A, Section 69B, Section 69C and 69D, moot question which arises is, where assessee voluntarily returns income for taxation, whether Assessing Officer would be justified for taxing the same by applying the deeming provisions of Section 115BBE. To find the answer to this question, one will have to go through the structure of Section 68, Section 69, Section 69A, Section 69B, Section 69C and 69D which deals with computation of deemed incomes under specific circumstances. Section 68 starts with any sum which is a very vide term and even the cash sales appearing in the books of assessee may be deemed as unexplained income for want of verification of buyer being insisted upon by the department. The Agricultural Income, Investments, Sundry Creditors, purchases, expenditure etc., may also be treated as unexplained income under other sections referred to in, as above. In the case of small tax payers, it is observed that generally they are not required to maintain the Books of Account nor they are well conversant with the rigors of law or in some cases, the returns are not filed regularly, but cash in hand kept with them is deposited in the bank account in lump sum in other financial year(s) and, in such cases, they may be required to pay more tax under new tax regime in spite of being genuine and honest. Further, since the provision is being brought on statue to curb black money, the assessees action of offering income voluntarily at normal rates would be opposed to the object of this provision, hence, such action/arguement may not be tenable in law now. There could also be a situation, where income is chargeable at a flat rate specified in Section of 44AD, the assessee declares income at specified or higher percentage to get assessed under that section and is not required to maintain the Books of Account. In case, the assessee declares higher profits, the Assessing Officer may form a view that unaccounted money is being shown. Hence, instead of accepting that income as such, the Assessing Officer may invoke Section 115BBE even in such a case nullifying the purpose of scheme of presumptive taxation in case of small tax payers.

B. i.

ii.

iii.

C.

Conclusion Though no one can deny the need for curbing the menace of black money, however, targeting the small tax payers in such a harsh manner would be counter-productive, as there would be substantial increase in litigation due to overzealous application of this section by the Assessing Authorities to garner more revenue and the cost of litigation would certainly be higher than the revenue generated by the Department on one hand and on the other hand the big fishes would escape the attention and focus of the department due to their focus on small tax payers which could otherwise lead to more revenue. Hence, to avoid such a situation, this section may be deleted or otherwise CBDT must issue guidelines to the Assessing Officers to not to invoke this provision in a routine manner, specify the acceptability criteria in regard to claims of the assessee in regard to nature and source of same, and the present rate of tax of 30% may be reduced to 10% as that would be equivalent tax on regular total income of Rs. 4,00,000/-.

WORD OF THE MONTH UNION BUDGET As per Business dictionary the term Budget means an estimate of costs, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals. One of the most important administrative tools, a budget serves also as a (1) plan of action for achieving quantified objectives, (2) standard for measuring performance, and (3) device for coping with foreseeable adverse situations. The Union Budget of India, referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament. The Finance Minister puts down a report that contains Government of Indias revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31. The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated.

BUDGET

REVENUE BUDGET

CAPITAL BUDGET

REVENUE RECEIPTS

REVENUE EXPENSES

CAPITAL RECEIPTS

CAPITAL EXPENSES

Revenue receipts =

Revenues from tax + other sources

Revenue expenses = the payment incurred for the normal day-to-day running of government departments + various services that it offers to its citizens. Capital receipts = loans raised by Government from public (Market Loans) + borrowings by Government from RBI + other parties through sale of Treasury Bills + loans received from foreign Governments and bodies + recoveries of loans granted by Central Government to State and Union Territory Governments and other parties.

Capital payments =

capital expenditure on acquisition of assets like land, buildings, etc + loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties.

As per Article 112 of Constitution of India The President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, in this Part referred to as the annual financial statement. The Union Budget of India for 20132014 was presented by Mr. P. Chidambaram on 28th February 2013, Thursday.

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