Monthly Archives: November 2013

FDI in financial sector – Transfer of shares

In case of FDI in the financial sector and where there is transfer of shares from residents to non-residents and the investee company is in the financial sector, hitherto, a no objection was required to be obtained from the sectoral regulator. Now the RBI has clarified vide its circular dated 11/11/2013 as per link below that the NOC is not any more required to be attached to the documents to be submitted in this connection ie. along with the form FC-TRS to the authorised banks. However “fit and proper criteria needs to be followed and due diligence requirement to be carried out in respect of the non resident investor as may be specified by the financial sector regulator.

Copy of the RBI circular can be found in this link  

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8561&Mode=0

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Filing of records of equitable mortgages with Central Registry

RBI has issued a notification on 12th November 2013 wherein it has specified that equitable mortgages created in favour of Non Banking Financial Companies should in turn be registered/ filed with a Central Registry which has been created for this purpose which is called Central Registry of Securitisation Asset Reconstruction and the Security Interest of India. (CERSAI). The institutions which have been notified under SARFAESI Act have to mandatorily record the equitable mortgages created in their favour whereas other institutions can also do so. The details of security interest created in favour of these institutions will be available on a public search engine for public citizens as well as banks/ financial institutions so that double financing could be avoided. So all the NBFCs have been advised to file their data base of mortgages created in favour with the Central Registry from 1st April 2011 onwards. The full text of the RBI Circular is available at http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8571&Mode=0

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Section 185 of Companies Act, 2013 – Loans to Directors

Section 185 of the Companies Act, 2013 which has been notified on 12th September 2013 replaces the old section 295 of the Companies Act, 1956 which provides for loans to directors. 

This section now applies to all companies including private companies also. Hitherto private companies were exempted from the provisions of the old section 295. So companies cannot give any loans to directors or to persons in whom the director is interested. 

“Person in whom the director is interested” would mean

(i) any other director of the lending company, or of the holding company of the lending company;

(ii) any partner or relative of such director; – definition of relative is spouse, lateral ascendants upto two levels i.e. father & grandfather, mother & grandmother and father includes step father, lateral descendants on the son’s side upto two levels i.e son and son’s children, daughter (including step daughter), her husband and siblings.

(iii) any private company of which director is a director or member

(iv) any body corporate at a general meeting of which such director exercises control of at least 25% of its voting power either singly or with other director(s) – which means basically the shareholding of such body corporate because presently in India voting power derives from shareholdings 

(v) any body corporate the Board of Directors, managing director or manager of which is accustomed to act in accordance with the instructions or directions of the Board of Directors or director(s) of the lending company. 

There are exemptions such as loans to managing director in accordance with the terms of his appointment, loans to employees in accordance with the conditions of service applicable to all employees of the company or where a scheme is framed and which scheme is approved by the members by way of special resolution.  

The penalties and fines are very hefty as can be seen in section 185(2) as given below. So all companies including private companies to take care and ensure strict compliance with the provisions of section 185 of the Companies Act, 2013. 

185. (1) Save as otherwise provided in this Act, no company shall, directly or indirectly,advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person:

Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
(b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the bank rate declared by the Reserve Bank of India.

Explanation.—For the purposes of this section, the expression “to any other person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner; 

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twentyfive per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in contravention of the provisions of sub-section (1), the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees, and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.

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The Girl with the Dragon Tattoo by Stieg Larsson

Starts off quite disjointedly as a financial reporter Mikael Blomqvist  is sentenced to a prison term for libellous writing and the story of Lisbeth Salander slides along parallelly but the story picks up pace when Mikael is asked to investigate the apparent murder of the niece of a wealthy and reclusive industrialist 40 years ago. Initially Mikael is reluctant to look into the murder aspect but gets irretrievably drawn towards when he starts finding some missing links and that is where Salander comes in with her superior investigative skills. I like the character of Lisbeth Salander – very enigmatic. Quite a nice pacy read though the narrative suffers at places due to the translation. Quite violent and sadistic at times, unfortunate that Larsson died after completing his Millenium trilogy otherwise he would have been a fine Nordic writer to look upto. Rating 3/5  

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