Monthly Archives: February 2014

Corporate Social Responsibility Rules 2014

Ministry of Corporate Affairs has notified section 135 of the Companies Act, 2013 to come into effect from 1st April 2014. Section 135 pertains to spending for the purpose of Corporate Social Responsibility by companies. So every company having net worth of Rs.500 crores or more or turnover of Rs.1000 crores or more or net profit of Rs.5 crores or more during any financial year shall constitute a corporate social responsibility committee of the Board consisting of three or more directors of which one shall be independent. 

It shall be the duty of the Corporate Social Responsibility Committee (CSR Committee) to formulate and recommend to the Board a CSR Policy which shall indicate the activities as specified in Schedule VII of the Act, recommend the amount of expenditure to be incurred on the various activities and monitor the CSR Policy of the company from time to time. 

The Board of Directors report u/s 134 of the Companies Act, 2013 shall disclose the composition of the CSR Committee

The Board of every company should ensure that the company spends in every financial year at least two percent of the average net profits of the company during the three immediately preceding financial years from the formulation of the CSR policy. 

http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification1_2014.pdf – notification of the section 135 and the Schedule VII of the Act with effect from 1st April 2014.

Corporate Social REsponsibility Rules 2014 has been notified as per this notification viz. http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification2_2014.pdf

The list of projects/ activities that were hitherto included in the Schedule VII has undergone a change and has become more broad based than what was initially enumerated in the said Schedule VII. The new list of activities/ projects are 

1) eradicating hunger, poverty, malnutrition, preventive health care and sanitation and making available safe drinking water;

2) promoting education including special education, and employment enhancing vocational skills, especially among children, women, elderly, and differently abled and livelihood enhancement projects;

3) promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres, and such other facilities for senior citizens, and measures for reducing inequalities faced by socially and economically backward groups;

4) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;

5) protection of national heritage, art and culture, including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts;

6) measures for benefit of armed force veterans, war widows and their dependents;

7) training to promote rural sports, nationally recognised sports, paralympic sports and Olympic Sports;

8) contribution to Prime Ministers National Relief Fund or any other Fund set up by the Central Government, for socio economic development and relief and welfare of scheduled castes and scheduled tribes, other backward classes, minorities and women

9) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

10) rural development projects.

 

The amendment of Schedule VII is available in this link http://www.mca.gov.in/Ministry/pdf/CompaniesActNotification3_2014.pdf

 

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Annual Information Memorandum – SEBI’s new thinking

SEBI has drafted a discussion paper on Annual Information Memorandum for listed companies. Basically what it means is that all disclosures, reports under the listing agreement which are periodically sent to stock exchanges will now be subsumed in the Annual Information memorandum which is required is to be filed electronically on the company’s website and also filed with the stock exchanges simultaneously. So reports such as Corporate Governance Report (Clause 49), Business Responsibility Report (Clause 55) and Related Party disclosures (Clause 32) etc. in the AIM could pave way for removing such disclosures from Annual Report limiting its scope only to details required under the Companies Act, 1956/ Companies Act, 2013, thereby significantly reducing disclosures required in Annual Report and consequently reducing costs for the listed companies as AIM will be required to be filed in electronic format.

But clause 35 shareholding pattern and the annual reports under the Takeover Code will not be impacted. They will need to be separately sent to the stock Exchanges. The annual reports are sought to be made less bulkier which is good for the corporates because of the cost implications involved. 

 

Proposed AIM Framework 

1. Format
The proposed framework for disclosure in AIM is enclosed as Annexure. Format of AIM is in line with the format of offer documents prepared for  primary market offerings to maintain consistency in disclosures.
2. Frequency of Preparation
Frequency for preparation of AIM shall be yearly.
3. Timeline for Dissemination
AIM shall be disseminated within 135 days from the end of financial year.
4. Mode of Dissemination
AIM may be disseminated electronically by uploading the same on the company’s website and simultaneous filing with stock exchanges.
5. Approval of AIM
AIM shall be approved by Board of Directors at their meeting prior to dissemination.
6. Annual updation
AIM will be required to be updated every year. While, updating the AIM, the companies may update the quantitative as well as qualitative information by replacing the details pertaining to most distant year with details pertaining to most recent year where such information is required to be furnished for multiple years. Further, all the information (qualitative as well as quantitative)
shall be reviewed for accuracy, sufficiency and relevance.
7. Implementation timelines Category Proposed Time Frame
Top two hundred listed companies based on market capitalization at BSE or NSE as on
March 31, 2014 – Financial year beginning on or after April 1, 2014
All other listed companies Financial year beginning on or after April 1, 2015

For companies which are planning IPOs (Initial Public Offers), the requirement of AIM would commence with the IPO. This would require that the disclosures made by the companies at the IPO stage be updated on an annual basis so as to ensure that at any point of time, updated information about them is available in public domain.

8. Auditor’s Examination Report
The companies desirous of using AIM as draft offer document for future capital raisings shall be required to submit an Auditor’s Examination Report along with AIM.

The list of disclosures in the AIM is very exhaustive and runs into some 22 paragraphs so I guess that process of collation/ updation of data could also be time consuming. 

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CCI order on Hiranandani Hospital – abuse of dominance position

The Competition commission of India has passed a path breaking order against Dr. Hiranandani Hospital in the case relating to abuse of dominant position under section 27 of the competition act, 2002. The facts of the case are that a lady was registered with Dr. Hiranandani Super Speciality Hospital for delivery of her second child and at the same time she had made arrangements with Life Cell India Private Limited for banking of her stem cells. The Hospital had made an exclusive arrangement with Cryobanks International India and therefore refused to entertain the lady’s plea to allow Life Cell representatives to visit the hospital in order to collect the stem cells. 

1) The hospital was found to be a dominant player in the relevant market of provision of maternity services.

2) Due to its dominance in the relevant market, the hospital was able to influence the consumers by imposing unfair conditions

3) The agreement between the Hospital and Cryo Banks was in violation of section 3(4) of the Competition Act, 2002 being an anti competitive agreement which had an appreciable adverse effect on competition.

The CCI passed an order, gist of which is as follows:

(a) The agreement of hospital with Cryobank for the years 2011-12 & 2012-13 are
declared null & void.
(b) The hospital shall not enter into a similar agreement with any stem cell bank in
future.

This para 34 of the order clinches the issue completely

34. The plea advanced by the counsel is misconceived in as much as it is not the case of OP hospital that the patients were free to avail the services of any stem cell bank. The OP hospital’s only argument is that if a patient was not willing to take services of Cryobank, the patient was free to leave the hospital and avail maternity services of another hospital. In fact, this is not a mitigating factor rather it is another aggravating factor. The hospital knew the difficulty of a patient in leaving the hospital where the patient had all along been taking services of maternity consultant and had developed a bond with the consultant. In fact, most of such patients are afraid of going to another consultant and resign to the fate.

Order was passed for Rs.3.82 crores penalty. Since there are not many stem cell banks in India, I believe this is the first of its kind order of CCI in that category. 

Copy of the CCI order can be found here http://www.cci.gov.in/May2011/OrderOfCommission/27/392012.pdf

 

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Whistleblower Protection Bill passed

The Whistleblowers Protection Bill which was passed by Lok Sabha on 27th December 2011 was finally passed also by Rajya Sabha on 21st February 2014. The Bill now awaits President’s assent.

 

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The Janson Directive by Robert Ludlum

Another international pot boiler from Robert Ludlum. Paul Janson extremely trained and deadly successful agent is called upon to rescue international peace maker Peter Novak who is kidnapped by dreaded terrorist Caliph, but what later reveals in the plot is more twists and turns than can possibly be imagined. Ludlum works his way beautifully through the narrative and sometimes you feel like you are watching a movie instead of reading a book. The fast paced narrative of course culminates in a spectacular fashion in a shoot out. This book was published posthumously one year after Ludlum’s death. Rating 3/5 

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Winter’s End by John Rickards

Just finished reading “Winter’s End” a first timer novel by John Rickards. It is a moody meandering kind of murder drama with a twist in the past with the two main characters i.e. detective and suspect. The initial part of the novel keeps the reader engaged as the suspect weaves around with the emotions of the detective in a way which the detective does not believe as plausible. The pace picks up in the second half of the book with more twists and turns and dead bodies, obviously. At times the loony character of the suspect and adrift character of the detective gets to the reader. All in all, a good first novel by John Rickards. A 3/5 rating by me. 

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FDI in MSME sector

RBI has issued a notification dated 20/2/2014 which essentially clarifies the FDI policy on erstwhile SSI (Small Scale Industries) units and the present MSE (Medium & Small enterprises) units pursuant to the promulgation of Micro Small & Medium Enterprises Development Act, 2008. The gist of the notification reads as follows, which can also be accessed at the following link i.e. 

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8750&Mode=0

Attention of Authorised Dealer Category – I (AD Category-I) banks is invited to Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified by the Reserve Bank videNotification No. FEMA. 20/2000-RB dated 3rd May 2000, as amended from time to time.

2. In terms of the Schedule 1 of the Notification, ibid, an Indian company which is a small scale industrial unit and which is not engaged in any activity or in manufacture of items included in Annex A, may issue shares or convertible debentures to a person resident outside India, to the extent of 24% of its paid -up capital provided that such company may issue shares in excess of 24% of its capital if:

(a) it has given up its small scale status,

(b) it is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, and

(c) it complies with the ceilings specified in Annex B to Schedule I of the Notification.

3. With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the extant policy for foreign direct investment (FDI) in Small Scale Industrial unit and in a company which has de-registered its small scale industry status and is not engaged or does not propose to engage in manufacture of items reserved for small scale sector, has since been reviewed and it has been decided that;

  1. a company which is reckoned as Micro and Small Enterprises (MSE) (earlier Small Scale Industries) in terms of MSMED Act, 2006 and not engaged in any activity/sector mentioned in Annex A to schedule 1 to the Notification, ibid may issue shares or convertible debentures to a person resident outside India, subject to the limits prescribed in Annex B to schedule 1, in accordance with the entry routes specified therein and the provision of Foreign Direct Investment Policy, as notified by the Ministry of Commerce & Industry, Government of India, from time to time.

  2. any Industrial undertaking, with or without FDI, which is not an MSE, having an industrial license under the provisions of the Industries (Development & Regulation) Act, 1951 for manufacturing items reserved for manufacture in the MSE sector may issue shares in excess of 24per cent of its paid up capital with prior approval of the Foreign Investment Promotion Board of the Government of India.

4. Further, in terms of the provisions of MSMED Act, (i) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951, a micro enterprise means where the investment in plant and machinery does not exceed twenty five lakh rupees; a small enterprise means where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; (ii) in the case of the enterprises engaged in providing or rendering services, a micro enterprise means where the investment in equipment does not exceed ten lakh rupees; a small enterprise means where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees.

5. Copy of Press Note No. 6(2009) dated September 4, 2009 issued by Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India in this regard is enclosed.

6. AD Category – I banks may bring the contents of the circular to the notice of their customers/constituents concerned.

7. Reserve Bank has since amended the Regulations and notified vide Notification No. FEMA. 230/2012-RB dated May 29, 2012, notified vide. G.S.R. No.797(E) dated October 30, 2012 read with Corrigendum dated September 10, 2013 notified vide. G.S.R. No.624(E) dated September 12, 2013 .

8. 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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MCA clarification on section 185 of CA 2013 qua section 372A of CA 1956

Ministry of Corporate Affairs has issued a clarification on the contentious section 185 of the Companies Act, 2013 regarding loans made, guarantees given or securities provided vide section 372A of the Companies Act, 1956. 

The gist of the clarifications are given below:

This Ministry hos received number of representations on the applicability of Section 185 of the companies Act, 2013 with reference Io loans made, guarantee given or security provided under Section 372A of the Companies Act,1956. The issue hos been examined with reference to applicability of Section 372A ol the Companies Act, 1956 vis-a-vis Section 185 of the Companies Act. 2013. Section 372A of the Companies Act, 1956, specifically exempts any loans mode, any guarantee given or security provided or any investment mode by d holding company to its wholly owned subsidiary. Whereas. Section 185 of the Companies 2013 prohibits guarantee given or any security provided by o holding company in respect of any loon token by its subsidiary company except in the ordinary course of business.

2. In order to maintain harmony with regard to applicability of Section 372A of the companies Act, 1956 till the same is repealed and Section 185 of the Companies Act, 2013 is notified, it is hereby clarified that any guarantee given or security provided by a holding company in respect of loons mode by o bonk or financial institution to its subsidiary company, exemption as provided in clause (d) of sub-section (8) of section 372A of the. companies Act, 1956 shall be applicable till section 186 of the Companies Act, 2013 is notified. This clarification will, however, be applicable to cases where loans so obtained ore exclusively utilized by the subsidiary for its principal business activities. 

 

The copy of the circular can be accessed here http://www.mca.gov.in/Ministry/pdf/General_Circular_3_2014.pdf

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Customs Baggage Declaration Regulations – 2014 Amendment

The Central Board of Excise and Customs (CBEC) has amended the Customs Baggage (Declaration) REgulations 2013 by increasing the limit of Indian currency which foreigners who enter India have to declare from Rs.7500/- to Rs.10,000/-.

Further they also have to declare their hand baggages along with the cargo baggages whilst entering India. The principal Regulations i.e.Customs Baggage (Declaration) REgulations 2013 was passed in 2013 and can be accessed at this link i.e. 

http://www.cbec.gov.in/customs/cs-act/formatted-htmls/cs-bgge-declare-regu.htm

and the amendment regulations of 2014 at this link i.e. 

http://www.cbec.gov.in/customs/cs-act/notifications/notfns-2014/cs-nt2014/csnt10-2014.htm

But the beautiful part of it is that the entire 2013 Regulations has not come into effect as yet. It will come into effect only from 1st March 2014. 

Therefore frequent flyers abroad are requested to get acquainted with these regulations. 

The relevant portion of the regulations are given below. Every passenger coming to India has to declare the following.

10.

Are you bringing the following items into India?   (please tick Yes or No)

(i)

Prohibited Articles

Yes  / No

(ii)

Gold jewellery (over Free Allowance)

Yes  / No

(iii)

Gold Bullion

Yes  / No

(iv)

Meat and meat products/dairy products/fish/poultry products       

Yes  / No

(v)

Seeds/plants/seeds/fruits/flowers/other planting material

Yes  / No

(vi)

Satellite phone

Yes  / No

(vii)

Indian currency exceeding Rs. 10,000/-

Yes  / No

(viii)

Foreign currency notes exceed US $ 5,000 or equivalent

Yes  / No

(ix)

Aggregate value of foreign exchange including currency exceeds US $ 10,000 or equivalent.

Yes  / No

                 

 

Please report to Customs Officer at the Red Channel counter in case answer to any of the above question is ‘Yes’.

Prohibited items are as under:

 

 

 

 

 

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FDI in insurance sector – revised guidelines

The Department of Industrial Policy & Promotion, New Delhi (DIPP) has vide its press release no. 2/2014 dated 4/2/2014 revised the FDI limits in the insurance sector in the country. Hitherto, FDI in insurance was allowed upto 26% in the automatic route, subject however to the conditions that the companies bringing in FDI will obtain the necessary license from the sector regular i.e. IRDA. Under the old guidelines, only FDI was allowed in the insurance sector. FII and NRI investment was not allowed. 

The revised guidelines allows 26% by way of FDI or FII or NRI investment on automatic route. Further the guidelines are relaxed not only for insurance companies, but also for insurance brokers, Third Party Administrators (TPAs) and Surveyors & Loss Assessors. The other conditions of obtaining license from IRDA still continues. Bank promoted insurance companies also need to comply with sectoral guidelines in the FDI policy related to the banking sector. 

The revised guidelines can be found at this link viz. http://dipp.nic.in/English/acts_rules/Press_Notes/pn2_2014.pdf

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Amendment to form FC-GPR – reporting of FDI by Indian companies

RBI has vide its circular no. RBI/2013-14/490 A.P. (DIR Series) Circular No.102 dated 11th February 2014 revised the form FC-GPR for reporting of Foreign Direct Investment into the country by inserting a clause requiring companies to report whether the inward remittance is towards the greenfield venture (new venture) or a brownfield venture (already existing). The gist of the RBI circular is given below and also available at this link.

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=8742&Mode=0

Attention of Authorised Dealers Category-I (AD Category – I) banks is invited to provisions of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 (hereinafter referred to as Notification No. FEMA 20), as amended from time to time. Attention of AD Category – I banks is also invited to A.P. (DIR Series) Circular No.40 dated April 20, 2007A.P. (DIR Series) Circular No. 44 dated May 30, 2008 and  A. P. (DIR Series) Circular No.110 dated June 12, 2013.

2. In terms of para 9 (1) A of Schedule I to the FEMA Notification No. 20 dated May 03, 2000 as amended from time to time, Indian companies are required to report the details of the amount of consideration received for issuing shares and convertible debentures under the Foreign Direct Investment (FDI) scheme to the Regional Office of the Reserve Bank in whose jurisdiction the Registered Office of the company operates, within 30 days of receipt of the amount of consideration. Further, in terms of Para 9 (1) B of Schedule ibid, the companies are required to report the details of the issue of shares / convertible debentures in form FC-GPR, to the Regional Office concerned, within 30 days of issue of shares / convertible debentures.

3. In order to further capture the granular details of FDI as regards Brownfield/Greenfield investments and the date of incorporation of investee company, Form FC-GPR has been revised. Accordingly, the details of FDI should, henceforth, be reported in the revised Form FC-GPR, enclosed as Annex-I

4. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

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 is without prejudice to permissions / approvals, if any, required under any other law.

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Amendment to Listing Agreement – Review of Corporate Governance norms

SEBI has vide its press release dated 13th February 2014 amended the listing agreement to review corporate governance norms for listed companies to make it compatible with new Companies Act, 2013. The basic features of the amendment which will be brought into force from 1st October 2014 is as follows:

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

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

The Board approved the following proposals:

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

 (ii)        Compulsory whistle blower mechanism

 (iii)       Expanded role of Audit Committee

 (iv)       Prohibition of stock options to Independent Directors

 (v)        Separate meeting of Independent Directors

 (vi)       Constitution of Stakeholders Relationship Committee

 (vii)      Enhanced disclosure of remuneration policies

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

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

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

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

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

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

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

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

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

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