Monthly Archives: January 2015

Banks entering insurance business

RBI has issued guidelines on Banks entering into insurance business. These guidelines can be viewed at

http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9489&Mode=0

Gist of the guidelines are given below:

Guidelines for Banks undertaking Insurance Broking and Agency Business Banks may undertake insurance agency or broking business departmentally and/or through subsidiary, subject to the following stipulations:
1. Board Approved Policy
A comprehensive Board approved policy regarding undertaking insurance distribution, whether under the agency or the broking model should be formulated and services should be offered to customers in accordance with this policy. The
policy will also encompass issues of customer appropriateness and suitability as well as grievance redressal. It may be noted that as IRDA Guidelines do not permit group entities to take up both corporate agency and broking in the same group even through separate entities, banks or their group entities may undertake either insurance broking or corporate agency business.
2. Compliance with IRDA guidelines
a) The IRDA (Licensing of Corporate Agents) Regulations, 2002/ IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013 and the code of conduct prescribed by IRDA, as amended from time to time, as applicable, should be complied with by banks undertaking these activities.
b) The deposit to be maintained by an insurance broker as per the IRDA (Licensing of Banks as Insurance Brokers) Regulations, 2013, as amended from time to time, should be maintained with a scheduled commercial bank other than itself.
3. Ensuring Customer Appropriateness and Suitability While undertaking insurance distribution business, either under the corporate agency or broking model under the relevant IRDA Regulations, banks must keep the following in view:
a) All employees dealing with insurance agency/ broking business should possess the requisite qualification prescribed by IRDA.
b) There should be a system of assessment of the suitability of products for customers. Pure risk term products with no investment or growth components that are simple and easy for the customer to understand will be deemed universally
suitable products. More complex products with investment components will require the bank to necessarily undertake a customer need assessment prior to sale. It should be ensured that there is a standardized system of assessing the needs of the customer and that initiation/transactional and approval processes are segregated.
c) Banks should treat their customers fairly, honestly and transparently, with regard to suitability and appropriateness of the insurance product sold.
4. Prohibition on Payment of Commission/Incentive directly to Bank Staff
There should be no violation either of Section 10(1)(ii) of the BR Act, 1949 or the guidelines issued by IRDA in payment of commissions/brokerage/incentives. This may be factored in while formulating a suitable performance assessment and
incentive structure for staff. Further, it must be ensured that no incentive (cash or non-cash) should be paid to the staff engaged in insurance broking/corporate agency services by the insurance company.
5. Adherence to KYC Guidelines
The instructions/ guidelines on KYC/AML/CFT applicable to banks, issued by RBI from time to time, may be adhered to, in respect of customers (both existing and walk-in) to whom the services of insurance broking/agency are being provided.
6. Transparency and Disclosures
a) The bank should not follow any restrictive practices of forcing a customer to either opt for products of a specific insurance company or link sale of such products to any banking product. It should be prominently stated in all publicity material distributed by the bank that the purchase by a bank’s customer of any insurance products is purely voluntary, and is not linked to availment of any other facility from the bank.
b) Further, the details of fees/ brokerage received in respect of insurance broking/agency business undertaken by them should be disclosed in the ‘Notes to Accounts’ to their Balance Sheet.
7. Customer Grievance Redressal Mechanism
A robust internal grievance redressal mechanism should be put in place along with a Board approved customer compensation policy for resolving issues related to services offered. It must also ensure that the insurance companies whose products are being sold have robust customer grievance redressal arrangements in place. Further, the bank must facilitate the redressal of grievances.
8. Penal Action for Violation of Guidelines
Violation of the above instructions will be viewed seriously and will invite deterrent penal action against the banks.
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Mining Ordinance

Indian Govt. has issued a gazette notification on 12th January 2015 to amend the Mines and Minerals (Development and REgulation), Act, 1957

Copy of the gazette notification is available here i.e. http://egazette.nic.in/WriteReadData/2015/162362.pdf

Economic Times article giving details of the Ordinance is available here

http://articles.economictimes.indiatimes.com/2015-01-13/news/58024682_1_leases-essel-mining-mining-companies

The government on Tuesday promulgated an Ordinance amending mining laws under which all iron ore, bauxite, limestone, and manganese mines will henceforth be auctioned.

The Modi government is believed to have identified reforms in mining, along with coal, insurance and land as critical enough to require ordinances to push them through rather than wait for the Budget session of Parliament. The mining Ordinance was signed by President Pranab Mukherjee on Monday.

The Ordinance seeks to remove discretion, and encourage investment in mining by offering 50-year lease periods, by throwing open areas tenfold the current limits and allowing trade of mining rights. It is also offering prospecting cum mining lease, an idea borrowed from an earlier UPA-II drafted MMDR Bill that lapsed, to encourage greater exploitation of India’s mineral resources.

All existing miners can continue operating until the lease is 50 years old after which the mines will be put up for auction. But, in order to avoid disruption, companies with mining leases more than 50 years old can operate till 2020, which goes up to 2030 if the leases were granted for captive use. Beyond these time limits, these mines too will be up for auction.This should come as a breather to many such mines across the country that had shut after the Supreme Court decided that leases could not continue in perpetuity under so-called deemed extensions. Eighteen mines in Odisha, including Stemcore, Mesco Steel, KJS Ahluwalia Group, Rungta and Tata Steel, can continue operating. Earlier, the Odisha government had moved to cancel these leases, but it may no longer have the powers to do so after the Ordinance comes into force. Other mines such as all the leases that Goa has managed to renew in the recent past, including Sesa Goa’s, will run till the end of their lease term, or about 2027.

Auction has come to be seen as the preferred method to allocate natural resources after two Supreme Court judgements — commonly referred to as the coal judgement and the 2G judgement. A senior official in the mines ministry said that the era of “rent seeking and pocket veto” that discouraged investment in the sector and a huge backlog of applications would come to an end. The Centre now also has powers to intervene where the state has not passed an order in a prescribed time. The mines ministry argues that it is only to encourage states to take timely decision. Officials of some mining companies expressed reservations about aspects of the Ordinance.

The managing director of Goa’s Fomento Resources, Ambar Timblo is against only steel and aluminum makers, or captive users, being allowed right of first refusal when such mines came up for auction. “It will not necessarily help fetch the highest prices. The merchant miner must also deserve to get the right of first refusal for all the infrastructure investments he has made,” said Timblo.

The Federation of Indian Mining Industries, representing merchant miners such as Rungta Group and Aditya Birla firm Essel Mining, agrees.

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No service tax for Mumbai housing societies

MUMBAI: Housing societies do not have to pay service tax on maintenance charges collected from their members, a tax tribunal has ruled.

This will reduce the maintenance outgo of residents of nearly a lakh housing societies in Mumbai and Thane, particularly the upscale ones where the charges can go over Rs 1 lakh every month.

The recent decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) came in a case involving Tahnee Heights, a residential housing society on Nepean Sea Road, and Mittal Tower at Nariman Point that houses several offices.

The decision means a flat-owner or owner of a commercial premise in a housing society registered under the Maharashtra Co-operative Societies Act will have to pay much less. The society will not be required to impose a service tax charge (currently 12.36%) against maintenance charges collected from its members.

Typically in any housing society in Mumbai, the resident welfare association (RWA) formed from among members of the society caters to the administrative needs of the society. Maintenance charges are collected for purposes like water charges, electricity for common areas (lifts, stairways, lobbies), security, lift maintenance or repairs, and maintenance of common areas. Most of these charges that are collected are in the nature of reimbursement.

In some cases, the RWA enters into contracts with external service providers, say for regular lift maintenance or for providing service guards. These agencies charge service tax on their fees, which is paid by the RWA.

However, service tax authorities insisted housing societies pay up on the charges collected from its members. In tony areas or in luxury housing societies with a club house, gym or swimming pool, monthly maintenance charges can be steep, even running to more than Rs 1 lakh per flat. The service tax authorities contended the RWAs are providing taxable “club or association services”.

In the case, Tahnee Heights, which collected charges for maintenance, repairs and beautification, and Mittal Tower that raised expenses from its members towards water and security charges and repairs, paid service tax on the department’s “persuasion”. Later they filed refund claims, which were rejected. Consequently appeals were filed with the CESTAT.

“The CESTAT decision is the first of its kind for the western zone. The tribunal, based on decisions of other jurisdictions, accepted the principle of mutuality — the society provided services to itself which could not be subject to service tax. However, finality will be reached only once the Supreme Court adjudges on a similar matter pending before it,” said Bakul Mody, chartered accountant, who represented Mittal Towers.

Source: http://timesofindia.indiatimes.com/city/mumbai/Mumbai-housing-societies-spared-service-tax/articleshow/45876822.cms

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SEZ Rules Amendment

Govt. has issued a gazette notification dated 2nd January 2015 amending the Special Economic Zone Rules 2006. Rule 11A has been inserted which reads as follows:

“1IA. Bifurcation of non-processing area: The non-processing area can be bifurcated into two parts,
namely:-
(1) Where the social or commercial infrastructure and other facilities are permitted to be used by both the Special Economic.Zone and Domestic Tariff Area entities: No exemptions, concessions or drawback shall be admissible for creation of such infrastructure. The Customs duty, Central Excise duty, Service Tax, and such other Central levies and tax benefits already availed for creation of such infrastructure shall be refunded by the Developer in full, without interest. However, in cases of short payment of the amount refundable to the Government on account of dual use permission, interest will have to be paid at the rate of fifteen per cent per annum from the day the said amount becomes payable to the date of actual payment. Utilisation of SEZ land shall be subject to following conditions:
(a) the land is to be put to only such use which is as per the regulations of the concerned State Government or local bodies;
(b) if any exemption or refund has been taken from State or local taxes like stamp duty, change of land uses, etc., the same shall be refunded back to State Government or local authorities and a certificate to this effect shall be produced from the concerned authorities;
(c) No Objection Certificate (NOC) from the concerned State Government shall be produced before. the consideration of the request by Board of Approval (BoA). State Government may issue NoObjection Certificate (NOC) taking into consideration (a) and (b) above.

(2) Where the social or commercial infrastructure and other facilities are permitted to be used only by Special Economic Zone entities: This portion shall be bonded and physically segregated from the Domestic Tariff Area, non-processing area, specified at (I) above and the processing area of the Special Economic Zone. The infrastructure, as may be approved by the Board, for this part of nonprocessing area shall be eligible for exemptions, concessions and drawback.

(3) The Department of Commerce has provided the following norms with respect to areas to be
earmarked for residential, commercial and other social facilities:-
(a) The Developer or Co-developer shall submit an application in the format as specified by the Central Government to the Development Commissioner indicating therein the portion of the non-processing area where social or commercial infrastructure and other facilities are proposed to be used by both Special Economic Zone and Domestic Tariff Area entities and the said application shall be accompanied with a copy of the Infrastructure Plan and No Objection Certificate from the concerned State Government and supporting documents.
(b) The Development Commissioner shall forward the said application to the Board of Approval (BoA) for approval.
(c) The area restrictions for duty paid dual use non processing area in the Special Economic Zones shall be as follows:
(i) Housing ‘”not more than twenty five per cent of non-processing area;
(ii) Commercial- not more than tenper cent of non-processing area;
(iii) Open area and circulation area-not less than forty five per cent of nonprocessing area;
(iv) Social and institutional infrastructure including schools, colleges, sociocultural • centres, training institutes, banks, post office, etc., in the remaining area.
(d) Floor Area Ratio or Floor Space Index shall conform to the norms of the concerned local authorities.
(e) No sale shall be permitted of such duty paid dual use infrastructure in the non-processing area and only lease hold rights can devolve upon the users Of transferees of the said dual use duty paid infrastructure in Non Processing Area of Special Economic Zones; and

(f) any other conditions as may be specified by the Department of Commerce or Board of Approval.

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Citizenship Ordinance

The President of India has issued an ordinance amending the Citizenship Act, 1955 thereby merging the Person of Indian origin and Overseas Citizenship of India schemes. Benefits will be life long visas to PIOs and exemption from reporting to the Indian police stations if their stay in India exceeds 6 months.

The gazette notification for the ordinance can be found here i.e.

Click to access 162293.pdf

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Cost Audit Rules – new thresholds

MCA has issued a notification dated 31st October, 2014 amending the threshold limits in maintaining of cost records and appointment of cost auditors. Accordingly the Companies (Cost Records and Audit) Rules, 2014 has been amended to that effect.

The gist of the amendments are that cost records to be maintained if the overall turnover from all its products and services during the immediately preceding financial year is Rs.35 crores or more. Cost Audit is mandatory for companies falling in Item A of Rule 3 of the aforesaid Rules when their total turnover from all products and services is Rs.50 crores or more and turnover for individual products or services is Rs.25 crores or more, both as per the immediately preceding financial year. In case of companies falling in Item B of Rule 3, the respective limits are Rs.100 crores and Rs.35 crores. Cost audit is not applicable where a company’s revenue from foreign exchange exceeds 70% of its total revenue or it is operating from a special economic zone.

Copy of the MCA notification can be found here http://www.mca.gov.in/Ministry/pdf/Amendment_Rules_01012014.pdf

Copy of the Original Rules can be found here http://www.mca.gov.in/Ministry/pdf/rules_2_30062014.pdf

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Single Regn for Depository Participants

SEBI has issued circular dated 30th December, 2014 outlining single registration for depository participants.

The gist of the circular and the proposed amendments in the regulations are as follows:

As per the amendment, the existing requirement of obtaining certificate of initial registration to act as a participant and subsequently permanent registration to continue to act as a participant for each depository has been done away with.
Henceforth, one certificate of initial registration and subsequently permanent registration through any depository shall be required after commencement of the Securities and Exchange Board of India (Depositories and Participants) (Amendment)
Regulations, 2014.
For the purpose of implementing the above registration requirements, the following
guidelines are being issued:
a. If a new entity desires to act as a participant in any of the depository, then the entity shall apply to SEBI for certificate of initial registration through the concerned depository in the manner prescribed in the DP Regulations.
b. If an entity has been granted a certificate of registration to act as a participant through one depository and wishes to act as a participant with the other depository then it shall directly apply to the concerned depository for approval in the manner
as prescribed in the DP Regulations. The concerned depository, on receipt of the application, may grant approval to the entity after exercising due diligence and on being satisfied about the compliance of all relevant eligibility requirements
including the following:
i. The applicant, its directors, proprietor, partners and associates satisfy the Fit and Proper Criteria as defined in the SEBI (Intermediaries) Regulations, 2008;
ii. The applicant has taken satisfactory corrective steps to rectify the deficiencies or irregularities observed in the past inspections or in case of actions initiated/ taken by SEBI/ depository(s) or other regulators. The depository may also
seek details whether the Board of the applicant is satisfied about the steps taken. They may also carry out inspection, wherever considered appropriate;
iii. Recovery of all pending fees/ dues payable to SEBI and depository; and
iv. payment of registration fees as prescribed in the DP Regulations.
The depositories shall report to SEBI about the approval as stated above on a monthly basis.
c. The participant shall apply to SEBI for permanent registration through any of the depositories in which it is acting as a participant as per the DP Regulations.
d. The participants shall continue to pay the applicable annual fees and registration fees as specified in Part A of Second Schedule in the manner specified in Part B thereof w.r.t. their respective depository(ies), as the case may be.

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FDI in defence sector –

RBI has issued a circular dated 8th December, 2014 wherein certain sector specific conditions have been laid for the FDI in defence sector. The gist of the conditions are as follows:

The extant FDI policy for defence sector has since been reviewed. Department of Industrial Policy and Promotion (DIPP) has now provided a list of defence items as finalised by Department of Defence Production, Ministry of Defence and has clarified that items not in the list would not require industrial license for defence purposes. Dual use items, having military as well as civilian applications, other than those specially mentioned in the list, would also not require Industrial License from Defence angle. Department of Defence Production, Ministry of Defence, has finalised the ‘Security Manual for Licensed Defence Industry’.

Further, on a review, effective from August 26, 2014, foreign investment i.e. FDI, FIIs, RFPIs, NRIs, FVCIs and QFIs upto 49% under government route shall be permitted in defence sector subject to the conditions specified in the Press Note 7 (2014 Series) dated August 26, 2014. Portfolio investment (RFPI/FII/NRI/QFI) and FVCI investment will not exceed 24% of the total equity of the investee company. Portfolio investment will be under automatic route.

The listed investee company engaged in defence sector, in accordance with the guidance provided by the Press Note 7 (2014 Series) , shall immediately allocate limits for portfolio investment for RFPI (including QFI and FII), NRI (not exceeding 10%) and FVCI within the default portfolio investment limit of 24% being permitted now and approach Reserve Bank, Central Office, Foreign Investment Division, Mumbai so that allocated limits can be monitored by the Reserve Bank.

A copy of the RBI circular is found here i.e. http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=9391&Mode=0

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2014 in review

The WordPress.com stats helper monkeys prepared a 2014 annual report for this blog.

Here’s an excerpt:

The Louvre Museum has 8.5 million visitors per year. This blog was viewed about 200,000 times in 2014. If it were an exhibit at the Louvre Museum, it would take about 9 days for that many people to see it.

Click here to see the complete report.

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