Monthly Archives: July 2015

CCI order on Hyundai – Rs.420 crores penalty

The Competition Commission of India (‘the Commission’), in its order dated 27.7.15 has found 3 Car Companies, namely, Hyundai Motor India Ltd. (Hyundai), Mahindra Reva Electric Car Company (P) Ltd. (Reva) and Premier Ltd. (Premier) to be in contravention of the provisions of the Competition Act, 2002 (‘the Act’). The instant order is in continuation of Commission’s main order in the same case dated 25.08.2014 vide which the Commission had inter alia imposed penalties on fourteen out of the seventeen car companies under Section 27 of the Act.

The order against Hyundai has remained pending pursuant to the writ petition filed by it in the Madras High Court challenging the jurisdiction of the Commission. In regards, Reva and Premier, the order remained pending because of the applications filed by them requesting for striking out of their names from the array of parties. Accordingly, the Commission decided to pass a separate order against these three car companies after affording them reasonable opportunity to make their submissions in respect of the findings of the Director General (DG) in its investigation.

After taking into account the findings of the DG and the detailed submissions by these three car companies, the Commission found their conduct to be in violation of the provisions of section 3(4) of the Act with respect to their agreements with local Original Equipment Suppliers (OESs) and agreements with authorized dealers whereby they imposed absolute restrictive covenants and completely foreclosed the aftermarket for supply of spare parts and other diagnostic tools. Further the Commission found that the said car companies, who were found to be dominant in the aftermarkets for their respective brands, abused their dominant position under section 4 of the Act. The car companies were found to be indulging in practices resulting in denial of market access to independent repairers as the latter were debilitated to provide services in the aftermarket for repair and maintenance of cars for want of genuine spare parts. Further, these car companies were also found to be using their dominant position in the market for spare parts and diagnostic tools to protect their market for repair services, thereby distorting fair competition.

The Commission has prescribed the same corrective measures to Hyundai, Reva and Premier as were prescribed in the main order dated 25.08.2014 to infuse competition in the after sales market in the automobile sector. To reiterate, the order directed the car companies to cease and desist from indulging in conduct which has been found to be in contravention of the provisions of the Act. The car companies were also directed to adopt appropriate policies which shall allow them to put in place an effective system to make the spare parts and diagnostic tools easily available in the open market to customers and independent repairers. Further, the Commission directed the car companies to not to put any restrictions or impediments on the operation of independent repairers/garages.

The Commission imposed a penalty calculated at the rate of 2% of its average turnover on Hyundai amounting to Rs. 420.2605 crores (Rupees Four Hundred and Twenty Crores, Twenty Six Lakhs and Five Thousand only) which is to be deposited within 60 days of receipt of the order. Considering the mitigating factors that worked in favour of Reva and Premier, the two car companies were absolved from paying monetary penalty.

Detailed order can be seen at Commission’s website http://www.cci.gov.in

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Digitally signed invoices in excise and service tax

CBEC has issued a notification no. 18/2015 dated 6th July, 2015 regarding procedure for digitally signed invoices in excise and service tax. The salient features of the notification are :

1. Every assessee proposing to use digital signature shall use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority in India.

  1. (i) Every assessee proposing to use digital signatures shall intimate the following details to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise, at least fifteen days in advance:
  2. a) name, e-mail id, office address and designation of the person authorised to use the digital signature certificate;
  3. b) name of the Certifying Authority;
  4. c) date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the said Authority:

Provided that in case of any change in the details submitted to the jurisdictional Deputy Commissioner or Assistant Commissioner, complete details shall be submitted afresh within fifteen days of such change.

(ii)  Every assessee already using digital signature shall intimate to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise the above details within fifteen days of issue of this notification.

  1. Every assessee who opts to maintain records in electronic form and who has more than one factory or service tax registration shall maintain separate electronic records for each factory or each service tax registration.
  1. Every assessee who opts to maintain records in electronic form, shall on request by a Central Excise Officer, produce the specified records in electronic form and invoices through e-mail or on a specified storage device in an electronically readable format for verification of the authenticity of the document and the request for such records and invoices shall be specified in the letter or e-mail by the Central Excise Officer.
  1. A Central Excise Officer, during an enquiry, investigation or audit, in accordance with the provisions of section 14 of the Central Excise Act, 1944 and as made applicable to Service Tax as per the provisions contained in section 83 of the Finance Act, 1994, may direct an assessee to furnish printouts of the records in electronic form and invoices and may resume printouts of such records and invoices after verifying the correctness of the same in electronic format; and after the print outs of such records in electronic form have been signed by the assessee or any other person authorised by the assessee in this regard, if so requested by such Central Excise Officer.
  1. Every assessee who opts to maintain records in electronic form shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain.

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Amendments to Negotiable Instruments Act,

The President of India has promulgated the Negotiable Instruments (Amendment) Ordinance, 2015 (No.6 of 2015) on 15th June, 2015. The Ordinance provides for determination of territorial jurisdiction of courts for trying cases relating to offence of dishonour of cheques under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

The Ordinance has amended the NI Act to, inter-alia, stipulate the follow:

• Filing of cases only in a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment through his account, is situated, except in case of bearer cheques, which are presented to the branch of the drawee bank in that case the local court of that branch would get jurisdiction;

• Providing that where a complaint has been filed against the drawer of a cheque in the court having jurisdiction under the new scheme of jurisdiction, all subsequent complaints arising out of section 138 of the NI Act against the same drawer shall be filed before the same court, irrespective of whether those cheques were presented for payment within the territorial jurisdiction of that court; and

• Providing that if more than one prosecution is filed under section 138 of the NI Act against the same drawer of cheques before different courts, upon the said fact having been brought to the notice of the court, the court shall transfer the case to the court having jurisdiction as per the new scheme of jurisdiction.

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Issue of ESOP shares to non residents

RBI has issued a notification dated 16th July 2015 wherein it has done away with the 5% limit on the issue of shares under the Employees Stock Options Scheme or sweat equity shares to its employees who are resident outside India. Instead the company has to comply with all the applicable regulations of SEBI/ MCA / RBI in this regard.

The relevant portion of the said notification is reproduced below

On a review, it has been decided that an Indian company may issue “employees’ stock option” and/or “sweat equity shares” to its employees/directors or employees/directors of its holding company or joint venture or wholly owned overseas subsidiary/subsidiaries who are resident outside India, provided that :

  1. The scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 or the Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013, as the case may be.
  2. The “employee’s stock option”/ “sweat equity shares” issued to non-resident employees/directors under the applicable rules/regulations are in compliance with the sectoral cap applicable to the said company.
  3. Issue of “employee’s stock option”/ “sweat equity shares” in a company where foreign investment is under the approval route shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.
  4. Issue of “employee’s stock option”/ “sweat equity shares” under the applicable rules/regulations to an employee/director who is a citizen of Bangladesh/Pakistan shall require prior approval of the Foreign Investment Promotion Board (FIPB) of Government of India.

The issuing company is also required to furnish a return in form ESOP within 30 days of the issue to the RBI.

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Service tax on restaurants/ hotels

The Ministry of Finance has in an indirect way clarified that  effective service tax rate in respect of services provided in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air–conditioning or central air-heating in any part of the establishment is 5.6% (14% of 40%) of the total amount charged.

This clarification has in a Ministry press release where they were clarifying regarding service charges levied by the restaurants/ eating places. The Ministry has said that such service charges does not come to the government.

In the last para it has clarified regarding the actual service tax rate on foods and beverages that can be charged by air-conditioned restaurants/ eating out places/ hotels.

So the next time you go to an air-conditioned restaurant or eating place and see a service tax of 14% of the amount rather than 5.6%, take the manager to task.

Click to access serviceTax_By_Hotels14072015.pdf

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Prior approval of RBI for acquisition/ transfer of control of NBFCs

RBI has vide its circular dated 9th July, 2015 mandated that prior written permission of RBI will be required for 

  1. any takeover or acquisition of control of an NBFC, which may or may not result in change of management;
  2. any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC. Prior approval would, however, not be required in case of any shareholding going beyond 26% due to buyback of shares/ reduction in capital where it has approval of a competent Court. The same is however required to be reported to the Reserve Bank not later than one month from its occurrence;
  3. any change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors. Prior approval would not be required for those directors who get re-elected on retirement by rotation.

RBI has further clarified the procedure regarding making application for prior permission as follows:

(i) NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank under paragraph 2, along with the following documents:

  1. Information about the proposed directors/ shareholders as per the Annex;
  2. Sources of funds of the proposed shareholders acquiring the shares in the NBFC;
  3. Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;
  4. Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank;
  5. Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and
  6. Bankers’ Report on the proposed directors/ shareholders.

(ii) Applications in this regard may be submitted to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located.

Further RBI has mandated that prior public notice of 30 days in advance is required to be given for change in control/ management of NBFC.

i. A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

ii. The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

5. The directions contained above are applicable with immediate effect, i.e., the same will apply on any takeover or acquisition of control, any change in the shareholding or any change in the management occurring after the date of this circular.

6. Any violation of the aforementioned directions would result in adverse regulatory action including cancellation of CoR.

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