Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes

1. TRANSACTION ADVISORS
Missive
Volume IV – July 2011

2. Topics Page No
Corporate Law 1
Dear Patron SEBI 3
FEMA 4
Here we are again with the Fourth successive issue of our monthly ‘Missive’. Regulatory Updates 5
Regulatory News 6
FDI in India was up by 43% in April to USD 3.12 billion. India Inc raised $2 bn in April International Taxation 7
through ECBs & FCCBs. Private equity investments in India touched US$ 6,141 million Transfer Pricing 7
in value terms in the first six months of 2011, a rise of 52% over the corresponding Recent News in Transactions 8
period in previous year. Above statistics are themselves evident of the fact that the that made headlines
Indian growth story is gaining momentum.
Our ‘Impact analysis’ on the critical updates has been widely acclaimed, prompting
us to cover more updates under the said analysis. At the same time, we would very “Positive thinking is not
much appreciate your feedback which consistently helps us in improving and
upgrading the contents.
EXPECTING the Best to
happen. It is about
We trust you will enjoy reading this Missive. ACCEPTING that whatever
happens is always the BEST.”
Thanks and regards,
Akhil Bansal
Editor, Knowledge Management Team

3. Corporate Law
Filing of Financial statements in XBRL mode [General Circular No. Companies (Cost Accounting Records) Rules, 2011 and Companies
37/2011 dated June 7, 2011] (Cost Audit Report) Rules, 2011
Superseding its earlier circulars, MCA has mandated the following The new rules will apply to every company, including a foreign
companies to file their balance sheet and profit & loss account along company, engaged in the production, processing, manufacturing or
with the Directors' and Auditor's Report for the year 2010-11 onwards mining activities and which has:
by using XBRL Taxonomy:
ï Net worth exceeding Rs. 5 crores as on the last date of the
ï All companies listed in India and their Indian subsidiaries; immediately preceding financial year;
ï All companies having paid up capital of INR 5 crores and above; ï Turnover exceeding Rs. 20 crores from sale or supply of all
and products or activities during the immediately preceding
ï All companies having turnover of INR 100 crores and above. financial year, or
ï Issued equity or debt securities that are listed or are in the
However, banking, power, insurance and non-banking financial process of listing on any stock exchange, whether in or outside
companies are exempted from XBRL filing till further orders. India.
Impact: XBRL is increasingly gaining importance from Indian MCA has also done away with a 46-year system of prescribing sector-
regulators. SEBI is in the process of adopting XBRL. BSE and NSE have specific cost accounting record maintenance rules for 36 industrial
already offered a unified XBRL-enabled platform called ‘corpfiling segments. Instead, it has notified a common rule that outlines the
system' to electronically file their disclosures, giving instant access to broad principles which companies need to follow. However, the
the investors. XBRL taxonomy for the banks has been finalised; and practice of notifying such record continues for only 8 sectors where
for insurance sector and NBFCs, taxonomy is going to be developed government control over pricing, production or distribution exists today
shortly. Now, the Ministry of Finance and other ministries are also (i.e medicines, fertiliser, sugar, industrial alcohol, electricity, petroleum,
preparing for the transition and telecommunications)
MCA has also issued The Companies (Cost Audit Report) Rules, 2011
which will apply to every company in respect of which an audit of the
cost records has been ordered by the Central Government under sub-
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4. section (1) of section 233B of the Act. The rules, among other matters, financial instruments only in dematerialised form. Rules proposed to be
provide the format of the cost audit report, time-limit for submission effective from October 1st, 2011.
and penalties for default.
Impact: Both shareholder and companies would need registration
with NSDL or CSDL which would not only be a time consuming process
Green Initiatives in the Corporate Governance – Clarification but would also involve cost.
regarding participation by shareholders or Directors in meetings
under the Companies Act, 1956 through electronic mode [General
Circular 35/2011 dated June 6, 2011] Fast Track Exit mode for defunct companies under section 560 of the
Companies Act, 1956 (General Circular No.36/2011 dated June 7th,
MCA has clarified that it is not mandatory for companies to provide the 2011)
facility of video conferencing to its directors for the meeting.
At present a company that is desirous of getting its name struck off, has
As far as shareholder’s meeting for FY 2011-12 is concerned, it is to apply to RoC in e-form 61. All pending statutory returns are required
optional for the company to provide such facility. Even thereafter, the to be filed alongwith. To make an easy exit route for the “defunct
same would be mandatory only for listed companies. companies”, the ministry has prescribed the new guidelines effective
July 3rd, 2011. However, the defunct company is one which does not
have any asset or liability and is not involved in any business activity
Draft Rules for mandatory dematerialisation of share certificate by one year prior to making application to the RoC.
Public Companies
Impact: The FTE Guidelines is an improvement over the previous Easy
MCA has issued Companies (Dematerialisation of Certificates) Rules, Exit Scheme (EES) and will provide an opportunity to the defunct
2011 (Draft Rules) for public comments. Rules will be applicable to all companies to exit with minimal compliance.
public companies and their subsidiaries which have raised money by
issue of shares, debentures, by accepting public deposits, stock, bond
or any other financial instruments from public, other than from Other Updates
directors of the company. Rules further provides that such companies
shall issue and keep share certificates, debenture certificates and ï Central Government has issued the Companies (Passing of
certificates issued for receipt of deposits, stock, bond or any other Resolution by Postal Ballot) Rules, 2011 (New Rules), which will
supersede the Principal Rules. The new Rules provide for the
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5. mechanism for electronic voting which would involve SEBI
appointment of agencies like NSDL or CSDL. This initiative is in
furtherance of the Green Initiative in the Corporate Governance Shareholding of promoter / promoter group to be in dematerialized
released by MCA in May 2011. The provision for electronic mode [Circular No. Cir/ISD/ 3/2011 dated June 17, 2011]
mode of voting is expected to increase the members’
participation in decisions taken at meetings. Further, it will SEBI had asked the promoters of listed companies to convert their
reduce both time and costs incurred by the Companies as well entire equity holding in the dematerialized form by September 2011,
as its members on meetings. failing which it will ban trading of such shares in the normal segment of
the market. The non-compliance would require trading of shares under
ï Government had amended the guidelines for declaring financial the ‘trade segment’. Under the ‘trade segment’, it is mandatory to take
institution as Public Financial Institutions (PFI) under Section 4A delivery of shares and most companies prefer to get their equities
of the Companies Act, 1956. Private companies, primarily traded under the ‘normal segment'.
engaged in infrastructure funding, have been permitted to
attain the status of a PFI and, seek tax and other benefits. Impact: SEBI intends to encourage transparency in the dealings of
Under the new norms notified by the Ministry of Corporate shares by promoters including pledge / usage as collateral, to
Affairs, any company which has been in existence for more than moderate sharp and destabilizing price movements in shares of
three years and earns more than 50% income from industrial companies and to encourage better price discovery.
and infrastructural financing can opt to be a PFI [vide General
Circular No: 34/2011 Dated- 02.06.2011]
Redemption of Indian Depository Receipts (IDRs) into Underlying
ï MCA had now made it mandatory for CAs, CSs to digitally sign Equity Shares [Circular CIR/CFD/DIL/3/2011 dated June 03, 2011]
DIN applications [General Circular No 32/2011 dated May 31st,
2011] SEBI has provided restrictions on redemption of IDRs to their
corresponding underlying shares. As per the circular, a conversion
would be possible only if the trading volume over the last six months
was less than 5% (annualized) of the total IDRs issued.
Impact: This circular by SEBI is being seen as ‘change of rules’ midway
by the existing IDR holders and FIIs putting them into
disadvantageous position as they will not be able to acquire the
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6. underlying shares and therefore will have to exit through IDRs in FEMA
losses. The SEBI circular has raised serious questions about the future
of the instrument. Repatriating foreign nationals permitted to retain India bank account
[A.P. DIR Circular No. 70 dated June 9, 2011]
SEBI circular relaxes norms on changing names by Listed Companies RBI has issued a circular permitting Authorized Dealer Category – I
[Circular No. – CIR/MRD/DP/ 07 /2011, Dated- June 16, 2011]. banks [AD] to re-designate resident accounts of repatriating foreign
nationals as Non-Resident (Ordinary) [NRO] accounts.
In addition to the existing norm that at least 50% of its total revenue in
the preceding 1 year period should have been accounted for by the Impact: The re-designation of resident account into NRO account will
new activity suggested by the new name, SEBI had further provided enable foreign nationals to receive their bona fide dues such as refund
relaxation by saying that a company can change its name provided the of provident fund balance and income tax refund even after they
amount invested in new projects associated with the new name is at leave the country. Prior to this, foreign nationals had to close their
least 50 per cent of its assets. resident accounts at the time of repatriation from India.
Impact: Companies where the gestation period of the business is
usually longer and the revenue stream often delayed found it difficult Issue of Equity Shares under the FDI scheme now allowed even under
to comply with the earlier provision, will now benefit from the the government route [A.P. DIR Circular No. 74, dated June 30, 2011]
additional criteria.
FDI in activities not covered under the automatic route requires prior
approval of the government. RBI had now allowed issues of equity and
preference shares to overseas entities in such cases, against money
payable for importing capital goods and pre-operative expenses.
However, certain conditions require compliance.
Impact: Permitting Companies to issue shares against non-cash
considerations (primarily the start-up expenditure and capital
expenditures) will enable the Companies to obtain financing easily
and without undue hassles
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7. Other Updates (Scheme of Amalgamation and Transfer of General Insurance
Business) Regulations, 2011].
ï Extension of time limit for buyback of FCCBs - Earlier, RBI had
permitted buyback of FCCBs at discounted rates by Indian ï Government had extended the DEPB scheme for 3 more
companies. The facility has now been extended until March months i.e. till September 2011
2012, both under the automatic route as well as the approval
route. The discount rates have been decreased from 15% to 8% ï India had inked DTAA with Mozambique
for premature buyback under the automatic route and from
25% to 20% under the approval route. ï India has signed Protocol Amending DTAA with Singapore; to
help in Effective Exchange of Information in Tax Matters
ï Ministry of Finance has issued a press release that paves the
way for setting up “Infrastructure Debt Funds” (IDFs) in order
to accelerate and enhance the flow of long term debt in
infrastructure projects. The proposal contemplates two
organizational structures for IDFs. The first is a vehicle in the
form of a mutual fund using the traditional trust structure. The
second is a company structure that is established in the form of
a NBFC.
Regulatory Updates ï UK Bribery Act 2010 is scheduled to become effective July 1st,
2011. Under the Act, Indian companies with a demonstrable
ï IRDA, the Insurance regulator, has notified the M&A corporate presence in the UK which are unable to demonstrate
guidelines for general insurance companies thereby paving that they have implemented ‘adequate procedures’ to prevent
way for consolidation in the sector. The regulator has retained corrupt practices within their organisations or through third
with itself the power to vet the valuations arrived at by the parties on their behalf, can be exposed to unlimited fines, as
companies involved in M&As. Besides IRDA, an acquirer would well as other collateral consequences, such as long-term
need to have approvals from RBI and the finance ministry, in imprisonment for their directors.
case it has FDI. It also needs to have clearance of SEBI & CCI.
[The Insurance Regulatory and Development Authority (Irda)
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8. Regulatory News § RBI has decided to place the data on Overseas Direct
Investment in the public domain. The report will consist of the
§ Discussion Paper on FDI Equity Caps by DIPP - The discussion following fields, viz., the name of the Indian Company / Party,
paper introduces the possibility of abolishing all sectoral caps name of the JV/WOS, name of the country where the
for foreign equity shareholding below 49%. As per the paper, investment is made, major activity of the JV/WOS, financial
from a legal point of view, it doesn't matter whether the equity commitment of the parent company in the JV/WOS comprising
holding is 26% or 49% as in both cases, the investor will exercise equity, loan and guarantee issued in USD million.
the same control.
§ SEBI had directed two Sahara group to immediately refund the
§ Central government is considering allowing 51% FDI in multi money collected through sales of optionally fully convertible
brand retail sector with a rider that permission of the states debentures with annual interest of 15%, citing violation of
would be a must to open stores. At present, India allows FDI regulatory norms. The group had moved the Supreme Court
only in single-brand retail chains like Nike, Louis Vuitton with a against said order.
cap of 51%. However, the development (i.e. the proposal for
seeking permission from the states) could be a big dampener § The much-hyped Microfinance Institutions Bill, proposed to be
for the global chains like Wal-Mart, Metro and Carrefour which introduced in Parliament, has gone into cold storage. Some
have been waiting since long for India to open FDI in the multi- grounds on which the Bill has been put on hold are the caps on
brand retail. interest margin and rate of interest, and the redundancy of a
central law when the RBI is the sole regulator for nearly 92 per
§ Provident fund trusts may soon have to park funds with EPFO - cent of NBFC-MFIs
Companies managing provident fund accumulations of their
employees in-house may soon have to hand over the entire
corpus to the Employees’ Provident Fund Organisation as the
government looks for ways to ensure retirement savings of
workers are protected.
§ SEBI has decided to reopen its probe into multi-crore IPO scam
of 2003-2006
§ CCI had penalised NSE for abusing dominant market position.
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9. International Taxation Transfer Pricing
Significant Decisions Significant Decisions
ï Reimbursement of salary to seconded employees is fees for ï Arm Length Price of royalty payments cannot be “nil” merely
included services as they are rendering managerial services because taxpayer continues to incur losses [ITAT Delhi]
[AAR]
ï Transactional Net Margin Method at enterprise Level Invalid
ï Discounting Charges paid to a non-resident on discounting of [ITAT Mumbai]
bills of exchange are not ‘interest’, liable for withholding [High
Court Delhi] ï Even Loss/High-Profit Companies Can Be Compared for TP
purposes [ITAT Mumbai]
ï A relation between the business of a non-resident and activity
carried on in India would result in a ‘business connection’ for ï “Cost only” reimbursement (without any mark-up) from AE is
the purpose of deemed accrual of income in India as well as for not justifiable as no part of the income derived by the AE from
considering the resident as agent of the non-resident [ITAT the activity of the Taxpayer is shared with the Taxpayer and the
Mumbai] entire benefit of the activity is enjoyed by the AE [ITAT Mumbai]
ï Taxpayer not eligible to claim short stay exemption under the ï Existence of actual cross border transaction and motive to shift
DTAA as the salary was paid directly by the Indian subsidiary profits or evade taxes not necessary pre conditions for TP
[High Court Madras] provisions to apply [ITAT Delhi]
ï Once the TPO accepted arm’s length price of royalty payments,
the AO could not examine the reasonableness of the said
expenditure for disallowance [High Court Delhi]
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10. Recent Transactions that made Headlines
§ Tata Steel had sold its 26% stake in Australian coal miner
Riversdale to Rio Tinto (an Anglo-Australian giant) for USD 1.1
billion
§ Reliance Industries will acquire a controlling stake in two
insurance companies—Bharti AXA Life Insurance Co. Ltd and
Bharti AXA General Insurance Co. Ltd—from Bharti Enterprises
Ltd.
§ France’s Schneider Electric SA proposes to buy 74% of privately
held Indian inverter manufacturer Luminous Power
Technologies Pvt. Ltd for around €215 million to boost revenue
and market share in Asia’s third largest economy.
§ P&G said to be readying £38-Billion Bid for Rival Unilever
§ State-run power financier REC is planning to raise up to $1.75
billion through a combination of FCCBs and ECBs
§ Vedanta Plans to Invest Another 10,000 Cr in Jharsuguda Project
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TRANSACTION ADVISORS
This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared
for the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in this
publication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express or
implied) is given as to the accuracy or completeness of the information contained in this publication