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Conne K t …

Conne K t …. CONTENTS News Room 2 Value Creation 3 Corporate Watch 5 Legal Alley 7 Tax Flash 11 Due dates 13. AUGUST 2011. SEBI asks Promoters to disclose initial Shareholding and thereafter considerable changes in it

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Conne K t …

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  1. ConneKt… CONTENTS News Room 2 Value Creation 3 Corporate Watch 5 Legal Alley 7 Tax Flash 11 Due dates 13 AUGUST 2011

  2. SEBI asks Promoters to disclose initial Shareholding and thereafter considerable changes in it With an aim to rein in insider trading by promoters without investors’ knowledge, Sebi has decided to make it mandatory for all promoter entities to disclose any considerable purchase or sale of shares by them. As per the Sebi board decision, it will be mandatory for the promoters and those part of the promoter group of a listed company to give the initial disclosures relating to their shareholding at the time of becoming promoter or part of promoter group. Besides, they will have to make continuous disclosures whenever there is a change in their holdings exceeding Rs five lakh in value or 25,000 shares or 1 per cent of total shareholding or voting rights, whichever is lower. Similar, disclosures are at present required to be made by the directors and officers of the company. 1.5 lakh Post Offices to be converted into banks The humble post office is all set to undergo a radical change with a proposal to convert over 1.5 lakh post offices across the nation into full fledged banks on the anvil. The government wants to reach out to the masses in the rural areas with modern banking facilities through the post offices for which it will seek a licence from the RBI to convert all our post offices into banks. The lack of modern banking facilities in rural areas and dependence of villagers on informal sector for their credit requirements has prompted the government to work on financial inclusion by way of setting up ‘postal banks’. News Room Investors can now file their complaint on MCAs website Ministry of Corporate Affairs has withdrawn  its support to the website- www.investorhelpline.in, launched under the aegis of Investor Education and Protection Fund,  with effect from the 1st July, 2011. The Ministry is now in the process of preparing modalities for transferring the unresolved complaints to its website – www.mca.gov.in/MCA21/. However, the complainant is free to file fresh complaints on the Ministry’s website -  www.mca.gov.in/MCA21/, in respect of the unresolved complaints filed earlier on the website- www.investorhelpline.in. Further, the members of the public may file their grievances online on the Ministry’s website and the filing of the grievances on this website does not require any registration. The user would be required to file his/her grievance through an e-form, which would capture his/her relevant details. The user will also be able to  track the status of his/her grievance through the Service Request Number allotted at the time of filing the grievance. SEBI asks stock exchanges to penalise brokers transferring trades from one trading account to another after terming them as ‘punching’ errors SEBI recently came across a loophole in its existing regulations, which was being abused by stock brokers for facilitating tax evasion and flow of black money through fictitious trades in lieu of hefty commissions. To remove this anomaly, Sebi has asked stock exchanges to penalise the brokers transferring trades from one trading account to another after terming them as ‘punching’ errors. The penalty could be as high as 2 per cent of the value of shares traded in the ‘wrong’ account, as per new rules. HDFC Bank starts income tax payment facility through ATMs Private sector lender HDFC Bank launched a service whereby its 115 lakh debit card holders can pay income tax through the bank’s ATMs. With this facility, the bank has given its vast customer base the freedom from waiting in long queues at counters or logging into the internet to pay their taxes. The service can now be accessed by the bank’s 115 lakh debit card holders at 5,998 HDFC Bank ATMs in 1,111 cities across the country. For availing the service, customers will have to register themselves and the ATM payment option will be activated immediately. • Government considering proposal to extend EPF to all companies with over 10 employees • The government is considering a proposal to extend Employees Provident Fund Scheme to all companies with over 10 employees. At present the EPF Act has provisions that any factories or establishments having 20 or more employees have to contribute to the EPF. • Opening of multi-brand retail • The long pending issue of opening of multi-brand retail to foreign investment moved one more step, with the top secretaries forwarding recommendations to the commerce and industry ministry. Some of the recommendations are: • 51% FDI to be allowed in the sector, which is dominated by mom and pop stores. • At least 50% of the investment and jobs should go to to rural areas. • Entities with FDI should source at least 30% of their requirements from the MSME sector. • A foreign player would have also to commit at least $100 million investment. • Allowing mega stores to sell unbranded items and such entities should be allowed only in towns with population of over 10 lakh. • Once the Cabinet clears the proposal to allow FDI, foreign players like WalMart, Carrefour and Tesco, can form joint ventures with Indian companies to open multibrand retail outlets. While the Central government formulates norms for FDI, the joint venture firms would have to seek permission from state governments (as per the Shops and Establishment Act) to open stores. NMA ConneKt August 2011 Page No. 2

  3. VALUE CREATION BSE SME EXCHANGE Bombay Stock Exchange Ltd. (BSE) is in the process of launching its small-and-medium-enterprises (SME) exchange for which it has received an ‘in-principle’ approval from the capital market regulator SEBI (Securities and Exchange Board of India). The BSE is hopeful of launching the SME exchange by September, 2011 which will provide new investment avenues to market participants and investors. NEED OF THE SME EXCHANGE SME’s being the backbone of the Indian economy produce about 45% of the manufacturing output and contribute about 40% of the country's exports. Also, being the largest employment provider in the country, there is a huge demand and requirement of capital for the growth of SME’s. SME’s are always looking for better funding sources and the BSE SME will help in bridging the gap of capital requirement and sources of capital by bringing the entire pool of investors on a single platform. The exchange will make it easier for the SMEs to raise the capital through this platform in a cost effective manner. BENEFITS OF THE SME EXCHANGE Access to capital by SME’s; Future financing opportunities; Alternate funding options; Increased visibility among investors; Venture capital; Better valuation to the company; Tax benefits; Create employee incentive mechanism; Efficient risk distribution mechanism; Liquidity for shareholders; Transparency and good corporate governance for SME’s and Encouraging entrepreneurship. MARKET MAKING Market Making is an activity where the Member Brokers registered as market makers will undertake to support the scrip by providing two way quotes. All the market makers in a scrip will provide 2-way quotes for 75% of the time in a trading day. The market makers will have to hold 5% of the specified security to be listed at the time of allotment in their inventory to do the market making. In addition to this, the market makers can also buy from or sell to the nominated investors the required shares for market making. The merchant banker and nominated investor need to enter into an agreement in this regard. Only the Members of the stock exchanges recognized by the SEBI can act as a market maker. The members desirous of becoming market maker have to get themselves registered as market maker with the exchange by filing the registration form. These members should have a minimum experience of 3 years, minimum net worth of Rs. 5 crores and a daily turn over of Rs. 10 crores. The market maker shall have additional net worth of Rs. 2 crores for additional scrip. COMPLIANCE REQUIREMENTS FOR MIGRATION FROM THE BSE SME PLATFORM TO THE MAIN BOARD 1. Any SME on BSE SME Platform with paid up capital more than Rs. 10 crores and 2. Special resolution is passed in the AGM by at least two third of the non-promoter shareholders present 3. All compliances with the main board norms CHALLENGES FOR THE SME BSE EXCHANGE The SME exchange is not well understood by the various segments of the society. Merchant Bankers have only handled primary market issues so far, would need to assist the company in the secondary market through market making for three years. Merchant banker, issuer and market maker have to work as a team for three years. Only investors with a minimum investment of Rs. One Lakh would be allowed to participate. A company needs to have a track record of distributable profits for at least three years to list itself. The issues shall be 100% underwritten and merchant bankers shall underwrite 15% in their own account. CONCLUSION In emerging economies like India , SMEs are growth engines and it is pertinent to their growth that their liquidity is improved. The SME Exchange is a welcome step towards mobilising resources for the SME’s. It would be a win - win situation for the investors, market makers and SME’s once the exchange is launched as it has potential for huge wealth creation for all the stake holders. (A comparison of the SME vs Main board listing has been drawn on the following page) NMA ConneKt August 2011 Page No. 3

  4. VALUE CREATION BSE SME EXCHANGE NMA ConneKt August 2011 Page No. 4

  5. Corporate Watch Aurobindo Pharma Limited Details As on 8th August, 2011 Aurobindo Pharma Limited AurobindoPharma was founded in 1986 by Mr. P.V.Ramaprasad Reddy, Mr. K.Nityananda Reddy and a small, highly committed group of professionals. It commenced operations in 1988-89 with a single unit manufacturing semi synthetic penicillins (SSPs) at Pondicherry. The company became a public venture in 1992. AurobindoPharma had gone public in 1995 by listing its shares in various stock exchanges in the country. The company is the market leader in semi-synthetic penicillin drugs. It has a presence in key therapeutic segments like SSPs, cephalosporins, antivirals, CNS, cardio-vascular, gastroenterology, etc. Over the years, the AurobindoPharma has evolved into a knowledge driven company. It is R&D focused, has a multi-product portfolio with multi-country manufacturing facilities, and is becoming a marketing conglomerate across the world. AurobindoPharma created a name for itself in the manufacture of bulk actives, its area of core competence. After ensuring a firm foundation of cost effective production capabilities and a clutch of loyal customers, the company has entered the high margin speciality generic formulations segment, with a global marketing network. The formulation business is systematically organised with a divisional structure, and has a focused team for each key international market. Aurobindo believes in gaining volume and market share in every business/segment it enters. Aurobindo has invested significant resources in building a mega infrastructure for APIs and formulations to emerge as a vertically integrated pharmaceutical company. Aurobindo’s five units for APIs and four units for formulations are designed for the regulated markets. NMA ConneKt August 2011 Page No.5

  6. Corporate Watch Aurobindo Pharma Limited(contd…) NMA ConneKt August 2011 Page No.6

  7. Name Availability Guidelines, 2011 General Circular No:48/2011 Dated July 22, 2011 The circular states that The Name Availability Guidelines, 2011 and revised e-form 1A shall be implemented with effect from 24th July, 2011 for which a fees of Rs. 1,000/- shall be charged w.e.f. 24th July, 2011 for making an application for availability of name in revised e-form 1A as provided under Companies (Central Government's) General Rules and Forms (Amendment) Rules, 2011 dated 14.07.2011. http://www.mca.gov.in/Ministry/pdf/Circular_48-2011_22july2011.pdf Simplified procedure for obtaining confirmation of shifting of registered office from one state to another state under section 17 of the Companies Act,1956 General Circular No:50/2011 Dated July25, 2011 The Circular sates that the work relating to confirmation of shifting of registered office from one state to another has been delegated to the respective Registrar of Companies under whose jurisdiction the registered office of the company is situated. The simplified process is likely to be implemented with effect from 24th September, 2011. http://www.mca.gov.in/Ministry/pdf/Circular_50-2011_25july2011.pdf Simplified procedure for rectification of register of charges under section 141 of the Companies Act, 1956 General Circular No:51/2011 Dated July 25, 2011 The Circular sates that the work relating to confirmation of rectification of register of charges under section 141 of the Companies Ac t, 1956 has been delegated to the respective Registrar of Companies under whose jurisdiction the registered office of the company is situated. The simplified process is likely to be implemented with effect from 24th September, 2011. http://www.mca.gov.in/Ministry/pdf/Circular_51-2011_25july2011.pdf Legal AlleyNotifications and circulars Ministry of Corporate Affairs Waiver of approval of Central Government for payment of remuneration to professional managerial person by companies having no profits or inadequate profits General Circular No:46/2011 Dated July 14, 2011 The circular states that no approval of Central Government will be required by the listed companies and their subsidiary companies, which are not having profits or having inadequate profits for payment of remunerations exceeding Rs. 4 lakh p.m., if the managerial person:- (a) is not having any direct or indirect interest in the capital of the company or its holding company or through any other statutory structures at any time during last two years before or on the date of appointment and (b) is having a graduate level qualification with expert and specialized knowledge in the field of his profession. http://www.mca.gov.in/Ministry/pdf/Circular_46-2011_14july2011.pdf Prosecution of Directors General Circular No:47/2011 Dated July 14, 2011 The circular states that the nominee directors on behalf of Public Financial Institutions, Financial Institutions and banks on the board of companies shall not be held liable for any act of omission or commission by the company or by any officers of the company which constitute a breach or violation of any provision of the Companies Act, 1956, and which occurred without his knowledge attributable through Board process and without his consent or connivance or where he has acted diligently in the Board process. http://www.mca.gov.in/Ministry/pdf/Circular_47-2011_14july2011.pdf NMA ConneKt August 2011 Page No. 7

  8. Ministry of Corporate Affairs Scrutiny inspection and investigation in all winding up cases General Circular No:55/2011 Dated July 26, 2011 The Circular introduces procedures to curb malpractices at the time of filing of winding up petitions by management after having committed major violations under the Companies Act, 1956 as well as misappropriation of funds of the company. http://www.mca.gov.in/Ministry/pdf/Circular_55-2011_26july2011.pdf Blocking of DIN consequent to non-filing of Statement of Affairs (SOA) General Circular No:56/2011 Dated July 28, 2011 In this Circular the companies and the directors of such companies where winding up orders have been passed by the Hon’ble Court, have been given one months notice to file SOA before action for blocking their DIN is initiated by the Ministry. http://www.mca.gov.in/Ministry/pdf/Circular_56-2011_28july2011.pdf Filing of Balance Sheet and Profit and Loss Account in eXtensible Business Reporting Language(XBRL) mode General Circular No:57/2011 Dated July 28, 2011 The Circular states that all companies falling in Phase I class of companies for reporting in the XBRL mode are permitted to file their financial statements without any additional fees up to 30.11.2011 or within 60 days of their due date , whichever is later. http://www.mca.gov.in/Ministry/pdf/Circular_57-2011_28july2011.pdf Legal AlleyNotifications and circulars Ministry of Corporate Affairs Simplified procedure for obtaining online approval of Central Government under section 297 of the Companies Act, 1956 General Circular No:52/2011 Dated July 25, 2011 The Circular states the simplified process for obtaining online approval of Central Government under section 297 of the Companies Act, 1956 in order to cut timelines in giving approval. The simplified process is likely to be implemented with effect from 24th September, 2011. http://www.mca.gov.in/Ministry/pdf/Circular_52-2011_25july2011.pdf Guidelines for RDs/ROCs in the matter of scheme of arrangement/amalgamation under section 391-394 General Circular No:53/2011 Dated July 26, 2011 The Circular states the procedure to be followed and the timelines for the ROC and RD to streamline the procedure of arrangement/amalgamation under section 391-394. These guidelines supersede all previous guidelines on the matter. http://www.mca.gov.in/Ministry/pdf/Circular_53-2011_26july2011.pdf Pro-active action in case of winding up petitions General Circular No:54/2011 Dated July 26, 2011 The Circular introduces best international practices to speed up the winding up process and actions to be taken by concerned Official Liquidator. http://www.mca.gov.in/Ministry/pdf/Circular_54-2011_26july2011.pdf NMA ConneKt August 2011 Page No. 8

  9. Regularization of Liaison / Branch Offices of foreign entities established during the pre-FEMA period Master Circular No. 7/2011-12 Dated July 1, 2011 This Circular states that the foreign entities who have established LO or BO in India and continuing to function without obtaining permission from the Reserve Bank of India should approach the Reserve Bank within a period of 90 days from the date of issue of this circular for regularization of establishment of such offices in India along with a copy of the said approval for allotment of a Unique Identification Number (UIN) by the Reserve Bank of India. http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/APD2150711F.pdf Securities and Exchange Board of India Short Collection/non collection of client margins CIR/DNPD/7/2011 Dated : August 10, 2011 The circular states that the stock exchanges shall levy penalty specified in the circular on trading members for short collection/non collection of client margins from clients in Equity and Currency Derivatives segments. http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5 Legal AlleyNotifications and circulars Ministry of Corporate Affairs Company Law Settlement Scheme,2011 (CLSS) General Circular No:59/2011 Dated August 5, 2011 The ministry has come out with the Company Law Settlement Scheme, 2011 wherein the companies that have not filed their statutory documents i.e. Balance Sheets and Annual Returns can file their documents under the CLSS under which the company shall get immunity from prosecution and additional fees would be only 25% of the actual fees payable. The scheme shall come into force on 12th August and remain in force till 31st Oct, 2011 and covers foreign companies aswell. http://www.mca.gov.in/Ministry/pdf/Circular_59-2011_05aug2011.pdf Reserve Bank of India Investment in the units of Domestic Mutual funds A.P. (DIR Series) Circular No. 08 Dated August 9, 2011 This circular states that non- resident investors (other than SEBI registered FIIs and SEBI registered FVCIs) who meet the KYC requirements of SEBI, hereinafter called ‘Qualified Foreign Investors’ (QFIs), are allowed to purchase on repatriation basis rupee denominated units of equity schemes of domestic MFs issued by SEBI registered domestic MFs in accordance with the terms and conditions as stipulated by the SEBI and the RBI from time to time in this regard. http://rbidocs.rbi.org.in/rdocs/Notification/PDFs/APDF090811Fl.pdf NMA ConneKt August 2011 Page No. 9

  10. Legal AlleyNotifications and circulars Securities and Exchange Board of India Investment by Foreign Investors in Mutual Fund Schemes CIR/ IMD /DF / 14 /2011 Dated: August 9, 2011 The circular lays down the terms and conditions for foreign investors (termed as Qualified Foreign Investors/ QFIs) who meet KYC requirement to invest in equity and debt schemes of Mutual Funds (MF) http://www.sebi.gov.in/circulars/2011/cirimddf14-2011.pdf Processing of Investor Complaints in SEBI Complaints Redress System (SCORES) CIR/MIRSD/13/2011 Dated: August 2, 2011 The circular gives details relating to the commencement of processing of investor complaints in a centralized web based complaints redress system ‘SCORES’. http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5 Indicative portfolio or yield in close ended debt oriented mutual fund schemes Cir/ IMD/ DF/12 /2011 Dated: August 1, 2011 The circular gives details relating to Mutual Funds (MFs) / AMCs making additional disclosures without indicating the portfolio or yield, directly or indirectly. http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5 NMA ConneKt August 2011 Page No. 10

  11. Legal AlleyTax FLASH Pune Tribunal held that rule of consistency was required to be honoured by the revenue in cases where the facts are similar. Also held that the tax payer is entitled to perform economic adjustments in circumstances of under capacity utilisation of the company This decision highlights that the rule of consistency ought to be honoured by the revenue authorities in undertaking an analysis if the facts are the same in different assessment years. In holding so, the Tribunal has reiterated the opinions provided in other rulings in this regard like NGC Network (India) Limited1, ACIT v. Fiat India (P) Ltd2., and E-gain Communication (P) Ltd3. However, in the present ruling the Tribunal has not provided any guidance as to when an internal TNMM analysis can be undertaken. Further, in applying the TNMM the Tribunal has accepted the need to make adjustments towards under-utilised capacity in accordance with Rule 10B of the Rules. This ruling reiterates the fact that wherein adjustments are necessary while identifying external comparables, then it has to be undertaken at the stage of maintaining the Transfer Pricing documentation. Also, care must be taken that sufficient back-up documentation be maintained which can be produced at the time of an audit in connection to such adjustments. Income-tax Officer, Pune vs. Brintons Carpets Asia (P.) Ltd. Assessment Year 2006-07, ITA No. 1296(Pn)/2010 Deduction u/s 10A is allowable where HR Services were provided in the process of providing customized electronic data was exported to USA. The Tribunal reiterated that the exact language of sub-clause (b) of clause (1) of Explanation 2 is "any customized electronic data". Thus, if the result (i.e., customized data) of the entire exercise of any of the services, prescribed in the Notification No. SO 890(E), dated 26-9-2000, is stored in an electronic device, it is not possible to say that it is not a customized electronic data. In such a scenario the activity/ services would fall within the definition of Software and deduction u/s 10A shall be available subject to fulfillment of other conditions of the section. M.L. Outsourcing Services (P.) Ltd. Vs. Income-tax Officer, Ward 6(1), New Delhi[2011] 12 taxmann.com 193 (Delhi - ITAT) Income earned by a non-resident by providing offshore service vessels on time charter basis is covered under presumptive taxation regime Income derived from providing vessels on time charter basis to be used in connection with the prospecting and extraction of mineral oil is covered under section 44BB of the Act i.e. presumptive taxation regime. Bourbon Offshore Asia Pte. Ltd. v. DIT (AAR No. 937 of 2010) dated 12 July 2011 Use of comparable prices obtained from custom authorities appropriate in computing ALP for import transactions The decision highlighted the fact that the essence of application of CUP method is a free comparison of variables in a free market conditions. Use of comparable prices obtained from customs authorities can be considered appropriate in computing arm’s length price for import transactions as it is based on scientifically formulated methods and is not an arbitrary exercise. Assistant Commissioner of Income Tax Vs. Coastal Energy Private Limited, Chennai AY 2006-07 (ITA No. 2099/Mds/2010) Exact nature of services rendered by the taxpayer should be ascertained and comparable companies must be selected based on functional comparability. This decision highlights the importance of undertaking a robust functional analysis as such an analysis helps in the charecterisation of the entities in a given transaction. The Tribunal has clearly mentioned that such an analysis and charecterisation helps in identifying the right set of comparable companies. Since in the present case a proper analysis was not undertaken either by the taxpayer or by the AO, the tribunal has remanded the matter back to the files of the AO/TPO for fresh analysis and has provided the taxpayer another chance of creating a robust set of documents to justify the arm’s length nature of its international transactions. DCIT v. Vodafone India Services Private Limited [ITA No. 5887/MUM/2010] NMA ConneKt August 2011 Page No. 11

  12. Legal AlleyTax FLASH Sale of shares of an Indian company by a Mauritius company was taxable in India since the Mauritius company was not the beneficial owner of the shares but was a permitted transferee of its US parent under the Joint Venture Agreement. The sale of shares of Idea Cellular by AT&T Mauritius was taxable in India since AT&T Mauritius was not the beneficial owner of the shares but was a permitted transferee under the JVA. Since Indian Rayon had suppressed facts while obtaining „nil‟ withholding certificate, the tax authorities were within their rights to initiate proceedings for treating Indian Rayon as an agent of AT&T Mauritius. Purchase of shares of AT&T Mauritius with underlying shares of Idea Cellular by TIL was held to be a colorable transaction for the purchase of shares of Idea Cellular and the validity of initiation of the proceedings for treating TIL as an agent of NCWS was upheld. The Tax authorities had made out a prima facie case for initiating reassessment proceedings against NCWS. Aditya Birla Novu Ltd v. DDIT (WP No. 345 of 2010) (Bom) NMA ConneKt August2011 Page No. 12

  13. Due dates NMA ConneKt August 2011 Page No. 13

  14. Editorial Team Nidhi Singh Saurabh Manchanda Aanchal Budhiraja Neha Srivastava Queries/Feedback/Suggestions on this newsletter may be addressed to: NMA Consultants Pvt. Ltd, Emergent Solutions Pvt. Ltd. B-9, LGF, Green Park (Main), New Delhi – 110016, India. Ph: + 91-11-46021550-52. For past issues of ConneKt, Kindly Visit our Website: www.nmaconsultants.com Disclaimer: The materials contained in this newsletter have been compiled from various sources. This information is for guidance only and should not be regarded as a substitute for appropriate professional advice. NMA Consultants Pvt. Ltd. accepts no liability with regard to the information herein or any action that may be taken by readers of this newsletter without any professional advice. NMA ConneKt August 2011 Page No. 14

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