Investments in shares for holding stake in group companies but NOT for trading or anyother financial activity requires RBI NBFC Registration as Core Investment Company if asset size is Rs. 100 crores

Regulatory Framework for Core Investment Companies (CICs)

The Bank had announced in the Annual Policy 2010-2011 that companies which have their assets predominantly as investments in shares for holding stake in group companies but not for trading, and also do not carry on any other financial activity, i.e., Core Investment Companies, (CICs), justifiably deserve a differential treatment in the regulatory prescription applicable to Non-Banking Financial Companies which are non deposit taking and systemically important.

1. Core Investment Company (CIC) means:

A Non Banking Finance Company (NBFC) carrying on the business of acquisition of shares and securities which satisfies the following conditions:-

• it holds atleast 90% of Total Assets as investment in equity shares, preference shares, debt or loans in group companies;
• its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes atleast 60% of its Total Assets;
• it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;
• it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI Act, 1934 except investment in bank deposits, money market instruments, government securities, loans and investments in debt issuances of group companies or guarantees issued on behalf of group companies.

Note: Registered CIC can hold or accept public deposit.

2. CIC with an asset size of Rs. 100 crores or more, will be regarded as Non Deposit Taking Systemically Important (CICs-ND-SI) and requires registration with RBI.

3. A CIC-ND-SI which fulfills the following conditions , will not be required to meet the requirement for maintaining Net Owned Funds  (NOF) & capital adequacy and exposure norms as required under Non-Banking Financial (Non-Deposit Accepting or holding)  Companies Prudential Norms (Reserve Bank) Directions, 2007

• Maintenance of minimum Capital Ratio where Adjusted Net Worth is atleast 30% of its Aggregate Risk Weighted Assets on Balance Sheet and risk adjusted value off-balance sheet items as on the date of the last audited Balance Sheet  at the end of the financial year.
• Ensuring that it’s outside liabilities at all times is UPTO 2.5 times of the Adjusted Net Worth as on last audited Balance Sheet date.

4. All CICs-ND-SI, whether they are exempted in the past from registration with RBI or not, should apply to the RBI for obtaining Certificate of Registration within a period of 6 months from 12th August 2010 (i.e) within 11th February 2010.

5. Companies which presently have an asset size of less than Rs 100 crores would be required to apply to RBI for Certificate of Registration within 3 months of achieving a Balance Sheet size of Rs. 100 crores.

6. CICs-ND-SI will be required to submit an Annual Certificate from their statutory auditors regarding compliance with the above guidelines within 1 month from the date of finalisation of the Balance-Sheet.

Source:  RBI/2010-11/168 DNBS (PD) CC.No. 197/03.10.001/2010-11 dated 12th August 2o1o

FEMA Contravention clarification, whether technical/minor is what RBI has to decide and not on own motion or on basis of external advice BUT in nature of interest, apply compounding @ earliest opportunity & how to enter into composition

RBI clarifies on compounding of contraventions under Foreign Exchange Management Act (FEMA), 1999

The Reserve Bank of India has clarified that whether contraventions under Foreign Exchange Management Act (FEMA) are to be treated as technical and/ or minor or serious would be decided by the Reserve Bank on the merits of the case. The case would accordingly be disposed of keeping in view the procedure notified in this regard. It has urged that persons who have contravened provisions of FEMA should not take upon themselves, suo moto or on the basis of external advice, to decide whether a particular contravention is of a technical or minor in nature and, hence, no compounding application need be submitted to the Reserve Bank.

 

The Reserve Bank has further clarified that if such applications for compounding are not made, the person concerned shall expose himself/herself to such action under the provisions of FEMA as the authorities may deem appropriate. The persons concerned should, therefore, in their own interest, submit their applications for compounding of contravention under FEMA to the Reserve Bank at the earliest opportunity.

 

It may be recalled that in terms of A.P.(DIR Series) Circular No. 56 dated June 28, 2010, the Reserve Bank had notified the process of compounding which has been further rationalised and streamlined to enhance transparency and effect smooth implementation of the compounding process and understand the same from

Violated Foreign Exchange laws: on becoming aware of the contravention, disclose it to RBI to save huge penalty of 2 lakhs or 3 times the amount involved in transaction [Compounding Master Circular]

Source: RBI Press Release No. 2010-2011/234 dated 13th August 2010

Download Referencer on Secretarial Audit under Corporate Governance Voluntary Guidlines for Company Secretaries issued by ICSI, good read through

The Ministry of Corporate Affairs (MCA), Government of India released CORPORATE GOVERNANCE VOLUNTARY GUIDELINES 2009 on December 21, 2009. The preamble to Guidelines states that “These guidelines provide for a set of good practices which may be voluntarily adopted by the Public companies. Private companies, particularly the bigger ones, may also like to adopt these guidelines.”

The Guidelines, amongst other things, recommend the introduction of Secretarial Audit. Para V of the Guidelines states that :

“Since the Board has the overarching responsibility of ensuring transparent, ethical and responsible governance of the company, it is important that the Board processes and compliance mechanisms of the company are robust. To ensure this, the companies may get the Secretarial Audit conducted by a competent professional. The Board should give its comments on the Secretarial Audit in its report to the shareholders.”

Companies, which do not adopt these guidelines, either fully or partially, are expected to inform their shareholders about the reasons for not adopting these Guidelines. This is in consonance with the popular doctrine of “Comply or Explain”. The Board should give its comments on the Secretarial Audit in Directors’ Report as provided in Para V of the Guidelines.

Download Reference on Secretarial Audit issued by the Institute of Company Secretaries of India (ICSI) for the purpose of Corporate Governance Voluntary Guidelines

All investor related documents of MF like PAN, KYC, PoA specimen signature shall be updated by AMC/RTA & get it audited - Mandatory for all new schemes also

Updation of investor related documents
SEBI vide circular No. SEBI/IMD/CIR No.12 /186868 /2009 dated December 11, 2009 has inter alia advised mutual funds to confirm whether all the investor related documents are maintained/ available with them. Further in case the investor related documentation was incomplete, the trustees of the mutual funds were advised not to make further payment to such distributors till full compliance/ completion of the steps enumerated in the said circular and to send a status to SEBI as and when process is completed to satisfaction.

SEBI has not received any confirmation from the trustees of the mutual funds on the completion of the process as mandated in the said circular. Thus it appears that all the investor related documentation is not available with the AMCs. It has been observed that due to such incomplete documentation investors’ rights to approach the AMCs directly are restricted and investors are forced to depend on the distributors for executing any financial or non-financial transactions.

In order to ensure that investors have unrestricted access to AMCs and to enable AMCs to provide prompt investor service including execution of investors’ financial or non-financial transactions, all mutual funds/ AMCs are directed that:
All new folios/ accounts shall be opened only after ensuring that all investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature are available with AMCs/RTAs and not just with the distributor.
For existing folios, AMCs shall be responsible for updation of the investor related documents including account opening documents, PAN, KYC, PoA (if applicable), specimen signature by November 15, 2010.

The trustees shall submit a confirmation after they receive certification from an Independent auditor on completion of the said process latest by November 22, 2010.

Mutual Funds/Asset Management Companies shall comply with the above requirements in letter and spirit.

Source: SEBI Cir / IMD / DF / 9 / 2010 dated 12th August 2010

All amended SEBI circulars on Arbitration mechanism in stock exchange as governed by Arbitration & Conciliation Act, 1996

Revised Arbitration Mechanism in Stock Exchanges
In consultation with the stock exchanges, it has been decided to streamline the arbitration mechanism available at stock exchanges for arbitration of disputes (claims, complaints, differences, etc.) arising between a client and a member (Stock Broker, Trading Member and Clearing Member) across various market segments.

A stock exchange shall provide an arbitration mechanism for settlement of disputes between a client and a member through arbitration proceedings in accordance with the provisions of this Circular read with Section 2(4) of the Arbitration and Conciliation, Act, 1996.

This circular CIR/MRD/DSA/24/2010 dated 11th August 2010 modifies provisions relevant to arbitration, contained in the following SEBI Circulars:-
i. Master Circular as on 31st March 2010
ii. SEBI/MRD/DSA-OIAE/Cir-09/2010 dated April 1, 2010
iii. CIR/MRD/DSA/10/2010 dated April 6, 2010

SEBI Clarification: AMC Addendum:all mutual fund schemes in demat form shall be freely transferable from 1st October, 2010 (except ELSS)

Transferability of Mutual Fund units

Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996 states that:

“a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law.”

The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice. However, it is noticed that mutual fund schemes prohibit transfer on a regular basis instead of on an exceptional basis.

In order to facilitate transferability of units of mutual funds held in one demat account to another demat account, it has been decided that all Asset Management Companies (AMCs) shall clarify by way of an addendum that units of all mutual fund schemes held in demat form shall be freely transferable from the date of the issue of said addendum which shall be not later than October 1, 2010. However, restrictions on transfer of units of Equity Linked Savings Schemes (ELSS) during the lock-in period shall continue to be applicable as per the ELSS Guidelines.

Source: SEBI CIR/IMD/DF/10/2010 dated 18th August 2010

New format of disclosure of derviatives by Mutual Fund & investment/exposure norms amended

Review of norms for investment and disclosure by Mutual Funds in derivatives
Please refer to the circular DNPD/CIR-29/2005 dated September 14 2005, circular MFD/CIR/9/120/2000 dated November 24 2000, and SEBI circular MFD/CIR/18337/2002 dated September 19, 2002 on investment in derivatives by mutual funds and disclosures thereof in half yearly portfolio statement.

In order to have prudential limits for derivative investments by mutual funds and to bring in transparency and clarity in the disclosure of the same to investors, it has been decided to bring in certain modification in the aforesaid circulars.

Disclosure of derivatives in Half Yearly Portfolios
The manner of disclosure of derivatives position in half yearly portfolio disclosure reports has not been specified in the SEBI (Mutual Funds) Regulations, 1996 and the disclosures being currently made are not uniform across the industry. Therefore, the following format for the purpose of uniform disclosure of investments in derivative instruments by Mutual Funds in half yearly portfolio disclosure, annual report or in any other disclosures is prescribed.

Effective date: The provisions shall be applicable for all new schemes launched post the issue of the circular. For all existing schemes, compliance with the circular shall be effective from October 01, 2010.

Source:SEBI Cir/ IMD/ DF/ 11/ 2010 dated 18th August 2010

Fund of Fund MF schemes expense structure in offer document & change amounts to fundamental attribute requiring exit option to unit holders

Fund of funds mutual fund schemes shall adopt either of the total expense structures laid out in Regulation 52(6)(a) of SEBI (Mutual Funds) Regulations 1996, as amended by SEBI (Mutual Funds) (Amendment) Regulations, 2010, which Asset Management Companies shall clearly indicate in the scheme information documents (SID).  Fund of Fund schemes, existing as on July 29, 2010, shall, with the approval of trustees, adopt either of the total expense structures laid out in Regulation 52(6)(a) and change the total expense structure after giving the unitholders an option to exit in accordance with Regulation 18(15A). [In case of change in fundamental attributes in terms of Regulation 18 (15A), SID shall be revised and updated immediately after completion of duration of exit option.]

Regulation 52(6)(a): The total expenses of the scheme excluding issue or redemption expenses, whether initially borne by the mutual fund or by the asset management company, but including the investment management and advisory fee shall be subject to the following limits:—

in case of a fund of funds scheme, the total expenses of the scheme including the management fees shall be either:-
(i) not exceeding 0.75% of the daily or weekly average net assets, depending upon whether the NAV of the scheme is calculated on daily or weekly basis; or
(ii) it may consist of -
(A)management fees for the scheme not exceeding 0.75% of the daily or weekly average net assets depending upon whether the NAV of the scheme is calculated on daily or weekly basis;
(B) other expenses relating to administration of the scheme; and
(C) charges levied by the underlying schemes:
Provided that the sum total of (A), (B) and the weighted average of the total expense ratio of the underlying schemes shall not exceed 2.50% of the daily or weekly average net assets (depending upon whether the NAV of the scheme is calculated on daily or weekly basis) of the scheme.

Source: SEBI Cir / IMD / DF / 8 / 2010 dated 6th August 2010

2nd year Event Videos, Photos, Awards, Mafoi Pandiarajan on business, cake cutting & lot more fun with Lawlabz Learnlabz OnlyThisMuch 2010 Celebration

Ever heard of a lab that concocts and churns out, not chemical, but legal solutions! LAWLABZ (Law Labz Consultancy Pvt Ltd), a legal consulting services organisation, has positioned itself in the forefront in offering high end services in corporate compliance practices. It has a training division called Learnlabz and publication initiative called OnlyThisMuch for Company Secretary students.

 

And as you are aware Lawlabz Group 2nd Year Celebrations this July 2010 with Learnlabz & OnlyThisMuch, the video way, hope you will make it, now its the time to share with the happy moments during our event [4 parts of video & photos].  You will find following features throughout the events,

1. Funny (bit of Tamil mixture)
2. Business is like a dance!!! (Wonderful speech by Mr. K. Pandiarajan of Mafoi Randstad)
3. Lawlabz Corporate & Employee Awards, Learnlabz Faculty Awards & OnlyThisMuch Author awards
4. Blast, Cake cutting, celebrations & celebrations.

[Do see all the 4 parts of the Videos & photographs hereunder]

Lawlabz Learnlabz OnlyThisMuch 2nd Year celebrations 2010

Thanks again for making the even the most successful one in all respects.  Thanks will definitely not suffice your well wishes.

Exchange Traded Currency Options RBI Directions for investment by Person Resident in India and SEBI norms 2010

As you are aware of Exchange Traded Currency Futures (ETCF) in Recognised Stock Exchanges for Person Resident in India (PRII) and What exam for approved users & sales personnel of trading members in currency derivatives segment and trading in interest rate derivatives, register for NISM now

Guidelines on trading of Currency Options on
Recognised Stock / New Exchanges

Attention of Authorised Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No. FEMA/25/RB-2000 dated May 3, 2000], as amended from time to time and A.P. (DIR Series) Circular No. 05 dated August 6, 2008 in terms of which persons resident in India were permitted to participate in the currency futures market in India subject to directions contained in the Currency Futures (Reserve Bank) Directions, 2008.

2. In order to expand the existing menu of exchange traded hedging tools, it was announced in the Monetary Policy Statement 2010-11 (para 62) that recognised stock exchanges would be permitted to introduce plain vanilla currency options on spot US Dollar/ Rupee exchange rate for residents. Accordingly, it has been decided to permit trading of currency options on spot USD-INR rate in the currency derivatives segment of the stock exchanges, recognized by the Securities and Exchange Board of India (SEBI). The currency options market would function subject to the directions, guidelines, instructions, rules, etc issued by the Reserve Bank and the SEBI from time to time.

3. Persons resident in India are permitted to participate in the currency options market, subject to the directions contained in the Exchange Traded Currency Options (Reserve Bank) Directions, 2010, [Notification No.FED.01 / ED (HRK)-2010 dated July 30, 2010] (Directions) issued by the Reserve Bank of India, a copy of which is annexed (Annex-I).

4. Necessary amendments to Foreign Exchange Management (Foreign Exchange Derivatives Contracts) Regulations, 2000 (Notification No. FEMA.25/RB-2000 dated May 3, 2000) (Regulations) have been notified in the Official Gazette vide G.S.R. No. 635(E) dated July 27, 2010, a copy of which is annexed (Annex-II).

Source: A.P. (DIR Series) Circular No. 05 dated 30th July 2010

You can buyback FCCBs now as time limit extended from June 2010 to June 30, 2011

On a review of the policy and in view of the representations received from the issuers of FCCBs, it has been decided to consider applications, under the approval route, for buyback of FCCBs until June 30, 2011, subject to the issuers complying with all the terms and conditions of buyback/ prepayment of FCCBs, as mentioned in Again an option to Buyback / Prepayment of FCCB under RBI Approval Route till June 2010

Source: A.P. (DIR Series) Circular No.07 dated 9th August 2010

ECB beyond USD 100 million under RBI Approval Route for service sector available for permissible end uses, not being acquisition of land

At present, entities in the services sectors viz., Hotels, Hospitals and Software  are allowed to avail of ECB up to USD 100 million per financial year under the  Automatic Route, for foreign currency and/or Rupee capital expenditure for permissible end-uses. On a review, it has now been decided to consider applications  from the corporates in the Hotel, Hospital and Software sectors to avail of ECB beyond USD 100 million under the Approval Route, for foreign currency and / or Rupee capital expenditure for permissible end-uses. The proceeds of the ECB should not be used for acquisition of land.

Source: A.P. (DIR Series) Circular No.08 dated 12th August 2010