SEBI interprets whether offer to 50 or more persons amounts to public & thereby mandates listing under Companies Act, irrespective of intention to list its securities with Stock Exchange - reading together Section 55A with 73

On 24th November 2010, it happened!!!  SEBI, the watch dog of Indian Capital Market did its part of research on Companies Act to understand the powers which are already vested with it and has come out [barking :-)] with brilliant interpretations. 

SEBI takes a re-look on

Section 55A, 56, 60B, 67, 73 & 81(1A) of Companies Act, 1956

DIRECTIONS UNDER SECTIONS 11(1), 11(4)(b), 11A(1)(b) AND 11B issued under SEBI ACT, 1992 READ WITH REGULATION 107 OF SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS - ICDR) REGULATIONS, 2009 IN THE MATTER OF ISSUANCE OF OPTIONALLY FULLY CONVERTIBLE DEBENTURES (OFCD) BY SAHARA INDIA REAL ESTATE CORPORATION LIMITED (SIREC) AND SAHARA HOUSING INVESTMENT CORPORATION LIMITED (SHICL).  Lets refer SIREC & SHICL as “Company”.

The Company’s point of view

a. OFCD issuance of SIRECL and SHICL do not come under the purview of SEBI as Section 55A of the Companies Act, 1956 delegates the administrative power to SEBI only with respect to the listed public companies and those public companies which are intending to get their securities listed in India. Since the said companies have stated in the RHP filed with the RoC that, they do not intend to get the OFCDs listed in any stock exchanges in India or abroad, the issuance of OFCDs does not come under the purview of SEBI.
Note: OFCD is a security and is convertible into Equity Shares and is not in the nature of “Non-Convertible Debt Security”.

b. Issuance of OFCDs was made on private placement basis and is restricted to a select group (however large, they may be), it ceases to be an offer to the public.
c. When securities are issued to more than 50 persons, by following the procedure laid down under Section 60B of the Companies Act, 1956, by circulation of information memorandum and filing of Red Herring Prospectus (RHP) with the RoC, it would not be necessary to list the securities so offered and the issue shall remain outside the purview of SEBI.

What did SEBI analyse?

a) Whether the impugned OFCD offers have been made to the public and if so, whether listing of the OFCDs, so offered, is mandatory?
b) Whether Section 60B of the Act provides “an alternative route” for raising capital without complying with Section 73 of the Act and other SEBI requirements, as contended by the companies?

What does Companies Act say?

Section 67: The essence of this section is that “who can apply for securities in response to invitation shall be checked to determine whether it is an offer to public” and lays certain criteria for that.

The said Section explicitly states that any reference in the Act or in the articles of a company to offering (or inviting to subscribe) for shares or debentures to the public shall be construed as including a reference to offering them (or inviting them to subscribe) to any section of the public, whether selected as members or debenture holders of the company concerned or as clients of the person issuing the prospectus or in any other manner.

Provisio to Section 67(3) as summarised by SEBI:  Even if an issue is made by way of private placement to 50 or more persons, it would be deemed to be a public issue (“deemed to be a public issue”) irrespective of whether it was offered to public at large or to just a section of the public chosen, in whatever manner.

Further, any further issue of capital, even pursuant to a resolution made under Section 81(1A) of the Act (dealing private placement to select group of persons), is subject to the provisions of Part III of the Act (dealing with Prospectus), if the offer is made to 50 persons or more.

The filing of a prospectus under the Act signfies the intention of the issuer to raise funds from the public. – SEBI infers!!!

Whether listing is mandatory for all public issues?

As per Section 73(1) of the Act, every company intending to offer shares or debentures to the public for subscription by the issue of a prospectus shall, before such issue, make an application to one or more recognized stock exchanges for permission for (listing of) the shares or debentures intending to be so offered to be dealt with in a stock exchange or each such stock exchange.

As per Section 73(2) of the Act, where any listing permission is not applied, as observed in the present case, the companies are required to refund all the money received as subscription within the stipulated time.

The intention of the companies to list or not is immaterial as it is mandated by the Act – SEBI infers!!!

SEBI Order analyses Section 55A & Section 73

The words “intend to get their securities listed” in Section 55A(1) (b) of the Act (which gives the power to SEBI) is clearly synonymous with the words “intend to offer their securities to public” (as per Section 73), as law mandates compulsory listing in case of public issues and specifies that any condition to waive this requirement is void [as per Section 73(4)].

If to 50 or more persons, then to 1000 or more persons!!!

Once the company is mandated to list, it shall comply with the requirements of SEBI ICDR regulation as the debentures are convertible into Equity.  Reading Section 67 with ICDR:

Once the issuer decides to offer its securities to 50 or more persons, then the issue is an offer to public at large, complying with the provisions prescribed in the ICDR Regulations which mentions that an issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than 1000, to ensure there is sufficient liquidity in the scrip post listing.

In such case, it shall file RHP with SEBI atleast 30 days in advance before filing the same with RoC – SEBI infers!!!

SEBI tooks pains to highlight the clauses of ICDR not complied with, in this link:

http://www.sebi.gov.in//cmorder/SaharaAnnexure.pdf

SEBI also claims the Prospectus filed by the company is not fully adequate with requisite legal information.  On analysing the above mentioned violation of Companies Act & some other observations by SEBI on the financials had issued an ad interim, ex-parte Order vide WTM/KMA/CFD/316/11/2010.

The Company claims unlisted companies cannot come under the purview of SEBI

The company deems the order as imprudent and irrational vide its RESPONSE as this order created a confusion among public that Sahara’s IPO is rejected (which is not at all the case though!!!).  Further, in the interest, image and goodwill of entire Sahara India Pariwar, the company has disclosed the details in its RESPONSE.

SEBI’s Order: WTM/KMA/CFD/316/11/2010

Sahara’s Response: RESPONSE

This case may give an answer to the BERMUDA TRIANGLE of what if issue to 50 or more persons but less than 1000 persons. 

• Will the company take the Writ route to re-examine the jurisdiction of SEBI with respect to Section 55A read with Section 73?
• Believe, this cannot have the same HAPPY ENDING with Consent Order at later stages. 

We shall await for the Securities Appellate Tribunal’s (SAT) interesting response. 

OnlyThisMuch 3rd edition Book Release along with exam winning tips to readers [event invite]

Dear Readers,

OnlyThisMuch proudly invites you to be a part of 'OTM' experience as it releases the 3rd edition for CS Executive Program Module-2 on Company law, Economic & Labour laws and Securities laws & Compliances.  This edition comes to you as power tool to tackle examinations and is packed with Power Objectives and solved Past Exam Question papers.

1. What? OnlyThisMuch 3rd edition Book Release along with exam winning tips to readers
2. When? 24th November 2010 (Tomorrow) @ 0530 PM onwards
3. Where? Lawlabz Consultancy Pvt Ltd, No. 7/13, South Boag Road, Behind IDBI Bank, T.nagar, Chennai

We look forward your presence & valuable feedback to make learning a much more interesting experience!!!

More details in http://www.facebook.com/pages/OnlyThisMuch/171985196164559

For orders: http://www.a1books.co.in/only-this-much-company-secretary/itemdetail/9380502087/

Its,

http://csbooks.learnlabz.com

 

MCA RoC Additional Delayed Filing Fees Calculator under Companies Act - Max 9 times beyond 90 days

MCA has decided to revise the additional fees payable as per Section 611(2) of the Companies Act, 1956 (except for Form 5) as per below details with effect from 5^th December 2010.  Kindly note as per Schedule X, the delayed filing fee shall not exceed 10 times of the actual filing fee.

New Period of Delay(from 5th December 2010)	Fixed rate of additional fee*	Erstwhile Period of Delay (before 5th December 2010)
UPTO 30 days	2 times of normal filing fee	More than 1 month up to 3 months
More than 30 days and upto 60 days	4 times of normal filing fee	More than 3 months up to 6 months
More than 60 days and upto 90 days	6 times of normal filing fee	More than 6 months up to one year
More than 90 days	9 times of normal filing fee	More than 2 years

Note*: The additional fees are payable over and above the normal filing fees.

Form	Period of delay	Rate of Additional Fees*
5	Up to one year	2% of filing fees per month or part thereof of delay
	Exceeding one year	2.5% of filing fees per month or part thereof of delay

In order to avoid payment of additional fees, please file within stipulated time.

Source: MCA Additional Filing Fees Link & MCA / RoC Fees Calculator online

Attend MSOP SMTP online & get your Company Secretary long pending membership (ACS) now - ICSI welcomes more professionals

The Institute of Company Secretaries of India (ICSI) in collaboration with Gurukul Online Learning Solutions (GOLS) have come up with an initiative in the form of e-Management Skills Orientation Program (e-MSOP). The e-MSOP is basically a web-based training (WBT) wherein physical presence of the participant at the venue is not necessary. However, the final decision will depend on the response received. So, send your response now to: the Program Co-ordinator, e-MSOP, ICSI-CCGRT, Plot No. 101, Sector – 15, Institutional Area, CBD Belapur, Navi Mumbai – 400 614.  Phone: (022) 4102 1504 / (022) 27577814 Fax : (022) 2757 4384.  e-mail : ccgrt@icsi.edu  and icsiccgrt@gmail.com

1. For whom? A candidate occupying very senior position and who has completed Company Secretaryship Final exams on or before 1st September 2006 are eligible to apply. The decision of the Secretary & CEO whether to allow a candidate or not shall be final.
2. How much? Rs. 5000 (Five Thousand ONLY) per participant.
3. What is required? Connection to the internet, preferably through broadband. A good quality head-set is also necessary.

Modalities: Participants will be required to log onto the e-portal and participate in the program from their own office or residence.

Any participant who misses a session, will be given access to archived WBT sessions. The schedule will be posted on the web-site.

Details or Registration in  http://elearning.icsi.edu/e-msopAnnouncements.html

Enjoy training & welcome to become an ACS now!!!

Wholetime practising CS CA CWA can register as Facilitation Centre (CFC) for e-filing of excise, service tax now, website links for application forms given here

Setting up of Certified Facilitation Centers (CFCs) under ACES project of the CBEC

The ICSI/ICAI/ICWAI is pleased to inform you that the application format and other modalities for setting up of Certified Facilitation Centers (CFCs) under Automation of Central Excise and Service Tax (ACES) project of the Central Board of Excise & Customs (CBEC) has been finalised.

CFCs are set up by Professionals for the purposes of enabling e-filing of applications pertaining to Central Excise, Service tax, etc…The services provided by these CGC entail payment of service charges.

According to the scheme, a member of the ICSI/ICAI/ICWAI having valid Certificate of Practice and having at least one year of experience in practice can apply individually (not in the name of the firm) for registration as CFC after complying with the technical and other requirements as specified in the MOU.  The interested Whole Time Practicising Company Secretary/Chartered Accountant/Cost Accountant may make an online application for registration as CFC through the relevant link on our portal:

• ICSI: http://www.icsi.edu:8888/cbec
• ICAI: http://www.icai.org/post.html?post_id=5737&c_id=219
• ICWAI: http://www.icwai.org/icwai/institute-cbec.asp

The applicants are requested to note that he/she shall have to make a payment of Rs.1000/- only (non-refundable) towards application fees.

Enjoy certifyin…

Vacany in SEBI; Job for CS/CA/CWA freshers & more; apply before 31st of October 2010 - Hurry up, go for examination now

SEBI looking out your Curriculum Vitae or Biodata for over 90 posts.  Yes, an opportunity to work with the Market Regulator awaits you.  The post ranges from varied branch of qualification from Law to MBA to CA/CWA, etc… Interestingly, CTC is also good (Rs. 8.8 lakhs (approx) p.a.).

Brilliant opportunity for Freshers UPTO 27 years

As a Company Secretary/Chartered/Cost Accountant or CFA, you may join us an Asst. Manager, Officer Grade A – General Stream IF you could prove yourself well in an examination on i) English Language, ii) Quantitative Aptitude, iii) Reasoning ability and iv) General Awareness, of Objective type (Multiple Choice) for 200 marks will be held on Sunday, 05/12/2010. Candidates would have to secure minimum marks separately for each test as decided by the Board, based on Group Performance followed by an Interview.

APPLY ONLINE
	APPLICATION PRINTOUT REPRINT
	EDIT/UPDATES APPLICATION DETAILS
	Date of Commencement of Application : 12/10/2010 Date of Closure : 31/10/2010 Start Date for Fee deposit : 09/10/2010 Last Date for Fee deposit : 31/10/2010 Last Date for Reprint : 15/11/2010

More details on October 08, 2010 - SEBI Recruitment Exercise – 2010

Click here to Apply Online

Keep me posted on your selection.  Apply now to regret it later.  Never to miss opportunity!!!

Monthly Portfolio Management Activity report to be filed within 5 days of month at SEBI portal - Revised format

Sub: Monthly reporting by Portfolio Managers
Please refer to SEBI circular SEBI/IMD/PMS/CIR-3/2009 dated June 11, 2009 regarding submission of monthly report by portfolio managers.

The format for the monthly report on portfolio management activity has been revised as per enclosed Annexure. All portfolio managers are advised to upload the report in the revised format on SEBI Portal by the 5th of the following month with effect from the report for the month of October 2010 onwards.

Procedure to upload monthly report on portal is as follows:

a. Log on to SEBI Portal at https://portal.sebi.gov.in. using the Username and Password provided at the time of Registration/ Renewal as a portfolio manager.

b. Select the portfolio manager tab

c. Select the link: PM Monthly Report

d. Fill the data in the format provided

e. Save the data and then Submit.

Download Revised PM Monthly Report

Source: Cir. /IMD/DF/14/2010 dated 8th October 2010

How to get MCA updates in SMS or email through RSS feeds in your mobile or account - Ministry of Corporate Affairs commendable initiative to Free Registered Users

All types of MCA users (with login facility – whether registered/business) now have an option to get ALERTS of happenings/updates from Ministry of Corporate Affairs through Short Messaging Service (SMS) in addition to the e-mail updates through RSS feeds now by signing up for your Account in the MCA portal (www.mca.gov.in ) and then Click this link:

Register for SMS Alerts

Which will ask for your 10 digit mobile number and get itself updated with your records thereon.  If you don’t have an account in MCA then you have the option to register as a Registered User for FREE from New User and then subscribe for the said update.

How to get MCA RSS Feeds in e-mail?

What is RSS feeds? It is as simple as how to get MCA news updates through e-mail.  Just follow with this easy step & keep learning:

Open http://www.feedmyinbox.com/ and then enter http://www.mca.gov.in/Ministry/latestnews/MinistryNews.rss in the box given next to Website or Feed URL (as shown below) and your Email Address in the Next box, follow it by clicking SUBMIT.

• Website or Feed URL
• Your Email Address

 

Now you will receive a mail in the given email id asking for your CONFIRMATION, clicking the link in the mail will help you to get MCA updates right in your email box.

Do you want specific Updates @Yehseeyes style on various Corporate laws through e-mail, then you may follow the same steps in this link: | Subscribe to Blog.

Enjoy updating (your knowledge).

ICSI's New Website, Online purchase of magazines like Chartered Secretary, Student concessions, Company Secretary National Convention 2010 articles - Subscribe now

The Institute of Company Secretaries of India (ICSI) has 3 websites now,

1. www.icsi.edu representing ICSI
2. www.icsi.in for Members & Students of ICSI
3. http://knowledge.icsi.edu, an online e-commerce site for students, members & others which is accessible on payment basis to buy publications of ICSI, recent updates on various laws, etc…  The site plans are detailed hereunder:

Sr. No.	Plan	Special launch offer by the end of September 2010 (Rs.)*	Regular Plan by the end of March 2011 (Rs.)*
1	Student	1500	2000
2	Member in practice	2250	3150
3	Member in employment	2500	3500
4	Other	4500	5500
*Subscription valid for one year from the date of registration. All applicable taxes are extra.

No information from http://knowledge.icsi.edu is available free of cost, hence the above mentioned subscription plans to get a login id & password.  But, You have an option to:

Post Your Query

This will get you the supportive references such as legal provisions, case law etc for your legal research query even if you are not an existing subscriber of eJurix. We may need to interact with you to clarify your query if required. Cost estimation will depend upon the complexity of the query and will be conveyed to you after analyzing the same. You will receive a response to your query within 4 working days of receiving the payment.

38th National Convention of ICSI 2010 @ Kolkata

The following Articles are the must read-through which are published by learned professionals on various topics of relevance as a part of ICSI convention theme – India Inc & Inclusive growth.  The topics include Micro, Small, Medium Enterprises, Corporate Social Responsibility, Corporate Governance, Direct Tax Code, Goods & Services Tax, etc…download the same from the following links:

https://docs.google.com/leaf?id=0B-36NqCFw_7NNTRlNThmMzQtYzE2ZC00ZDZmLTkzOWEtOTg0ZWYxODdjNTY4&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMDkyYTU2ZTgtMDNkMy00ZGY2LWJjMTYtMjllZmYzZGQxYjE1&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NNGI5YmMzYTUtYjc4MC00ZjE0LTkwNDItZmU0YmI2NGE0NGVj&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMmFhMTdkMmItZTMyYy00ZGU0LTgxYTEtODg4Zjk5OGVmYzUy&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NOTdjNzhkNDktZjI1My00NmY1LTg3NGQtZTJjMzZjZmI5ZDM5&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMjJjY2RiOTItYzQzZS00MmYxLThkYzItMmNkZjMxNmQ1OTI3&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NN2U5MzM5YTQtMGJiYi00MTQwLWExYTAtYjAxODY4MjFjNWZj&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NYjI0N2UzZjUtNmYxMC00MTYxLWEzODgtNjFiOWUyYmY3OTFh&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMWNiYzhlZTUtNzExOC00NTNhLThlNWUtMDkxYTVlMmYwNzU4&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NZjU2NWU3OTktNTYxMi00Mjg5LThmOTMtZDIwYTk0MjFkOTUz&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NYmQ3MWZlMDItYTBmZC00ZGU5LWI1ZDctZDMxNDY4YzMzNjM2&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NNzJhYmUxZTgtYmMzZS00OTQ1LWJhNjgtMWM4NGVkZjRiYTVi&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NNjdiZTNiYjEtNmEyNi00NmNkLWI5NTUtYjUyY2M4OGFmOWMx&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NNTg0ODhkODMtYjVmOS00ODUwLWEwMjctOGRhNmQ4YTE2YzNh&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMDU2OTE3OGEtMzMwZi00NTM5LWI4YTctNmFiNjhjOTFiY2Rj&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NMzE3YmFkNmEtOTE2MC00ZDdiLTlmMjUtNDFhYTU0YTk0NWIz&hl=en https://docs.google.com/leaf?id=0B-36NqCFw_7NZDhhMWQ5OTQtZDAwYS00MmUwLTg1MTgtNTY5ZDRkOGIwOTJh&hl=en https://docs.google.com/present/edit?id=0Ae36NqCFw_7NZGQ2aGJteDJfMTEyZ253bXB2a2I&hl=en

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

Issue or Transfer of shares under FEMA: No more CCI guidelines pricing but Discounted Cash Flow technique for valuation: certification by Merchant banker/Chartered Accountant

Issue of shares

(a) After issue of shares (including bonus and shares issued on rights basis) and shares issued under ESOP)/ convertible debentures / convertible preference shares, the Indian company has to file Form FC-GPR, enclosed in Annex - 8, through it’s AD Category I bank, not later than 30 days from the date of issue of shares. The Form can also be downloaded from the Reserve Bank's website http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.

Issue Price (for all issues other than Rights Issue)

• Price of shares issued to persons resident outside India under the FDI Scheme, shall be on the basis of SEBI guidelines in case of listed companies.
• In case of unlisted companies, valuation of shares has to be done by a SEBI registered Category I Merchant Banker or a Chartered Accountant as per the Discounted Free Cash Flow Method (DCF) .
• In case of issue of shares on preferential allotment the price shall not be less that the price as applicable to transfer of shares from resident to non-resident.

Issue Price (for Rights Issue)

• Listed = @ the price determined by the Company.
• Unlisted = Minimum price is the Rights Issue price to resident shareholders.

Transfer of Shares

Reporting of transfer of shares between residents and non-residents and vice- versa is to be made in Form FC-TRS (enclosed in Annex - 9). The Form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the Form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India. The AD Category – I bank, should forward the same to its link office. The link office should consolidate the Form FC-TRS and submit a monthly report to the Reserve Bank.

Transfer Price

1. Transfer by Resident to Non-resident (i.e. to foreign national, NRI, FII and incorporated non-resident entity other than erstwhile OCB)
   • Listed = Minimum price as per Preferential Issue under SEBI ICDR regulation with date of purchase/sale as relevant date.
   • Unlisted = Minimum price as per Fair value under Discounted Cash Flow Method and certified by Merchant Banker or Chartered Accountant.
2. Transfer by Non-resident (i.e. by incorporated non-resident entity, erstwhile OCB, foreign national, NRI and FII) to Resident
   • Should be within Minimum price as said in Transfer by Resident to Non-Resident above (for all issues).

Updated Notifications

1. Foreign Exchange Management (Transfer or Issue of Security by a PersonResident Outside India) (Amendment) Regulations, 2010

2. A. P. (DIR Series) Circular No.49 dated 4th May 2009

3. Foreign Investment Master Circular July2010

New definition of factory, dependant, Appointment of specialist, Medical Benefit council, Social Security Officers, Appeal provisions, 5 year limitation period, Other beneficiaries scheme - ESI Amendment Act, 2010

ESI Act was amended by Employees State Insurance Amendment Act, 2010 by way of Gazette notification dated 25th May 2010 and its effective date is notified as 1st June 2010 with the following updates.

Section 1(5): The appropriate Government may, in consultation with the Corporation and where the appropriate Government is a State Government, with the approval of the Central Government, after giving one month (earlier it was six months') notice of its intention of so doing by notification in the Official Gazette, extend the provision of this Act or any of them, to any other establishment or class of establishments, industrial, commercial, agriculture or otherwise :

Section 2(6A) "dependant" means any of the following relatives of a deceased insured person, namely :-

(i) a widow, a minor legitimate or adopted son who has not attained the age of 25 years, an unmarried legitimate or adopted daughter;

(ii) if wholly dependent on the earnings of the insured person at the time of his death, a legitimate or adopted son or daughter who has attained the age of 25 years (not eighteen years) and is infirm;

Section 2(6A): “Employee” definition also includes only such persons engaged as apprentice whose training period is extended to any length of time.

Section 2(11) "family" means all or any of the following relatives of an insured person, namely :

(v) dependant parent whose income from all sources does not exceed such income as may be prescribed by CG.

(vi) in case the insured person is UNMARRIED & his/her parents is not alive, a minor brother/sister WHOLLY dependant on the earnings of the insured person.

Section 2(12): "factory" means any premises including the precincts thereof -
(a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or (b) whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952) or a railway running shed.

Section 10. MEDICAL BENEFIT COUNCIL. - (1) The Central Government shall constitute a Medical Benefit Council consisting of - (a) the Director General, ESIC, ex officio as Chairman;

(b) the Director General, Health Services, ex officio as Chairman.

Section 12(3) A person referred to in clause (i) of section 4 [3 members of Parliament of whom two shall be members of the House of the People (Lok Sabha) and one shall be a member of the Council of States (Rajya Sabha) elected respectively by the members of the House of the people and the members of the Council of States] shall cease to be a member of the Corporation,

• on becoming a Minister or Speaker or Deputy Speaker of the House of the people or the Deputy Chairman of the Council of States.
• when he ceases to be a member of Parliament.

2nd provisio to Section 17(2)(a) dealing with Staff of ESIC allows appointment of Consultants & Specialists in various fields on contract basis.

Section 37. VALUATION OF ASSETS AND LIABILITIES. – The ESI Corporation shall, at intervals of 3 years (not five years), have a valuation of its assets and liabilities made by a valuer appointed with the approval of the Central Government.

Section 45. INSPECTORS, THEIR FUNCTIONS AND DUTIES: ESI Inspectors are now called Social Security Officers (SSO). Further, any authorised ESIC officer may carry out test inspection or re-inspection of the records & returns u/s. 44 for the purpose of verifying correctness & quality of inspection.

Second Proviso  to Section 45A: In case of determination of contribution u/s. 45, the ESI Corporation power is limited to 5 years of contribution becoming due. [limitation period]

Section 45AA: Appeal to Appellate Authority can be preferred by employee for order u/s. 45A within 60 days by depositing 25% of contribution (ordered or as per own calculation - whichever is higher), which is refundable with interest on success of appeal.

Section 51E: An accident occurring to an employee while commuting from his residence to the place of employment for duty or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if nexus between the circumstances, time and place in which the accident occurred and the employment is established. [Agnes v. BEST Corpn case is now a law]

Third proviso to Section 56 amended: Medical Benefit:

Provided also that an insured person, who has attained the age of superannuation, a person who retires under Voluntary Retirement Scheme (VRS) or takes premature retirement, and his spouse shall be eligible to receive medical benefit subject to payment of contribution and such other conditions as may be prescribed by the Central Government.

Section 58(5): State Government, with prior approval of Central Government, can also establish organisation to provide for sickness, maternity & employment injury.

Section 59(3): ESIC’s Hospital through Third party participation is now permitted.  So, now even a private hospital can be recognised for medical treatments.

Section 59B: ESIC is given permission to establish medical colleges, nursing colleges & training institutes for its paramedical staff & employees.

Existing Chapter VA is completely revised

• Section 73B gives overriding power to Central Government to frame Scheme by way of Notification, for other beneficiaries (not being insured) for providing medical facility on payment of user charges.
• Scheme shall have the details as per Section 73D and shall be laid in both houses of Parliament for 30 days.

Provisios added to Section 87: Exempted factory or establishment by which,

• it is mandated that exemption will be granted only if employees receive substantially similar or superior benefits.
• Application for renewal shall be made within 3 months before expiry of Exemption period and taken up by Government within 2 months.

Section 91A powers restricted.  Thus now, exemption may be granted only prospectively and not retrospectively.

Section 91AA: Central Government is the appropriate Government if the medical benefits are provided by ESIC.

Source: Notification

Download SME Listing Agreement & understand deviations from Equity; how to set up SME Exchange with networth of 100 crores & requirements under SCRA

Sub: Conditions of listing for issuers seeking listing on SME Exchange - Model SME Equity Listing Agreement In recognition of the need for making finance available to small and medium enterprises, SEBI has decided to encourage promotion of dedicated exchanges and/or dedicated platforms of the exchanges for listing and trading of securities issued by Small and Medium Enterprises (“SME”). Consequently, SEBI amended SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“SEBI (ICDR) Regulations”) by inserting a Chapter XA on “Issue of specified securities by small and medium enterprises”, through notification dated April 13, 2010. In continuation of the same and to facilitate listing of specified securities in the SME exchange, “Model Equity Listing Agreement” to be executed between the issuer and the Stock Exchange, to list/migrate the specified securities on SME Exchange, is specified through this circular.

SME listing agreement is same as Equity listing agreement.  However, certain relaxations are provided to the issuers whose securities are listed on SME exchange in comparison to the listing requirements in Main Board (= other than SME Exchanges), which inter-alia include the following:

a. Companies listed on the SME exchange may send to their shareholders, a statement containing the salient features of all the documents [in abridged form], as prescribed in proviso to section 219(b)(iv) of the Companies Act, 1956, instead of sending a full Annual Report;
b. Periodical financial results may be submitted on “half yearly basis”, instead of “quarterly basis” under Clause 41 and
c. Every issuer listed under SME Exchange shall have their own website.

d. SMEs need not publish their financial results in newspapers, as required in the Main Board (= other than SME Exchanges)  and can make it available on their website.

Download SME Listing Agreement

Sub: Setting up of a Stock exchange/ a trading platform by a recognized stock exchange

A. A company desirous of being recognized as a SME exchange may apply to Market Regulation Department, SEBI, in accordance with the provisions of the Securities Contracts (Regulation) Act,1956 ( SCRA) read with the provisions of the Securities Contracts (Regulation) Rules, 1957 (the SCRR), subject to the applicant fulfilling the following conditions:
(i) It is a corporatised and demutualised entity and is compliant with requirements of maintaining public shareholding and shareholding restrictions in accordance with Chapters II and III of the Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) Regulations, 2006;
(ii) It has a balance sheet networth of atleast Rs. 100 crores;
(iii) It shall have nation wide trading terminals and an online screen-based trading system, a suitable Business Continuity Plan including a disaster recovery site;
(iv) It shall have an online surveillance capability which monitors positions, prices and volumes in real time so as to check market manipulation;
(v) It shall have adequate arbitration and investor grievances redressal mechanism operative from all the four regions of the country.
(vi) It shall have adequate inspection capability;
(vii) It shall have the same risk management system and surveillance system as are required for cash market segment of a recognised stock exchange;
(viii) Information about trades, quantities, and quotes shall be disseminated by the recognized stock exchange in real time to at least two information vending networks which are accessible to investors in the country;
(ix) The trading system of the stock exchange may be quote driven or a hybrid of quote driven and order driven. The settlement system in the stock exchange shall be the same as that of the cash market of a recognised stock exchange;
(x) The clearing function of the stock exchange shall be performed by a clearing corporation/ clearing house;
(xi) The minimum lot size for trading on the stock exchange shall be one lakh rupees.
B. The above eligibility criteria shall mutatis mutandis apply to recognised stock exchanges having nation wide trading terminals and which
desires to set up a trading platform for listing of the specified securities issued in terms of Chapter XA of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009. Such recognised stock exchange shall file an application demonstrating its compliance with the conditions mentioned in subpara (i) to (xi) of para 6 above alongwith the proposed Rules, Regulations and Byelaws for the SME platform. Such a platform can be operationalised by the recognised stock exchange only after obtaining prior approval of SEBI.

Source:

1. Setting up of a Stock exchange/ a trading platform by a recognized
   stock exchange having nationwide trading terminals for SME vide CIR/MRD/DSA/17/2010 dated 18th May 2010.
2. Conditions of listing for issuers seeking listing on SME Exchange - Model SME Equity Listing Agreement vide CIR/CFD/DIL/6/2010 dated May 17, 2010.