The Institute of Company Secretaries of India is a
premier national professional body constituted under an Act of Parliament namely the Company Secretaries Act, 1980 (Act No. 56 of 1980), to develop and regulate the profession of Company Secretaries in India. The ICSI functions under the jurisdiction of Ministry of Corporate Affairs. The Institute has on its rolls about 30,000 members including members holding certificate of practice. The number of current students is over 2.87 lakh. THE INSTITUTE: Has its Headquarters at New Delhi, 4 Regional Councils at Chennai, Kolkata, Mumbai and New Delhi, 68 Chapters located in various cities all over India and the Center for Corporate Governance, Research and Training (CCGRT) at Navi Mumbai. Registers students with 10+2 and graduate qualifications for Foundation and Executive Program of Company Secretaryship respectively, with course contents in Law, Management, Accounting and Finance disciplines; Conducts Company Secretaryship examination twice a year in June and December, at 66 centers spread all over India and one overseas center at Dubai; Provides postal/oral coaching and training enabling students to qualify as Company Secretaries; Provides e-learning for students through Web Based Training, Video Based Training and Live Virtual Classroom; Arranges practical training for Executive/Professional Program pass students in Companies/with Practicing Company Secretaries especially empanelled for the purpose; Enrolls qualified persons as Associate/Fellow members of the Institute and issues Certificate of Practice to members taking up practice; Conducts Post Membership Qualification Courses for members of the Institute; Conducts ICSA, UK Exams for members of the Institute; Publishes Chartered Secretary, a professional journal popular among all professionals; Publishes Student Company Secretary and C.S Foundation Program Bulletin for the benefit of students; Publishes Online 'CS update' containing current Notifications and circulars relating to various corporate and related laws; Exercises professional supervision over the members of the Institute, both in employment and in practice in matters pertaining to professional ethics and code of conduct; Undertakes research in Law, Management, and Finance and Capital Market disciplines and brings out research publications and guidance notes; Issues Secretarial Standards and brings out Guidance Notes thereon; Gives expert advisory opinion to members on intricate issues relating to various corporate laws; Organizes Professional Development Programs and International / National / Regional Conventions and Conferences. Organizes Professional Development Programs in collaboration with Chambers of Commerce, Department of Public Enterprises, Sister Professional Institutes and other Professional Development / Management Bodies. Interacts with various National and Regional Chambers of Commerce with regard to various Government Policies and Legislations. Interacts with the Central and State Governments and Regulatory Authorities on matters of professional interests; Interacts with CS Institutions of other countries in respect of the International Federation of CS; Bestows ICSI National Award for Excellence in Corporate Governance to best governed Companies; Bestows Life Time Achievement Award on one eminent corporate personality for Translating Excellence in Corporate Governance into Reality. Founder Member of the National Foundation for Corporate Governance. Founder Member of International Federation of Company Secretaries.
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The Bangalore Chapter of The Institute of Company Secretaries of India (ICSI) is one among the 15 Chapters functioning under the jurisdiction of Southern India Regional Council of the Institute. The Bangalore Chapter is an A+ Grade Chapter of the ICSI and has about 1500 members in total who are occupying important positions as Company Secretaries in the corporate sector and around 300 members in whole-time Practice as Company Secretaries. The Chapter has about 8000 students who are currently pursuing the Company Secretary ship course.
The Bangalore Chapter has won the Best Chapter of the Institute award in the A-1 and A Grade for the year 2004, 2005 & 2007 and 2008, respectively.
The Bangalore Chapter:
Conducts Professional Development Programmes; Seminars/Workshops; National/ Regional conference for the Members and Students on the topics of current interest to Company Secretaries/Professionals/ Students.
Conducts Professional Development Programmes in collaboration with Chambers of Commerce, Department of Public Enterprise, Sister Professional Institutes and other Professional Development/ Management Bodies.
Conducts Study Circle Meetings on topics of relevance to Company Secretaries.
Does instant registration of students for Foundation, Executive and Professional Programme and issues course material on the spot.
Accepts the examination and other application forms (except de novo) submitted by the students and forwards them to the ICSI, New Delhi. Conducts coaching classes for the students and provides them with all assistance and guidance to excel in the profession.
Conducts Moot Court Competition, Company Law Quiz and other competitions for Students.
Conducts the Student Induction Programme (SIP) which is mandatory for student registered for the Executive Programme before appearing for the Executive Programme examination.
Conducts Professional Development Programmes (PDP) which is mandatory for students undergoing their Management / Apprenticeship Training.
Conducts Executive Development Programme (EDP) which is mandatory for students, before they undergo Management Training / Apprenticeship Training. The objective of EDP isto help the students in acquiring knowledge and exposure about the environment and functions of the corporate sector, and prepares them to gain the maximum benefit from their training.
Organises the Management Skills Orientation Programme (MSOP). The thrust of this Training Programme is to appraise students with the practical aspects of important areas of the Profession and expose them to Corporate and General Management techniques and latest developments in Corporate Legal World.
Provides service in the area of placement of students for training and employment. Students, who approach the Chapter, looking for training, are given information in person, by email or by phone on the suitable opportunities available based on the requirements informed to the Chapter by companies and Company Secretaries in Practice.
BANGALORE CHAPTER
V Vi is si it t: : w ww ww w. .i ic cs si i. .e ed du u/ /b ba an ng ga al lo or re e
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AJAY MADAIAH B.B; CHAIRMAN; MYSORE CHAPTER OF ICSI. C S. S. C. SHARADA; CHAIRMAN; BANGALORE CHAPTER OF THE ICSI. MESSAGES
Milaap symbolises the spirit of the novice meeting the experienced, students meeting members, hinterland meeting the mainland, culturals meeting the intellect, education meeting entertainment, fun meeting learning, technology meeting tradition, oral meeting the written communication skills, innovation meeting discipline, preparation meeting performance and minds meeting hearts ! Over the last decade, Milaap has grown stupendously and is today a signature student event of the Bangalore chapter, that is a confluence of youthful energy and experienced wisdom- a platform for acquiring management and leadership skills on the ground, hands-on. Kudos to the contributors towards the e-souvenir of Milaap 2014. I raise a toast to Milaap 2014 and congratulate all the students and organizers for their sustained and dedicated efforts. I have no doubt that this will be a successful and memorable celebration for years to come. Wishing lots of enjoyment, excitement and education!! Cheers !
Dear Readers, Greetings from the Mysore Chapter of ICSI! Congratulations to all the participants, the e-souvenir editorial team members and to the students who have contributed, to this e-souvenir with their quality contents. It is always exciting to see Milaap with its various avatars, exceeding ones expectations every time with new and innovative means to educate and entertain the students who come from various parts of the state. It is very essential to have a platform which will bring students from various places together and unite them for various reasons. Milaap is one such event, which will provide students an understanding of our profession, organizing and managing a quality event of this magnitude, with various challenges faced by them. It is also interesting to note Milaap has kept evolving, to suit the changing needs and requirements of the students and being successful in achieving its objective.
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ICSI BANGALORE CHAPTER MANAGING COMMITTEE FOR THE YEAR 2014-15.
MS. S. C. SHARADA MR. H.M.DATTATRI MR. HARI BABU THOTA MR.R SRINIVASAN (CHAIRMAN) (VICE CHAIRMAN) (SECRETARY) (TREASURER)
MR.G.M. GANAPATHI MR. M. MANJUNATHA MR.S. KANNAN MR. DWARAKNATH.C.REDDY (MEMBER) (MEMBER) (MEMBER) (EX-OFFICIO)
MR. GOPALAKRISHNA HEGDE MR. NAGENDRA. D. RAO MR. M.R.BHAT (EX-OFFICIO) (EX-OFFICIO) (CO-OPTED MEMBER)
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KUSUMA. G SOWMYA SUNNY SHILPA. R CS Professional CS Executive Prog. CS Professional Programme CA Article at Programme C. Murali Naidu & Co.
Dear Readers, Discovery consists of seeing what everybody has seen & thinking what nobody has thought.- Albert Von Szent-Gyorgyi. Albert Szent was a Hungarian physiologist who won the Nobel Prize in Medicine in 1937. He is credited with discovering vitamin C and reactions of the citric acid cycle. This year has been about taking a step to the fore & giving new meaning to the known & familiar. The events & days leading towards the making of Milaap 2014 & its E-souvenir, holds a special value & importance to all its organizers. The step forward being-this year Milaap 2014- Meeting of minds-the Annual State level CS students conference, conducted by the Bangalore Chapter of ICSI is celebrating its 10 th year since inception in 2004; While with the passing of the long- awaited Companies Bill 2012 in the Rajya Sabha on 8th August 2013, we will see the existing Companies Act, 1956 being replaced with the brand new & simpler Companies Act 2013, when formally notified into law. The Act was widely welcomed from across the finance professional community, the industry bodies & consultants. To all fellow students, Innovation is key! Our discussions & brain storming sessions was necessitated & fuelled by the very simple phenomenon of Innovation, Change & Progress - of thinking & be doing things. Thoughts & ideas saw a free flow- both from the student members to their mentors, vice-versa & also from other active participating members. Change is imperative. Innovation is key, inspiring, stirring, and invaluable & innovators strive to break the mold. It is critical to be a doer! In signifying the same, on invite for articles for publication in the E- souvenir, it was a pleasure to have received such an overwhelming response from the NOTE FROM THE EDI TORS
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student community (from students pursuing other professional courses, as well) with a submission of 64 articles comprising of, from students in Bangalore to upwards from Northern India. It was notably a stiff contest amongst them, competing for a spot, in the Top 3 Best Articles of Milaap 2014. Also, from amongst the screened lot, 33 articles were selected for publication. We are thankful to the students for their article contributions ranging across subject lines & also, their employers for being the supportive & encouraging factor, behind their contributions. We express our sincere thanks & gratitude to the 10 CS Member editors, who formed an integral part of the editorial team, by carrying out the second level of screening the articles & also, the Judging committee, comprising of CS Karthik. S.N, CS Sanjeev & CS Harish B.N ,who in giving their valuable time, have assessed & adjudged the 3 Best articles. We also express our gratitude, to CS Vinod Raman, who has sponsored the cash award for the 3 Best articles of Milaap 2014. We extend our thankfulness, to the Mysore Chapter for their congratulatory message, the other members for their valuable inputs, various other Milaap teams for their helping hand & the Managing Committee of the Bangalore Chapter, for their continued support. A special thank you to CS H.M. Dattatri sir & CS S.C. Sharada Mam, who in the light as educators, steered us with their supervision & valuable insight at all stages - allowing us to foster our creativity & bring forth newer concepts. The editorial note would be incomplete without special mention of our mentor - Mr. Dhikshit Prabhu, who true as our mentor, was our guiding factor, through the making of the e-souvenir, with his consistent support, encouragement & direction. Thank you Sirs & Mam! Congratulations to the winners & other published authors!
So much is written about change & innovation Embrace inquisitiveness as a trait. Do not confine yourselves to the cocoons of the tried & tested. Pursue your dreams, not only for the love of fame, success & money, but to be an innovatorto be a pioneer! Make a difference!
Up till next year!
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E-SOUVENIR: DATA SHEET
NO. OF ARTICLES RECEIVED: 64 NO OF ARTICLES PUBLISHED: 33
TABLE OF CONTENTS SL. NO TITLE OF ARTICLE PAGE NO. 1. Compounding as a remedy for contraventions under FEMA, 1999 9 2. Foreign Direct Investment - In single brand retailing 12 3 Role of key Managerial persons in Anti corruption 15 4 Vast opportunities for CS with advocacy skills 18 5 Joint Venture and foreign collaboration 21 6 Money laundering 24 7 Investor protection 26 8 Credit rating 29 9 Acquisitions strategy 32 10 Committees under Companies Act,2013 35 11 Gender equity on Corporate boards A culture shift on the horizon 38 12 A gift from god 41 13 Safety of women at work place 43 14 Responsibilities of company secretary as compliance officer of the company under Listing Agreement 46 15 Role of Company Secretary as per Companies Act, 2013 49 16 Smart trading 51 17 Foreign direct investment (FDI) 53 18 Class of Action-Section 245 of the Companies Act,2013 55 19 Independent directors in Companies Act, 2013 58 20 Financial & legal aspects of Corporate Dividend decisions-An outlook 60 21 Bitcoin The pioneer virtual currency 63 22 Tax Audit u/s 44B of Income Tax Act, 1961 66 23 Forensic Auditing Tool to Investigate fraud 69 24 Registered Valuer 72 25 Women Director 75 26 Concept of Whistle Blower and the Role of Governance Professional 77 27 Corporate Criminal Liability in India 80 28 External commercial borrowings [ECB]- An instrument for capital gearing to the Indian companies 82 29 Listing and Issue of Capital by SMEs 86 30 Employee Provident Fund 90 31 Yes Bank Board Conflict 93 32 Drafting of Lease Agreements 95 33 Analysis of section 185 of the Companies Act, 2013 98 34 A sneak peek into Day 1 & 2 of Milaap14 101
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RAJEEV.T.S; CS PROF. PROGRAMME; HEMANTH, BISWAJIT & CO.
COMPOUNDING AS A REMEDY FOR CONTRAVENTIONS UNDER FEMA, 1999
COMPOUNDING OF CONTRAVENTION UNDER FEMA IN BRIEF Contravention is a breach of the provisions of the Foreign Exchange Management Act (FEMA), 1999. As per the Dictionary, Compound means to settle a matter by a money payment, in lieu of other liability. In short, Compounding of an offence is a settlement mechanism, by which, one is given an option to pay money in lieu of his prosecution, thereby avoiding a prolonged litigation. Compounding refers to the process of voluntarily admitting the contravention, pleading guilty and seeking redressal.
The Government of India has, in consultation with the Reserve Bank placed the responsibility of administering compounding of contraventions with the Reserve Bank, except few occasions. Accordingly the Reserve Bank is empowered to compound any contraventions as defined under FEMA, 1999.
WHAT ARE COMPOUNDABLE OFFENCES? Only those contraventions which do not attract imprisonment as a mandatory penalty are compoundable. In other words, offences which are specifically punishable with imprisonment only or imprisonment and fine are not compoundable.
CONSEQUENCES OF NON-COMPLIANCE OF FEMA PROVISIONS Non compliance of FEMA provisions and rules and regulations made there under would attract the penal consequences.
If any person contravenes any provision of FEMA, 1999, or contravenes any rule, regulation, under the said act, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where the amount is quantifiable or up to Rupees Two lakhs, where the amount is not quantifiable and where the contravention is a continuing one, further penalty which may extend to Rupees Five thousand for every day after the first day during which the contravention continues.
Offences which are specifically punishable with imprisonment only or imprisonment and fine are not compoundable.
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PRE-REQUISITES FOR COMPOUNDING PROCESS In respect of a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Compounding Rules, such contraventions would not be compounded. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.
Contraventions relating to any transaction where proper approvals or permission from the Government or statutory authority concerned, as the case may be, have not been obtained, such contraventions would not be compounded unless the required approvals are obtained from the authorities concerned.
COMPOUNDING PROCESS STEP BY STEP UNDER FEMA:
A duly completed application, in duplicate, for compounding of a contravention under FEMA, 1999 may be submitted to the Compounding Authority (CA) on being advised of a contravention under FEMA, 1999, either through a memorandum or suo moto on being made or on becoming aware of the contravention. Incomplete applications shall be liable to rejection by the Reserve Bank and appropriate action for the contravention of the FEMA shall be taken accordingly. The application once made cannot be withdrawn.
The Reserve Bank makes a scrutiny of the application and will examine and decide if the contravention is technical, material or sensitive in nature. If technical, the applicant will be issued a cautionary advice. If the contravention is material, it will be compounded by imposing a penalty after giving an opportunity to the contravener to appear before the compounding authority for a personal hearing. If the contravention is sensitive in nature requiring further investigations, the same would be referred to the Directorate of Enforcement (DOE) for further investigation/ action under FEMA, 1999, or Anti- Money Laundering Authority instituted under the Prevention of Money Laundering Act (PMLA), 2002 or to any other agencies, as deemed fit .
After getting the hearing notice, the contravener or any authorized person on his behalf may appear before the compounding authority to make his submissions.
Non-submission of relevant information/document during the processing of the compounding application
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would be considered as willful and intentional suppression of the material fact and the compounding application would be liable for rejection and appropriate action for contravention under the FEMA.
The Compounding Authority may pass an order indicating details of the contravention and the provisions of FEMA, 1999 that have been contravened. The sum payable for compounding the contravention is indicated in the compounding order. The contravention is compounded by payment of the penalty imposed.
The sum for which the contravention is compounded as specified in the order of compounding is payable by way of a demand draft in favor of the Reserve Bank of India within fifteen days from the date of the order of compounding of such contravention.
On realization of the sum for which contravention is compounded, a certificate shall be issued by the Reserve Bank indicating that the applicant has complied with the order passed by the Compounding Authority.
In case of failure to pay the sum compounded within the time specified in the compounding order, it shall be deemed that the contravener had never made an application for compounding of any contravention.
As compounding is based on voluntary admissions and disclosures, there cannot be an appeal against the order of the Compounding Authority. The compounding process is normally completed within 180 days from the date of receipt of the application complete in all aspects, by the Reserve Bank.
To conclude, provisions for compounding of offences under FEMA, 1999 saved the parties from spending their hard earned money and time in lengthy legal proceedings.
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FOREIGN DIRECT INVESTMENT SINGLE BRAND RETAILING
pening up of Indian economy due to the impact of Globalization, Foreign Investment was introduced in 1991 under Foreign Exchange Management Act (FEMA) driven by the then finance minister Mr. Manmohan Singh. Being an Economist, Mr. Singh led the Indian economy towards the world market after elected as the prime minister.
The less known side of this story is that by signing investment treaties, governments are giving away the sovereign right to regulate in the interest of people and the environment.
The United Nations Conference on Trade and Development (UNCTAD), 2012 projected India as the second most important Foreign Direct Investment destination (after China) for transnational corporations during 20102012. As per the data, the sectors which attracted higher inflows were: a) Services b) Telecommunication c) Construction activities and d) Computer software and hardware.
The leading countries as source of FDI: Mauritius Singapore US and UK
WHAT IS FOREIGN DIRECT INVESTMENT-A SHORT DEFINITION?
Foreign Direct Investment (FDI) is the net inflow of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.
Mathematically, It is = equity capital + reinvestment of earnings + other long term capital + short term capital as shown in the balance of payments
The World Bank Data indicating the amount (in USD) of net inflows in India over the years : 2009 2010 2011 2012 35,581,372,930 27,396,885,034 36,498,654,598 23,995,685,014
O RITU CHANDAK; CS PROF. PROGRAMME; MANAGEMENT TRAINEE, HEMANTH, BISWAJIT & CO.
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DARK SIDE OF THE INVESTMENTS:
Signing international investment treaties, in the hope of attracting foreign investments, has been a central strategy for governments looking to improve economic development. The less known side of this story is that by signing investment treaties, governments are giving away the sovereign right to regulate in the interest of people and the environment. They also expose themselves to the risk of spending millions in law suits that could have been used to serve public needs. Its time that the dark side of investment is put under the spotlight.
To develop, you need growth > to grow, you need FDI > to attract FDI you need to protect investors > the only way to protect investors is by signing investment agreements.
For the last 2 decades: Governments around the world adopted the recipe wholesale and Investment Treaties
THE INDIAN SCENE:
A. PROCEDURE OF RECEIVING FDI: 1. Automatic Route 2. Approval Route
B. Forms in which business can be conducted: 1. Incorporate a company under the Companies Act, 1956/2013, as a Joint Venture or a Wholly Owned Subsidiary 2. Set up a Liaison Office/Branch Office/Project Office under FEMA
C. Instruments of foreign investment: 1. Equity and others: a) Any foreign investment into an instrument issued by an Indian company which: i. gives an option to the investor to convert or not to convert it into equity or ii. does not involve upfront pricing of the instrument b) Equity shares , fully and mandatorily convertible preference shares and fully and mandatorily convertible debentures
2. External Commercial Borrowings (ECB)
THE SINGLE BRAND RETAILING SAGA:
Until 2011, Ownership in single brand retail in India was allowed upto 51% and that too through a heavy bureaucratic process.
In January 2012, India approved reforms for single-brand stores welcoming anyone in the world to innovate in Indian retail market with 100% ownership, but imposed the requirement that the single brand retailer source 30 percent of its goods from India.
In July 2013, the Government eased the norm
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for single brand retailing by allowing entry under Automatic Route up till 49% ownership, beyond which Government approval will be required.
STORES THAT YOU CAN FIND IN INDIA
IKEA is a privately held, Dutch company with Swedish origins that designs and sells ready-to-assemble furniture, appliances, and home accessories. The company is the world's largest furniture retailer.
Italian high-end accessories brand Furla plans to expand its presence in the Indian market once the government clears its joint venture with Genesis Luxury fashion
Securing an address in Delhi is the main goal of the Manhattan-based Brooks Brothers, an iconic label known for its suits and shirts
Italian leader in manufacturing and marketing high-end jewellery, Damiani
made its maiden foray into the Indian market with its first flagship boutique in New Delhi.
As India is progressing in Information Technology, approvals from various Statutory Bodies like Foreign Investment Promotion Board or Reserve Bank of India made simple. A common man can approach the Government through online applications and related formalities.
By allowing FDI in single brand in India, we may have access to world class quality products and at the same time it may create new job opportunities to the locals.
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ROLE OF KEY MANAGERIAL PERSONS IN ANTI CORRUPTION
INTRODUCTION Growing a successful and sustainable business requires at least three things: an uncompromising devotion to developing products and services that contribute real value and allow clients to achieve their goals; passionate leadership that attracts and inspires the best of the class; and an unwavering commitment to act as a responsible player in the community, nurturing the public trust and support on which all businesses ultimately depend. Corruption erodes each of these pillars of business success. It means compromising corporate and individual integrity, and it means consenting to, and propping up, a business environment in which, entrusted public power is routinely abused for the sake of private gain. The leading case for this can be the Wal-Mart corruption, wherein the bribe was taken by one of the managers of their Company. The former executive gave names, dates and bribe amounts. He knew so much, he explained, because for years he had been the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico. The view point being corruption can be done by KMPs of the Company and can even be stopped by them. The level of corruption in the private sector remains disturbingly high. It is not uncommon for domestic firms and multinationals to pay bribes to secure public contracts, nor unusual that powerful corporate entities exerting undue pressure to capture institutions and influence regulations to elicit favorable investment conditions. Stamping out corruption and strengthening corporate integrity is a challenging agenda, but one with ample opportunities for engagement. One important strategy is to Establish and implement normative frameworks against corruption. At the domestic level, most countries already have anti-corruption laws and policies in place. Unfortunately, these are rendered ineffective by weak enforcement and implementation. The comparable framework at the international PAREKH NIDDHI R; CS PROF. PROGRAMME.
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level is the United Nations Convention against corruption, which needs to be embraced fully by signatory countries. A third strategy asks us to utilize the forces of civil society and public opinion to fight corruption in the corporate sector that can help the state to design appropriate strategies.
Power does not corrupt. Fear corrupts... perhaps the fear of a loss of power. The bottom line is clear: we need to deal with corruption in the private sector creatively, at all levels, not just through different channels of intervention and regulation but also by encouraging the private sector towards voluntary initiatives. A threefold shifting strategy and action is required to address corruption in the sector more effectively. Firstly, most stakeholders must join business executives and regulators in tackling corruption in business. These allies include owners, investors and workers, financial intermediaries and auditors and, in the broader business environment, the media, citizens as consumers and last but not least civil society. Taken together, they constitute corporate integrity systems, providing a web of vital checks, balances and incentives that make corporate integrity sound and sustainable. Conflicts of interests, a lack of whistleblower protection, insufficient disclosure and reporting and other obstacles; all of these needs to receive more attention in a policy debate. Secondly, the focus of attention has to go beyond setting rules and pledging commitment to issues of implementation, monitoring and accountability for results to be achieved. Commitments, codes and laws matter, but they are only as good as their verifiable enforcement. Thirdly, collective action and collaboration need to be better recognized as essential principles in addressing corruption challenges in business - stimulating learning, protection against free-riding and creating peer pressures that are instrumental in rooting out bribery in competition for contracts. Joint pressure allows investors and consumers to bundle their influence in holding business to account. More cooperation among small and medium enterprises enables them to pool their resource and defenses against corruption, while more collaboration among national regulators can help close transnational loopholes.
The surest way to corrupt a youth is to instruct him to hold in higher esteem those who think alike than those who think differently. ROLE OF KMP: The fundamental task of the KMP is to create the performance with integrity and culture. A Culture that entails shared principles (values, policies and attitudes) and shared practices (norms, systems and processes). If need be, it can also include some elements of deterrence (violation of norms will lead to punishment), it must also, at the end of the day, be affirmative (people want to do the right thing because leaders make this a real Company imperative). A corruption risk assessment identifies corruption risks not mitigated by controls. KMPs should understand the entitys
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corruption risk philosophy and concur with the entitys risk appetite. They should know the extent to which management has established effective corruption risk management. Critically, this culture of fundamental integrity must be uniform and Global: it should be applied in every Nation and must not be bent by corrupt local practices, even if it means losing business in the short run.
PRINCIPLES FOR AIDING BUSINESS LEADERS:
The core principles those are important for aiding business leaders on high performance with high integrity:
Committed and Consistent Leadership - Makes performance with integrity, the foundation of the Corporation; Managing performance with integrity as a business process builds the integrity infrastructure; AdoptingGlobal ethical standards beyond what the law requires (e.g. no bribery in either public or private sectors anywhere); Using early warning systems to stay ahead of Global trends and expectations; Fostering employee awareness, knowledge and commitment through stimulating, systematic Education and training; Giving employees voice through legal systems that treat concerns professionally, fairly and promptly and prohibit retaliation; Recognizing that the top Staff Leaders the CFO, General Counsel and HRM must be partners to the business leadership as well as, guardians of the corporation; and Designing compensation systems so that top business leaders are paid not just for performance but for the performance with integrity.
THE PREVENTION:
Without robust implementation of these principles, high integrity and culture will not exist and the business leadership will just eyewash. Only when a corporation has this comprehensive, systematic approach, commitment to good-faith implementation and to high performance with integrity, can the Companys anti-corruption programme be effective. A strong anti-corruption programme requires a strong cultural commitment to do the right thing; and strong, centralized processes to ensure that hard cases are decided on the right side of the line. It should implement this so that accountability is clearly fixed. Then there must be due diligence relating both of them to all the stakeholders. Companies and Industries getting rich from corruption, bribery, buying elections, buying legislators, purchasing government subsidies or tax breaks or handouts or bailouts. It is so much more cost-effective than actually making something worthwhile and slowly building an industry based on quality and good service to customers that it is replacing the old, more honest business model.
I do think people have to be held accountable for actions, but then punishing wrongdoers should be accompanied by an examination of the organizational structure that contributed to the problem. Simply replacing the people is not enough.
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VAST OPPORTUNITIES FOR CS WITH ADVOCACY SKILLS
With the Constitution of proposed NCLT, a fresh CS may need to appear before NCLT /NCLAT very frequently. As such, we as a students pursuing CS should anticipate the future and embrace the great opportunity while climbing our Professional ladder.
INTRODUCTION:
The establishment of NCLT/NCLAT shall offer various opportunities to Company Secretaries as they have been authorized to appear before the Tribunal/ Appellate Tribunal. Therefore, Company Secretaries would for the first time be eligible to appear for matters which were either to dealt with by the High Court vizMergers, Amalgamation under Section 391 to 394 and Winding up proceedings under the Companies Act, 1956. Areas opened up for Company Secretaries under NCLT/NCLAT.
Opportunity does not knock, it presents itself when you beat down the door. - Kyle Chandler
Advocacy Definition: Active support especially the act of pleading or arguing for something.
ADVOCACY MEANING:
Advocacy is a set of actions whose main objective is to sensitize with a view to influencing decisions about a cause or policy in a stated direction. It is done through pleading/arguing in favor of something and operates on the assumption of a collective set of values and common good on behalf of another.
A BRIEF ABOUT COMPANY SECRETARY (CS):
COMPANY SECRETARY: Play a very important role in Corporate World and advises the Company on Compliance of Corporate Regulations.
Undertakes Secretarial Work regarded as an officer in default.
Takes more responsibility especially while CS in whole time employment in Company.
WHY ADVOCACY?
Apart from routine functions and responsibilities CS do present the case. TUKARAM N JADHAV; M.COM, LLB(PURSUING); CS PROF. PROGRAMME; HAVERI .
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On behalf of the Company before various forums- CLB/SEBI/Stock Exchange/FEMA/Import and Export authorities/DOE.
Proposed NCLT in future and many other regulatory bodies.
OPPORTUNITY:
Want to be CS or CS with Advocacy?
Corporate Professionals lay so much emphasis on presenting cases before forums like CLB rather their traditional work.
The thorough knowledge and specialization in Corporate related subjects gives the Unique opportunity to Corporate Professional like o CS to better advocate a Company dispute or matter before CLB/NCLT/NCLAT.
TODAYS FORUM:
Presently CLB and Company Court discharges its responsibility as DRM under the provisions of Companies Act,1956.
Cases like Oppression and Mismanagement goes to CLB.
Cases like Mergers and Amalgamation and Winding up, are entertained by the High Court.
Todays Status of CS on Representing Cases:
New Companies provisions of NCLT/NCLAT to deal with all matters related to Companies Act.
Presently CS is not permitted to appear before High Court- But CS can represent many Company disputes Under Company Law before NCLT/NCLAT.
A great opportunity for CS (including students pursuing CS) - One should lay special emphasis on Advocacy and knowledge of basic GL in addition to specialization in Company.
WHAT IS STORED FOR FUTURE?
NCLT/NCLAT would be in place.
All members related to Companies Act would be at this forum only.
CS without Law qualification would be able to represent appear and handle cases with NCLT/NCLAT.
If one to be in Advocacy it would be a full time job or practice.
WHAT CS DOES TODAY?
Currently complicated Company matters application by the Minority Share Holders under section 397/398 of Act are handled by the Advocates/Corporate Lawyers than CS.
CS handles simple applications seeking condonation of non-compliance of corporate regulations and those applications are allowed in most cases
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with some fine. It is also true that some CS do appear in complicated matters i.e. Application under section 397/398 of the Act.
Barring specialized Corporate Lawyers, CS is accustomed to Corporate regulations involve in Incorporation of Companies, Corporate Advisory Services and Compliance of Corporate regulations.
Corporate Lawyers V/s Company Secretary:
When we are CS, we should lay special emphasis on the new opportunities and responsibilities before the NCLT/NCLAT.
Advocacy is an art needs to be practiced.
If we could observe manner in which a Corporate Lawyer presents a case before CLB and the manner in which the case is presented by the CS, we can find the glaring differences.
Corporate Lawyers do matters: - In a systematic manner - In an aggressive way and - When situation warrants
CONCENTRATION ON TO BE ON:
Responsibility of Corporate Lawyers, in most cases, is confined to discussion with the client drafting a brief, ensuring the filing of required papers with the forum and presenting the case before the Board pressing for the order prayed for.
Conversely a CS would discharge variety of responsibilities.
In view of abundant opportunities before the proposed NCLT, we as a student pursuing CS should concentrate on certain things specially like: 1) Language especially clear and grammatically good English 2) Drafting. 3) Legal drafting. 4) Presenting a case before the Court or the Forum. 5) A basic knowledge of established Legal procedures.
COMPANY SECRETARY REQUIREMENTS:
Good writing skills.
Understanding of operations know what we are writing about and relevant requirements.
Sensitivity to issues.
Strong ethical grounding.
Well organized and process driven.
Diplomatic, reflective, knowledgeable and respected.
CONCLUSION:
With the Constitution of proposed NCLT, a fresh CS may need to appear before NCLT/NCLAT very frequently. As such, we as a students pursuing CS should anticipate the future and embrace the great opportunity while climbing our Professional ladder. The Company Secretaries should standardize their competencies with the global benchmarks to provide value added services in assisting the Tribunal in dispensation of justice and speedier disposal of matters like Merger, Amalgamation, Restructuring, Revival and Rehabilitation of Sick Companies and Winding up of Companies.
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JOINT VENTURE AND FOREIGN COLLABORATION
INTRODUCTION In an era of competition and growth, it is a challenging task for any business entity to emerge as a powerful business house and to make a mark of success in the world of business. With this kind of competition and expansion spree in the economic world, Joint ventures and Foreign Collaborations emerged as a successful mechanism. It holds a status of a business strategy that could make bigger goals achievable by coming together. Furthermore it routed foreign investments into the growing economies and one such growing economy in the world is India.
MEANING
A Joint venture (herein after referred as JV) is an association of two or more individuals or business entities who come together to pool their respective expertise, financial resources, skills and experience etc without losing their separate identity. In India, there is no legal definition for JV; however the guidelines prescribed by Government of India and its agencies draw a line of difference between JVs and other entities. The JV in India usually comprises of two or more individuals or
companies, where one of the partners may be non-resident; they form JV by entering into an agreement called as a JV agreement and form an Indian Private or Public limited Company, where each partner decides to hold certain portion of share holding.
MODES OF JOINT VENTURE
1. EQUITY JOINT VENTURE The parties to the JV agreement agree to provide foreign currency/other resources as their contribution towards assets or capital of the legal entity formed . These types of ventures are called as Incorporated Joint ventures.
RAKSHITA TATA SATHYANARAYANA; CS PROFESSIONAL STAGE; HEMANTH BISWAJIT AND CO.
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2. CONTRACTUAL JOINT VENTURE This kind of JV is suitable for projects which involve a specific task or a task for limited period and are more suitable for establishing business in countries where domestic laws do not permit the foreign citizens to own the property in the country. Thus it is similar to Partnership. These types of ventures are also called as Unincorporated Joint Ventures. And such agreements are governed by Indian Partnership Act, 1932.
Therefore JV can take a legal form of a company or a partnership firm or joint working agreements.
APPROVALS FOR ESTABLISHMENT:
In India JVs can be established with or without Government approvals. These approvals are categorized in two sections.
Automatic Route. Approval Route.
1. If a foreign partner or an NRI is involved then Government approvals are required. The approvals can be obtained from either RBI or Foreign Investment Promotion Board.
2. The Government has provided more than 30 high Priority areas covering most of the Industrial sectors. Investments up to 50%, 51%or74% in certain areas such as telecommunications, drugs and pharmaceuticals , hotel and Tourism or advertisement receive automatic approval .
3. The investments which are higher than 50%, 51% or 74% and also fall outside the high priority areas, require Government approval. Such approval should be obtained by making an application to either Foreign Investment Promotion Board (FIPB) or the Secretariat of Industrial Approvals (SIA).
4. In case of Foreign Institutional Investors (FII), the aggregate investments in the share capital of the company is permitted to the extent of 24% of issued and paid up capital of the company, however the Indian Company can permit Investment up to 30% of its share capital by passing Special resolution, where such resolution should be passed by shareholders having 75% shares with voting rights in the company.
Usually, Foreign Companies are main investors of JVs, thus foreign investors seek higher equity percentages . In Indian Joint ventures the breakup of equity between Foreign Ally and Indian Party will be 51% - 49% respectively.
PRE FORMATION CONSIDERATION: Any two business parties, having taken up to a joint venture as a development strategy need to deliberate upon certain material factors like:
A. OBJECTIVE A well defined Objective plays a pivotal role since the investments and resources involved are huge and lack of clarity in this aspect may incur huge losses at a later stage.
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B. CAPITAL STRUCTURE. It is very important to define the Capital structure, return on investment capital, management control and administration of the enterprise to avoid future disputes among the parties.
C. PERPETUITY OF JOINT VENTURE. The JV is an agreement of continuity, if any party opts to pull out from JV then, such party makes a first option to sell its interest to other existing party or the outgoing party should be able to get in new party to JV on same terms and conditions as it was between existing party and outgoing party. This element in JV agreement helps the party to be in safer side when other party pulls itself out of the JV.
FOREIGN COLLABORATION AGREEMENTS
These agreements are alliance agreements of JV. This has become quite popular in country like India which has been using collaboration as a strategy to bridge the technological gaps between the countries. The gaps may be of a nature of Technical Knowhow, technical designs and drawings, and for training of Technical personnel of their company.
SURVEY ON FOREIGN COLLOBRATION IN INDIAN INDUSTRY
There has been a down trend in the number of Foreign Collaborations (hereinafter referred as FC) happening as per the Survey made by RBI. This was 8 th Round of Survey. The survey has categorized companies in two sections Foreign Technical Collaboration Companies and All Companies (Having Technical and/or Non-Technical Collaboration) The Survey says that, out of the survey conducted with 836 Indian Companies, 158 of them have 160 technical collaboration agreements in FTC Companies alone. The survey depicts that there is a decline in foreign collaborations compared to previous survey and also decline of profits earned by companies and of the 836 Companies 111 were associates,672 were Subsidiaries, and 53 were other category Companies.
When we analyse the Survey by considering all the aspects like Coverage, Industry-wise distribution of agreements ETC., (Having Technical and/or Non-Technical Collaboration) the Industries are having collaboration mostly with their subsidiaries and not with other outside companies. There is decline of FCA in Manufacturing Sector when compare to Service Sector as there is a growth in Service Sector per se. India has to plan and execute rapidly to match the top economies like USA, Germany, UK and Japan. The declination of know how agreements is matter to be worried as Indian industry still have not equipped with enough technical research and required of such technical is on high Priority. The restrictive right which has been reduced in manufacturing sector is alarming as that means there is less protection to Indian parties.
CONCLUSION:
The subject of Joint Venture and Foreign Collaborations being a huge one, an attempt is being made to briefly explain the concept in this article. The awareness of JV and FC is also important to all the companies in the Industry, because we can see through survey that most of the Indian Companies are inclined towards its subsidiaries rather than getting into agreements with other FC. Sources: Wikipedia, Study Material of Company Secretary Professional Stage, Articles from Majumbdar and Co International Lawyers, Circular on Survey Issued by Reserve Bank of India, Helpline Law.com.
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MONEY LAUNDERING
Money Laundering is the process by which Large Amount of illegally Obtained Money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a Legitimate Source.
It has become increasingly more difficult for lawbreakers to conceal their illegally obtained funds through criminal business practices. Criminals are being forced to hide their money from government institutions to avoid taxation and investigations into their business dealings. One way criminals choose to hide this ill gotten cash is to launder their money through banks, brokerage houses, investment firms and many other financial businesses to make it appear as if the money is clean and obtained legally.
PROCESS OF MONEY LAUNDERING
The process of money laundering can be classified into three stages namely: Placement Layering Integration
In the placement stage of money laundering, the launderer introduces his illegal profits into the financial system, by breaking up large amount of cash into smaller sums of cash that are then deposited directly into the bank account. Or by purchasing monetary instruments that are later collected and deposited into accounts at another location.
After the funds entered into the financial system, the Layering takes place. In this stage, the launderer engages in a series of conversions or movements of the funds to distance them from their sources.
After completing the first two stages the processing of criminal profits, the launderer moves them to integration. In this stage the funds re-enter the legitimate economy. The launderer might choose to invest the funds into real estate, luxury assets, or business.
IMPACT OF MONEY LAUNDERING
The social, economic and political effects of money laundering, if left unchecked or deal with in effectively are serious. Through the process of money laundering, organized crime can infiltrate financial institutions, acquire control of large sectors of the economy through investment, or offer bribes to public officials and indeed governments. Thus the economical and political influence of criminal organization can weaken the social fabric, ethical standards and ultimately the democratic institutions of the society.
UMESH. M. NAVADE; CS EXECUTIVE PROGRAMME; DHARWAD.
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PREVENTION MEASURES OF MONEY LAUNDERING
Preventing money laundering will be most effective if the Government, the private sector, and the public work together. Governments can play their role by empowering authorities to take action on this issue and imposing regulations on the industries that criminals rely on. Businesses can show their commitment by making relevant preventive efforts in addition to those required by law. If citizens are given a means to provide information, they can assist by exposing illegal activity and new money laundering methods.
Government can display its dedication to prevent money laundering by setting up a task force. Large corporations, such as banks and wiring services, should also have departments that are dedicated to this cause. It is important for these public and private labor forces to work together on a national and international basis.
The Prevention of Money Laundering Bill 1998 was introduced in the Parliament on the 4 th August 1998. The bill was referred to the Standing Committee on Finance, which presented its Report on the 4 th March 1999, to Lok Sabha. After incorporating the recommendation of the standing committee, the Government introduced the Prevention of Money Laundering Bill 1999 in the Parliament on 29 th October 1999. The bill received the assent of the President and became Prevention of Money Laundering Act, 2002 on 17 th January 2003. The Act has come in force with effect from 1 st July 2005.
The Financial Action Task Force (FATF) on Money Laundering has identified certain choke points in the money laundering process that the launderer finds difficult to avoid and where he is vulnerable to detection. The initial focus has to be on these areas if the war against the launderer is to proceed successfully.
The following are the choke points identified as below: a. entry of cash into the financial system; b. transfers to and from the financial system; and c. Cross-border flows of cash.
The UKs system of reporting suspicious transactions to the authorities along with the procedures adopted by deposit-takers are powerful weapons against money launderers. In particular, the emphasis being placed on the importance of deposit-taking institutions knowing their customer has severely curtailed this activity to such an extent that one of the favorite methods for money launderers to place their money is to smuggle the money out of the country. There are penalties attached to the various money laundering offences for the deposit-taking institutions and these have provided for a powerful incentive for reporting suspicions to the National Criminal Intelligence Service (NCIS).
These measures overcome the difficulty of custom officers coming across large amounts of cash with no reasonable explanation for their export/import but, at the same time, with no hard evidence of links to drug trafficking, it allows the detention of the cash pending an investigation. Due to this, couriers limit the amount they carry out of the country at any one time and the risk is seen as being less than passing the money into a financial institution.
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INVESTOR PROTECTION
Risk comes from not knowing what youre doing, says Warren Buffett. Investor education and protection are one of the most important necessities for any market to grow. Investment is an indicator of the development of any country. Investment plays very important role for an economic growth. For capital accumulation there should be an increase in an investment. Investment shows the level of an economy in the world economies. To encourage more investors to invest, more protection for investors is needed. An investor is a person who allocates capital with the expectation of a financial return. The term investor protection defines the entity of efforts and activities to observe safeguard and enforce the rights and claims of a person in his role as an investor. This includes advice and legal action. The assumption of a need of protection is based on the experience that financial investors are usually structurally inferior to providers of financial services and products due to lack of professional knowledge, information or experience. Investor Protection is needed for true capital formation. Investor The Companies Act, 2013 goes a long way in protecting shareholders' interests and removes administrative burden in several areas. The Act brings modern regulations for the corporate sector and attempts to align with international requirements. The Act promises to substantively raise the bar on governance and purports to deal with relevant themes such as investor protection, fraud mitigation, inclusive agenda, auditor accountability, reporting framework, director responsibility and efficient restructuring. Investor education and protection was gaining focus mainly after the Ketan Parekh scam (2001) and the UTI crisis (1998 and 2001). This article shows the role of regulatory bodies for the protection of investors money. Securities and Exchange Board of India (SEBI) has been established with the prime mandate to protect the interest of investors in securities. It is also mandated to promote the development of, and to regulate the securities market. The Primary function of Securities and Exchange Board of India under the SEBI Act, 1992 is the protection of the investors interest and the healthy development of Indian financial markets. SEBI had issued guidelines for the protection of the investors through the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000. These Guidelines have been issued by the Securities and Exchange Board of India under Section 11 of the Securities and Exchange Board of India Act, 1992. The Securities and Exchange DIVYA SANGHAVI; CS PROF. PROGRAMME; BANGALORE.
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Board of India Act, 1992 (the SEBI Act) was amended in the years 1995, 1999 and 2002 to meet the requirements of changing needs of the securities market and responding to the development in the securities market.
OBJECTIVES OF SEBI: Some of the objectives of SEBI are as follows: Investor protection, so that there is a steady flow of savings into the Capital Market. Ensuring the fair practices by the issuers of securities, namely, companies so that they can raise resources at least cost. Promotion of efficient services by brokers, merchant bankers and other intermediaries so that they become competitive and professional.
Simply put, investor protection is the effort to make sure that those who invest their money in regulated financial products are not defrauded by brokers or other parties. Its important to note that unlike government insurance for monetary deposits, investor and customer protection does not extend to covering losses when the securities or products decrease in value. Investor protection focuses on making sure that investors are fully informed about their purchases that insider activity does not threaten the worth of some portfolios for the enrichment of others, and those holdings are not simply lost in instances of brokerage failure. INVESTOR PROTECTION MEASURES BY SEBI Section 11(2) of the SEBI Act contains measures available with SEBI to implement the legislated desire of investor protection. The measures available with SEBI include the following: regulating the business in Stock Exchanges (SEs) and any other securities markets registering and regulating the working of intermediaries like stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers etc. associated with securities markets registering and regulating the working of the depositories, participants, custodians of securities, foreign institutional investors, credit rating agencies and other intermediaries prohibiting fraudulent and unfair trade practices relating to securities markets prohibiting insider trading in securities regulating substantial acquisition of shares and takeover of companies promoting investors education and training of intermediaries of securities markets Carry out inspection/ audits of the SEs / intermediaries etc. call for information from any bank / any authority / corporation / agencies in respect of any transaction in securities which is under investigation or inquiry by SEBI performing such functions and exercising such powers under the Securities Contracts (Regulation) Act, 1956 (SCRA) levying fees or other charges conducting research performing such other functions as may be prescribed.
ACTION AGAINST DIRECTORS OF VANISHING COMPANIES
Emergence of Vanishing companies has shaken investors faith to the core. Matter was campaigned and representations made to ensure that such cases do not occur in future, resulting in SEBI forming a committee examining and exploring various courses of action such as including authenticated photographs, passport numbers, PAN number etc. of the promoters / directors at the time of incorporation and in the prospectus along with monitoring the end use of funds.
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Aiming to help those having suffered losses due to irregularities in the capital markets, SEBI on 9 th January, 2014 notified new norms that would allow it to utilise IPEF (Investor Protection and Education Fund) funds for the purposes of refund to aggrieved investors. The new norms have been included in SEBI's regulations for 'Investor Protection and Education Fund (IPEF)'.
So far, the IPEF funds was utilised for the purposes of protection and education of investors including activities like seminars, training, for aiding investor associations and refund of the security deposits, among others . Moreover, SEBI said "that no claim for restitution from the disgorged amounts in a specific case shall be admissible after a period of seven years from the date of invitation of claims for disgorgement in the said case by the Board (SEBI)". Following the amendments these norms will be called the 'Securities and Exchange Board of India (Investor Protection and Education Fund) (Amendment) Regulations, 2014'. The new norms were approved by the market regulator in December, 2013. The IPEF includes funds contributed by SEBI and grants and donations from the central and state governments.
To bring greater accountability in stock market, SEBI is now holding individuals also accountable along with their companies for any misdeeds. The market regulator has lined up numerous regulations to ensure effective execution of these powers along with safeguards against any possible misuse. SEBI has made it mandatory for all major schemes of arrangement involving listed companies to get "approval of the majority of minority shareholders". This concept has come in and this is a very significant concept and gives a clear-cut message to the whole world that small investors cannot be taken for a ride by the promoters or other large shareholders. India's new stock exchange MCX-SX has launched four new service centres to promote investor education and protection. The Investor Service Centres (ISCs) have come up at Ahmedabad, Hyderabad, Indore and Kanpur. This initiative has not only increased the exchange's reach to investors and market participants, but also made it convenient for them to get their grievances redressed. ISCs have investor grievance redressal committees and also function as regional arbitration centres. They facilitate complaint registration and speedy resolution to investors, in addition to making available educational material and providing general awareness to visitors. Hence, from above we can see that the regulatory authority is taking various measures for the investors education and protection and also investors are required to take active steps and initiatives for their education regarding investments which will in turn act as a protective shield for safeguarding their hard earned money and will also improve the economy.
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CREDIT RATING
Credit Rating is an activity of assessing & evaluating the credit worthiness of a company or a government or an individual. Credit rating involves, evaluating the ability of a debtor to repay the debts borrowed by him and the possibility of failure to pay. This activity is known as credit rating if done upon a company or a government, & is known as credit reporting if done upon an individual. Credit rating is done by credit rating agencies like, Credit Rating Information Services of India Limited (CRISIL) & Investment Information and Credit Rating Agency of India Limited (IICRA), whereas credit reporting is done by credit bureaus or credit reporting agencies like, Credit Information Bureau (India) Limited (CIBIL) & Equifax Credit Information Services Private Limited (ECIS). Apart from these, three top global agencies dealing in credit ratings are Moody's, Standard & Poor's (S&P's) and Fitch Ratings. Before deciding whether to invest into a debt security from a company or foreign country, it is significant in resolving whether the prospective entity will be able to meet its obligations. A credit rating agency enables in doing this. Providing independent, objective assessments of the credit worthiness of companies and countries, a credit rating agency helps investors decide how risky it is to invest money in a certain country and/or security. Credit rating is assigned upon those entities which seek borrowings and such entities require paying, to credit rating agencies for getting credit rating for their equity or a debt issue. There are credit rating scales and credit scores for credit rating and credit reporting respectively. As the credit ratings are given by credit rating agencies, such ratings will have to undergo agency's calculation of qualitative and quantitative data for a company or government, including private data acquired by the credit rating agencies' analysts. Credit ratings can be assigned to short- term and long-term debt obligations as well as securities, loans, preferred stock and insurance companies. Long-term credit ratings tend to be an indicative of a country's investment surroundings and/or a company's ability to honor its debt responsibilities. A poor credit rating indicates the credit rating agency's opinion that the company or the government may likely make a default, based on the agency's investigation of the entity's history and of the long term economic visions. PRATAP SHEKHAR AGADI; CS FOUNDATION PROGRAMME ; DHARWAD. A credit rating agency helps investors decide how risky it is to invest money in a certain country and/or security.
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Credit ratings are not equal to or the same as buy, sell or hold recommendations. Credit ratings measure an entity's ability and willingness to repay debt. It is important to gain insight into different investment environments and to understand the risks and advantages these environments pose. Measuring the ability and willingness of an entity - which could be a person, corporation, security or country - to keep its financial commitments or its debt, credit ratings are essential tools for making investment decisions.
A Sovereign credit rating is the credit rating of a sovereign entity, i.e., a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad. It takes political risk into accounts. A. M. Best defines "country risk" as the risk that country-specific factors could adversely affect an insurer's ability to meet its financial obligations.
A Short-term credit rating is a probability factor of an individual going into default within a year. This is in contrast to long- term rating which is evaluated over a long timeframe.
A Corporate credit rating is that, which is concerned with corporations, which are usually of a corporation's financial instruments i.e. debt security such as a bond, but corporations themselves are also sometimes rated. As stated earlier, Standard & Poor's, Moody's and Fitch Ratings are the popular credit rating agencies as of now. They use letter designations such as A, B, C. Higher grades are intended to represent a lower possibility of default. The ratings lie on a scale ranging between highest credit quality on one end and default or "junk" on the other. Long-term credit ratings are denoted with a letter: a triple A (AAA) is the highest credit quality, and C or D (depending on the agency issuing the rating) is the lowest or junk quality. Within this scale there are different degrees of each rating, which are, depending on the agency, sometimes denoted by a plus or negative sign or a number. CREDIT RATING AGENCIES IN INDIA SMERA CRISIL CARE Ratings ONICRA Credit Rating Agencies Fitch Ratings ICRA
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The following chart gives an overview of the different rating symbols that Investment Information and Credit Rating Agency of India Limited (IICRA) issues: SL. NO. SYMBOL DESCRIPTION OF THE SYMBOL 1 AAA Highest Safety 2 AA High Safety 3 A Adequate Safety 4 BBB Moderate Safety 5 BB Inadequate Safety 6 B High Risk 7 C Substantial Risk 8 D Default
In contrast, following chart depicts the various rating symbols that Moody's and Standard & Poor's issue:
Credit rating is a useful instrument for both the investors and entities looking for investment, as well. An investment-grade rating can put a security, company or country on the global radar, attracting foreign money and boosting a nation's economy. Indeed, for emerging market economies, the credit rating is key to displaying their worthiness of money from foreign investors. And because the credit rating acts to facilitate investments, many countries and companies will strive to maintain and improve their ratings, hence ensuring a stable political environment and a more transparent capital market.
BOND RATING GRADE RISK MOODY'S STANDARD & POOR'S Aaa AAA Investment Lowest Risk Aa AA Investment Low Risk A A Investment Low Risk Baa BBB Investment Medium Risk Ba, B BB, B Junk High Risk
Caa/Ca/C CCC/CC/C Junk Highest Risk C D Junk In Default
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ACQUISITIONS STRATEGY
Acquisitions have become major strategic levers, purchase by one company of controlling interest the share capital, of another company. A takeover may be friendly or hostile, depending on the offeror companys approach, and may be affected through agreements between the offeror and the majority shareholders, purchase of shares from the open market, or by making an offer for acquisition of the offerees shares to the entire body of shareholders.
TYPES OF ACQUISITIONS:
I. FRIENDLY TAKEOVER It involves an acquisition of the target company through negotiations between the existing promoters and prospective investors. Kingfisher and Air Deccan is the best example for this kind of takeover.
II. HOSTILE TAKEOVER If the board rejects the offer, but the bidder continues to pursue it or the bidder makes the offer without
informing the board beforehand.
III. LEVERAGED BUYOUTS The acquisition is funded by borrowed money. Often the assets of the target company are used as collateral for the loan. The TATA-Coros Deal, one of biggest takeover by an Indian Company.
IV. BAILOUT TAKEOVERS It is an another form of takeover is a bail out takeover in which a profit making company acquires a sick company. Here again we can consider the example of UB Group, where Diaegeohas acquired the controlling stake in pursuance to an agreement to finance the ailing Kingfisher Airlines.
V. INDIRECT TAKEOVER: It refers to those companies where the acquirer gains control by default due to the reason that the acquirer has- taken control in the holding company. The takeover involving Gillete is the best example over here,
KEY CORPORATE AND SECURITIES LAWS CONSIDERATIONS:
1) COMPANIES ACT, 1956.
AKASH. R; CS EXECUTIVE PROGRAMME; BANGALORE.
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The Companies Act does not make a reference to the term acquisition per se. However, the various modes used for making an acquisition of a company involve compliance with certain key provisions of the Companies Act. The modes most commonly adopted are a share acquisition or an asset purchase.
I. ACQUISITION OF SHARES: A share acquisition may take place by acquisition of all or some of the existing shares of the target by the acquirer, or by way of subscription to new shares in the target so as to acquire a controlling stake in the target...
ii. Asset / Business Purchase An asset purchase involves the sale of the whole or part of the assets of the target to the acquirer.
2) SECURITIES LAWS
i. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009: On August 26, 2009, Securities and Exchange Board of India notified the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, replacing the erstwhile Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
As per the ICDR Regulations, if the acquisition of an Indian listed company involves the issue of new equity shares or securities convertible into equity shares (Specified Securities) by the target to the acquirer, the provisions of Chapter VII (Preferential Allotment Regulations) contained in ICDR Regulations will be applicable. Some of the highlighted provisions of the Preferential Allotment Regulations.
A. Pricing of the Issue B. Lock-in C. Exemption
II. TAKEOVER CODE:
A. OPEN OFFER REQUIREMENT If an acquisition is contemplated by way of issue of new shares, or the acquisition of existing shares, of a listed company, to or by an acquirer, the provisions of the Takeover Code may be applicable.
B. VOLUNTARY OFFER Any acquirer whose shareholding / voting rights in a company is between 25% and 75% is permitted to voluntarily make a public announcement of an open offer for acquiring additional shares of the company subject to their aggregate shareholding after completion of the open offer not exceeding 75%.
C. PRICING OF THE OFFER
The offer price shall be the highest of: a) The highest negotiated price per share of the target company. b) The volume-weighted average price paid or payable for acquisitions. c) The highest price paid or payable for any acquisition, by the acquirer or by any person acting in concert with him, during the twenty- six weeks immediately preceding the date of the public announcement.
TAKEOVER AND COMPLIANCE WITH MINIMUM PUBLIC SHAREHOLDING
A recent informal guidance issued by the Securities and Exchange Board of India deals with the questions pertaining to the intersection of the SEBI Takeover Regulations of
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2011 and the process of complying with the minimum public shareholding in listed companies. In the case involving R systems International Limited, the acquirer made an open offer and acquired certain shares of the target company so as to hold 34.82% shares. On the other hand, the promoters of the company held 50.17%, thereby leaving the public shareholding at 15%, which is less than the required minimum of 25%. In this case, an additional fact of relevance was that the acquirer was not in any way connected with or acting in concert with the promoters.
With regard to Reg. 7(4) of the SEBI Takeover Regulations, the acquirer was required to reduce its shareholding so as to ensure that the target company complies with the minimum public shareholding norms. After a consideration of the various legal provisions, SEBI came to conclusion the acquirer was to be treated as part of the public, thereby fulfilling the minimum public shareholding norms. The acquirer was therefore not required to reduce its shareholding in the target.
While this ruling favours potential acquirers, it leaves some possibilities and questions open.
For example, it may be possible for single holder to hold nearly 35% and still be treated as part of the public. Moreover, the question as to whether such a large shareholding would amount to control has not been specifically answered, one can deduce from the results of the informal guidance that SEBI does not believe this to amount to control. This appears to depart to some extent from its stance in other cases such as Subhkam Investments, but that may also be relatable to the facts of the specific case where the promoters held 50%. In other words, the implication is that a shareholder holding a significant percentage of shares many not have much control if that persons shares are held in the shadow of a much larger group of shareholders such as promoters.
CONCLUSION:
Even though the issues raised in the informal guidance are somewhat technical and microscopic in nature, they may signal some broader trends in the regulatory thought- process.
REFERENCES:
1) THE GAZETTE OF INDIA . 2) WEB- http://www.sebi.gov.in 3) http://pxvlaw.wordpress.com
Either Write Something Worth Reading or Do Something Worth Writing Benjamin Franklin
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RAKESH KRISHNAN CS PROF. PROGRAMME.
COMMITTEES UNDER COMPANIES ACT
The Companies Act, 2013, marks a major step forward and appreciates the current economic environment in which companies operate. The Act has focused on the following points Reporting Framework, Higher Accountability, Management Responsibility and Investor Protection. This article contains brief structure and requirement of various committees under Companies Act, 2013. I. INTRODUCTION MEANING OF COMMITTEE: A group of people officially delegated to perform a function, such as investigating, considering, reporting, or acting on a matter.
V VA AR RI IO OU US S C CO OM MM MI IT TT TE EE ES S I IN N A A C CO OM MP PA AN NY Y The Companies Act, 2013, read with the draft rules, prescribes the formation of different committees of the Board of Directors of a Company for different purposes. The Committees mandated by the new Act are: 1. Corporate Social Responsibility(CSR) Committee - Section 135 2. Audit Committee - Section 177 3. Nomination and Remuneration Committee Section 178 4. Stakeholders Relationship Committee Section 178 Other than these four committees, there are few other committees formed under different legislations for good corporate governance: a) Internal Complaints Committee (Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013) b) Committee under Labour Law c) Any Committee as Required by the company II. COMMITTEES UNDER COMPANIES ACT, 2013 C Co or rp po or ra at te e s so oc ci ia al l r re es sp po on ns si ib bi il li it ty y ( (C CS SR R) ) c co om mm mi it tt te ee e - - S Se ec ct ti io on n 1 13 35 5
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The guiding principle behind this committee is the Corporate Social Responsibility of a company. CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using the resources for engaging in activities that increase only their profit. They use CSR to integrate economic, environment and social objectives of a companys operation with growth. A AP PP PL LI IC CA AB BI IL LI IT TY Y: : As per Section 135 of the Act, companies with a specified net worth or turnover or net profit are required to mandatorily spend 2 percent of its average net profit made during the three immediately preceding financial years towards specified CSR activities. Every company having a net worth of INR 500 crore or more, or a turnover of INR 1000 crore or more or a net profit of INR 5 crore or more during any financial year will have to comply with the CSR provisions by constituting CSR Committee If the above criteria is met, they are required to spend at least 2 % of the average net profit of the past three financial years on specified CSR activities. Note - While the threshold limit of net worth criteria and the turnover criteria are kept higher, the net profit threshold limit of a mere INR 5 crore will bring majority of companies under the CSR net. A AP PP PO OI IN NT TM ME EN NT T O OF F C CS SR R C CO OM MM MI IT TT TE EE E: : Every qualifying company needs to constitute a CSR committee. The provisions under the Act require a minimum of 3 directors out of which at least 1 director shall be an independent director. The mandate of the said CSR committee shall be: To formulate and recommend a CSR policy to the Board; To recommend the amount of expenditure to be incurred on CSR activities and monitor CSR policy. R RE ES SP PO ON NS SI IB BI IL LI IT TY Y O OF F T TH HE E B BO OA AR RD D: : The Board of every qualifying company is required to hold the following responsibilities: To approve the CSR policy; To ensure that the CSR activities are undertaken by the company; To ensure 2 % spending on CSR activities;
A AU UD DI IT T C CO OM MM MI IT TT TE EE E - - S SE EC CT TI IO ON N 1 17 77 7 Role of audit Committee has sharpened specific responsibilities including recommending appointment of auditors and monitoring their independence and performance, approval of related party transactions, scrutiny of inter- corporate loans and investments, valuation of undertaking/assets etc. As per the Act, every listed company and public company having paid up capital of one hundred crore rupees or
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more; or which has, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding two hundred crore rupees shall constitute an Audit Committee Committee shall consist of a minimum of 3 directors with majority of Independent Directors
S ST TA AK KE EH HO OL LD DE ER R S S R RE EL LA AT TI IO ON NS SH HI IP P C CO OM MM MI IT TT TE EE E S SE EC CT TI IO ON N 1 17 78 8 The board of directors of a company which consists of more than 1,000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the board. Further, the section under sub-section 6, recognizes the concept of the Stakeholders Relationship Committee which is required to consider and resolve the grievances of security holders of the company (section 178 of the 2013 Act).
N NO OM MI IN NA AT TI IO ON N A AN ND D R RE EM MU UN NE ER RA AT TI IO ON N C CO OM MM MI IT TT TE EE E S SE EC CT TI IO ON N 1 17 78 8 Mandatory in case of listed companies and other prescribed classes of companies. Composition 3 or more Non-Executive Directors of which at least shall be Independent Directors. The Chairperson of the company can be a member of the committee, but cannot be a chairperson of the committee. This committee shall, amongst other things: Identify persons who are qualified to be directors and who can be appointed. Recommend to the Board, policy relating to remuneration to directors, KMP and other employees keeping in mind an appropriate performance bench mark. Be responsible for evaluation of every director of the Board.
III. OTHER MANDATORY COMMITTEES UNDER DIFFERENT ACTS I IN NT TE ER RN NA AL L C CO OM MP PL LA AI IN NT TS S C CO OM MM MI IT TT TE EE E ( (P PO OS SH H C CO OM MM MI IT TT TE EE E) ) The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is a legislative act passed by the Lok Sabha and Rajya Sabha in India on September 3, 2012 and on February 26, 2013 respectively. The Act has been enacted with the objective of providing women with protection against sexual harassment at the workplace and for the prevention and Redressal of complaints of sexual harassment. The Act requires every employer of a workplace, by an order in writing, to constitute a Committee to be known as the Internal Complaints Committee at each office or branch of an organization employing at least 10 employees. In case the offices or administrative units of the workplace are at different places or divisional or sub-divisional level, the Internal Committee shall be constituted at all administrative units or offices. IV. CONCLUSION Each board must determine which committee structure works best for it. The committee structure should be flexible and meet the changing needs of the organization. There are a variety of options to choose from and board should be willing to experiment, keeping in mind that committees are only tool to the boards to get their work done.
The right tool for today may not be the right tool for tomorrow. The challenge is in knowing which tool will get the job done.
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PREETHA REDDY Apollo which is the biggest healthcare groups in Asia. She joined it as Joint Managing Director in 1989 and then became the Managing Director of the Group. Gender Equity on Corporate Boards A Culture Shift on the horizon
Although the constitution of India has granted men and women equal rights, we still find that India ranks 28th in terms of the presence of women in Board level positions. Women constitute less than 7% of the total number of Board members in 2013 while the total women workforce is to the tune of nearly 40% in India. Today Indian women find presence in almost all sectors of employment and it is an opportune time to place themselves in positions of authority. With the new Companies Act mandating women's representation on boards , we are bound to see a gender-diverse board of directors and senior leadership team who will help in leading and managing sustainable corporations enabling effective business strategies and balanced policies. WHY FOCUS ON WOMAN DIRECTORS? In India , we have high quality women entering the workforce but there is a lot of leakage at the middle management level, which is creating an imbalance in the work arena. Hence, it is imperative to have effective role models in the top management who will retain talent and control employee (women) turnover. Once the gender balance is created across all levels in the Organization, then most women related issues plaguing the country will automatically subside leading to a better, progressive and a secure nation. WHAT ARE THE PROVISIONS OF ACT ? The provisions relating to appointment of directors are covered in Section 149 of the Act, 2013. It deals with the provisions relating to appointment of directors and matters such as the minimum and maximum number of directors, type / class of directors to be appointed. Elaborately it deals with attributes of an independent directors and time limit of one year within which the provisions have to be complied for achieving employment of woman directors and minimum number of independent directors on the board. LAVANYA. L; CS EXECUTIVE PROGRAMME; BANGALORE.
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PROVISIONS RELATING TO WOMEN DIRECTORS: Proviso to Section 149(1) stipulates that Companies with such criteria to be announced shall appoint woman directors. Rules currently displayed on the MCA web site for comments indicate the following for appointment of women directors on the boards of companies:
a. Every listed company shall appoint at least one woman director within one year from the commencement of the second proviso to Section 149(1). b. Every other Public company: - having paid up capital of 100 crores or more or - a turnover of 300 crores or more have to compulsorily appoint within 3 years from the commencement of second proviso to Section 149(1) of the Act. Time limit of one year is provided to fall in line with the new requirement. A search for right kind of women directors has to be made and it is certainly a time consuming exercise. Will woman directors make an impact? In most organizations, the process of identifying and grooming potential women directors is not a structured or formal one. The talent management process must work toward developing the required skills / competencies and create a pipeline of potential women directors. However , we already have a lot many women occupying key posts in many large Organizations and reputed private banks. Women namely Nainalal Kidwai, Chanda kochhar, Sheekaswarup, Kalpana Morparia have earned a reputation for leading successfully the banks as executives can also make an impact as woman directors. There is vast talent but the mindset of corporate world needs change and must come forward to appoint women in Senior Management positions. With this mandatory provision for representation to women on the Boards, India Inc is likely to have more talented women on the boards of their companies in the near future. The new mandate has evoked a mixed reaction in the corporate sector. There are some who feel that too little has been done towards giving women their rightful place in companies. Heres what some of the other heavyweights of corporate India have to say on the subject:
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According to Zia Mody, the founder of Mumbai-based AZB & Partners, ideally, a board should have at least two women directors to have a quality discussion. It is a good start by the government to mandate at least one director on the board of companies. I truly believe that once these companies fulfill these mandatory requirements, they will start witnessing the merit of women directors on the board. I think that women directors will bring diversity to the boards of Indian companies. They can bring richer corporate governance standards and can improve the quality of discussions on the board rooms says Kalpana Morparia who is a member of JP Morgans global strategy team and also serves as an independent director on the boards of several leading Indian companies. Akhila Sivadas, Executive Director, Centre for Advocacy and Research, said the need to have a rule was felt because women are bringing a lot of strength to many businesses. Anasuya Gupta, chairman and managing director, CICO Technologies, said she was happy because at least the government had taken the first step. If we see universally, in India women are far, far below compared to where women globally are, she adds. Arun Duggal, chairman, Shriram Capital, who has started an initiative to train women directors, felt this decision is a good small step. He, however, pointed out that the bill does not say whether woman director also meant independent woman director. If it has meant so then we might end up seeing wives and relatives of businessmen becoming board directors. But that will not solve the problems. Duggal added: The number of women representation is very low. Sixty percent of BSE 500 companies do not have any woman director. Just having a law without preparatory work could lead to a scramble to get women on the board. I believe there are fantastic people out there who can add value to the board. You are talking about 6,000 companies and you can surely find out 6,000 women to be on the boards of these companies, says Amit Tandon, founder and managing director of Institutional Investor Advisory Services India Ltd. The Gender Equity facilitated by the legislation will bring in a cultural shift in our Corporate governance in the time to come. The success of this initiative will set a landmark towards the overall development of women and ensuring their due rights and safety which is the immediate need of the hour.
Let us sincerely hope that each competent woman will stand up to the challenge, which will greatly benefit the future generation of women who are out there to succeed.
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VIJAYA KUMAR; CS PROFESSIONAL PROGRAMME; TRAINEE AT DWARAKANATH .C
A GIFT FROM GOD
Human life is a very beautiful gift that has been given by God to us to prove ourselves. Have you ever accepted it in the way he is expecting us to take it? Do you really know what is he expecting? He just expects us to love the gift that has been granted by him to us. Confusing? Yes, do you ever love your life? Have you ever tried to fall in love with yourself? From the day we were born and got the maturity to think, we also learnt simultaneously the word called Expectations i.e., mainly from others and not from ourselves! In the process of loving others, have you ever felt that you have forgotten to think how much you are important to yourself? It is in the human nature to show care and affection to others which brings the joy of loving others rather than oneself. Is it not strange to hear? But people hardly find time to realize this you may succeed in this task but do you really feel happy with this. Are you satisfied with the way you are leading your life? There is a famous quote You cannot love others until you love yourself but this dictum I dont believe it to be true. I know people, and for years I could count myself among them, who do not love themselves yet make choices to love others, some even heroically. It is more correct to say, the more youre able to love and accept yourself, the better, you will love others. You might be highly successful in your career front, but think once are you really satisfied with what you are today? Have you met the expectations which are expected from you today? Are you making an effort to give back what you have learnt to the society? Example: "Since I need your attention and approval to feel good about myself, it's okay for me to do whatever I can, to get what I need - such as being nice, getting angry, blaming others or withdrawing my love from others." These kinds of things will never let you be successful in corporate world. Life is a journey with full of expectations around you; difficulties which you might have to face in the long way but surely you will learn a lesson from this walk either it might be good or bad. The most fundamental thing to learn in this journey is to love yourself which is the key to happiness. If you start creating an environment wherein you can love yourself then you will have the power to create a life of your choice and the way you want. Always remember one
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cannot find peace in oneself until and unless he enjoys life and takes it the way it comes. If one does not know how to love oneself then it can be severely debilitating. At the very least case, youre plagued by indecision and self doubt. In more intense cases there is depression and self hatred, which cripples you in every area of your life and there will be an inner war in yourself which will be going on that divides your energy and sabotages your efforts to move toward happiness. A few examples where you are confused or not loving yourself/your profession "There is something wrong in what I am doing. Ive really messed it up." "I was pushed into this profession for which I have no passion." "Im incompetent. I dont know what I am doing." "Im not good (smart, attractive, rich, etc.) enough." "I should have ----." "I can never get into that job." "Ill never be able to do this. I dont have the capabilities of what it requires." At a deeper level, you might hear: "I dont deserve to be successful. I dont deserve to have what I want." "I deserve to be punished. I dont deserve to be forgiven." Lack of loving oneself can also get projected out as: "No person in this world likes me." A good first step in learning how to love yourself is to periodically check in with yourself through the day and notice how youre feeling happy, alive and open? Closed, contracted or Neutral? If you are feeling negative, trace back to when you first started feeling that way. Chances are really good that somewhere at that juncture you told yourself something negative about yourself. What might first come to your awareness is a negative thought about something else. However, if you look closer youll find that somewhere along the way the part that really got you feeling bad was a negative thought about yourself. This negative self-talk is a symptom that shows up chronically until you learn how to love yourself with the profession you have. Never let your feelings rule your life nor any kind of emotions rule your profession, try to respect your profession and dont think that you are giving yourself in front of others. A few tips to love yourself in your profession: 1. Be kind and great to yourself. 2. Work on forgiving yourself 3. Never compromise with your principles- those will carry you to the top. 4. Say goodbye to unethical practices. 5. Respect other profession with kindness but dont love it. Be very much thank full and great full to what you are today!
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INTRODUCTION: Sexual harassment in the workplace is a serious bone of contention that renders womens involvement at work unsafe and affects the right to work with dignity. It is an unwelcome verbal, visual or physical conduct of a sexual nature that is severe or pervasive and affects working conditions or creates a hostile work environment. Generally sexual harassment is a sexually oriented conduct that may endanger the victims job, negatively affect the victims job performance or undermine the victims personal dignity. Each such incident results in violation of the fundamental rights of 'Gender Equality' and the 'Right to Life and Liberty'. It is a clear violation of the rights under Articles 14, 15 and 21 of the Constitution. It may manifest itself physically or psychologically. However it may also assume blatant and ugly forms like leering, physical grabbing and sexual assault or sexual molestation. VISHAKHA AND OTHERS Vs. STATE OF RAJASTHAN:
Vishakha and other women groups filed a Public Interest Litigation (PIL) against the State of Rajasthan and the Union of India to enforce the fundamental rights of working women under Articles 14, 19 and 21 of the Constitution of India. The petition was filed after Bhanwari Devi, a social worker in Rajasthan was brutally gang raped for stopping a child marriage. The court decided that the consideration of "International Conventions and norms are significant for the purpose of interpretation of the guarantee of gender equality, right to work with human dignity in Articles 14, 19(1)(g) and 21 of the Constitution and the safeguards against sexual harassment im plicit therein."
SAFETY OF WOMEN AT WORK PLACE TULASI .V .HALASAGI ; CS PROF. PROGRAMME; J. SUNDHARESAN & ASSOCIATES.
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The Supreme Court in Vishaka v. State of Rajasthan for the first time recognized, acknowledged and explicitly defined sexual harassment as an unwelcome sexual gesture or behaviour aimed at or having a tendency to outrage the modesty of a woman directly or indirectly. Defining sexual harassment as an act aimed towards gender based discrimination that affects womens right to life and livelihood, the Supreme Court developed broad based guidelines for employers. These mandatory guidelines, known as Vishaka guidelines, are aimed towards resolution and prevention of sexual harassment. These guidelines bring in its purview all employers in organized and unorganized sectors by holding them responsible for providing a safe work environment for women. Expressly prohibiting sexual harassment at the work place, these legally binding guidelines put a lot of emphasis on appropriate preventive and curative measures. The guidelines include the following as acts of sexual harassment: physical contact and advances, showing pornography, a demand or request for sexual favours, any other unwelcome physical and verbal/non T verbal harassment such as whistling, obscene jokes, and comments about physical appearances, threats, innuendos, and gender based derogatory remarks.
LEGAL REMEDY: However, before 1997, women experiencing sexual harassment at the workplace had to lodge a complaint under Section 354 of the Indian Penal Code that deals with the criminal assault of women to outrage womens modesty, and Section 509 of the IPC that punishes an individual or individuals for using a word, gesture or act intended to insult the modesty of a woman. These sections left the interpretation of outraging womens modesty to the discretion of the police officer. The entire scenario changed in 1997 with the introduction of the Vishaka guidelines.
The Sexual Harassment of Women at Work Place (Prevention, Prohibition and Redressal) Act, 2013:
It is a legislative act in India that seeks to protect women from sexual harassment at their place of work. It was passed by the Lok Sabha on 3 September, 2012. It was passed by the Rajya Sabha on 26 February, 2013. The Bill got the assent of the President on 23 April, 2013. The Act came into force from 9 December 2013. The Act will ensure that women are protected against sexual harassment at all the work places, be it in public or private. This will contribute to realisation of their right to gender equality, life and liberty and equality in working conditions everywhere. The sense of security at the workplace will improve women's participation at work, resulting in their economic empowerment and inclusive growth.
COMPLAINT MECHANISMS UNDER THE 2013 ACT:
The Act contemplates the constitution of Internal Complaints Committee (ICC) (Sec. 4) at the work place and Local Complaints
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Committee (LCC) at district and block levels (Sec. 6). A District Officer (District Collector or Deputy Collector) shall be responsible for facilitating and monitoring the activities under the Act. Every workplace employing 10 or more employees is required to constitute an ICC. The ICC is required to consist of at least four members, and its presiding officer is required to be a woman employed at a senior level. Provisions have been made in case no senior woman employee is available, to nominate a woman presiding officer from another office, administrative unit, workplace, or organisation. Further, one half of the members must be women. LCCs are to be set up by the appropriate government which shall receive complaints in respect of establishments that do not have ICCs on account of having fewer than 10 employees and to receive complaints from domestic workers.
THE DUTIES OF AN EMPLOYER:
The Act makes it the duty of every employer to: a) provide a safe working environment at the workplace which shall include safety from all the persons with whom a woman comes into contact at the workplace; b) display at any conspicuous place in the workplace, the penal consequences of sexual harassment and the order constituting the ICC; c) organise workshops and awareness programmes; d) provide necessary facilities to the ICC for dealing with complaints and conducting inquiries; e) assist in securing the attendance of the respondent and witnesses before the ICC; f) make available such information to the ICC or LCC, as it may require; g) provide assistance to the woman if she so chooses to file a criminal complaint; h) initiate criminal action against the perpetrator; i) treat sexual harassment as a misconduct under the service rules and initiate action for such misconduct; and j) monitor the timely submission of reports by the ICC.
PENALTIES:
Where the employer fails to comply with the provisions of the Act, he shall be liable to be punished with a fine which may extend to Rs. 50,000. In case of a second or subsequent conviction under this Act, the employer may be punished with twice the punishment prescribed or by cancellation of his license or withdrawal of his registration.
BIBLIOGRAPHY:
Introduction To The Constitution Of India by Durga Das Basu. Constitution of India by Dr. J. N. Pandey The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 Published in The Gazette of India. The Sexual Harassment Bill undermines the innovative spirit of Vishaka" Naina Kapur, Lawyer and Equality Consultant". Bar and Bench. Vishaka and others V. State of Rajasthan and others (AIR 1997 SUPREME COURT 3011)
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RESPONSIBILITIES OF COMPANY SECRETARY AS COMPLIANCE OFFICER UNDER LISTING AGREEMENT
NANDAN SHANBHAG; LL.B, CS PROFESSIONAL TRAINEE.
Company Secretary as Compliance Officer: The Clause 47 of the Listing Agreement provides for appointment of Company Secretary to act as Compliance Officer who will be responsible to report the Companys Board in each meeting, monitor the share transfer process, coordinate with various authorities such as SEBI, Stock Exchanges, Registrar of Companies, Registrar and Transfer Agents, Credit Rating Agencies etc. and investors with respect to investor grievances. The Listed companies are required to make continual disclosures to stock exchanges to safeguard and promote the interest of investors in India. CATEGORIES OF COMPLIANCES: The compliances under the Listing Agreement can be divided into two parts i.e. periodical compliances and event based compliances.
The Company Secretary plays a vital role as a Compliance Officer under Listing Agreement. Non compliance of any clauses/conditions of Listing Agreement may not only result in high amount of fine and penalties on the Company but may also lead to suspension and revocation of trading of shares listed. Meaning of Listing Agreement: The Company who is willing to get their shares listed on stock exchange has to enter into an agreement with the stock exchange. Such an agreement is called Listing Agreement.
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PERIODICAL COMPLIANCES: SL. NO . PARTICULARS CLAUSE OF LA DUE DATE 1 Corporate Governance Report signed by the Compliance Officer of the Company to SE within 15 days from end of each quarter 49 15th July, 15th October, 15th January & 15th April. 2. Shareholding Pattern of the Company within 21 days from end of each quarter in the prescribed format to SE. 35 21st July, 21st October, 21st January & 21st April. 4 Submit Certificate obtained from Practicing Company Secretary certifying that all certificates have been issued within 15 days of lodgment for transfer, sub-division etc. to SE within 30 days from end of each half year. 47 (c ) 30th October & 30th April. 5 Notice to SE for holding of Board Meeting in which quarterly results (Unaudited/audited) of Company is to be approved. 41 7 clear calendar days prior to the meeting (excluding the date of the intimation and date of the meeting). 6 Publication of notice of BM in which quarterly results are to be approved. In 2 Newspapers (one English language circulating in substantially whole of India and in one Regional Language newspaper of the State in which Registered Office of the Company is situated ). 41 The next day after SE had been intimated of the same. 7 Submission of Financial Results with the SE(Audited Financial Results or Unaudited financial results + a copy of limited review report) 41 Within 15 minutes of conclusion of the Board Meeting. 8 Publication of approved quarterly results. In 2 Newspapers (one English language circulating in substantially whole of India and in one Regional Language newspaper of the State in which Registered Office of the Company is situated ) 41 Within 48 hours of Board Meeting. 9 Payment of Annual Listing Fees 38 30th April 10 Six copies of the Statutory and Directors Annual Reports, along with Form A(Un-qualified / Matter of Emphasis Audit Report) or Form B (Qualified/ Subject to Audit Report), as applicable, Balance Sheets and Profits & Loss Accounts and one copy each to all the recognized stock exchanges in India. 31 Promptly and without application. 11 Dispatch copy of full annual report containing its Balance Sheet, Profit & Loss account and Directors Report to all shareholder(s) 32 Promptly. 12 Advance notice of Closure of Transfer Book/Record date fixed for the purpose of corporate benefits like mergers, de-mergers, split , bonus, dividend, rights etc 16 7 working days. 13 Send Copy of the proceedings of Annual General Meeting of the Company to SE 31(d) Within a reasonable time.
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EVENT BASED COMPLIANCES: SL. NO . PARTICULARS CLAUSE OF LA TIME PERIOD 1. Prior intimation to SE about BM in which decisions relating to Buy Back, Dividend, Rights Issue, Bonus Shares is to be made. 19 2 working days in advance. 2. The Company has to intimate the outcome of the board meeting (as intimated under clause 19). 20 Within 15 minutes. 3 Any increase in share capital, the reissues of forfeited shares or securities. 22 Within 15 minutes of the closure of the board meeting. 4 The Company has to file any scheme/petition proposed to be filed before any Court or Tribunal under sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange, for approval. 24 (f) At least 1 month before it is presented to the Court or Tribunal. 5 If any change in the form or nature of any of its securities that are listed on SE or in the rights or privileges of the holders. 28 21 days prior notice. 6 Any proposed change in the general character or nature of its business. 29 Promptly notify. 7 Any change in BODs, MD, Secretary or Auditors. 30 Immediately after the change. 8 Submit to the SE six copies (one of which will be certified) amended Memorandum and Articles of Association. 33 As soon as adopted by the members in general meeting. 9 Any capital restructuring of the company resulting in a change exceeding +/-2% of the total paid-up share capital. 35 Within 10 days of such a change. 10 The Company has to intimate to the SE about the material events which will have a bearing on the performance / operations of the company as well as price sensitive information both at the time of occurrence of the event and subsequently after the cessation of the event. 36 Immediately on occurrence and after such events. 11 Submission of copy of MOU executed with RTA. 47(e) Within 48 hours of keeping at Registered Office for public inspection.
CONCLUSION: All disclosures/announcements to NSE and BSE have to be made through online platforms. The user name and password will be provided to the Company by NSE and BSE. The above compliance checklist is prepared keeping in view the latest Listing Agreement of NSE and BSE and circulars issued by SEBI recently. However, these are subject to change from time to time.
BIBLIOGRAPHY: Listing Agreement NSE and BSE Company Law Ready Reckoner -Dr. D.K. Jain, Bharat Law House WEBSITES: www.nseindia.com www.bseindia.com
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ROLE OF COMPANY SECRETARY UNDER THE COMPANIES ACT, 2013
SMT. RAJESHWARI S; CS PROFESSIONAL PROGRAMME; HEMANTH BISWAJIT & CO
The new Companies Act 2013 has defined the role of Company Secretaries with definitive terms. He/she is a key managerial person or compliance officer.
A Company Secretary is responsible for the efficient administration of a company, particularly with regard to ensuring compliance with statutory and regulatory requirements and for ensuring that decisions of the Board of Directors are implemented.
As per Section 2 (24) of the Companies Act, 2013 (Act) company secretary or secretary means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act;
Sub section 51 to Section 2 of the Act defines a Company Secretary is one of the key managerial person of the company.
Section 203 of the Act prescribes that every company belonging to such class or classes of companies shall have the following persons as whole-time key managerial personnel,
1. Managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; 2. Company Secretary; and 3. Chief Financial Officer.
Times have changed. A company secretary is a much more important person nowadays ... He is an officer of the company with extensive duties and responsibilities.
Lord Denning and Lord Justice Salman in Panorama Developments (Guild Ford) Limited V/s Fidellis Furnishing (U. K. 1971)
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STATUTORY STATUS TO THE SECRETARIAL STANDARDS
Explanation to section 205 prescribes that Secretarial Standards means Secretarial Standards issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government.
INTRODUCTION OF SECRETARIAL AUDIT:
Based on the recommendations made by Parliamentary Standing Committee, Secretarial Audit is introduced for the first time in India.
According to Section 204 of the Companies Act, 2013, the provisions relating to Secretarial Audit are as follows: a) Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Boards Report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed. b) The company will be obliged to give all assistance and facilities to the Company Secretary in Practice for auditing the secretarial and related records of the company. The Board of Directors, in their report shall explain in full, any qualification or observation or other remarks made by the Company Secretary in Practice in his report. As the importance of effective corporate governance continues to be critical in todays environment, there has been increased focus on the role of the company secretary in corporate world. The New Companies Act, 2013 provides for the prominence role of the company secretary in whole time practice or in whole time employment by recognizing the expertise he or she has gained by undergoing training, experience and in-depth knowledge of various enactments.
********************************* Source: Companies Act, 2013 FUNCTIONS OF A COMPANY SECRETARY: As per section 205 a Company Secretary shall Report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company; Ensure that the company complies with the applicable secretarial standards; Discharge such other duties as may be prescribed.
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SMART TRADING
POOJA T R CS PROFESSIONAL PROGRAMME; J. SUNDHARESAN & ASSOCIATES.
WHO ARE INSIDER TRADERS? Under the SEBI Prohibition of Insider Trading regulation 2 (e); an insider is a person who is connected with the company, who could have the Unpublished price sensitive information or receive the information from somebody in the company. Insiders may be corporate officers, directors and employees who traded the corporations securities after learning the significant, confidential corporate developments. Friends, business associates, family members, and other types of such officers, directors, and employees, who traded the securities after receiving such information.
WHO CAN BE A CONNECTED PERSON? It could be director of the company, or is deemed to be a director by virtue of sub-clause (10) of section 307 of the Companies act 1956. He /She could be an officer or professional of the company or holding a business relationship with the company. Connected person can also be from intermediaries like the Stock Exchange, Merchant Bank, Transfer agent, debenture trustee, Bankers & relatives of a promoter or of a BOD. WHAT IS PRICE SENSITIVE INFORMATION? The Price sensitive information is defined in Regulation 2(h) (a) of the prohibition of Insider Trading. It means any information which relates directly or indirectly with the company & which if published is likely to materially affect the prices of the securities of the company. REGULATORY ASPECT OF INSIDER TRADING: Prohibition of Insider Trading SEBI prohibition of Insider Trading Regulation 1999. Section 195(1) of Companies Act 2013 provides prohibition on Insider Trading.
WHY IS THERE A NEED FOR THE PROHIBITION OF INSIDER TRADING? As per SEBI, the Prohibition of Insider Trading is required to make Securities Market: Fair & Transparent To have a level playing field for all the participants in the market. For free flow of information & avoid information asymmetry.
As per Section 195 of the Companies Act 2013, no director or key managerial personnel of a company should engage in insider trading which would include subscribing or selling the securities or WHAT IS INSIDER TRADING? Insider trading essentially denotes dealing in a companys securities on the basis of unpublished price sensitive information relating to the company to make profit. It is fairly a breach of fiduciary duties of officers of a company or connected persons as defined under the SEBI regulations, 1992, towards the shareholders.
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providing any price sensitive information to any person.
DISCLOSURE FOR PROHIBITION OF INSIDER TRADING: Initial Disclosure as per regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992: Any person who holds more than 5% shares or voting rights in any Listed Company shall disclose to the Company in Form A within 2 working days of acquiring the shares or voting rights. Continual Disclosure as per regulation 13(3) of the SEBI (Prohibition of Insider Trading) Regulations, 1992: Any person holding more than 5% shares or voting rights in any listed Company shall disclose to the Company in Form C the number of shares or voting rights held or any change exceeding 2% of total shareholding or voting rights in the Company within 2 days of acquisition. PENAL PROVISION: As per the Companies Act 2013, section 195(2), if any person contravenes the provisions of this section, he shall be punishable with imprisonment for a term which may extend to five years or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher, or with both. MODEL CODE OF CONDUCT FOR PROHIBITION: A compliance officer is required to be appointed by the company. Pre-clearance of trade by the officer of designated employees. Designated employees- Employees from top 3 layers of Management. All Employees of finance dept. irrespective of designation & grade. Employee designated by BOD from time to time to whom the trading restriction shall be applicable. Trading window is closed 7 days prior & 24 hours post event for the connected persons during the UPPSI activities like RESULTS, IPO, CAPEX, BUY BACK, etc.
Interesting Judgment on Insider Trading RAKESH AGARWAL vs. SEBI A famous case highlighting the vulnerability of the SEBIs 1992 regulations. Rakesh Agarwal, MD of ABS Industries Ltd was involved in negotiations with Bayer A.G, regarding their intention to takeover ABS. As per SEBI, Rakesh Agarwal had access to the unpublished price- sensitive information. Rakesh Agarwal contended that he did this in the interests of the company. Pursuant to Bayers condition to acquire at least 51% shares of ABS, he, through his brother-in law, bought the shares and later sold them to Bayer. The SEBI directed Rakesh Agarwal to deposit Rs 34,00,000 with Investor Education & Protection Funds of Stock Exchange, Mumbai and NSE. SAT held that the SEBI order directing Agarwal to pay Rs 34 lakh couldnt be sustained, on the grounds that Rakesh Agarwal did that in the interests of the company. OBSERVATION: INABILITY OF SEBI IN PROVING ITS CASES: Wide definition of Insider Trader as defined in the 1992 Act. Proving Insider Trading a bizarrely difficult task. 1. Lack of assistance from Central Economic Intelligence Bureau (CEIB) to investigate the cases. 2. Absence of an adequate remedy available to the investors at large.
Therefore, traders should avoid engaging in insider trading in order to protect their own interests as well as the interests of others.
INDIA AN IDEAL FDI DESTINATION: India enjoys a strong position as a global investment hub, with high economic growth figures even during the peak of financial meltdown. As a result, overseas investors get attracted towards Indian economy which eventually boosts the foreign direct investments (FDI) in India. A major portion of FDI inflow in India is in the service sector. India is the seventh largest exporter and eleventh largest importer in the world. FDI POLICY IN INDIA: Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provisions of the Foreign Exchange Management Act, (FEMA) 1999. The Reserve Bank of India (RBI) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 (this notification has been amended from time to time). The Ministry of Commerce and Industry, Government of India is the nodal agency for monitoring and reviewing the FDI policy on continued basis and changes in sectoral policy/ sectoral equity cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). FDI CAN BE IN THE FORMS OF: (i) Financial and technical collaborations. (ii) Joint ventures or strategic alliances (iii) Capital markets via Euro issues; and (iv)Private placement or preferential allotments
FDI: ENTRY STRATEGIES I. As an incorporated entity: Wholly owned subsidiary and joint ventures. II. As an unincorporated entity: Liaison office, Project office and Branch office.
WHY FDI? (i) Lower cost of capital in comparison with the domestic cost of capital. (ii) Foreign investors bring along with them other scares productive factors such as THE SEA CHANGES IN THE TRADE AND INVESTMENT POLICIES AND THE REGULATORY ENVIRONMENT IN THE PAST DECADE, INCLUDING TRADE POLICY AND TARIFF LIBERALIZATION, EASING OF RESTRICTIONS ON FOREIGN INVESTMENT AND THE DEREGULATION AND PRIVATIZATION OF MANY INDUSTRIES, HAS PROBABLY BEEN THE MOST SIGNIFICANT CATALYST FOR FDIS EXPANDING ROLE IN INDIA.
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technical know-how, global business experience etc. FDI: PROHIBITED SECTORS: FDI is allowed in all sectors except under the following prohibited sectors: (a) Retail Trading (except single brand product retailing) (b) Lottery Business including Government /private lottery, online lotteries, etc. (c) Gambling and Betting including casinos etc. (d) Business of chit fund (e) Nidhi company (f) Trading in Transferable Development Rights (TDRs) (g) Real Estate Business or Construction of Farm Houses (h) Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes (i)Activities / sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems). Besides foreign investment in any form, foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also completely prohibited for Lottery Business and Gambling and Betting activities. FDI ROUTES: AUTOMATIC ROUTE: FDI virtually for all items/activities can be brought in through the automatic route under powers delegated to the RBI, and for the remaining items/ activities through government approval. FDI up to 100% is allowed for new and existing companies, joint ventures, firms under automatic route for all items except for those which fall under government approval route. Entry under automatic route only requires a post entry notification to the regional office concerned of the RBI within 30 days of receipt of inward remittance in India and to notify in form FC-GPR within 30 days of the issue of shares to the nonresident investor and no prior approval is required.
APPROVAL ROUTE: FDI in activities not covered under the automatic route, requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB). Approvals of composite proposals involving foreign investment/foreign technical collaboration are also granted on the recommendations of the FIPB. Application for all FDI cases, except Non-Resident Indian (NRI) investments and 100% Export Oriented Units (EOUs), should be submitted to the FIPB Unit, Department of Economic Affairs (DEA), Ministry of Finance. Application for NRI and 100% EOU cases should be presented to SIA in Department of Industrial Policy & Promotion.
CONCLUSION: India has liberalized foreign investment regulation in key sectors, opening up commodity exchanges, credit information services and aircraft maintenance operations. The foreign investment limit in single brand retail sector has been increased to 100% from the earlier 51%.But the proposal that the foreign direct investment (FDI) policy to allow foreign airlines to buy 49% stake in Indian carriers will be a major boost to the cash-strapped aviation industry. This move may allow domestic carriers access to capital and technical expertise. Overseas carriers too may become interested to take part in the Indian aviation market. Foreign airlines are currently barred from investing in Indian carriers though foreign investors are allowed up to 49% stake.
SOURCE: RBI CIRCULAR ON FOREIGN DIRECT INVESTMENT & INTERNET.
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CLASS OF ACTION SECTION 245 OF THE COMPANIES ACT, 2013
VINAYAK HEGDE; CS PROFESSIONAL PROGRAMME M/S. GANAPATHI & MOHAN - COMPANY SECRETARIES.
SECTION 245-COMPANIES ACT, 2013 OVERVIEW:
This is a new section and seeks to provide that in case of Company having a share capital not less than one hundred members of the company or not less than such per cent as may be prescribed of the total number of its members, whichever is less, or any member or members holding not less than such percent as may be prescribed of the issued share capital of the company, and in the case of a company not having a share capital, not less than one fifth of the total number of its members may file an application before the Tribunal if they are of the opinion that the management or control of the affairs of company are being conducted in a manner prejudicial to the interests of the company or its members or depositors to restrain the company from oppression or mismanagement. I. SECTION 245 (1) READS:
Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company; b) to restrain the company from committing breach of any provision of the Companys memorandum or articles; c) to declare a resolution altering the memorandum or articles of the company as THE COMPANIES ACT 2013, HAS INTRODUCED A NEW FEATURE - CLASS ACTION. THIS IS NEW PROVISION & COMES UNDER CHAPTER XVI PREVENTION OF OPPRESSION AND MISMANAGEMENT, & COVERED SECTION 245 OF THE COMPANIES ACT, 2013, HOWEVER; CLASS ACTIONS ARE EVIDENTLY NOT THE SAME AS PETITIONS AGAINST OPPRESSION/MISMANAGEMENT. RULES GOVERNING APPLICATIONS IN RESPECT OF OPPRESSION/MISMANAGEMENT (SECTION 397-398 OF THE COMPANIES ACT, 1956) ARE FOUND IN SECTION 241- 244: SECTION 245 INTRODUCES A DISTINCT REGIME OF
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void if the resolution was passed by suppression of material facts or obtained by mis-statement to the members or depositors; d) to restrain the company and its directors from acting on such resolution; e) to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force; f) to restrain the company from taking action contrary to any resolution passed by the members; g) to claim damages or compensation or demand any other suitable action from or against
(i) The company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part; (ii) the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or (iii) Any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part; h) To seek any other remedy as the Tribunal may deem fit. i)
II. DEPOSITORS:
Sub -section 2 of Section 245 of the Companies, Act 2013 is deals with depositors, this section says that where the members or depositors seek any damages or compensation or demand any other suitable action from or against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.
As per the provisions of subsection 3 of Section 245 of the Companies Act, 2013 the requisite members are as follows:
a) In the case Company having a Share Capital: 1) Not less than 100 members, or 2) Not less than such percentage of the total number of its members as may be Prescribed whichever is less: 3) Not less than such percentage of the total number of depositors as may be prescribed, whichever is less, or b) In case of a Company not having a share capital, not less than one fifth of the total number of its members.
III. PROCEDURE SET OUT IN SECTION 245(4) & 245(5):
As per the provisions Section 245 (4) of Companies Act, 1956, the Tribunal while considering a Class Action filed under Section 245 (1), shall take into account the following - a) whether the member or depositor is acting in good faith in making the application for seeking an order; b) any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in clauses (a) to (f) of sub-section(1); c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section; d) any evidence before it as to the views of the members or depositors of the
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company who have no personal interest, direct or indirect, in the matter being proceeded under this section; e) where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be (i) Authorized by the company before it occurs; or (ii) Ratified by the company after it occurs; f) Where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.
In the event that a class action is admitted by the Tribunal, Section 245 (5) sets out a procedure that is required to be considered
Public notice to all the members or depositors of the class in prescribed manner to be served on the admission of the Class Action. All similar applications prevalent in any jurisdiction should be consolidated into a single application and a Lead Applicant be appointed from amongst them. Ensure no two class action against same cause of action is allowed. Cost or expenses connected with the application for class action are paid by the Company and any other person responsible for the oppressive act.
CONSEQUENCES: An order passed by the Tribunal under Section 245(1) is a binding order on the company as well as on all the members, depositors and auditors including the audit firm or expert or consultant or advisor or any other person associated with Company.
As per the sub- section (7) of section 245 0of the Companies, 2013, any Company which fails to comply with order passed by the Tribunal under this section shall be punishable:
1. with fine, not be less than 5 Lakh to maximum Rs.25 lakhs; or
2. punishable with Imprisonment for a term which may extend to 3 years with fine shall not be less than Rs.25,000 but which may be extended to Rs. 1,00,000/-.
IV. CONCLUSION:
The provisions of section 397 & 398 of the Companies Act,1956 are set out under section 241 to 244 of the Companies Act,2013 and section -245 in contrast introduces a different regime of class of Actions .Companies are likely to face increased threat of litigation posed by Class of Action and other multi clement proceedings seeking significant relief against Companies, their Directors, depositors, Auditor including Audit Firm, Expert, Consultant, Advisors or any other persons associated with Company.
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The primary role of corporate governance is always to ensure the independence of the board of directors (BOD) in a company. Independent directors on the board predominantly enhance the monitoring and supervising of the management and the promoters of a company.
INDEPENDENT DIRECTORS IN COMPANIES ACT, 2013
SONAM DUNGARWAL; CS PROF. PROGRAMME; MANAGEMENT TRAINEE; HEMANTH, BISWAJIT & CO. SECTION 149 (6) CONTAINS THAT An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director, a. who, in the opinion of the Board, is a person of Integrity and possesses relevant expertise and experience; b (i) Who is or was not a promoter of the company or its holding, subsidiary or associate company; (ii) Who is not related to promoters or directors in the company, its holding, subsidiary or associate company ; c. who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; d. None of whose relatives has or had pecuniary
relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year; e. who, neither himself nor any of his relatives
Meaning/Definition of Independent Director: As per Section 2(47), independent director means an independent director referred to in sub-section (5) of section 149;
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(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed; ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of (A) A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (B) Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent Or more of the gross turnover of such firm; (iii) Holds together with his relatives two per cent or more of the total voting power of the company; or (iv) Is a Chief Executive or director, by whatever name called, of any nonprofit organization that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two percent Or more of the total voting power of the company; or f. who possesses such other qualifications as prescribed below: An independent director shall possess appropriate balance of skills, experience and knowledge in one or more fields in disciplines related to the companys business.
TERM OF OFFICE OF INDEPENDENT DIRECTOR
An independent director shall hold office for a term up to 5 consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Boards report. No independent director shall hold office for more than 2 consecutive terms, but such independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director provided that he shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly. Any tenure of an independent director on the date of commencement of this Act shall not be counted as a term under the above provisions. Applicability to Companies: Following class of companies are required to appoint at least 1/3 of total number of directors on their Board of Directors as independent directors: Listed Companies, Public Companies having paid up share capital of one hundred crore rupees or more; or Public Companies having turnover of three hundred crore rupees or more; Public Companies which have, in aggregate, outstanding loans or borrowings or debentures or deposits, exceeding two hundred crore rupees.
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MR. PAVANKUMAR KULKARNI; CS PROFESSIONAL PROGRAMME.
FINANCIAL AND LEGAL ASPECTS OF CORPORATE DIVIDEND DECISIONS - AN OUTLOOK
INTRODUCTION: Dividend plays an important role in corporate sector and investors. Being one of the criteria for fluctuations in market price of shares of the company and market capitalization, the corporate entities should take care of its market capitalization by taking appropriate decision on dividend declaration and satisfying its investors. On the other hand, since the dividend is tax free in the hands of investors they invest their money in the shares of a company. Therefore, by paying dividend to the shareholders of the company, the shareholders will be satisfied, the companys goal of wealth maximization is fulfilled and the market capitalization of the company will also increase accordingly. The company needs to follow the provisions under Section 205 of the Companies Act, 1956 and the rules made there under. The listed companies are also required to comply with the Clause 16, 19, 20, 21 and 22 of Listing Agreement for payment of dividend. FINANCIAL ASPECTS OF DIVIDEND DECISION: Dividend is the corporate profit distributed among shareholders. Since the payment of dividend is expenditure to the company, while declaring the dividend the company needs to calculate cost to be incurred and should take care of financial stability before and after payment of dividend. The decision of declaring dividend is the challenging task to the company since it involves internal and external effects on the company such as cash instability, payment of tax on dividend, high fluctuation of share price in the market, etc. Hence the financial manager should take utmost care before declaring dividend. For this purpose, there are several theories of dividend policies, the study of which is essential to take dividend decision. THEORIES OF DIVIDEND DECISION: Broadly there are 2 theories of dividend decision which are proved by various researchers. These are:
1) RELEVANCE OF DIVIDEND:
This theory states that the payment of dividend affects the market price of its shares. The two theories that prove this method are: a) Walters Model b) Gordons Model
Dividend Decision Relevance of Dividend Irrelevance of Dividend
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a) WALTERS MODEL:
This was developed by Prof. James E.He proved that when the firm can earn more from its retained profits than its shareholder is able to earn, then it is better to retain the profit instead of distributing among its shareholder. TO PROVE HIS THEORY, HE PROVIDES THE FOLLOWING FORMULA:
P= D+ [(r/K e )(E-D)] / K e
Where, P = Price of shares D = Dividend per share E = Earnings Per Share r = Retained Earnings K e = Cost of Equity
b) GORDONS MODEL / DIVIDEND CAPITALIZATION MODEL:
This model was developed by Grahm and Dodd Myron Gordon. This model is almost same as that of Walters Model except that he assumes growth rate will have a bearing on the market price of shares. Symbolically, P = E(1-b)/k e br Where, P= Market price per share E = Earnings per Share 1-b = Dividend Payout Ratio K e = Cost of equity br = Growth rate 2) Irrelevance of Dividend:
Under this method Prof. Modigliani and Miller have proved that payment of dividend will not affect the market value of the firm. In my opinion, this theory can be understood as below.
Step:1 Market price per share at the end of the year (P 1 ) is to be calculated first assuming the market price at the beginning of the year (P 0 ) is equal to the present value (1/1+k e ) of proposed dividend (D 1 ) and market price per share at the end of the year (P 1 ), Symbolically,
Step: 2 Calculate the additional financing to be made by the company and additional shares to be issued as below:
nP1 = I (E - nD1) n = nP1/P 1
Step: 3 Finally by using following formula we can ascertain the Value of the Firm: nP0 = (n+ n)P 1 -I+E/(1+k e )
By following these steps you can come to the conclusion that the value of the firm doesnt affected by declaration of dividend. Here, D 1 = Dividend to be declared P 1 = Price per share at the end of the period P 0 = Price per share at the beginning of the period K e = Cost of equity I = Investment opportunities E = Earnings available P 0 = (1/1+k e )(D 1 +P 1 )
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LEGAL ASPECTS OF DIVIDEND DECISION: The legal aspects of dividend decision are covered under Section 205 to 207 of the Companies Act, 1956 and Section 123 to 127 of Companies Act, 2013. The provisions of these sections are briefly outlined hereunder. SECTION 205 TO 207 0F COMPANIES ACT, 1956 AND RULES MADE THERE UNDER: We can split the compliances in 2 parts, namely: a) Requirements before declaration b) Requirements after declaration
a) Requirements before declaration:
- The company can pay dividend only out of the profits; - Ensure that the company has charges the depreciation; - It can pay dividend only after the payment of deposits due along with interest. - If the dividend declared is more than 10%, transfer certain amount of profit to general reserves compulsorily as given in the Companies (Declaration of Dividend) Rules 1975.
b) Requirements after declaration
- Deposit the amount of dividend in a bank account within five days of declaration. - Transfer unpaid/unclaimed dividend to unpaid dividend account within seven days after 30 days of declaration. - The aforesaid account shall be maintained by the company for a period of seven years. - After seven years it shall be transferred to Investor Education and Protection Fund Account. - If the company fails to comply with any of the provisions as aforesaid, the company and every officer of the company will be punishable with fine up to Rs.5000/- per day of default. - If the dividend declared by the company is not paid within thirty days,
every director of the company who is in default shall be liable to a punishment of simple imprisonment up to three years AND a fine of Rs. 1000/- per days of default; the company is liable to pay the dividend with interest at 18% for the period the default continues.
SECTION 123, 124, 125, 126 AND 127 OF COMPANIES ACT, 2013: These sections are not yet notified by the MCA except Section 127 in the place of Section 207 of the 1956 Act. In Section 127 the changes are made in imprisonment which was 3 years in the old Act is now decreased to 2 years and all other provisions remains same.
CONCLUSION: After studying financial and legal aspects of dividend decision, in my opinion the companys decision on dividend declaration has a major impact on its market value and accordingly the companys motive of shareholders wealth maximization will also satisfied. But the decision of dividend declaration is subject to the internal and external strengths of the company for which it should take utmost care. When the company satisfies its shareholders, the companys market capitalization will automatically increase.
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BITCOIN- THE PIONEER VIRTUAL CURRENCY
ANUP MALASHETTI; CS PROFESSIONAL PROGRAMME; M/S. MNRS & ASSOCIATES.
Bitcoin is an electronic form of currency. Creation and supply is based on computer programs and unlike other currencies they are not controlled by any government or central banks, rather managed collectively by the network and it is a peer to peer currency. On January 3, 2009 the creator generated himself the first 50 bitcoins (BTC), which came to be known as Genesis block. Bitcoins are mined or generated by solving mathematical algorithms; they get complex and tricky as more people join the network to solve and to get rewarded for solving the algorithms and in the mean while, also generating more bitcoins. Currently 12 Million BTC are available in the market but the maximum BTC that will be generated will be slightly lower than 21 million and that will be generated around year 2140. The BTC will be generated in phases, first phases of each 210,000 block shall have 50 BTC, 25 for next 210,000 blocks and then 12.5 BTC, 6.25 BTC and so on and the gradual decrease in block creation is the reason that the whole lot of BTC will be only generated in 2140. Like other currency BTC are divisible and can be divided down to 8 decimals i.e. 0.00000001 is the smallest currency that could be traded. FUNCTIONING OF BITCOIN: Now the biggest question being how does it functions without involving banks and government? Generating of bitcoins is briefly stated above, however prior to that, the persons willing to mine or buy shall have Bitcoin Wallet to store the coins and also to trade IF THE INTERNET AND MONEY HAD A CHILD, IT WOULD BE THE BITCOIN IT WAS IN NOVEMBER 2008, A MAN NAMED SATOSHI NAKAMOTO, WHO REVEALED LITTLE ABOUT HIM, POSTED A RESEARCH PAPER DESCRIBING THE DESIGN OF A DIGITAL CURRENCY CALLED AS BITCOIN. THE CONCEPT PROPOSED WAS BASED ON CRYPTOGRAPHIC CURRENCY THAT WAS DESCRIBED BY WEI DAI AS B-MONEY AND BY NICK SZABO AS A BIT GOLD, BACK IN 1998.
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from there. The bitcoin network is sharing a public ledger called Block chain which shall record every transaction of bitcoin and enabling to examine and validate the transaction. The person willing to trade for bitcoin shall provide information of his wallet and person willing to buy shall transfer the bitcoin to vendors wallet but the remitter shall not reveal his identity to anyone. The transaction shall be recorded in the block chain and can be viewed by the public, resulting in transparency and along privacy to the remitter. EVOLUTION AND REVOLUTION OF BITCOIN: New liberty standards published for the very first time, the exchange rate of 1,309.03 BTC for a US Dollar in October 2009 but however, it was only in May 2010, the first bitcoin commercial transaction happened, Mr. Laszlo Hanyecz, a Florida Programmer, spent 10,000 bitcoins to get two pizzas delivered from Papa Johns and later in July,Mt. Gox commenced and what went to become the largest and most well- known Bitcoin exchange. The roller coaster for Bitcoin started on August 6, 2010 when the major vulnerability in the system was spotted- evolving transactions weren't verified and were also included in the public ledger. Within 10 days, 184 billion BTC were generated, however within hours the cause was addressed and this was the only major security flaw, in the Bitcoin history. In February 2011, bitcoin rose to the extent of achieving Dollar parity per BTC and further surged to $8.89 per BTC when Forbes published story on the new crypto currency. In June 2011, it saw another rise after Gawker published a story about the popularity among online drug dealers for digital currency, which resulted in the exchange rate to jump to $27 per BTC. In June 2011, Mt.Gox, Bitcoin exchange user table leaked around 60,000 customer information and some of users used the same username at Mybitcoin, a popular Bitcoin wallet ,resulting in balances being stolen from MyBitcoin account and the exchange rate coming down to $0.01. Mt.Gox announced a halt of trade for 7 days, to bring the system into order. In 2012 many first things happened to Bitcoin like: First Bitcoin Magazine, Website's like Wordpress.com started accepting BTC and even the first law suit was filed. Bitcoin celebrated its first Halving day in November 2012, that roughly occurs every four years, the reward for mining a new block gets halved. A glittering year for Bitcoin was in 2013, as it had increased both in usage and the value appreciated by 5,000% in less than a year and it also gained popularity in India. In February one BTC was worth more than one ounce of silver and in March it surpasses the milestone of $ 1 Billion market cap. In April, 2012 the exchange rate hit $ 100 and it went on to $ 200 in the same month. In September 2013, FBI, a Governmental agency belonging to the US Department of Justice took down on Silk Road, an online marketplace that
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sold illegal goods for payment made in BTC. The FBI seized BTC around 1,74,000 BTC over two wallets. November and December of 2013 were two months when the exchange rate cruised from $ 200 to $ 1240 showing its character of extreme volatility and the risk involved in it with equal opportunity. One- BTC is now more than 300,000X ,as much as they did in the first ever public bitcoin trade in 2010. REGULATIONS ACROSS THE GLOBE: The development of Bitcoin poses a huge challenge for the authorities around the world to amend/ enact the laws that were not designed for the digital world issuing virtual currency. The opinions and stands are divided among nations and also the fact that most of them are confused cannot be denied, while many other states have adopted a wait and watch policy, few nations like Korea have denied bitcoin as a legal currency, while some like Norway, Germany treat it as an asset and charge a capital gains tax, while Switzerland treats as any other foreign currency and while Canada already taxes gains on trade in bitcoins. Nations of European Union, India and China have stated no specific regulations governing the use of virtual currency; however European Union and India's Reserve Bank have issued caution and warning to consumers highlighting the risks of using virtual currencies. China however recently prohibited banks to operate in bitcoins while permitting individuals to freely trade and exchange bitcoins. CONCERNS AND FUTURE OF BITCOIN: In case you assume that Bitcoin is the only virtual currency in existence, then you are wrong. They are many virtual currencies floated across the globe but the Bitcoin surge has caught everyones eye and brandished. The rise of virtual currencies may have started out as an effort to avoid government interferences, but with greater acceptance comes increased regulation and norms to stabilize the volatile and risk associated. When we talk about the world as one global village, all thanks to the technology, why not have a common currency 'bitcoin' to represent oneness. Today, we need a strong technically strong body to control the currency and its technology and along to control end use of them in a legal manner.
65 Milaap - 2014 TAX AUDIT The Tax Audit was introduced by Section 11 of the Finance Act, 1984, which inserted a new section 44AB with effect from 1 st April, 1985 (Assessment year 1985-86). This section makes it obligatory for a person carrying on business to get his accounts audited by a chartered accountant and to furnish by the Specified Date the report in the prescribed form of such audit, if the total sales, turnover /gross receipts in business in the relevant previous year exceed or exceeds the prescribed limit (Rs.1 Crore for Business & Rs. 25 lacs for Profession w.e.f A. Y 2013-14). PROVISIONS OF SECTION 44AB Audit of accounts of certain persons carrying on Business or Profession Section 44AB every person- a) Carrying on business shall, if total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees w.e.f A Y 2013-14. b) Carrying on profession shall, if his gross receipts in profession exceed Rs. 25lacs w.e.f A.Y 2013-14.
c. Carrying on business shall, if the profits & gains from the business are deemed to be the profits & gains of such person under Section 44AD & he has claimed such income to be lower than the profits & gains so deemed to be the profits & gains of his business & his income exceeds the maximum amount which is not chargeable to income tax in previous year. PROFESSION & BUSINESS EXPLAINED: The Term Business is defined in Section 2(13) of the Act, as under:-
Business includes any trade, commerce or manufacture. The word business is one of wide import & it means activity carried on continuously & systematically by a person by the application of his labour or skill with a view to earning an income.
Section 2(36) of the Act defines profession to include vocation; profession is a word of wide import & includes vocation which is only a way of living. CIT v. Ram Kripal Tripathi (1980) 125 ITR 408 (ALL).
SPECIFIED DATE & TAX AUDIT:
The Due Date of filling of Income Tax Return of an assessee liable to get his Tax Audit done under Section 44AB is 30 th September. In case of corporate assesses who are required to furnish a report under Section 92E for international transactions the HEMADRIBAI ; CS PROF.PROGRAMME; HOSPET, BELLARY DISTRICT. TAX AUDIT U/S 44B OF THE INCOME TAX ACT, 1961
66 Milaap - 2014 due date is 30 th November. For all other assesses who are not liable to get their Tax Audit done under Section 44AB the Due date of filling of the Income Tax Returns is 31 st July.
TAX AUDIT E-FILING: As per Notification No. 34 Dated 1 st May, 2013, e-filing of Tax Audit report is mandatory from the Assessment year 2013-14 onwards. However, the CBDT wide F. No. 225/117/2013/ITA.II Dated 26 th Sept has decided to relax the requirement of e-filing of Tax Audit Report. The CBDT has announced that the assesses having difficulties in uploading the tax audit reports online may furnish the same manually before the jurisdictional officer. This report shall however be submitted electronically on or before 31 st Oct. As per Rule 6G tax audit report is to be furnished in FORM 3CA & FORM 3CB and the particulars required to be furnished along with these tax reports should be in FORM 3CD. 1. FORM 3CA & FORM 3CD These forms are used in case where the accounts of the business/profession of a person have already been audited under any other law. 2. FORM 3CB & FORM 3CD These forms are used in case where the accounts of the business/ profession have not been audited earlier. COMPUTATION OF TOTAL TURNOVER FOR THE PURPOSE OF TAX AUDIT: 1. Where a person is carrying on 2 business/ 2 professions the total turnover of both the business shall be clubbed together & tax audit shall be liable to be conducted if the Total Turnover exceeds Rs. 1 Crore / Rs. 25 lacs as the case may be; 2. Where a person is carrying on business as well as profession & the Turnover of his business is Rs. 1.2 Crore & the gross receipts of the profession is Rs. 22lacs. In such a case, assessee is liable to get the Tax Audit done on both the business as well profession because the gross receipts from the business exceed the limit of Rs. 1 crore. However if his total turnover was Rs. 95 lakhs & gross receipts from business was Rs. 22 lacs he would not be Non compliance of the provisions of this act shall attract penalty under Section 271B of the Income Tax Act. If any person required to get his audit done under Section 44AB fails to do so before the specified date shall be liable for penalty of % of the turnover /gross receipts subject to a maximum penalty of Rs. 1,50,000.
67 Milaap - 2014 required to get his Tax Audit done. 3. In case where a person has a total turnover of Rs. 98 lacs & has sold a car for Rs. 8 lacs. In such a case, the total amount on adding up becomes Rs. 1.06lacs i.e. above 1 crore. Confusion arose whether the person is liable to get an audit done in this case, the clarification in this regard is that the turnover will not include any amount on the sale of the fixed asset as it was held by the person for business use & not for the purpose of sale. 4. The amount received from the following items shall not be included while computing the Total Sales / Total Turnover / Gross Receipts: - Sale proceeds of Fixed Assets - Sale proceeds of Assets held as Investments - Rental Income - Income by way of Interest unless assessable as Business Income - Any Expense which is reimbursable to the agent by the client
PENALTY FOR NON COMPLIANCE OF SECTION 44AB: Non compliance of the provisions of this act shall attract penalty under Section 271B of the Income Tax Act. If any person required to get his audit done under Section 44AB fails to do so before the specified date shall be liable for penalty of % of the turnover /gross receipts subject to a maximum penalty of Rs. 1,50,000. However, Section 273B states that no penalty shall be levied under Section 271B if there is a reasonable cause for such failure. Some instances which have been accepted by the Tribunals/ Courts as Reasonable Cause are- Resignation of the Tax Auditor & consequent delay Death or physical inability of the partner in charge of accounts Labour problems such as strikes, lock-outs for a long period Loss of Accounts because Fire/Theft etc. beyond the control of the assessee. REVISION OF TAX AUDIT REPORT: Tax Audit Report e-filed cannot be revised under normal circumstances. However, in case the Accounts are revised in the following circumstances, the Audit Report e-filed can also be revised- 1. Revision of accounts of a company after its adoption in the Annual General Meeting 2. Change in law with Retrospective effect 3. Change in interpretation of law In case the Tax Audit Report e-filed is revised, the auditor shall state that its a Revised Report & shall also state the reasons for the same. CONCLUSION:
The goal of an audit is to form and express an opinion on financial statements. The audit is performed to get reasonable assurance on whether the financial statements are free of material mismanagement. An audit also includes assessing the accounting principles used and the significant estimates made by the management.
The word "forensic" refers to something that could be (or will be) used in a court of law. Thus, forensic accounting is a subset of accounting that is completed to standards suitable for legal review, and ultimately dispute resolution through the integration of auditing, investigatory and standard accounting measures. Corporations, law enforcement and government agencies, insurance companies, courts and others hire forensic accountants for purposes of investigating potential financial wrongdoing and, more and more, to assist the company in preventing such wrongs.
The body of forensic accounting literature that has emerged since the 1990s has mirrored the changing scope of concerns about this topic. A number of articles have focused on the increasing demand for accountants to conduct forensic accounting activities. The academic literature has focused on descriptive studies of university offerings. Some universities have integrated fraud or forensic accounting throughout the accounting curriculum while others offered individual fraud or forensic accounting. NEED FOR FORENSIC ACCOUNTING
"Forensic accounting" is a growing area of practice in which the knowledge, skills and abilities of advanced accounting are combined with investigative expertise and applied to legal problems. Forensic accountants are often asked to provide litigation support where they are called on to give expert testimony about financial data and accounting activities. In other more proactive engagements, they probe situations using special investigative accounting skills and techniques. Some even see forensic accounting as practiced becoming a part and parcel of most financial audits _ an extra quality control step in the auditing process that will help reduce financial statement fraud.
When the AICPA formed a committee to develop its Certified in Financial Forensics (CFF) certification program in June 2008, the goal of the committee was to award 900 credentials by the end of year one. That goal was quickly realized and surpassed. By the end of September 2009, the AICPA had awarded more than 3,500 CFF certifications, which is more than four times the number of certifications projected.
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THE ROLE OF FORENSIC ACCOUNTANT
A forensic accountant can uncover theft, fraud or waste through careful, systematic securitization of a company's or individual's financial records. They are trained to recognize patterns that are indicative of account falsification, manipulation and deletions in records. An audit and the follow up report can consist of any number of steps depending on the complexity of the records being investigated. A forensic accountant will summarize transactions, trace assets, perform regressions or other statistical analyses as called for and present findings. After completing audits, a forensic accountant's other primary responsibility is to appear in court as an expert witness. A forensic accountant is often retained to analyze, interpret, summarize and present complex financial and business information in a manner, which is both understandable and properly supported.
AREAS COVERED BY FORENSIC ACCOUNTING:
1. Certain engagement related to civil disputes viz. disagreements related to company acquisitions like business valuation, calculating and quantifying losses and economic damages through breach contracts etc.
2. Shareholders and partnership disputes involving detailed analysis of numerous years accounting records to quantify the issues in dispute.
3. Cybercrimes like credit card frauds, ATM card frauds, cyber extortion, cyber stalking, phishing i.e. sending unsolicited e-mails & collection of sensitive information by simple techniques.
4. Forensic accounting also deals with areas of professional negligence claims, involving assessment and reporting on work of other professionals. This involves investigating whether breach of 'generally agreed accounting and/or auditing principles' has occurred. 5. Engagement involving criminal matters, involving assessment of accounting systems and accounts presentation, where forensic accountants are hired by the law enforcement agencies.
6. Business investigations involving fund tracing, asset identifications and recovery, forensic intelligence gathering and due diligence reviews.
7. Employee fraud investigations involving procedures to determine existence, nature and extent of fraud and may involve identification of the clauses etc
8. Business Economic losses viz. contract disputes trademark and patent infringements, losses arising from breach of non-compete clauses etc.
9. Cases involving medical insurance claims, medical malpractices resulting in economic losses.
10. Mediation arbitration in alternative dispute resolution mechanisms due to familiarity of forensic accountants with legal issues and procedures, helping individuals and businesses resolve disputes with minimum disruption and loss of time.
The forensic accountant can thus be of assistance in various ways that include investigation accounting, review of the factual situation and suggestions, regarding possible
70 Milaap - 2014 courses of actions, assisting the professionals and recovery of assets and co-ordination with other experts, viz. private investigators, forensic document examiners, consulting engineers etc.
TERMINOLOGIES USED PERTAINING TO FORENSIC ACCOUNTING:
1. FORENSIC INVESTIGATION:
This refers to using specialized investigative skills to undertake inquiry in such a manner that outcome shall have application in court of law. Forensic investigation may be grounded in areas like accounting, medicine or engineering.
2. FORENSIC AUDIT:
This refers to investigation of a fraud or presumptive fraud with a view to gathering evidence that could be presented in courts of law. It is essentially a blend of propriety, investigative, regularity and financial audits. The Objective is to ascertain whether true business value has been reflected in the financial statement and during the course of examination to find whether any fraud has taken place.
DETECTION TECHNIQUES USED IN FORENSIC ACCOUNTING:
1.CRITICAL POINT AUDITING(CPA)
In CPA, symptoms of fraud are filtered out from regular transactions where they may be concealed. Scrutiny for CPA purpose may involve: use of
A. Trend analysis B. Checking unusual debits/credits in the accounts C. Discrepancies in receivable /payable /inventory balances evidenced from financial records corresponding subsidiary records. D. False credits to boost sales with corresponding debits to non- existent/dummy personal accounts.
2. PROPRIETY AUDIT (PA):
A. PA is conducting by supreme audit government accounts prepared are in order , in terms of approvals and sanctions of expenditures incurred, whether the expenditure incurred was need-based and that the revenues have been realized in time and properly credited to government accounts. B. The analogy of "value for money audit" is applied to forensic audits whereby financials frauds are unearthed saving wasteful and unwarranted expenditures.
BENEFITS:
Companies that employ forensic accountants enjoy many benefits. Accountants can work to prevent fraud from occurring through monitoring financial records and transactions, allowing companies to further investigate and top illegal or ethical activities early. This not only benefits a company in terms of avoiding or minimizing legal action; it can also result in substantial monetary savings. In addition to their ability to scrutinize revenue streams, incomes and business expenditures of individuals and businesses, forensic accountants also help courts as expert evidence to present information succinctly in court. During the course of auditing, forensic accountants can help uncover not only theft, but also instances of wasteful spending and fraud.
CONCLUSION:
Forensic accounting is the fastest growing area in accounting. Various agencies fighting corruption worldwide will need to engage the services of forensic accounting experts to complement the efforts of other professionals in reducing fraudulent activities and installing fraud proof internal control system in business organizations. It is beyond doubt that the role of forensic accountants will become more crucial in the days to come.
71 Milaap - 2014 REGISTERED VALUER
Registered Valuer is one among the very new concepts introduced by Companies Act, 2013. It provides for a proper mechanism and methods for valuation of assets and liabilities relating to a company; standardizes and eases the procedure thereof. By introducing this concept, it helps to clear the doubts regarding the valuation made and also provides assurance to various stakeholders of the company and various authorities on the genuineness of the valuation made. It further provides a new area to bloom for professionals in various competitive fields.
DEFINITION (RULE 17.1):
Registered Valuer means a person registered as a valuer under the provisions contained in chapter XVII of the Act. REGISTRATION AS VALUERS [RULE 17.2]:
A person who is registered as Valuer in pursuance of Section 247 of the Act, with the Central Government or any authority, institution or agency, as may be notified by the Central Government and whose name appears in the register maintained with any of the authorities or Central Government as mentioned above can act as Registered Valuer. An application can be made in Form 17.1 by individuals and firms and Form 17.2 by others along with the prescribed fees.
The valuation report by a registered valuer shall be approximately and shall contain such information as set out in Form 17.3 [Rule 17.7]
BRIEF CONCEPT ON REGISTERED VALUER:
Explanation: For this purpose, a person shall be considered in Whole-time Practice, when individually or in partnership or in LLP or in merchant banker with other persons in practice who are members of other professional bodies, he in consideration of remuneration received or to be received: 1) Engages himself in the practice of valuation; or
2) Offers to perform or performs services involving valuation of assets with the object of arriving at financial value of the asset being valued; or
3) Renders professional services or assistance in or about matters of principle or detail relating to valuation.
ANKIT PORWAL; CS PROF. PROGRAMME; BANGALORE.
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FURNISHING OF PARTICULARS IN CERTAIN CASES BY A REGISTERED VALUER [RULE 17.3]:
Where any person registered as valuer or has made an application for registration as valuer under Section 247 is, at any time thereafter,- a) Sentenced to a term of imprisonment for any offence; or b) Found guilty of misconduct in his professional capacity by any association or institute or other body which he is a member or with which he has registered He shall immediately after such conviction, intimate to the Central Government, institution or agency with whom he is registered as valuer and cease to act as valuer, unless Permitted by the Central Government, institute or agency with which he is registered as valuer, or The order imposing penalty/ sentence has been stayed by the competent authority.
REMOVAL AND RESTORATION OF NAMES OF VALUERS FROM REGISTER [RULE 17.4]
The name of the valuer can be removed from the register by an order of the Central Government, or any other authority, if they are satisfied; That his name is entered in the register by error or on account of misrepresentation or suppression of material fact; or Has been convicted of any offence and sentenced to a term of imprisonment or has been guilty of misconduct in his professional capacity, which the Central Government , or any authority, renders his name as unfit to act as valuer That his performance is such that his name should not remain on the register of valuers, satisfied, after giving an opportunity to be heard and conduct enquiry, as it thinks fit.
73 Milaap - 2014 The Central Government, or any competent authority may appoint one or more competent persons as enquiry officer and they shall have the powers as vested in civil court under the Code of Civil Procedure, 1908. They can also call various experts from different fields.
The Central Government, or any other competent authority, May on application and on sufficient cause being shown and on being satisfied, restore the name of the person removed from the register. The aggrieved person shall make an appeal against the order of Central Government to the tribunal. [Rule 17.5]
METHODS OF VALUATION [RULE 17.6]:
The valuer shall consider the following points while undertaking valuation: a) Nature of business and the history of the company b) Economic outlook in general and outlook of the specific industry in particular c) Book value of the stock and financial condition d) Earning capacity e) Dividend payment capacity f) Goodwill or other intangible value g) Sales of stock and size of the stock to be valued h) Market prices of stock of the corporations engaged in the same or similar line of business i) Contingent Liabilities or substantial legal issues, within India and abroad, impacting the business j) Nature of instrument proposed to be issued, and nature of transaction contemplated by the parties. k) The registered valuer can use the following methods for valuation purpose:
a) Net Asset Value Method b) Market Price Method c) Yield Method d) Discounted Cash Flow Method: e) Comparable Transaction Multiples Method f) Price of Recent Investment Method g) Sum of the parts of valuation h) Liquidation Value i) Weighted Average Method j) Any other method accepted by RBI, SEBI or IT authorities k) Any other method(s) which the valuer may deem fit to adopt in the given circumstances, provided that proper justification for use of such method(s) is given.
The Registered valuer shall make a valuation of any asset as on valuation date, in accordance with the applicable standards, if any, as may be stipulated for this purpose
Valuation date means the date on which the estimate of value is applicable, it can be different from the date of valuation report or the date on which investigations were undertaken or completed.
AREA OF SERVICES BY REGISTERED VALUER:
1) Valuation of assets,liabilities,shares etc. for Merger and amalgamation 2) Valuation during reconstruction process of a company 3) Valuation of shares for FEMA compliances 4) Valuation of property 5) Credit rating of a company
CONCLUSION: By introducing this new concept of Registered Valuer, there is a beginning of new area of interest for professionals to choose and bloom in the respective field. Further it also enlarges the scope for various professionals - in terms of work, knowledge and value creation, thereby adding another area/service in the armory of the professionals in whole- time practice
74 Milaap - 2014 WOMEN DIRECTOR
Increasing the participation of women on a Corporate Board inspires heated debate around the world, with some countries even adopting legislation to enforce their presence. Research has shown that the inclusion of female directors has a direct and positive impact on a companys profits and risk management. Women board directors also broaden a companys market knowledge as well as raise its profile.
While increased gender diversity on corporate boards has been examined from many different angles, IFC(International finance Corporation) decided to add a fresh perspective to the debatethe perspective of male directors, as most boards are overwhelmingly male. According to Governance Metrics International, men comprise over 90 percent of all directorships globally, and as a result heavily determine the composition of the boardroom.
Women have proven themselves to be capable leaders in every field. Indeed, more and more women are emerging as CFOs and VPs of small to large multinational corporations and there are relatively few women in the role of an entrepreneur leader. Such women are successful primarily because of their strong leadership skills, product knowledge and strong affinity to technology. The growing economic power and independence of a woman in todays corporate world has made her to enter the Boardroom.
By virtue of the Companies Act 2013,the appointment of a woman Director has been made mandatory for every listed company and every other public company having paidup share capital of one hundred crore rupees or more; or turnover of three hundred crore rupees or more., as per proviso no 1 to section 149(1). The number of women in board positions has increased significantly over the last decade. 'Many women have leadership skills and experience that reflect the changing needs of business, so this, in turn, should be reflected on boards. While not all studies agree that women on boards make companies better, most do acknowledge that the presence of women on boards changes the behavior of male board members and often has an effect on the decisions the board ultimately arrives at. For example, a 2008 study by professors Rene Adams of the European Corporate Governance Institute and Daniel Ferreira of the London School of Economics found that women tend to have better attendance records at board meetings than their male counter parts. In fact, the more women on the board, the more mens attendance record improves, says Richard Leblanc, associate professor of corporate governance at York University. The study also found that women are more likely than men to VADIRAJA P.S. ; CS PROF. PROGRAMME; BANGALORE.
75 Milaap - 2014 sit on audit, governance and nominating committees (monitoring committees). Gender- diverse boards allocate more time and effort to monitoring, and diverse boards are more likely to hold CEOs accountable for poor stock-drive performance, Leblanc notes. Such an atmosphere of accountability will undoubtedly change the decisions the board makes. The appointment of a woman director on Board is a strategic tool for the company. Further a Boards strategic involvement relates to its involvement in and the contribution towards the articulation of the firms mission, the development of the firms strategy and the setting of guidelines for implementation and effective control of the chosen strategy. Research shows that not only women possess the skills which organizations increasingly need, but that when they are employed in leadership roles within organizations, they can make a transformational difference to its performance.This Catalyst study demonstrates the very strong correlation between corporate financial performance and gender diversity. We know that diversity, well managed, produces better results. And smart companies appreciate that diversifying their boards with women can lead to more independence, innovation, and good governance and maximize their companys performance.The latest Report found that higher financial performance for companies with higher representation of women board directors in three important measures: Return on Equity: On average, companies with the highest percentages of women board directors outperformed those with the least by 53 percent. Return on Sales: On average, companies with the highest percentages of women board directors outperformed those with the least by 42 percent. Return on Invested Capital: On average, companies with the highest percentages of women board directors outperformed those with the least by 66 percent. Now from the below data let us see the percentage of women(strength in Board Room across various countries and legislations. DID YOU KNOW? Brazil24% of senior management positions are held by women as of2011, but only 5.1% of board seats. Brazils dynamic stock exchange, BM&F BOVESPA, has two women on its executive boardone of whom holds the position of a risk management officer. UK 12.2% of the boards of FTSE (Financial Times and the London Stock Exchange) 100 companies were composed of women in 2010. The 2011 government review recommends that FTSE 100 boards aim for a minimum 25% female representation by 2015.
USA 70.8% of the 1763 U.S companies rated by GMI (Governance Metrics International) had at least one woman director, but only 9.7% of these companies had at least three women directors, in 2011. Cathy Hughes became the first African American woman to head a firm publicly traded on a stock exchange in the United States when Radio One listed on NASDAQ in 1999. It has examined the benefits of diversity on the board of directors and concluded that traditional business experience is not the only skill of value to a board that seeks to represent its shareholders and customers effectively. Appointing directors from other sectors and backgrounds can be seen to have some positive and valuable advantages to the company. She has driven herself to the moon and has stepped into the Board Room and is leading in the corporate world.
76 Milaap - 2014 RAKSHA. B.R; CS PROF. PROGRAMME; TRAINEE AT J SUNDHARESAN & ASSOCIATES.
INTRODUCTION More similar like the managerial aspects of control planning and organizing that forms an integral part of every organization whistle blowing is a conscience act of keeping the company within the Compliance realm. It is a very challenging task for any organization to establish the task of whistle blowing in the corporate environment. However the entire concept of whistle blowing revolves around the term whistle blower. According to the Oxfords Advanced Learners Dictionary a whistle blower is a person who informs people in authority or the public that the company he/she works for is doing something wrong or illegal. An essential feature of the Whistle Blower Policy is that it provides adequate safeguards against victimization of the employee who avails of the mechanism. Without these safeguards, a whistle blower policy would be a damp squib. The need for the concept of whistle blowing policy arose due to the worst debacle of the corporates in Western World at the end of the 20 th century, be it the Enron or WorldCom and the courtesy goes to the Whistle blowers of the respective companies. And this is the reason why the concept of whistle blowing has gained importance in the governance aspect and to ensure that the company intending to carry on a business does with openness, fairness, transparency, integrity and in an honest manner. As on December 2013, India did not have a law to protect whistleblowers; however, Whistle Blowers Protection Bill, 2011 was approved by the Cabinet of India as part of a drive to eliminate corruption in the country's bureaucracy. The Bill is still pending before the Rajyasabha. The Public Interest Disclosure Act was passed in the year 1998 in United Kingdom which encouraged people to raise concerns of the malpractices generally arising in the workplace and ensured that the organisation responded by addressing the message rather than the messenger and resist the temptation to cover the malpractice. This is a comprehensive means to achieve excellence in the concept of whistle blowing in WHISTLE BLOWING AND THE ROLE OF GOVERNANCE PROFESSIONAL
77 Milaap - 2014 India. The position of whistle blowing is a blended combination of both the US and UK systems. The revised clause 49 of the listing agreement as initially introduced in August, 2003 based on the recommendations of the Narayanamurthy Committee had provided for the mandatory setting up of a Whistle Blower Policy. The Committee made two mandatory recommendations as follows: 1. Personnel who observe an unethical or improper practice should be able to approach the audit committee without necessarily informing their supervisors. Companies shall take measures to ensure that the right of access is communicated to all employees through means of internal circulars, etc. The employment and other personnel policies of the company shall contain provisions protecting whistle blowers from unfair termination and other unfair prejudicial employment practices.
2. Companies shall annually affirm that they have not denied any personnel access to the audit committee of the company and that they have provided protection to whistle blowers from unfair termination and other unfair or prejudicial employment practices. India Inc. was, however, clearly unhappy with these recommendations and opposed them intensely and SEBI decided to make this concept of whistle blowing optional. Further, the role of the Audit Committee would also include reviewing the functioning of the Whistle blowing policy in case the same exists. The World suffers a lot not because of the violence of bad people but because of the silence of good people. Economic Volatility, Global Competition, Growth Risk Appetite demands the governance professionals to prioritize their role as whistle blowers. CS being a part of the top management and Board of Directors, are expected to have a strong conscience; and strong sense of professional responsibility in performing the following roles in the capacity of a Whistle Blower. To ensure the effective running of the activities of the Board and its Committees, compliances of all listing rules, other regulatory codes and acts. Keep under review all legal and regulatory developments affecting the company operations and make sure that directors and management are properly informed of the same. To assess, manage the compliances in the governance domain, governance processes, tracking of outcomes of governance processes and disseminate the information and documents for proper governance. Development of Board framework and to determine the level of Independence. Monitoring and reporting on the Independence of Audit Committee
Participating in Strategic Planning process, Risk Management process, Internal Control process, MIS, Corporate Communications, Succession Planning, Board performance evaluation process, maintenance of a Board Charter.
He shall act in the capacity that ensures high level corporate administration in accordance
78 Milaap - 2014 with best governance practices which results to well run, governed and sustainable business for the benefit of stakeholders at large. Company Secretary can be useful aid to implement whistle blowing as an internal regulator for ensuring good corporate governance in spirits. As he is a part of Board decisions process and recipient of all important information flowing in the organisation, he can easily smell the rat. He can also support the ombudsman function with the Board by establishing a relationship between the governance and compliance. He can make allegations internally to other people or committees i.e. Chairperson of Audit Committee or any hotline developed by company or can make allegations to external agencies like regulators, law enforcement agencies etc. PRACTICAL CHALLENGES FOR CS AS WHISTLE BLOWER CS as a key recipient of almost all information can face retaliation, sometimes at the hands of the organisation or group, which he accused, sometimes under law. There is often a fear of losing their relationship at work or outside work. They may get punished, terminated, suspended at a risk of their own well being. Few instances where whistleblowers have to face harsh consequences to the extent of losing their life: Satyendra Dubey Fate (2003), Manjunath Shanmugham Incident (2005), the case of sudden demise of colleague CS Shasheendran (2011) and Charudatta Despande (2013). To encourage whistle blowing as an indispensable ingredient for ensuring good corporate governance in spirit, proper law should be enacted in India. Whistle blowing should be made mandatory requirement under Listing Agreement and even disclosures on corporate fraud risks should be made mandatory by Directors in Directors Responsibility Statement annually. Under US Corporate Governance law, Sarbanes- Oxley Act, 2002 has made it criminal offence, which is punishable by fine and up to 10 years in prison, for taking any action harmful to a person who provides truthful information about a federal offence to a law enforcement officer. There should be strict rules for hiding identity of Whistle Blowers, Ombudsman should be appointed by the company for dealing with such allegations who will directly report to Shareholders. To put it very candidly, while employees are the people best placed to raise the concern and so enable the risk to be removed or reduced. Without this confidence, employees may stay silent where there is a threat, even a grave one, to the employer or its stakeholders. Such silence denies organizations a fail-safe opportunity to deal with a serious problem before it causes real damage. The cost of such a missed opportunity can be huge, fines, compensation, higher insurance premiums, damages,etc.
79
CORPORATE CRIMINAL LIABILITY IN INDIA
NO SOUL TO DAMN, NO BODY TO KICK. Legal Maxim has become obsolete and applicability of lifting the corporate veil has unveiled the sheath. In this Article, I have tried to concisely present a comprehensive analysis of present status of India on Corporate Criminal Liability and how judicial decisions are with the legal provisions. The apex courts decision under various matters reflects the gravity of the concerned problem i.e. being faced by the aggrieved parties. In modern world, the strong effect of activities of corporations is incredible on the society. In the day to day activities, corporations progress and its products and services not only act as a blessing for the society but also many a times proves disastrous which even falls under the category of crimes. For instance, the Bhopal Gas tragedy, Satyam scandal or thousands of scandals especially the white collar and organized crimes can come within the category that requires immediate concern. Despite so many disasters, the law was unwilling to impose criminal liability upon corporations for a long time. This was basically for the following two reasons: Corporations cannot have the Mens Rea or the guilty mind to commit an offence; and Corporations cannot be imprisoned. Although the general rule as stated above is applicable to all criminal cases but the criminal law Jurisprudence has seen one exception to the above said concept in form of Doctrine of Strict Liability in which one may be made liable in absence of any guilty state of mind. This happens in cases of mass destructions through pollution, gross negligence of the company resulting in widespread damages like in the Bhopal Gas tragedy, and so on. Until recently, courts in India were hesitant to attribute criminal liability to a company for an offence that requires a criminal intent. Further, courts were of the opinion that they could not prosecute companies for offences that entailed a mandatory sentence of imprisonment. In, Assistant Commissioner in Bangalore & others V/S Velliappa Textiles, the Supreme Court held that the respondent company could not be prosecuted for offences under certain sections of the ITA because each of these sections required the imposition of a mandatory
SOWMYA S; CS PROFESSIONAL PROGRAMME; E. S. & ASSOCIATES, MYSORE.
Milaap - 2014 term of imprisonment coupled with fine. The sections in question left the court unable to impose only a fine. Indulging in a strict and literal analysis, the Court held that a corporation did not have a physical body to imprison and therefore could not be sentenced to imprisonment. Further, the Supreme Court was of the view that the legislative mandate was to prohibit the courts from deviating from the minimum mandatory punishment prescribed by the Act. The Court also noted that when interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favor of the construction that exempts an accused from penalty rather than the one that imposes the penalty. In Kusum Products Limited v/s S.K. Sinha, ITO, Central Circle-X, Calcutta it was clearly stated that, a company being a juristic person cannot possibly be sent to prison and it is not open to court to impose a sentence or fine or allow to award any punishment if the court finds the company guilty, and if the court does it, it would be altering the very scheme of the Act and usurping the legislative function. If a corporate body is found guilty of the offence committed, the court, though bound to impose the sentence prescribed under law, has the discretion to impose the sentence of imprisonment or fine as in the case of a company or corporate body, the sentence of imprisonment cannot be imposed on it and as the law never compels to do anything which is impossible. In such cases, the court has to follow the alternative and impose the sentence of fine. This discretion could be exercised only in respect of juristic persons and not in respect of natural persons. There is no blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of activities that affect the life, liberty and property of the citizens. Large scale financial irregularities are done by various corporations. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society. CONCLUSION: Corporate bodies reap all the advantages flowing from the acts of the directors and they act to the detriment of the public in the name of the corporate bodies. Corporate Criminal liability is in existence since the corporate form of business started. The legislature remained mum when the question of imposing punishment arose with respect to corporate liability. With the evolution of various theories, the most vital issue with regard to corporate criminal liability is now settled i.e., the issue of Mens rea, vicarious and strict liability is an important aspect of corporate criminal liability. The criminal law jurisprudence relating to imposition of criminal liability on corporations is settled on the point that the corporations can commit crimes and hence be made criminally liable. However, the statutes in India are not in pace with these developments and the above analysis shows that they do not make corporations criminally liable and even if they do so, the statutes and judicial interpretations impose no other punishments except for fines.
81 Milaap - 2014 EXTERNAL COMMERCIAL BORROWINGS [ECBS] AN INSTRUMENT FOR CAPITAL GEARING TO THE INDIAN COMPANIES
SWATI .S HEGDE CS PROFESSIONAL PROGRAMME; TRAINEE UNDER T. SATHYA PRASAD.
ECBs refers to commercial loans in the form of Bank loans, Buyers Credit , Suppliers credit, securitized instruments (e.g. floating rate notes and fixed rate bonds, non-convertible, optionally convertible preference shares) availed from non- resident lenders with a minimum average maturity of 3 years.
ENTRY ROUTES AVAILABLE FOR INFUSION OF THE FOREIGN FUNDS:
1. Automatic Route 2. Approval Route
A. ELIGIBILITY TO ACCESS THE ECB: The following borrowers are eligible to access the ECB: Corporate houses , Infrastructure Finance Companies (IFCs), Financial Institutions (FIs), Housing Finance Companies (HFCs) and Non- Banking Financial Companies(NBFCs), Non-Government organization (NGOs) engaged in micro finance activities, Special Purpose Vehicles(SPVs) as per Reserve Bank of India(RBI)Circular on 3rd December 2013, for project use in SPVs with the conditions mentioned below: SPV should carry the infrastructure business activity. SPV can be raised up to 3 years after the Commercial Operations
EXTERNAL COMMERCIAL BORROWING (ECB) IS A MECHANISM WHICH FACILITATES, TO ACCESS FOREIGN EXCHANGE BY INDIAN COMPANIES. ECB IS A MODE OF FINANCIAL ASSISTANCE PROVIDED BY FOREIGN ENTITY TO AN INDIAN COMPANY OR WHOLLY OWNED INDIAN SUBSIDIARY. IT CAN BE SECURED OR UNSECURED AS PER THE TERMS AND CONDITIONS OF ECB AGREEMENT BETWEEN THE PARTIES.
82 Milaap - 2014 Cases falling outside the purview of the automatic route and in the general corporate purposes (subject to the conditions that minimum paid-up equity of 25 per cent should be held directly by the lenders, ECB should use for the purpose permitted under ECB guidelines and minimum lock in period is 7 years) under the approval route.
B. INTERNATIONAL SOURCES FOR ECB; International Banks, International capital markets, Multilateral financial institutions/regional financial institutions and Government owned development financial institutions, Export credit agencies, Suppliers of Equipment, Foreign collaborators and Foreign Equity Holders are the international sources for ECB. C. MAXIMUM LIMIT TO BORROW FUNDS AND MATURITY PERIOD;
Maximum of USD 750 million or its equivalent can be raised by corporate. Maximum of USD 200 million or its equivalent can be raised in the corporate service sector. Maximum of USD 10 Million or its equivalent can be raised by NGOs engaged in micro finance activity. 50 per cent of owned funds can be avail by the SIDBI subject to ceiling of 500 million. The ECB proceeds should be kept in a separate escrow account.
Maturity Period: Amount Maturity Period Up to USD 20 million or its equivalent Minimum average maturity of 3 years. Above USD 20 million and up to USD 750 million Minimum average maturity of five years.
D. ALL IN-COST CEILINGS :
It includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre- payment fee, and fees payable in Indian Rupees. These are:
Average Maturity Period All-in-cost Ceilings over 6 month LIBOR 3 years and up to 5 years 350 basis points More than five years 500 basis points
E. END- USE:
83 Milaap - 2014 ECB CAN BE RAISED UNDER AUTOMATIC ROUTE FOR: Import of capital goods as classified by DGFT in the Foreign Trade Policy; Overseas Direct Investment in Joint Ventures/ Wholly Owned Subsidiaries; New projects, modernization expansion of existing production units; Investment in industrial sector, investment in infrastructure sector and specified service sectors, Acquisition of shares in the disinvestment process; Micro finance activity including capacity building by NGOs engaged micro finance activities; Infrastructure Finance Companies(IFCs); SIDBI can on lend to the borrowers in the MSME sector for permissible end uses, refinancing of Bridge Finance (including buyers / suppliers credit) availed of for import of capital goods by companies in Infrastructure Sector and ECB is allowed for Import of services, technical know- how and payment of license fees. ECB CAN BE RAISED UNDER APPROVAL ROUTE FOR: Avail exchange in the real sector, infrastructure sector, telecom sector as per the RBI Guidelines; Working capital for civil aviation sector; General corporate purposes from foreign equity holders; Low Cost Affordable Housing are allowed to access ECB. ECB NOT PERMITTED: ECB for real estate and on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate is not permitted. PROCEDURE OF INFUSION OF FUNDS: The borrowers under the automatic route as well as the approval route, have to submit Form 83 to the Authorized Dealer (AD), in duplicate, for allotment of Loan Registration Number (LRN). A copy of the same is to be forwarded by the designated AD to the Director, Balance of Payments Statistics Division, Department of Statistics and Information Systems (DSIM) and RBI. The borrower can draw-down the loan only after LRN is allotted by DSIM. For the purpose of accessing ECBs under the approval route, applicants are required to submit an application in Form ECB, throu0067h the designated AD, to the Chief General Manager-in- Charge, Foreign Exchange
84 Milaap - 2014 Department (ECB Division), RBI, along with the following documents: Copy of offer letter from the overseas lender /supplier furnishing complete terms and conditions of proposed loan / credit arrangement. Copy of import contract, proforma / commercial invoice / Bill of Lading. REPORTING TO THE RBI: The borrowers are required to submit a monthly Return in Form ECB-2, in respect of actual ECB transactions that have taken place during the previous month. In case there have not been any transactions during the previous month a NIL return has to be submitted. The aforesaid Form has to be certified and forwarded by the designated AD bank so as to reach DSIM, RBI within seven working days from the close of the month. CONVERSION OF ECB INTO EQUITY: As per RBI Master Circular dated July 01, 2010, an Indian company is eligible to convert its ECB into Equity through compliance of the following conditions: Foreign Investment promotion Board (FIPB) or Government approval is required where the company carries business under the automatic route. Company should not exceed the foreign equity holding sectoral cap. FEMA, 1999 pricing guidelines will applicable for pricing of shares. Permission with the RBI. REPORTING TO THE RBI ABOUT CONVERSION OF ECB: Borrowers are required to report full conversion of outstanding ECB into equity in the form FC- GPR to the Regional Office concerned of the RBI as well as in form ECB-2 submitted to the DSIM, RBI within seven working days from the close of month to which it relates. Contravention of the ECB Guidelines will attract the FEMA 1999 penal provisions. CONCLUSION: ECB is boon to the Indian financial market. It provides huge funds for large projects and borrowings at low rate of interest. But it involves huge risk and lot of procedures in infusion and repatriation process. ECBs are very worthwhile for the company to achieve its vision and mission.
85 Milaap - 2014 LISTING AND ISSUE OF CAPITAL BY SMEs
NITISH SHETTY CS PROF. PROGRAMME; CS SRIKANT.R.GUDI; HUBLI.
SEBI (LISTING OF SPECIFIED SECURITIES ON ITP): The provisions of this Chapter shall apply to small and medium enterprises which do not have their securities listed on any recognized stock exchange and which seek listing of their specified securities exclusively on the ITP. ITP (ITP)- It is a platform created in SME Exchange for listing and trading of specified securities of small and medium enterprise. SMALL AND MEDIUM ENTERPRISE (SME)- SMEs are public companies including start-up companies which shall fulfill the following eligibility conditions to get listed in the ITP. ELIGIBILTY (REGULATION 106Y): A small and medium enterprise shall be eligible for listing of its securities on the ITP, if it satisfies the following: The company, its promoter, group company or director should not appear in the willful defaulters list of Reserve Bank of India as maintained by Credit Information Bureau (India) Limited; There shouldnt be winding up petition against the company that has been admitted by a competent court; The company, group companies or subsidiaries has not been referred to the Board for Industrial and Financial Reconstruction within a period of five years prior to the date of application for listing; No regulatory action has been taken against the company, its promoter or director, by the Board, Reserve Bank of India, Insurance Regulatory and Development Authority or Ministry of Corporate Affairs within a period of five years prior to the date of application for listing; The company must not have completed a period of more than ten years after incorporation and its revenues should not exceeded one hundred crore rupees in any of the previous financial years; The paid up capital of the company has not exceeded twenty five crore rupees in any of the previous financial years; The company has at least one full years audited financial statements, for the immediately preceding financial year at the time of making listing application; and Any one of the following criteria should be fulfilled:
INDIA IS A COUNTRY WHERE THERE ARE THOUSANDS OF SMES AND ALSO IS GIVING RISE TO MANY START-UPS. THE NEW SEBI GUIDELINES PROVIDE A NEW SOURCE OF CAPITAL FOR THE SMES/ START-UPS. THE AMENDMENT WAS MADE TO THE SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009 WHERE IN A NEW CHAPTER XC WAS INSERTED TO THESE REGULATIONS WHICH PROVIDE PROVISIONS FOR THE LISTING AND ISSUE OF CAPITAL BY SMALL & MEDIUM ENTERPRISES. THESE REGULATIONS ARE CALLED SECURITIES EXCHANGE BOARD OF INDIA (LISTING OF SPECIFIED SECURITIES ON ITP).
86 Milaap - 2014
INVESTORS MINIMUM INVESTMENT
LISTING OF SPECIFIED SECURITIES
CONDITIONS ON ISSUE OF SECURITIES & RAISING OF CAPITAL: The company shall not make initial public offering while its specified securities are listed on ITP. The company listed on ITP may raise capital through private placement or rights issue without an option for renunciation of rights. The private placement of securities by a company whose securities are listed on ITP shall be subject to the following:
Alternative Investment Fund or Venture Capital fund or Angel Investor (At least One) or Registered Merchant Banker or Qualified Institutional Buyer or Scheduled Bank (no minimum investment specified) or specialized international multilateral agency or domestic agency or a public financial institution (No minimum investment specified).
Rs.50 Lakhs in Equity Shares FULFILL ELIGIBITY CRITERIA APPLY TO RECOGNISED STOCK EXCHANGE ON ITP Enclose Information Document As Specified In Schedules INFORMATION DOCUMENT SHALL BE MADE PUBLIC Hosted On Website of Recognized Stock Exchange RECOGNISED STOCK EXCHANGE GRANTS IN-PRINCIPAL APPROVAL RECOGNISED STOCK EXCHANGE LISTS THE SECURITIES OF THE COMPANY ON THE ITP. The company which has received in-principle approval from the recognized stock exchange shall be deemed to have been waived by the Board under sub-rule (7) of rule 19 from clause (b) of sub-rule (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957 for the limited purpose of listing on ITP.
87 Milaap - 2014
The securities so issued through private placement shall be made at a price not less than higher of the following: the book value of the equity shares as per its last audited financial statement not older than six months; Value of shares as determined in an independent auditors or registered merchant banker's report. (5) A company listed on ITP making a rights issue shall comply with the following: 1. there shall not be an option for renunciation of rights; 2. the company shall obtain in-principle approval from the recognized stock exchange where its securities are listed prior to a rights issue; 3. The company making a rights issue shall send a letter of offer to its shareholders through registered post or speed post or electronic mode and the same shall be made available on the website of the company and the recognized stock exchange.
OTHER SPECIFICATIONS:
PROMOTERS SHARE Not Less Than 20 Percent of Post Issue Capital Locked For a Period Of 3 Y DEMATERIALIZE All specified securities of the company shall be in dematerialized form upon listing on ITP. TRADING LOT The minimum trading lot on ITP shall be ten lakh rupees.
OBTAIN IN-PRINCIPAL APPROVAL APPROVAL OF SHAREHOLDERS THROUGH SPECIAL RESOULTION ALLOTMENT OF SECURITIES (WITHIN 2 MONTHS) RECOGNISED STOCK EXCHANGE GRANTS IN-PRINCIPAL APPROVAL The explanatory statement to the notice to shareholders shall include: (i) the purpose for private placement; (ii) identity of allottees; (iii) whether allottee is a promoter or belongs to the promoter group and if not the relationship between promoter and allottee; (iv) nature of securities being issued; (v) price at which the security is being issued.
DISCLOSURE OF DOCUMENTS TO RECOGNISED STOCK EXHANGE (15 DAYS PRIOR GENERAL BODY MEETING)
88 Milaap - 2014 EXIT FROM ITP: A company whose specified securities are listed on ITP may exit from that platform, if: a) Its shareholders approve such exit by passing a special resolution through postal ballot where ninety per cent of total votes and the majority of non-promoter votes have been cast in favor of such proposal;
b) The recognized stock exchange where its shares are listed approve such exit.
A company whose securities are listed on ITP shall exit the platform in the event if fulfils following conditions:
A company listed on ITP shall be delisted and permanently removed from the ITP under the following circumstances:
a) The company has failed to file its periodic filings with the recognized stock exchange for more than one year; or b) The company has failed to comply with corporate governance norm(s) for more than one year; or c) Notwithstanding anything contained in clauses (a) and (b), the recognized stock exchange may delist the company on non- compliance of the condition of listing as may be specified by the recognized stock exchange.
In case of a company delisted under sub- regulation (3), no company promoted by promoters and directors of such delisted company shall be permitted to be listed on ITP for a period of five years from the date of such delisting.
LISTED MORE THAN 10 YEARS PAID-UP CAPITAL MORE THAN 25 CRORE REVENUE MORE THAN 100 CRORE MARKET CAPITALIZATION MORE THAN 500 CRORE
89 Milaap - 2014 EMPLOYEE PROVIDENT FUND
RADHESH. R. BHAT, CS PROFESSIONAL PROGRAMME; TRAINEE - M/S. GANAPATHI & MOHAN, COMPANY SECRETARIES,
Provident fund is created with the purpose of providing financial security and stability to employees. A person starts his contribution in the PF fund once he joins a company as an employee. The contributions are made on a regular basis. The primary purpose of Provident Fund is to help employees save a fraction of their salary every month so that he can use the same in an event that the employee is temporarily or no longer fit to work or at retirement. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 came into effect on 4 th March, 1952 as part of a series of legislative interventions made in this direction. The Organization is administered by a Central Board of Trustees, composed of representatives of the Government of India, Provincial Governments, employers and employees. The Board is chaired by the Union Labour Minister of India. The Chief Executive of the EPFO, the Central Provident Fund Commissioner, reports to the Union Labour Minister through the Permanent Secretary in the ministry. EMPLOYEES PROVIDENT FUND ORGANIZATION (EPFO): The Employees' Provident Fund Organization (EPFO) is a statutory body of the Government of India, under the Ministry of Labour and Employment. It administers a compulsory contributory Provident Fund Scheme, Pension Scheme and an Insurance Scheme. It is one of the largest social security organizations in the India in terms of the number of covered THE EMPLOYEE PROVIDENT FUND (EPF) IS A SOCIAL WELFARE MEASURE AND ONE OF THE MOST BENEFICIAL AND POPULAR INVESTMENT SCHEMES FOR THE SALARIED PERSONS IN INDIA. PROVIDENT FUND IS CREATED WITH THE PURPOSE OF PROVIDING FINANCIAL SECURITY AND STABILITY TO EMPLOYEES. A PERSON STARTS HIS CONTRIBUTION IN THE PF FUND ONCE HE JOINS A COMPANY AS AN EMPLOYEE. THE CONTRIBUTIONS ARE MADE ON A REGULAR BASIS. THE PRIMARY PURPOSE OF PROVIDENT FUND IS TO HELP EMPLOYEES SAVE A FRACTION OF THEIR SALARY EVERY MONTH SO THAT HE CAN USE THE SAME IN AN EVENT THAT THE EMPLOYEE IS TEMPORARILY OR NO LONGER FIT TO WORK OR AT RETIREMENT.
90 Milaap - 2014 beneficiaries and the volume of financial transactions undertaken. The EPFO's apex decision making body is the Central Board of Trustee (CBT). APPLICABILITY OF EPF: The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 applies to the whole India except Jammu & Kashmir and it is applicable to every establishment which is engaged in any one or more of the industries specified in Schedule I of the Act or any activity notified by Central Government in the Official Gazette and any establishment employing 20 or more persons or in case of Cinema theater employing five or more person. If any of the establishment is not satisfying the above conditions for coverage and if the employer and majority of the employees are willing, the Act may be applicable to such establishment.
The establishment to which this Act applies shall continue to be governed by this Act, even if the number of employees falls below 20 at a later date. As on date, the EPF & MP Act extends to 187 classes of establishments. Any establishment falling in any of the 187 categories mentioned above and employing more than 20 persons automatically comes under the purview of the EPF & MP Act 1952.
The contribution which shall be paid by the employer to the fund shall be 10% on the basic pay, dearness allowance and retaining allowance for the time being payable to each of the employees whether employed by him or through a contractor. ONLINE PROVIDENT FUND TRANSFER AND WITHDRAWAL: The EPFO offers many online services through its portal to members. The EPFO announced an online withdrawal and transfer provision for employee's provident fund (EPF) from 1 st July, 2013 with the aim to settle claims faster and provide services are efficiently and comfortably to everyone. EPFO set up a Central Clearance House, which was operational from July 1. Now if an employee changes his job he can easily apply to transfer his PF account through an easy online process, if the Employee Provident Fund & Miscellaneous Provisional Act, 1952 applies on both the establishments. The earlier procedure for transfer or withdrawal of EPF involved the submission of a physical application while changing a job. This would be lost in the system and could not be tracked to know the status. Online withdrawal and transfer of EPF aims to make the process smoother and efficient. A central clearance facility ensures speedy execution of transfers and withdrawals and subscribers can now track the status of their application online. Verification of the details of the PF account from the previous employers will be on the EPFO henceforth, unlike the previous scenario
91 Milaap - 2014 where employees needed to get their applications verified from the employer for claim settlement. Subscribers are now assigned a permanent EPF account number, which will be used to track their application and process their transfer, withdrawal and claim request. Many essential Provident Fund services are already made available online to members by the EPFO and new initiatives are being taken to make the process easier for a large number of employees working in both the public as well as private sectors. BENEFITS OF EPF SCHEME: Employee Provident Fund is a very important investment for taking in to account of employees future. The tax free interest and the maturity award ensure a very good growth to the money. If the PF money continued for a very long period of time, it can help in meeting employee's requirements including his retirement goals.
In case of short fall of funds during emergencies and at when borrowing are the only options remaining, the EPF can comes handy because of the benefits it provides. The PF can be used for multiple purposes at different times, as it guarantees benefits such as Accumulation plus interest upon retirement, resignation and death and also partial withdrawals allowed for specific expenses such as house construction, higher education, marriage, illness etc.
Any person joining an establishment to which the EPF & MP Act applies, shall compulsorily submit a declaration to his/her employer whether he/she is already a member of Provident Fund.This will ensure continuity of service and consequential benefits.
CONCLUSION:
Employees Provident Fund Schemes provide social security measures to the Employees and also it provides monetary facility to the employees when they working on the establishment by withdrawal of partial benefit or when they leave the establishment by final withdrawal.
92 Milaap - 2014
YES BANK BOARD CONFLICT
The saga of appointment of Directors at Annual General Meeting of YES Bank and the questioning of its legality by another promoter group has caught on the attention of the Compliance professionals. This article is a brief chronicle of the events and final judgment by Mumbai High Court. On June 08, 2013, the Annual General Meeting (AGM) of Yes Bank was to approve appointment of Mr. Diwan Arun Nanada, Mr. Ravish Chopra and Mr. M.R. Srinivasan as whole-time directors by voice vote. The three directors were nominated by the Bank MD & CEO, Mr. Rana Kapoor -- who holds 13.72 per cent stake in the bank -- but were opposed by Ms. Madhu Kapur, wife of late Ashok Kapur and co-founder of Yes Bank, who holds 12 per cent stake in the bank. Ms. Madhu Kapur has claimed that according to item numbers 6, 7 and 8 in the Notice for the AGM, under the heading of special business, resolutions were proposed for appointment of three directors on the board, one of whom is to be an independent director and the other two are being nominated by the Indian promoter Mr. Rana Kapoor. This, she alleges, seeks to deny the rights of the Ashok Kapur group. Following this, members were asked to cast paper ballots and results of the same would be known in 48 hours. Ms. Madhu Kapur moved the High Court objecting to the holding of AGM saying that they had not been consulted before appointment of directors citing the Articles of Association of the bank that require a recommendation by the promoters for the appointment of whole time directors. That is to say, the successors & the legal representatives of late Ashok Kapur, Madhu Kapur Familys recommendation was not sought. The High Court directed the Bank to consider the appointment of Ms. Shagun Gogia, daughter of its late founder, Mr. Ashok Kapur. The board of directors at its meeting, unanimously disagreed the recommendation of appointment of Ms. Shagun Gogia on the ground of not meeting the criteria of experience. On the other hand, the board has given its approval to submit applications to the Reserve Bank of India for the appointment of top management executives, Mr. K. ARUNA; CS PROF. PROGRAMME; BANGALORE.
93 Milaap - 2014 Rajat Monga, Mr. Sanjay Palve and Mr. Pralay Mondal of the bank as whole-time directors, subject to RBI and shareholders approval. On this, Ms. Madhu Kapur amended the petition saying the appointment of all the six directors is illegal and to seek the right to appoint Ms. Shagun Gogia on the Board citing Articles of the Company. Yes Bank took stand that as per the Articles of the Company the right to appoint directors solely rests with the Indian Partners- the banks CEO & MD Mr. Rana Kapoor & late co- founder Mr. Ashok Kapur. After the demise of Mr. Ashok Kapur, the privilege now rests with Mr. Rana Kapoor only. Further, Yes Bank argued that appointment of directors by the banks board cannot be questioned in a court of law. FINAL DAY OF JUDGMENT: Mumbai High Court dismissed the contention and said the court has power to decide. The Court held that the three directors appointed in the AGM on June 8, 2013 were duly elected. It decided that the suit is not maintainable. The Court said that, as Ms. Madhu Kapur demanded poll and 80% agreed for the appointment, hence, it could be said that the directors were duly elected. Ms. Madhu Kapur also challenged the decision of the Bank's Board to appoint three whole- time directors, Mr. Rajat Monga, Mr. Sanjay Palve and Mr. Pralay Mondal. On this, the Court decided that their appointment, made in a meeting on June 24, 2013 is valid, however, subject to the approval of Reserve Bank of India and the Annual General Meeting. The High Court further held that rejection of nomination of Ms. Shagun Gogia on the Board was on grounds of qualification, and so, is valid. Conclusion: Before arriving at any conclusion, a question stands out- Are all shareholders equal? Probably not. Our law gives power to the majority shareholders over the minority group. So the decision making power, especially to appoint anyone on Board, lies with the majority group. Then again a question arises- Whether the promoters kids always get advantage of their surname? The answer is not as simple, as the question. Be it is the case of Yes Bank, for appointment of Ms. Shagun Gogia or in the case of Infosys, for the appointment of Mr. Rohan as Executive Assistant to his father , Mr. Narayana Murthy, on his recommendation- Is it because of their qualification or their last name? In the Yes Bank case, Ms. Shagun Gogias appointment might have gotten disapproved because of the reason, that she is too young for her age to be on the Board and would not be able to safeguard the interest of the stakeholders. But, there lies a stand that Ms. Shagun Gogia, because of her family and educational background, could make it possible. However, in the respective case, both sides have valid arguments, so the case could go either way. MAJOR CONTENTIONS: 1. Does High Court have power to decide such a case? 2. Is the appointment of three directors, Mr. Diwan Arun Nanada, Mr. Ravish Chopra and Mr. M.R. Srinivasan valid? 3. Is the appointment of directors, Mr. Rajat Monga, Mr. Sanjay Palve and Mr. Pralay Mondal legal? 4. Is the rejection of nomination of Ms. Shagun Gogia on the Board on valid grounds?
94 Milaap - 2014 DRAFTING OF LEASE AGREEMENTS
NANCY V DHAWALE CS PROF. PROGRAMME; K. SANDHYALAKSHMI, PCS
A well planned agreement, put in proper terms and form will free the parties to Contract, or even reduce, to a large extent; legal hassles that may crop up during the term of such lease/rent and at times, even after the expiry of the term. It is very important to bear in mind every minute detail in legal terms or otherwise, by which, both, or either party may or will be affected, or such details are in the area of their interest. Hence, to start with, a skeleton draft may be prepared with all the clauses that are to be fitted in the final copy of the agreement, which will be binding on the parties to the agreement. CLAUSES TO BE INCLUDED IN A LEASE AGREEMENT IN GENERAL ARE LISTED BELOW: PARTIES TO THE AGREEMENT:
This clause should contain basic details of all the parties to the Contract starting with their name, fathers name, age, address, and designation and also the title they hold in the said property. Brief description of the Property to be leased with the intention of the parties towards the property.Term of the Agreement and the handover date including renewal period
RENT AND MAINTENANCE CHARGES:
Details regarding the time within which such rent needs to be deposited, the Percentage of rent to be enhanced on a timely basis and applicable taxes.
SECURITY DEPOSIT: Amount of deposit to be paid as Security Deposit at the time of entering into an agreement, mode of payment, Installments (if any), Rate of interest on failing to refund such deposit on termination of agreement, within the said period ELECTRICITY CHARGES AND PROPERTY TAXES: A mention regarding the party responsible for bearing the Electricity Charges and Property Taxes and to make payments on dues has to be made clear to avoid confusions in future.
SIGNAGE: If the said property is being let out for commercial purposes, then the lessor needs to mention the permission granted to display the name board, logo, symbol and any additional consideration if any, that needs to be paid to the lessor. PARKING: This includes Slots allowed for parking and additional consideration (if any) that needs to be paid. COVENANTS OF LESSEE: This shall include all the duties to be carried on by the lessee towards the said premises and also towards the lessor. Some of which may include maintenance of premises in good Drafting lease agreements to let out property on lease is a specialized area that relies on training, experience and continual update of current law. Each leasing situation is different and will require an agreement drafted to fit the situation and the intension of the parties.
95 Milaap - 2014 condition, timely payment of rent and other dues, details regarding sub- letting, and so on. COVENANTS OF LESSOR: This shall include all the duties and rights of the lessor towards the lessee and the property mentioned respectively. FORCE MAJEURE: Upon the occurrence of any event beyond the control of the parties including fire, accidents, any natural calamities, war, terrorist activities, governmental or municipal action, prohibition, restriction which in any way adversely affect the right of the lessee to peacefully enjoy the property can be described as force Majeure. The terms of payment of rent, on force majeure shall be mentioned and time till which such period can extend beyond which, continuation or termination of lease would take place needs to be specified and any deductions that need to be made from the rent during this time, also shall be mentioned. TERMINATION : The Lock in period after which the lease or rent can be terminated shall be mentioned including the minimum notice period to be given to the lessor. Any other condition on which the lease may be terminated by either of the parties has to be included. GOVERNING LAW & JURISDICTION: The law of the land and the jurisdiction to resolve the disputes, if any arise, shall be mentioned correctly. STAMP DUTY AND REGISTRATION CHARGES:
Cost of stamp duty, registration charges and other incidental expenses which need to be borne are to be clearly specified as to the person responsible for bearing of such costs. NOTICES: Mode of delivering of notices to the concerned parties need to be specified, including the address and contact details at which such notices shall be delivered. DISPUTE RESOLUTION In case if any dispute arises, the mode for resolving such dispute needs to be mentioned , including settling of disputes according to the provisions of the Arbitration and Conciliation Act, 1996. SEVERABILITY: If any of the clause or clauses of the agreement is found to be illegal, invalid or unenforceable, such clauses may be taken not to form part of the agreement only if they can be severed without affecting the rest of the agreement. WAIVER: Conditions of waiver, if any, should be mentioned. INDEMNITY: The lessor needs to make an undertaking to indemnify the lessee against all losses, claims, damages, costs, etc. that the lessee may have to suffer on account of any defect in the lessors title and rights to the demised premises and its ability to perform its obligations , including , but not limited to third party claims. Any terms of alteration of deed needs to be mentioned. ANNEXURES: The description of the Building and the premises and the immediate surroundings need to be mentioned clearly, including the list of furniture, fittings that the property already possesses, which will be handed over to the lessee along with the said property details.
96 Milaap - 2014 POORNIMA V HEGDE CS PROF. PROGRAMME VIVEK HEGDE & CO
ANALYSIS OF SECTION 185 OF THE COMPANIES ACT, 2013
The Companies Act, 2013 (CA 2013) which is enacted in the mid of 2013, is a landmark legislation and is likely to have far-reaching impact on all companies operating in India. While a part of CA 2013 has already become effective from 12 th September, 2013, the Draft Rules are in the notification stage after gathering public comments/opinion.
One of the important Sections of CA, 2013 which has come into force on12 th of September, 2013,is Section 185 which corresponds to Section 295 of Companies Act, 1956 (CA 1956) which contains provisions regarding giving loans to directors and other entities in which directors are interested.
In this Article, an attempt is made to analyze the provisions of Section 185 of CA 2013 in comparison with CA 1956.
WHAT SECTION 185 SAYS?
No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
What the expressionto any other person in whom director is interested means?
The expression means:
(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled VINAYAK S BHAT CS PROF. PROGRAMME VIVEK HEGDE & CO
97 Milaap - 2014 by any such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
WHAT IS EXEMPTED?
Following transactions are exempted from the applicability of the Section 185:
a) the giving of any loan to a managing or whole-time director
(i) as a part of the conditions of service extended by the company to all its employees; or
(ii) pursuant to any scheme approved by the members by a special resolution; or
b) a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans is charged at a rate not less than Bank rate declared by RBI.
WHAT IF THE PROVISIONS ARE CONTRAVENED?
If the provisions of Section 185 are contravened -
a) the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees
b) the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.
ANALYSIS AND COMPARISON WITH SECTION 295 OF CA, 1956:
1. Erstwhile Section 295 was not applicable to a private limited Company unless it is a subsidiary of a public limited. Whereas, Section 185 gives no exemption to a private limited Company.
2. Any loan made by a holding company to its subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its subsidiary were exempted from the applicability of Section 295 of CA, 1956. However, Section 185 gives no exemptions to those transactions.
3. Under Section 295 of CA, 1956, advancing loan to Directors, etc., was possible with the previous approval of the Central Government. Whereas Section 185 of CA, 2013 prohibits such a transaction.
4. Under section 295 of CA, 1956 imprisonments could be fully avoided by repayment of loan, where the loan has been repaid in part, imprisonment could be reduced proportionately. There are no such provisions in section 185 of CA, 2013.
CLARIFICATION BY THE MINISTRY OF CORPORATE AFFAIRS:
The Ministry has issued a Circular dated 19 th November, 2013, clarifying that section 372A of CA, 1956 dealing with inter-corporate loans and advances is still operative. While section 186 of CA, 2013 which was the
98 Milaap - 2014 corresponding section to Section 372A of the Act was still not notified, it was more of less clear that the section was operative.
QUESTIONS TO BE ANSWERED: 1. The Section 372A of CA, 1956 which still operative as per MCA clarification, gives exemptions to any loan made by a holding company to its wholly-owned subsidiary or to any guarantee given or any security provided by a holding company in respect of loan made to its wholly-owned subsidiary and hence such transactions are allowed. However Section 185 of CA, 2013 prohibits such transaction. Is the intent of the circular issued by MCA to exempt the transactions of the company with its wholly owned subsidiaries in which the director is otherwise interested?
2. Transactions relating to providing of loans, guarantees and securities in ordinary course of business are not prohibited under the provisions of Section 185 of CA, 2013 subject to some conditions. But the expression 'ordinary course of business' is not clarified. Some of the experts are of the opinion that this relaxation can be availed only by financial institutions such as Banks as lending is ordinary course of businesses for them. It is also being interpreted that lending to a subsidiary company is also a ordinary course of business since it is a day to day transaction. How to interpret this expression?
CONCLUSION: The Section 185 of CA, 2013 has attained much importance because of its applicability to private limited Companies and transactions with wholly owned subsidiaries. As clarified by MCA, it has received number of representations from the stakeholders consequent to the implementation of the Section, it is evident that there are lot of confusions in the professional community which as has to be addressed by MCA.
99 Milaap - 2014
MILAAP 2014: A SNEEK PEEK INTO THE TWO DAYS EVENTS.
DAY 1; SATURDAY, 22 ND FEBRUARY 2014.
INAUGURAL SESSION: Milaap 2014 was inaugurated by invoking the blessing of the divine, followed by lighting of the lamp and an inaugural dance, performed by the students.
Further, celebrating its 10 th anniversary the inaugural ceremony was followed by a Cake Cutting celebration, signifying the same.
SESSION1-TASTING SUCCESS:
Mr. Tony Francis, Station Director at RED FM, was the guest faculty for the session. He enlightened the audience with his talk, on how bearing in mind the situations around us in our lives- our responsiveness & reactions to the same, can allow us to face the circumstances , either with strength or in weakness.
That our adaptability in facing the same , plays a pivotal role, in the shaping of our lives. The speaker drew examples from his life to enumerate the same.
FLOURISHING CAREER AS A CS - BEYOND COMPANY LAW:
It was an extremely educative & informative session, delivered by CS Vittal, CS Raghu Kumar.K.N & with Mr.Vivekanada, chairing the session as the Moderator. It provided the students with valuable insights on the scope & availability of opportunities that lay before students - than only restricting themselves, to being merely Company Law experts. Inputs were suggested, in assisting students, to being more competent professionals.
During the course of the session, the faculties discussed at length, the need for Company Secretaries to be involved in matters of Taxation, Labour Laws, and other such statutes.
Much emphasis was laid on the tremendous responsibilities, that rests with Company Secretaries-which extends beyond the paradigm of only filing of requisite forms & returns & issuance of compliance certificates, but also the importance of Company Secretaries, in the areas of economic, political and administrative dimensions, in ensuring the companys responsibility to the stake holders, the country, and to the society, in being a good Corporate Citizen, are being honored.
SHOWCASE EVENT:
The most awaited event with eagerness & anticipation both by students and other members alike, this years Showcase event
100 Milaap - 2014 revolved around the subject theme of -The attitude, mind-set, & perceptions of the students, on the threshold of entering into the profession & the outlook, changed awareness & attitude of students, already present in the profession.
With the added element of fun, it was entertainment coupled with learning for all. The team was guided by CS. Vasant More, Prof. Salimath & reviewed by CS. Padmavathi. Also presented, was a skit by the Dharwad students.
WINNING STRATEGY FOR SUCCESSFUL CAREER: I believe in reinventing myself & learning new things every day. The only disability in someone can be an inferiority complex-Malathi.K.Holla. A woman of great strength, grit & determination, she is a fighter through and through. It was a session delivered, by one of Indias remarkable sport persons recipient of the Arjuna award in 1995 and the Padmashri in 2001(The first disabled person to receive the award) - Ms. Malathi.K.Holla, the International Para athlete, who has won over 300 medals at National & International events & has represented India at the Paralympic games, Asian games etc.
Her inspirational story left behind an indelible impression, on all present & was indeed a learning experience, on how the traits of hard work, sheer willingness coupled with a never- say die approach, can without doubt & will always, make possible for you, to achieve the targets you set in sight for yourself.
CULTURAL EVENTS: The evening culminated with a resplendent display of performances in the categories of dance, Song and an Ethnic parade, by the students. The stage gave way, for the students to display their talents, in the capacity as performers & the performances were well received & cheered for, by one and all. It was fun time!
DAY 2 SUNDAY, 23 ND FEBRUARY 2014 COMPANIES ACT 2013 - TECHNICAL SESSION: With the Companies Act, 2013 being finally notified, a new era in corporate governance, will arise. All the sections have not been notified yet and being in the midst of a transition, there are a number of questions already being asked and waiting to be answered.
This technical Session given by CS. Kannan & CS Kailasam, gave the students & members alike, an opportunity to hear to the experts opinion & their sharing of knowledge on the key provisions of the Act and a Comparative analysis of the same, with the Companies Act 1956. With its applicability to the upcoming CS exams, to be held this academic year onwards, it was of immense help to the students to comprehend better, in relation to the new Act.
COMPANIES ACT 2013: PRESENTATION &QUIZ:
The Company Law PPT presentation event saw participation from 3 teams, on the final day of the event. . Subject matter of the presentations were Key Managerial Personnel, Minority Interest & Related Party Transactions, from the students. The event was judged by CS Harish B.N & CS.Parmeshwar Bhat. Also, a quiz competition on the topic of Companies Act, 2013 was conducted. It gave the students an overview of their standing, in matters of their knowledge & awareness on the area under discussion.
THE EVERGREEN QUESTIONS: The session is aptly named so, as this interactive session addressed questions, clarifications & various other doubts, arising in the minds of students. From questions ranging from achieving excellence in academics to what next after completion of CS? , questions were responded to by CS.Jyotika Kamat, CS. Ashok Tandon & CS.Dattatri.H.M -being the Moderator of the session. It was a platform, to respond to the Ever Green Questions in the
101 Milaap - 2014 minds of students, at this years Milaap & the session rightly justified the same. VALEDICTORY:
Commencement of the valedictory ceremony began with the official release of the E-souvenir of Milaap-2014.
It was followed by the prize distribution ceremony & winners of various events conducted were awarded. The winners of the Top 3 Best articles of Milaap- 2014, were also announced.
The efforts of all the organizing teams of Milaap-14, was also rewarded & acknowledged. In conclusion, as a note of our thankfulness, mementos were presented to the Chief guests, after their address to the audience.
With a successful participation from over 450 students ,Milaap 2014 saw the day drawing to a close, with the endeavor envisioned by the members, students & the participating faculties, coming to a reality on the 22 nd & 23 rd of February14 .
Two months of effort, hard work, many a number of discussions & deliberations came to a cheerful & fantastic close, with the witnessing of the successful 2 day event, for all till the next year brings us together again, with newer additions to our student & member community, newer challenges & newer heights to scale.
102 Milaap - 2014
THE STRENGTH OF THE TEAM IS EACH INDIVIDUAL MEMBER. THE STRENGTH OF EACH MEMBER IS THE TEAM- PHIL JACKSON
103 Milaap - 2014 2. THE HOSPITALITY TEAM 3. THE PUBLICITY TEAM
SL. NO THE HOSPITALITY TEAM 1 Sriram 2 Arjun 3 Chetan Kumar 4 Vijayesh 5 Naveen Kumar 6 Manasa 7 Ravi.S.K 8 Rahul 9 Chandrashekhar 10 Vishnu 11 Rakshita
4. THE E-SOUVENIR TEAM
SL. NO THE E-SOUVENIR TEAM 1 DHIKSHIT.U (MENTOR) 2 KUSUMA.G 3 SOWMYA SUNNY 4 SHILPA.R
SL. NO THE PUBLICITY TEAM 1 Punitha 2 Gayathri 3 Shashikanth 4 Dimple 5 Parvathy 6 Madhavi 7 Deepak 8 Abhishek 9 Shivram 10 Aparna 11 Ashwini
104 Milaap - 2014 We acknowledge our heartfelt gratitude to:
The Guests of Honor & other dignitaries. Speakers of Technical Sessions & special sessions. Out station students & their respective educational institutions/Employers/Chapters for their active participation. The Entertainment programme team. Service providers. The Managing Committee members. Staff at the Bangalore chapter of ICSI Organising students
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