Financial Management I

17th June 2006

Class:04.1.1 Appendices Regulatory Environment

Regulatory Environment
Corporate Finance
List of Annexure or References

Annexure
Sr. No 1 Content Industrial Policy

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Export Obligation-Industrial Policy 3 4 5 6 7 FDI State Government Incentives Intellectual Property Designs and Trademarks Technical Know-how Dividend Repatriation

Annexure
Sr. No 8 9 10 11 Content Import Plant & Machinery Import-Parts Imports-CKDs and SKDs

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Company formation-The Indian Companies Act,2000

Annexure
Sr. No 12 13 14 15 Content Take over-SEBI

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Listing on Stock Exchanges-SEBI and NSE and BSE

Competition-The Competition Act,2000 Restructuring The Indian Companies Act,2000

Annexure

Annexure :1
Industrial Policy

Industrial Licensing
Schedule I II III Category Exclusive Public Sector Compulsory Licensing Exclusively for Small Scale Sector /Industry ( SSI )

SCHEDULE I: List of Industries Reserved for the Public Sector

1. Atomic energy. 2. The substances specified in the scheduled to the notification of the Government of India in the Department of Atomic Energy number S.O.212(E), dated the 15th March, 1995. 3. Railway transport.
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SCHEDULE II: List of Industries for which Industrial Licensing is Compulsory

1. 2. 3. 4. 5. 6.

Distillation and brewing of alcoholic drinks. Cigars and Cigarettes of tobacco and manufactured tobacco substitutes. Electronic Aerospace and Defense equipment: all types. Industrial explosives including detonating fuses, safely fuses, gun powder, nitrocellulose and matches. Hazardous chemicals. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994 as amended in 1999).

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SCHEDULE III: List of Items reserved for exclusive manufacture of SSIs.1

The present policy of encouraging growth of small scale industries is based on several promotional measures one of these is reservation of products for exclusive manufacture in the small scale sector in areas where there is techno-economic justification for such an approach. Large/Medium units can, however, manufacture such reserved items provided they undertake to export 50% or more of their production.
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SCHEDULE III: List of Items reserved for exclusive manufacture of SSIs2



The issue of reservation/dereservation of product is examined on a continual basis by an Advisory Committee on Reservation constituted under the I(D&R) Act 1951, which is presently headed by the Secretary (SSI) as Chairman. Other Members of the Committee are Secretary (Commerce), Secretary (IP&P), Advisor (VSI) Planning Commission with Additional Secretary & DC(SSI) as Member Secretary.

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SCHEDULE III: List of Items reserved for exclusive manufacture of SSIs3



The total number of items reserved for small scale sector as on March, 2005 is 506. Details of these 506 items are given as under

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SCHEDULE III: List of Items reserved for exclusive manufacture of SSIs4

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.
FOOD AND ALLIED INDUSTRIES (9) WOOD AND WOOD PRODUCTS (9) PAPER PRODUCTS (19) PLASTIC PRODUCTS (13) CHEMICALS AND CHEMICAL PRODUCTS (7) NATURAL ESSENTIAL OILS (2) ORGANIC CHEMICALS, DRUGS AND DRUG INTERMEDIATES (12) OTHER CHEMICALS AND CHEMICAL PRODUCTS (20) GLASS AND CERAMICS (27) MECHANICAL ENGINEERING EXCLUDING TRANSPORT EQUIPMENT (61) ELECTRICAL MACHINES, APPLIANCES & APPARATUS (17) ELECTRONIC EQUIPMENTS AND COMPONENTS (1) TRANSPORT EQUIPMENT BOATS AND TRUCK BODY BUILDING (3) BICYCLE PARTS, TRICYCLES AND PERAMBULATORS (41) MISCELLANEOUS TRANSPORT EQUIPMENT (4) SPORTS GOODS (7) STATIONERY ITEMS (13) OTHERS (21)

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Annexure :2
Foreign Direct Investment

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Foreign Direct Investment ( FDI ) .What is it ?



It is investment in an company (incorporated in India under the Indian Companies Act,2000) by way of


equity share capital

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Foreign Direct Investment ( FDI )



Foreign Direct Investment in India is allowed on automatic route in almost all sectors except


Proposals that require an industrial license and cases where foreign investment is more than 24% in the equity capital of units manufacturing items reserved for the small scale industries. Proposals in which the foreign collaborator has a previous venture/tie-up in India. Proposals relating to acquisition of shares in an existing Indian company in favor of a Foreign/Non-Resident Indian (NRI)/Overseas Corporate Body (OCB) investor; and Proposals falling outside notified sectoral policy/caps or under sectors in which FDI is not permitted and/or whenever any investor chooses to make an application to the Foreign Investment Promotion Board and not to avail of the automatic route.

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FDI-Competent Authority


Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment (FDI), which do not come under the automatic route.

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Form of FDIs


Foreign Direct Investment (FDI) is permited as under the following forms of investments.
 

 

Through financial collaborations. Through joint ventures and technical collaborations. Through capital markets via Euro issues. Through private placements or preferential allotments.
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Forbidden for FDI

    

Arms and ammunition. Atomic Energy. Railway Transport. Coal and lignite. Mining of iron, manganese, chrome, gypsum, sulphur, gold, diamonds, copper, zinc
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FDI-Automatic and Nonautomatic (FIPB Route)

Automatic (RBI)


RBI accords automatic approval within a period of two weeks (provided certain parameters are met) to all proposals involving:


foreign equity up to 50% in 3 categories relating to mining activities (List 2). foreign equity up to 51% in 48 specified industries (List 3). foreign equity up to 74% in 9 categories (List 4). where List 4 includes items also listed in List 3, 74% participation shall apply.

Non-automatic (FIPB) Normal processing time is 4 to 6 weeks. Its approach is liberal for all sectors and all types of proposals, and rejections are few. It is not necessary for foreign investors to have a local partner, even when the foreign investor wishes to hold less than the entire equity of the company. The portion of the equity not proposed to be held by the foreign investor can be offered to the public.

http://finmin.nic.in/foreign_investment/fii/index.html
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FDI List


http://www.ciionline.org/Services/74/I mages/ssg_26june2002.pdf

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FDI-Competent Authority


Foreign Investment Promotion Board (FIPB) is a competent body to consider and recommend foreign direct investment (FDI), which do not come under the automatic route. With the shifting of the FIPB to the Department of Economic Affairs, Ministry of Finance, the FIPB has been reconstituted as under:

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Appendix:3
Technical Know-how

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Technical Know-how


The Reserve Bank considers under the Automatic Route, applications from Indian companies for foreign technical collaborations, for lumpsum payment of technical know-how fee upto US $ 2 million and/or royalty up to 5% on domestic sales and 8% on exports over a period of 7 years from the date of commencement of commercial production or 10 years from the date of agreement, whichever is earlier
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Appendix:4
Import of Parts

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DGFT-Exim Policy
 

Foreign Trade Policy http://dgft.delhi.nic.in/

http://www.eximkey.com/contents/show page1.asp?pageid=9992

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Appendix:5
Intellectual Property

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Designs
  

The Consultant check out : http://www.tmrindia.com/ and http://ipindia.nic.in/ipr/design/designs.h tm The Design Rules India 2001 and 2003

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Trademarks
  

 

The Consultant check out : http://www.tmrindia.com/ and http://ipindia.nic.in/tmr_new/tmr_act_r ules/tmr_act.pdf Trademarks Act,1999 Trademarks Rules,2003

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Appendix:6
Dividend Repatriation

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Dividend Repatriation


As per the rules of RBI full repatriation of dividend is allowed subject to he rules and regulation of RBI

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Appendix:7
Corporate Governance

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Listing Agreement-Clause 49


Applicable to all listed companies

 

Appointment of Independent Directors Appointment of various Committees

 

Audit Compensation

   

Code of Conduct CEO/CFO Certification Report on CG to SEs CG Compliance Report from Auditors
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Listing Agreement-Clause 49
Following disclosures are required as per the amended clause: 1. Basis of related party transactions 2. Disclosures of Accounting Treatment 3. Board Disclosures - Risk Management 4. Proceeds from public issues, rights issues, preferential issues etc. 5. Remuneration of Directors 6. Management Discussion and Analysis

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Sarbanes-Oxley Act
   

Details .1

  

Certification of financial reports by chief executive officers and chief financial officers Ban on personal loans to any Executive Officer and Director Accelerated reporting of trades by insiders Prohibition on insider trades during pension fund blackout periods Public reporting of CEO and CFO compensation and profits Additional disclosure Auditor independence, including outright bans on certain types of work and pre-certification by the company's Audit Committee of all other non-audit work

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Sarbanes-Oxley Act
 

 

Section 404 compliance Cost of Compliance is a major issue (especially for overseas companies) For instance for a Company with Revenue of US$10-50 bion it could be US$20 mion US$ 5 bion or less, US$2 mion

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Sarbanes-Oxley Act


Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or SarbOx; July 30, 2002) is a United States federal law Introduced in the wake up of scandals of
  

Enron Tyco WorldCom

Named after sponsors Senator Paul Sarbanes (D Md.) and Representative Michael G. Oxley (R Oh.),
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Sarbanes-Oxley Act
 

Details .2

Criminal and civil penalties for violations of securities law Significantly longer jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements. Prohibition on audit firms providing extra "value-added" services to their clients including actuarial services, legal and extra services (such as consulting) unrelated to their audit work. A requirement that publicly traded companies furnish independent annual audit reports on the existence and condition (i.e., reliability) of internal controls as they relate to financial reporting.

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END

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