Today’s topics

• Industrial license Vodafone

• MSME • Transfer pricing
• Corporate governance • Netherland BIPA
• Companies Act 2013 • GAAR, DTC,
UNICTRAL
• SEBI norms
Nokia: Royalty tax,
• RPT: Suzuki Mehsana Finland DTAA

All PowerPoint Slides available

at Mrunal.org/ECONOMY
1. Debt vs Equity?
2. IIB, IINSS-C
3. T-Bill vs G-sec
4. IPO issue mechanism
5. Par value vs premium
6. ADR-GDR
7. Bond yield vs bond price relation
Preferential shares
Bonus issue
Rights issue
ETF
Hedge fund
P-notes
Call option, Put option
Stag investor
SENSEX formula
PAN card vs Aadhar Card
Trading softwares
FSLRC recommendations
 Industrial Policy
1948 Shyama Prasad Mukerjee: 1 st

industrial policy.
1956 policy revised- main focus on
PSU
1991 LPG reforms, Narsimharao’s
new industrial policy.
 1991
1. FDI relaxed
2. NRI can invest upto 100% industrial
3. Software technology parks policy
features
4. Disinvestment of PSU, Miniratna-
Navratna
5. MRTP act (‘69)=> CCI act (2002)
 1991
Only 3 areas reserved for Public sector:
1. Atomic Energy industrial
2. Atomic Minerals policy
features
3. Rail Transport
 1991
1. Only 5 sectors require industrial
licensing industrial
2. Remaining just fillup Industrial policy
Entrepreneur’s Memorandum (IEM) features
@DIPP
3. DIPP: Department of Industrial
policy and promotion
 Industrial license is required for…

Tobacco & Cigar

Defense, Electronic
Aerospace eqip. Hazardous Chemicals
 License
1. Nitrocellulose: guncotton
2. Hydrocyanic acid: Prussaic acid Hazardous
3. Phosgene: plastic, pesticides Chemicals
4. Methyl Isocyanate (MIC): Sevin
Fertilizer, Bhopal tragedy 3/12/84
 NMP-2011
1. Mfg share in GDP 15%
2. Increased to 25% Manufacturin
3. Create 100 million jobs g
Policy
4. PPP, infrastructure
5. Skill Development: polytech.
6. VC for startup companies
7. Nat.investment & mfg zone (NIMZ)
8. Reform labor laws
Ignore for
Non-UPSC
 WHY?
1. Labor laws: concurrent list
2. 44 union, 150+ state laws Labor
3. Inspector-bribe raj reforms
4. Industrial dispute act ‘47
5. >100 workers, Government
permission before laying off
6. Super-contractors: no EPF, SS.
7. Apprentices used as regular workers
 Solution
1. Two bills in LS (2014, Aug)
2. Factories Bill Labor
3. Apprentice Bill reforms
 Laws
1. 2010: Narendra Jadhav Committee
2. 2014: Amendment bill Factories
Act
 Define Factory
criteria 1948 2014
power 10 20
used workers
power not 20 40
used workers
 features
1. Women workers can do nightshift
2. Safety provision and home transport Factories
3. Can work on moving / heavy Bill 2014
machinery
4. Exempt: PH+ mothers
 features
1. 100 hours overtime per 3 months
2. Min. 90 days / year to get paid Factories
leaves. Act
3. Capacity: horsepower=> kilowatts
4. Can decide its own workweek.
 Facilities
1. Cool water irrespective of #workers
2. Spitton, sitting facilities=> Factories
compoundable offense. Bill
3. Restroom, lunchroom >75 workers
4. Canteen: 200> workers
5. Self-certification
6. Union can also make rules. (earlier
only states)
 overall
1. Women equality
2. More safety and facilities Factories
3. Owner no arrest for minor issues. Bill
 laws
1. 1961 outdated law
2. 2014 bill Apprentice
3. Age: 14 non-hz, 18 hazardous Act
4. non-engineering graduates and
diplomas can enter
5. Common training by multiple
companies
6. Test by National Council for
Vocational Training (NCVT).
Ignore for
Non-UPSC
Industrial policy
Factories act
Apprentice act
Next: MSME; => corporate sector =>
companies Act
 Cottage Village industry

Family members  Area <10k population

No hired manpower  Investment<15k / worker
Capital investment
negligible
Handmade products,
no tools used
 Organized (17%) Unorganized (83%)

Factories Act, 1948  Not covered under such

Plantation acts acts
Shops and Commercial
Establishments Acts of
State Governments,
Industrial Employment
Standing Orders Act,
1946 etc
 Organized (17%) Unorganized (83%)

SS, EPF, Maternity  Unorganized Workers

benefit Social Security Act 2008
 Social security boards
setup at national and state
levels.
 2010: NPS-Swavalamban
scheme
 MSME Classification: investment
Mfg. Sector
(32%)
MICR upto 25 lakhs
O
SMA >25 lakhs
LL
MED.  >5 cr.
 Upper limit 10
 MSME Classification: investment
Mfg. Sector Service (68%)
(32%)
MICR upto 25 lakhs upto 10 lakhs
O
SMA >25 lakhs >10
LL
MED.  >5 cr.  >2 cr.
 Upper limit 10  upper limit 5
- Pickles & chutneys - Safety matches SSI
- Bread - Fire works
- two edible oils - Agarbatties Items
(without solvent - Glass bangles
extraction) -Mustard - Steel almirah reserved
oil, Ground nut oil - Rolling shutters
- Wooden furniture and
fixtures - Steel chairs, tables,
- Exercise books and furniture
registers - Padlocks
- Wax candles - utensils- stainless
- Laundry soap steel, aluminum
 SSI
Non-MSME industry
Must get license + 50% export Items
Doesn’t apply to SEZ reserved
 MSME
No excise duty: 1.5 cr turnover
No Service tax: <10 lakh /year
Capital subsidy: 15lakhs to purchase Taxation
SEDF / SIDBI
Khadi board, Coir Board, Udhyami
mitra
More: Refer to Economy section
 MSME
Policy 2012: 3 years
All central Government units Public
20% of total purchase from MSME Procurement
Within that 4% from SC/ST

Ignore for
Non-UPSC
 Corporate Governance

1.Definition
2.Companies Act 2013
3.SEBI norms 2014
 Corporate governance: Meaning?
Way of directing the company
To protect stakeholders’ interest
To comply with legal-regulatory req.
Not mere technical compliance
Moral-ethical compliance
Absence: fraud, mismanagement
 Corporate governance in India
SEBI Norms: Companies Act
• Sep 2012: Adi Godrej • Original 1956
• April 2014: Published • Aug 2013 (470 section)
• Effective 1st Oct. 2014 •…
• Feb 2014: rules notified
 Types of companies
One person

Companies Act Private ltd.

2013 2-200 Listed
Vodafone
Public Ltd. India.
7-unlimited Unlisted
Nokia-
Total ~9 lakh companies Microsoft
>90% private ltd. 34
 Min.Capital: 1L
One person Convert once capital
>50 or turnover >2cr.
Companies
Act Private ltd. Min.Capital
2013 2-200 1 lakh

Public Ltd. Min. Capital

7-unlimited 5 lakh

Dec. 2014: Government wants to scrap min.capital

Counter: shell companies, money laundering 35
 Infosys

1992
• Private • IPO
• public.
ltd launch
Ltd
1981 1993

36
 Min.Capital: 1L
One person Convert once capital
>50 or turnover >2cr.
Companies
Act Private ltd. Min.Capital
2013 2-200 1 lakh

Public Ltd. Min. Capital

7-unlimited 5 lakh

37
 Holding Vs Subsidiary
•Reliance industries
Ltd (Holding)
•Delight protein
Ltd. (Subsidiary)

38
 Holding vs Subsidiary Companies
GEB: Gujarat Urja Vikas Nigam Ltd.
(GUVNL)
Gujarat State Electricity Corporation
Limited (subsidiary)

Ukai G'Nagar Dhuvaran

 Org.
1. Indian Railways, Postal Department
2. commercial activity such as Dept.
engineering, manufacturing etc. undertaking
3. directly controlled, just like any
other department
4. not under the companies act
5. Employees = Government servant
6. Directly CAG + RTI

40
1. LIC, Air India, IDBI, UTI
2. Act of Parliament / State Legislature Public
3. Wholly financed by Government Corporations
4. All BoD
5. Employees not Government servant
6. Directly by CAG (some exception)
 Org.
1. ONGC, SAIL, Coal India ltd.
2. Registered under Companies Act Government
3. Government owns >50% shares Companies
4. Majority BoD.
5. Employees Not public Govt.
6. CAG appointed pvt. Auditors
7. “Ratna” Click Me
Industrial licenses
MSME
Types of Companies and PSUs
NEXT: Board of Directors
 Types of companies
One person

Companies Act Private ltd.

2013 2-200 Listed
Vodafone
Public Ltd. India.
7-unlimited Unlisted
Nokia India
44
 MD/CEO
Executives
Staff

Board of Directors
Chairman

SHARE-HOLDERS IPO
 Chairman

Executive Director/Full-
time
BoD
Nominated (Bank/CG)

Independent Director
46
No. of Directors (Compulsory under Companies Act)

One person 1

Companies Act Private ltd.

2
2013 2-200

Public Ltd.
3
7-unlimited

47
 Companies Act 2013: Directors
Maximum: 15
Even more by AGM resolution
One person: maximum 20 companies.
One director Indian resident (182 days)
One director Woman
12 months absent = vacate.
 Chairman

Executive Director/Full-
time
BoD
Nominated (Bank/CG)

Independent Director
49
 Companies Act 2013: Independent director
Not a Promoter
Pecuniary interest…X (except salary)
Employee…X
 Independent Directors

One person NA

Companies Private ltd.

Act NA
2-200
2013
1/3rd
Public Ltd.
Minimum 3=>1
7-unlimited
Max 15=>5
Term: 5 years x 2 (performance review AGM)
Re-appointment: cooling 3 years 51
 SEBI norms: ID
ID: Separate meetings
One person max. 7 companies ID
Full-time director in 1 company => 3
companies' ID
Term: 2 x 5 years (Retrospective)
Performance report on ID
Atleast 1 woman director in the board
Independ Directors CEO
Board Meetings Executives
Staff

Board of Directors
Chairman-MD

SHARE-HOLDERS IPO
 Companies Act 2013 : Board meetings
Minimum 4 meetings per year
Not > 120 days gap
Video conferencing…yes
Quorum: 1/3rd strength OR 2 directors
whichever max. (one person company..X)
7 days prior notice
 Companies Act -BoD: Committee
1. Audit committee
2. Stakeholder relationship committee (SRC)
3. CSR committee (CSRC)
4. Nomination and Remuneration committee
(NRC):
1. MD/Director: 11% of profit
2. CEO vs Median salary
3. Pay rise vs Company performance
 Corporate Social responsibility (CSR)
Last 3 years' avg. profit=> 2% CSR spend
Applies to?
1. net profit of 50 million (Excluding Tax)
2. net worth of 5 billion (Asset-liability)
3. turnover of 10 billion (sales excluding costs)
Foreign branch…X
Independ Directors CEO
Board Meetings Executives
AGM Staff

Board of Directors
Chairman-MD

SHARE-HOLDERS IPO
 Annual General Meeting (AGM)
One person company: no need
Public & pvt LTD. companies…yes
General notice by letter / email
Quorum (physically present): depending on #
shareholders: 5 to 30
Proxy voting….Yes
Electronic Voting…Yes (SEBI C.G. Norms
also)
 Auditing related

1.Independent directors
2.Board meetings
3.AGM
 Companies Act 2013
BoD => Audit Committee (ID)
External Auditors
Fraud report to Central government +
shareholders' meeting
One auditor=> maximum of 20 companies
 Companies Act 2013: Auditor’s term
Individual auditor: 5 years
Audit firm: 5 year x 2
Cooling off: 5 years
Internal audit: CA/Accountant/others
Whistleblower mechanism
Full time Company Secretary: capital >Rs.5 cr
 Companies Act 2013: misc.
Company cannot give loan to director / related
persons
Min. loan interest rate >G-Sec
Credit rating before accepting public deposit
(CIS)
Chief Finance Officer=> audit account
Types of companies
Independent director, BoD, AGM
Audit related
Misc. loan, CIS
 New bodies
Companies Act 2013
1. National Company Law Tribunal (NCLT)
2. National Financial Reporting Authority
(NFRA)
3. Investor and Education Protection Fund
4. SFIO Fraud
 National Company Law Tribunal (NCLT)
Judicial + technical members
Finish case in three months
Appeal: NCLAT
Present case by Self, Lawyer, CA, CS
Cases:
1. arbitration, compromise, M&A
2. Converting Public ltd. To private ltd.
3. Filing Class action suits (Satyam)
 #2: National Financial Reporting Authority (NFRA)
1 Chairman + 15 members
Accounting standards
Powers of civil court
Professional misconduct of CA/accountant=>
debar
Appeal: NFRAA
ICAI unhappy (Chartered Accountants Act,
1949)
 New bodies
Companies Act 2013
1. National Company Law Tribunal (NCLT)
2. National Financial Reporting Authority
(NFRA)
3. Investor and Education Protection Fund
4. SFIO Fraud
 Investor and Education Protection Fund
Since 1956’s company act
Unclaimed Dividend, interest, principle
Under Corporate Affairs Ministry
Awareness, seminar, financial literacy
Participation from RBI, SEBI, experts
 Investor and Education Protection Fund Authority
2013’s Act: Statutory authority
@Delhi HQ, Regional offices
Corp. Affairs Secretary = Chairman
Members:
RBI Executive directors
SEBI Executive directors
Legal experts etc.
 New bodies
Companies Act 2013
1. National Company Law Tribunal (NCLT)
2. National Financial Reporting Authority
(NFRA)
3. Investor and Education Protection Fund
4. SFIO Fraud
 Serious Fraud Investigation Office (SFIO)
Naresh Chandra report on Corp. governance
2003: under Corp. Ministry
Cases
1. Satyam
2. Reebok fraud
3. Sesa Goa invoice
4. Saradha Chitfund
 Companies Act 2013: SFIO
Statutory body
Not just document examination
Search seize arrest
CrPC power- investigator
Once SFIO gets case, other agencies can’t
proceed.
State police, CBI -cooperate, provide
documents, witnesses.
 Companies Act: Memorize
3 companies: OPC, pvt, public
4 new bodies: tribunal, financial reporting, edu.
Fund, SFIO
Directors: ID, women
Meeting: Board, AGM
Audit: fixed term, whistleblower, report to
central Govt.
 Conclusion: Companies Act 2013
business-friendly regulations
Better corporate governance
Protecting small investors
Self-regulation
Less government approval
 Adi Godrej
SEBI Norms
1st October 2014

Minority
Transparency
shareholders
Salary
Independent Directors Committee
under ID
E-Voting Audit Committee

RPT- Related party

Whistleblowers
transaction
 Maruti Suzuki
Gujarat plant Controversy
 R
Pa oy
n d y a
e D m lt
i d iv e y
iv id nt
D en
d

HARYANA
 MANESAR UNREST, 2012
• 1 Manager dead
• 2 Japanese Executive
injured
• Rs. >3000 crore
 D Pr
iv o f
id it
d en Suzuki
e n d
i d Motors
iv R Gujarat
D Pa oy
ym alt
en y
t

Cost price
Profit margin Mehsana
 Why controversy?
HDFC, Reliance Cap,
ICICI, SBI
Suzuki (56%)

Less profit for

MS=>less dividend
MS. Will become mere
distributor/ marketing
company.
HDFC, Reliance Cap, ICICI,
SBI
Suzuki (56%)

Maruti-Suzuki has  100% subsidiary in

surplus of Rs.7500 cr. Gujarat
Why not upgrade  15 years lease
Haryana?  If not renewed, it’ll be
merged with Maruti-
Suzuki.
 (2017) 25-30k Cr.
 Why controversy?
HDFC, Reliance Cap,
ICICI, SBI
Suzuki (56%)

Why not upgrade  Profit re-invested in

Haryana? Gujarat
 @Haryana 1.5 million
cars / PA
 @Gujarat 2.5 million
(2017)
 No Risk for Maruti
1. Mehana ~1200 Acre.
Maruti
2. 640 acres in Becharaji ; 550 acres in Gujarat
Vithalapur positive
3. Investment of Rs. 25-30k Cr. Points
4. Full Capacity in 2017
5. 2.5 million cars /PA
6. Autohub- replacing Tamilnadu +Haryana
7. Suzuki Motors Gujarat ltd=>Ahmedabad
(HQ)
8. EMPLOYMENT
 Mehsana
Companies Act 2013 =>1/4/2014.
“Related party Transaction” RPT Negative for
Require vote from majority of Suzuki
minority shareholders.
Minority shareholders=> SEBI
complaint