Instruction No. 4/2009, dated 30-6-2009

July 3, 2009 : Under sub-section (10) of section 80-IB an undertaking developing and building housing projects is allowed a deduction of 100% of its profits derived from such projects if it commenced the project on or after 1.10.1998 and completes the construction within four years from the financial year in which the housing project is approved by the local authority.

2. Clarifications have been sought by various CCsIT on the issue whether the deduction u/s 80-IB(10) would be available on a year to year basis where an assessee is showing profit on partial completion or if it would be available only in the year of completion of the project u/s 80-IB(10).

3. The above issue has been considered by the Board and it is clarified as under:-

(a) The deduction can be claimed on a year to year basis where the assessee is showing profit from partial completion of the project in every year.

(b) In case it is late, found that the condition of completing the project within the specified time limit of 4 years as started in section 80-IB(10) has not been satisfied, the deduction granted to the assessee in the earlier years is should be withdrawn.

ICICI PRU MF, BIRLA SUN LIFE AMC AND HSBC MAJOR INVESTORS IN STATE BONDS

July 3, 2009: MUTUAL fund houses have been loading up on state development loans (SDLs) in their debt schemes over the past six months, charmed by their higher yields, low credit risk and lack of money-making opportunities in central government securities.

Also called state bonds or state securities, SDL have traditionally been the poor cousins of central government securities. With SDLs, the state governments borrow funds from the public for covering expenditure. These are issued by the Reserve Bank of India (RBI) on behalf of various state governments, and it improves the creditworthiness of these issuances significantly.

An ET analysis of data by mutual fund tracker Morningstar reveals that ICICI Pru MF, Birla Sun Life AMC and HSBC are the major investors in SDLs. Eleven income schemes—with SDL weightage in portfolio ranging between 1.6% and 6%—of Birla Sun Life MF have state bonds of Karnataka, Maharashtra and UP. While seven income funds of ICICI Pru have SDLs (weightage in portfolio ranging between 0.07% and 5%), HSBC Flexi Debt Fund has 0.7% exposure to a state bond issued by Maharashtra. A few debt schemes of Deutsche MF also had exposure to SDLs some months ago.

“Mutual funds are investing in SDLs sighting superior yields, low default risk and good liquidity,” said Krishnan Sitaraman of Crisil Fund Services.

“With RBI mediating the repayment, default risk is virtually nil in SDLs. As a matter of fact, SDLs are considered at par with government securities and higher than corporate bonds in terms of credit risk. When compared to some corporate bonds, SDLs are easy to sell in secondary market,” Mr Sitaraman added.

According to experts, yields on state bonds are (normally) higher when compared to central government securities. To moot the point, yields on SDLs were riding 200 bps over central government securities in March; currently, spreads on SDLs are ranging 70 to 80 bps higher than corresponding government securities.

MF assets rise for 3rd month to Rs 6.7 L cr

THE average assets under management of the Indian mutual fund industry have risen for the third month in a row taking the total corpus to Rs 6.71 lakh crore as of June 30, 2009, reports Bakul Chugan Tongia of ET Intelligence Group. Earlier last month, the industry saw a sharp jump in its average asset base which rose to about Rs 6.4 lakh crore, a record rise of 16% vis-a-vis average assets as of April 2009. While the asset size has swelled on an absolute basis, in percentage terms the growth has been moderate at about 5%. A big reason for this is the decline in the amount of money being parked by banks in MF schemes.  

July 3, 2009 : INVESTOR C Sivasankaran, who is known for spotting business opportunities early and exiting them at high valuations, is raising over Rs 1,150 crore. Siva Ventures, the primary investment vehicle for his Sterling Infotech Group (SIG), has already raised Rs 435 crore by issuing secured redeemable non-convertible debentures (NCDs).

The company is learnt to have pledged a 5.5% holding in Tata Teleservices (TTSL), apart from an area of 43 acres that it owns in Chennai through SIG. Siva Ventures had acquired around 8% stake in TTSL for Rs 1200 crore in 2006. It is learnt that shares held in some of its overseas subsidiary companies too have been pledged.

The plan now is to raise another Rs 715 crore by way of NCDs and external commercial borrowings (ECBs). Siva Ventures is learnt to be mobilising funds for some big-ticket acquisitions and refinancing some of its existing credit facilities. It is learnt that Mr Sivasankaran has recently liquidated his investments in Suzlon and the telecom arm of Unitech valued at Rs 600 crore. Mr Sivasankaran has interests in sectors such as telecom, shipping and logistics, media, renewable energy, infrastructure, township building, agriculture, food and wellness.

Confirming the decision to raise funds, a source familiar with the developments told ET, “Siva Ventures has raised over Rs 400 crore by issuing NCDs at coupon rate of 14.35% per annum. Its parent firm Sterling Infotech plans to raise another Rs 430 crore by the same route. Siva also plans to raise $60 million through ECBs.” Post-issuance of the NCDs, the debt-equity ratio of the company changed to 0.47: 1 from 0.35:1 as on March 31, 2009. A mail sent to Mr Sivasankaran and Siva Ventures remained unanswered. The NCDs by Siva Ventures were issued on a private placement basis. Standard Chartered Bank was the sole book runner and lead arranger for this issue. IL&FS Trust is the debenture trustee and Camero Corporate Services was the registrar to the issue.  

July 3, 2009 : Realty developer Housing Development & Infrastructure (HDIL) on Thursday said it will raise Rs 1,688.4 crore through the issue of shares to QIBs on a private placement basis. The company’s QIP committee has resolved to issue up to 7.03-crore equity shares at Rs 240 a piece, aggregating to Rs 1,688.4 crore, HDIL said in a filing to BSE. The issue of QIP, which opened on June 29, closed on Thursday. Further, the committee has also approved to issue 26-crore convertible warrants at a price of Rs 240 per piece to the promoter of the company on a preferential basis, HDIL added. Shares of HDIL were trading at Rs 235.20, down 0.55%, in the late afternoon trade on BSE.

July 3, 2009 I: Coastal Energen, part of the Chennai-based Coal & Oil Group, has raised debt of Rs 3,450 crore for its 1,200 MW thermal power project that is being built in Tuticorin in Tamil Nadu. The debt has been funded by a consortium of 16 banks and financial institutions, led by SBI, and carries a tenure of 15 years and an interest of 12%, Coastal said in a statement. The total cost of the project is Rs 4,300 crore and has completed coal linkages by importing coal from Indonesia. Coastal had earlier signed a boiler-turbine-generator contract with Harbin Power for the project, which is scheduled to be commissioned in 36 months.

July 3, 2009 : Foreign and domestic institutional investors, including mutual funds, on Thursday lapped up 100% of personal-care products maker Emami’s QIP. The company mopped up around Rs 310 crore by issuing some 1,00,00,000 equity shares of Rs 2 each at Rs 310 per share to QIBs. Speaking to ET, Emami director Mohan Goenka said: “Around 8-10 investors collectively subscribed to QIPs. While the foreign investors mopped up some 65% of the total offering, domestic ones picked up nearly 35% of the total offering. The company intends to use the proceeds to retire debt which it had taken to part-finance its takeover of Mumbai-based Zandu Pharmaceutical Works last fiscal.” Elaborating, Mr Goenka said: “Posttakeover of Zandu Pharmaceutical and implementation of the recently announced restructuring of its FMCG and the realty business, Emami will have a debt of approximately Rs 450 crore on its books.” These debts were taken at an interest rate of 11-12%. “We intend to retire the company’s entire debt component in the current financial year itself, but in a phased manner. Apart from the QIP proceeds, Emami will also use internal accruals generated during the year to retire the debt completely by 2009-10. We will hopefully become a debt-free company by March 31, 2010,” he added. While the bulk of the Rs 310 crore will be used to retire the company’s debt, a portion of the issue proceeds will also be used to develop new products and invest in secured instruments to protect stakeholders’ interest, said Emami chairman RS Agarwal. Incidentally, the QIP offering, coupled with the restructuring exercise, will scale down the promoters’ holding in Emami. The twin corporate development will bring down the promoters’ stakeholding to roughly 73% from their existing 87.84% and nonpromoter holding to 27%.

July 3, 2009: HINDALCO Industries, the Aditya Birla group flagship, has decided to raise up to $500 million (around Rs 2,400 crore) through a qualified institutional placement (QIP) of equity shares.

The metal and mining firm Hindalco is tapping the QIP route to raise funds for “future growth options,” CFO Sunirmal Talukdar told ET. “It is a flexible instrument that is relatively easy to raise, and is also faster than other options, as regulatory controls are less difficult,” he added.

Hindalco joins a growing list of large Indian companies that have decided to raise money through the QIP route, mainly to bring in the equity component for financing large projects, and also to retire debts.

The QIP route is fast becoming the most preferred option for Indian companies.

Hindalco has drawn a Rs 25,000-30,000-crore capex plan till FY13 for its various brownfield and greenfield expansion projects in Orissa and Jharkhand. The company had raised a fiveyear loan of $1 billion, to partly pay off a $3-billion bridge loan taken during the acquisition of Canadian aluminium major Novelis. Hindalco had acquired Novelis in 2007 for an enterprise value of $6 billion. Enterprise value is calculated as market capitalisation plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

The Hindalco stock closed flat at Rs 84.55 on BSE on Thursday. Its market capitalisation is pegged at Rs 14,821 crore. At this rate, an attempt to raise around Rs 2,400 crore may amount to nearly 16% dilution of equity capital.

Indian companies lined up a series of such offerings to raise Rs 35,000 crore this year, after Indian stocks had their biggest quarterly gain in 17 years.

“Most of the QIP plans are typically enabling resolutions,” says GS Ganesh of Inga Advisors. “But the market has seen a glimmer of hope after the elections and is seeing stable levels. Corporates have agreed that current valuations are correct and hence, there is a rush for QIP issues,” he added. On Wednesday, Bajaj Hindusthan — the country’s largest and the world’s fifth-biggest sugar company — raised Rs 723 crore through QIP, just a day after Bangalore-based GMR Infrastructure called off a similar offering.  

THE cycle of earnings downgrades is behind us and now Corporate India could surprise us with strong earnings, said Rajat Rajgarhia, head of research, at Motilal Oswal Securities in an exclusive interview with ET NOW. Excerpts:

Despite an 80% run-up in the market from March lows, as a broking house why are you bullish on markets and confident about earnings?

If you look at it from the earnings point of view, then the domestic sector is leading the surge in the earnings. As far as metals are concerned, their contribution to total earnings has declined from almost 24% to 10% now. The domestic sector still see more upgrades over the next few quarters and may be a couple of quarters down the line, metals will start seeing more meaningful upgrades. But that is largely dependent upon how the global cycles will behave.

You are bullish on financial stocks like State Bank of India, ICICI and IDFC. For the banking sector, the NPA problem is not yet over and private borrowers are still not confident about borrowing. Why are you bullish on banks?

The NPA problem was never as severe as it was made out to be by the market. It’s just that now since we are seeing a recovery, in both the domestic and global economy, the concerns have got reduced. I think there are two key themes in banking. First, just recollect all the statements that this government has been making about financial sector reforms whether it is FDI in insurance, some kind of consolidation, providing more leeway for banks to grow and not interfering in the pricing power of the banks. These things are key positives. Second, as the loan growth, which currently stands at 15-16%, starts moving up to 18-20% in the second half, you will start seeing banks reporting much higher core earnings. Banking is still a space where you can justify absolute returns from the current prices in the stocks that we have listed in our report and that’s why it remains one of the top allocations in the portfolio.

It is interesting that you’ve picked up ONGC in the oil sector and also Cairn India. Also, you still seem to prefer Relia nce over the other two after this entire RIL-RNRL dispute getting sorted out...

If you look at it from the allocation point of view, Reliance has a higher allocation in the portfolio, but ONGC has a higher outperformance weightage versus the benchmark. I think if we are looking at the earnings upsides, we are looking at more upsides coming in for ONGC and oil marketing companies. Our estimate for Reliance factors in an EPS of Rs 140 and a current price of Rs 2,000-2,100 which, in my view, values that Rs 140 EPS quite well. In terms of a value stock, today you have ONGC which has a dividend yield of 3%-plus and earnings which can meaningfully surprise people in FY10.

Do you have an index target for the year?

We don’t have an index target. We are giving stock targets right now. We are estimating an earnings growth of 1% in the index this year, and 16% in earnings for the next year. I am confident that the earnings are going to see upgrades as we move forward. If the overall liquidity in the markets remains as it is now and whatever steps we have seen from this government in the past one month, if we were to further build up on that, then the markets would inch higher from these levels.  

POWER CO PLANS TO BUILD ADDITIONAL CAPACITY OF 3,300 MW THIS YEAR

July 3, 2009 : STATE-OWNED utility NTPC is in talks with Japanese funding agency Japan Bank for International Co-operation (JBIC) to raise ‘green funds’ for its supercritical and ultra-supercritical power projects that are based on an efficient consumption of fossil fuels.

According to sources close to the development, the loan from the Japanese finance agency could be in range of $500 million (about Rs 2,400 crore at current exchange rates).

The JBIC has allocated $5 billion (about Rs 24,000 crore) for lending in two years, under its Leading Investment to Future Environment Programme. Under this, the agency would release semi-commercial loans for projects involving clean power generation, energy efficiency improvement, water and urban transportation.

NTPC, which is also the country’s largest power utility, had approached the Japanese agency last month and in response, a delegation of senior officials from the finance agency, recently visited India to meet NTPC officials. NTPC plans to build additional capacity of 3300 megawatts in the current fiscal year, which also includes high-end energy efficient, wind and solar power projects.

NTPC chairman RS Sharma told ET: “We have submitted our development project report and the JBIC seemed to be satisfied with our report.” After getting approval from JBIC, NTPC will sign an agreement. However, Mr Sharma declined to divulge any further details saying that the deal was still in its nascent stages. Last month, NTPC high officials met Hiroshi Watanabe, president and chief executive of JBIC, for semi-commercial loan for capital expenditure under LIFE.

This is not for the first-time that NTPC would get funds from the Japanese agency. Earlier in 2007, it had received a $380 million (about Rs 1,824 crore) loan to part finance its 1,980 mw Barh Super Thermal Power Project in Bihar. Under that facility, JBIC had provided floating interest rate linked to the LIBOR and door-to-door maturity of 18 years. The Japanese agency was also involved in providing financing for NTPC power projects in Gandhar, Simhadri, Karanpura and Faridabad power projects through its overseas development assistance programme.

NTPC has already begun setting up supercritical coal-fired power generating facilities and is gearing up to adopt ultra-supercritical steam cycle technology. Ultra-supercritical power plants are gaining in popularity as they are highly efficient when compared with traditional boiler-based utilities.

Qualified Institutuonal placement (QIP) issue.

July 2, 2009 : Nitin Kasliwal, Chairman, S Kumars Nationwide, said the company would use QIP funds for expansion plans. "We are looking at raising about USD 70-80 million in the next 2-3 months," he added.

Here is a verbatim transcript of the exclusive interview with Nitin Kasliwal on CNBC-TV18.

Q: How quickly you are going ahead with this QIP issue?

A: The board has approved a QIP of upto Rs 1,000 crore for which we are also getting a share holder approval, this is an overriding approval. Currently S Kumar’s Nationwide Ltd. is looking at raising about USD 70-80 million that is almost half of this amount in the next 2-3 months. The reason why we are doing this actually is based on our growth plans we are going on a very long term strategy which is maintaining a debt equity level which is below one debt equity level and to that extent we have a lot of growth plans in the pipeline. The QIP is being done basically to take care of maintaining our strategy from a balance sheet perspective.

Dated : July 2, 2009 :

No.402/92/2006-MC (14 of 2009)

Government of India / Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

***

New Delhi dated 30th June 2009

PRESS RELEASE

The Central Board of Direct Taxes have further decided that the Notification No. 31 of 2009 dated 25.3.2009 amending or substituting Rules 30, 31, 31A and 31AA of the Income Tax Rules, 1962 shall be kept in abeyance for the time being.

Taxpayers filing their income tax returns for assessment year (AY) 2009-10, or any other earlier AY, may continue to file their returns without mentioning the Unique Transaction Number (UTN) as required under the said Notification. The filing of such returns shall be treated as valid and in compliance to the requirements under section 139 of the Income Tax Act, 1961.

Further, the date from which the Notification No. 31 / 2009 shall become applicable on tax deducted at source (TDS) or tax collected at source (TCS) and deposited during the current financial year shall be notified by the Central Board of Direct Taxes subsequently.

All deductors / collectors of TDS / TCS may continue to deposit their TDS / TCS and file their quarterly TDS / TCS returns as per procedure existing prior to issuance of Notification No.31 / 2009 dated 25.3.2009.

XXX  

June 27, 2009 : IN AN order that could provide great relief to many tax payers, who missed the opportunity to make proper claim before the tax authorities and consequently ended up paying additional taxes, an Income-Tax Appellate Tribunal (ITAT) held that it has the powers to hear fresh claims of the tax payers.

The ITAT order was on an appeal filed by Franco-Indian Pharmaceuticals, a Mumbai-based company. Tax authorities are not empowered to entertain a claim, while the assessment is on which is what a Supreme Court order in 2006 had stated. That related to the case, involving Goetze India, which the apex court had held that the assessing officer does not have the powers to entertain a claim made during the assessment, if the claim was not part of a revised return.

In the case of Franco-Indian Pharmaceuticals, the company had short-claimed bad debts of Rs 12.5 lakh, which it sought to correct by filing a letter during the course of the assessment. The assessing officer rejected the claim of the company on the grounds that the claim was not presented in the form of a revised return. The revised returns are to be filed within a year.

The commissioner, Income-Tax (Appeal), followed the Supreme Court order relating to Goetze India and upheld the original order. However, Franco-Indian Pharmaceuticals, represented by counsel Jignesh R Shah, pointed out to the court that the Supreme Court decision in Goetze India was binding only to the assessing officers and not on ITAT.

Says Buying IDRs Amounts To Indirect Investment In Foreign Companies

July 2, 2009 : INSURANCE regulator Irda has prohibited Indian insurers from investing in Indian Depository Receipts (IDRs), saying the insurance law does not allow investment of policyholders’ funds directly or indirectly outside the country.

In an IDR issue, foreign firms are allowed to mobilise funds from Indian markets by offering their equity shares in the form of rupee denominated receipts. They are listed on the Indian stock exchanges and are freely transferable. These receipts are issued to investors in India against underlying equity shares of the issuing company based out of India.

An investment in an IDR by insurance firms would amount to indirect investment made outside the country. This will not be in compliance with the existing provisions of the insurance legislation that debars insurers from investing policy holders’ funds overseas, said Irda in a communication to chief executive officers (CEOs) of insurance firms. “In view of the extant statutory restrictions on overseas investments, it would not be in order for insurers to invest in IDRs,” Irda said.

Section 27C of the Insurance Act bars investment of insurance funds outside India. Insurers said the Irda move would not affect them much, but stock analysts said the decision would diminish the attractiveness of the IDR market. Reliance Life Insurance Director Malay Ghosh said, “As we have many other avenues of investment, it won’t impact much.”

However, SMC Capitals equity head Jagannadham Thunuguntla said the ability to raise IDRs will be reduced to certain extent and might affect their issue size.

July 2, 2009 : ASIA-FOCUSED Standard Chartered is in talks to purchase banking assets in China and India owned by the Royal Bank of Scotland (RBS), a source with direct knowledge of the matter said on Wednesday.

StanChart’s pursuit of the units comes as RBS tries to wrap up the sale of its retail and commercial banking divisions in Asia. ANZ, Australia’s fourth-largest lender, is also considered a leading contender for some of RBS’s Asian assets.

The initial plan was to sell the entire group to one buyer for at least $2 billion. But that effort failed, and the process is now focussed on selling various parts to separate buyers, sources involved with the process say. None of sources wanted to be identified because of the sensitivity of the negotiations.

“The one issue is that you do have multiple regulators involved and, at least in the case of India, this has made life difficult for this transaction,” said Brian Hunsaker, banking analyst at Fox-Pitt Kelton in Hong Kong. “I don’t know how attractive these assets really are. A lot of these are the old ABN AMRO business. I don’t necessarily think they were particularly strong in Asia in commercial banking,” Hunsaker added.

The asset sale is vital for RBS to shore up its balance-sheet after the bank was bailed out by the British government, which owns 70% of the banking group. RBS seeks to exit from or shrink its operations in up to 36 other countries. — Reuters

July 2, 2009 : THE Aditya Birla group flagship Hindalco and its Canadian subsidiary, Novelis are planning to relocate some of its European plants to India. Rising cost of operations and declining sales in Europe and a booming Indian market for Novelis’ products are driving the relocation initiative.

A top Hindalco official said “meticulous plans” have been made to relocate one of Novelis’ closed plant from Europe to India. The company is also considering to drastically cut costs and inventories and manage cash better in Europe. Novelis had closed a plant in Britain in March this year which resulted in 440 employees losing their jobs. Another UK plant has also been closed. The official asked not to be quoted due to the sensitivities involved over job losses in Europe. It’s not absolutely clear whether the British plant would be relocated. However, the UK plants are the only ones which are closed. Novelis has functioning plants in Switzerland and Germany.

The official spokesperson of the Birla group declined to comment.

Giving reasons for the relocation, the official said Novelis’ European units have to import raw materials from various parts of the world including from Hindalco in India. The aluminium sheets made by Novelis are then sold to can-makers, which are shipping these cans to emerging markets including India. “This becomes a vicious cycle with costs going up in every stage. We want to turn this vicious cycle into a virtual cycle,” the official said.

With Novelis relocating plants to India, Hindalco will cut down on freight costs and supply aluminium to Novelis’s India unit. Novelis, in turn, will sell the aluminium sheets to can- makers in India. The official said Hindalco and Novelis are in talks with five leading can-makers to supply aluminium sheets. This includes Polish firm Rexam, which is setting up a unit near Mumbai and British firm Can Pac, which is setting up a plant to make one billion cans a year in India. Hindalco is also talking to the UB group which is interested in a can making facility. These Indian can-making plants would import aluminium sheets from a Novelis plant from Korea till its own plant begins production in India.

This will be a winwin deal for both Hindalco and Novelis as both companies will be able to cut costs drastically. Novelis is in the midst of a massive cost-cutting drive, as its global peers are filing for bankruptcy protection.

Hindalco’ MD Debu Bhattacharya said on Tuesday that the industry is going through a difficult patch because of external factors. He said Hindalco is optimistic about India. Mr Bhattacharya said in a news conference on Tuesday that Hindalco has taken definite steps to improve cost structures, including restructuring which should be able to reduce substantial costs for Novelis.

The Aditya Birla group had acquired Novelis in 2007 for a whopping $6 billion. Since then, due to global recession and the crash in metals prices, the valuation of the company has come down drastically leading to a $1.5-billion goodwill write off in fiscal 2009. Last year, European units contributed $4.3 billion to Novelis’ total sales of $ 11.2 billion.

July 2, 2009 : Sobha Developers has mopped up Rs 526.9 crore via QIP, according to a filing made by the company with the stock exchanges. The company board also approved the issuance of 25.16 million shares at a price of Rs 209.4 a share to QIBs.

July 2, 2009 : Insurance and healthcare company Max India has decided to raise around Rs 450 crore through a qualified institutional placement (QIP) in one or more tranches, scrapping its earlier plan to raise up to Rs 650 crore through a rights issue. ET first reported the development in its June 30 edition.

July 2, 2009 : The country’s largest sugar company,Bajaj Hindusthan (BHL), raised Rs 723 crore through a qualified institutional placement (QIP), a day after Bangalore-based GMR Infrastructure called off a similar offering. In an exclusive interview to ET NOW, BHL joint managing director Kushagra Bajaj said the issue was priced at Rs 204 a share, marginally higher than the Sebi-determined floor price of the issue of Rs 203 a share. The successful closure of QIP by BHL brought cheers to its domestic peers who have lined up a series of such offerings to raise Rs 35,000 crore this year, after Indian stocks had their biggest quarterly gain in 17 years.   Bajaj Hind’s QIP fires up India Inc

COUNTRY’S LARGEST SUGAR CO SUCCESSFULLY RAISES RS 723 CR

July 2, 2009 : B AJAJ Hindusthan (BHL), the country’s largest and the world’s fifth biggest sugar company, raised Rs 723 crore through a qualified institutional placement (QIP) of equity shares a day after the Bangalore-based GMR Infrastructure called off a similar offering.

In an exclusive interview to ET NOW, the business news channel of this paper, BHL joint managing director Kushagra Bajaj said the issue was priced at Rs 204 a share, marginally higher than the Sebi-determined floor price of Rs 203 a share.

The successful closure of the QIP by BHL brought cheer to its domestic peers which have lined up a series of such offerings to raise Rs 35,000 crore this year after Indian stocks had their biggest quarterly gain in 17 years.

BHL has issued 35.4 million shares to 25 institutional investors, leading to a 22% expansion of the company’s equity base. On the expanded equity, the promoters stake will come down to 42% from 51%. The identity of the investors will be revealed after the allotment of shares on Tuesday.

According to Mr Bajaj , the proceeds of the issue would be utilised to bring down the company’s debt to nearly Rs 2,300 crore which, in turn, will ease pressure on the company’s margin and also improve the debt-equity ratio from about 2.5:1 to about 1:1. “Full subscription to our QIP reflects investors’ confidence in BHL’s commitment to, and confidence in, the sugar and ethanol businesses,” he said. BHL is the world’s 10th largest ethanol maker.

The BHL stock gained 1% to close at Rs 206.50 on the BSE on Wednesday. CLSA and Deutsche Bank acted as the joint global co-ordinators and joint book running lead managers to the issue.

GMR Infra on Tuesday was forced the scrap its Rs 2,000 crore QIP due to lack of investors interest. “We have decided to withdraw the QIP in the light of the existing market conditions,” the company informed the stock exchanges on Tuesday. The GMR stock fell below the floor price of the issue of Rs 142.

Mr Bajaj said domestic sugar production was not going to be affected by the delayed monsoon this year. BHL is expected to maintain its last year’s production level, he said.

Open Offer Gets Poor Response Due To Spike In Satyam Share Price

July 2, 2009 : TECH Mahindra’s open offer for an additional 20% in Satyam Computer Services has received a cold response from shareholders of the scamhit company as the offer was unattractive after the recent smart rally in Satyam shares. Tech Mahindra will now exercise the option of increasing its stake through the preferential allotment, as mentioned in the bidding document. After the preferential allotment, Tech Mahindra’s stake in Satyam will rise to 42% from the current 31%, according to Tech Mahindra executives.

“The number of shares tendered has been very miniscule,” said an official with Kotak Mahindra Capital, which managed the offer. “We are awaiting exact figures from the registrar, which will be available on July 2.” A few ADS holders are also learnt to have tendered their shares in the offer. On Wednesday, Satyam shares closed 3.7% up at Rs 73.55 on BSE, well above the open offer price of Rs 58 per share. The scrip has surged 30% in past month. TechM has deposited Rs 1,155 crore in the escrow account, which will be used for raising stake to 42-43% in Satyam, via the preferential allotment.

Allotment of fresh equity shares will have to be completed within 15 days of the closure of the offer, according to current capital market norms.

Although Tech Mahindra has the option of increasing its stake in Satyam to 51% through preferential allotment of shares, the company is unlikely to exercise it because it will involve an outflow of nearly twice the amount. Tech Mahindra has already pumped in Rs 1,756 crore to acquire a 31% stake in Satyam.

July 1, 2009 : GMR Infrastructure will not proceed with its qualified institutional placement (QIP), reports CNBC-TV18, quoting sources. It had earlier cut its QIP size to USD 100-200 million from USD 500 million.

Sources said the company’s debt-equity stands at 1.2:1 and liquidity position is comfortable.

Here is a verbatim transcript of Raja Rajeshwari’s comments on CNBC-TV18. Also watch the accompanying video.

GMR Infra is not in dire need of money. In case of all the five companies which are open for QIP right now we have done the debt-equity analysis of them, there are companies with lot more stressful balance sheet such as Sobha or HDIL, where they have higher 2:1 kind of debt equity, they are very comfortable right now at 1.2:1.

GMR was essentially looking at raising money for funding its future projects. All kind of portfolio they have right now whether it was road or power projects, they are fully financed and covered right now. They have essentially two projects in their hand right now for which they need close to Rs 3,000 odd crore of money in total, out of which Rs 600-700 crore will be the equity portion and that is why were looking at raising money through QIP.

They had taken a provision from shareholders itself for the sum total of Rs 5,000 and that is where the Rs 5,000 crore figure was making the rounds in the market that GMR would go ahead and raise USD 1 billion from the market. So essentially they thought it as a time to go ahead and tap the money and keep it for future projects. The company reiterates that the liquidity situation is good, debt-equity of just 1.2:1, they wanted it for future avenues. So now they are saying we have the provision of 6 times we will go ahead and do it when the time is better but we have to wait and see what GMR gives and prices its QIP or its equity pricing next time.

Essentially when you look at an infrastructure project most investors are comfortable with those who have money in their hand and that was essentially the reason why GMR was looking at picking up money because they wanted to take care of their future needs right now itself.

May be GMR could have waited and if they were the only single, alone QIP taking place this time around, they could have had a better appetite coming in.

July 1, 2009 : Real estate major, Unitech raised the size of its second qualified institutional placement (QIP) size. It will now dilute 15% to raise USD 575 million. CNBC-TV18’s Nimesh Shah reports on what impact this QIP would have on other realty majors including Sobha Developers and HDIL.

Also Read: Unitech in top gear, raises USD 575mn via second QIP

In a CNBC-TV18 exclusive, Unitech, it is learnt, has raised the size of its second qualified institutional placement (QIP) size. The realty major has stepped up the ante in its fund raising drive on witnessing the response to its QIP announcement yesterday. It will now dilute 15% to raise USD 575 million. CNBC-TV18’s Nayantara Rai reports.

Here is a verbatim transcript of Nayantara Rai’s comments on CNBC-TV18. Also watch the accompanying video.

It was supposed to be an equity dilution of 8% to raise USD 275 million, which however gpt a response of almost of a billion dollars. Unitech has closed the book at USD 575 million in its fund raising bid — a 15% equity dilution that results in the promoter’s stake will fall down to about 43%.

Some of the investors took part in the issue include TPG, Halbis, Farallon, DE Shaw and Prudential. Some of them like Prudential and Halbis are back in the second QIP — they were present during the first QIP issue too.

Sources say the company is going to be using most of the proceeds to retire debt. As per its last disclosure, the debt stood at Rs 7,800 crore and in the Q2 of this fiscal, the company will look to reduce this to about Rs 3,500 crore. However, after the fact that other realty companies like Sobha had to withdraw their QIPs, it is definitely a positive move for the industry.

Here is a verbatim transcript of Nimesh Shah’s comments on CNBC TV18. Also watch the accompanying video.

This second QIP of Unitech has excited the street. This has put some bit of pressure to the other bankers and the management as well. Shobha Developers is first on the book and I understand the book will be opened and closed today itself. They are looking at raising USD 105 million and the floor price works to Rs 209. The stock is currently trading above that, so the factors that the current price being above the floor price and some of the lead investors being locked in, clearly suggests that this will see the light of the day by end of today.

The second QIP this week could be HDIL. They have an enabling provision of close to USD 600 million. I understand they are looking at about USD 200-300 million to begin with. It seems that the management has brought down its offer price so even that may see the light but that will happen by the end of this week.

Even Puravankara has started the road show with some of the analysts so clearly that again is working, we put out a flash that even GMR is looking for one in the next couple of days so clearly this Unitech QIP has raised hopes that there maybe much more such in the pipeline and to begin with Shobha is likely to end by today’s closing.

July 1, 2009 : Dear TaxPayers,

Please furnish the Form ITR-V to the Income Tax Department , CPC, Post Bag No - 1, Electronic City Post Office, Bangalore - 560100, Karnataka BY ORDINARY POST ONLY within thirty days after the date of transmitting the data electronically .

ITR-V sent by Speedpost, Registered Post or Courier will not be accepted.

No Form ITR-V shall be received in any other office of the Income-tax Department or in any other manner.

Income Tax Department

June 29, 2009 : The government has decided to revise schedule VI to the Companies Act, which stipulates the manner in which every company prepares and presents its balance sheet and profit and loss account. The revision aims to harmonise and synchronise the general disclosure requirements under schedule VI with those prescribed in International Financial Reporting Standards (IFRS), which India will adopt from April 1, 2011. The draft of the revised schedule VI is available at the web site of the Ministry of Corporate Affairs (http://www.mca.gov.in/).

The extant schedule VI does not require companies to classify assets and liabilities into current and non-current categories. As a result, some items of assets, which should be classified as non-current asset, are included in current assets. Examples are deposits which the company does not expect to realise within 12 months after the balance sheet date, that part of loans and advances that will be recovered after 12 months from the balance sheet date and those items of raw materials and components which are not expected to be consumed within the normal operating cycle. Similarly, non-current provisions and current provisions are clubbed together. At present the total amount of the provision is clubbed together with current liabilities. The draft revised schedule VI requires companies to classify assets and liabilities into current and non-current categories. This will definitely improve the usefulness of the balance sheet.

Conventionally, current asset to current liabilities ratio (current ratio) is calculated to evaluate the liquidity of the company. In absence of proper classification of assets and liabilities into current and non-current categories, this ratio gets distorted. Disclosure in the revised schedule VI will remove this distortion.

It is expected that the Companies Act will be revised to enable companies to classify redeemable preference shares as debt (loan fund). At present redeemable preference shares are classified as equity. IFRS requires that companies should classify redeemable preference shares as debt because a company has no discretion but to repay the capital. Therefore, redeemable preference shares represent an obligation present at the balance sheet date. Accordingly, it should be classified as debt. This classification will improve the analysis of financial statement. Provision in the Companies Act relating to preference shares, including provisions related to redemption of preference shares will require change.

Another important revision is the requirement to present accumulated loss as a negative amount under reserves and surplus. The proposed revision of schedule VI to the Companies Act 1956 stipulates multi-step format for the presentation of profit and loss account. It requires companies to disclose gross profit in the profit and loss account. It also requires allocation of operating expenses into selling and marketing expenses and administrative expenses. This will bring a significant change in the current structure of profit and loss account. This will require a company to apportion common expenses to different functions/activities. Companies should apply the Cost Accounting Standards, wherever applicable.

The disclosure of gross profit by companies will be useful in analysing financial statements. Gross profit is the difference between the amount of net sales (that is sales less excise duty) and the cost of goods sold. Revised schedule VI uses the term cost of sales instead of the term cost of goods sold. In a merchandising business the cost of goods sold is the total of costs incurred to bring the goods to the location and condition of sale. Thus, it includes expenses on inward logistics. For a manufacturing company cost of goods sold is total of costs incurred to manufacture the goods sold and the costs to bring the goods to the location of sale. Analysts use the gross profit ratio to evaluate the manufacturing efficiency of a manufacturing business and the efficiency of procurement and inward logistics of a merchandising business. However, the ratio is less relevant for a company that has significant operating expenses. The reason is that the gross profit ratio may be improved by improving sales through advertising and product promotion expenses and expenses on improving the efficiency and effectiveness of the distribution channel. Sales promotion and similar expenses are included in operating expenses and not in cost of goods sold. Therefore, gross profit ratio might be misleading.

The next level of profit is the operating profit. This is the difference between the gross profit and selling and marketing expenses and administrative expenses. Operating profit to sales ration measure the operating efficiency of the company. Operating expenses to sales ratio (operating ratio) is complementary to the operating profit to sales ratio. Certain expenses which do not have a direct cause and effect relationship with the revenue for the year are called discretionary expenses. Examples of discretionary expenses are training expense and research expense. The proposed schedule VI does not provide guidance on whether they should be included in cost of goods sold or in general and administrative expenses. If they are included in cost of goods sold, the amount of gross profit will be distorted. Therefore, they should be included in general and administrative expenses. The final revised schedule VI should provide adequate guidance on this issue.

Sometime analysts calculate earnings before interest, tax, depreciation and amortisation (EBITDA) to sales ratio to evaluate the profitability. The ratio is called cash profit ratio. This ratio is useful to calculate the margin over current expenses, particularly in capital intensive industries like the telecommunication industry. Profit and loss account provides information required to calculate EBITDA.

Revision of schedule VI is due for a long period. The government has taken it up now because of the compulsion to bring it in conformity with the requirement of IFRS. It is true that the format and requirements for the preparation of financial statements cannot be revised frequently. Frequent revision has the potential to confuse the investors. Therefore, after this revision, the next revision will wait for long. Therefore, the government should take this opportunity to make it mandatory for companies to disclose the amount of economic value added (EVA), in addition to the disclosure of earning per share.

EVA is calculated as follows: Invested capital × (ROIC - WACC). ROIC is the return on invested capital and WACC is the weighted average cost of capital. If a company fails to earn return on investment higher than the WACC, it destroys value. If a company earns return on investment higher than the WACC, it creates value. When a company's return on investment is just equal to WACC, it neither creates value nor destroys value.

EVA cannot capture the total value created by a company that creates value by managing intangibles because most intangible assets are not recognised in the balance sheet. EVA is being considered the most relevant measure to assess the operating efficiency in a particular year. Many companies disclose EVA voluntarily.

India will adopt IFRS from April 1, 2011. It is the time to speed up the changes in the regulatory environment for seamless implementation of IFRS.

Circular No. 04/2009, dated 29-6-2009

Section 195 of the Income-tax Act, 1961 mandates deduction of income tax from payments made or credit given to non-residents at the rates in force. The Reserve Bank of India has also mandated that except in the case of certain personal remittances which have been specifically exempted, no remittance shall be made to a non-resident unless a no objection certificate has been obtained from the Income Tax Department. This was modified to allow such remittances without insisting on a no objection certificate from the Income Tax Department, if the person making the remittance furnishes an undertaking (addressed to the Assessing Officer) accompanied by a certificate from an Accountant in a specified format. The certificate and undertaking are to be submitted (in duplicate) to the Reserve Bank of India / authorised dealers who in turn are required to forward a copy to the Assessing Officer concerned. The purpose of the undertaking and the certificate is to collect taxes at the stage when the remittance is made as it may not be possible to recover the tax at a later stage from non-residents.

2. There has been a substantial increase in foreign remittances, making the manual handling and tracking of certificates difficult. To monitor and track transactions in a timely manner, section 195 was amended vide Finance Act, 2008 to allow CBDT to prescribe rules for electronic filing of the undertaking. The format of the undertaking (Form 15CA) which is to be filed electronically and the format of the certificate of the Accountant (Form 15CB) have been notified vide Rule 37BB of the Income-tax Rules, 1962.

3. The revised procedure for furnishing information regarding remittances being made to non-residents w.e.f. 1st July, 2009 is as follows:-

(i) The person making the payment (remitter) will obtain a certificate from an accountant* (other than employee) in Form 15CB.

(ii) The remitter will then access the website to electronically upload the remittance details to the Department in Form 15CA (undertaking). The information to be furnished in Form 15CA is to be filled using the information contained in Form 15CB (certificate).

* An “accountant” means a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of subsection (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

June 30, 2009 :

Bounced cheque: Civil and criminal liability can run simultaneously

The Supreme Court has set aside the judgement of the Delhi High Court and ruled that in a case of bounced cheque, both civil and criminal cases can go on at the same time. In this case, Vishnu Dutt vs Daya Sapra, the drawer of the bounced cheque stated that her cheque book was forcibly taken by a former policeman and used in lieu of a bribe in a property transaction. The criminal court believed it and acquitted her of the charge of issuing cheque without sufficient fund in the bank account. However, she was sued for repayment of the loan. She argued that since the criminal court had acquitted her, the civil suit for recovery of the loan could not stand. The high court accepted this contention, but the Supreme Court quashed the high court decision stating that the civil suit for recovery of loan would continue even if she was acquitted under Section 138 of the Negotiable Instruments Act.

Cash in transit: Insurance ends at bank

The National Consumer Commission has held in the case, National Insurance Company vs Ravi Traders, that cash brought to a bank for deposit would no longer be “in transit” if it is put in the tray of the cashier. In this case, the insurance company had indemnified the firm for money “in transit” within 15 miles of the bank. The employee of the firm put the cash in the tray on the table of the cashier. Then some unknown person called the employee on mobile phone. He left the desk for some time to talk. When he returned, the money was missing. The firm sued the insurance company arguing that the money was still in transit as it had not been deposited in the bank. The Madhya Pradesh state consumer commission ruled in the dispute that the money when stolen from the cash counter was still in transit. On appeal by the insurance company, the National Consumer Commission stated that the money was in transit only up to the point till it was put in the tray for deposit. When it was stolen, the money was neither in the hands of the insured nor in the hands of its employee.

Higher cost for best location plot upheld

The Supreme Court has ruled that a housing board could charge extra amount for corner plots and best locations, even if the plots are allotted in a draw of lots. The National Consumer Commission had quashed the demand for extra payment in the case, MP Housing Board vs Rajesh Kumar. The board appealed to the Supreme Court. It allowed the appeal and asserted that though the allotment was by lottery, the terms and conditions could specify additional charges for best location plots.

Tax returns: HC order set aside

The Supreme Court has set aside the Allahabad High Court judgement in the appeal Kushal Fertilisers Ltd vs Commissioner of Customs and Central Excise, Meerut, and stated that the question whether a firm had suppressed facts to evade excise duty was one of fact and not of law. The excise department had issued show cause notice to the firm manufacturing conduit pipes for alleged suppression of facts. The firm moved the tribunal which quashed the notices. The department appealed to the high court. It treated the petition as a ‘reference’ on questions of law and upheld the show cause notices. On appeal by the firm, the Supreme Court ruled that the high court was wrong and it should have decided the facts instead of raising questions of law.

Penalty for misdeclaration upheld

The Supreme Court has dismissed the appeal of M/s Radhy Shyam Ratanlal against the order of the Commissioner of Customs, Mumbai, imposing penalty on goods imported by the firm. The firm had imported bulk quanties of cloves after entering into a contract with M/s. Ketan Trading Company, Singapore. The customs house initiated an investigation into the declared price of the goods. It found that the prevailing international price of cloves during the relevant period was different from what was declared. Applying Section 14(1) of the Customs Act, the Supreme Court dismissed the importer’s appeal.

June 29, 2009 : The government is considering a proposal to disallow depreciation allowance that charitable organizations claim, following a recommendation by the income-tax (I-T) department.

Officials close to the development said the I-T department’s suggestion is to amend section 11, which specifies the manner in which income from charitable bodies is exempt from income tax.

The I-T department has said charitable organizations enjoy a double deduction by claiming tax breaks through both depreciation and capital expenditure write-offs.

These bodies are allowed to claim deduction of capital expenses, administrative expenses, repayment of loans, payment of taxes and donations to other trusts from the total income. In addition to capital expenditure, they also claim deduction from depreciation on assets.

The confusion has arisen because the government made earnings of charitable organisations from commercial ventures taxable in Budget 2008-09, a move that brought 40,000 to 45,000 trade bodies, commercial hospitals and educational institutions set up as trusts under the tax net in Mumbai alone.

Officials explained that the basic condition for charitable bodies to claim exemption is that the income should be derived from property held under a trust and the income should be applied to charitable or religious purposes in India.

In a case involving Escorts Ltd, the Supreme Court held that double deduction cannot be presumed unless specifically provided for by the law.

Since the law is clear that commercial earnings of trusts are taxable, then the same law cannot be different for an ordinary company and trust engaged in commercial ventures as far as deduction is concerned.

"Based on this, we have been disallowing depreciation in all returns filed with us since last year. An amendment will put an end to further disputes," said the official.

After the 2008-09 amendment, the term charitable purpose included relief to poor in terms of education, medical treatment and advancement of any object of general public utility.

However, the amendment has clarified that public utility does not include any activity in the nature of trade and commerce.

June 29, 2009 : The Foreign Investment Promotion Board (FIPB) has made it clear that Press Notes 2 and 4 issued in February 2009, which changed the way indirect foreign equity would be treated in calculating foreign investment levels in Indian corporations, cannot take effect retrospectively for proposals before the board.

This clarification arose after the nodal approval agency for foreign direct investment proposals recently rejected applications by direct-to-home entrant Bharti Telemedia and Tata Teleservices to waive fines incurred for not taking permission for indirect foreign investment in their companies last year.

The press notes of 2009 state that foreign investment routed through an Indian company owned and controlled by resident Indians will not be taken into account while calculating the total foreign direct investment or FDI.

An Indian owned company is defined as one in which resident Indians or Indian companies have more than a 50 per cent beneficial stake and control means the power to appoint the majority of directors

In January this year, FIPB had given Bharti Telemedia retrospective approval for indirect foreign holding via Bharti Airtel, subject to a fine that would be determined by the Reserve Bank of India (RBI)

In 2008, Bharti Airtel invested 40 per cent in Bharti Telemedia. Since the telecom service provider has a 21.6 per cent foreign holding, the prorata foreign holding in Bharti Telemedia amounted to 8.64 per cent, which the FIPB said required its approval. This was duly given in January after the deal was struck, hence the fine.

After Press Notes 2 and 4were issued in February, Bharti Telemedia put in a fresh application saying that it was not required to pay the fine because under the new rules, the indirect foreign component was routed through Bharti Telecom, which is owned and controlled by Indians.

In the case of Tata Teleservices, NTT DoCoMo was given approval to acquire 27.3 per cent stake in the company in January this year . The approval, however, was subject to Tata Teleservices paying a fine. This was because FIPB had contended that even before DoCoMos investment, Tata Teleservices had aforeign investment of 9.98 per cent from Temasek Holdings and had made downstream investments in Virgin Mobile India, Tata Teleservices Maharashtra and Tata Internet Services without FIPB permission.

Major Funds Pay Up To 60% To Retain Investors In Their Schemes June 30, 2009 : EQUITY mutual funds are handing out dividends to investors like never before. Fund houses such as Franklin Templeton, SBI Mutual, HDFC MF, Reliance MF, Tata MF and UTI have announced dividends of 20-60% in their bid to encourage investors to retain money in existing schemes.

More than anything else, the near-80% market rise over the past four months has helped mutual funds to distribute surplus profits. Fund houses have seen a phenomenal AUM growth over the past six months. Even smaller fund houses, including Baroda Pioneer AMC, DBS Chola, Taurus Mutual Fund, Canara Robecco, DBS Chola and Religare MF, have seen a decent appreciation in their assets under management during this period.

“One of the reasons for handing out large dividends is to keep retail investors in good spirits,” said the fund manager of a joint venture (between Indian and foreign entities) mutual fund house. “A good dividend payout, especially in times of uncertain markets, will prompt them to stay invested in schemes. Huge dividend payout will also help distributors sell the product more efficiently and bring in more money,” the fund manager added.

Adds Saurabh Nanavati, CEO, Religare Mutual Fund, “Retail investors — especially elderly investors — expect dividend payouts periodically. Fund houses could not pay dividends last year as a result of the market downturn. The market rise, this year, has yielded surplus profits that are now being distributed to the investors,” he said.

Conventional fund management wisdom makes it imperative for fund managers to declare dividends as this is one of the few ways to take profits off the table. This is more so in the case of overheated markets where there are not many good investment opportunities. Mutual funds pay dividends out of the surpluses (gains) they generate over a fixed period, say six months to one year.

“Dividend is only one of the evaluation parameters to be considered when investing in equity funds — focus being on consistency in dividend payout rather than the quantum of payout. Typically, equity funds, which have a long-established track record and have built up strong surpluses are able to give consistent dividends through market cycles,” said Sukumar Rajah, CIO-equity, Franklin Templeton Investments.

The effect of dividend payout is that the fund size reduces by the amount of money distributed. This is also reflected in the decline in net asset value.

Sensex flat as investors turn cautious

MUMBAI: Key indices ended with small gains on Monday, as a strong bout of profit-booking at higher levels pared intra-day gains in blue-chip stocks. Brokers said investors were getting a bit cautious ahead of the Budget, even as the government is widely expected to unveil some key reforms. The 30-share Sensex moved between a high of 14,956 and low of 14,685 before settling at 14,786, up 21 points over the previous close. The 50-share Nifty rose 15 points to close at 4,390. “Commitment to reform will be the litmus test for this Budget. Any major spike in fiscal deficit beyond 6.5% or big-ticket populism will be a negative,” said brokerage house Enam Securities in its pre-Budget note. — Our Bureau

Mumbai, 29 June :Leisure hospitality provider Mahindra Holidays and Resorts India (MHRIL) has fixed the issue price for its Initial Public Offering (IPO) at Rs 300 per share.

The IPO, which broke the four-month lull in the primary market, was subscribed 9.8 times the number of shares on offer at the end of the issue period on June 26.

The issue received bids for 9,08,33,800 shares against the issue size of 92,65,275 shares, a statement said today.

The price band of the issue had been fixed between Rs 275 and Rs 325 per share. However, the issue was subscribed around 7.13 times at the top end of the price band at Rs 325, while the rest of the bids were less than the higher end of the band.

The size of the issue stood at Rs 301.12 crore at the upper end of the price-band and Rs 254.80 crore at the lower end.

Initial data available on the National Stock Exchange website shows that the qualified institutional buyer portion was subscribed around 12.83 times, high net worth investors around 11.01 times and the retail investors portion around 3.36 times. MHRIL Chairman Arun Nanda said, "I am delighted with the overwhelming investor response, which demonstrates acceptance of the product concept and the business model of the company and faith in the Mahindra Group management.” The issue comprised a fresh issue of 58,96,084 equity shares and an offer for sale of 33,69,191 equity shares by Mahindra & Mahindra, the selling shareholder.

The issue constituted 11 per cent of the fully-diluted post issue paid-up capital of the company.

The proceeds of the issue are expected to be deployed in the setting up of new projects and expansion of some of the existing resorts, to provide a larger range of resorts and hence, a wider choice of holiday destinations to members, the release said.

June 27, 2009 : MUMBAI: The IPO of Mahindra Holidays & Resorts, a part of the Mahindra Group and owner of the Club Mahindra Holidays brand, was subscribed 9.74 times. It has received bids for 9.08-crore shares against an issue size of 92.65-lakh shares with 84.69-lakh bids received at the cut-off price. The size of the issue stood at Rs 301 crore at the upper end of the price band and Rs 254 crore at the lower end. The QIB portion was subscribed around 14 times while the non-institutional and retail categories got subscribed around 11 and 3 times, respectively. The proceeds will be used to expand existing resorts and set up new ones. Mahindra Holidays plans to expand the inventory of apartments and enhance facilities at Coorg in Karnataka, Ashtamudi in Kerala, renovate its resort at Ooty (Tamil Nadu) and construct new resorts at Tungi in Maharashtra and Theog & Shimla in Himachal Pradesh

June 29, 2009 : THE Securities and Exchange Board of India’s (Sebi) efforts to get foreign institutional investors (FIIs) to directly invest in the Indian stock market by signing up with the regulator, rather than through the participatory notes (PNs) route, appear to be paying off. This is evident from the decline in portfolio investments through PNs, which now stands at 15% of the total FII investments in the country, according to a person familiar with the matter, who asked that neither he nor his organisation be identified, down from 29% in October 2008, when Sebi eased various restrictions on PNs.

Participatory notes are derivative instruments issued by Sebi-registered FIIs to other overseas investors, seeking to invest in Indian securities, who are not registered with the regulator. The securities are held by the PN-issuing FII on behalf of its clients.

The decline in PN investments comes despite Sebi in October 2008 reversing restrictions on the derivative instruments, imposed the year before. At the time, Sebi chairman CB Bhave eased the restrictions on PNs, foreign portfolio investments through this route accounted for 29% of the total FII investments. The share was 52% in October 2007, when his predecessor M Damodaran clamped down on PNs. Data on FII investment through the PN route is not publicly available. The figures of 52% and 29% were disclosed by Sebi when the partial ban and the subsequent rollback were announced in October 2007 and 2008.

Several overseas funds have been directly registering themselves with the market regulator after the curbs on PNs were removed last October.

Policymakers wary of PN investments

ACCORDING to information on Sebi website, as of June 26, 2009, there were 1,668 registered FIIs and 5,162 registered sub-accounts against 1,524 and 4,638, respectively, on October 6, 2008, when Sebi removed the restrictions.

“There has always been a certain degree of apprehension among FIIs on the continuation of PNs. In addition, entry norms for FIIs have been made much simpler over the past couple of years,” says Kishore Joshi of Nishith Desai Associates, on the trend of declining PN investments. “In recent times, we have also seen FII approvals coming within 3-4 days as against 3-4 weeks earlier,” Mr Joshi added

PN investments have been a headache for a section of policymakers in India, as it is suspected that this route is used for money laundering and round-tripping (bringing back unaccounted money stashed away in foreign banks). RBI, in particular, has long advocated a ban on PNs. Sebi has not favoured such a drastic course of action.

Many foreign portfolio investors preferred to invest in India through PNs as it gave them anonymity. Sebi rules mandate that the FII issuing the PN must know the final beneficiary, ie, the entity to which the PN is issued. However, sections of the regulatory apparatus hostile to PNs claim that investors are able to circumvent this rule by routing the money through a layer of investors. No substantive evidence has ever emerged that funds linked to terrorism or drugs are finding their way into the Indian market. There have been persistent rumours of unaccounted money, on which taxes have not been paid, entering the Indian market through the PN route. Very few actual examples of this have surfaced.

The notional value of PNs outstanding stood at Rs 31,875 crore in March 2004. By August 2007, the value of PNs was Rs 3.53 lakh crore, around 51.6% of assets under custody of all FIIs in India.

In a related development, the Cayman Islands, a favourite tax haven for money managers, was recently admitted as a member of the International Organisation for Securities Commission (IOSCO), the global standard-setter for securities markets. This move could pave the way for direct entry of several hedge funds into the Indian securities market as many of them are registered there.

June 29, 2009 : THE Securities and Exchange Board of India’s (Sebi) efforts to get foreign institutional investors (FIIs) to directly invest in the Indian stock market by signing up with the regulator, rather than through the participatory notes (PNs) route, appear to be paying off. This is evident from the decline in portfolio investments through PNs, which now stands at 15% of the total FII investments in the country, according to a person familiar with the matter, who asked that neither he nor his organisation be identified, down from 29% in October 2008, when Sebi eased various restrictions on PNs.

Participatory notes are derivative instruments issued by Sebi-registered FIIs to other overseas investors, seeking to invest in Indian securities, who are not registered with the regulator. The securities are held by the PN-issuing FII on behalf of its clients.

The decline in PN investments comes despite Sebi in October 2008 reversing restrictions on the derivative instruments, imposed the year before. At the time, Sebi chairman CB Bhave eased the restrictions on PNs, foreign portfolio investments through this route accounted for 29% of the total FII investments. The share was 52% in October 2007, when his predecessor M Damodaran clamped down on PNs. Data on FII investment through the PN route is not publicly available. The figures of 52% and 29% were disclosed by Sebi when the partial ban and the subsequent rollback were announced in October 2007 and 2008.

Several overseas funds have been directly registering themselves with the market regulator after the curbs on PNs were removed last October.

Policymakers wary of PN investments

ACCORDING to information on Sebi website, as of June 26, 2009, there were 1,668 registered FIIs and 5,162 registered sub-accounts against 1,524 and 4,638, respectively, on October 6, 2008, when Sebi removed the restrictions.

“There has always been a certain degree of apprehension among FIIs on the continuation of PNs. In addition, entry norms for FIIs have been made much simpler over the past couple of years,” says Kishore Joshi of Nishith Desai Associates, on the trend of declining PN investments. “In recent times, we have also seen FII approvals coming within 3-4 days as against 3-4 weeks earlier,” Mr Joshi added

PN investments have been a headache for a section of policymakers in India, as it is suspected that this route is used for money laundering and round-tripping (bringing back unaccounted money stashed away in foreign banks). RBI, in particular, has long advocated a ban on PNs. Sebi has not favoured such a drastic course of action.

Many foreign portfolio investors preferred to invest in India through PNs as it gave them anonymity. Sebi rules mandate that the FII issuing the PN must know the final beneficiary, ie, the entity to which the PN is issued. However, sections of the regulatory apparatus hostile to PNs claim that investors are able to circumvent this rule by routing the money through a layer of investors. No substantive evidence has ever emerged that funds linked to terrorism or drugs are finding their way into the Indian market. There have been persistent rumours of unaccounted money, on which taxes have not been paid, entering the Indian market through the PN route. Very few actual examples of this have surfaced.

The notional value of PNs outstanding stood at Rs 31,875 crore in March 2004. By August 2007, the value of PNs was Rs 3.53 lakh crore, around 51.6% of assets under custody of all FIIs in India.

In a related development, the Cayman Islands, a favourite tax haven for money managers, was recently admitted as a member of the International Organisation for Securities Commission (IOSCO), the global standard-setter for securities markets. This move could pave the way for direct entry of several hedge funds into the Indian securities market as many of them are registered there.

June 29, 2009 : Individuals now need to mention a unique transaction number (UTN) against every Tax Deducted at Source (TDS) entry.

According to a circular dated May 21, 2009 from Central Board of Direct Taxes (CBDT); if a UTN is not mentioned against a TDS transaction then the tax already paid by the individual will be considered unpaid.

So, it then becomes necessary that companies, who deduct tax every month against salaries, provide employees with UTNs against these deductions. This UTN then needs to be mentioned in the Indian Income Tax Return form that is used for filing tax returns.

"Assesses must ensure that the deductor and the collector have provided them with separate UTNs in respect of each TDS and TCS transaction," the income tax department said in a circular.

NSDL has started giving UTNs and the I-T department expects the process to get over by 30 June.

Taxpayers have about 30 days to file tax returns as of now

June 27, 2009 : The Central Board of Direct Taxes is likely to defer introduction of Unique Transaction Number UTN for filing Income-Tax returns. Last month CBDT had issued a circular stating that I-T assessees should furnish UTN when they file their returns from this year, if they have to make claims for TDS credit.

June 24, 2009:Caving in to pressure from the Central Information Commission (CIC) and fearing a public outcry, the government has allowed disclosure of all file notings except on subject exempted under section 8 of the RTI Act.

In a circular issued on Monday, DoPT’s said, “ It is hereby clarified that file noting can be disclosed except those containing information exempt from disclosure under section 8 of the Act.” DoPT’s move comes after the CIC had issued notices to two department officers seeking reasons why they should not be prosecuted for disobeying its orders. The commissioned asked the department to correct its website which said notings couldn’t be disclosed under the Act. DoPT minister Prithviraj Chavan said notings were not part of the proposed amendments.

June 25, 2009 : ASIA’S oldest bourse, Bombay Stock Exchange, has revived its plans to go public. The exchange will soon file the IPO document with Sebi. According to sources, investment bank Kotak Mahindra Capital will advise the exchange in preparing the IPO document. Earlier, Kotak Mahindra had advised the exchange when it sold its stake to two foreign exchanges. When contacted, BSE officials refused to comment on the issue.

The bourse is also working closely with the market regulator to frame self-listing norms as BSE intends to get listed on itself. It also has plans to list its shares on its rival NSE. In fact, BSE had raised its equity capital to meet the listing requirement of NSE.

The move comes in the wake of a top-level change in BSE management, where former senior-vice president of NYSE Euronext Madhu Kannan has come as the new CEO and MD. The exchange is looking to go for a combination of offer for sale as well as fresh issuance of shares through the public issue. The buzz about BSE public issue is already on as demand for BSE shares has increased.

June 25, 2009 : THE Securities and Exchange Board of India (Sebi) is unlikely to alter the pricing formula for Qualified Institutional Placements (QIPs) in the near future, according to an official familiar with the development. Recently, merchant bankers had made a presentation to the regulator, requesting that companies be given more flexibility while pricing QIPs.

“Any new norm needs to be tested for at least a year before it is reviewed...if institutional investors are convinced about the long-term story of the company, then they should be willing to come in at the Sebi (mandated formula) price,” said an official.

QIP is a process, by which a company sells its shares to qualified institutional buyers (QIBs) on a discretionary basis at a price based on Sebi guidelines.

With sentiment in the secondary market having improved considerably over the past three months, many companies are keen to raise capital through QIPs. Institutional investors are willing to subscribe to these issues, but have asked for steep discounts to the current market price, because they feel present valuations are pricing in too much optimism.

In August last year, Sebi had changed the pricing formula, allowing it to be based on the two-week average share price, so that companies could price the issue as close to the market price as possible. Earlier, the pricing was based on the higher of the six month or two-week average share price. While making presentations to institutional investors recently, merchant bankers got the feedback that the two-week average price in case of most companies worked out to be higher than the current market price. They (investors) were reluctant to take a mark-to-market loss on their books right from the start.

Ironically, most institutional investors never had such reservations a couple of years ago when the market was booming. According to industry estimates, close to 30 QIPs, with an estimated value of Rs 40,000 crore, was expected to hit the market this year.  

June 25, 2009

IPO Price Band: Rs.275-325

OVERVIEW:

Mahindra Holidays & Resorts India Ltd. (MHRIL) is one of the leading leisure hospitality providers in India, offering quality family holidays with a range of services designed to meet the diverse holiday needs and interests of a family.

It provides family holidays primarily through vacation ownership memberships. The members can choose to stay and holiday at resorts in a range of holiday destinations for a pre-determined number of days in a year for a fixed number of years.

The resorts offer the use of furnished accommodation, such as apartments and cottages, and an experience through resort specific amenities and facilities, such as restaurants, ayurvedic spas, kids clubs and a variety of holiday activities.

The memberships provide members the right to use club Mahindra resorts over the period of their membership and are not a property or deeded sale. This type of a membership, where the member has the flexibility to choose a different resort and the time to holiday every year (with certain seasonal limitations) is known as a "floating week - floating resort" model.

The company also provides its members with a fixed price structure, which it believes is consumer friendly. In addition, it also provides easy financing options for the membership price to prospective members.

MHRIL is a key differentiator in the form of an integrated business model that includes member acquisition (marketing and sales), member servicing, resort creation and resort operation, resulting in the delivery of a complete holiday experience.

Within a decade, MHRIL has successfully become a provider of quality family holidays having coverage in India, and Thailand with a total of 27 resorts and 19 branch offices, 45 direct and 16 franchisee retail sales outlets. In addition, as of May 31, 2009, it has 149 direct-to-home franchised operations, six on-site sales operations at its resorts, a service office in Dubai and a franchisee in Kuwait.

MHRIL was selected as a Business Superbrand 2008 by The Brand Council in India, subsequently, its flagship brand Club Mahindra Holidays has been selected as a Superbrand 2009. The resorts at Goa, Coorg, Binsar, Munnar, Dharamshala, Manali and Kumbhalgarh (provisional) are recipients of the RCI Gold Crown Award for the year 2008-2009. Resort at Munnar has also been recognized for having received the RCI Gold Crown Award for ten years in a row. The RCI Gold Crown Award annually recognizes resorts across the world for superior resort facilities, services and hospitality based on user feedback.

Apart from the RCI Gold Crown Award, Resorts at Goa and Coorg have also been accredited with a 5 Star Rating by the Department of Tourism Government of India. Each component of integrated business model is critical to value delivery chain.

The company seeks to be the preferred partner to the urban family for family holidays and holiday services in India. It is company's vision to be the number one family holiday provider in its target markets by consistently delivering attractive resort destinations, innovative offerings and service excellence, not only during the holiday but also throughout the membership period.

Club Mahindra Holiday membership currently entitles members the choice of holidaying at any of its 23 resorts, for seven days each year, in a season and apartment type of their choice, for 25 years. members also have the option of choosing to holiday outside their season and apartment of their entitlement by using exchange program. There is further flexibility accorded to its members in being able to bring or carry forward their annual entitlement, subject to certain limits. In addition, members can choose to access a range of resorts globally through RCI affiliation. As of May 31, 2009, it has 91,997 Club Mahindra Holiday vacation ownership members

Capacity :

MHRIL currently has 23 resorts across India and Thailand which are either owned or leased on a long term basis which amount to an aggregate of 1,189 apartments and cottages. As of March 31, 2009, it owned or leased (long term) an aggregate of 1,105 apartments and cottages, respectively.

INDUSTRY OVERVIEW:

Changing Demographics in India

If India continues on its current high growth path, over the next two decades the Indian market will undergo a major transformation. Income levels will almost triple and India will climb from its position to the 5th largest consumer market by 2025. As Indian incomes rise, the shape of the country's income pyramid will also change dramatically. Over 291 million people will move from desperate poverty to a more sustainable life, and India's middle class will swell by over ten times from its current size of 50 million to 583 million people. (Source: McKinsey & Co.: "The 'Bird Of Gold': The Rise Of India's Consumer Market")

India's share-of-wallet is shifting from basic necessities to discretionary items and is expected to grow from 52% as of 2005 to 70% by 2025. India's aggregate consumption by middle and upper income households will grow nearly 13 times by 2025. Urban consumption will grow very rapidly over the next two decades. (Source: McKinsey & Co.: "The 'Bird Of Gold': The Rise Of India's Consumer Market")

Tourism in India

Tourism in India has registered significant growth in recent decades. The upward trend is expected to continue in coming years. Tourism is one of India's largest net earners of foreign exchange and also one of the sectors which employs the largest manpower. The World Travel and Tourism Council has identified India as one of its growth centers in the world in the coming decade. Focused marketing of tourism products and branding of India as a high value destination, together with policies targeted at strengthening of tourism infrastructure by the Ministry of Tourism have been responsible for a healthy growth in domestic and foreign tourist arrivals in India.According to Conde Nast, India has been ranked as the fourth 'must see' destination in the world.

According to the World Travel and Tourism Council, tourism expenditure is expected to potentially increase to over Rs 3,000 billion by 2020. (Source: Travel and Tourism - India: Euromonitor International: Country Market Insight, November 2008)

MANAGEMENT:

Mr. Arun Kumar Nanda, is the non-executive chairman. He holds a degree in law from the University of Calcutta and is a fellow member of Institute of Chartered Accountants of India (FCA) and a fellow member of the Institute of Company Secretaries of India (FCS). He has also participated in a Senior Executive Programme at the London Business School. He is the Executive Director and President, Infrastructure Development Sector, Mahindra & Mahindra Limited. He has over 35 years of experience in finance and more than 10 years of experience in industries such as infrastructure, leisure and holiday resorts. He is also on the Board of various Mahindra Group companies. In addition, he is also the Chairman Emeritus of the Indo- French Chamber of Commerce, a member of the Governing Board of the Council of EU Chambers of Commerce in India and a member of the Governing Board of Bombay First. He has recently been conferred the award of the 'Chevalier de la Legion d'Honneur' by the French government. He was also the Chairman of "CII National Committee on Water" for 2006-07. He has been associated with Company since inception.

Mr. Uday Y. Phadke, is non executive director of Board. He is also a member of the Institute of Chartered Accountants of India and Institute of Company Secretaries of India and has a bachelor's degree in Commerce and Law from the Mumbai University. Mr. Phadke joined Mahindra and Mahindra Limited (M&M) in the year 1973. He is the member of the Mahindra Group Management Board since April 1999. He heads the Finance, Accounts, Investor Relations and Legal Affairs of M&M and is currently designated as President - Finance, Legal and Financial Services Sector and member of the Group Management Board.

Mr. Cyrus Guzder, is an independent director on Board. He graduated with a M.A. (Hons) degree in Economics and Oriental Studies Tripos from Trinity College, Cambridge University in 1967. He has over 30 years of experience in the travel, logistics, freight and banking industry. He is the Chairman and Managing Director - AFL Private Limited and Chairman of Indtravel Pvt. Ltd., AFL Dachser Pvt Ltd and Quikjet Cargo Airlines Pvt. Ltd. He has been associated with Company since 2004 and is a member of remuneration committee.

BUSINESS STRATEGY:

n Intensify service offerings by increasing distribution network and growing the number of resorts across India

n Diversification into new offerings and different segments and into new businesses related to main business

n Continue to build the desirability of CLUB MAHINDRA resort experience

n Leverage on existing brands and build new brands

n Expand operations into new international markets

STRENGTHS:

Industry leading position

MHRIL is one of the leading leisure hospitality providers in India. As of May 31, 2009 and March 31, 2009, it had 91,997 Club Mahindra vacation ownership members. Membership enrolments have increased at a CAGR of 32% over the last three fiscal years. Over the same period, average sales price for a Club Mahindra membership also increased at a CAGR of 13.18%. It accounted for 72% of the total active members across the vacation ownership industry in India with RCI up to May 31, 2009. Club Mahindra started enrolling vacation ownership members from 1997.

Integrated and mixed - use business model

MHRIL manage all aspects of operations through one entity. This integration brings together management competence and following benefits:

n Reduces cost of operations and allows to implement changes across the entire value chain

n Helps to continually tailor and improve services in response to customer feedback and changing trends.

n Utilization of a mixed-use model of being a vacation ownership company and also providing non-members access to unutilized apartments on a per-night-tariff basis, which enables company to enhance revenues through optimum occupancy and sales from restaurants and other services.

n Mixed-use model is also a catalyst for growth by creating an interest in membership program for non-members.

Strong Brand Image

Since MHRIL company is part of the Mahindra group of companies, which is one of the leading and largest business groups in India, it enjoys the strong brand image. The Mahindra Group is among the top 10 industrial houses in India. Forbes has ranked the Mahindra Group in its Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies.

KEY RISK FACTORS:

n The inventory of apartments and cottages may be in excess of the vacation ownerships sold by the company and this may have an adversely affect the results of operations.

n MHRIL faces uncertainty of title to lands on which Resorts are located.

n The potential liability for any failure to comply with environmental laws or for any currently unknown environmental problems could be significant.

n MHRIL requires regulatory approvals in the ordinary course of business, and the failure to obtain them in a timely manner or at all may adversely affect the operations.

n The current worldwide economic recession has adversely affected, and is likely to continue to adversely affect, MHRIL's business and results of operations..

-

THE GAZETTE OF INDIA

EXTRAORDINARY

PART III – SECTION 4

PUBLISHED BY AUTHORITY

NEW DELHI, JUNE 10, 2009

SECURITIES AND EXCHANGE BOARD OF INDIA

NOTIFICATION

Mumbai, the 10th June, 2009

SECURITIES AND EXCHANGE BOARD OF INDIA

(DELISTING OF EQUITY SHARES) REGULATIONS, 2009

No. LAD-NRO/GN/2008-2009/09/165992. In exercise of the powers conferred by section 31 read with section 21A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), section 30, sub-section (1) of section 11 and sub-section (2) of section 11A of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations, namely: -

CHAPTER I

PRELIMINARY

Short title and commencement.

1. (1) These regulations may be called the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009.

(2) They shall come into force on the date of their publication in the Official Gazette.

Definitions

2. (1) In these regulations, unless the context otherwise requires, -

(i) ‘Act’ means the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(ii) ‘Board’ means the Securities and Exchange Board of India established under section 3 of the Act;

(iii)‘company’ means a company within the meaning of section 3 of the Companies Act, 1956 (1 of 1956) and includes a body corporate or corporation established under a central Act, state Act or provincial Act for the time being in force, whose equity shares are listed on a recognised stock exchange;

(iv) ‘compulsory delisting’ means delisting of equity shares of a company by a recognised stock exchange under Chapter V of these regulations;

(v) ‘public shareholders’ means the holders of equity shares, other than the following:

(a) promoters;

(b) holders of depository receipts issued overseas against equity shares held with a custodian and such custodian;

(vi) ‘recognised stock exchange’ means any stock exchange which has been granted recognition under section 4 of the Securities Contracts (Regulation) Act, 1956;

(vii) ‘Schedule’ means a Schedule appended to these regulations;

(viii) ‘voluntary delisting’ means delisting of equity shares of a company voluntarily on application of the company under Chapter III of these regulations;

(ix) ‘working days’ means the working days of the Board.

(2) The words ‘control’, ‘person acting in concert’, ‘promoter’ and ‘public shareholding’ shall have the meanings respectively assigned to them under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as amended from time to time.

(3) Words and expressions not defined in these regulations, but defined in or under the Act or the Securities Contracts (Regulation) Act, 1956 (42 of 1956) or the Companies Act, 1956 (1 of 1956), or any statutory modification or re-enactment thereof, shall have the same meanings as in or under those enactments.

CHAPTER II

DELISTING OF EQUITY SHARES

Applicability.

3. (1) These regulations shall apply to delisting of equity shares of a company from all or any of the recognised stock exchanges where such shares are listed.

(2) Nothing in these regulations shall apply to any delisting made pursuant to a scheme sanctioned by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 or by the National Company Law Tribunal under section 424D of the Companies Act, 1956, if such scheme –

(a) lays down any specific procedure to complete the delisting; or

(b) provides an exit option to the existing public shareholders at a specified rate.

Delisting not permissible in certain circumstances and conditions for delisting.

4. (1) No company shall apply for and no recognised stock exchange shall permit delisting of equity shares of a company,

(a) pursuant to a buy back of equity shares by the company;

or

(b) pursuant to a preferential allotment made by the company;

or

(c) unless a period of three years has elapsed since the listing of that class of equity shares on any recognised stock exchange; or

(d) if any instruments issued by the company, which are convertible into the same class of equity shares that are sought to be delisted, are outstanding.

(2) For the removal of doubts, it is clarified that no company shall apply for and no recognised stock exchange shall permit delisting of convertible securities.

(3) Nothing contained in clauses (c) and (d) of sub-regulation (1) shall apply to a delisting of equity shares falling under clause (a) of regulation 6.

(4) No promoter shall directly or indirectly employ the funds of the company to finance an exit opportunity provided under Chapter IV or an acquisition of shares made pursuant to sub regulation (3) of regulation 23.

(5) No promoter or other person shall –

(a) employ any device, scheme or artifice to defraud any shareholder or other person; or

(b) engage in any transaction or practice that operates as a fraud or deceit upon any shareholder or other person; or

(c) engage in any act or practice that is fraudulent, deceptive or manipulative – in connection with any delisting sought or permitted or exit opportunity given or other acquisition of shares made under these regulations.

CHAPTER III

VOLUNTARY DELISTING

Delisting from all recognized stock exchanges.

5. Subject to the provisions of these regulations, a company may delist its equity shares from all the recognised stock exchanges where they are listed or from the only recognised stock exchange where they are listed: Provided that all public shareholders holding equity shares of the class which are sought to be delisted are given an exit opportunity in accordance with Chapter IV.

Delisting from only some of the recognised stock exchanges.

6. A company may delist its equity shares from one or more recognised stock exchanges where they are listed and continue their listing on one or more other recognised stock exchanges, subject to the provisions of these regulations and subject to the following –

(a) if after the proposed delisting from any one or more recognised stock exchanges, the equity shares would remain listed on any recognised stock exchange which has nationwide trading terminals, no exit opportunity needs to be given to the public shareholders; and,

(b) if after the proposed delisting, the equity shares would not remain listed on any recognised stock exchange having nation wide trading terminals, exit opportunity shall be given to all the public shareholders holding the equity shares sought to be delisted in accordance with

CHAPTER IV.

Explanation: For the purposes of this regulation, ‘recognised stock exchange having nation wide trading terminals’ means the Bombay Stock Exchange Limited, the National Stock Exchange of India Limited or any other recognised stock exchange which may be specified by the Board in this regard.

Procedure for delisting where no exit opportunity is required.

7. (1) In a case falling under clause (a) of regulation 6 –

(a) the proposed delisting shall be approved by a resolution of the board of directors of the company in its meeting;

(b) the company shall give a public notice of the proposed delisting in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchanges are located;

(c) the company shall make an application to the concerned recognised stock exchange for delisting its equity shares; and

(d) the fact of delisting shall be disclosed in the first annual report of the company prepared after the delisting.

(2) The public notice made under clause (b) of sub-regulation (1) shall mention the names of the recognised stock exchanges from which the equity shares of the company are intended to be delisted, the reasons for such delisting and the fact of continuation of listing of equity shares on recognised stock exchange having nation wide trading terminals.

(3) An application for delisting made under clause (c) of sub regulation (1) shall be disposed of by the recognised stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects.

Conditions and procedure for delisting where exit opportunity is required.

8. (1) Any company desirous of delisting its equity shares under the provisions of Chapter III shall, except in a case falling under clause (a) of regulation 6, -

(a) obtain the prior approval of the board of directors of the company in its meeting;

(b) obtain the prior approval of shareholders of the company by special resolution passed through postal ballot, after disclosure of all material facts in the explanatory statement sent to the shareholders in relation to such resolution: Provided that the special resolution shall be acted upon if and only if the votes cast by public shareholders in favour of the proposal amount to at least two times the number of votes cast by public shareholders against it.

(c) make an application to the concerned recognised stock exchange for in-principle approval of the proposed delisting in the form specified by the recognised stock exchange; and

(d) within one year of passing the special resolution, make the final application to the concerned recognised stock exchange in the form specified by the recognised stock exchange: Provided that in pursuance of special resolution as referred to in clause (b), passed before the commencement of these regulations, final application shall be made within a period of one year from the date of passing of special resolution or six months from the commencement of these regulations, whichever is later.

(2) An application seeking in-principle approval for delisting under clause (c) of sub-regulation (1) shall be accompanied by an audit report as required under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 in respect of the equity shares sought to be delisted, covering a period of six months prior to the date of the application.

(3) An application seeking in-principle approval for delisting shall be disposed of by the recognised stock exchange within a period not exceeding thirty working days from the date of receipt of such application complete in all respects.

(4) While considering an application seeking in-principle approval for delisting, the recognised stock exchange shall not unfairly withhold such application, but may require the company to satisfy it as to -

(a) compliance with clause (b) of sub-regulation (1);

(b) the resolution of investor grievances by the company;

(c) payment of listing fees to that recognised stock exchange;

(d) the compliance with any condition of the listing agreement with that recognised stock exchange having a material bearing on the interests of its equity shareholders;

(e) any litigation or action pending against the company pertaining to its activities in the securities market or any other matter having a material bearing on the interests of its equity shareholders;

(f) any other relevant matter as the recognised stock exchange may deem fit to verify.

(5) A final application for delisting made under clause (d) of subregulation (1) shall be accompanied with such proof of having given the exit opportunity in accordance with the provisions of Chapter IV, as the recognised stock exchange may require.

CHAPTER IV

EXIT OPPORTUNITY

Applicability of Chapter IV.

9. The provisions of this Chapter shall apply to any delisting sought to be made under regulation 5 or under clause (b) of regulation 6.

Public announcement.

10. (1) The promoters of the company shall upon receipt of in principle approval for delisting from the recognised stock exchange, make a public announcement in at least one English national daily with wide circulation, one Hindi national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchange is located.

(2) The public announcement shall contain all material information including the information specified in Schedule I and shall not contain any false or misleading statement.

(3) The public announcement shall also specify a date, being a day not later than thirty working days from the date of the public announcement, which shall be the ‘specified date’ for determining the names of shareholders to whom the letter of offer shall be sent.

(4) Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board and such other intermediaries as are considered necessary.

(5) It shall be the responsibility of the promoter and the merchant banker to ensure compliance with the provisions of this Chapter.

(6) No promoter shall appoint any person as a merchant banker under sub-regulation (4) if such a person is an associate of the promoter.

Escrow account.

11. (1) Before making the public announcement under regulation 10, the promoter shall open an escrow account and deposit therein the total estimated amount of consideration calculated on the basis of floor price and number of equity shares outstanding with public shareholders.

(2) On determination of final price and making of public announcement under regulation 18 accepting the final price, the promoter shall forthwith deposit in the escrow account such additional sum as may be sufficient to make up the entire sum due and payable as consideration in respect of equity shares outstanding with public shareholders.

(3) The escrow account shall consist of either cash deposited with a scheduled commercial bank, or a bank guarantee in favour of the merchant banker, or a combination of both.

(4) Where the escrow account consists of deposit with a scheduled commercial bank, the promoter shall, while opening the account, empower the merchant banker to instruct the bank to issue banker’s cheques or demand drafts for the amount lying to the credit of the escrow account, for the purposes mentioned in these regulations, and the amount in such deposit, if any, remaining after full payment of consideration for equity shares tendered in the offer and those tendered under sub-regulation (1) of regulation 21 shall be released to the promoter.

(5) Where the escrow account consists of a bank guarantee, such bank guarantee shall be valid till payments are made in respect of all shares tendered under sub-regulation (1) of regulation 21.

Letter of offer.

12. (1) The promoter shall despatch the letter of offer to the public shareholders of equity shares, not later than forty five working days from the date of the public announcement, so as to reach them at least five working days before the opening of the bidding period.

(2) The letter of offer shall be sent to all public shareholders holding equity shares of the class sought to be delisted whose names appear on the register of the company or depository as on the date specified in the public announcement under sub-regulation (3) of regulation 10.

(3) The letter of offer shall contain all the disclosures made in the public announcement and such other disclosures as may be necessary for the shareholders to take an informed decision.

(4) The letter of offer shall be accompanied with a bidding form for use of public shareholders and a form to be used by them for tendering shares under sub-regulation (1) of regulation 21 .

Bidding period.

13. (1) The date of opening of the offer shall not be later than fifty five working days from the date of the public announcement.

(2) The offer shall remain open for a minimum period of three working days and a maximum period of five working days, during which the public shareholders may tender their bids.

Right of shareholders to participate in the book building process.

14. (1) All public shareholders of the equity shares which are sought to be delisted shall be entitled to participate in the book building process in the manner specified in Schedule II.

(2) A promoter or a person acting in concert with any of the promoters shall not make a bid in the offer and the merchant banker shall take necessary steps to ensure compliance with this sub-regulation.

(3) Any holder of depository receipts issued on the basis of underlying shares held by a custodian and any such custodian shall not be entitled to participate in the offer.

(4) Nothing contained in sub-regulation (3) shall affect the right of any holder of depository receipts to participate in the book building process under sub-regulation (1) if the holder of depository receipts exchanges such depository receipts with shares of the class that are proposed to be delisted.

Offer price.

15. (1) The offer price shall be determined through book building in the manner specified in Schedule II, after fixation of floor price under sub-regulation (2) and disclosure of the same in the public announcement and the letter of offer.

(2) The floor price shall not be less than, -

(a) where the equity shares are frequently traded in all the recognised stock exchanges where they are listed, the average of the weekly high and low of the closing prices of the equity shares of the company during the twenty six weeks or two weeks preceding the date on which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered, whichever is higher, as quoted on the recognised stock exchange where the equity shares of the company are most frequently traded;

(b) where the equity shares of the company are infrequently traded in all the recognised stock exchanges where they are listed, the floor price determined in accordance with the provisions of sub-regulation (3); or,

(c) where the equity shares are frequently traded in some recognised stock exchanges and infrequently traded in some other recognised stock exchanges where they are listed, the highest of the prices arrived at in accordance with clauses (a) and (b) above.

Explanation: For the purposes of this sub-regulation, equity shares shall be deemed to be infrequently traded, if on the recognised stock exchange, the annualised trading turnover in such shares during the preceding six calendar months prior to month in which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered, is less than five per cent. (by number of equity shares) of the total listed equity shares of that class and the term ‘frequently traded’ shall be construed accordingly.

(3) For the purposes of clause (b) of sub-regulation (2), the floor price shall be determined by the promoter and the merchant banker taking into account the following factors:

(a) the highest price paid by the promoter for acquisitions, if any, of equity shares of the class sought to be delisted, including by way of allotment in a public or rights issue or preferential allotment, during the twenty six weeks period prior to the date on which the recognised stock exchanges were notified of the board meeting in which the delisting proposal was considered and after that date upto the date of the public announcement; and,

(b) other parameters including return on net worth, book value of the shares of the company, earning per share, price earning multiple vis-à-vis the industry average.

Right of the promoter not to accept the offer price.

16. (1) The promoter shall not be bound to accept the equity shares at the offer price determined by the book building process.

(2) Where the promoter decides not to accept the offer price so determined,-

(a) the promoter shall not acquire any equity shares tendered pursuant to the offer and the equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall be returned or released to him within ten working days of closure of the bidding period;

(b) the company shall not make the final application to the exchange for delisting of the equity shares;

(c) the promoter may close the escrow account opened under regulation 11; and,

(d) in a case where the public shareholding at the opening of the bidding period was less than the minimum level of public shareholding required under the listing agreement, the promoter shall ensure that the public shareholding shall be brought up to such minimum level within a period of six months from the date of closure of the bidding through any of the ways mentioned in sub regulation(3).

(3) For the purposes of clause (d) of sub-regulation (2), the public shareholding may be increased by any of the following ways:

(a) by issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Guidelines or Regulations of the Board relating to issue of securities and disclosures;

(b) by the promoter making an offer for sale of his holdings in compliance with the provisions of the Companies Act, 1956 and the Guidelines or Regulations of the Board relating to issue of securities and disclosures; or,

(c) by the promoter making sale of his holdings through the secondary market in a transparent manner.

Minimum number of equity shares to be acquired.

17. An offer made under chapter III shall be deemed to be successful if post offer, the shareholding of the promoter (along with the persons acting in concert) taken together with the shares accepted through eligible bids at the final price determined as per Schedule II, reaches the higher of –

(a) ninety per cent. of the total issued shares of that class excluding the shares which are held by a custodian and against which depository receipts have been issued overseas; or

(b) the aggregate percentage of pre offer promoter shareholding (along with persons acting in concert with him) and fifty per cent. of the offer size.

Procedure after closure of offer.

18. Within eight working days of closure of the offer, the promoter and the merchant banker shall make a public announcement in the same newspapers in which the public announcement under sub-regulation (1) of regulation 10 was made regarding:-

(i) the success of the offer in terms of regulation 17 alongwith the final price accepted by the acquirer; or

(ii) the failure of the offer in terms of regulation 19; or

(iii) rejection under regulation 16 of the final price discovered under Schedule II, by the promoters.

Failure of offer.

19.(1) Where the offer is rejected under regulation 16 or is not successful as per regulation 17, the offer shall be deemed to have failed and no equity shares shall be acquired pursuant to such offer.

(2) Where the offer fails –

(a) the equity shares deposited or pledged by a shareholder under paragraphs 7 or 9 of Schedule II shall be returned or released to him within ten working days from the end of the bidding period;

(b) no final application shall be made to the exchange for delisting of the equity shares; and

(c) the escrow account opened under regulation 11 shall be closed.

Payment of consideration and return of equity shares.

20. (1) The promoter shall immediately on ascertaining success of the offer, open a special account with a banker to an issue registered with the Board and transfer thereto, the entire amount due and payable as consideration in respect of equity shares tendered in the offer, from the escrow account.

(2) All the shareholders whose equity shares are verified to be genuine shall be paid the final price stated in the public announcement within ten working days from the closure of the offer.

(3) The equity shares deposited or pledged by a shareholder pursuant to paragraphs 7 or 9 of Schedule II shall be returned or released to him, within ten working days from the closure of the offer, in cases where the bids pertaining thereto have not been accepted.

Right of remaining shareholders to tender equity shares.

21. (1) Where, pursuant to acceptance of equity shares tendered in terms of these regulations, the equity shares are delisted, any remaining public shareholder holding such equity shares may tender his shares to the promoter upto a period of at least one year from the date of delisting and, in such a case, the promoter shall accept the shares tendered at the same final price at which the earlier acceptance of shares was made.

(2) The payment of consideration for shares accepted under sub-regulation (1) shall be made out of the balance amount lying in the escrow account.

(3) The amount in the escrow account or the bank guarantee shall not be released to the promoter unless all payments are made in respect of shares tendered under sub-regulation (1).

CHAPTER V

COMPULSORY DELISTING

Compulsory delisting by a stock exchange.

22. (1) A recognised stock exchange may, by order, delist any equity shares of a company on any ground prescribed in the rules made under section 21A of the Securities Contracts (Regulation) Act, 1956 (42 of 1956):

Provided that no order shall be made under this subregulation unless the company concerned has been given a reasonable opportunity of being heard.

(2) The decision regarding compulsory delisting shall be taken by a panel to be constituted by the recognised stock exchange consisting of –

(a) two directors of the recognised stock exchange (one of whom shall be a public representative);

(b) one representative of the investors;

(c) one representative of the Ministry of Corporate Affairs or Registrar of Companies; and

(d) the Executive Director or Secretary of the recognized stock exchange.

(3) Before making an order under sub-regulation (1), the recognised stock exchange shall give a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognised stock exchange is located, of the proposed delisting, giving a time period of not less than fifteen working days from the notice, within which representations may be made to the recognised stock exchange by any person who may be aggrieved by the proposed delisting and shall also display such notice on its trading systems and website.

(4) The recognised stock exchange shall while passing any order under sub-regulation (1), consider the representations, if any, made by the company as also any representations received in response to the notice given under subregulation (3) and shall comply with the criteria specified in Schedule III.

(5) The provisions of Chapter IV shall not be applicable to a compulsory delisting made by a recognised stock exchange under this Chapter.

(6) Where the recognised stock exchange passes an order under sub-regulation (1), it shall, -

(a) forthwith publish a notice in one English national daily with wide circulation and one regional language newspaper of the region where the concerned recognized stock exchange is located, of the fact of such delisting, disclosing therein the name and address of the company, the fair value of the delisted equity shares determined under sub-regulation (1) of regulation 23 and the names and addresses of the promoters of the company who would be liable under sub-regulation (3) of regulation 23; and

(c) inform all other stock exchanges where the equity shares of the company are listed, about such delisting and the surrounding circumstances.

Rights of public shareholders in case of a compulsory delisting.

23. (1) Where equity shares of a company are delisted by a recognised stock exchange under this Chapter, the recognized stock exchange shall appoint an independent valuer or valuers who shall determine the fair value of the delisted equity shares.

(2) The recognised stock exchange shall form a panel of expert valuers from whom the valuer or valuers shall be appointed for purposes of sub-regulation (1).

(3) The promoter of the company shall acquire delisted equity shares from the public shareholders by paying them the value determined by the valuer, subject to their option of retaining their shares.

Explanation: For the purposes of sub-regulation (1), -

(a) ‘valuer’ means a chartered accountant within the meaning of clause (b) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949), who has undergone peer review as specified by the Institute of Chartered Accountants of India constituted under that Act, or a merchant banker appointed to determine the value of the delisted equity shares;

(c) value of the delisted equity shares shall be determined by the valuer having regard to the factors mentioned in regulation 15.

Consequences of compulsory delisting.

24. Where a company has been compulsorily delisted under this Chapter, the company, its whole time directors, its promoters and the companies which are promoted by any of them shall not directly or indirectly access the securities market or seek listing for any equity shares for a period of ten years from the date of such delisting.

CHAPTER VI

POWERS OF THE BOARD

Power of the Board to issue clarifications.

25. In order to remove any difficulties in the application or interpretation of these regulations, the Board may issue clarifications and guidelines in the form of circulars.

Directions by the Board.

26. Without prejudice to provisions of the Act and those of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Board may in case of any violation of these regulations and in the interests of the investors and the securities market give such directions as it deems fit: Provided that the Board shall, either before or after passing such orders, give an opportunity of hearing to the concerned person.

CHAPTER VII

SPECIAL PROVISIONS FOR SMALL COMPANIES AND DELISTING BY OPERATION OF LAW

Special provisions in case of small companies.

27. (1) Where a company has paid up capital upto one crore rupees and its equity shares were not traded in any recognized stock exchange in the one year immediately preceding the date of decision, such equity shares may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV.

(2) Where a company has three hundred or fewer public shareholders and where the paid up value of the shares held by such public shareholders in such company is not more than one crore rupees, its equity shares may be delisted from all the recognised stock exchanges where they are listed, without following the procedure in Chapter IV.

(3) A delisting of equity shares may be made under subregulation (1) or sub-regulation (2) only if, in addition to fulfillment of the requirements of regulation 8, the following conditions are fulfilled:-

(a) the promoter appoints a merchant banker and decides an exit price in consultation with him;

(b) the exit price offered to the public shareholders shall not be less than the price arrived at in consultation with the merchant banker;

(c) the promoter writes individually to all public shareholders in the company informing them of his intention to get the equity shares delisted, indicating the exit price together with the justification therefor and seeking their consent for the proposal for delisting;

(d) at least ninety per cent. of such public shareholders give their positive consent in writing to the proposal for delisting, and have consented either to sell their equity shares at the price offered by the promoter or to remain holders of the equity shares even if they are delisted;

(d) the promoter completes the process of inviting the positive consent and finalisation of the proposal for delisting of equity shares within seventy five working days of the first communication made under clause (c);

(f) the promoter makes payment of consideration in cash within fifteen working days from the date of expiry of seventy five working days stipulated in clause (e).

(4) The communication made to the public shareholders under clause (c) of sub-regulation (3) shall contain justification for the offer price with particular reference to the applicable parameters mentioned in regulation 15 and specifically mention that consent for the proposal would include consent for dispensing with the exit price discovery through book building method.

(5) The concerned recognised stock exchange may delist such equity shares upon satisfying itself of compliance with this regulation.

Delisting in case of winding up, derecognition,etc.

28. (1) In case of winding up proceedings of a company whose equity shares are listed on a recognised stock exchange, the rights, if any, of the shareholders of such company shall be in accordance with the laws applicable to those proceedings.

(2) Where the Board withdraws recognition granted to a stock exchange or refuses renewal of recognition to it, the Board may, in the interest of investors pass appropriate order in respect of the status of equity shares of the companies listed on that exchange.

CHAPTER VIII

MISCELLANEOUS

Recognised stock exchanges to monitor compliance.

29.The respective recognised stock exchanges shall comply with and monitor compliance with the provisions of these regulations and shall report to the Board any instance of non-compliance which comes to their notice.

Listing of delisted equity shares.

30.(1) No application for listing shall be made in respect of any equity shares,

(a) which have been delisted under Chapter III or under Chapter VII (except regulation 27), for a period of five years from the delisting;

(b) which have been delisted under Chapter V, for a period of ten years from the delisting.

(2) Notwithstanding anything contained in sub-regulation (1), an application for listing of delisted equity shares may be made where a recommendation in this regard has been made by the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985.

(3) While considering an application for listing of any equity shares which had been delisted the recognised stock exchange shall have due regard to facts and circumstances under which delisting was made.

(4) An application for listing made in respect of delisted equity shares shall be deemed to be an application for fresh listing of such equity shares and shall be subject to provisions of law relating to listing of equity shares of unlisted companies.

Transitional provisions.

31.(1) Anything done or omitted to be done or any right, privilege, obligation or liability acquired or accrued or incurred under Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003 prior to the commencement of these regulations shall be governed by said guidelines.

(2) Any application for delisting made by any company or any promoter or acquirer who wanted to delist securities of the company, prior to commencement of these regulations and pending with any recognised stock exchange as on the date of such commencement shall be proceeded with under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003.

(3) The remaining procedures in respect of an exit opportunity already completed or an exit opportunity initiated but not completed under the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003 prior to commencement of these regulations, shall be completed and the application for delisting made pursuant thereto shall be dealt under the said guidelines.

SCHEDULE I

[

See regulation 10(2)] CONTENTS OF THE PUBLIC ANNOUNCEMENT

1. The floor price and the offer price and how they were arrived at.

2. The dates of opening and closing of the offer.

3. The name of the exchange from which the equity shares are sought to be delisted.

4. The manner in which the offer can be accepted by the shareholders.

5. Disclosure regarding the minimum acceptance condition for success of the offer.

6. The names of the merchant banker and other intermediaries together with the helpline number for the shareholders.

7. The specified date fixed as per sub-regulation (3) of regulation 10.

8. The object of the proposed delisting.

9. The proposed time table from opening of the offer till the payment of consideration or return of equity shares.

10. Details of the escrow account and the amount deposited therein.

11. Listing details and stock market data:

(a) high, low and average market prices of the equity shares of the company during the preceding three years;

(b) monthly high and low prices for the six months preceding the date of the public announcement; and,

(c) the volume of equity shares traded in each month during the six months preceding the date of public announcement.

12. Present capital structure and shareholding pattern.

13. The likely post-delisting shareholding pattern.

14. The aggregate shareholding of the promoter together with persons acting in concert and of the directors of the promoter where the promoter is a company and of persons who are in control of the company.

15. A statement, certified to be true by the board of directors of the company, disclosing material deviation, if any, in utilisation of proceeds of issues of securities made during the five years immediately preceding the date of public announcement, from the stated object of the issue.

16. A statement by the board of directors of the company confirming that all material information which is required to be disclosed under the provisions of continuous listing requirement have been disclosed to the stock exchanges.

17. Name of compliance officer of the company.

18. It should be signed and dated by the promoter. Where the promoter is a company, the public announcement shall be dated and signed on behalf of the board of directors of the company by its manager or secretary, if any, and by not less than two directors of the company, one of whom shall be a managing director where there is one.

SCHEDULE II

[See regulation 15(1)]

THE BOOK BUILDING PROCESS

1. The book building process shall be made through an electronically linked transparent facility and the promoter shall enter into an agreement with a stock exchange for the purpose.

2. The public announcement and letter of offer shall be filed without delay with the stock exchange mentioned in paragraph 1 and such stock exchange shall forthwith post the same in its website.

3. The minimum number of bidding centres shall be:

(a) the four metropolitan centres situated at Mumbai, Delhi, Kolkata and Chennai;

(b) such cities in the region in which the registered office of the company is situated, as are specified by the stock exchange mentioned in paragraph 1.

4. There shall be at least one electronically linked computer terminal at all bidding centres.

5. The shareholders may withdraw or revise their bids upwards not later than one day before the closure of the bidding period. Downward revision of bids shall not be permitted.

6. The promoter shall appoint ‘trading members’ at the bidding centres, whom the public shareholders may approach for placing bids on the on-line electronic system.

7. The shareholders holding dematerialised shares desirous of availing the exit opportunity may deposit the equity shares in respect of which bids are made, with the special depositories account opened by the merchant banker for the purpose prior to placement of orders or, alternately, may mark a pledge for the same to the merchant banker in favour of the said account.

8. The merchant banker shall ensure that the equity shares in the said special depositories account are not transferred to the account of the promoter unless the bids in respect thereof are accepted and payments made.

9. The holders of physical equity shares may send their bidding form together with the share certificate and transfer deed to the trading member appointed for the purpose, who shall immediately after entering their bids on the system send them to the company or the share transfer agent for confirming their genuineness. The company or the share transfer agent shall deliver the certificates which are found to be genuine to the merchant banker, who shall not make it over to promoter unless the bids in respect thereof are accepted and payment made. The bids in respect of the certificates which are found to be not genuine shall be deleted from the system.

10. The verification of physical certificates shall be completed in time for making the public announcement under regulation 18.

11. The bids placed in the system shall have an audit trail which includes stock broker identification details, time stamp and unique order number.

12. The final offer price shall be determined as the price at which the maximum number of equity shares is tendered by the public shareholders. If the final price is accepted, then, the promoter shall accept all shares tendered where the corresponding bids placed are at the final price or at a price which is lesser than the final price. The promoter may, if he deems fit, fix a higher final price.

SCHEDULE III

[See regulation 22(4)]

CRITERIA FOR COMPULSORY DELISTING

1. The recognised stock exchange shall take all reasonable steps to trace the promoters of a company whose equity shares are proposed to be delisted, with a view to ensuring compliance with sub-regulation (3) of regulation 23.

2. The recognised stock exchange shall consider the nature and extent of the alleged non-compliance of the company and the number and percentage of shareholders who may be affected by such non-compliance.

3. The recognised stock exchange shall take reasonable efforts to verify the status of compliance of the company with the office of the concerned Registrar of Companies.

4. The names of the companies whose equity shares are proposed to be delisted and their promoters shall be displayed in a separate section on the website of the recognised stock exchange for a brief period of time. If delisted, the names shall be shifted to another separate section on the website.

5. The recognised stock exchange shall in appropriate cases file prosecutions under relevant provisions of the Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force against identifiable promoters and directors of the company for the alleged non-compliances.

6. The recognised stock exchange shall in appropriate cases file a petition for winding up the company under section 433 of the Companies Act, 1956 (1 of 1956) or make a request to the Registrar of Companies to strike off the name of the company from the register under section 560 of the said Act.

K. M. ABRAHAM

WHOLE TIME MEMBER

SECURITIES AND EXCHANGE BOARD OF INDIA

June 24, 2009 : Qualified Institutional Buyers To Get Proportionate Allotment While Anchor Investors To Get Firm Allotment Of Shares

THE Securities and Exchange Board of India (Sebi) is considering a proposal, whereby all qualified institutional buyers (QIBs) soon will have to pay an upfront margin of 25% while bidding for initial public offerings, against the current level of 10%. The development was first reported in ET NOW. A person familiar with the proposal told ET that increased upfront payments would mean that only the more serious players among institutional investors would bid for the issue.

Already, the regulator has said anchor investors will have to make a 25% upfront payment while bidding for an IPO. The only difference would be that anchor investors would get a firm allotment while QIBs will get a proportionate allotment based on the number of times an issue is oversubscribed.

The regulator’s aim is to eventually make institutional investors commit 100% funds at the time of applying for IPOs. At the same time, Sebi wants to go about it in a phased manner.

“There will be a liquidity crunch if we mandate full payment by institutional investors, besides money being locked-in for over 15 days,” said a Sebi official.

Also, since there are signs of a turnaround in the stock market, Sebi wants to take one step at a time.

“It will give a realistic picture about the subscription of the issue. The kind of over subscription that used to be earlier will not be there. Also, only serious FIIs (foreign institutional investors) will place their bids now,” said a senior investment banker, adding that it would enable efficient price discovery.

In a bid to reduce the timeline between application and allotment, Sebi last year had introduced a facility — Application Supported by Blocked Amount (ASBA), wherein the investors’ application money will be debited from their bank account only after the shares are allotted. Incidentally, the system couldn’t take off in a big way because of the crash in stock markets. However, with a revival in sight, the facility would help faster refunds in case of non-allotment of shares in the IPOs.

Sebi is planning to extend ASBA to QIBs as well.

This system will aid in full payment commitments by QIBs,” the person said.

June 24, 2009 : Qualified Institutional Buyers To Get Proportionate Allotment While Anchor Investors To Get Firm Allotment Of Shares

THE Securities and Exchange Board of India (Sebi) is considering a proposal, whereby all qualified institutional buyers (QIBs) soon will have to pay an upfront margin of 25% while bidding for initial public offerings, against the current level of 10%. The development was first reported in ET NOW. A person familiar with the proposal told ET that increased upfront payments would mean that only the more serious players among institutional investors would bid for the issue.

Already, the regulator has said anchor investors will have to make a 25% upfront payment while bidding for an IPO. The only difference would be that anchor investors would get a firm allotment while QIBs will get a proportionate allotment based on the number of times an issue is oversubscribed.

The regulator’s aim is to eventually make institutional investors commit 100% funds at the time of applying for IPOs. At the same time, Sebi wants to go about it in a phased manner.

“There will be a liquidity crunch if we mandate full payment by institutional investors, besides money being locked-in for over 15 days,” said a Sebi official.

Also, since there are signs of a turnaround in the stock market, Sebi wants to take one step at a time.

“It will give a realistic picture about the subscription of the issue. The kind of over subscription that used to be earlier will not be there. Also, only serious FIIs (foreign institutional investors) will place their bids now,” said a senior investment banker, adding that it would enable efficient price discovery.

In a bid to reduce the timeline between application and allotment, Sebi last year had introduced a facility — Application Supported by Blocked Amount (ASBA), wherein the investors’ application money will be debited from their bank account only after the shares are allotted. Incidentally, the system couldn’t take off in a big way because of the crash in stock markets. However, with a revival in sight, the facility would help faster refunds in case of non-allotment of shares in the IPOs.

Sebi is planning to extend ASBA to QIBs as well.

This system will aid in full payment commitments by QIBs,” the person said.

June 23, 2009 : GANGTOK: The Sikkim Government will be embarking on an ambitious project from July 1 that seeks to provide health insurance to all the BPL families in the State.

The health insurance scheme has been named as ‘Mukhya Mantri Upchar Bima Yojana’ and as the name suggests will be providing health insurance coverage to all the identified BPL families in the State.

For the record, Chief Minister Pawan Chamling during his election campaigns had already announced that the State government will launch the health insurance scheme. The scheme had also been listed in the election manifesto of the ruling Sikkim Democratic Front (SDF) party.

The core objective of the proposed scheme is to ensure that free medical treatment is provided to the BPL families in the State up to a certain ceiling.

As per the scheme, there are four main packages offered in the scheme.

Firstly, each BPL family will be get hospitalization expenses up to Rs. 30,000 per annum on family floater basis with a maximum limit of Rs. 15,000 per illness. There is an accidental death cover of Rs. 25,000 for the earning head of the BPL family as per the provisions of the health insurance scheme.

The scheme also provides disability compensation of Rs. 50 per day up to a maximum of 15 days in a policy year if the earning head of the identified BPL family and/or spouse is hospitalized due to accident or disease or illness. Ambulance expenses have also been covered in the scheme.

The State health care department is the nodal agency for implementing the scheme.

The BPL families can avail the treatment facilities in any empanelled hospitals and health centres of the State including empanelled nursing homes in Siliguri.

The State health care department additional director Dr. T Yethanpa informed that the department is trying to empanel half a dozen nursing homes in Siliguri for the scheme. All formalities have been completed and the State government is expected to implement this scheme from July 1, he said.

A premium of Rs. 1 crore has already been allocated by the State government for this scheme for this year.

With the July deadline for the launching of the ‘Mukhya Mantri Upchar Bima Yojana’ and all the components of the scheme finalized, the only thing being awaited by the department is the final figures of BPL families in Sikkim from Department of Economics, Statistics, Monitoring and Evaluation (DESME), the statistics and survey arm of the State government.

The final figures will be provided to us by DESME very soon, said Dr. Yenthanpa.

It is learnt that the DESME has already listed around 16,000 BPL families in the State and the health department is expecting the total figures to around 21,000 BPL families in the State. The scheme will cover all the BPL families in the State.

The department has roped in the services of a national insurance company, ‘The New India Assurance Company Ltd’ for the health insurance scheme. The company is a Government of India undertaking

The company and the department in turn have hired a Third Party Administrator (TPA) which will do the actual ground works like clearing hospital bills for the under treatment BPL families at the hospital itself. The TPA hired for this purpose is E-Meditek.

It is a cashless arrangement for the BPL families where they do not have to pay for their medical treatment as they are covered by health insurance, it is informed.

June 23, 2009 : Mumbai: Even as some of the general insurance companies are mooting an in-house claims settlement procedure, ICICI Prudential Life Insurance has decided to go direct for its health insurance claims settlement process and snapped a three-year tie-up with its third party administrator TTK Healthcare.

The life insurer has launched a facility called ICICI Pru ClaimCare whereby policy holders can connect with ICICI Prudential via phone, fax or SMS whenever planned or unplanned claims arise.

We got into the health insurance business three years ago and then we needed the network and skills. But we realised that the customer experience was getting affected as there were too many touch points. Even though we made changes to process of TPAs, they had their own philosophy and were servicing 10 other insurance companies. As far as the customers are concerned the good or the bad would be painted as per what the TPA represented," said Poonam Bhardwaj, senior VP -- underwriting & claims at ICICI Prudential.

While general insurance companies, especially the four public sector insurers are thinking of an in-house claims settlement to reduce losses, ICICI Prudential says it is doing it for non-cost motives. Bhardwaj says, "As far as claims ratios are concerned, we are comfortable and the decision was not because of the cost portion of it."

The move would help reduce the time needed for pre-authorisation approval to about an hour from three hours needed earlier.

June 19, 2009:Among other key decisions taken by Sebi, the regulator has introduced the concept of an anchor investor, whereby a company planning a public issue can allocate on a discretionary basis up to 30% of the QIB portion of the issue to any one of the institutional investors. Curiously, however, the lockin period for such an investor is just 30 days. While the presence of a large investor could help an IPO sail through, it could be misleading for smaller investors, feel some market watchers.

According to Sebi, the move will bring greater certainty to IPO transactions. At the same time, no person related to the promoter group or lead managers can apply as anchor investor. “This is a good move, as it gives assurance of allocation against an assurance of participation, and helps take transaction through in all kinds of markets,” said Kotak Mahindra Capital ED Chetan Savla.

At present, 50% of any book-built initial public offering is reserved for institutional buyers. The minimum application size by anchor investors would be Rs 10 crore, and the shares allotted to them will be subject to a lock-in period of 30 days.

“Any long only investor should not mind a 30-day lock in period. It will help demonstrate the strength of an IPO by showing that the institutional investor is committed,” said a merchant banker, with a US-based investment bank. Anchor investors would have to pay a margin of 25% on application and the balance 75% within two days of the date of closure of the public issue.

RIGHTS ISSUE SIMPLIFIED

As a part of its efforts to speed up rights issues and also reduce the cost for issuers, the regulator has decided to do away with certain disclosures. This has been done since rights issues are made to existing shareholders, who are in possession of basic information about the company, and have been receiving reports regarding major developments in the company on a continuous basis. Disclosures that have been done away with, include a summary of the industry and business of the issuer company, promise vs performance with respect to earlier/previous issues and management discussion and analysis. Disclosures relating to financial statements, litigations and risk factors have been simplified.

June 19, 2009:Among other key decisions taken by Sebi, the regulator has introduced the concept of an anchor investor, whereby a company planning a public issue can allocate on a discretionary basis up to 30% of the QIB portion of the issue to any one of the institutional investors. Curiously, however, the lockin period for such an investor is just 30 days. While the presence of a large investor could help an IPO sail through, it could be misleading for smaller investors, feel some market watchers.

According to Sebi, the move will bring greater certainty to IPO transactions. At the same time, no person related to the promoter group or lead managers can apply as anchor investor. “This is a good move, as it gives assurance of allocation against an assurance of participation, and helps take transaction through in all kinds of markets,” said Kotak Mahindra Capital ED Chetan Savla.

At present, 50% of any book-built initial public offering is reserved for institutional buyers. The minimum application size by anchor investors would be Rs 10 crore, and the shares allotted to them will be subject to a lock-in period of 30 days.

“Any long only investor should not mind a 30-day lock in period. It will help demonstrate the strength of an IPO by showing that the institutional investor is committed,” said a merchant banker, with a US-based investment bank. Anchor investors would have to pay a margin of 25% on application and the balance 75% within two days of the date of closure of the public issue.

RIGHTS ISSUE SIMPLIFIED

As a part of its efforts to speed up rights issues and also reduce the cost for issuers, the regulator has decided to do away with certain disclosures. This has been done since rights issues are made to existing shareholders, who are in possession of basic information about the company, and have been receiving reports regarding major developments in the company on a continuous basis. Disclosures that have been done away with, include a summary of the industry and business of the issuer company, promise vs performance with respect to earlier/previous issues and management discussion and analysis. Disclosures relating to financial statements, litigations and risk factors have been simplified.

June 22, 2009 : IN A clutch of decisions Sebi has taken away mutual funds’ right to levy an entry load, rationalised the disclosure norms for rights issues, lowered select service and registration fees and introduced the concept of ‘anchor investor’ in public issues. These reform measures are mostly unexceptionable. Direct investors in MFs had already been spared the entry load. Sebi’s decision to do away with entry load altogether, leaving investors to negotiate the intermediation fee directly with the distributors, will help lower transaction costs for even those investors who continue to invest the old way, through agents and distributors. At present MFs levy an entry load as high as 3% of investment to cover transaction/brokerage costs without the investor being aware since it was included in the price charged. At a larger level, this nascent move could encourage a fee-based responsible intermediation, a model that could later be extended to insurance as well where hidden levies are very steep. The abridged disclosure in rights issues was on Sebi’s radar for a while. It would help reduce costs and facilitate faster rights issue and thereby substantially reduce price risks. And the ban on shares with superior voting rights ensures that minority interests are protected.

The most interesting proposal is that of anchor investor, who can be allotted 30% of the maximum 60% set aside for qualified institutional bidders (QIBs) in IPOs. Interestingly, the abused discretionary QIB allotment has been brought in to address some of the shortcomings of the book-building method. Most of the bids in book-built issues come on the last day as big investors do not want to lock-in funds early. Besides, the system of proportionate allotment where the applicant gets only fraction of shares applied for discourages serious investors. Anchor investor will come in early, providing some comfort to the retail investors. Sebi obviously thinks 30-day lock-in sufficient to ensure that only committed investor step forward to anchor issues, as in IPOs most of the gains are in the first few days. One can argue that this lock-in should be longer, not only for getting the most committed investors but also for ensuring the discretion in selecting anchor investor is not abused to benefit select investors. However, the idea is well worth a try.

June 22, 2009 : IN A clutch of decisions Sebi has taken away mutual funds’ right to levy an entry load, rationalised the disclosure norms for rights issues, lowered select service and registration fees and introduced the concept of ‘anchor investor’ in public issues. These reform measures are mostly unexceptionable. Direct investors in MFs had already been spared the entry load. Sebi’s decision to do away with entry load altogether, leaving investors to negotiate the intermediation fee directly with the distributors, will help lower transaction costs for even those investors who continue to invest the old way, through agents and distributors. At present MFs levy an entry load as high as 3% of investment to cover transaction/brokerage costs without the investor being aware since it was included in the price charged. At a larger level, this nascent move could encourage a fee-based responsible intermediation, a model that could later be extended to insurance as well where hidden levies are very steep. The abridged disclosure in rights issues was on Sebi’s radar for a while. It would help reduce costs and facilitate faster rights issue and thereby substantially reduce price risks. And the ban on shares with superior voting rights ensures that minority interests are protected.

The most interesting proposal is that of anchor investor, who can be allotted 30% of the maximum 60% set aside for qualified institutional bidders (QIBs) in IPOs. Interestingly, the abused discretionary QIB allotment has been brought in to address some of the shortcomings of the book-building method. Most of the bids in book-built issues come on the last day as big investors do not want to lock-in funds early. Besides, the system of proportionate allotment where the applicant gets only fraction of shares applied for discourages serious investors. Anchor investor will come in early, providing some comfort to the retail investors. Sebi obviously thinks 30-day lock-in sufficient to ensure that only committed investor step forward to anchor issues, as in IPOs most of the gains are in the first few days. One can argue that this lock-in should be longer, not only for getting the most committed investors but also for ensuring the discretion in selecting anchor investor is not abused to benefit select investors. However, the idea is well worth a try.

June 22, 2009 : IN A clutch of decisions Sebi has taken away mutual funds’ right to levy an entry load, rationalised the disclosure norms for rights issues, lowered select service and registration fees and introduced the concept of ‘anchor investor’ in public issues. These reform measures are mostly unexceptionable. Direct investors in MFs had already been spared the entry load. Sebi’s decision to do away with entry load altogether, leaving investors to negotiate the intermediation fee directly with the distributors, will help lower transaction costs for even those investors who continue to invest the old way, through agents and distributors. At present MFs levy an entry load as high as 3% of investment to cover transaction/brokerage costs without the investor being aware since it was included in the price charged. At a larger level, this nascent move could encourage a fee-based responsible intermediation, a model that could later be extended to insurance as well where hidden levies are very steep. The abridged disclosure in rights issues was on Sebi’s radar for a while. It would help reduce costs and facilitate faster rights issue and thereby substantially reduce price risks. And the ban on shares with superior voting rights ensures that minority interests are protected.

The most interesting proposal is that of anchor investor, who can be allotted 30% of the maximum 60% set aside for qualified institutional bidders (QIBs) in IPOs. Interestingly, the abused discretionary QIB allotment has been brought in to address some of the shortcomings of the book-building method. Most of the bids in book-built issues come on the last day as big investors do not want to lock-in funds early. Besides, the system of proportionate allotment where the applicant gets only fraction of shares applied for discourages serious investors. Anchor investor will come in early, providing some comfort to the retail investors. Sebi obviously thinks 30-day lock-in sufficient to ensure that only committed investor step forward to anchor issues, as in IPOs most of the gains are in the first few days. One can argue that this lock-in should be longer, not only for getting the most committed investors but also for ensuring the discretion in selecting anchor investor is not abused to benefit select investors. However, the idea is well worth a try.

June 22, 2009 : WITH GAS production plans taking shape in KG Basin, energy venture Gujarat State Petroleum Corporation (GSPC) is all set to revive its plans to raise funds from the primary market. The state venture will, however, take a call on the IPO after the Union Budget. The state will dilute its equity holding in GSPC to fund its ambitious gas production plans. The company, on Thursday submitted its development plan entailing an investment of $1.7 billion in the next couple of years to develop in KGOSN-2001/3 block on the east coast of India in phase I. The development regarding GSPC’s Deendayal Gas Field is being viewed as a stepping stone for the state government to list its yet another venture.

“We will soon float tenders for drilling well, commissioning of platforms, laying pipelines and develop onshore facility to handle the produce. We will require funds and explore the primary market to shape the projects. Our plans for IPO are back on track,” said a top GSPC official requesting anonymity. He added, “We have already pumped in close to $1 billion for exploration in the Deendayal-West block having gas at high pressure and temperature. We will pump invest $1.7 billion in next couple of years and expect to commence the production of natural gas by the end of December 2011,” said the official.

According to him, the base case gas reserve considered for field development plan (FDP) for Deendayal-West is 3 TCF, but it can go up to 4.6 TCF on a higher side. GSPC holds 80% interests in the block, while Canadabased GeoGlobal Resources and Jubilant Offshore Drilling hold 10% each in Deendayal Block. Meanwhile, GSPC will soon kick off the valuation process to finalise the IPO plans.  

June 22, 2009 : THE Reserve Bank of India (RBI) will meet CEOs of large banks on July 7, a day after the Union Budget, to hear their part ahead of finalising the monetary policy scheduled on July 28.

Bankers say interest rate and poor loan demand could be discussed among other things with RBI governor D Subbarao. The three deputy governors will also be present in the meeting. Some of the budget proposals could also figure in the discussion. Given the ample liquidity in the system and low credit offtake, it's unlikely that bankers would ask a cut in key interest rates, said the CEO of a state-owned bank. The surplus cash parked with RBI under the reverse repo window has been in the region of Rs 1 lakh crore since the beginning of this quarter.

However, bankers may draw RBI's attention to some of the issues that industry bodies like CII and Ficci have raised with them. Bankers have held two meetings with trade bodies in the past two months. In the last meeting, the trade bodies had urged banks to lower interest rates for exporters. Indian exporters complain that the interest rate paid by them is much higher than that paid by their competitors.

Currently, the central bank’s biggest mandate is to create an environment to facilitate demand from the manufacturing sector.

Last Saturday, RBI governor D Subbarao said there were signs of demand revival in sectors such as steel, cement and coal. However, as reported by a news agency, he was quick to add that ‘there are a number of sectors of the economy that have to see a significant revival’.  

June 22, 2009 : THE Reserve Bank of India (RBI) has kicked off initiatives to reach out to a wider section of the population with its banking ombudsman scheme.

The banking regulator is learnt to have told all heads in regional ombudsman offices to get themselves directly involved in district-level bankers’ committee and village-level committee meetings periodically.

This move is seen as an effort to activate the ombudsman scheme effectively in semi-urban and rural areas. This may be the first time senior banking ombudsmen would participate in ground-level meetings. A banking ombudsman aims at resolving complaints related to banking services and disputes between a bank and its constituents.

Senior RBI officials observed that so far it's mostly the urban population that has taken advantage of the ombudsman scheme. But there is a screaming need to make a larger section of the population aware of this system.

RBI's newly-appointed banking ombudsman for West Bengal and Sikkim, V Vasanthan, categorically said most complaints his office received in 2008-09 were from urban bank customers. Incidentally, RBI has disposed of over 3,000 complaints in 2008-09, more than what it resolved in the preceding year.

At present, 15 banking ombudsman offices cover the entire country. There is, however, no immediate plan to set up ombudsman offices in the districts. RBI has been trying to solve the complaints within a month. There is already a stipulation that all grievances need to be addressed within a fortnight of receiving the same.

RBI has also recently widened the scope of the scheme to include deficiencies arising out of internet banking. Customers can also lodge complaints against banks for non-adherence to the provisions of the fair practices code for lenders or the code of bank's commitment to customers issued by the Banking Codes and Standards Board of India. Banks are also liable to pay a penalty up to Rs 1 lakh in case of customer harassment.  

June 22, 2009 : INSURANCE companies that are planning to launch initial public offerings (IPO) to raise capital will have to disclose their valuation, investment portfolio, product offerings and their distribution channels.

Insurance regulator Irda is set to notify these disclosures to help investors gauge the financial strength of insurance firms that are planning to list. “In fact, all insurance companies will have to comply with these additional disclosures as the goal is to bring in more transparency in their operations. For instance, it will be mandatory for all insurance firms to disclose their embedded or intrinsic value every year,” Insurance Regulatory Development Authority (Irda ) chairman J Hari Narayan told ET.

The existing insurance law allows only companies that have completed 10 years of operations to launch an IPO. Most life insurance companies are yet to start making profits.

But Sebi rules allow loss-making firms to launch IPOs. The only caveat is these firms have to go through the compulsory book-building process for price discovery. “We reckon that loss-making insurance firms can go for an IPO provided they complete 10 years of operations,” he said.

Foreign promoters of insurance joint ventures are expected to bring in more capital after the government amends the insurance law to hike the FDI cap from 26% to 49%. The 10-year stipulation on IPOs is set to go once the law is amended.

Among life insurers, Reliance Life has reportedly announced its plans to launch an IPO. Analysts reckon this would set the trend for valuations of life insurance companies that are linked in a big way to the performance of the equity markets.

A panel chaired by Irda member (actuary) R Kannan has recommended the methodology to compute the economic capital and marketconsistent embedded value for life insurers. Embedded value is the profit generated by the current block of business and sets the benchmark for pricing. The recommendations, to be vetted by the Institute of Actuaries of India, are set to form the basis for various disclosures under IPOs.

“The current solvency regime is simple and does not distinguish a risky portfolio from a not-so-risky one. The economic capital for a company must take into account various risks faced by the insurers and accordingly charge the capital. The economic capital will form the basis for moving towards riskbased capital in future,” said Mr Kannan.

Insurance companies have to disclose their investment portfolios at regular intervals. Insurers are allowed to invest in government and other approved securities and also pick up stakes in individual and group companies subject to limits stipulated by the regulator.  

June 22, 2009 : INSURANCE companies that are planning to launch initial public offerings (IPO) to raise capital will have to disclose their valuation, investment portfolio, product offerings and their distribution channels.

Insurance regulator Irda is set to notify these disclosures to help investors gauge the financial strength of insurance firms that are planning to list. “In fact, all insurance companies will have to comply with these additional disclosures as the goal is to bring in more transparency in their operations. For instance, it will be mandatory for all insurance firms to disclose their embedded or intrinsic value every year,” Insurance Regulatory Development Authority (Irda ) chairman J Hari Narayan told ET.

The existing insurance law allows only companies that have completed 10 years of operations to launch an IPO. Most life insurance companies are yet to start making profits.

But Sebi rules allow loss-making firms to launch IPOs. The only caveat is these firms have to go through the compulsory book-building process for price discovery. “We reckon that loss-making insurance firms can go for an IPO provided they complete 10 years of operations,” he said.

Foreign promoters of insurance joint ventures are expected to bring in more capital after the government amends the insurance law to hike the FDI cap from 26% to 49%. The 10-year stipulation on IPOs is set to go once the law is amended.

Among life insurers, Reliance Life has reportedly announced its plans to launch an IPO. Analysts reckon this would set the trend for valuations of life insurance companies that are linked in a big way to the performance of the equity markets.

A panel chaired by Irda member (actuary) R Kannan has recommended the methodology to compute the economic capital and marketconsistent embedded value for life insurers. Embedded value is the profit generated by the current block of business and sets the benchmark for pricing. The recommendations, to be vetted by the Institute of Actuaries of India, are set to form the basis for various disclosures under IPOs.

“The current solvency regime is simple and does not distinguish a risky portfolio from a not-so-risky one. The economic capital for a company must take into account various risks faced by the insurers and accordingly charge the capital. The economic capital will form the basis for moving towards riskbased capital in future,” said Mr Kannan.

Insurance companies have to disclose their investment portfolios at regular intervals. Insurers are allowed to invest in government and other approved securities and also pick up stakes in individual and group companies subject to limits stipulated by the regulator.  

April 6, 2009 :COMPANIES that specialise in buying non-performing loans from banks and turn them around may benefit from a new move to remove a technical hurdle that often creates confusion about the ownership of such bad assets.

Asset reconstruction companies (ARC), as they are known, are in talks with banks to put in place a system where any bad loan that they have bought from a bank would be automatically reflected in the books of the registrar of companies (RoC). This would help them sell the assets or collateral that backed such loans at an optimum price later on.

“The new system should be in place in a couple of months,” said a senior executive in an ARC who didn’t want to be named. In the current scenario, the only document that shows the ownership rights of ARCs is the sale deed that they sign with the banks, while the records of RoCs remain unchanged, said an official with Edelweiss Capital, which has ventured into asset reconstruction business.

It is mandatory for companies to inform the RoC when they pledge an asset to a bank. However, there is no easy way of changing that charge in RoC records, making it difficult for ARCs to show their legal ownership of distressed assets to a potential buyer. Uncertainty in ownership raises the risk involved and buyers insist on a discount. “It is difficult to change the charge on the assets because there are numerous authorities in the country including RoCs, regional transport offices and others, where the rights of the lender is registered. ARCs find it extremely difficult to get them changed,” said the official.

ARCs typically buy non-performing assets (NPAs) at a discount from banks to clean up their balance sheets and run them as separate businesses. High cost of credit and a distinct slowdown in economic growth have got many Indian financial services firms to focus on asset reconstruction as their next big business opportunity.

The focus of banks have been to “offload” such assets from their balancesheet by pursuing various options, including selling off to ARCs and renegotiating terms of repayment, looking at sector-specific issues. The net NPAs in the domestic banking industry have risen from Rs 20,280 crore in 2006-07 to Rs 24,742 crore in 2007-08. ARCs point out that the slowdown in the economy may increase the chance of good loans becoming bad ones. This is expected to provide good business opportunity to ARCs.

June 18, 2009: The Securities Laws (Amendment) Act enacted in 2005, incorporated section 21(A) in the Securities Contract Regulation Act (SCRA) to allow delisting of securities necessitating the creation of a delisting Framework. In order to provide statutory backing for the delisting framework, Rules dealing primarily with the substantive aspects and Regulations dealing primarily with the procedural aspects for delisting are also being notified simultaneously by the Government and Securities & Exchange Board of India respectively.

Delisting Rules include the following provisions:

I. Grounds for Delisting of Securities by a Recognized Stock Exchange: Delisting of securities may be done by a recognised exchange on any of the following grounds:

(a) the company has incurred losses during the preceding three consecutive years and it has negative net worth;

(b) trading in the securities of the company has remained suspended for a period of more than six months;

(c) the securities of the company have remained infrequently traded during the preceding three years;

(d) the company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions of the Act or the Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996 (22 of 1996) or rules, regulations, agreements made thereunder, as the case may, be and awarded a penalty of not less than rupees one crore or imprisonment of not less than three years;

(e) the addresses of the company or any of its promoter or any of its directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, 1956 (1 of 1956); or

(f) shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement under the Act and the company has failed to raise public holding to the required level within the time specified by the recognized stock exchange

II. Grounds for Voluntary Delisting: Voluntary Delisting can be done through a request by the company to delist any securities provided

(a) the securities of the company have been listed for a minimum period of three years on the Recognized Stock Exchange;

(b) the delisting of such securities has been approved by the two-third of public shareholders; and

(c) the company, promoter and/ or the director of the company purchase the outstanding securities from those holders who wish to sell them at a price determined in accordance with Regulations made by Securities and Exchange Board of India" under the Act..

The above grounds laid down for the Delisting Rules have to be read with the Regulations made under the Act by SEBI.

The SEBI (Delisting of Equity Shares) Regulations provide for voluntary delisting from either all recognised stock exchanges or from only some of the recognized stock exchanges. It lays down the procedure for delisting (a) where no exit opportunity is required (b) and where exit opportunity is required. It also lays down the procedure for compulsory delisting along with specifically stating the rights of public shares in such cases. The regulations also have special provisions, inter-alia, for delisting of small companies, delisting in cases of winding up of a company and de-recognition of stock exchange.

The Delisting Rules will come into force on the date of issue of notification of the Regulations issued by the Securities & Exchange Board of India in this regard under the Securities Contracts (Regulations) Act, 1956 and Securities & Exchange Board of India Act, 1992.

RESERVE BANK OF INDIA Foreign Exchange Department C e n t r a l O f f i c e Mumbai - 400 001 A. P. (DIR Series) Circular No.66 April 28, 2009

To,

All Category - I Authorised Dealer banks and Authorised Banks

Madam / Sir,

Foreign Exchange Management (Deposit) Regulations, 2000- Loans to Non Residents / third party against security of Non Resident (External) Rupee Accounts [NR (E) RA / Foreign Currency Non Resident (Bank) Accounts [FCNR(B)] -Deposits

Attention of Authorised Dealer Category - I banks and Authorised banks ( the banks) is invited to Para 6 (a), (b), (c) and (d) of Schedule 1 and Para 9 of Schedule 2 to Foreign Exchange Management (Deposit) Regulations, 2000 notified vide Notification No. FEMA 5 / 2000-RB dated May 3, 2000, as amended from time to time regarding loans against security of funds held in deposit accounts. Further, attention of the banks is also invited to A. P. (DIR Series) Circular No.29 dated January 31, 2007 prohibiting banks from granting fresh loans or renewing existing loans in excess of Rs.20 lakh against NR(E)RA and FCNR(B) deposits either to the depositors or third parties. The banks were also advised not to undertake artificial slicing of the loan amount to circumvent the ceiling.

2. As announced in Para 111 of the Annual Policy Statement 2009-10, it has been decided to enhance the existing cap of Rs.20 lakh to Rs.100 lakh on loans against security of funds held in NR(E)RA and FCNR(B) deposits either to the depositors or third parties.

3. Accordingly, the banks may now grant loans against NR(E)RA and FCNR(B) deposits either to the depositors or third parties up to a maximum limit of Rs.100 lakh. The banks are also advised not to undertake artificial slicing of the loan amount to circumvent the aforesaid ceiling.

4. 5. The above instructions shall come into force with immediate effect.

The banks may bring the contents of this circular to the notice of their constituents and customers concerned. 6.

The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(Salim Gangadharan)

Chief General Manager-in-Charge

RESERVE BANK OF INDIA Foreign Exchange Department C e n t r a l O f f i c e Mumbai - 400 001 A. P. (DIR Series) Circular No 65

To,

All Category - I Authorised Dealer Banks

Madam / Sir, April 28,

Buyback / Prepayment of Foreign Currency Convertible Bonds (FCCBs)

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to A.P.(DIR Series) Circular No. 39 dated December 8, 2008 and A.P. (DIR Series) Circular No. 58 dated March 13, 2009 on the captioned subject. In terms of Para 4 B of A.P (DIR Series) Circular No. 39 dated December 8, 2008, Reserve Bank has been considering proposals from Indian companies for buyback of FCCBs out of their internal accruals, under the approval route up to a total amount of USD 50 million of the redemption value per company, subject to a minimum discount of 25 per cent on the book value.

2. As announced in Para 110 of the Annual Policy Statement 2009-10 and keeping in view the benefits accruing to the Indian companies, the current policy has been reviewed and it has been decided to increase the total amount of permissible buyback of FCCBs, out of internal accruals, from USD 50 million of the redemption value per company to USD 100 million, under the approval route by linking the higher amount of buyback to larger discounts. Accordingly, Indian companies may henceforth be permitted to buyback FCCBs up to USD 100 million of the redemption value per company, out of internal accruals, with the prior approval of the Reserve Bank, subject to a: -2-

i) minimum discount of 25 per cent of book value for redemption value up to USD 50 million;

ii) minimum discount of 35 per cent of book value for the redemption value over USD 50 million and up to USD 75 million; and

iii) minimum discount of 50 per cent of book value for the redemption value of USD 75 million and up to USD 100 million.

3. All other terms and conditions stipulated in A.P. (DIR Series) Circular No. 39 dated December 8, 2008 will continue to be applicable. This facility shall come into force with immediate effect and the entire procedure of buyback should be completed by December 31, 2009 as specified in A.P. (DIR Series) Circular No. 58 dated March 13, 2009.

4. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

5. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithful y

(Salim Gangadharan)

Chief General Manager –in - Charge

RESERVE BANK OF INDIA Foreign Exchange Department C e n t r a l O f f i c e Mumbai - 400 001 A.P. (DIR Series) Circular No. 64

To

All Category-I Authorised Dealer Banks

Madam / Sir, April 28, 2009

External Commercial Borrowings (ECB) Policy - Liberalisation

Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to the A.P. (DIR Series) Circular No. 46 dated January 2, 2009 relating to External Commercial Borrowings (ECB) and in terms of Para 2 of the circular, it was decided to dispense with the requirement of all-in-cost ceilings on ECB, under the approval route, until June 30, 2009. Accordingly, eligible borrowers, proposing to avail of ECB beyond the prescribed all-in-cost ceilings could approach the Reserve Bank, under the approval route.

2. As announced in Para 107 of the Annual Policy Statement 2009-10 and considering the continuing pressure on credit spreads in the international markets, it has been decided to extend the relaxation in all–in-cost ceilings, under the approval route, until December 31, 2009. This relaxation will be reviewed in December 2009.

3. The modifications to the ECB guidelines shall come into force with immediate effect. All other aspects of ECB policy, such as USD 500 million limit per company per financial year under the Automatic Route, eligible borrower, recognised lender, end-use, average maturity period, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

-2- 4. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately.

5. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

6. The directions contained in this circular have been issued under sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully

(Salim Gangadharan)

Chief General Manager –in -Charge

RESERVE BANK OF INDIA Foreign Exchange Department Central Office Mumbai - 400 001 A. P. (DIR Series) Circular No.63 April 22, 2009

To

All Category-I Authorised Dealer Banks

Madam / Sir,

Foreign Direct Investment in India - Transfer of Shares / Preference Shares / Convertible Debentures by way of Sale - Modified Reporting Mechanism

Attention of the Authorised Dealer Category – I (AD Category - I) banks is invited to paragraph 6 of the Annex to A. P. (DIR Series) Circular No.16 dated October 4, 2004, wherein, it has been stipulated that in case of transfer of shares from a resident to a non-resident / non-resident Indian and vice versa, the transferee / his duly appointed agent is required to approach the investee company to record the transfer in their books along with the certificate in form FC-TRS from the designated AD branch that the remittances have been received by the transferor /payment has been made by the transferee. In addition, the designated AD branch is also required to submit two copies of the form FC-TRS received from their constituents / customers together with the statement of inflows / outflows on account of remittances received / made in connection with transfer of shares, by way of sale, to IBD/FED or the nodal office designated for the purpose by the AD Category – I bank. The IBD/FED or the nodal office of the AD Category – I bank in turn submits a consolidated monthly statement in respect of all the transactions reported by the branches to the Reserve Bank, in the prescribed proforma. Further, it may be noted that in terms of Regulation 2 of Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time, "preference shares" mean compulsorily and mandatorily convertible preference shares and "debenture" means compulsorily and mandatorily convertible debentures.

2. In order to capture the details of investment received by way of transfer of the existing shares / compulsorily and mandatorily convertible preference shares (CMCPS) / debentures [hereinafter referred to as equity instruments], of an Indian company, by way of sale, in a more comprehensive manner, the form FC-TRS has been revised (format in Annex I). Accordingly, the proforma for reporting of inflows / outflows on account of remittances received / made in connection with the transfer of equity instruments by way of sale, submitted by IBD/FED/nodal branch of the AD Category – I bank to the Reserve Bank has also been modified (format in Annex III).

3. The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check (format in Annex II) by the remittance receiving AD Category – I bank at the time of receipt of funds. In case, the remittance receiving AD Category – I bank is different from the AD Category – I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category – I bank carrying out the transaction along with the form FC-TRS.

4. Further, in order to ensure that the form FC-TRS is submitted within a reasonable timeframe, it has been decided that henceforth, the form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the form FC- TRS within the given timeframe would be on the transferor / transferee, resident in India.

5. In case of transfer of equity instruments where the non-resident acquirer proposes deferment of payment of the amount of consideration, prior approval of the Reserve Bank would be required, as hitherto. Further, in case approval is granted for a transaction, the same should be reported in form FC-TRS, duly certified by the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.

5. These directions will become operative with immediate effect. 6.

AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 7.

The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

Salim Gangadharan

Chief General Manager-in-Charge

RESERVE BANK OF INDIA Foreign Exchange Department Central Office Mumbai - 400 001 A. P. (DIR Series) Circular No.62

To

All Category-I Authorised Dealer Banks

Madam / Sir, April 20, 2009

External Commercial Borrowings Policy – Liberalisation Issue of Guarantee for operating lease

Attention of Authorized Dealer Category – I (AD Category –I) banks is invited to A. P. (DIR Series) Circular No. 24 dated March 1, 2002, in terms of which AD Category – I banks have been permitted to allow payment of lease rentals, opening of letters of credit towards security deposit, etc. in respect of import of aircraft / aircraft engine / helicopter on operating lease basis subject to conditions mentioned therein. Further, in terms of A. P. (DIR Series) Circular No.01 dated July 11, 2008, as a measure of rationalization of the existing procedures, AD Category - I banks have been allowed to convey ‘no objection’ under the Foreign Exchange Management Act (FEMA), 1999 for creation of charge on immovable assets, financial securities and issue of corporate or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised by the borrower, subject to compliance of prescribed conditions.

2. As a further measure of rationalization, it has been decided to allow AD Category – I banks to convey ‘no objection’ from the Foreign Exchange Management Act (FEMA), 1999 angle for issue of corporate guarantee in favour of the overseas lessor, for operating lease in respect of import of aircraft / aircraft engine / helicopter.

3. The ‘no objection’ to the Indian importer for issue of corporate guarantee under FEMA, 1999 may be conveyed after obtaining -

(i) Board Resolution for issue of corporate guarantee from the company issuing such guarantees, specifying names of the officials authorised to execute such guarantees on behalf of the company.

(ii) Ensuring that the period of such corporate guarantee is co-terminus with the lease period.

4. AD Category – I banks may invariably specify that the ‘no objection’ is issued only from the foreign exchange angle under the provisions of FEMA, 1999 and should not be construed as an approval by any other statutory authority or Government or any other laws / regulations. If further approval or permission is required from any other regulatory / statutory authority or Government under the relevant laws / regulations, the applicant should take the approval of the authority concerned before undertaking the transaction. Further, the ‘no objection’ should not be construed as regularizing or validating any irregularities, contravention or other lapses, if any, under the provisions of FEMA or any other laws or regulations.

5. This shall come into force with immediate effect and will be subject to review from time to time.

6. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

7. Necessary amendment to the Notification No. FEMA 8/2000-RB dated May 3, 2000 [Foreign Exchange Management (Guarantees) Regulations, 2000] is being issued separately.

8. The directions contained in this circular have been issued under Sections 10(4) and 11 (1) of the Foreign Exchange Management Act, 1999 ( 42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

Salim Gangadharan

Chief General Manager-in-charge

June 17, 2009 : Largecap PSU stocks will soon have company. The biggest IPO to hit the market in some time will be the National Hydro Power Corporation Ltd or NHPC. As part of the UPA government’s disinvestment plan, NHPC will soon go in for an initial public offer. That’s not a speculation that’s what the Power Minister Sushil Kumar Shinde told CNBC-TV18 that the IPO will happen in the next three months.

In an exclusive interview with CNBC-TV18, SK Garg, CMD, NHPC, said the company hopes its initial public offering (IPO) would hit Indian markets by the end of August, 2009. He added that the company planned an IPO for 10% for its stake and said that 5% would be divested in the first tranche. The 15% equity sale with a face value of Rs 10, he said, would help the company garner Rs 1,680 crore making it the biggest IPO of recent times.

DEPUTY GENERAL MANAGER

DIVISION OF CORPORATE RESTRUCTURING

CFD/DCR/TO/MM/ /07 May 4, 2007 Strides Arcolab Limited

‘STRIDES HOUSE’, Bilekahali,

Bannarghatta Road, Bangalore – 560 076

Dear Sirs,

Sub.: Request for Interpretive Letter under the SEBI (Informal Guidance) Scheme, 2003

Ref : Your letter dated April 10, 2007 and email dated April 17, 2007

1.0 Please refer to your letters quoted above, seeking interpretative letter under the SEBI (Informal Guidance) Scheme, 2003. The interpretive letter has been sought on the applicability of regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 {“the Takeover Regulations”} in respect of and at the time of issue of warrants by Strides Arcolab Limited (the target company) to its promoters and conversion of such warrants.

2.0 It is, inter-alia, informed by you vide your letters under reference, that:-

i). The shares of the target company are listed on BSE and NSE.

ii). Out of total equity shares of 34,954,289, the promoters of the target company currently hold 6,580,261 (18.83%) equity shares of the target company.

iii).The target company proposes to issue upto 56,00,000 warrants convertible into equivalent number of equity shares in compliance with SEBI (Disclosure and Investor Protection) Guidelines, 2000 to the promoters.

iv). These warrants are proposed to be converted as under:

a). 22,50,000 warrants are proposed to be converted on or before 31.03.2008. Consequently, promoters’ holding in the target company would increase from 18.83% to 23.73% (an increase in over 4.90% during Financial Year ending March 31, 2008 on account of conversion of warrants into equity shares).

b). 25,50,000 warrants are proposed to be converted before 31.03.2009 or 18 months from date of allotment of warrant, resulting in promoter holding increasing from 23.73% to 28.63% (an increase of over 4.89% during Financial Year ending March 31, 2009).

v).The promoters may opt to convert more warrants in a Financial Year in case the target company issues equity shares to any other person during the said period. The said situation is envisaged as there are outstanding FCCBs issued by the target company as well as shares that may be issued under ESOP scheme of Company or any other issue by the target company. In any case, the increase during the relevant Financial Year will be less than 5%.

3.0 Without necessarily agreeing with your analysis, our views on the proposed transactions as mentioned in para 2.0 above are as under –

(i) As per regulation 11(1) of the Takeover Regulations, no acquirer who, together with persons acting in concert with him, has acquired, in accordance with the provisions of law, 15 per cent or more but less than fifty five per cent (55%) of the shares or voting rights in a company, shall acquire, either by himself or through or with persons acting in concert with him, additional shares or voting rights entitling him to exercise more than 5% of the voting rights, in any financial year ending on 31st March, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.

(ii) In terms of regulation 14(2) of the Takeover Regulations, in case of acquisition of convertible securities the public announcement referred to in regulation 11 shall be made not later than 4 working days before the acquirer acquires voting rights on such securities upon conversion or exercise of the option, as the case may be.

(iii) Regulation 11(1) of the Takeover Regulations is triggered by acquisition of shares entitling the acquirer to exercise voting rights beyond the threshold limits specified in the said regulation. In case of acquisition of convertible securities such as warrants which would entitle the acquirer to exercise voting rights, exceeding the threshold limit specified in regulation 11, the regulations are triggered on conversion of warrants, or exercise of option, as the case may be whereby the acquirer acquires voting rights on such convertible securities. Therefore, at the time of issue of warrants by the target company, regulation 11(1) of the Takeover Regulations will not be triggered.

(iv) At the time of conversion of warrants into equity shares, which would entitle the promoters to exercise additional voting rights, the regulations as prevalent on the date of such conversion would apply. In terms of regulation 11(1) as it exists today, an acquirer can acquire upto 5% additional voting rights in one Financial Year without making a public announcement to acquire the shares of the target company in accordance with the Takeover Regulations.

(v) On perusal of your letters, we understand that pursuant to the conversion of warrants, the promoters would acquire less than 5% equity shares in the company in each of the financial years ending on March 31, 2008 and March 31, 2009.

(vi) In view of this, if at the time of conversion of warrants into equity shares by promoters of the target company regulation 11(1) as it exists today prevails, the public announcement as required under this regulation would not be required as the acquisition of additional shares will be within the creeping limit of 5%.

(vii) However, the promoters shall be under obligation to make necessary disclosures as required under regulation 7(1A) of the Takeover Regulations.

4.0 This position is based on the representation made to the Division in your letter under reference. Different facts or conditions might require a different result. This letter does not express decision of the Board on the questions referred.

5.0 Please note that this position is only with respect to applicability of regulation 11(1) of the Takeover Regulations on the proposed issue and conversion of warrants. This position does not affect applicability of any law including Regulations, Guidelines and circulars administered by SEBI or any other authority in respect of the proposed issue and conversion of warrants and in respect of conversion of FCCBs or exercise of option under ESOP Scheme of the target company.

Yours faithfully,

SOMA MAJUMDER

May 9, 2009 : MUMBAI: The Bombay High Court has directed global beer major SABMiller to ask the Indian tax authorities whether they have the jurisdiction to issue notice on SABMiller-Foster’s India deal. SABMiller dragged the I-T department to court, challenging the department’s jurisdiction to send notice on a deal that was struck outside the country by two non-Indian entities. According to the tax department, profit generated in India is liable to be taxed in India, irrespective of the venue of the transaction. This was also the stand of the department in Vodafone’s acquisition of Hutch International’s stake in Hutch Essar for $ 11 billion. SABMiller, the world’s second largest brewer, acquired Foster’s India, the domestic arm of Australian beer major Foster’s, three years ago for $120 million. During the course of his arguments on Thursday, SABMiller’s counsel Atul Dua argued in the Bombay High Court that shares were transferred to SABMiller through a Mauritius company, which was owned by DISMIN, a Foster’s group firm.

June 17, 2009 : MARKET regulator Sebi has simplified the listing agreement for Indian Depository Receipts (IDRs) for potential issuers from countries, which are part of the International Organization of Securities Commissions (IOSCO). This is part of the market regulator’s attempts to reduce additional regulatory requirements and lower costs.

“With respect to most of the provisions, especially Corporate Governance requirements and disclosure of periodical results, the issuer is allowed to follow the home country requirements provided equitable treatment is given to the IDR holders vis-a-vis holders of equity shares,” Sebi said in a circular on Tuesday.

For issuing companies from other jurisdictions, the exiting listing agreement for IDRs will continue to apply.

As per the simplified norms, the issuer will also have to declare that the underlying equity shares against which the IDRs are issued will be listed in its home country before the listing of the IDRs on the stock exchange. It will also have to obtain an in-principle approval for listing from stock exchanges where its IDRs are listed, before issuing further IDRs.

In case of any change in the rights attaching to any class of equity shares into which the IDRs are exchangeable, the issuing company has the immediately notify to stock exchanges, Sebi said.

June 17, 2009 : MARKET regulator Sebi has simplified the listing agreement for Indian Depository Receipts (IDRs) for potential issuers from countries, which are part of the International Organization of Securities Commissions (IOSCO). This is part of the market regulator’s attempts to reduce additional regulatory requirements and lower costs.

“With respect to most of the provisions, especially Corporate Governance requirements and disclosure of periodical results, the issuer is allowed to follow the home country requirements provided equitable treatment is given to the IDR holders vis-a-vis holders of equity shares,” Sebi said in a circular on Tuesday.

For issuing companies from other jurisdictions, the exiting listing agreement for IDRs will continue to apply.

As per the simplified norms, the issuer will also have to declare that the underlying equity shares against which the IDRs are issued will be listed in its home country before the listing of the IDRs on the stock exchange. It will also have to obtain an in-principle approval for listing from stock exchanges where its IDRs are listed, before issuing further IDRs.

In case of any change in the rights attaching to any class of equity shares into which the IDRs are exchangeable, the issuing company has the immediately notify to stock exchanges, Sebi said.

June 17, 2009 : THE board of market regulator Sebi will take up a proposal to transform disclosure and investor protection guidelines into regulations, a move that will prevent frequent changes in the norms and at the same time, give them legal sanctity.

The Sebi board is also likely to discuss measures to rationalise disclosure norms on rights issue and reduction in issue processing time. This proposal follows recommendations by its Primary Market Advisory Committee on simplifying the procedures governing rights issues.

Another measure that is likely to figure in the board meeting on Thursday is a reduction in the registration fees for market intermediaries.

The regulations called the Issue of Capital and Disclosure Requirements (ICDR) regulations will be taken up by the board. A government official privy to the proposal said any changes to these regulations could henceforth be made only after the board’s approval. Guidelines are issued by the Securities and Exchange Board of India under Section 11 of the Securities and Exchange Board of India Act, 1992. The move would provide further legal teeth to the guidelines as they could now be issued only after being ratified by the board. ICDR would govern all disclosure norms regarding securities.

June 17, 2009 : THE board of market regulator Sebi will take up a proposal to transform disclosure and investor protection guidelines into regulations, a move that will prevent frequent changes in the norms and at the same time, give them legal sanctity.

The Sebi board is also likely to discuss measures to rationalise disclosure norms on rights issue and reduction in issue processing time. This proposal follows recommendations by its Primary Market Advisory Committee on simplifying the procedures governing rights issues.

Another measure that is likely to figure in the board meeting on Thursday is a reduction in the registration fees for market intermediaries.

The regulations called the Issue of Capital and Disclosure Requirements (ICDR) regulations will be taken up by the board. A government official privy to the proposal said any changes to these regulations could henceforth be made only after the board’s approval. Guidelines are issued by the Securities and Exchange Board of India under Section 11 of the Securities and Exchange Board of India Act, 1992. The move would provide further legal teeth to the guidelines as they could now be issued only after being ratified by the board. ICDR would govern all disclosure norms regarding securities.

June 17, 2009 : THE foreign direct investment (FDI) norms notified in February are likely to undergo yet another clarification, this time to take into account ownership structures that bestow control on minority stake-holders through differential voting rights (DVR). The government is likely to clarify that the downstream investments made by a joint venture in which the minority foreign investor has a decisive say through differential voting rights will be considered as indirect foreign investment.

Such a clarification is likely to have a bearing on investments in sectors where foreign investment is capped, such as telecom. Specifically, such a clarification would have a bearing on how the proposed MTN-Bharti Airtel deal would be structured.

The new way of calculating indirect foreign investment in a company notified through Press Notes 2, 3 and 4 in February requires both ownership and control in an investing company to be Indian for its downstream investments to be considered as domestic investment. In case either ownership or control vests with a foreign investor in a company, its downstream investments would be considered foreign in origin.

If the foreign partner owns more than half of the equity and the right to nominate majority of directors in the company that makes downstream investments, those investments will be regarded as foreign. However, this does not explicitly address the possibility of a foreign partner who owns less than 50% in the investing company enjoying more voting rights in it.

The company law allows issue of shares with differential voting rights. “The section 88 of Companies Act that prohibited shares with differential voting rights was removed in 2002, paving the way for such shares,” explained Tushar Chawla of Economic Law Practice, a leading law firm.

An official of the commerce and industry ministry, which the makes FDI policy, told ET that the new guidelines address most of the ownership and control issues through the definition of these two words. “Besides, the Press Notes (FDI guidelines) also make it necessary for the investing company to inform the approving authority about any inter-se agreements among share-holders which have an effect on ownership and control. The authority will consider such agreements before approving the investment,” said the official.

The government will, however, examine if investment by companies in which non-residents hold control through differential voting rights need to be explicitly defined as foreign investment, the official said. Calculation of total foreign investment is crucial as foreign ownership remains capped in sectors such as telecom.

June 17, 2009 : THE party could end soon for domestic and multinational companies that do tax planning only to avoid paying taxes in India. The government is set to usher in the next stage of reforms in taxation, framing anti-abuse rules that will empower tax authorities to lift the corporate veil and look for what are called ‘avoidance’ transactions. Other antiavoidance measures could include controlled foreign corporation (CFC) regulations and norms on thin capitalisation.

Tax benefits will be denied to firms found indulging in tax avoidance through one or a series of transactions. This would cover both cross-border and domestic deals. CFC regulations, on the other hand, will help prevent domestic firms from accumulating profits in low tax jurisdictions. In the US, these rules apply to US investors who own substantial stock in non-US corporations. It accelerates the taxation of passive income in the hands of US investors.

Norms on thin capitalisation will ensure that domestic companies do not over-leverage on debt when they expand to set up operations overseas. If they do so, such firms may not be able to claim a tax deduction on the excess interest. Again in the US, thin capitalisation rules discourage US companies from having a debtequity ratio higher than 3:1.

“These proposals are relevant in the current global environment, where the US and other countries are targeting firms structuring deals in tax havens. In the Budget proposals, anti-abuse rules feature first in the pecking order, followed by CFC regulations and norms on thin capitalisation,” said a revenue department official, who wished not to be named.

Cross-border M&A deals were brought under the capital gains tax net last year, after the government woke up to the possibility of a tax revenue goldmine when British mobile giant Vodafone bought a controlling stake in India’s Hutchison Essar for nearly $11 billion. More such deals have followed, and they have strengthened the government’s case.

The introduction of anti-abuse rules in the domestic law was first mooted way back in 2003 by a panel on reforms in taxation of non-residents, mainly to curb the misuse of the Indo-Mauritius tax treaty. Under this pact, Mauritius does not tax capital gains arising from sale of shares. Mauritius-based investors do not pay tax on the capital gains from sale of Indian equities.

India trying to renegotiate tax treaty with Mauritius

BUT there have been allegations of third country entities using the tax treaty provisions to set up conduit companies in Mauritius. These firms are used as vehicles to invest in India to escape paying tax, and the practice is known as treaty shopping. Besides this, some Indian entities also channel (black) money into the country through shell companies in Mauritius. India is trying to re-negotiate the tax treaty with Mauritius to curb treaty shopping, but has not made much headway so far. The introduction of an general anti-abuse rules in the Income-Tax Act could be similar to those adopted by Canada to curb treaty shopping.

June 16, 2009 : SBI Life Insurance and Reliance Life Insurance will wait for the Insurance Laws Amendment Bill 2008 to be cleared in Parliament before taking any listing-related decision. The bill is likely to be placed in Parliament soon as the UPA-II government has included it in its 100-day programme.

The development assumes significance as promoters of both companies have recently said they intended to offload a portion of their stakes. While SBI Life Insurance is looking at an IPO, Reliance Life too is weighing the option of a mix of IPO and strategic sale.

Significantly, the Insurance Laws Amendment Bill proposes to dispense with the mandatory requirement of listing life insurance companies within 10 years of operation.

“If the mandatory listing norm is done away with, an IPO will become a commercial requirement rather than a legal one. In that case, SBI Life will go for an IPO on the basis of fund requirements,” SBI Life MD US Roy told ET.

Added Reliance Life CEO Sam Ghosh: “We are weighing a couple of options, including an IPO or induction of a strategic investor or both. We are awaiting clarity on the IPO norms for life insurance companies after which a decision will be taken.”

“Options being weighed include a 10-26% divestment through an IPO or induction of a partner who could be given about 26%. We could also go for a combination of both. Induction of a foreign partner can be done any day as guidelines are available. But the IPO norms need to be notified by the government,” said Mr Ghosh.

If the mandatory listing norm is done away with, an IPO will become a commercial requirement rather than a legal one. In that case, SBI Life will go for an IPO on the basis of fund requirements.

June 16, 2009 : SBI Life Insurance and Reliance Life Insurance will wait for the Insurance Laws Amendment Bill 2008 to be cleared in Parliament before taking any listing-related decision. The bill is likely to be placed in Parliament soon as the UPA-II government has included it in its 100-day programme.

The development assumes significance as promoters of both companies have recently said they intended to offload a portion of their stakes. While SBI Life Insurance is looking at an IPO, Reliance Life too is weighing the option of a mix of IPO and strategic sale.

Significantly, the Insurance Laws Amendment Bill proposes to dispense with the mandatory requirement of listing life insurance companies within 10 years of operation.

“If the mandatory listing norm is done away with, an IPO will become a commercial requirement rather than a legal one. In that case, SBI Life will go for an IPO on the basis of fund requirements,” SBI Life MD US Roy told ET.

Added Reliance Life CEO Sam Ghosh: “We are weighing a couple of options, including an IPO or induction of a strategic investor or both. We are awaiting clarity on the IPO norms for life insurance companies after which a decision will be taken.”

“Options being weighed include a 10-26% divestment through an IPO or induction of a partner who could be given about 26%. We could also go for a combination of both. Induction of a foreign partner can be done any day as guidelines are available. But the IPO norms need to be notified by the government,” said Mr Ghosh.

If the mandatory listing norm is done away with, an IPO will become a commercial requirement rather than a legal one. In that case, SBI Life will go for an IPO on the basis of fund requirements.

June 16, 2009 : STATE-OWNED Coal India (CIL), the country’s largest coal miner, is planning to enter the capital market and the coal ministry has indicated that it is not averse to the idea, a ministry official said.

While the details are still being worked out, the government plans to piggy back on the market offering to divest a portion of its equity, the official said requesting anonymity. When contacted, CIL chairman Partha S Bhattacharyya confirmed that initial dialogue on the proposed divestment has started with the government.

“While there is no formal move in this regard, the public offering would enable us to strengthen our rehabilitation and resettlement (R&R) programme under which we want to empower ‘project-affected’ families by making them part-owners of the company,” Mr Bhattacharyya said.

Coal India has already decided that a significant portion of its equity shares would be offered to project-affected families to get their cooperation and ensure their prosperity. Shares would also be offered to the more than 2 lakh employees of the company. Government officials said the issue could be 5-10% of the paid-up capital and the government would simultaneously divest 5% of its equity.

The new UPA government, which is no longer dependent on the anti-reform Left parties, is planning to sell stakes in a number of public sector companies to raise resources for social spending and bring down the fiscal deficit.

Coal India will use the proceeds from the market offering for financing expansion projects that will see its production capacity jump from 400 million tonnes to more than 520 mt in two years.

The company reported a net profit of Rs 96 crore in 2008-09 as against a profit of Rs 5,243 crore in 2007-08. The sharp fall in profit has been on account of the upward revision of wages for its employees.

June 13, 2009 : IN WHAT would be the first initial public offering (IPO) by a big industrial house in the recent past, Mahindra group’s resorts arm — Mahindra Holidays & Resorts India, popularly known as Club Mahindra — has decided to hit the primary market by the end of this month. The issue, which will offer nearly 94-lakh equity shares representing 11% of the company’s expanded capital base, will be closed before the forthcoming Union Budget, said a person involved with the public issue.

The company, which enjoys 75% domestic resorts market share, will issue around 59-lakh fresh shares while the promoters, Mahindra Group, will offer around 35-lakh shares through the IPO.

The price of the book-built issue, for which the company has sought RoC permission on Friday, will be decided two days before the issue opens. The company already has the approval of market regulator Sebi for the public issue. When contacted, company chairman Arun Nanda declined to talk.

Mahindra Holidays & Resorts had raised nearly Rs 120 crore by selling 2% stake to SBI and 1% stake to Jacob Ballas in February last year. The transaction had taken place at Rs 479 a share. But it is unlikely that the company would be able to secure similar valuation now, feel analysts.

Mahindra Holidays, which the Mahindras set up 25 years ago with a paltry investment of Rs 20 crore, has been growing at a CAGR of 43% over the past four years. During the period, its net profit grew 76%. In FY09, it had a topline of around Rs 400 crore and a net profit of over Rs 80 crore.

June 12, 2009 : COMPANIES may have a tougher time trying to delist from stock exchanges. In its attempt to give minority shareholders a say in the decision stages of delisting process, Sebi on Thursday said non-promoter shareholders’ votes in favour of the delisting proposal should be at least two times the number of votes cast against it by them.

“The new regulations now allow public shareholders to have a meaningful say in approving the special resolution required for delisting,” said Ripple-Wave Equity director Mehul Savla. “The earlier process was more of a formality, though it would be unusual to expect public shareholders to vote against a delisting as it provides them with an opportunity to seek exit at a premium.”

Fund managers said the move will prevent managements from using their ‘clout and unethical methods’ to push through the shareholders approval.

“Some companies in the past have taken a portion of the minority shareholders into confidence, by offering them extra money under the table to vote in favour of the delisting. All this will stop, hopefully,” said a CIO at a private mutual fund.

Sebi has also clarified on the definition of a successful open offer, ahead of the delisting, though the market regulator has fixed a higher limit for the total number of shares that needs to be acquired to delist. Sebi said an open offer would be deemed successful if the promoter shareholding, post-offer, is the higher of 90% of total equity, excluding depository receipts or the aggregate percentage of pre-offer promoter shareholding and 50% of the offer size.

“While the new norms have moved the delisting threshold higher at 90% or more, the norms have at least provided much-needed clarity by specifying a uniform mechanism instead of a vague, uncertain requirement between 75% and 90%, based on the listing agreement, which could keep varying every year for companies,” Mr Savla said.

Sebi has also spelt out the rights of minority shareholders in case of compulsory delisting. As per the new guidelines, the promoter of the company has to buy the delisted shares from the minority shareholders, based on a price determined by an exchange-appointed valuer.

June 10, 2009 : FEARING a loss of management control to their foreign partners, promoters of some insurance companies are lobbying with the government to restrict the increase in foreign direct investment (FDI) limit to only portfolio investors and NRIs.

The fresh lobbying has gained ground even as private life companies look forward to a policy announcement on easing the FDI limit to 49% from 26%.

Promoters keen on restricting FDI point out that unlike foreign shareholders, the Indian promoters are obliged to dilute stake through an IPO after 10 years of operations as per the regulator IRDA’s diktat. This means if the foreign partner increases stake to 49%, the Indian partner will be left with a small majority at 51%. However, any significant dilution from this level (at IRDA’s instance) will lead to the Indian promoter ceasing to be the largest shareholder. To buttress their argument, the Indian promoters have pointed out the highly stressed position some of the international giants, such as, AIG find themselves in. One solution is to restrict higher foreign investment to portfolio investors. This will ensure dilution of stake without compromising the promoter’s position, as the single-largest shareholder.

It is not clear as to what extent these companies will be successful in convincing policymakers. Finance ministry officials said that the draft legislation will not be further amended at this stage. They, however, pointed out that since the parliamentary standing committee has been reconstituted, the new standing committee would be given an opportunity to review the draft legislation. Although, it is not binding on the government to go with any suggested changes, the review might delay liberalisation. According to Samir Bali advisory services (partner), Ernst & Young, fears that safety of policyholders would be compromised by allowing higher FDI are misplaced. “Even if the FDI limits are eased, any change in shareholding will have to be approved by the regulator.” He added that the regulator would ensure that only strong promoters own life insurance companies.

“The draft bill has already been approved by the government and introduced in Parliament. It is unlikely that the government will go back on its word,” said the head of a JV life insurance company on condition of anonymity.

‘Put In Place A Grievance Settlement System’ June 10, 2009 : THE Central Information Commission (CIC) has asked capital market regulator Securities and Exchange Board of India (Sebi) to use its power pro-actively to seek information from market intermediaries to address investor grievances. In a recent order, CIC has directed the regulator to ensure that stock exchanges function in a transparent manner, especially in respect of investor protection.

The order in favour of Bhoj Raj Sahu, who had sought information from the Bombay Stock Exchange (BSE) through Sebi under the Right To Information (RTI) Act, has also instructed Sebi to put in place a grievance settlement mechanism. “It has been the experience of the Commission in the past that investors and other persons dealing with stock exchanges approached the Commission, invoking the provisions of the RTI Act because somehow it is their feeling that Sebi as market regulator was not providing them the type of support and relief they were looking for,” the order by Information Commissioner AN Tiwari, said.

“Sebi’s responsibility should not be seen as limited to acting when it is forced to do so under the provisions of the RTI Act. In all fairness to ordinary investors and ordinary public, the regulator ought to be discharging this function under its own laws — RTI Act or no RTI Act,” the order said.

When contacted, a senior Sebi official told ET: “We have seen the order and we will be responding to it.”

The appellant had sought information from the regulator, asking for the list of shareholders in all the delisted companies, or number of shareholders, whichever was available. Sebi’s response was that the list of shareholders in all delisted companies was not available, either with it or with the stock exchanges. After delisting, these companies were no longer under the purview of Sebi and hence, the details could not be obtained from them. In his further submissions, the appellant said a delisting committee of BSE had undertaken the exercise of delisting the companies.

The information commissioner directed Sebi to provide the information or obtain it from BSE and provide it. However, in its reply, BSE declined to furnish the information to the appellant on the ground that the stock exchange was not a public authority within the meaning of RTI Act, and the matter regarding its role under RTI Act was sub-judice. It also contended that the information sought by the appellant did not fall within the authority of Sebi as market regulator. When contacted by ET, Mr Tiwari said: “Sebi must become more actively engaged in promoting transparency in the capital market.”

Says Sharad Abhyankar of ANS Law Associates: “Sebi has been empowered to access information from not only stock exchanges, but also from all the intermediaries in the securities market. In my view, it would be appropriate for the regulator to access the relevant information in the interest of investor protection from any private body like issuer companies to any of the intermediaries like stock exchanges, depositories, registrar and share transfer agents.”

June 9, 2009: VODAFONE Essar’s plan to hive off its signal towers and telecom network-related infrastructure arm to companies in Mauritius has run into rough weather for the second time after a government agency flagged the vexed issue of using a tax haven for such deals.

The Department of International Taxation (DIT) in Mumbai, the government agency that examines cross-border deals, has said in its interim report that the Vodafone Essar plan seeks to route funds in a way to take advantage of the India–Mauritius Double Taxation Avoidance Agreement (DTAA).

According to the provisions of DTAA, Mauritius-based entities are exempt from paying capital gains tax in both countries.

After DIT’s interim report, the Foreign Investment Promotion Board (FIPB) has yet again deferred Vodafone Essar’s proposal on Ortus Infratel and Holdings.

This is the second time a government agency has opposed Vodafone Essar’s plan. In April, the revenue department under the finance ministry had said the proposed investment in the new company through Mauritius would result in ‘round tripping’.

The revenue department had referred the matter to DIT, which has again stated in its interim report that ‘the possibility of round tripping cannot be eliminated’.

In response to a detailed query sent by ET, Vodafone said the company cannot comment on the observations of either DIT or the revenue department.

In its interim report to FIPB, DIT has said the two Mauritius entities were mere holding companies with a share capital of just $100. It added that the telco has not furnished the source of funds for both Vodafone Tower and Essar Infratel despite repeated reminders. But a person close to Vodafone Essar, who wished to remain anonymous, said the source of funds for both these companies have been provided to DIT.

June 9, 2009: THE Securities and Exchange Board of India (Sebi) is considering a proposal, wherein foreign venture capital funds (VCFs) will need to have a minimum capitalisation of $100,000 to be eligible to invest in India. The rule is being framed in consultation with RBI, an official familiar with the development told ET.

A foreign VCF looking to invest in India usually formed an investment holding firm in Mauritius with rudimentary capital, often not more than a few dollars. The investment company then filed for registration with Indian regulators, and once it got the approval, overseas investors were gradually roped in. Such a practice was followed because several foreign investors were uncomfortable in making commitments unless the offshore fund had obtained necessary approvals from the regulator.

But RBI is not in favour of such a structure. In the past, the central bank cleared proposals of close to 30 foreign VCFs, which were adequately capitalised. At the same time, it sent back around 20 foreign VCF applications to Sebi unapproved, citing ‘under-capitalisation’ as the reason.

“The minimum capitalisation requirement will assist in making the application and approval process quicker,” says Vikram Shroff, senior associate (funds practice), Nishith Desai Associates.

Citrus Holdings, Lemonhills & Lemonstone Await FIPB Nod To Infuse Funds

June 8,2009: THREE Mauritius-based companies — Citrus Holdings, Lemonhills Holdings and Lemonstone Holdings — will invest Rs 2,000 crore in Matrix Enport Holdings, a Hyderabadbased infrastructure company.

Matrix had also approached the Foreign Investment Promotion Board (FIPB), the government agency that approves all major foreign investments into the country, seeking approval for these companies to invest in it. But, FIPB in its recent meeting (held on May 22), deferred the proposal and said it requires more time to study the proposal and ‘examine the source of these funds.’

Matrix had told FIPB that these funds will hold a controlling stake in the company after they invest in it. Indian regulations permit up to 100% foreign holdings in infrastructure companies, but this is subject to approval from the government body clearing these investments. Matrix also added that the proposed investment of $400 million will “provide it with significant additional capital, enabling it to enhance its business operations and meet its expansion plans.”

According to information supplied to FIPB by Matrix Enport, the company is owned by two individuals — N Prasad, an NRI who holds a 90% stake, while the remaining is held by N Prakash.

Matrix also said in addition to developing and implementing infrastructure projects, it also plans to invest in companies engaged in building of sea ports, rail systems, water supply projects, irrigation systems, sea water desalination plants, inland water ways, inland ports, shipyards, airports among projects.

While the department of industrial policy and promotion (DIPP) and the department of road transport and highways and the department of shipping said they had no objections to the proposal, the FIPB, however, decided to hold back Matrix’s application.

This is because, the department of economic affairs (DEA) had said that the funding and the credentials of the three Mauritian companies had not been disclosed by Matrix.

The FIPB, while deferring Matrix’s application, has also pointed out that the company has not furnished key financial statements of the investors.

“The three Mauritius companies are formed around the middle of 2008 and cannot be having surplus funds to invest such a huge amount. It is stated that they will raise funds from various financial investors. It is not clear as to how the financial investors will contribute big amounts without guarantees or securities,” the FIPB added.

June 8, 2009: Earlier, Global scenario was scary. Raising debt and equity was almost impossible. Currently, there is Political stability and Equity raising is possible again. It is an Open ended Equity scheme. The main objective is to generate long term capital appreciation by investing predominantly in equity and equity related instruments of companies engaged in infrastructure and infrastructure related sectors. There are two plans- Growth Plan & Dividend Plan. The Benchmark Index is BSE 100. Minimum Application in case of Retail Plan is Rs. 5000/- and in multiples of Re. 1 thereafter and in Institutional Plan it is Rs. 5 crore and in multiples of Re. 1 thereafter. The load structure in case of Retail Plan for Subscription below 2 crores is 2.25%, for Subscription between 2 crores and 5 crores is 1.25% and Subscription above 5 crores is NIL. The Exit load in case the Subscription is below 5 crores per purchase transactions then 1 % if redeemed/switched before completion of 1 year from the date of allotment, NIL if redeemed/switched after completion of 1 year from the date of allotment and if subscriptions are more than 5 crores than it is NIL and in institutional plan is NIL.

May 28, 2009: MARKETS rallied on Wednesday with the BSE Sensex closing above 14,000 levels, the fourth time this month, shrugging off concerns over rising crude prices and a slower-than-expected recovery in the US.

Investors were emboldened by the bullish mood prevailing in Asian markets, with key indices rising between 3% and 5%. Real estate, banking and metal shares were the big gainers as the bellwether Sensex closed at 14,109.64, up 520.41 points over the previous day. The 50-share Nifty climbed 159.35 points to close at 4,276.05. “Investors are betting on a re-rating of stocks because of a likely improvement in balance sheets, now that companies are once again able to raise capital,” said Alroy Lobo, chief strategist, Kotak Mahindra Asset Management.

“We are not seeing a re-rating based on earnings yet. Earnings growth this year is likely to be flat, it will pick up next (financial) year,” he said. Both foreign and domestic institutions were heavy buyers on Wednesday. According to provisional data, overseas investors net bought Rs 370 crore, while domestic mutual funds pumped in Rs 685 crore at the net level.

“Risk appetite (globally) is returning among investors because of better sentiment on financial stocks; investors are beginning to unwind bearish positions,” says Anthony Hung, managing director and head of Merrill Lynch’s Asia Pacific Wealth Management operations

“We expect a W-shaped recovery in Asia, with the recent rally marking the upward prong of the middle of the W,” he added. Crude in tune with stocks BUT crude prices are keeping pace with rising equity prices, something that could worry stock market bulls. Crude hit a six-month high of over $63 a barrel, on a statement by the Saudi Arabian oil minister that there were signs of a demand pick up in Asia.

And economic data from the US remains mixed. The National Association for Business Economics survey indicated the US recovery will be weaker than previously estimated, a day after the Conference Board’s sentiment index showed that confidence among US consumers is improving.

European markets were mixed at the time of going to press, with gainers struggling to retain their lead.

Back home, secondline shares recouped the previous session’s losses, with the BSE Midcap and Smallcap indices gaining 3-4%. These stocks have logged eye-popping gains in the last couple of weeks, as fund managers booked profits in frontline shares and redeployed the money in second tier stocks, which are perceived to be available at better valuations.

Although some market watchers fear a bubble is again building up in mid-cap stocks, a Citigroup Global Markets not sough to allay such fears.

“Interestingly, the broader market is doing better than bigger companies, with 294-500 companies recording 8% growth in sales and earnings (in Q4 FY09). This could suggest medium sized businesses have not been hurt as much as the larger ones (big companies did better on way up), challenging ‘conventional wisdom’ that mid-cap businesses are more vulnerable and therefore should be valued lower too,” it said.

June 5, 2009:Press release 1. New Users can register their Digital Certificate during registration process

2. During Registration and Forgot Password, Captcha Image needs to be entered by the user for verification. If the image is not clear for the user, they can refresh and get a new image

3. After successful registration of user, User Activation URL sent through Email and user account gets activated only after the user clicks on the activation URL and login

4. User needs to activate his/her account within 10 days of time period. After that the user account gets expired and the user needs to re-register with the EFiling application

5. Secret Question and Answer has been added as part of Registration for more security

6. Existing users, can update their Secret Question and Answer after the Login.

7. Upload with the digital certificate has been mandated to register/update the digital certificate before upload. If the user wants to upload with the digital certificate, the user needs to go to My Account Menu -> Update Digital Certificate page.

8. My Account Menu have an addition of the followings:

1. Update Digital Certificate

2. Update Secret Question and Answer

9. Password – Strength & confirmation indicator provided for the registration, change password, forgot password functionalities

10. During XML file upload any error with the xml file will be displayed to the user at one shot. More than 5 errors will be given as a ‘.CSV’ file to the user for download

11. After successful upload, the user can download the ITR V / ITR Acknowledgement pdf in the success page itself. ITR V/ ITR Acknowledgement pdf zip needs to be saved in the users’ computer to open the file.

12. Users can download the utilities / schema for all the years

13. E-Filing News scroll over stops the text so that the user can read the full content

14. Know Your Jurisdiction has been moved to Services Menu.

June 2, 2009: KT Corporation, a South Korean telecom major, has secured a favourable judgement from the Authority for Advance Ruling (AAR), a quasi-judicial body on tax matters, that will have a bearing on the company’s tax liability in India. The AAR ruling can support its case for not paying tax in India.

AAR, in an order passed on May 29, held that KT Corporation's liaison office (LO) in India, which is a fixed establishment seemingly conducting business activities, cannot be construed as a Permanent Establishment (PE) in India

PE, a fixed place for a non-resident entity to conduct business in India, is a parameter critical in deciding whether the Korean company needs to pay tax in India at all. According to the facts of the case, LO was set up in India prior to an agreement that KT Corporation signed with domestic telecom player, Vodafone Essar South (VESL), for purchasing and providing services.

KT Corporation told AAR that it opened its liaisoning office way back in 2004 only for the purpose of communicating between the head office in South Korea and its clients in India. No business activity was conducted through its LO.

It was agreed between KT Corporation and VESL that the former would bear the investment cost in addition to the connection and maintenance costs to link up the facilities between its network and VESL’s foreign Point-of-Presence (POP) at various locations. In return, VESL would bear the investment cost, provisioning and maintenance of connecting facilities in India among other expenses.

One party will send the other an invoice of all traffic terminated on its side every month. In line with the terms and conditions agreed between them, the invoiced party will make payments to the invoicing party. AAR examined in detail the functioning of LO and accepted the claim of the South Korean company that it did not carry out any business activity using LO.

Section 1 of the Competition Act, 2000, commencement of Act - Enforcement of certain Sections

Notification No. SO 1241(E)

Dated 15-5-2009

In exercise of the powers conferred by sub-section (3) of section 1 of the Competition Act, 2002 (12 of 2003), the Central Government hereby appoints the 20th May, 2009, as the date on which sections 3, 4, 18, 19, 21, 26, 27, 28, 32, 33, 35, 38, 39, 41, 42, 43, 45, 46, 47, 48, 54, 55 and 56 of the said Act, shall come into force.

June 5, 2009: Law Firms may be sharp and shrewd when resolving their clients’ legal issues, but they often are at their wits end when it comes to managing their own work flow and schedules. A host of systems handle different aspects of their work, often disconnected from each other. And that is where the problem begins. Punebased software product development company Uberall Solutions may have just the solution.

The company has developed an ERP software, Uberall Law, that helps law firms integrate their work processes including practice management, case information, conflict searches, contact management, document management, HRM and payroll, among others. The centralised system automates mission critical aspects of law firms’ business. Importantly, it ensures law firms can bill clients for every minute of working time spent by their lawyers.

The legal profession involves lot of complexities that are often hard to manage manually, especially if it is a corporate client. The client, for instance, may have a case against it in one state, filing patents in another state, or challenging an IP infringement in another territory. Managing such issues may get difficult without automation, Parimal Chanchani, director, Uberall observes. “Many companies have offices in India, and with increasing contact with the world, the scope of legal firms is increasing. Law firms typically face a problem of estimating the amount of effort their lawyers put in for a client, as one lawyer works simultaneously with many clients,” he says. In cases involving trademarks, patents and copyrights, responsiveness is even more critical. Keeping a track of time-bound tasks, like filing for a renewal, paying fees, etc is a major problem, especially since a single client could have over 50 patents. “Keeping all problems in mind, we devised an integrated time and billing management system for law firms, which helps manage all parts of their work centrally.”

Like most businesses, law firms work on various software that are independent of each other. Contacts, for instance, are normally stored in spreadsheets and every lawyer in a firm will have individual sheets on his computer, duplicating data. Also, data updated in one location is limited to that location only. Similarly, billing of telephone calls is also a huge task. Most law firms wait for the itemised bill to arrive and then a person calculates and identifies which call was for which client. Uberall links the EPABX system to the software. Now after a lawyer disconnects a call, a message pops up on his computer screen, from where he can choose the name of the client whom the call needs to be billed to. All other processes have also been linked to each other in the same way.

Tina Gosar, finance and accounting head at Mumbai-based Khaitan & Co had a tough time tracking, managing and billing all expenses including that for travel, conference calls, courier, stationery and conveyance. Khaitan and Co was Uberall’s partner for beta testing the system, which began four months ago. The centralised software has already made decision making easier, as Nilanjan Ghose, GM, Khaitan & Co explains: “Earlier we were using different software and mining data from each for management decisions was a tedious task. Now we can generate all reports at a central location and get a snapshot of our business in real time.”

The pricing of the software will depend on the modules and data integration need of the firm. For a over 250 lawyer firm, the package costs around Rs 30-40 lakhs and could take 3-6 months to install. For a 30 lawyer firm, the cost could be much lower at Rs 12-15 lakhs. “The software saves more than Rs 50,000 per month per lawyer for a law firm with more than 30 lawyers,” says Chanchani. He adds that that his company also plans to introduce a payper-use model for smaller firms and individual lawyers who will not have to invest in storage systems. Data will be stored on Uberall’s servers which can be accessed through the Internet.

June 3, 2009. Kotak Mahindra Bank Ltd has informed BSE that pursuant to a request received from Mr. Anand Mahindra, the Board of Directors of the Bank at its meeting held on June 03, 2009 approved of Mr. Mahindra ceasing to be a promoter of the Bank. Mr. Anand Mahindra will however continue to be associated with the Bank in his current capacity as a non-executive director. All future filings with the stock exchange will classify the holding of Mr. Mahindra, his family members and entities controlled by them, currently 12732465 shares constituting 3.68% of the capital of the Bank, as part of the public shareholding. With Mr. Mahindra's ceasing to be a promoter of the Bank, the promoter shareholding of the Bank now stands reduced to less than 49% in compliance with the license condition stipulated by the Reserve Bank of India.

June 4, 2009 NEW rules for estimating the fall in the value of assets due to a volatile economic environment could make it difficult for Indian companies to window-dress accounts. As per AS28 — an accounting standard dealing with write-down in asset values — the impairment is to be mandatorily provided by companies adopting international accounting standards, as such standards focus on fair value estimate of assets. This is contrary to the historical cost concept typically adopted by Indian firms.

The new guidelines could partly offset the gains from easier norms on accounting for forex losses. With most companies likely to present consolidated accounts soon, such accounting hits (due to erosion in asset value) could come to the fore as goodwill of several overseas companies has been affected in the recent economic meltdown trade downturn.

In April, the government had allowed companies to defer providing for losses incurred due to a fluctuating foreign exchange market, giving companies room to manage losses which, in some cases, were more than the revenue.

But the standards for accounting for a fall in asset values, AS28, has been applicable for all listed entities. On Wednesday, the Institute of Chartered Accountants of India, the nodal body for auditors and accountants, came out with a specific guidance to determine the impairment in the value of assets. The move is significant as most Indian companies, including large firms such as Tata Steel, Hindalco and others have seen a major fall in the value of the goodwill that they paid for when they acquired companies overseas in multi-billion dollar deals.

The impairment — an accountant’s description of the write-down — in the value of the goodwill is vital as it has to be charged to the profit and loss account; hence a major fall can affect the profitability of a company.

The ICAI had earlier issued AS28, which requires all entities to recognise the impairment loss in their books of account. To check on whether there is impairment loss, the book values of the assets of the entity are compared with their recoverable amount. An impairment loss arises if the carrying amount, which is the book value of the asset, exceeds the amount to be recovered through use or sale of the asset.

For computing the recoverable amount of an asset through its use, expected future cash flows from the asset are discounted.

This future cash flows and the discount rate are to be estimated. The recent ICAI guidance throws light on such estimates.

June 4, 2009 THE embattled insurer American International Group (AIG) is selling its headquarters building in New York and a nearby building in a deal expected to close at the end of this summer, a person familiar with the matter said Wednesday. But the person said that AIG is not disclosing the price or who the buyer is. The person asked for anonymity because the sale has not been made public yet.

The building sales are the latest move by AIG, which has received $182.5 billion in financial support from the government since September, to shed assets to repay the loan package. The buildings are at 70 Pine Street and the adjacent 72 Wall Street in lower Manhattan. The person said AIG employees will remain in its headquarters through 2010, and in the Wall Street building through the end of this year. The New York-based company is developing a relocation plan, the person said.

AIG is selling assets and spinning off some subsidiaries as it looks to raise new cash to repay government loans while becoming a smaller, more-efficient company. As part of the loan package, the government has also taken a roughly 80 percent stake in the huge insurance company. AIG was devastated not by its traditional insurance operations, but by its financial products business, which underwrote risky credit derivatives contracts known as credit default swaps. The swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities. Rising defaults in the investments that AIG’s contracts were insuring led to worries that the company would not be able to cover all of its obligations and that the ripple effects would touch off a new, even more intense phase of the credit crisis.

June 4, 2009. Anand Mahindra has ceased to be a promoter of Kotak Mahindra Bank. The bank board informed stock exchanges, following a request from Mr Mahindra, the directors of the bank at a meeting held on June 3 approved him ceasing to be a promoter of the bank. His stake in the bank is now at 3.68% from a peak of nearly 15%, when Kotak Mahindra was an NBFC. Bank officials said the move was on the back of his reduced shareholding and also as his involvement in the bank had gone down. With this, the promoter shareholding is now at 48-49%. Mr Mahindra will continue to be a non-executive director.

June 4, 2009. IN ORDER TO ENSURE UNIVERSAL access to quality healthcare, the government has been making efforts for increasing health insurance penetration. The Insurance Regulatory and Development Authority (IRDA) recently relaxed norms for health insurance companies and reduced the reserve requirements. The IRDA has already licensed many third party administrators (TPAs) for faster and easier claim settlements and for providing cashless hospitalisation facility. Further, the FDI cap in the insurance sector is also set to be increased from 26% to 49% through the second insurance bill.

Insurers are looking forward to tap the vast and fast-growing Indian healthcare market. In fact, many insurance companies have begun to offer health insurance. However, the path ahead is not so smooth for health insurers in a country like India. The health insurance industry in India at present is a loss-making one. Though the private sector health insurance is growing at 40% annually, the level of coverage is still very low and has not penetrated rural and semi-urban areas significantly.

One of the biggest challenges — and an opportunity too — for insurance companies is to convert the huge out-of-pocket health spending (72% of the total health expenditure and 98% of the total private health expenditure) into a formal risk pooling mechanism which people have never been exposed to before. Such a conversion process is constrained due to several factors, among them the absence of reliable morbidity and health expenditure data. Also important, from a demand-side perspective, is the low level of insurance awareness, poor trust in insurance companies over reimbursement, and absence of regular and adequate income to make regular premium payment.

The process also involves tackling two important forms of market failures that are making insurers reluctant to sell health insurance — overutilisation of healthcare due to insurance coverage, and mostly the relatively unhealthy people buying insurance. One may wonder if these are not the common problems faced by insurers all over the world. However, the magnitude of these problems may be severe in India.

Perhaps, both the insured clients and healthcare providers have an incentive for over-utilisation and overprovision of healthcare, adding to the bill of insurance company. Further, at present, the healthcare insurance schemes in India are mainly limited to hospitalisation, forcing the insured persons to be admitted to hospitals even for those illness requiring only out-patient care. One solution can be including the out-patient treatment as well in the insurance package, but the resulting premium will not be affordable for majority of the Indians.

On the supply side, there are hardly any pricing criteria for healthcare services and no benchmark as to how much care is required by patients for each category of illness. Further, healthcare cost inflation is sure to rise further, All these will force insurance company to increase the premium, thus making health insurance a costlier proposition.

One possible way of controlling the over-utilisation of healthcare due to insurance coverage could be the use of co-insurance and deductibles so that insured clients also have to bear a part of his total incurred health expenditure. But this will be very hard to introduce as already the present insurance schemes cover only a part of the health expenditure and, therefore, any attempt to increase the out-of-pocket healthcare burden of insured clients would make health insurance a less attractive health-financing strategy.

In India, a majority of those buying insurance do it for investment purposes and not as an insurance product. But the health insurance schemes are without the saving component (being purely of risk pooling). This could dissuade many from getting insured. In such a situation, it is obvious that only those likely to require healthcare are interested in buying health insurance.

It is time insurance companies applied appropriate and innovative marketing strategies to overcome all these hurdles by taking the Indian reality into account.

June 3, 2009: In what would come as relief to assessees who have sought stays on tax demand by income tax authorities before October 1, 2008, the income tax appellate tribunal ruled that any amendment made to a tax law by the government is not retrospective unless specified in the amended law, reports Ram Narsinghdev Sahgal from Mumbai. The tribunal ruling came in connection with a case between Mumbaibased Ronuk Industries (assessee) and the I-T department, which made a tax demand of Rs 36.11 lakh of the former for assessment year 2004-05. The government amended the relevant section of the I-T Act, Sec 254 (2A), on October 1, 2008, which says that a stay cannot be extended beyond 365 days. The tribunal ruling came in connection with a case between Mumbai-based Ronuk Industries (assessee) and the I-T department, which made a tax demand of Rs 36.11 lakh of the former for the assessment year 2004-05.

THE Competition Commission of India (CCI), which will soon start scrutinising and clearing big corporate M&As, will give automatic approval to such deals if one of the parties involved is in financial distress, the regulator told ET.

CCI, which has already opened its doors to complaints of anti-competitive practices such as cartelisation and predatory pricing, is now finalising the merger regulations. Once these are notified, it will be mandatory for all big corporate deals to get CCI’s endorsement that they will not adversely affect competition in the market. The regulator can also direct the parties to exclude certain businesses from the purview of the deal to protect healthy competition in the market.

The regulator will give automatic clearance to all big deals that are in the interest of the economy, CCI chairman Dhanendra Kumar told ET. “We don’t want to be a roadblock. We want to be a facilitator for businesses, or indeed an accelerator,” said Mr Kumar.

This, despite the fact that CCI is empowered under the competition law to take up to 210 days to clear a transaction. The regulator is keen to reduce the time taken as regulatory delays can mar corporate transactions.

Mr Kumar said in the case of an M&A deal where the target company is sick or is facing bankruptcy, it is in the interest of the economy and stakeholders, including clients and employees of the company, that it be given a quick clearance. “Besides, ensuring that a company is alive is important for sustaining competition in the market,” said Mr Kumar. The final merger code will identify all such cases where automatic clearance should be given. In some other cases, the regulator may clear the deal in about a month.

CCI is now fine-tuning the merger regulations prepared earlier, which said the regulator would clear most of the deals in 90 days. The commission feels it should take the maximum 210 days allowed by law only in exceptional cases that require a thorough investigation.

Team Manmohan is eager to rev up the economy. So even as the FM vowed to push for cheaper funds and infrastructure spending, Sebi said it was looking to ease fund-raising norms for core companies. It was enough to charge up the bulls on Dalal Street...

THE full Budget for 2009-10 to be presented in the first week of July would have welfare measures for the poor, concrete reform moves, higher infrastructure spending and steps to boost the economy, said finance minister Pranab Mukherjee on Wednesday. The Budget will also kickstart fiscal consolidation to be achieved over a three-year period.

Mr Mukherjee, in his first press conference after assuming office, said the government will present its vision and approach for the next five years in the Budget. Separately, it will get commitments from banks to lower the cost of funds.

“Broadly, the election results have vindicated the strategy of inclusive growth. I have no hesitation in saying that along with reviving the momentum of growth and employment generation, our government will strengthen the various ‘inclusive’ elements in the coming Budget,” said Mr Mukherjee. The Congress party’s manifesto promises to expand the schemes on creating rural jobs, providing education and health insurance cover, besides legally guaranteeing food to the poor. The minister said budget-making was underway in full swing and that it would be presented in the first week of July.

The government has to continue with a higher spending this fiscal, too, in order to restore the higher economic growth rate witnessed in the past, the 73-year-old political veteran said. “Let me say unambiguously that we are committed to restoring growth and employment and that would not have been possible without increased spending funded by incremental borrowing. This would need to be further continued in 2009-10, the current year,” Mr Mukherjee said.

The government, which earlier announced three economic stimuli, will provide sustained stimulus to growth by the next round of economic reform. “We have a broad plan of action in mind. I will get additional inputs when I have my pre-Budget consultations with stakeholders. All this will be distilled into a concrete short-term and medium-term vision and strategy for India’s economic growth,” assured the minister.

Finance secretary Ashok Chawla, who accompanied the minister, later explained to reporters that the slowdown in growth has “bottomed out” and a recovery was imminent. Four lead economic indicators suggest the economy was set to grow faster, he said. Besides, foreign institutional investments into the country have picked up, with the total inflow in the past 45-50 days touching about $4 billion, said Mr Chawla.

FM STATION Stable govt a booster dose for economy To rapidly build on 'feel good' sentiment in economy with concrete steps Vision and approach for next five years in budget To foster inclusive growth To ask bankers to keep lending rates low To boost infrastructure investments Hopes expected higher economic growth would reduce fiscal deficit To push pending economic reforms To implement amendments to Money Laundering Act ‘Govt’s committed to fiscal consolidation over 2 to 3 years’ MR MUKHERJEE also said the government was concerned about the cost and the speed at which finance can be accessed by businesses. He said he would meet bankers and get them “committed to a more benign plan of action”.

The government will also give special attention to strengthening infrastructure investments. The government will re-appraise infrastructure projects in the pipeline and make them more robust. The Centre will also calibrate policies to boost infrastructure spending so that the economy returns to the highgrowth trajectory.

Despite the higher spending, the government is equally committed to fiscal consolidation over a period of, say, 2-3 years, the minister added. In the interim budget presented in February, the government had estimated that fiscal deficit for 2008-09 may touch 6% of gross domestic product (GDP) and it forecast a 5.5% fiscal deficit for this year. Economists said the combined fiscal deficit of the Centre and states may have crossed 10% of national GDP last fiscal. “Prophets of doom have been unduly focusing on increased public spending and consequent increase in the fiscal and revenue deficits in the past. Wearehopeful that an early return to our recent growth performance will help us come back to our preferred path of fiscal prudence,” said the minister. The government had originally set a fiscal deficit target of 2.5% for the previous fiscal. Mr Mukherjee said the government would take advantage of its political stability and push long-pending reforms. These measures would cover both financial and nonfinancial sectors of the economy.

Formula May Be Replicated At Tata Steel, With COO Nerurkar Becoming The MD

THE COUNTRY’S oldest conglomerate is fortifying itself to face the future, with new teams to steer its flagships, Tata Motors, Tata Steel and Tata Consultancy Services.

Two of them, Tata Motors and Tata Steel, are facing management and financing challenges arising from the acquisitions of Jaguar Land Rover and Corus, while the third, TCS, India’s largest software services company, has to cope with a shrinkage in demand in its core overseas market.

The group is close to finalising its succession plan for Tata Motors and Tata Steel, as the terms of the current heads of the two firms come to an end in May and September, respectively. Prakash Telang, currently head of the commercial vehicle strategic business unit at Tata Motors, is set to succeed current MD Ravi Kant after Mr Kant retires on May 31, according to people connected with the development. Mr Kant will likely assume the role of non-executive VC. Mr Telang will report to the board with Mr Kant playing a wider role, mainly involving overseeing the restructuring of British automaker JLR.

“They will have clearly defined roles,” according to one source. Persons close to the development, however, said the situation was still fluid. On Wednesday evening, Tata Motors said JLR had refinanced the whole of its $3-billion bridge loan, which it had taken to purchase JLR.

HM Nerurkar, currently executive director and COO at Tata Steel, will likely take over the reins of the country’s largest steelmaker, when the current MD, B Muthuraman, retires in September. It is possible that Mr Muthuraman could also become VC with a brief to focus on Corus, the Anglo-Dutch steelmaker which the group acquired in 2006. India’s largest conglomerate has already named the successor at its software arm TCS. Late Tuesday, TCS, which is also India’s largest software exporter, formally announced the appointment of N Chandrasekaran as MD, to take over once S Ramadorai completes his term on October 5 this year.

The head of the Tata Group, Ratan Tata, is the non-executive chairman of all three companies.

The Tata Group declined to comment for this story.

The appointments will be in line with the succession policy at the group, which has stipulated 65 years as retirement age for its top brass, which covers the rank of executive director and above. Those given an extension are inducted as non-executive board members and can continue till 75 years of age.

THE succession at the three companies is being closely followed by investors and competitiors alike: Tata Motors, Tata Steel and TCS together account for more than 76% of the total revenue and about 74% of profit at the Mumbai-based business conglomerate. The three together grossed a combined market capitalisation of Rs 108,069 crore at Wednesday’s closing.

The possible appointments aren’t entirely unexpected. At Tata Motors, there is an unwritten code that the head of its commercial vehicle division is eventually elevated to the MD’s post. Mr Kant, like Mr Telang, was also the executive director in charge of commercial vehicles, before being appointed as MD. Commercial vehicles is Tata Motors’ biggest division and accounts for about 60% of the company’s revenue.

Like TCS, where former COO Mr Chandrasekaran was on Tuesday elevated as MD, Mr Nerurkar, the Tata Steel ED and COO, may also be named MD. The group created the COO post in 2007 for grooming future CEOs. “He (Mr Nerurkar) has been in charge of most of Tata Steel’s vital projects and it’s only natural that he will take over as MD,” said the senior executive of a large steel company that competes with Tata Steel in the Indian steel market, which is the world’s second largest after China. “He has strong roots in marketing and has looked after the flat products division before taking charge of Tata Steel’s Orissa project,” this person said.

Mr Kant has been at the helm since July 2005, steering the company through many challenges, including the acquisition of Jaguar and Land Rover from Ford. He has also been closely associated with the revolutionary small car, the Nano, which is slated to hit Indian roads in July this year. In the recent past, Tata Motors has struggled to counter the global slowdown that has sharply affected sales both in India and abroad. The company has, however, managed to refinance debt it had taken to fund the acquisition.

At Tata Steel, Mr Nerurkar the likely successor is a familiar face, having spent more than three decades with the company. Like Mr Nerurkar, Mr Chandrasekaran too started his career at TCS and moved up to head the firm’s Santacruz export processing zone (SEEPZ) operation which used to be its biggest development centre in the late 1990s, before becoming the global head of sales. In 2007, he along with three other senior executives, were elevated to the position of executive director. The significance of the SEEPZ unit lies in the fact that the GE account used to be serviced from this unit. GE accounted for as much as 10% of TCS’ revenues some years ago.

According to a consulting firm that has been closely involved with the Tatas’ succession plan, the conglomerate has been serious in developing its succession plan for each group company. “The group (the Tatas) periodically reviews its top executives’ performance to determine backups for each senior position,” said an executive of the consulting firm, who did not wish to be named. “They realise that it often takes years to groom and develop effective managers.”

But the succession plan is tailored to each group company. Tata Motors had functioned without an MD for 11 years after the retirement of the legendary Sumant Mulgaonkar, who is credited with being one of the builders of the modern Tata Motors. Mr Ravi Kant, the first MD after Mr Mulgaonkar, has been one of the most consequential. It is in this backdrop that some persons close to the development say he could be elevated to a non-executive position as vice-chairman.

May26, 2009: PETROCHINA Co agreed to pay as much as $2.2 billion to buy Singapore Petroleum Corp to gain a foothold in Asia’s largest oil trading centre in an acquisition that may extend China’s influence over global resources pricing.

PetroChina, China’s biggest oil producer, will buy 45.5% of the Singapore refiner for S$1.47 billion ($1 billion), or S$6.25 a share, from Keppel Corp, 24% higher than the lasttraded price of S$5.04 at the May 22 close. The transaction, when completed, will trigger a general offer for the remaining shares, the Beijing-based oil company said.

About 10 million barrels of oil, or 12% of the world’s daily output, pass through the Straits of Malacca off Singapore each day, according to the International Energy Agency. The Chinese government introduced a market-based fuel-pricing system in December that takes into account crude oil costs and ensures refiners a profit.

“The deal gives PetroChina immediate access to increased refining capacity to take advantage of higher domestic prices down the road,” said Gordon Kwan, an energy analyst at Mirae Asset Securities in Hong Kong. “On the flip side, if China fails to enforce the domestic product pricing reform, PetroChina can utilize SPC as an vehicle to sell fuel prices at international levels.”

Singapore P e t r o l e u m shares rose 20% to S$6.05 while Keppel Corp, the world’s largest maker of oil rigs, climbed 4.6% to close at S$7.28. PetroChina shares rose 1.9% to 13.1 yuan at the close in Shanghai and fell 0.8% to HK$8.32 in Hong Kong.

Keppel Corp expects a profit of S$660 million from the sale of its stake in Singapore Petroleum, the company said in a statement to the Singapore stock exchange. — Bloomberg

May 26, 2009: A CLUTCH of real estate companies are eyeing the qualified institutional placement (QIP) route to raise themuch-needed funds to finish their languishing projects or meet their mounting debt obligations. The latest entrant to make a dash towards the qualified institutional buyers (QIBs) for funds are the New Delhi-based Parsvnath Developers and the Bangalore-based Puravankara Projects with both the companies informing the Bombay Stock Exchange (BSE) about their capital raising plans.

Parsvnath Developers announced, the company was raising Rs 2,500 crore through the QIP route, while also exploring other fund raising options. In a notice to the BSE, the real estate company said, “The board has decided to raise funds by various means including through issuance of further securities to persons other than the existing equity shareholders of the company and also by way of QIP to qualified institutional buyers (QIBs).” The company’s stock rose by 9.96% at Rs 88.85 on the BSE following the announcement.

A similar announcement was made by the Bangalore-based Puravankara Projects that informed the BSE it was exploring options to raise long term funds including a QIP issue. Market sources indicate that the company is looking to raise around Rs 800 crore from the market. After the announcement, the Puravankara’s stock price rose by 4.95% to touch Rs 94.35.

ARVIND MILLS, ADITYA BIRLA NUVO, PANTALOON RETAIL & COUNTRY CLUB TAKE THE LEAD

May 23, 2009:MANY companies, whose promoters failed to convert warrants issued to them into shares because of falling stock prices, are now issuing the securities afresh to help them benefit from the turnaround in the stock market.

Market participants say this is a smart move by promoters who had to forfeit the upfront margin paid for the lapsed warrants, but it may not go down well with non-promoter shareholders willing to invest in the company.

Warrants are a security that entitles the holder to buy stock of a company, which issued them at a specified price usually higher than the stock price at the time of issue.

Among the companies issuing fresh warrants are Arvind Mills, Aditya Birla Nuvo, Pantaloon Retail and Country Club. Aditya Birla Nuvo announced on Monday that it would allot 18.5 million convertible warrants to its promoters for Rs 1,000 crore after they chose not to convert an almost equal number of warrants which they had subscribed to last year at a higher price. The company has convened an EGM in June to seek shareholders’ approval for the new set of convertible warrants priced at Rs 540.5 each.

The company had allotted 20.5 million preferential warrants in February 2008 for Rs 2,007.45 each. Of this, the promoters converted 1.7 million warrants in March 2008 for Rs 341 crore and the conversion of the rest was due in July. However, Surya Kiran, an entity part of the promoter group, informed the company that it would not exercise its option and forfeited the investment of Rs 377 crore made in the form of the upfront margin.

“It is turning out to be good for companies, as the upfront margin has also been hiked to 25% from the current 10%. So, the company will get the funds forfeited by it without any equity dilution,” said Sharad Rathi, head-investment banking, Almondz Global Securities. Investment bankers say by hiking margin limit to 25%, market regulator Sebi is hoping to discourage the practice of not converting warrants over pricing issues. Promoters are expected to respond positively to the Sebi move, they add.

Retail tycoon Kishore Biyani’s Pantaloon Retail decided to issue five million warrants at a price of Rs 183 per warrant to the promoters on April 13. The decision to place fresh warrants came soon after the promoters did not exercise the conversion option for 13 million warrants out of a total of 21.2 million issued at Rs 500 in October 2007. From its high of Rs 515 on May 22, 2008, the stock had fallen sharply to its lowest level of Rs 105 on March 9, 2009, a few weeks ahead of the conversion due date of April 1. The stock closed at Rs 265 on Tuesday.

Fortune Financial Services MD Nimish Shah says if promoters are not converting their warrants due to a low share price, they should, at least, carry out a creeping acquisition to send a signal to maintain investor confidence. Arvind Mills, which had allotted 50.6 million warrants to promoters at Rs 52 in November 2007, converted 96 lakh warrants into equity shares in March 2008. The rest have not been converted and there is still time left. However, the company has allotted 33.2 million new preferential warrants at Rs 15.

“The balance 41 million warrants have not been converted into equity shares within eight months. Accordingly, the warrants stand cancelled,” said a company statement.

In the past six months, promoters and other investors had to forego a total upfront payment of around Rs 1,000 crore made while subscribing to warrants of 50 companies, including Hindalco, Tata Power, GE Shipping, Pantaloon Retail and Indiabulls Real Estate.

Country Club India on Tuesday informed BSE that its promoters and other investors have not opted for conversion of six lakh warrants allotted on November 16, 2007 at Rs 600 per warrant, due for conversion on May 15.

3rd May, 2009 NEW DELHI: The Centre has told the Supreme Court that it has approached the Swiss government seeking renegotiation of the Double Taxation Avoidance Agreement (DTAA) pertaining to exchange of information on the bank accounts of Indians. The Swiss Confederation has also informed the OECD that it was willing to withdraw its reservation on the disclosure of information due to rule of bank secrecy, said government in its affidavit filed in the apex court on Saturday.

The government, however, ruled out any sort of fishing or roving enquiry unless specific information about depositors becomes available. “The Government of India has already approached the Swiss government seeking renegotiation of Article concerning exchange of information in DTAA with them”, said Priya V K Singh, the director in the department of revenue in the affidavit. The Centre said, “it was only in March 2009 that the Swiss Confederation informed OECD that it intended to adopt the OECD standards as per Article 26 of the OECD Model Tax Convention and withdraw the corresponding reservation and enter into negotiations for revising its Double TaxationAgreements”. The OECD standards on exchange of information as contained in Article 26 of the OECD Model Tax Convention provides for exchange of information even if there is only domestic interest of the requesting state i. e. enforcement of tax laws of the requesting state and no provision DTAA is to be applied.

As per the OECD standards, the limitation of information not being at the disposal of tax administration because of bank secrecy cannot be used to prevent exchange of information held by the banks. The Swiss Confederation had entered reservations on these OECD standards. In accordance with Article 26 of the DTAA, the competent authorities in India and Swiss Confederation can exchange information, being information at their disposal under their respective taxation laws in the normal course of administration, as is necessary for carrying out the provisions of the DTAA in relation to taxes.

In the past, the Swiss competent authority has consistently refused to share bank information on the grounds that information regarding bank deposits of Indian residents is not necessary for the application of the DTAA but is required only for the enforcement of Indian internal tax laws and that such information was not at their disposal under Swiss laws in the normal course of tax administration, said government.

However, government stated that as per the OECD standards, unless specific information about the depositors becomes available, fishing or roving enquiry is not permissible. The Centre also claimed that because of its continuos efforts with the German government, it has gathered information about Indian account holders in the LGT Bank Liechtenstein. “On account of persistent follow up by the Central government, the German government on March 16, 2009, informed that they were in a position to provide the information and said information was made available to the Central government on March 18, 2009,” said affidavit

However, ruling out to divulge the details, the government said, “the information was made available on the condition of strict confidentiality of contents under the Double Taxation Avoidance Agreement”. The affidavit has been filed in response to a PIL seeking direction to the government to take steps to retrieve the hege amount of unaccounted money lying in various foreign banks and financial institutions. Former union law minister Ram Jethmalani and others had moved the apex court.

3rd May, 2009. NEW DELHI: The Centre has told the Supreme Court that it has approached the Swiss government seeking renegotiation of the Double Taxation Avoidance Agreement (DTAA) pertaining to exchange of information on the bank accounts of Indians. The Swiss Confederation has also informed the OECD that it was willing to withdraw its reservation on the disclosure of information due to rule of bank secrecy, said government in its affidavit filed in the apex court on Saturday.

The government, however, ruled out any sort of fishing or roving enquiry unless specific information about depositors becomes available. “The Government of India has already approached the Swiss government seeking renegotiation of Article concerning exchange of information in DTAA with them”, said Priya V K Singh, the director in the department of revenue in the affidavit.

The Centre said, “it was only in March 2009 that the Swiss Confederation informed OECD that it intended to adopt the OECD standards as per Article 26 of the OECD Model Tax Convention and withdraw the corresponding reservation and enter into negotiations for revising its Double Taxation Agreements”.

The OECD standards on exchange of information as contained in Article 26 of the OECD Model Tax Convention provides for exchange of information even if there is only domestic interest of the requesting state i. e. enforcement of tax laws of the requesting state and no provision DTAA is to be applied.

As per the OECD standards, the limitation of information not being at the disposal of tax administration because of bank secrecy cannot be used to prevent exchange of information held by the banks. The Swiss Confederation had entered reservations on these OECD standards. In accordance with Article 26 of the DTAA, the competent authorities in India and Swiss Confederation can exchange information, being information at their disposal under their respective taxation laws in the normal course of administration, as is necessary for carrying out the provisions of the DTAA in relation to taxes.

In the past, the Swiss competent authority has consistently refused to share bank information on the grounds that information regarding bank deposits of Indian residents is not necessary for the application of the DTAA but is required only for the enforcement of Indian internal tax laws and that such information was not at their disposal under Swiss laws in the normal course of tax administration, said government.

However, government stated that as per the OECD standards, unless specific information about the depositors becomes available, fishing or roving enquiry is not permissible. The Centre also claimed that because of its continuos efforts with the German government, it has gathered information about Indian account holders in the LGT Bank Liechtenstein. “On account of persistent follow up by the Central government, the German government on March 16, 2009, informed that they were in a position to provide the information and said information was made available to the Central government on March 18, 2009,” said affidavit.

However, ruling out to divulge the details, the government said, “the information was made available on the condition of strict confidentiality of contents under the Double Taxation Avoidance Agreement”. The affidavit has been filed in response to a PIL seeking direction to the government to take steps to retrieve the hege amount of unaccounted money lying in various foreign banks and financial institutions. Former union law minister Ram Jethmalani and others had moved the apex court.

Mehta added that a total of three taxes -- service tax, excise duty at the Union level and state taxes like VAT, have to be paid by the manufacturers.

The government and industry are also looking at the way the issue is treated internationally, he said.

Packaged software refers to a bunch of software offered to various PC marketing companies to come pre-loaded on branded computers.

4th May 2009: NEW DELHI: The Finance Ministry will shortly meet representatives from the packaged software industry to settle the issue of double taxation on the sector.

"We will meet representatives from the industry soon. They will put forth their suggestions, then we will work on the issue," said a Finance Ministry official.

The packaged software industry has been reeling under the pressure of rising cost partly led by being taxed twice --- service tax as a service and then excise duty as a good.

In fact, the industry has been working with the government to arrive at a solution.

The government like the industry is of the view that there should be only one union tax levied on a good or service, the official said.

However, in case of software when downloaded, attracts service tax, with downloading treated as a service. Later, it faces a duty when a licence for the software is taken, as a good.

Meanwhile, the industry is happy with the fact that the government is working with them to find a solution on the issue.

"We are working with the government to arrive at a solution. The good thing is that the government and the industry both agree that there should be only one union tax which should be levied," said Vinnie Mehta of the Manufacturers Association of Information Technology (MAIT).

April 7, 2009 A group of investment bank underwriters and companies have agreed to a near $600 million settlement with investors to resolve litigation over alleged fraud in the pricing of initial public offerings in the late 1990s, according to a lawyer involved in the case.

. "The case is settled, and we're awaiting a decision on preliminary approval," Howard Sirota, a lawyer for the plaintiffs said on Monday.

A settlement agreement could end a series of investor lawsuits beginning in late 2000, that claimed IPO companies and their underwriters artificially inflated stock prices and hid the amount of compensation actually received by the underwriters.

The litigation has encompassed more than 300 initial public offerings of high-tech and Internet-related stocks that marketed between 1998 and 2000, at the height of the technology boom.

The defendants in the case include some of the companies that were brought public, several officers and directors of those companies, and 55 investment banks, including Credit Suisse Group and Morgan Stanley.

Earlier attempts to settle the case for more than $1 billion have unraveled, as the case has gone through several appeals over the years.

"This is the best we can do, so we're doing it because at the rate things are going, there could be no recovery," Sirota said, noting the declines of key defendants and other parties in the case, like Bear Stearns, Lehman Brothers Holdings Inc and American International Grou.

The settlement agreement was filed under seal on April 2 in the U.S. District Court in Manhattan, according to court papers.

According to a copy of the agreement posted on the Wall Street Journal's website, the exact settlement was for $586 million, and the banks and issuers in the case denied wrongdoing. The terms of the settlement, explaining who would pay who, were kept confidential, according to the court papers on the website.

A partial settlement by JPMorgan Chase & Co in 2006 was scrapped after a federal appeals court in New York ruled that the lawsuit had too many investors as plaintiffs to proceed. An even earlier previous settlement attempt would have guaranteed at least $1 billion to investors from the insurers of the companies in the case, while litigation against the banks would have continued.

April 20, 2009 Disposing of the case pertaining to dealings in the shares of Nissan Copper Ltd, the market regulator SEBI on Monday passed consent order freeing 10 entities involved in the case after they agreed to forgo Rs 11.79 crore withheld by the BSE and NSE.

SEBI said the 10 entities, along with Rs 11.79 crore will, also pay the interest on the amount withheld with the Bombay Stock Exchange and the National Stock Exchange in the IPO case relating to misuse of trading mechanism. .

In addition to individuals, the entities include Parklight Investment, Parklight Securities and H Nyalchand Financial Services .

The entities were charged with allegedly arranging for subscription in the IPO of Nissan and misusing the trading mechanism of the stock exchange for providing assured exit to a qualified institutional buyer, who had applied in the IPO in violation of Sebi regulations.

Following investigation into the alleged irregularities, SEBI had directed the BSE and NSE to withholds the profits made by the entities in an escrow account.

The entities had applied for settlement of the proceedings against them, terms of which were cleared by the SEBI-constituted high powered advisory committee.

May 15, 2009 With the market in "the most unstable phase", Mahindra Holidays and Resorts, a part of the Mahindra group, will enter the primary market only after the equities markets stabilise, said a senior official here on Friday.

"There is no point of launching IPO (initial public offer) in such market conditions. We are not even looking at it right now," company managing director Ramesh Ramanathan told reporters.

"This is not about the market touching a particular point, it is about the market being steady and stable. The market is still in the most unstable phase," Ramanathan said while discussing the expansion plans for Mahindra Homestays, a newly launched boutique brand of home-cum-hotels.

The group applied for launching the initial issue with the Securities and Exchange Board of India (SEBI) last October.

"Once we get the approval, we will have 12 months to launch it. We may also delay it. I cannot commit anything now," Ramanathan added.

May 22, 2009 Reliance Capital is planning the first-ever initial public offer (IPO) by an insurance company in India by taking its subsidiary —

Reliance Life Insurance public. The company is looking to divest up to 26% in its insurance arm through an IPO as well as by inducting a strategic investor, a person familiar with the situation told ET.

“Reliance Capital is looking to divest 10-26% in its life insurance arm. This will be through a placement with a strategic investor as well by selling shares to the public. There will be a mix of a fresh issue of shares as well as sale of shares by the parent company.

This way, funds will be infused both into the life insurance business and Reliance Capital. The process will be finalised in the next three-four months,” said this person. When contacted by ET, Reliance Capital CEO Sam Ghosh said that the company was evaluating several options.

Current government guidelines allow a 26% foreign investment in the insurance sector and it is likely that the FDI limit in this sector will be hiked to 49% under the new government.

May 10th ,2009, Kabirdass Motor Co, maker of 'Xite' electric bikes, has approached the market regulator SEBI with a draft prospectus for an initial public offer to part-finance its plans to invest over Rs 100 crore in its business.

The company is looking to raise Rs 81.28 crore from the sale of its shares, including Rs 61.28 crore from the IPO. Besides, it has tied up for a bank term loan worth Rs 20 crore, as per its draft IPO prospectus filed with the SEBI.

This is the first Indian automaker in many years to come out with an IPO and the second company to file for an initial public offer this fiscal after Adani Power.

The total investment plan of Rs 101.28 crore includes those for land, building, plant and machinery, research and development, brand promotion and other expenses.

Chennai-based Kabirdass Motor Company Limited was incorporated as a private limited company in November 2006 and is engaged in the manufacturing and distribution of electric bikes and scooters under the brand name 'Xite'.

It presently outsources various parts of the scooter it assembles and the finished product is sold in the market through dealers.

However, the company is now looking for in-house development of some critical parts such as mainframe, plastic parts, motor, controller, paint shop chargers and battery

7TH April, 2009, Kolkata: Having received Cabinet clearance for the long-awaited capital restructuring, United Bank of India (UBI) has set its sights on a February 2010 deadline for its proposed maiden public offer.

In an interaction with ET , UBI chairman & managing director Satish C Gupta said "the bank intends to file the red herring prospectus with Securities & Exchange Board of India (SEBI) after September 2009 once it comes up with its audited half yearly results".

UBI is one of the two public sector banks that are not listed. The other being The Punjab & Sind Bank.

"We will go public in the third or the fourth quarter. It’s now on top of our agenda," the CMD said. Incidentally, Mr Gupta is slated to retire on February 28, next year.

Although the bank is yet to firm up the size of the IPO, Mr Gupta indicated that it would be not less than Rs 50 crore. The shares will carry a premium. "The capital restructuring has been planned in such a way to reduce the bank’s paid-up equity as far as possible. This is designed to improve shareholders’ value. If the market is good at the time of our IPO, we will get a decent premium. If the market does not improve sufficiently from current levels, the premium would be less, but shareholders stand to gain," Mr Gupta said.

The change in UBI’s capital structure would formally take place only after the new government places its budget tentatively in July. Accordingly, its paid-up equity will reduce to Rs 266 crore from Rs 1,532 crore and the balance will ultimately go to the bank’s capital reserves via a two-pronged process between the bank and the government.

Besides raising capital via IPO, the bank is slated to receive another dose of capital from the government to the tune of Rs 550 crore in 2009-10. "We may not require to tap the bond market to raise tier 2 funds in this fiscal," Mr Gupta said. The bank also has some floating reserves which will be treated as tier 2 capital 2.

17th April, 2009, New Delhi: There has been a lull in the primary market scenario across the world, with the global IPO value registering a decline of 95 per cent at $1.6 billion so far this year.

According to global deal tracking firm Dealogic, the "global IPO volume stands at $1.6 billion via 53 deals in 2009 compared to the $37.3 billion raised via 255 deals in 2008 YTD".

There was very little activity in the United States and the EMEA (Europe, the Middle East and Africa) region, while there was no activity at all in the European region.

Some of the firms braving the weak primary market include US software firm Rosetta Stone, which will raise $115 million in an IPO, while Vodafone Qatar is expected to price its IPO this month for raising $952 million.

Apart from them, there were no IPOs by European issuers since Resolution Ltd raised $970 million via Bank of America-Merrill Lynch, Citi and HSBC on December 5, 2008, Dealogic added.

Recently, Bridgepoint Education (BPI) raised $141.8 million at $10.50 per share. The offering was priced below the initial range of USD 14-16 per share.

May 5, 2009,MUMBAI: THE Bombay HC has granted ad interim relief to Aditya Birla Nuvo in an appeal filed against the income tax department. The I-T department had issued a show-cause notice to the Birla group company after it bought AT&T’s 16% stake in Idea Cellular. The notice treats the company as an agent of US telecom major AT&T and hence liable to pay tax. The court has temporarily stayed the show-cause notice, Nuvo’s counsel confirmed to ET. AT&T did not pay tax on the grounds that the deal was routed through a company based in Mauritius with whom India has signed a double tax avoidance treaty.

May 2, 2009,NEW DELHI: The national health insurance scheme, which only covered citizens below poverty line (BPL) so far, will be extended to all citizens, labour and employment ministry director general Anil Swarup said on Friday, adding that an official decision to this effect has already been taken, which is likely to be implemented July 1 onwards. The premium amount for health insurance cards for people above poverty line would be decided by stateowned and private insurance companies selected through an open bidding system. Meanwhile, G C Chaturvedi, who was additional secretary in the health ministry, is appointed as additional secretary in the department of financial services.

May 4, 2009:A PUBLIC interest litigation (PIL) has been filed before Allahabad High Court against the government, income-tax department and Delhibased Shiv Nadar group company Slocum Investment, alleging tax evasion using the Mauritius route.

The PIL, filed by a chartered accountant Atul Kakkar, alleges that around Rs 3,500 crore was siphoned out of India using Mauritius-based overseas commercial bodies (OCBs) allegedly managed from India. The list of respondents in the case include Slocum Investment, Union of India, finance ministry and Central Board of Direct Taxes (CBDT). The petitioner has alleged that the government has not taken steps to check the loss of revenue arising from the complex roundtrip transaction using Mauritius, with which India has a double taxation avoidance treaty.

When contacted an HCL spokesperson said: “Since it is a PIL, we believe it would not be appropriate to comment on the issue at the moment.”

According to the PIL, the modus operandi employed by the HCL group to circumvent tax payable in India was sent to all the authorities concerned but to no avail.

It consisted of HCL Technologies’ shares of Rs 4 face-value each being sold to Mauritius-based OCBs controlled by the Shiv Nadar group prior to listing for Rs 50 a share. The sale was grossly undervalued as evident from the listing price of Rs 530. The shares were subsequently sold by the OCBs in the Indian stock markets at “astronomical” prices and resulted in value addition of Rs 3,500 crore.

The petitioner contends that while on the one hand the Nadar-controlled OCBs made huge profits that were not taxed in India even though they were managed from here, Slocum Investment filed its transactions in the shares as capital gains rather than business income at the time of declaration of income. In fact, these transactions were filed as longterm capital losses, which were offset against long-term capital gains from other transactions in shares.

The petitioner contends that his stand has been vindicated by an ITAT judgement of March 2006 in the case of Slocum Investment Vs. deputy commissioner of income tax, by Delhi Tribunal reported in 2007, wherein the departmental representative (DR) also acknowledged that the said shares were held as stock in trade and, thus, income arising out of sale of the said shares should be treated as business income.

“Thus it is very clear from the above facts that there has been considerable flight of capital out of the country by deliberate undervaluation of the assets,” claims the petitioner.

May 15, 2009: REALTY major Indiabulls Real Estate on Monday announced plans to raise $600 million (Rs 2,820 crore) through qualified institutional placement (QIP) of equity shares. This is the first instance of a company that has taken advantage of the surge in the stock markets, post general elections.

According to the company, the decision was taken by the board of directors on Monday. The company also informed the BSE that it has decided to make an issuance of equity shares of a face value of Rs 2 to qualified institutional buyers (QIBs).

The QIP proceeds would be utilised for funding the company’s pending projects. It is expected that the company may utilise the funds for its power project planned in Maharashtra. It is believed that the allotment of the shares would be made within this week around Friday and Morgan Stanley is the lead book manager to the issue. Presently, the promoters hold around 25% in the company. It is believed that the promoters’ share may come down following the QIP. The Indiabulls stock gained 39% to close at Rs 205 in a strong Mumbai market on Monday.

Earlier, Indiabulls Power Services had raised Rs 1,600 crore from LN Mittal and Farallon Capital by divesting a 28.6% equity.

Domestic realty players are going through tough times due to liquidity constraints as well as shortage of fresh demand. New projects have since been put on the backburner while many of those under construction are being delayed.

May 14, 2009:SEBI will shortly issue guidelines for overseas investors, seeking to register as a sub-account under the foreign corporate category, two people familiar with the development told ET. Sub-account includes those foreign corporates, foreign individuals and institutions, funds or portfolios, established or incorporated outside India whose investments in India are managed by a Sebi-registered FII. At last count, there were 1,650 FIIs and 5,096 sub-accounts operating in the Indian equity market.

At present, Sebi has stayed sub-account applications of corporates, which are subsidiaries of listed foreign companies. The regulator has been wary of granting approval to this category of sub-account applicants, as it may not fulfil some key criteria such as net worth, net profits, to name a few. According to lawyers involved with the registration process, chances are that a subsidiary based out of tax havens such as Mauritius could be unregulated and also may not fulfil the anti-money laundering and know-your-client (KYC) norms like the parent company, which is regulated in its home country

. Last year, Sebi had defined ‘foreign corporate’ as a body corporate incorporated outside India, and which fulfils the following conditions: its securities are listed on a stock exchange outside India, it has a asset base of not less than $2 billion and it has an average net profit of not less than $50 million during the three financial years, preceding the date of the application.

Currently, if an applicant wants to register as a sub-account, it can apply under the following categories: broadbased fund, foreign corporate, foreign individual, and proprietary fund of an FII. Sebi officials say the maximum number of applications for sub-accounts are mainly under the broad-based and proprietary fund category. A broad-based fund is defined as one established, or incorporated outside India, and which has at least 20 investors, with no single individual investor holding more than 49% of the shares or units of the fund.

May 15,2009, Mumbai: After its attempt to tax industrialist Nusli Wadia on his land deals ran into trouble, the income tax department is exploring another avenue.

Two years ago, the I-T department demanded Rs 31 crore as tax for the money Wadia made by selling around 110 acres of land at Mindspace along the Goregaon-Malad Link road. Wadia’s appeal against this is pending. Now, the I-T department is interpreting the deal in a different way and demanding tax under a different head.

It has served a notice directing Wadia to file returns for the income earned from the Mindspace deal under the Association of Persons (AOP) clause. SinceWadia and four companies in which he has a majority stake had purchased the rights to income received from the said property, the department has contended that this arrangement is tantamount to AOP. When persons come together to earn profit, or enter into any type of syndication or joint venture, it can result in the coming into existence of a separate taxable entity known as an AOP.

Wadia has now filed a writ in the Bombay HC challenging the department’s move to assess “imaginary income’’. Wadia has said the action of the IT will “cause him severe prejudice, grave hardship and unnecessary harassment and seriously interfere with the conduct of his activities’’.While the I-T always maintained that Wadia was liable to pay the tax being the de facto owner of the land, the textile magnate claimed he was merely the land’s administrator, not the owner.

The land under Wadia’s control once belonged to a Parsi, E F Dinshaw, who was based in New York. A month before he died in March 1970, he wrote a will bequeathing all income from his property to his sister Bachoobai Woronzow. However, the will said that after Bachoobai’s death, the property would go to twoNew York-based charities. Jehangir Dubash, a lawyer, was appointed to administer the property.

Subsequently, Dubash moved the HC, asking it to appoint Wadia as the administrator of the property. In December 1972, the HC passed an order by whichWadia became the administrator. In 1995, Wadia struck a deal with the Rahejas to develop the land. In 2000, Wadia moved the HC challenging the validity of Dinshaw’s will. The HC held it null and void . Wadia and his four companies bought Woronzow’s rights to the income to be received from the property for Rs 20 lakh. Woronzow died in August 2003.

May 5, 2009: MOVE AIMS AT ENSURING COS’ ABILITY TO PAY CLAIMS TO POLICYHOLDERS DURING SLOWDOWN

Hema Ramakrishnan & Mayur Shetty HYDERABAD | MUMBAI

THE insurance regulator has directed a clutch of non-life companies, including Royal Sundaram Alliance Insurance, HDFC Ergo General Insurance, Reliance General Insurance Company and Tata AIG General Insurance, to rein in their expense ratio, a senior official said .

The Insurance Regulatory Development Authority’s (IRDA) move is meant to ensure that these companies have the ability to pay claims to policyholders even when there is a slowdown in new business growth.

Expense ratio, in insurance parlance, is the proportion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance. “Non-life insurers need to keep a check on their expense ratio to ensure that solvency is not jeopardised at any time,” said R Kannan, member actuary, IRDA.

The regulator’s concerns need to be viewed against the backdrop of a slowdown in business growth. The total premium income from non-life business grew by around 9% to Rs 30,601crore in FY09 compared with Rs 28,051 crore in FY08. Premium income is expected to grow at fast pace only when the economy turns around.

As per insurance regulation norms, non-life insurance firms are required to maintain management expenses to premium ratio of 20%. The industry average is 20-26%. But some of these companies have breached the average, said an official.

The regulator took a lenient view of this issue in the past, as companies argued that they were in a start-up phase. Some insurers have low expense ratios due to economies of scale. They can leverage spends on advertising and brands that attract customers, say experts.

The IRDA is concerned as a high expense ratio could impact the solvency — the ability to pay a claim — of an insurer.

The bottom line of non-life companies has been hit due to the price war that has seen premium rates come down by as much as 80% in some businesses.

“The IRDA’s priority is to ensure health of an insurance company. The regulator cannot ask companies to increase rates or reduce claim payments and therefore, the obvious solution is to ask them to prune,” said an industry official.

Sources said that the regulator has been turning down proposals on granting liberal remuneration packages to new CEOs. Now, given the surge in costs, the regulator is also likely to propose a freeze on the salaries of incumbent CEOs. “The regulator appears to be taking a clue from global events, where regulators are looking at the health of insurance companies,” said an industry official.

FOR THE PEOPLE

Expense ratio is the proportion of premium used to pay all the costs of acquiring, writing and servicing insurance and reinsurance IRDA is concerned as high expense ratio could impact the solvency, the ability to pay a claim, of an insurer

April 30, 2009 :IN A move similar to the Vodafone case, the Bombay High Court has asked the I-T department to file a reply on a notice it issued to SABMiller UK pertaining to the latter’s $120-million acquisition of Foster’s India from its Australian parent in 2006. The Pune income-tax office sent a notice to SABMiller in January 2008, asking it to furnish details of the deal. SABMiller has dragged the department to the HC, challenging its jurisdiction over a deal struck outside India between two non-resident parties. According to SABMiller UK, the shares transferred to it as part of the deal belonged to a Mauritius-based company that was earlier held by a group company of Foster’s. However, the department’s views on such an issue is amply clear from its stand on the $11-billion acquisition of Hutch-Essar by Vodafone from the Honk Kongbased Hutch International. The department ruled that profit generated in India was liable to be taxed in India, irrespective of whether the transfer of shares took place outside the country. It is not yet known what the department’s estimate is on the capital gains arising of the deal, which involved the sale of a brand as well as physical assets such as a state-of the-art brewery in Maharashtra. Earlier, the Authority for Advance Ruling (AAR) held that tax was payable in India on account of the profit arising from the sale of its (Foster’s Australia) brand, goodwill and licence to Foster’s India to brew the beer locally

April 28,2009: THE government may exempt partnership firms and limited companies from paying stamp duty while converting into limited liability partnerships (LLPs), a way of doing business that is favoured globally for its flexibility. The government will amend the Income Tax Act later this year to provide a tax regime for LLPs, which are being incorporated from the beginning of this month, a finance ministry official said. In an LLP, one partner or shareholder will not be held liable for the slips or wrongdoing of another. Besides, partners will have the freedom to decide the internal structure of an LLP, unlike in the case of companies that have a board of directors and need to follow procedures set by the law. The idea is to adopt a provision similar to Section 394 of the Companies Act, which allows high courts to waive off stamp duty while approving amalgamations and restructuring of companies involving transfer of assets, the official said, requesting anonymity. Under this section, high courts almost always free asset transfers arising from reconstructions and amalgamations from stamp duty. “Tax neutrality is essential for the conversion of companies and partnership firms into LLPs,” said a corporate affairs ministry official, who asked not to be named. The proposed move will effectively address the difficulties in getting stamp duty exemptions from state governments. The finance ministry, however, may insist that the shareholding pattern of the company or the partnership firm from which assets are transferred to an LLP, and the shareholding of the receiving LLP be the same. “This is important to prevent any stamp duty evasion on asset sale or transfer under the garb of conversion to LLPs,” said the finance ministry official. Once the assets and liabilities of a partnership firm or a limited company are transferred to an LLP, the original entity will be dissolved and removed from government records. Protection from any liability arising from another partner’s misconduct is essential for investors and professionals who do not know each other to come together and launch a business. In the case of ordinary partnerships, mutual trust is a factor that holds the business together.

April 25,2009:SEBI on Friday reduced the timelines for the notice period by listed companies for all corporate actions like dividend and bonus, to name a few.

The notice period for the record date has been brought down to seven working days while that for board meetings has been reduced to two working days. It has also introduced a uniform procedure for companies in dealing with unclaimed shares. The new clause relates to those shares that could not be allotted to the rightful shareholder due to insufficient information.

“It has been brought to the notice of the board that there is a large quantum of shares issued pursuant to the public issues, which remain unclaimed despite the best efforts of the registrar to issue or issuers, and that there is no uniform practice for dealing with such shares,” the release said.

The unclaimed shares will be credited to a demat suspense account opened by the issuer with one of the depository participants and any corporate benefit, such as dividend, bonus shares, will also be credited to such account. The allottee’s account will be credited as when he/she approaches the issuer, after undertaking the proper verification of identity. The voting rights of these shares will remain frozen till the rightful owner claims the shares. The details of the shares in the suspense account will be disclosed in the annual report.

In order to bring about uniformity in the manner of declaring dividend among listed companies, Sebi has made it mandatory for companies to declare their dividend on a per share basis only. This means that irrespective of the face value of the share, the company will have to mention the dividend on an absolute basis.

April 24,2009: RETAILERS, realtors and companies operating their businesses from rented space can now breathe easy. The Delhi High Court has ruled that commercial renting of premises will not attract service tax . It would also mean a major revenue loss to the government. It collects over Rs 8,000 crore annually from renting service . In 2009-10, it expects to collect Rs 68,900 crore through service tax levied at the rate of 10%.

The court held that renting of immovable property for use in the course or furtherance of business could not be regarded as a service , and, therefore, can’t be taxed. It gave this ruling while disposing of petitions by retailers such as Lifestyle, Shoppers Stop Home Solution and Barista Coffee. “The high court order is a welcome one for the business and shall reduce the input costs in these tough times,” Ernst & Young associate director Bipin Sapra said.

The Centre will appeal against the ruling in the Supreme Court as the decision could have serious ramifications for service tax collections, an official in the government, who didn’t wish to be identified, said. “If the government appeals to the Supreme Court, there may be some time before the issue is resolved fully,” Mr Sapra said.

The Centre had brought “service provided in relation to renting of immovable property other than residential properties and vacant land for use in the course or furtherance of business or commerce” under the tax net through the Finance Act, 2007. Subsequently, a detailed notification and a circular were issued on May 22, 2007, and January 4, 2008, referring to ‘renting as a taxable service ’, a move contested by the petitioners.

They had taken the line that since the Act provided for levy of service tax on service provided in relation to renting of immovable property, it could not be construed as levy of tax on renting . The court upheld the view and ruled that the interpretation in the notification and the circular was not correct and ultra vires to the Act and set aside both of them.

Service tax is a tax on value addition provided by some service providers and renting of immovable property for use in the course or furtherance of business did not involve any value addition and could not be regarded as a service , the court observed. An alternate plea was also taken up by the petitioners that the levy of service tax on renting of immovable property would amount to tax on land and therefore, fall outside the legislative competence of Parliament as it is a state subject.

SPACED OUT

The HC ruling means a huge revenue loss for the govt

Given the serious implications, the Centre may approach the Supreme Court for relief The high court ruling came in response to a string of petitions by retailers such as Lifestyle, Shoppers Stop Home Solution and Barista Coffee

Commercial renting of premises was brought under tax net in 2007

April 22,2009:THE Supreme Court on Tuesday said the Securities Appellate Tribunal (SAT) has no discretionary power to interfere with orders passed by market regulator Securities & Exchange Board of India (Sebi). Allowing Sebi’s plea, the court said the tribunal has to do what is prescribed under the statute.

“When something is to be done statutorily in a particular way, it can only be done that way. There is no scope for taking shelter under a discretionary power,” said a bench comprising Justice Arijit Pasayat and Justice LS Panta. The court rejected the plea that the tribunal can interfere with the order passed by Sebi. The court also turned down the plea that under section 15 T (4) of the Act, the tribunal is empowered to pass such orders on the appeal as it thinks fit, confirming, modifying or setting aside the order of Sebi.

Sebi had filed two appeals against order passed by the tribunal. In one case, Saikala Associates acted as a sub-broker at the National Stock Exchange with 2 NSE Members — MIS PCS Securities and M/S Zen Securities — without being registered as a sub-broker with Sebi between 2000 and May 2002. It had created the value of Rs 403.29 crore in breach of section 12(1) of the Securities and Exchange Board of India Act, 1992 (read with Rule 3 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Rules, 1992.)

In the second case, Shilpa Stock, registered as a Sebi broker while executing trades on behalf of its client Kamlesh Shroff, had dealt with Jairam Enterprises, an unregistered sub-broker. Again, it was in violation of Sebi rule. The tribunal had said the proved charges were not serious enough to warrant suspension of certificate of registration and had set aside the Sebi order. Sebi challenged this in the apex court. The regulator had said in terms of Regulation 25 of the Sebi regulations & circulars, (stock brokers and sub-brokers), which was applicable prior to the amendment with effect from November 2, 2003, it was provided that any contravention of any provisions of the Act, rules and regulations is to be dealt with in the manner provided in Regulations 26 to 32 of the Regulation prior to the amendment with effect from September 27, 2002.

The provisions of section 12(3) of the 1992 Act confer power on Sebi, by an order, to suspend or cancel a certificate of registration in such manner as may be determined by regulations, provided that no order under the said section will be made unless the person concerned has been given a reasonable opportunity of being heard, the appellant had said. It had further said as per Rule 3 of the Securities and Exchange Board of India (Stock Brokers & Sub Brokers) Rules, 1992, the existing brokers & sub-brokers were allowed to continue business pending registration but no new person commencing the business of the broker or subbroker after August 20, 1992 could do the business pending registration and could commence only after being registered.

The court said, “In the instant case, the position of broker/sub-broker in case of violation is statutorily provided under Section 12 of the Act, which has to be read along with Rule 3 of the Rules. No power is conferred on the tribunal to travel beyond the areas covered by section 12 and Rule 3.”

March 25,2009:THE Orissa High Court has directed market regulator Securities and Exchange Board of India (Sebi) to investigate whether companies belonging to the Bhushan Steel Group had purchased shares of Orissa Sponge Iron and Steel from the market and whether there has been any violation of Sebi’s takeover regulations in such transactions. The order will effectively put on hold Sebi’s decision on the open offer that the Bhushan Steel Group had initiated to purchase at least 20% of the retail shareholding of Orissa Sponge Iron.

According to the order passed on March 18, the Orissa High Court directed the regional manager of Sebi, Kolkata, to probe into the affairs of Bhushan Steel and its associate companies in the matter of acquisition and while dealing in shares of Orissa Sponge.

When contacted, Bhushan Steel finance director Nitin Johri said: “We are not aware of the development as we were not served with an order by the court. Moreover, it’s not an order passed against the company, but investigation orders to Sebi on the request of a shareholder. The companies mentioned in the petition do not belong to us.”

It may be recalled that some investors had complained to Sebi that Neeraj Singhal-controlled Bhushan Group, along with persons acting in concert, had bought 14.8% in Orissa Sponge, which wasn’t disclosed to Sebi. The non-disclosure amounted to violation of Sebi’s takeover regulations, the investors had alleged.

According to a complaint filed with Sebi, it is learnt that BSN Tour & Travel, a subsidiary of Bhushan Steel, holds about 2.57% in Orissa Sponge Iron. However, this information was not disclosed in the public announcement that was made regarding Bhushan Energy’s open offer, prompting other players in the race for ownership to complain to the market regulator.

The allegations against Neeraj Singhal’s Bhushan Steel say that the company’s actual holding in Orissa Sponge is much above the threshold level of 26% against the disclosed stake of around 19%. People familiar with the Bhushan group say that Bhushan Energy is the only company in the Neeraj Singhalcontrolled group, that owns shares in Orissa Sponge. Even the open offer is by Bhushan Energy.

April 9,2009: The Supreme Court (SC) has held that freight and insurance charges are not to be taken into account in determining the value of goods for imposing excise duty. A bench headed by justice S B Sinha, while dismissing the commissioner of central excise ’s appeal, asked the (excise ) department to pay Rs 25,000 to Accurate Meters — a manufacturer of electronic meters — towards the counsel’s fee.

The bench said: “... That the tribunal (customs, excise and service tax appellate tribunal) (was) correct in the view that the amount claimed by way of transportation charges and insurance cannot be considered for determining the value of the electric meters supplied.’’ The tribunal had turned down the excise department’s plea. The apex court judgment had come on an appeal by the central excise department against Accurate Meters, which had entered into contracts with various SEBs for supplying electric meters. While the value of goods was to be fixed at the factory gate, it was decided between the parties that average freight and insurance were to be charged and not on actuals.

According to the court, there were two contracts — one for the sale of electric meters, governed by the Sales of Goods Act, and the other governing the transportation of goods. Stating that the charges for transporting goods were not on the basis of actuals, the bench observed that Accurate was bound to transport the goods from the factory gate to the place of the SEBs at the rates specified in the tender.

April 9,2009: The Supreme Court (SC ) on Wednesday dismissed the income-tax (I -T) department plea that companies cannot claim deductions against tax liability on account of losses due to foreign exchange rate fluctuations.

A bench headed by justice S H Kapadia dismissed the department’s petitions filed against 33 foreign and domestic companies including Maruti Udyog, Jindal Strips, GE Power Services, Perfetti India, Seagram, Escorts, E I Dupont India, Woodward Governor India, Honda Siel, Turner International and others.

The department had submitted that companies cannot claim deductions on such losses as they were incurred in the ordinary course of business and were part of it.

It had argued that where the loss was incurred in respect of circulating capital, it was to be treated as revenue loss and where it was incurred in respect of fixed capital it was to be treated on the capital account. However, the copy of the judgment was not available.

Stating that the loss was in respect of fixed capital in a few cases, the petitions said: “... Under the mercantile system of accounting, liability can be allowed only when liability was repaid or which had been crystallised/ ascertained. The liability debited by turner was merely a notional liability.’’ The companies had stated that deduction can be allowed as liability was on the revenue account. While the I -T appellate tribunal had upheld the assessees’ position, the Delhi high court had endorsed the department’s plea .

March 9,2009: IT is similar to buying a stock at Rs 500 in May and accounting for it on March 31, when the scrip has crashed to Rs 100. While in securities investments the rule is clear that this Rs 400 MTM loss has to be ‘provided’ for (or deducted from earnings), in foreign currency derivative contracts, it’s not an open and shut case.

The issue corporates are grappling with is whether to provide for this loss on contracts struck to hedge (or cover the risks of a choppy market). Many of them are engaged in a vigorous discussion with their auditors, trying to explain why this bit of the accounting rules should be skipped. More so, in an unusual year like this.

Interestingly, these losses are not due to some complex exotic derivatives that banks sold to corporates. “There are losses even on plain vanilla contracts. Many companies had entered into options contracts in the past, and there are MTM losses on simple forwards,” said RVS Sridhar, head of markets at Axis Bank.

The Accounting Standards Board, which is looking into the finer points of derivatives accounting, has proposed that MTM losses should be provided only for “speculative contracts”. The Institute of Chartered Accountants of India (ICAI) is expected to look into the matter.

According to the chairman of the Board S Santhanakrishnan, widespread MTM losses could lead to an unnecessary panic and an artificial MTM crisis should be averted.

Under current rules, which have a few grey areas, no provision is needed for MTM losses if the forex contracts are treated for what is known in accounting parlance as ‘hedge accounting’. This does not mean that a corporate can avoid MTM provision only if it has a genuine underlying like actual dollar receivables from exports.

There are other conditions which have to be fulfilled for a contract to qualify as a ‘hedge’ or come under the purview of ‘hedge accounting’. Given the intense scrutiny that auditors find themselves in post Satyam, it is likely that many of them would stick to the rule book and, therefore, insist on these conditions.

“In all likelihood, most companies will have to provide MTM losses. This is because very few companies, I believe, have maintained hedging documents, which is a condition for hedge accounting. And, secondly, companies are likely to fail the effectiveness test, since the market has been highly volatile,” said Sanjay Aggarwal, executive director at KPMG. What he means is that a company will not pass the effectiveness test — a key condition for hedge accounting — if the net loss from changes in MTM arising from the underlying and the hedge instruments breach the range specified in the accounting standards.

Accounting for derivative losses is a fairly new subject for India Inc. A year ago, ICAI had underscored the need for providing MTM losses when several corporates were hit by exotic derivatives, which boiled over into disputes with banks which in many cases ended in outof-court settlements. Once again, several corporates are faced with a similar situation, albeit on a smaller scale.

March 18,2009:THE Central Board of Direct Taxes (CBDT) has instructed income-tax officials to allow export-oriented units (EOUs) approved by development commissioners to claim tax exemption, ending the uncertainty over tax benefits to EOUs.

“It has been decided that an approval granted by the development commissioner in the case of an export-oriented unit set up in an export processing zone will be considered valid, once such an approval is ratified by the board of approvals (BoA) for EOU scheme,” said a CBDT communiqué send to income-tax officials.

The BoA has representatives from various ministries including commerce, revenue and home, among others.

Earlier, income-tax authorities had denied tax benefits to entities approved by development commissioners. Following this, the ministry of commerce and industry took up the issue with the revenue department. Industry organisations including the Export Promotion Council for EOUs and SEZs had also made representations to the revenue officials.

EOU is defined as “hundred percent export-oriented undertaking” approved by the board appointed by the central government under the Industries Development and Regulation Act, 1951.

EOUs are eligible for tax exemption under Section 10B of the Income-Tax Act. The exemption was first introduced in the Finance Act, 1981, and substituted by the Finance Act, 2000.

Subsequently, the power to approve EOUs was delegated to development commissioners who are administrative heads of export processing zones. The BoA could later ratify the EOUs approved by commissioners. However, tax authorities in same cases did not recognise the approval given by development commissioner and began denying tax benefits on this ground.

In some instances, tax authorities had not just demanded tax due but also imposed penalty on them. Exports from EOUs stood at Rs 1,42,211 crore, or 23% of the country’s total exports, in 2007-08. There are about 2,500 EOUs in the country.

CRYSTAL CLEAR

The power to approve EOUs was delegated to development commissioners

Tax authorities in some cases did not recognise approval given by development commissioner and began denying tax benefits

At times, tax authorities had not just demanded tax due but also imposed a penalty

March 9,2009:AT A time when domestic and multinational rivals are struggling to maintain profitability because of pricing pressures, India’s secondbiggest software company Infosys Technologies continues to report an operating margin of over 25%, helped by better rates, a robust banking software product business and its reputation as an efficiently run and ethically governed company.

“Margin is a function of how efficiently you run a company and we have been able to sustain our margins since 1993,” S Gopalakrishnan, chief executive and one of Infosys ’ founders, told ET. “We believe in running business optimally, in good or bad.”

Not surprisingly then, when competitors such as TCS, Wipro and HCL Technologies are postponing joining dates for new recruits, In fosys is keeping its commitment, and that too at better salary levels than last year. Infosys will be inducting almost 20,000 engineering graduates this year —up from some 18,000 it had projected earlier — at salaries which are 8.3% higher than last year even as it tries to cope with lower demand for software services in its top markets in the US and Europe.

Beyond business reasons, Infosys is doing this because it has never looked back after making a job offer. “We are very particular about this since it could impact the brand, and Infosys chairman and chief mentor NR Narayana Murthy himself has made it clear that the company must respect its commitments — no matter what the economic situation is,” a company official said.

Founded on July 2, 1981, in Pune by Mr Murthy, Nandan Nilekani, NS Raghavan, Mr Gopalakrishnan, SD Shibulal, K Dinesh and Ashok Arora, Infosys continues to attract thousands of software engineers every year. Mr Murthy, who borrowed around Rs 10,000 from his wife Sudha to start the company, is now chief mentor and brand ambassador of Infosys .

“No one in the services business from across the globe has such margins — in the US, Infos ys trades at 14-15 times its earnings when most others in the sector trade at 6-7 times their earnings,” said James Friedman of financial firm Susquehanna International Group.

According to a US-based expert, who is advising some top Indian tech firms on creating the next set of differentiators, Infosys is well-positioned to grow into one of the world’s biggest IT companies. “Globally, companies such as IBM, Accenture and EDS, have followed differed models. Infosys , with its clear focus on high-value consulting, and research-led solutions, could be the next Accenture,” he said. At the end of December 2008, Infosys had around 74 customers contributing at least $50 million in annual revenue. Its rate of repeat business is over 95%.

In an industry primarily delivering commoditised application development and maintenance services, Infosys is able to command 5-10% premium over domestic rivals by investing almost nearly 2% of its revenues in research and development and offering more focussed solutions to large customers such as BT and American Express.

“Our sales model competes on value and not on price, and we are very competitive when it comes to total cost of ownership in the medium to long term,” Mr Gopalakrishnan said. “We were also the first company to offer a comprehensive employee stock option programme in India, and we believe that investments made in employees pay good dividends,” he added.

With many of Infosys ’ customers, including ABN Amro, getting acquired or merged with other financial institutions, experts have raised concerns about new business deals. However, Infosys is finding new business from these transactions as customers such as Bank of America and Merrill Lynch seek partners to help them integrate their banking systems. “M&A is a silver lining for us in the current environment because we are incumbents in some of these cases,” Mr Gopalakrishnan observed in a recent interview.

Despite the compelling need to grow its top line in challenging times, Infosys will stay away from troubled contracts. “We don’t compete on price, and we will stay away from toxic contracts that can hurt in the long term,” the Infosys CEO said.

During quarter ended December last year, net income rose by almost a third to Rs 1, 641 crore on a 35.5% growth in revenues to Rs 5,786 crore. The company’s banking software product Finacle is another reason why Infosys is able to sustain its margins, helped by licensing revenues from the product.

“Infosys ’ value proposition is that they can author a solution right from consulting, to application development and up to customer care services, not to mention their growing banking product business,” said Mr Friedman.

In tough times, when customers are seeking more operational efficiency, “innovations coming out of our Software Engineering and Technology Labs (SET Labs) are critical because they help us win large transformational deals”, Subu Goparaju, vice-president and head of Infosys ’ SET Labs told ET recently. “We are able to change the paradigm from being a typical vendor-customer relationship to partners in innovation .”

When BT wanted to integrate business data across different sources and make them available to its leadership and users on a real-time basis, Britain’s biggest telco decided to integrate Infosys ’ Gradient solution with its own business intelligence platform.

“We follow a bottom -up innovation programme, encouraging employees to develop and propose ideas across new technology areas such as grid computing and platforms such as Linux,” said Mr Gopalakrishnan.

With over 100,000 employees, Infosys now wants to adopt non-linear growth by aggressively growing its banking product business and seeking other solutions that do not require as many people to deliver a project.

“Among all offshore service providers, TCS and Infosys are best positioned to arrest employee-led growth since they have been able to establish their footprints in the product business,” Pankaj Ghemawat of Spain’s University of Navarra said.

March 8 ,2009: Providing respite to city ho tels, especially fivestars and business ho tels, the B o m b ay high court, in a landmark judgment, has ruled that Tax Deducted at Source (TDS) would not be applicable to the services they provide. The verdict, by a division bench of Justices Ranjana Desai and J P Devadhar, quashed a circular issued by the Central Board of Direct Taxes (CBDT) and set to rest a 15-year-old controversy.

“The verdict will provide a huge relief to hotels ,’’ Hotel Restaurant Association of Western India (HRAWI) secretary S M Korde told TOI.

The 1994 circular said customers (usually corporates), while paying hotels for rooms and availing of facilities and amenities, would have to deduct tax at source under the Income Tax (I-T) Act. The TDS required to be cut was around 10%. Corporates form around two-thirds of the business of five-star hotels .

“The rule ensured that the daily cash flow was blocked and the hotels could claim any refunds only later,’’ Korde said. The HRAWI said the Bombay high court judgment would help hotels across India. A petition filed by the association’s parent body is pending in the Delhi high court. Korde added that the judgment would be cited as a precedent to get a favourable order.

The petition challenging the circular was filed by East India Hotels Ltd. It runs the Oberoi and the Trident on Marine Drive and has a chain of five-star hotels in other parts of the country. Besides rooms, the company said it provided a range of amenities to its clients, including highly trained and experienced multi-lingual staff, 24-hour service for reception, information and telephones, house-keeping, select restaurants, bank counters, beauty salons, barber shops, car rental services, shopping centres, health clubs and business centres. The issue was whether these services came under the definition of “carrying out work’’ under Section 194 C of the IT Act, which the CBDT insisted it did.

But the high court did not agree. “Services rendered by a hotel to its customers by providing certain facilities and amenities do not constitute work (as defined by the Act),’’ the judges said.

The controversy over the provision has a long history. Initially, the contracts for rendering professional services by lawyers, physicians, surgeons, engineers, accountants, architects and consultants were kept out of the ambit of the Act. In 1994, the CBDT said all types of contracts, including transport, service, advertisement, broadcasting, telecasting, labour, material and work contracts, would be liable to pay TDS.

When the courts held that such an interpretation was illegal, in 1995, the law was changed to to include four types of service contracts within the purview of Section 194 C: advertising, broadcast, transport and catering contracts. The court held that the service provided by hotels did not fall under any of these categories.

March 21,2009: The government has raised the coal import target for power generation by 15 million tonnes (mt) to 35mt in 2009-10, power secretary V S Sampath said on Friday. In 2008-09, 20mt was projected for import to make up for shortfall in domestic supplies, but the utilities failed to meet the target and many power plants were running precariously low on stocks.

The power ministry had earlier set target at 25mt for power utilities but revised it last month to 28-29mt in view of the additional capacities in the pipeline. Sampath said the heating capacity of imported coal is 50% higher than the domestic supplies and so the quantity shipped from overseas would be enough to meet the requirement of 53mt in 2009-10.

State-run generation utility NTPC will be the biggest importer with a target of 12-13mt against a target of 10mt in 2008-09, company chairman R S Sharma said. Till barely a week before the 2008-09 fiscal ends, the utility has managed to ship about 5mt against 8mt planned.

Most of NTPC’s imports are likely to be from Indonesia and Australia. The imports will bridge the gap in supplies from domestic sources, 125mt of which is required. NTPC will commission two units of its Dadri thermal power station in UP, one unit each in Sipat and Korba (both in Chhattisgarh) and Jhajjar (Haryana).

The additional generation capacity of 3,000mw will take place at two units of the Dadri thermal power station, and one unit each of the Sipat, Korba and Aravali power plants, Sharma said.

March 25,2009: WELSPUN Power and Steel, a Welspun Group company, has raised Rs 700 crore debt from a consortium of 20 domestic banks to part finance its Rs 1,030-crore acquisition of Vikram Ispat from Grasim Industries.

The group vice-chairman BK Goenka said the company was able to rein in the average cost of borrowing from 10-12%. “We have (already) tied up with 20 domestic banks to raise Rs 700 crore debt. All these banks are providing long and short-term loans, varying between Rs 20 crore and Rs 100 crore,” he told ET. The remaining Rs 300 crore would be raised from internal accruals, he added.

In June last, Welspun acquired Vikram Ispat, a sponge iron division of Grasim Industries, for Rs 1,030 crore after Grasim implemented a restructuring plan by getting out of sponge iron, which it considered non-core. Mr Goenka said the Gujarat High Court is yet to approve the scheme of arrangement between Welspun and Grasim. “We can conclude the deal only after getting the court approval,” he said.

Grasim had hived off Vikram Ispat, by way of a ‘slump sale’ to Gujarat-based Welspun Steel and Power. A slump sale is transfer of a business undertaking for a lumpsum without assigning values to individual assets and liabilities. Grasim had said that sponge iron is not the company’s core business. Despite high raw material cost, the business has been profitable due to robust prices. As per the agreement, Grasim would transfer Vikram Ispat to a yet-to-be-formed special purpose vehicle (SPV) — a subsidiary of Grasim. Vikram Ispat has a total capacity of nine lakh tonne and recorded a turnover of Rs 950 crore in the previous fiscal.

THE Supreme Court has quashed the law which debarred a partner of an unregistered firm in Maharashtra from filing a suit for dissolution of such a firm. The apex court also held as illegal the law prohibiting the partner to sue for accounts of the dissolved firm or realise properties of such dissolved firm, unless the duration of the firm was only six months or its capital was up to Rs 2,000.

“In our opinion sub-section 2A of section 69 (of the Indian Partnership Act, 1932) inserted by the Maharashtra Amendment violates Articles 14, 19(1)(g) and 300A of the Constitution of India,” said a bench comprising Justice Markandey Katju and Justice GS Singhvi.

The court said, “a partnership firm, whether registered or unregistered, is not a distinct legal entity, and hence the property of the firm really belongs to the partners of the firm. Sub-section 2A virtually deprives a partner in an unregistered firm from recovery of his share in the property of the firm or from seeking dissolution of the firm.” “Sub-section 2A virtually deprives a partner of a firm from his share in the property of the firm without any compensation. Also, it prohibits him from seeking dissolution of the firm although he may want it dissolved,” court said.

The court further said that the law was clearly unreasonable and arbitrary since by prohibiting suits for dissolution of an unregistered firm, for accounts and for realisation of the properties of the firm, it creates a situation where businessmen will be very reluctant to enter into an unregistered partnership out of fear that they will not be able to recover the money they have invested in the firm or to get out of the firm if they wish to do so.

There is no legal requirement, unlike in England, which makes registration of a firm compulsory, rather in India it is voluntary. Both registered and unregistered are legal though of course registration and non registration have different legal consequences, court noted in its judgment.

The bench set aside Bombay High Court order. It said, “The high court was of the view that the object of the Maharashtra Amendment was to induce partners to register and it was intended to protect third party members of the public. We cannot see how sub-section 2A of section 69 in any way protects the third party members of the public. It makes it virtually impossible for partners in an unregistered firm to dissolve the firm or recover their share in the property of the firm. Hence it is totally arbitrary.”

The apex court said that the primary object of registration of a firm is protection of third parties who were subjected to hardship and difficulties in the matter of proving as to who were the partners.

Under the earlier law , a third party obtaining a decree was often put to expenses and delay in proving that a particular person was a partner of that firm. The registration of a firm provides protection to the third parties against false denials of partnership and the evasion of liability. Once a firm is registered under the Act the statements recorded in the register regarding the constitution of the firm are conclusive proof of the fact contained therein as against the partner

March 27,2009:THE current fiscal year could see many companies overstating their profits , if their short-term current account liabilities mature next year, thanks to the recent move to defer implementation of key accounting standards till 2011.

This would be over the gains that major companies — Tata Steel, Tata Motors, JSW Steel — would benefit due to postponing of losses on foreign currency borrowings.

A deferment could also include companies that import key raw materials and firms that pay royalty. The benefit of the deferment of the Accounting Standards 11 (AS11) — the accounting norms adopted to treat effect of changes in foreign exchange rates — as announced on Wednesday could spread to a large number of companies, say auditors.

The National Advisory Committee on Accounting Standards has given its recommendation to suspend implementation of AS11 till 2011, bowing to representations from companies that were adversely affected due to huge forex losses on their foreign borrowing. From 2011, the domestic companies will have to mandatorily adopt the global accounting standard, IFRS, which includes AS11.

While companies were more concerned with large mark-to-market liabilities that are long term in nature, the new stance by the NACAS, the nodal body that notifies accounting norms, is not clear on how companies should treat liabilities that are short term in nature.

If a company had imported about 1,000 kilolitres of furnace oil early this fiscal year for which the payment is due next year due to an agreed credit period, any partial consumption of the furnace oil would benefit the company. Since the liability was due next year and has now, according to NACAS, been deferred again, the company would be overstating its profits .

“Since the decision is not yet notified by the government, as such it is not clear whether the entire AS11 would be suspended, or only MTM provisions for long-term liabilities would be suspended,” said Suresh Surana, founder of Astute Consulting, the Indian affiliate of RSM International.

Although the NACAS has favoured suspending for two years, the AS11, it was more driven by the huge losses suffered on account of foreign currency borrowings that major Indian companies had taken, for their growth plans. Companies that had large MTM provisions in the current fiscal year include Tata Steel (-Rs 775.64 crore), Tata Motors (-Rs 632.60 crore), JSW Steel (- Rs 815.21 crore), Suzlon Energy (-Rs 741.90 crore).

The current move, however, has not been favoured by the Institute of Chartered Accountants of India, the regulatory body for accountants in the country. Senior professionals have said the deferment would only add to the confusion.

March 23,2009:THE Income-Tax department is at loggerheads with the Income Tax Appellate Tribunal (ITAT), the ultimate fact-finding body on tax disputes, over the latter’s demand for verifying the reasons for conducting a raid on FMCG major Marico Industries.

ITAT had directed the department to produce the “satisfaction note”, which is an internal document prepared by income tax officers, who plan to conduct a raid. It is this note that ITAT wants to have a look at. The department sees this as an intrusion into its domain.

The Income-Tax department, which feels that the satisfaction note is a part of its administrative procedure, has moved the Bombay High Court challenging the jurisdiction of the ITAT to issue such directives to the department. The matter will be heard next month. The department apprehends that if ITAT is allowed to have its way, the department will lose its functional independence on tax raids and surveys, which, until now, has been its sole prerogative.

Checks and balances are built into the system, the department pointed out. A satisfaction note explains why an entity needs to be raided and the department’s reasons for presuming that income has escaped the tax net or the possibility of that happening if not checked in time. It also gives reasons for why a raid is considered the best action under the given circumstances.

The note is then submitted to the additional director of investigation and then the investigation director. The ultimate authority that approves the note is the director general of investigation, an officer of the rank of chief commissioner.

April 2,2009:BUOYED by a favourable Supreme Court order in the Vodafone tax case, the income-tax department has asked E*Trade Mauritius to pay capital gains tax on the sale of its shares held in Indian company IL&FS Investsmart to HSBC in September 2008.

E*Trade Mauritius is indirectly held by E*Trade Financial Corporation and is in the business of identifying opportunities for investment in the Asian region.

Though the sale was routed through a company based in Mauritius with which India had a Double Taxation Avoidance Agreement (DTAA), the Indian income-tax department held that since profit was generated in India, tax is liable to be paid here.

The overseas company dragged the department to court claiming that it could not be taxed in India under the India-Mauritius DTAA.

The Bombay High Court, after hearing both sides, directed the company to go back to the income-tax department and present its case before the director, international taxation. It simultaneously asked the director, international taxation to give the order within three months.

The court also directed the company to deposit Rs 24.5 crore with the high court. The director eventually gave the order, upholding the earlier order demanding Rs 24.5 crore.

This is the latest in the line of cross-border deals involving Indian companies. The income-tax department has already sent notices to Vodafone on its $11-billion acquisition of Indian telecom major Hutch Essar, from the Hong Kong-based Hutchison International. The ball is now in the income-tax department’s court after a direction to the company from the Supreme Court to take up the matter with the department before approaching the high court.

The department has sent similar notices on the acquisition of Foster’s Australia’s Indian subsidiary, Foster’s India, by British brewer SABMiller, Idea-Cellular AT&T deal etc.

February 3,2009 : The group of ministers (GoM) on foreign direct investment (FDI) will meet on Tuesday to discuss the revised guidelines for calculation of direct and indirect foreign holding in sectors attracting foreign investment caps. Indirect FDI in a company is defined as another company with foreign investments infusing funds in it.

The revised guidelines have been framed by the department of industrial policy and promotion in the wake of concerns raised by various ministries, including finance and telecom, on calculation of indirect equity in Indian companies. The GoM had asked the DIPP to formulate simpler guidelines for calculation of indirect holding and better address the concerns of management and control in Indian companies.

In the revised guidelines, it has been kept in view that the balance equity is beneficially owned by resident Indians and Indian companies and owned and controlled by Indian citizens.

At its previous meeting, the GoM arrived at a broad consensus that revisedguidelines for calculation of direct and indirect foreign investment should be simple, homogenous and consistent across various sectors, according to a Cabinet minister involved in the GoM.

“The revised guidelines should not lead to passing of management control in sensitive sectors from residents to non-residents where the present policy based does not highlight such eventuality,” the minister, who did not wish to be named, said.

According to the DIPP proposal, if company A with less than 50% FDI invests in company B , the latter would not be considered as having any indirect foreign holdings.

In case company A with over 50% FDI invests in company B, the latter would be considered to have the same indirect FDI as the A’s foreign investment, i.e. 50%. For instance, if a company with 75% foreign holdings picks up 80% or more in another Indian company, then the indirect FDI in the latter will only be 75%.

If implemented, the move will allow foreign companies more leeway in bringing in foreign investments into Indian companies, thus breaching FDI caps, the GoM has said.

March 19,2009 : AT A time when companies are finding it difficult to raise funds, an IDFC group company is investing Rs 350 crore in Essar Power to part-finance the latter’s ongoing expansion projects. The investment is being made through India Infrastructure Fund (IIF) which is managed by IDFC Project Equity Company. This is the first investment made by the $900-million IIF since it closed in June last year.

IDFC Project Equity Company and Essar Power signed the deal on Wednesday evening. While officials from both companies were tight-lipped on the amount of stake being offloaded, persons with knowledge of the deal said IDFC had picked up 1.5% in the company. Based on the deal size, the valuation of the unlisted power entity works out to Rs 23,000 crore.

Essar Power’s listed peers, Reliance Power and Tata Power are currently valued at Rs 24,000 crore and Rs 15,000 crore, respectively. Over the past one year, the two power producers have witnessed an erosion of 66% and 37%, respectively, in their market capitalisation following the collapse in the stock market. IIF is sponsored by IDFC, Citigroup and IIFCL and has been set up as part of the India Infrastructure Financing Initiative that was launched last year to deploy $5 billion in capital for infrastructure projects across the country. Essar Power currently operates three power plants, two in Hazira totalling 1,015 megawatts (MW) and one in Vadinar with a capacity of 125 MW.

Essar Shipping plans expansion MUMBAI: Essar Shipping Ports & Logistics, part of the diversified Essar group, has chalked out plans to expand its operations with an investment of over $1 billion in a couple of years. The plan includes acquisition of two jack-up rigs, setting up port terminal at Vadinar and development of Salaya Port in Gujarat. The company intends to finance the plan through a mix of debt and equity. Essar Shipping is also on the lookout for other offshore drilling assets.

March 19, 2009:AT A time when domestic and multinational rivals are struggling to maintain profitability because of pricing pressures, India’s secondbiggest software company Infosys Technologies continues to report an operating margin of over 25%, helped by better rates, a robust banking software product business and its reputation as an efficiently run and ethically governed company.

“Margin is a function of how efficiently you run a company and we have been able to sustain our margins since 1993,” S Gopalakrishnan, chief executive and one of Infosys ’ founders, told ET. “We believe in running business optimally, in good or bad.”

Not surprisingly then, when competitors such as TCS, Wipro and HCL Technologies are postponing joining dates for new recruits, In fosys is keeping its commitment, and that too at better salary levels than last year. Infosys will be inducting almost 20,000 engineering graduates this year —up from some 18,000 it had projected earlier — at salaries which are 8.3% higher than last year even as it tries to cope with lower demand for software services in its top markets in the US and Europe.

Beyond business reasons, Infosys is doing this because it has never looked back after making a job offer. “We are very particular about this since it could impact the brand, and Infosys chairman and chief mentor NR Narayana Murthy himself has made it clear that the company must respect its commitments — no matter what the economic situation is,” a company official said.

Founded on July 2, 1981, in Pune by Mr Murthy, Nandan Nilekani, NS Raghavan, Mr Gopalakrishnan, SD Shibulal, K Dinesh and Ashok Arora, Infosys continues to attract thousands of software engineers every year. Mr Murthy, who borrowed around Rs 10,000 from his wife Sudha to start the company, is now chief mentor and brand ambassador of Infosys .

“No one in the services business from across the globe has such margins — in the US, Infos ys trades at 14-15 times its earnings when most others in the sector trade at 6-7 times their earnings,” said James Friedman of financial firm Susquehanna International Group.

According to a US-based expert, who is advising some top Indian tech firms on creating the next set of differentiators, Infosys is well-positioned to grow into one of the world’s biggest IT companies. “Globally, companies such as IBM, Accenture and EDS, have followed differed models. Infosys , with its clear focus on high-value consulting, and research-led solutions, could be the next Accenture,” he said. At the end of December 2008, Infosys had around 74 customers contributing at least $50 million in annual revenue. Its rate of repeat business is over 95%.

In an industry primarily delivering commoditised application development and maintenance services, Infosys is able to command 5-10% premium over domestic rivals by investing almost nearly 2% of its revenues in research and development and offering more focussed solutions to large customers such as BT and American Express.

“Our sales model competes on value and not on price, and we are very competitive when it comes to total cost of ownership in the medium to long term,” Mr Gopalakrishnan said.

“We were also the first company to offer a comprehensive employee stock option programme in India, and we believe that investments made in employees pay good dividends,” he added.

With many of Infosys ’ customers, including ABN Amro, getting acquired or merged with other financial institutions, experts have raised concerns about new business deals. However, Infosys is finding new business from these transactions as customers such as Bank of America and Merrill Lynch seek partners to help them integrate their banking systems. “M&A is a silver lining for us in the current environment because we are incumbents in some of these cases,” Mr Gopalakrishnan observed in a recent interview.

Despite the compelling need to grow its top line in challenging times, Infosys will stay away from troubled contracts. “We don’t compete on price, and we will stay away from toxic contracts that can hurt in the long term,” the Infosys CEO said.

During quarter ended December last year, net income rose by almost a third to Rs 1, 641 crore on a 35.5% growth in revenues to Rs 5,786 crore. The company’s banking software product Finacle is another reason why Infosys is able to sustain its margins, helped by licensing revenues from the product.

“Infosys ’ value proposition is that they can author a solution right from consulting, to application development and up to customer care services, not to mention their growing banking product business,” said Mr Friedman.

In tough times, when customers are seeking more operational efficiency, “innovations coming out of our Software Engineering and Technology Labs (SET Labs) are critical because they help us win large transformational deals”, Subu Goparaju, vice-president and head of Infosys ’ SET Labs told ET recently. “We are able to change the paradigm from being a typical vendor-customer relationship to partners in innovation.”

When BT wanted to integrate business data across different sources and make them available to its leadership and users on a real-time basis, Britain’s biggest telco decided to integrate Infosys ’ Gradient solution with its own business intelligence platform.

“We follow a bottom-up innovation programme, encouraging employees to develop and propose ideas across new technology areas such as grid computing and platforms such as Linux,” said Mr Gopalakrishnan.

With over 100,000 employees, Infosys now wants to adopt non-linear growth by aggressively growing its banking product business and seeking other solutions that do not require as many people to deliver a project.

“Among all offshore service providers, TCS and Infosys are best positioned to arrest employee-led growth since they have been able to establish their footprints in the product business,” Pankaj Ghemawat of Spain’s University of Navarra said.

March 17, 2009 : THE long-drawn out sibling rivalry at India’s oldest liquor company Jagatjit Industries, makers of Aristocrat whisky, is nearing an end, with the Company Law Board (CLB) upholding a resolution to allot preferential shares with differential voting rights (DVRs) to firms controlled by incumbent promoter Karamjit Jaiswal.

CLB chairman S Balasubramanian, in an order dated March 12, took the view that there was no merit in challenging the allotment of shares with DVRs, as it is legally permissible. It dismissed the petitions filed by the promoter’s estranged brothers Anand Jaiswal and Jagatjit Jaiswal.

Besides settling the family feud at the country’s fourth-largest spirits company, the order is also significant as it may offer clarity on minority promoters using DVRs to fend off hostile takeover threats.

Anand and Jagatjit had moved the CLB against the company decision in 2004 on preferential allotment of shares with DVRs, giving Karamjit 64% voting rights on his 32% stake in the company.

They had petitioned the court to declare as ‘null and void’ a June 16, 2004 resolution passed at the company EGM, allotting 2.5 million preference shares — each with 20 voting rights — to LP Jaiswal & Sons, a firm controlled by Karamjit.

The preferential allotment saw Karamjit’s voting rights in the company touch 64% even though his stake, or economic interest, increased to just over 32% from 23.59% earlier.

JIL has annualised sales of around 10 million cases with four distilleries in Punjab, Uttar Pradesh, Rajasthan and Andhra Pradesh. The company’s main brands include Aristocrat Premium, AC Black and Bonnie Special whiskies.

The warring camps have now agreed to a CLBproposed settlement whereby Karamjit will buy out Anand and Jagatjit’s 12% stake in the company for roughly Rs 73 crore. Petitioners to drop all allegations THEcompany will acquire the stake as buyback of shares in cash, and consequently the equity share capital, will stand reduced to that extent. The transaction is to be completed within three months from the date of the order of CLB.

The petitioners will also drop all allegations of oppression and mismanagement filed against the Karamjit Jaiswal-led management filed before the Securities and Exchange Board of India (Sebi) as well as CLB. As agreed by the parties, the withdrawal of all allegations and challenge will come into effect on the date when the company clinches the settlement with the petitioners. Mr Balasubramanian, in his order, vacated all interim orders clearing way for the company to sell, transfer or mortgage immovable assets. The proceeds thus realised will be deposited in a separate account and utilised for any other purpose only after completing the share buyback transaction with the petitioners, the order noted.

April 9,2009:In an attempt to avert a Satyam-like scam, the Institute of Chartered Accountants of India (ICAI) has given approval to an all-new standard that strengthens the role of auditors in detecting financial misstatements.

Auditors will now play a wider role and apart from financial statements, they will also inspect ‘other information’ to look for possible material inconsistencies.

Approved by the ICAI’s council, the standard (SA 720) specifies an auditor’ s responsibility in relation to other information in documents containing audited financial statements. The standard is a first of-its-kind for Indian auditors who need to study other information to identify any material inconsistencies vis-à-vis the audited financial statements to make the audit reports fool-proof.

The standards-effective for audits of all financial statements for periods beginning on or after April 1, 2010-said the auditor shall make appropriate arrangements with management or those charged with governance to obtain the other information before preparing report.

If the auditor comes across an apparent material misstatement during scrutiny, he should raise the matter with management. If the management refuses to correct the misstatement, the auditor should report the matter.

March 16, 2009 : FOLLOWING a recent change in the foreign investment policy, realty company Unitech can now raise up to Rs 5,000 crore through global depository receipts (GDR) without an approval from the Foreign Investment Promotion Board (FIPB). The finance ministry has accepted Unitech’s request to withdraw its proposal to raise foreign capital through GDRs and instead allowed it to access the automatic route.

The ministry has acceded to the realty company’s contention that it is owned and controlled by resident Indian citizens and its downstream investments in other companies would not be deemed foreign. Unitech had sought the investment board’s permission to raise GDRs and convert its status from operating to operating-cumholding company for investing in companies down the line.

“The government has changed the FDI policy and so we have withdrawn our application,” Unitech MD Sanjay Chandra said. Unitech is planning to go in for a GDR issue since it would allow the company to access investments from even those financial institutions that are not registered in India and hence ineligible to invest in Indialisted firms, Mr Chandra said.

Raising funds through GDR, or any other route, has become increasingly difficult these days given the economic downturn and pessimism on the markets globally. Besides, not many funds are currently bullish on Indian real estate. In this scenario, Unitech is attempting to broaden its potential investor base in the hope that it might be able to tap some such investors, which might be ineligible to participate in a private placement of equities in an Indian company, but interested in investing.

Unitech is currently in talks with at least three private equity funds to raise funds. Though it has board approval for raising a maximum of Rs 5,000 crore, Unitech may raise only around Rs 1,500 crore through fresh issuance of shares. Unitech’s shares have fallen close to 95% off its peak recorded in January 2008.

Companies now do not need government permission for raising foreign capital for making downstream investments, in line with the new rules. The new norms do not require companies to seek government nod for downstream investment if the investing company is majority owned and controlled by a resident Indian.

According to the provisions of the Press Note 2 of 2009 announced last month, if an Indian company that is owned and controlled by resident Indian citizens makes investments in another company, the foreign investment in the investing company will not be taken into account for calculating total foreign investment in the company.

Unitech’s board had approved plans to raise Rs 5,000 crore through fresh issuance of securities on December 22, 2008. Following the board resolution and shareholders’ approval, Unitech had sought permission from FIPB, the nodal body for clearing foreign investments, to raise a maximum of Rs 5,000 crore through GDRs. In its application to the foreign investment board, the realty firm had said that it planned to issue 40 crore receipts at a price of Rs 36.78, calculated according to the GDR scheme.

March 9, 2009 : MANY Indian companies are looking for an answer on how best to handle foreign exchange losses, as they prepare to close their books for the year. A fallout of an unexpectedly volatile currency market, these are losses on currency forwards and option deals the companies had struck with banks.

The companies had entered into currency contracts to fix an exchange rate at which they could sell the dollars earned from exports. The contracts were signed when the dollar was trading at much lower levels — 47, or 45, or even 42.

Today, the US currency is trading at over 51. A contract, which promises the exporter an exchange rate of 45 to the dollar, can be a winning deal if the dollar had dipped below 45, to say 44, but it’s a losing one with the greenback having surged to 51 — since the exporter is tied to an unattractive rate, receiving Rs 45 for every dollar he earns, rather than Rs 51 which the market has to offer.

Thousands of such contracts, which will expire after March 31, will have to be accounted for in this year’s balance sheets. If on March 31, the dollar closes at a rate higher than what has been fixed in the contract — and it may well do so, given the state of the market — the deal, in market parlance, will be ‘out of money’. To an accountant, the contract has a mark-to-market (MTM) loss.

Auditors may stick to rule book on MTM loss

IT is similar to buying a stock at Rs 500 in May and accounting for it on March 31, when the scrip has crashed to Rs 100. While in securities investments the rule is clear that this Rs 400 MTM loss has to be ‘provided’ for (or deducted from earnings), in foreign currency derivative contracts, it’s not an open and shut case.

The issue corporates are grappling with is whether to provide for this loss on contracts struck to hedge (or cover the risks of a choppy market). Many of them are engaged in a vigorous discussion with their auditors, trying to explain why this bit of the accounting rules should be skipped. More so, in an unusual year like this.

Interestingly, these losses are not due to some complex exotic derivatives that banks sold to corporates. “There are losses even on plain vanilla contracts. Many companies had entered into options contracts in the past, and there are MTM losses on simple forwards,” said RVS Sridhar, head of markets at Axis Bank.

The Accounting Standards Board, which is looking into the finer points of derivatives accounting, has proposed that MTM losses should be provided only for “speculative contracts”. The Institute of Chartered Accountants of India (ICAI) is expected to look into the matter.

According to the chairman of the Board S Santhanakrishnan, widespread MTM losses could lead to an unnecessary panic and an artificial MTM crisis should be averted.

Under current rules, which have a few grey areas, no provision is needed for MTM losses if the forex contracts are treated for what is known in accounting parlance as ‘hedge accounting’. This does not mean that a corporate can avoid MTM provision only if it has a genuine underlying like actual dollar receivables from exports.

There are other conditions which have to be fulfilled for a contract to qualify as a ‘hedge’ or come under the purview of ‘hedge accounting’. Given the intense scrutiny that auditors find themselves in post Satyam, it is likely that many of them would stick to the rule book and, therefore, insist on these conditions.

“In all likelihood, most companies will have to provide MTM losses. This is because very few companies, I believe, have maintained hedging documents, which is a condition for hedge accounting. And, secondly, companies are likely to fail the effectiveness test, since the market has been highly volatile,” said Sanjay Aggarwal, executive director at KPMG. What he means is that a company will not pass the effectiveness test — a key condition for hedge accounting — if the net loss from changes in MTM arising from the underlying and the hedge instruments breach the range specified in the accounting standards.

Accounting for derivative losses is a fairly new subject for India Inc. A year ago, ICAI had underscored the need for providing MTM losses when several corporates were hit by exotic derivatives, which boiled over into disputes with banks which in many cases ended in outof-court settlements. Once again, several corporates are faced with a similar situation, albeit on a smaller scale.

March 12,2009 : ACCOUNTING and auditing rule-maker Institute of Chartered Accountants of India (ICAI) will meet industry leaders soon to decide whether companies should be exempted this year from the accounting requirement of showing losses on their foreign exchange contracts due to the fluctuations in their market price.

The accounting regulator decided to seek industry views after it faced divergent opinions at its decision making council. ICAI will meet representatives from industry bodies such as the Confederation of Indian Industries, Federation of Indian Chambers of Commerce and Industry and Assocham to take a final call if it should suspend mark-tomarket norms at least for the time being.

“On the basis of representations, a group was constituted to look into the accounting aspects of changes in foreign exchange rates. As there are divergent views within the group, an open meeting will be held with the chambers to look into the issue,” ICAI president Uttam Prakash Agarwal said.

The chambers had objected to ICAI’s announcement in April 2008 asking companies having derivative exposure to account for or disclose their losses incurred on foreign exchange transactions. Their representation claimed that corporate houses having forex exposure will be put into a disadvantage with their balance sheet showing figures that are uncompetitive in comparison to their global competitors.

Accounting experts who have raised their voice against introducing MTM accounting in India immediately, have also said that globally companies are being exempted from these stringent accounting norms, which are typically driven by fair value (current market price as against cost of purchase). MTM is an accounting requirement of assigning a value to a position held in a financial instrument based on the current market price of the instrument.

A senior chartered accountant who has been lobbying in favour of suspension of the mark-to-market accounting norms, on conditions of anonymity, said, “MTM accounting pre-supposes that there is an open, fair and knowledgeable market. The markets in the present conditions is not normal, it is artificially distorted across the world and the values represented today are not representative values.”The ICAI in March last year had suggested that companies should either adopt the derivative accounting format under Accounting Standard (AS) 30 on financial instruments’ recognition and measurement, or mark-to-market all outstanding derivative contracts on the balance sheet date.

March 12,2009 : ACCOUNTING and auditing rule-maker Institute of Chartered Accountants of India (ICAI) will meet industry leaders soon to decide whether companies should be exempted this year from the accounting requirement of showing losses on their foreign exchange contracts due to the fluctuations in their market price.

The accounting regulator decided to seek industry views after it faced divergent opinions at its decision making council. ICAI will meet representatives from industry bodies such as the Confederation of Indian Industries, Federation of Indian Chambers of Commerce and Industry and Assocham to take a final call if it should suspend mark-tomarket norms at least for the time being.

“On the basis of representations, a group was constituted to look into the accounting aspects of changes in foreign exchange rates. As there are divergent views within the group, an open meeting will be held with the chambers to look into the issue,” ICAI president Uttam Prakash Agarwal said.

The chambers had objected to ICAI’s announcement in April 2008 asking companies having derivative exposure to account for or disclose their losses incurred on foreign exchange transactions. Their representation claimed that corporate houses having forex exposure will be put into a disadvantage with their balance sheet showing figures that are uncompetitive in comparison to their global competitors.

Accounting experts who have raised their voice against introducing MTM accounting in India immediately, have also said that globally companies are being exempted from these stringent accounting norms, which are typically driven by fair value (current market price as against cost of purchase). MTM is an accounting requirement of assigning a value to a position held in a financial instrument based on the current market price of the instrument.

A senior chartered accountant who has been lobbying in favour of suspension of the mark-to-market accounting norms, on conditions of anonymity, said, “MTM accounting pre-supposes that there is an open, fair and knowledgeable market. The markets in the present conditions is not normal, it is artificially distorted across the world and the values represented today are not representative values.”The ICAI in March last year had suggested that companies should either adopt the derivative accounting format under Accounting Standard (AS) 30 on financial instruments’ recognition and measurement, or mark-to-market all outstanding derivative contracts on the balance sheet date.

March 13, 2009 : NEW DELHI: The National Environment Appellate Authority has dismissed an appeal against the implementation of Reliance Power’s (RPL) 4000 MW power project at Shahapur in Maharashtra. The order has paved the way for execution of the power plant, an RPL spokesperson said. Shetkari Sangharsh Samiti, a representative organisation of local farmers, had filed an appeal against the government’s decision to give environmental and coastal regulation zone clearances to Maharashtra Energy Generation, an SPV of Reliance Power, to execute the project.

March 9, 2009 : TAX liability of expatriate employees responsible for operations of a company in India as well as other countries in the region could go down substantially with a tax tribunal ruling that they need not pay tax on salary earned outside India for work unrelated to Indian operations.

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that if the expat employee is able to substantiate that he has not performed any activity relating to Indian operations while working outside India, the salary for those days would not be taxable here. “Based on this ruling a position could be taken that individual is not taxable for the period for which he has rendered service outside India. But, the documentary evidence would be critical for taking this position,” said Vikas Vasal, executive director (tax and regulatory services), KPMG.

The Income Tax Appellate Tribunal ruling relates to a case pertaining to Ellis D’ Rozario, an expat employee of Dubai-based Master Foods Middle East FZE. The company had posted Mr Rozario, an Australian national, as regional manager for the Indian sub-continent at its New Delhi liaison office. According to the employment contract between Mr Rozario and the company, he had to travel outside the country to look after the regional operations, a common practice followed by most multinational companies. The expat was a ‘resident but not ordinarily resident’ for the relevant tax year 2000-01.

According to the Income Tax Act, an individual is a resident in a previous year (the year for which tax liability is being calculated) if he has been in India during that year for 182 days or more. He is also treated as a resident if he is in India for 60 days or more in a year provided that he has also been in India for 365 days or more in the preceding four years.

The income-tax department contended that the salary received during Mr Rozario’s visits outside India was liable to tax , as he also took updates or debriefs in respect of the Indian operations during the visit. Moreover, according to the employment contract, the expat was based in India, from where he rendered services to the company.

This was disputed by the taxpayer saying that the services performed outside India were unrelated to the Indian operations of the company and thus not liable to tax .

However, since the expatriate employee had not submitted any documentary evidence in respect of work done outside India for regional operations, the tribunal restored the matter to tax authorities for determining it.

February 16,2009: ALTHOUGH the monitoring could be too cumbersome, as FII holdings in listed companies keep changing on everyday basis, the modalities are being worked out,” a senior commerce and industry ministry official said.

Compliance will include seeking approval from the government and if necessary, the foreign companies will need to divest their investment equal to the amount by which the cap is being exceeded in accordance with the new guidelines. In the case of companies which do not comply with the new norms before the deadline, they are liable to face action under Foreign Exchange Management Act (FEMA) regulations. All such companies would be asked to furnish compliance reports to the DIPP, the FIPB and the Sebi. They would also have to inform the ministry dealing with the sector concerned.

After the deadline, the government will start scrutinising the holding patterns of companies for ensuring compliance with the new FDI rules. Companies seeking permission to infuse fresh foreign investment would also have to fully disclose their holding patterns. In case Indian investors have any agreement conferring ‘beneficial interest’ on non-resident entities, it has to be disclosed. Beneficial ownership for this purpose would be specified under Section 187 C of the Companies Act. These ‘additional conditions’ would be incorporated in FDI guidelines by the DIPP through press notes that would be issued shortly.

According to the new norms, investments by a company owned and controlled by an Indian or having a majority Indian stake will be counted Indian. Investments by any company which has a majority foreign stake will be considered entirely as FDI . The only exception will be when a JV company creates a wholly-owned subsidiary in India. In that situation, the foreign stake in the subsidiary company will be considered as equal to the stake in the holding company.

An Indian company, according to the press note, would be deemed controlled by non-resident if foreign entities have the power to appoint majority directors on board. The new rule will not apply to sectors including insurance, the officials clarified

March 3, 2009 : THE advisors to the proposed merger of Reliance Petroleum with its parent Reliance Industries gave 40% weightage each to the market price and earnings multiple and 20% to the net asset value of the companies for arriving at the valuation of the amalgamation, according to people who advised on the transaction. “The valuation is fair and reasonable. We have assigned due weightage to relevant factors such as the market price of the shares, the earnings performance and the asset base of the companies,” said Rajiv Memani, country managing partner of Ernst & Young, which, along with Morgan Stanley, advised on the valuation of the merger.

On Monday, the RIL board approved the swap ratio of one share of RIL for every 16 shares held in RPL.

The valuation was a challenge as RPL started operating over a month ago, while RIL had a more established manufacturing facility, said Mr Memani. The two major factors that were considered included the financial performance and future potential of the companies. There wasn’t much information about forecasts. So, the current year-end figures were used to arrive at the operating EBIDTA for both companies. The three-month weighted average stock price was also taken into consideration.

The erstwhile HLL had followed the 40:40:20 ratio while merging Tomco with itself in 1994. This was duly ratified by the Supreme Court in 1994. Since then, the ratio has become a benchmark of sorts for similar cases.

RIL and RPL have obtained fairness opinion on the valuation of the merger as well. “This is the first instance of such a big transaction obtaining the fairness opinion after Sebi made it mandatory in September last year,” said Sameer Nath, head - M&A, Citi Investment Banking. A fairness opinion is a professional evaluation by a third party to determine whether the terms of a merger, acquisition, buyback etc are fai