1. TRANSACTION ADVISORS
Missive
Volume XII – March 2012

2. Topics Page No
Dear Patron Corporate law 1
FEMA 2
Here we are with the Twelfth successive issue of our monthly ‘Missive’. SEBI 5
Other Regulatory 8
We trust you will enjoy reading this Missive, even while soaking in the contents. We International Taxation 9
would very much appreciate your feedback which consistently helps us in improving Transfer Pricing 9
and upgrading the contents. Recent Transactions that 10
made headlines
Thanks and regards,
Akhil Bansal
Editor, Knowledge Management Team
If you can dream it…
….you can do it !!!

3. Corporate Law
Clarification regarding Filing of conflicting ROC returns by contesting Role-check for the Digital Signatures (DSCs) belonging to authorized
parties signatories of Banks / Financial Institutions.
Earlier, Ministry vide circular No. 19 and 20 of 2011 issued on The Ministry has already introduced role-check of DSCs for Directors of
02.05.2011 laid down certain procedure to regulate cases wherein the companies from the Director Identification Number (DIN) database
filing of conflicting returns with regard to appointment of Directors or and Professionals (Company Secretary/ Chartered Accountant/ Cost
change of Director/Directors was laid down. In the light of some Accountant) from the database taken from the respective Institutes.
specific cases wherein it appears that either there was lack of consent Following the same process, a mechanism has been formulated to
of the removed/changed director or due process of Law were not implement a similar role-check to establish the veracity of authorized
followed, Ministry has issued a new circular to supersede those signatories of Banks and Financial Institutions, which is important for
circulars. charge related services.
Now, in order to avoid such eventualities wherever there is The Banks and Fls advance credit to the companies and create a charge
management dispute, the company is required to mandatorily file the on the assets so financed. The charges so created are required to be
attachment relating to cause of cessation along with Form 32 with the registered with the ROC in order to be a secured creditor. The
ROC concerned irrespective of the ground of cessation, viz (a) registration/ modification/ satisfaction of a charge are filed with the
retirement; (b) disqualification; (c) death; (d) resignation; (e) vacation Registrar through the prescribed form which has to bear the Digital
of office u/s 283 or 313 or 260; (f) removal u/s 284; (g) withdrawal of Signatures of the company representative as well as that of the
nomination by appointing authority or (h) absence of re-appointment. Authorized Signatory from the Bank/ FL. The role-check in respect of
In case, any Director is aggrieved with his cessation in the company, he the Authorized Signatory from the Bank/ Fl is required to ensure that
may file complaint in the Investor Complaint Form. the DSC applied is actually the Digital Signature of the authorized
person.
[Ministry of Corporate Affairs General Circular No. 1/2012 Dated the
10th February 2012] [No. HQ,/ 104/ 2007 – Computerisation Dated the 17.02.2012]
Impact: Till such dispute is settled, the documents filed by the Impact: In view of critical nature in respect of charge related services,
company and by the contesting groups of Directors will not be all Banks and Financial Institutions are now requested to follow the
approved/registered/recorded and will thus not be available in the Role-check process devised and published through this Circular.
registry for public viewing.
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4. MCA to receive from SEBI, names of over 500 companies who FEMA
violated CIS rules
External Commercial Borrowings (ECB) for Infrastructure within
Market regulator SEBI has decided to share with the Ministry of National Manufacturing Investment Zone (NMIZ)
Corporate Affairs the names of over 500 companies, which have
garnered money from investors in violation of its Collective Investment As per the guidelines, availing of ECB is permissible for the
Scheme (CIS) rules. SEBI would also give the names of the directors of infrastructure sector, which is defined to include certain sectors.
such entities to the MCA, so that necessary actions can be taken to Keeping in view the infrastructural needs of the proposed National
prevent these companies and persons from being associated with any Manufacturing Investment Zones (NMIZs), it has now been decided to
new company. allow developers of NMIZ also to avail of ECB under the "approval
route" for providing infrastructure facilities within the NMIZ.
Impact: While hundreds of the companies have engaged in the CIS
activities in the country, just one such entity is registered with SEBI to [RBI A. P. (DIR Series) Circular No.85, Dated: February 29, 2012]
undertake such kind of business. Generally, the operators of such
schemes offer impressive returns in their initial days to lure Impact: The modifications to the ECB policy will come into force with
unsuspecting investors and then suddenly disappear after some time, immediate effect. All other aspects of the ECB policy, such as,
leaving their investors in a lurch. recognised lender, average maturity, all-in-cost, prepayment,
refinancing of existing ECB and reporting arrangements shall remain
There is an urgent need to have one single principal regulator to deal unchanged.
with all the cases where pooling of money is taking place and
investments are made.
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5. External Commercial Borrowings – Reduction in amount, all-in-cost of Purchase of Immovable Property in India – Reporting requirement-
ECB and Changes/modifications in the drawdown schedule. Clarification
As a measure of simplification of the existing procedures, it has been In terms of existing regulation, when a person resident outside India,
decided to delegate powers to the designated AD category-I banks to who has established in India in accordance with the Foreign Exchange
approve the following requests from the ECB borrowers, subject to Management (Establishment in India of Branch or Office or other Place
specified conditions: of Business) Regulations, 2000, a branch, office or other place of
business, excluding a liaison office, acquires any immovable property in
1. Reduction in amount of ECB: India in accordance with the provision of said regulation, the said
person has to file with the Reserve Bank a declaration in the form IPI
2. Changes/modifications in the drawdown schedule when annexed to those regulations, not later than ninety days from the date
original average maturity period is not maintained: of such acquisition. As the form is required to be submitted by such
persons only, the form is suitably amended to reflect the position.
3. Reduction in the all-in-cost of ECB
It is clarified that the extant regulations do not prescribe any reporting
[A.P. (DIR Series) Circular No. 75 February 07, 2012] requirements for transactions where a person resident outside India
who is a citizen of India or a Person of Indian Origin (PIO) as defined in
Impact: The above modifications to the ECB guidelines will come into Regulation 2(c) of Notification No. FEMA 21/2000-RB, ibid, acquire/s
force with immediate effect. All other aspects of the ECB policy, such immovable property in India in accordance with the said provisions of
as, USD 750 million limit per company per financial year under the the aforesaid Notification. Form IPI has been, accordingly, amended for
automatic route, eligible borrower, recognized lender, end-use, all-in- greater clarity.
cost ceiling, average maturity period, prepayment, refinancing of
existing ECB and reporting arrangements shall remain unchanged. Impact: RBI has made this clarification for non residents, who are
established in India and need to purchase a property. There is a
reporting system introduces by RBI and all buyers excluding person
resident outside India who is a citizen of India or a Person of Indian
Origin (PIO) need to report the RBI, in maximum 90 days from the day
of purchase.
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6. RBI allows exporters to receive advance payment for export of goods Increase in limit to USD 5,000 for foreign exchange remittance
which would take more than one year to manufacture and ship. towards imports without any documentation formalities.
At present, prior approval of the Reserve Bank is required to be At present, payments exceeding USD 500 or its equivalent made by
obtained by an exporter for receipt of advance where the export persons, firms and companies towards imports into India must be
agreement provides for shipment of goods extending beyond the made in Form A-1. Based on suggestions received from the various
period of one year from the date of receipt of advance payment. stake holders, the said limit has been reviewed and it has been decided
as a measure of liberalization to raise the above limit for foreign
With a view to liberalizing the procedure, it has been decided to permit exchange remittance towards imports without any documentation
AD Category- I banks to allow exporters to receive advance payment formalities, from USD 500 or its equivalent to USD 5000 or its
for export of goods which would take more than one year to equivalent, with immediate effect.
manufacture and ship and where the ‘export agreement’ provides for
shipment of goods extending beyond the period of one year from the [RBI/2011-12/404 A.P. (DIR Series) Circular No. 82 February 21, 2012.]
date of receipt of advance payment subject to certain conditions.
[RBI/2011-12/403 A.P. (DIR Series) Circular No.81 February 21, 2012]
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7. SEBI
SEBI notifies Institutional Placement Programme (IPP) norms to help Offer for sale by promoters through stock exchange mechanism (OFS)
promoters dilute stake
SEBI has permitted BSE and NSE to provide a separate window, i.e.
In a move that could expedite government’s disinvestment process, apart from the existing trading system for the normal market segment,
the market regulator SEBI notified the IPP guidelines that will allow to facilitate promoters of listed companies to dilute/offload their
companies to reduce promoter shareholding through private holding in listed companies in a transparent manner with wider
placement. As per new norms for Institutional Placement Programme participation. The minimum size of OFS should be as follows:
(IPP) of shares, even the companies would be allowed to issue fresh
equity to institutional investors to dilute stake of promoters. A Minimum size of OFS / Dilution Paid-up share capital
company will be allowed to dilute only 10 per cent of its equity through 1% of paid-up share capital, More than Rs. 25 crore at
sale of promoter stake or issuance of fresh equity. subject to a minimum of Rs. 25 closing price on the specified
crore date*
The issue, according to the norms, would remain open for a maximum 10% of paid-up share capital or Less than Rs. 25 crore at closing
of 2 days and the aggregate demand schedule would have to be such lesser percentage so as to price on the specified date*
displayed by the stock exchanges without disclosing the price. achieve minimum public
shareholding in a single tranche.
For coming out with an IPP, the guidelines said, the issuer would be * Specified date means the last trading day of the last completed quarter.
required to obtain an in-principle approval from the stock exchanges
and file the offer document with BSE, NSE and SEBI. [CIR/MRD/DP/ 05/2012 February 1, 2012]
Impact: The IPP norms are broadly similar to QIP. But the 10 per cent Impact: The Circular is an additional window (other than the “block
limit for stake sale can create roadblocks for companies where deal” window) available on the Stock Exchanges for specific purposes
promoters hold above 85 per cent stake. There auction will become mentioned above. The Stock Exchanges will have to issue a list of top
compulsory after IPP. 100 companies based on average market capitalization of the last
completed quarter after the completion of every quarter. There is no
While any company can come out with a Qualified Institutional mandatory requirement under the Circular to appoint a SEBI
Placement (QIP), IPP will be permitted only for reducing promoter registered merchant banker for conducting OFS. The Sellers and the
shareholding. As per government norms, at least 10 per cent of the buyer(s) will have to comply with the applicable reporting
shareholding in all listed state-owned companies should be with the requirements prescribed under the Regulations and under the SEBI
public by June 2013, though in the case of private sector companies it (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
has to be 25 per cent.
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8. SEBI (Buy-back of Securities) (Amendment) Regulations, 2012 SEBI amends Equity Listing Agreement – Amendment in Clause 40A,
43, 43A
Market regulator SEBI modified norms for share buyback through the
tender offer route under which companies will have to reserve 15 per Securities and Exchange Board of India (SEBI) vide Circular no.
cent of the offer for small shareholders. CIR/CFD/DIL/1/2012 dated February 8, 2012 has issued a circular on
amendments to the Equity Listing Agreement. In the said circular, SEBI
"15 per cent of the number of securities which the company has directed the Stock Exchanges to give immediate effect to the above
proposes to buy back (through tender offer)... shall be reserved mentioned amendments and appropriately amend the relevant clauses
for small shareholders," - Securities and Exchange Board of of Equity Listing Agreement in line with the text of the amendments.
India (Buyback of Securities) (Amendment) Regulations 2012.
As per the circular, it has been decided to amend following clauses of
Small shareholder refers to a shareholder who holds shares not the Listing Agreement –
exceeding Rs Two Lakh of a listed company. The buyback process
through the tender offer route can be completed within 41 days of the Clause 40A - In addition to the existing methods which listed company
board approval. As per the guidelines, a company would have to can adopt to achieve minimum public shareholding, the listed company
publish advertisement in newspapers within 2 days after securing may also achieve the minimum level of public shareholding through
board approval for the buyback and after 5 days it has to file the offer Institutional Placement Programme (IPP) in terms of Chapter VIII-A of
document with the SEBI. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
as amended.
As per the notification, the offer for buyback shall remain open for 10
working days and within 7 days the company would have to pay the Clause 43 & 43A – In order to enhance disclosure requirements, listed
buyback amount to the shareholders. entities have been mandated to disclose utilization of funds raised
upon conversion/ exercise of warrants issued along with public or
Impact: At present there are two ways by which a company can come rights issue of specified securities.
out with a buyback - open market and tender offer. While in open
market offer companies can buyback shares from shareholders
without knowing the buyer, under tender offer the company has to
write to every shareholder saying it is willing to buyback shares in
proportion to the issue. Private companies are unlikely to take the
tender offer route to buyback as the process is tedious and time
taking. The guideline is more theoretical. Companies are likely to
execute buyback through the open market route.
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9. SEBI enhances minimum investment amount in Portfolio Transfer of shares within promoter group of a company would be
Management Scheme to Rs 25 Lakhs considered as an equity sale – SEBI
With a view to keeping retail investors away from the portfolio SEBI has said that any transfer of shares even within the promoter
management schemes (PMS), SEBI raised the minimum investment group of a company would be considered as an equity sale, when it
amount of clients for such schemes to Rs 25 lakh from the earlier Rs 5 comes to promoters getting a preferential treatment for allotment of
lakh. PMS offers investors a range of specialised investment strategies fresh shares or warrants. The issuer shall not make preferential issue of
to capitalise on opportunities in the market and made suitable to the specified securities to any person who has sold any equity shares of the
needs of individual clients. It added that existing investments of clients issuer during the six months preceding the relevant date. Accordingly,
can continue as such till maturity of the particular investment. the promoters of a listed company would not be eligible for
preferential allotment of shares or warrants, if there has been any
Impact: SEBI’s enhancement of the minimum limit will help in inter-se transfer of shares among the promoter group firms in last six
concentration of quality investors in PMSs and will help them secure months. SEBI has made its stance clear in this regard in an informal
qualified and good service. PMS regulations are light touch regulation guidance sought by pharma company Strides Arcolab Ltd.
and SEBI was worried that retail investors are being drawn into it
whereas their interest are not as tightly protected or guarded as it is Impact: Thus, as per the extant regulations, if there is any inter-se
in mutual fund regulation. With the amendments, SEBI has tried to transfer among the promoter group entities in the preceding six
synchronise the PMS rules with actual reality of the present time. months, then all the persons/entities forming part of ‘promoter(s)
and promoter group’ shall become ineligible for allotment of
specified securities on preferential basis.
SEBI standardize lot size for IPO propose to list on SME
exchange/platform and for secondary market trading on such
exchange/platform [CIR/MRD/DSA/06/2012 dated February 21,
2012]
SEBI vide circular dated May 18, 2010 prescribed the framework for
setting up of a stock exchange/trading platform by a recognized stock
exchange having nationwide trading terminals for Small and Medium
Enterprises (SMEs).
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10. Other Regulatory mergers or amalgamations involving enterprises wholly owned by
the group companies.
Competition Commission of India (Procedure in regard to the
transaction of business relating to combinations) Amendment It is also pertinent to note that not all intra-group
Regulations, 2012 mergers/amalgamations have been exempted and some of them
would still require a notice to the Commission. Only intra-group
The Competition Commission of India (CCI) has notified changes to its mergers or amalgamations between a parent and a subsidiary that
merger control guidelines. is wholly owned by group companies of the parent, or between
two subsidiaries that are wholly owned by companies belonging to
§ Increase in shareholding limit for exempt acquisitions: the same group, are now exempt. This is in contrast to the
exemption provided under the Combination Regulations for intra-
The Amendment Regulations exempt acquisitions that do not group acquisitions which equally applies to all entities within the
entitle the acquirer to hold 25 per cent or more of the total shares same group irrespective of their ownership patterns.
or voting rights of the target in the ordinary course or for
investment purposes, while not acquiring control. The earlier § Other exemptions
threshold of 15 per cent has been increased to bring it in line with
the SEBI Takeover Regulations. While assessing the 25 per cent Acquisitions of shares and voting rights pursuant to a buy-back are
threshold, the Commission may now consider instruments (at the now exempt, as long as such acquisitions do not lead to an
time of their issuance) that entitle the acquirer to hold more than acquisition of control. Additionally, subscriptions to rights issues of
25 per cent at a future date. shares, not leading to acquisition of control, are now exempt, even
if they are in excess of the acquirer’s entitled proportion.
Under SEBI Takeover Regulations, the acquisition up to 24.99 per
cent is exempted from requirement of open offer. However, SEBI At the expiry of nine months, the CCI (Commission) has cleared 30
continues to keep convertibles out while determining a combination notifications without raising any competition issue. It
“substantial acquisition” or “change in control” trigger breach. The claims the amendments are aimed at making filings simpler.
convertibles are considered by SEBI only at the time of their
conversion into shares or voting rights.
§ Intra-group mergers
To reduce the compliance burden on the companies in respect of
intra-group restructuring, the Amendment Regulations have now
dispensed with the requirement of filing a notice for intra-group
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11. International Taxation Transfer pricing
§ TPO can rely on ‘contemporaneous’ data even if not available
§ Trading by way of re-export of imported goods from SEZ
at specified date – ITAT Bangalore [Kodiak Networks (India)
eligible for tax deduction under section 10AA [DCIT v. Goenka
Pvt Ltd vs. ACIT (ITAT Bangalore)]
Diamonds and Jewellers Ltd(ITAT Jaipur)
§ Sharing of net revenues consistently in controlled and
§ Consideration for transfer of limited right to use the know-how
uncontrolled transactions held as a valid comparable
taxed as royalty income [Atlas Copco AB of Sweden v. CIT
uncontrolled price [ACIT Vs. Agility Logistics Pvt. Ltd.(ITAT
(Bombay High Court)]
Mumbai)]
§ Business support services of advisory nature under a cost
§ Non-charging of interest in the controlled transactions is
contribution agreement are consultancy services liable to tax
comparable with that of non-charging from the uncontrolled
withholding [Re Shell Technology India Private Limited (AAR)]
transactions, no transfer pricing adjustment can be made on
this count [The Dy.Commissioner of Income-tax Vs. M/s.Indo
§ Business income accruing or arising to the applicant can be
American Jewellery Limited]
taxed in India only in respect of such operations carried out in
India [CTCI Overseas Corporation Ltd. In Re (AAR)]
§ Payment for shrink wrapped software/ off-the-shelf software
amounts to ‘royalty’ [CIT v. Synopsys International Old Ltd
(Karnataka High Court)]
§ Overseas subsidiary with single shareholder is a separate legal
entity for tax purposes [AIA Engineering Ltd v. Add CIT (ITAT
Ahmedabad)]
§ Payment of commission to Indian agent at arm’s length price
does not relieve non-resident from further attribution of
profits to PE in India [MTV Asia LDC Vs. DCIT ITAT]
§ Payments received by the applicant from the distributor for
sale of software product is in the nature of royalty [Citrix
Systems Asia Pacific Pty. Ltd.(AAR)]
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12. Recent Transactions that made the Headlines
§ LIC plans to acquire 5% stake in Punjab & Sind Bank: reports
§ RIL-BP in talks to acquire stake in LNG import terminal: reports
§ Kellogg Company to acquire P&G's Pringles for US$2.9bn
§ ITC acquires 4.62% in Hotel Leela from Russell Credit
§ Mahindra Satyam plans to acquire 2-3 firms: reports
§ Zensar Technologies plans global buys: reports
§ HDFC stake sale-Citi takes home US$2bn
§ Muthoot Finance may sell upto 10% stake: reports
§ IL&FS Investment in talks to buyout Hershey stake in JV: report
§ ONGC Offer for Sale completed: BSE, NSE
§ Premji's fund acquires 7% stake in Fabindia for Rs. 1-1.25bn:
reports
§ Tech Mahindra, Mahindra Satyam appoints JP Morgan as
bankers for merger process: reports
§ ITC Chairman YC Deveshwar sells shares worth Rs. 58mn
§ LIC reduces 2.06% stake in Tata Global: report
§ Shell announces US$1.57bn bid for Cove Energy
§ Vodafone mulls bid for C&W Worldwide
§ ING to sell Asia insurance JVs separately: reports
§ BP to sell Kansas gas assets for $1.2 bln: reports
§ Kodak sells online business to Shutterfly: reports
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TRANSACTION ADVISORS
This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared
for the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in this
publication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express or
implied) is given as to the accuracy or completeness of the information contained in this publication