TRANSACTION ADVISORS      MissiveVolume II – May 2011
Dear PatronAt the outset, we would like to thank everyone for their generous wishes on launch of ourinaugural “monthly mis...
Corporate Law                                                                           opportunity to every shareholders ...
§   Mere fact that a company is doing business in India or that it is a party to        FEMA    a joint venture in India w...
Impact: The central registry has been setup to prevent frauds in loan                    business at the click of a mouse ...
floated by governments of rich countries more headroom when they buy             §   Taxpayer holding tax residence certif...
News Snippets                                                                          shortly to manage its huge corpus o...
©Copyright AMinds Advisors Private Limited , All rights reserved                                                          ...
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Mergers & Acquisitions Newsletter - May 2011


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Attached Newsletter is an attempt to cover monthly issues relevant in the context of transactions - covers SEBI, Companies Act, Income Tax, Stamp duty and other regulatory changes

Published in: Economy & Finance, Business
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Mergers & Acquisitions Newsletter - May 2011

  1. 1. TRANSACTION ADVISORS MissiveVolume II – May 2011
  2. 2. Dear PatronAt the outset, we would like to thank everyone for their generous wishes on launch of ourinaugural “monthly missive”.India is an emerging market with huge potential and it is going to be one of the core marketsfor lot of Multi-nationals. Interestingly, the country is becoming a hub of both in-bound andout-bound mega mergers and acquisitions (M&A) deals, private equity (PE) transactions and Topics Page Noa thriving venture capital (VC) industry. The government is continuing to do its bit so that the Corporate Law 1steam doesn’t get lost. SEBI 2 FEMA 2The month of April has been witnessing the same kind of momentum on the regulatory front Regulatory 3as was in the month of March. MCA seems to be in kind of an overdrive to step up the Direct Taxes & Transfer Pricing 4reforms process. While last month was for simplification of the procedural compliances, an Recent News in Transactions 5important step that went unnoticed was the clean drive wherein E-mail communication has that made headlinesbeen accepted for sending annual reports, notices, etc thus preventing cutting of millions oftrees annually. Another significant news that came during the month was the governmentintention to provide single window for registration under various laws for MNCs setting upshop in India. The year is surely going to witness some more action with governmentcommitted for reforms process.Thanks and regardsAkhil BansalEditor, Knowledge Management Team
  3. 3. Corporate Law opportunity to every shareholders to register their e­mail address and changes therein from time to time with the companyPAN Mandatory for obtaining DIN, those already having DIN need to submitPAN by May 31st, 2011 [General Circular No 11/2011, Dated April 7th, 2011] Director’s Relatives (Office or Place of Profit) Amendment Rules, 2011PAN of the applicant was not a mandatory field in DIN eform-1. In order to The Directors relatives (office or Place of Profit) Rules, 2003 provides thatexamine DIN-4 eform through the system and to avoid duplicate DIN, it has approval of central Government shall be required for cases where thebeen decided that all existing DIN holders who have not furnished their PAN remuneration exceeds Rs 50,000 p.m. Amendment has been made in rule 3earlier at the time of obtaining DIN, are required to furnish their PAN by filing wherein the amount has been increased to Rs 2,50,000 p.m. Further ruleDIN-4 eform by May 31st, 2011. regarding selection of relative director through approval of selection committee has been amended to make it applicable only for listed public companies.Impact: Foreign Directors who have been sitting on the board ofIndian companies will now have to obtain PAN even if they have not Impact: These amendments have been introduced by the MCA in linebeen drawing any remuneration with the current economic scenarios. The circulars increasing theReporting Limit u/s 217(2A) of the Companies Act, 1956 has been raised vide limits show MCA’s intent of capturing only those employees’ orCompanies (Particulars of Employees) Amendment Rules, 2011 Directors to whom huge payments are being made by the Companies.Ministry of Corporate Affairs has enhanced the limits for the purpose of Export of Goods and Software – Realisation and Repatriation of exportdisclosure of particulars of employees in Directors Report from the existing proceeds – Liberalisation - RBI/2010-11/457 A.P. (DIR Series) Circular No. 47limit of INR 24 lakh per year or INR 2 lakh per month to INR 60 lakh per year or dated March 31, 2011INR 5 lakh per month and by such notification also covers GovernmentCompanies for such disclosures. The relaxation provided in the realization and repatriation of export proceeds on exported goods and software has been extended to September 30, 2011.Green Initiatives in Corporate Sector -clarification regarding service ofdocuments by e-mode instead of Under Posting certificate (UPC) [Circular News SnippetsNo. 17/2011] § Simplified Procedure for amalgamation of Government Companies U/sIt is hereby clarified by MCA that a company would have complied with 396 of the Companies Act, 1956 have been laid down [General CircularSection 53 of the Companies Act, if the service of document has been made No. 16/2011]through electronic mode provided the company has obtained e-mail addressesof its members for sending the notice/documents by giving an advance § Revised simplified procedures for dealing with applications under Easy Exit Scheme (EES) have been issued vide General Circular No-12/2011 1
  4. 4. § Mere fact that a company is doing business in India or that it is a party to FEMA a joint venture in India would not mean that it has established a place of business in India [Bombay High court] Liberalisation of advance remittance for import of goods [A.P. (DIR Series) Circular No. 56, April 29, 2011]§ In the absence of specific provisions Companies not to pay stamp duty on increased capital [Delhi High court] AD Category – I banks are required to obtain an unconditional, irrevocable standby Letter of Credit (LC) or a guarantee from an international bank of§ Government is considering sweeping changes in the Companies Act and repute situated outside India or a guarantee of an AD Category – I bank in other laws to identify the ‘beneficial ownership’ of assets, including India, if such a guarantee is issued against the counter guarantee of an companies, as opposed to legal owners, to counter the menace of black international bank of repute situated outside India, for an advance remittance money and money laundering. exceeding USD 100,000 or its equivalent. With a view to liberalising the procedure, RBI has enhanced the aforesaid limit of USD 100,000 to USD§ MCA is working on a set of measures to lift the veil on the complex ways 200,000 or its equivalent. in which certain companies structure themselves, taking advantage of loopholes in the law, for protecting the interests of the shareholders. Setting up of Central Electronic Registry under the SARFESAI Act, 2002 [RBI /2010-11/484 DBOD.Leg. No.BC. 86/09.08.011 /2010-11 dated April 21, 2011]SEBI The Central Registry of Securitisation Asset Reconstruction and SecurityNews Snippets Interest of India (CERSAI), a Government Company licensed under section 25 of the Companies Act 1956 has been incorporated.§ SEBI to set rules for art funds, antique investments Initially transactions relating to securitization and reconstruction of financial§ SEBI tells listed cos to run updated websites from April 1, 2011 assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under§ Non-retail investors to mandatorily use ASBA facility the SARFAESI Act, are to be registered in the Central Registry. The records [CIR/CFD/DIL/1/2011 , Dated- April 29, 2011] maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. In this regard, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 have also been framed. 2
  5. 5. Impact: The central registry has been setup to prevent frauds in loan business at the click of a mouse but is also going to guarantee approvalscases involving multiple lending from different banks on the same in a specified number of days. In all, around 35 approvals from authoritiesimmovable property ranging from municipalities, state government agencies and the Centre are required to start a business. These could include registration underEnhancements in limits of foreign investments in India by SEBI registered FIIs the Companies Act and the Shops & Establishment Act to registration forin other securities [A.P. (DIR Series) Circular No. 55, April 29, 2011] VAT and with the Income Tax authorities.The FII investment limit in listed non-convertible debentures / bonds, with a § SEBIs recent directive to Vedanta Resources and Cairn Energy to drop theresidual maturity of five years and above, and issued by Indian companies in put and call options, and pre-emption right clauses from their originalthe infrastructure sector have been enhanced by an additional limit of USD 20 deal agreement is likely to impact the future of mergers and acquisitionsbillion taking this limit from USD 5 billion to USD 25 billion. of listed companies in India. The capital market regulators directive in the $9.6-billion Cairn-Vedanta deal will make both foreign and domesticImpact: Enhancing the limits of investment in the bonds of the companies apprehensive about the enforceability of put and call options and pre-emption right clauses that are common in share purchaseInfrastructure Companies, the RBI has ensured increased FII Inflow in agreements of companies and private equity investorsthis sector which is necessary for the economic growth § Government to introduce amendments to the Benami Transactions (Prohibition) Act, which will give it the power to confiscate any propertyRegulatory that is declared benami. Although the Parliament had passed a law in 1988 prohibiting benami deals, it was never implemented as the rules§ Arbitration clause in a contract would not exclude the power of the high were not framed. Any property transaction used to launder illicitly earned courts or the Supreme Court to decide disputes between the parties money will, after an amendment in the Prevention of Money Laundering [Supreme court] Act, attract harsher punishment.§ The pension regulator PFRDA has staked a claim to the pension schemes § Delhi High Court sanctions Vodafone Essar’s scheme of arrangement of insurance companies, setting the stage for a turf war with the involving demerger of the passive infrastructure assets despite insurance regulator that recently won a tussle over supervision of unit- opposition by tax department linked plans with the stock market watchdog. The matter has been referred to the Financial Stability and Development Council, the § Sovereign wealth funds (SWFs), which have emerged as formidable global regulatory dispute settlement body. investors and often evoke concerns in countries where they put in money, will soon have a greater play in India. The finance ministry and§ Government is set to launch a project that will not just provide regulators are going to change the rules to give these investment funds entrepreneurs the opportunity to seek all clearances for starting a 3
  6. 6. floated by governments of rich countries more headroom when they buy § Taxpayer holding tax residence certificate is eligible for the India- shares in listed Indian companies. Mauritius tax treaty benefits [AAR]§ Government is planning 100 per cent foreign direct investment in sea § Payment made for transfer of comprehensive technical information and plane operations as there is scope of phenomenal growth of sea plane, know-how which included all trade secrets and technical information, general aviation and helicopter travel. designs and drawings, etc. cannot be treated as income from royalty under the India-UK tax treaty [Delhi High court]§ Government plans an umbrella law to tighten financial scrutiny and regulation of religious trusts and non-profit organisations as it looks to § Corporate veil can be lifted to tax sale of Foreign Company shares by one allay global concerns about money laundering and terrorist financing Non-Resident to another Non-Resident if Foreign Co holds shares in activities by such entities. Indian Company [Karnataka High court]§ In view of the risks involved in NBFCs associating themselves with § Section 79 has no applicability to a case of amalgamation of 98% partnership firms, it has been decided to prohibit NBFCs from shareholder company with the Taxpayer where the amalgamated and the contributing capital to any partnership firm or to be partners in amalgamating companies are held by the same set of shareholders with partnership firms. In cases of existing partnerships, NBFCs may seek early whom control of the taxpayer continues to remain. [Delhi ITAT] retirement from the partnership firms. [RBI/2010-11/453 DNBS.PD/ CC.NO. 214/03.02.002/2010-11 dated March 30, 2011] § Fees received by Canadian company for providing technical drawings and reports would qualify as Fees for Included Services under India-Canada tax treaty [Delhi high court]Direct Taxes & Transfer Pricing § Filing of an income-tax return mandatory for a foreign company even if the income is not taxable in India under the provisions of a DTAA [AAR]Significant Decisions § Low Turnover Companies cannot be taken as comparable, only§ Liaison Office engaged in identifying buyers, negotiating and agreeing operational profits to be considered for comparison [Mumbai ITAT] pricing and procuring purchase orders would constitute a PE of the Head Office under the India-Korea tax treaty [Karnataka high court] § Transfer of an undertaking, under a scheme of arrangement against issue of bonds/preference shares as a consideration, is outside purview of§ Sharing of management experience and business strategies by a foreign capital gains u/s 48 [Mumbai ITAT] professional cannot be termed as technical service under India-USA tax treaty. [Mumbai ITAT] 4
  7. 7. News Snippets shortly to manage its huge corpus of Rs 3 lakh cr for three-year period beginning July 1.§ EPFO faces INR 7,000 tax demand for failing to tax premature § Government is considering forming an investment fund bankrolled by withdrawals by account holders state-run companies to help India acquire large natural assets abroad § Ajay Piramal drops plan to divest stake in Indiareit Fund§ Income Tax Department has embarked on a plan to create a national data § PE firms sitting on $20 bn meant for India investment centre to facilitate a management information systems-based, real-time § RBI Fines 19 Banks for Selling Complex Derivatives to Cos analysis of data for quick and effective decision making § Rich Clients Allege Foul Play by StanC - Private banking customers accuse bank of selling debentures with buyback option, but later backing out§ Income Tax department to review all realty deals to unearth black from deal money. The department is expected to rely heavily on technology and information on taxpayers it receives from various sources under 360 degree profiling.§ After Vodafone, I-T sleuths go after SABMiller; demand Rs 183 cr on Fosters acquisitionRecent News in Transactions that made Headlines§ Vodafone to buy out Ruias for $5bn; Vodafone looks to list Indian arm§ DOT gets Delhi High court stay on Idea-Spice deal. However, Aditya Birla Group denies plans to sell off Idea§ Homegrown mobile companies to raise $1bn through PE funds§ T. Rowe Price Threatens to Walk out of UTI AMC - Complains of ‘govt interference’ in selection process of new chairman§ Vedanata buys 10.4% Cairn India from Petronas§ 2.6 m Shareholders, but Sahara Co Still Unlisted - Sahara India Commercial Not on Bourses Despite 3,000-cr Issue§ RIL May Buy Out Bharti from Axa JV§ EPFO to call bids for managing its funds shortly - Retirement fund body EPFO has decided to call for bids from assets management companies 5
  8. 8. ©Copyright AMinds Advisors Private Limited , All rights reserved AMinds Advisors Private Limited specializes in the fields of Mergers & Acquisition, Valuations, Due Diligence, Pre-fund raising Structuring, Financial Re-structuring, Regulatory, Private Equity and other funding opportunities Our guiding philosophy is “To carry out every professional assignment effectively and efficiently, while upholding the virtues of independence and integrity, without compromising on the creativity and quality of work, so as to provide utmost satisfaction to our clients ” For any professional advice regarding alerts in this newsletter, we welcome your queries A-371, Defence Colony, New Delhi –110024 Tel: +91-11-4980-0000 Fax: 91-11-4980-0029 Email: TRANSACTION ADVISORSThis publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been preparedfor the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in thispublication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express orimplied) is given as to the accuracy or completeness of the information contained in this publication