Mergers & Acquisitions Newsletter - November 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

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Mergers & Acquisitions Newsletter - November 2011

  1. 1. TRANSACTION ADVISORS MissiveVolume VIII – November 2011
  2. 2. Dear Patron Topics Page No FEMA 1Here we are with the Eighth successive issue of our monthly ‘Missive’. Regulatory Update 2 Policy Watch 3Global Competitiveness Report 2011–2012 released by the World Economic Forum Regulatory – significant 5recently, states that India possesses a number of remarkable strengths in the more decisionsadvanced and complex drivers of competitiveness. It says that the country has a vast Direct Taxation 6domestic market that allows for economies of scale and attracts investors. Recent Transactions that 7 made headlinesDespite the above indicators, it is sad that industrial stalwarts like Mr Premji had tocome in open to air his views on the fact that the complete absence of decisionmaking in the government, coupled with corruption, is the biggest challenge facingthe country. We sincerely hope that a slew of policy releases by the governmentshall correct the course of direction in which government is sailing. “Don’t cry because it’s over…We trust you will enjoy reading this Missive, even while soaking in the contents. Wewould very much appreciate your feedback which consistently helps us in improving Smile because it happened”and upgrading the contents.Thanks and regards,Akhil BansalEditor, Knowledge Management Team
  3. 3. FEMA NRIs can hold accounts in any currency nowCorrigendum to Circular 2 of 2011 – Consolidated FDI Policy Indians who have non-resident accounts in the country can now holdGovernment has withdrawn the controversial clause in the FDI policy them in any currency which is fully convertible.that said that any instrument had an in-built option such as a buybackprovision would be considered as debt and regulated under the Impact: The move is likely to help NRIs/Persons of India Origin as itexternal commercial borrowing rules. will give them more options in the holding of accounts, and lessen the risk from fluctuations in major currencies.Impact: With the removal of the clause, foreign investors exit rightshave been restored to what they were before October 1. Placing allinstruments with inbuilt options outside the ambit of FDI would haveproved to be a big impediment to joint ventures as well as privateequity investmentExport of Goods and Software – Liberalisation on Realisation andRepatriation of export proceedsRBI had enhanced the period of repatriation of the export amount toIndia from six months to twelve months from the date of export. Thisrelaxation was available up to September 30, 2011 which had now beenextended till September 30, 2012.Clarification on Repatriation of income and sale proceeds of assetsheld abroad by NRIsAs per the clarification issued by RBI, income and sale proceeds ofassets held abroad by NRIs who have returned to India for permanentsettlement and income and sale proceeds of assets held abroad throughremittances under LRS need not be repatriated1|P ag e
  4. 4. Regulatory Update borrowers shift to another bank or Housing Finance Companies, the penalty will be applicable.MCA withdraws draft of Companies (Dematerialization of Certificates)Rules, 2011 Impact: The Circular is in respect of Housing Loan from Housing Finance Companies not in respect of Loan from Banks.The proposal had wanted all companies mopping up resources frompublic and their subsidiaries convert share certificates and bonds intoan electronic (demat) form. The decision to withdraw the draft Waiver of stamp duty for Form 5- for companies registered in NewDematerialisation of Certificates Rules, 2011, was taken after it was Delhifound a similar proposal had already been included in the CompaniesBill, 2011 Pursuant to the order of the Hon’ble High Court of New Delhi passed in the matter of S E Investments Limited Vs Union of India and Others,Impact: It will give a breather to small firms who had expressed MCA had amended the Companies (Central Government’s) Generalreservations against the government move. Rules and Forms 1956 wherein the increase in authorized share capital of any company which is registered in New Delhi would not attract any payment of stamp duty.Exporters can receive $3,000 through Overseas Online paymentgatewaysIn a bid to facilitate small value export transactions, RBI has enhancedthe amount that can be received as export related remittances throughonline payment gateway service providers to $3,000 from $500.No Pre-payment penalty on pre-closure of housing loans from HousingFinance CompaniesThe housing finance regulator had issued a circular wherein HousingFinance Companies will no longer levy any fee on floating rate loans. Incase of fixed rate loans, it has made a distinction and only thoseborrowers who pay from their “own sources”, such as savings or evenloans from relatives, will be exempted from payment of penalty. In case2|P ag e
  5. 5. Policy Watch Cabinet clears mining Bill calling for sharing of profit with the people affected by their activityCBDT Makes Discussion Paper on Tax Accounting Standards Public The Cabinet gave its approval to a Bill which proposes to make itTwo drafts have been issued by the CBDT for comments / suggestions: mandatory for mining companies to compensate the local populationTAS for Construction Contracts & for Government Grants. The impacted by mining operations.discussion paper states that the flexibility in the standards issued by theInstitute of Chartered Accountants of India (ICAI) makes it possible for ataxpayer to avoid payment of correct taxes by following a particular Draft National Telecom policy releasedsystem of accounting Policy is silent on a key issue i.e. Mergers and acquisitions. Also, Consumers will not have to pay roaming charges and mobile numberDraft Circular on Refunds in Service Tax portability will be available nationwideCircular is proposed to be issued in order to streamline the process ofsanctioning of refund claims, mainly arising on account of service taxborne on input services that have gone into exports of services. Thesame is available for public commentsDIPP moves note on making patents office independentIn a discussion paper, DIPP has favoured several steps for strengtheningand restructuring the office of the Controller General of Patents DesignTrademarks and Geographical Indications3|P ag e
  6. 6. Draft National Electronics policy unveiled SEBI issues Concept Paper on Regulation of Investment AdvisorsThe policy proposes creation of a “Electronic Development Fund” to As per the paper, Persons offering investment advice can do so onlypromote innovation and R&D in the electronics systems design and after registering themselves with SEBI and must necessarily use the titlemanufacturing space. It has also talked of setting up incubation centres “investment advisor” after obtaining the certificate of registrationand a specialised institute for chip design in the country Worried SEBI wants Finance Ministry to plug holes in GlobalDraft National Policy on Information Technology Depository Receipts guidelinesThe policy will look into formulating fiscal and other incentives to SEBI is in talks with the finance ministry to tighten rules relating toattract investment in this sector in Tier II and Tier III cities, besides issuance of Global Depository Receipts as the regulator has found thatpromoting innovation and research and design in cutting-edge several local companies are skirting guidelines to raise funds overseastechnologies and in strategic sectors such as defence, space and atomicenergy. SEBI announces uniform KYC norms for securities market SEBI had announced introduction of uniform forms and documents for the purpose of customer identification by different market intermediaries like stock exchanges and mutual funds, a step intended to bring uniformity to the process. SEBI to crack down on illegal debentures SEBI) is planning to crack down on companies, raising money from small investors by issuing debentures against the rules. A number of small companies that raise public funds promising huge returns have propped up in Uttar Pradesh, West Bengal and Bihar. According to SEBI rules, any entity raising money from 50 or more people will have to seek its approval and list on the stock exchanges.4|P ag e
  7. 7. Insurers get profitability clause waiver for IPOs RegulatoryWhile clearing IPO guidelines of life insurance companies, the regulator Significant Decisionshas removed the three-year profitability clause that is applicable for allcompanies as a precondition for tapping the capital markets. § Directors not vicariously liable for crime of company [M/s. Thermax Ltd. & Ors. Vs. K.M. Johny & Ors - Supreme Court]SEBI concept paper to regulate investment advisors § Supply of goods to offshore installations i.e. Exclusive Economic Zone (EEZ) will not be subject to sales tax, especially CentralWith the objective of addressing conflicts of interest in distribution of Sales Tax, since EEZ does not form part of the territory of Indiafinancial products, the Securities and Exchange Board of India (SEBI) has [Larsen & Toubro Ltd v. Union of India - Gujrat High Court]issued a concept paper to regulate investment advisors. § Supreme Court had stayed Bombay High Court decision that upheld service tax on the commercial rentalsNational Manufacturing Policy notified § Supreme Court has held that Employers need not pay higherThe policy envisages a number of fiscal incentives like income tax provident fund contribution. The employers were earlier payingconcession on venture capital funds with a focus on small and medium the rate according to the PF Act. [Supreme Court]enterprises (SME), rollover relief from long-term capital gains tax toindividuals on sale of a residential property wherever such sale § General power of attorney have no legal sanctity andconsideration is invested in the equity of a new start-up SME, viability immovable property can be sold or transferred only throughgap funding to polytechnics and special purpose vehicle in proposed registered deeds- [Suraj Lamp & Industries Pvt Ltd Vs State OfNational Manufacturing and Investment Zones (NMIZs) etc. There Haryana - Supreme Court]would be other tax benefits for adopting green technology. § SC allows clubbing of two establishments as one for the purposes of the PF as there was unity of ownership,RBI asks NBFCs to take step to Implement Green Initiative management, control, finance, labour and functional integrity [L.N. Gadodia & Sons & ANR. Vs. Regional Provident FundNBFCs have been asked to take proactive steps in this regard by Commissioner-Supreme Court]increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day to daybusiness transactions5|P ag e
  8. 8. Direct Taxation Significant Decisions § Excess Earnings Method (EEM), is appropriate method to determine arm’s length price of transaction of sale of Intangible Property and the method construes Comparable Uncontrolled Price (CUP) method [M/s Tally Solutions Private Limited - Bangalore ITAT] § Mark-up on costs incurred is not an arm’s length remuneration for sourcing support service and the taxpayer should be compensated on the basis of value of the goods sourced through it [Li & Fung (India) Pvt. Ltd. v. DCIT- Delhi ITAT] § No Penalty U/s. 271G for failure to respond to ‘omnibus’ notice [DCIT vs. Leroy Somer & Controls (India) (P) Ltd - ITAT Delhi] § Corporate guarantee provided to associated enterprises is not an international transaction [Four Soft Limited vs. DCIT - ITAT Hyderabad] § Right to exercise an option is a capital asset and gains arising on sale are ‘long term capital gains’ if such right is held for more than three years [Abhiram Seth Vs. JCIT - Delhi ITAT] § Disallowance on the ground that the assesse has diverted interest bearing funds into tax-free income can not be made where the assesse owes ample interest free funds on the date of investment [Weikfield Products Co.(I)Pvt. Ltd. v. DCIT - ITAT Pune]6|P ag e
  9. 9. Recent Transactions that made Headlines ï Religare NBFC Arm To Raise Rs 300Cr; Avigo, Goldman Sachs In Talks ï Bessemer Buys Into Health Insurance TPA Medi Assist ï Matrix Partners Invests Rs 60Cr In TCNS Clothing ï Carlyle, General Atlantic In Talks To Invest In Flipkart ï KKR Raising Up To $6B For Second Asia Buyout Fund ï Naaptol Raises $25M From NEA, Canaan Partners & Silicon Valley Bank ï Webklipper Raises Seed Round From IAN ï Lilliput Promoters Looking To Bring New Investor To Buy Out TPG, Bain ï Close To Raising Over $40M ï SAP Ventures Invests $10M In One97 Communications ï Realty Services Firm Investors Clinic Gets BCCL Backing ï Fast Food Chain Faasos Raises $5M From Sequoia Capital ï Trivitron, Apollo In Dental JV; To Raise Rs 75Cr In PE Funding ï Eye-Q Raises Series B Funding From Helion, Nexus Venture Partners ï Capricorn Gifting Gets Seed Funding From Seeders Venture Capital ï KKRs NBFC Invests In Coffee Day Groups Way2Wealth ï Loylty Rewardz Raises $4.4M From Canaan Partners ï MyDala Raises Rs 18Cr From Info Edge ï Nazara Technologies Backs Social Gaming Start-up Playcaso7|P ag e
  10. 10. ©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