Mergers & Acquisitions Newsletter - October 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 - October 2011

  1. 1. TRANSACTION ADVISORS MissiveVolume VII – October 2011
  2. 2. Topics Page No FEMA 1 Corporate law 3 Indirect taxation 3Dear Patron Regulatory 4 SEBI 5Here we are with the Seventh successive issue of our monthly ‘Missive’. International tax 6 Transfer Pricing 6We trust you will enjoy reading this Missive, even while soaking in the contents. We Recent Transactions that 7would very much appreciate your feedback which consistently helps us in improving made headlinesand upgrading the contents.Thanks and regards,Akhil Bansal “There is no telling how manyEditor, Knowledge Management Team miles you have to run while chasing a dream”
  3. 3. FEMA Impact: The last update is one of the important update and is a far reaching policy measure for restricting the scope of permissibleConsolidated FDI Policy - Circular 2 of 2011 instruments. This means only equity shares, compulsorily convertible preference shares and compulsorily convertible debentures withoutThe significant changes introduced in this edition of the Circular are: any in-built options are instruments eligible for FDI. As a consequence all instruments having in-built options will be categorized as External § Exemption of construction-development activities in the Commercial Borrowing falling under ECB guidelines. education sector and in old-age homes, from the general conditionalities in the construction-development sector § Inclusion of ‘apiculture’, under controlled conditions, under the agricultural activities permitted for FDI § Inclusion of ‘basic and applied R&D on bio-technology pharmaceutical sciences/life sciences’, as an ‘industrial activity’, under industrial parks § Notification of the revised limit of 26% for foreign investment in Terrestrial Broadcasting/ FM radio § Liberalisation of conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments § Introduction of provisions on ‘pledging of shares’ and opening of non-interest bearing escrow accounts, subject to specified conditions § Restriction of scope of permissible instruments and categorization of instruments with in-built options as ECB’s1|P ag e
  4. 4. Forex Facilities for Individuals liberalised Rationalisation and Liberalization in External Commercial Borrowing (ECB) Policy § NRIs can be Joint Holders in Resident’s SB/EEFC/RFC Accounts [A.P. (DIR Series) Circular No. 12/2011] § limit for eligible borrowers to avail of ECB under the automatic route has been enhanced from USD 500 million to USD 750 § Residents can be Joint Holders in NRE/FCNR Accounts [A.P. (DIR million (for corporates in real sector-industrial sector- Series) Circular No. 13/2011] infrastructure sector) and from USD 100 million to USD 200 million (for corporates in specified service sectors viz. hotel, § Residents can gift Shares/Debentures upto USD 50,000 Value hospital and software) [A.P. (DIR Series) Circular No. 14/2011] § Eligible borrowers’ have been permitted to avail of ECBs § Resident Indian can open NRE / FCNR (B) account with their designated in INR from foreign equity holders Resident close relative [A.P. (DIR Series) Circular No. 15/2011] § Corporate in the infrastructure sector can avail of ECBs for § Sale Proceeds of FDIs can be credited to NRE/FCNR (B) Account Interest during Construction (IDC) as a permissible end-use. [A.P. (DIR Series) Circular No. 16/2011] Further, certain changes have also been made on the end- utilisation of funds by such companies. § Gifts to NRIs can be credited to NRO Accounts in Rupees [A.P. (DIR Series) Circular No. 17/2011] Impact: It is a welcome move on part of the government to further rationalise and liberalise the ECB policy § Loans to NRI Close Relatives can be given in Rupees [A.P. (DIR Series) Circular No. 18/2011] § Residents can repay the loans given to NRI Close Relatives by the Indian banks [A.P. (DIR Series) Circular No. 19/2011] § Residents can bear Medical Expenses of NRIs [A.P. (DIR Series) Circular No. 20/2011]Impact: The move is expected to ease the procedures and offer morefreedom to both residents and their non-resident relatives in theirforeign exchange transactions.2|P ag e
  5. 5. Corporate Law Indirect TaxationApplicability of Revised Schedule VI for companies going into IPO / Delhi HC – Service Tax on Renting of Property validFPO during FY 2011-12 - General Circular No. 62/2011 Delhi High Court has upheld the constitutional validity of Service Tax onMinistry recognized that for companies coming up with IPOs or FPOs in renting of immovable property with retrospective effect. The court hasFinancial Year 2010-11, it would be cumbersome to prepare the ruled that there is value addition when premises are let out in course ofaccounts as per the revised Schedule VI and would involve a lot of furtherance of business.administrative work. Therefore, relaxing the companies from thisrequirement, it has been clarified that the companies may prepare Impact: With the court upholding the levy, retailers – alreadyfinancial statements as per pre-revised Schedule VI, for the limited impacted by an economic slowdown – would experience furtherpurpose of IPO/FPO during the financial year 2011-12. pressure on margins Online filing of excise duty and service tax returns made mandatoryAcceptance of specified e-forms filed by Directors of defaultingcompanies- General Circular No. 63/2011 Finance ministry has made it mandatory for taxpayers to file their central excise (Circular No.955/16/2011-CX, dated-15th Sept., 2011)In order to ensure corporate governance, MCA had earlier held that no and service tax returns (Notification No. 43/2011 – Service Tax, datedrequest for recording any event based information / changes shall be 25-8-2011) electronically from October 1st, 2011.accepted by the RoC from such defaulting companies, unless they filetheir updated Balance Sheet and Profit & Loss Accounts and Annual Exemption of R&D Cess to Consulting Engineer and IPRReturn with the Registrar of Companies. However, certain forms hadbeen covered under exception. Now, the circular tends to increase the Service tax Exemption is available to the extent of R&D cess paid.list of such exceptions to avoid hardships. However, now to claim the exemption, the assessee has to: § pay the cess within six months from the date of invoice;Approval of e-forms 1, 18 and 32 on the basis of certification and § the cess is paid with or before the payment for the service;declarations given by the practicing professional is now not going to § records to show linkage has to be maintainedbe implemented - General Circular No. 61/20113|P ag e
  6. 6. Regulatory Returns to be submitted by NBFCs – Revised FormatsKey Decisions RBI has tightened the return filing format for NBFCs. As per the new regulation, deposit taking NBFCs would have to submit reports on § Supreme Court held that under the provisions of Registration deposits and prudential norms to the RBI on quarterly basis, as against Act, 1908, an arbitration clause can remain enforceable in annual and half-yearly basis respectively earlier. Similarly, non-deposit certain situations even if it forms part of an unregistered (but taking NBFCs has to file statements on capital funds, risk weighted compulsorily registrable) document [SMS Tea Estates Pvt. Ltd. assets, risk asset ratio, among others on quarterly basis. Vs. M/s. Chandmari Tea Co. Pvt. Ltd.] Draft Guidance Note to the Revised Schedule VI to the Companies Act, § International companies are answerable to Indian consumer 1956 courts for service deficiency, the Supreme Court has ruled, upholding the apex consumer forums direction to a Lebanese ICAI has released the draft Guidance Note which intends to provide international courier company to pay compensation to a guidance in the preparation and presentation of Financial Statements of Mumbai-based firm [Trans Mediterranean Airways vs M/s companies on various aspects of the Revised Schedule VI. Universal Exports] § Delhi High Court has held that DTH service is like a cinema ticket providing continuous entertainment to viewers and hence, can be liable to Entertainment Tax § Madras High court has held that merely because commission is paid to the employees, they does not cease to be employees and even commission agents can be said to be an employee in this connection [Focussed Corporate Services (India) Pvt. Ltd. Vs. UOI]4|P ag e
  7. 7. SEBI Concept Paper on Regulation of Investment Advisors released by SEBISEBI has puts place mechanisms to monitor and assess foreigninstitutional investments The regulator has directed its focus on addressing the conflict of the dual role played by distributors as an agent of investors as well as ofThe systems established include advanced risk management manufacturers. As they receive commissions from manufacturers andmechanisms comprising of on-line monitoring and surveillance, circuit advisory fees from investors, it is not clear whose interests they serve.filters, prescription of limits on positions etc. To tackle this conflict, SEBI has proposed that the person who interactsImpact: The endeavour is to build systems and practices and deepen with the customer should declare upfront whether he is a financialand broaden markets which can withstand the impact of flight of advisor or an agent of the manufacturer. If he is an advisor, he would becapital. subject to Investment Advisors Regulations and would require a much higher level of qualifications. He would receive all payments from the investor and there would be no limits set on these payments. On theSEBI Guidelines for Issue and Listing of Structured Products/ Market other hand, agents associated with manufacturers would receive theirLinked Debentures remuneration from them.SEBI has issued guidelines for issue and listing of hybrid securitiesincluding structured products or market linked debentures. Thedocument include guidelines for eligibility criteria for issuers, minimumticket size, disclosure policy and appointment of a credit rating agencyfor valuationImpact: There were already guidelines for debt securities. However, alot of hybrid securities get listed on the equity markets, which havefeatures of both vanilla debt securities and also exchange creditderivatives. Therefore, SEBI has now come out with guidelines forthese kinds of structured products or market-linked debentures.5|P ag e
  8. 8. Direct & International Taxation Transfer PricingSignificant Decisions Significant Decisions § Profits attributable to ‘Dependent Agent Permanent § Integral tests for a Cost Contribution Arrangement to be Establishment’ Taxable in India – Delhi HC [Rolls Royce considered at arm’s length – Mumbai ITAT [Dresser Rand India Singapore Pvt Ltd vs. ADIT] Pvt. Ltd.] § Reimbursement of expense received in connection with the § TPO should provide reasons for rejecting the Most Appropriate rendering of consultancy services not taxable as ‘fees for Method [MAM] used by the assessee before adopting a technical services’ - ITAT Hyderabad [Louis Berger International different MAM – Chennai ITAT [Indian Additives Limited] Inc.] § In case of loss making company valuing goodwill at 10% of the § Dividend income derived by assessee from a company in total consideration, without any material on record not Malaysia not liable to be taxed in the hands of the assessee in sustainable – Madras High court [M/s India Cement Ltd] India under any of the provisions of the Act – SC [Torqouise Investment & Finance Ltd] § Benchmark cannot be applied on a global basis but has to be on a transaction basis ; Tribunal explains Important Principles of § Whether the clients liable to tax in India on the capital gains and Cost Plus, CUP and TNMM - ITAT Mumbai [Tara Ultimo Private if yes, whether the bank is required to deduct tax at source on Limited] the remittance? – ITATA Mumbai [ICICI bank limited] § Losses adjusted in the books under corporate reorganization are available for set off in computing book profit under MAT provisions – Kolkata ITAT [J. K. Lakshmi Cement Ltd.]6|P ag e
  9. 9. Recent Transactions that made Headlines ï Loylty Rewardz Raises $4.4M From Canaan Partners ï MyDala Raises Rs 18Cr From Info Edge ï Dainik Bhaskar Acquires 2.7% Stake in EdServ ï Pantaloon Retail To Raise Rs 1500Cr ï Nazara Technologies Backs Social Gaming Start-up Playcaso ï HDFC Realty Fund To Invest $90M In Bangalore IT Park ï CX Partners To Float $500M Mezzanine, Special Situations Fund ï Goldman Sachs Puts $200M Into Sumant Sinhas Renewable Energy Start-up ï Utkarsh Micro Finance Receives Rs 25Cr In Series B Funding ï Vivimed Labs Raises Rs 127Cr From NYLIM Jacob Ballas, Kitara Cap ï TA Associates Exits Idea Cellular ï Sequoia Capital To Put $22M In Delhi-based Moolchand Healthcare ï Tano Capital Makes Second Close At $97M ï Kalpathi Group Buys Rantech IT Park For Rs 50Cr ï Eduora Receives Funding From Seeders Venture Capital ï Helion Puts $3.5M In Delhi-based Vienova Education ï Intel Capital Announces $20M Investment In Six Tech Companies ï U2opia Mobile Raises Funding From Matrix Partners India ï OPIC Lending $150M To Support Applied Solar Technologies Project7|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