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

1. TRANSACTION ADVISORS
Missive
Volume VI – September 2011

2. Dear Patron Topics Page No
Corporate Law 1
Here we are with the Sixth successive issue of our monthly ‘Missive’.
FEMA 2
SEBI 3
In what should have been a welcome move, market regulator SEBI put out a concept
Direct & International 5
note last month detailing a regulatory framework for alternative investment funds.
Taxation
But, if implemented in its current form, it could choke the investment activities of
Transfer Pricing 5
domestic private equity (PE) and venture capital (VC) funds.
Recent Transactions that 6
made headlines
We trust you will enjoy reading this Missive, even while soaking in the contents. We
would very much appreciate your feedback which consistently helps us in improving
and upgrading the contents.
Thanks and regards, “The duck moves smooth &
calm on the surface of the
Akhil Bansal
Editor, Knowledge Management Team water…….but under that there
is restless pedaling…...
Nothing is worth it without a
struggle in real life.”

3. Corporate Law
New Companies Bill – Government proposes to further strengthen the
Company Law Settlement Scheme, 2011 for companies who defaulted Serious Fraud Investigation Office (SFIO)
in filing Annual Returns with ROC [General Circular No. 59/2011 &
60/2011] Besides, powers such as treating its investigation report as a report filed
by a Police Officer, giving SFIO power to issue letter of requests (letter
Pursuant to various companies not filing their statutory e-forms with Rogatory) in cases involving companies having business/interest outside
ROC within the stipulated time period, MCA has introduced the the country and definition of the term ‘fraud’ along with its punishment
“Company Law Settlement Scheme” which gives an opportunity to the are also proposed to be included, subject to due approvals, in the
defaulting companies to file e-forms with the ROC. revised Companies Bill for strengthening its enforcement framework.
The Scheme has already come into force from August 12, 2011 and shall Impact: In its present form, SFIO hasn't got much teeth and the
remain valid upto October 31, 2011. The Scheme is applicable to such proposed measures will help to strengthen the SFIO and streamline its
defaulting companies who have not filed e-forms with the ROC till June functioning with a view to making it more effective. Letter Rogatory
30th, 2011 are written requests made by a judge to the judge in another country
to take testimony of a witness in that country in connection with the
This Scheme will be applicable to: (a) Form 20 B – for filing annual case.
return by a company having a share capital; (b) Form 21 A – for filing
annual return for the company not having share capital; (c) Form 23AC
& 23ACA –for filing Balance Sheet and Profit & Loss account; (d) Form MCA introduces new feature to track the Companies in which a person
66 - for filing compliance certificate with the ROC and (e) Form 52 - is/was a director
annual accounts by a foreign company
Recently, MCA has released the Defaulters list. As a development to
The defaulting company shall pay prescribed filing fees along with 25% this, MCA has now introduced a welcome feature for the registered
of the actual additional fee payable on the date of filing of each belated users of MCA21 to track not only the details of all the Companies in
document; which a person is/was a director but also his designation, date of
appointment /cessation and defaulting status of that company. The
Impact: The orders issued to this effect are in order to give an details can be accessed by visiting the MCA website
opportunity to the defaulting companies to enable them to make their
default good by filing such belated documents and to be regularly
compliant in future.
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4. MCA has placed cap on salaries of CEOs FEMA
MCA has set a ceiling on the total remuneration to be paid to CEOs. The Investment in the units of Domestic Mutual Funds [AP (DIR Series)
total managerial remuneration to be paid to a board-level CEO of a Circular No. 08 dated 9th August, 2011]
company that has only one whole-time director would be capped at 5%
of the total net profit of the company. Further, those firms that have In consultation with the Government and the SEBI, it has now been
more than one whole-time director, the total remuneration of its entire decided, to allow non- resident investors (other than SEBI registered
board of directors should not exceed 10% of the net profit. However, if FIIs and FVCIs) who meet the KYC requirements of SEBI, hereinafter
a company chooses to pay more it would require the ministry’s called ‘Qualified Foreign Investors’ (QFIs), to purchase on repatriation
approval. basis rupee denominated units of equity schemes of domestic MFs
issued by SEBI registered domestic MFs in accordance with the terms
Impact: The development is significant since corporate houses would and conditions as stipulated by the SEBI and the RBI from time to time
now be required to seek MCA approval if they choose to shell out over in this regard.
5% of the net profit for remunerating their CEOs or 10% of the net
profit for remunerating the entire board of directors. The QFIs may invest under the two routes, namely:
• Direct Route – SEBI registered Depository Participant (DP) route
• Indirect Route – Unit Confirmation Receipt (UCR) route
Impact: This move is expected to give further impetus to India’s
economic growth. The scheme would enable QFIs to have direct
access to the Indian Mutual Funds. It would widen the class of
investors participating in the Indian capital market, help increase
depth and reduce volatility in the market. The QFI scheme opens
another avenue for global investors to participate in the equity
markets and the infrastructure debt markets in India through Mutual
Funds. This would increase the global investor interest in the Indian
economy. The QFI scheme will make it easier for overseas investors to
participate in the infrastructure sector projects in India, and therefore
would provide an additional source of overseas long term debt
funding.
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5. SEBI
§ PIPE funds face a similar cap on their exposure to debt
SEBI proposes norms for private equity, venture funds instruments, but are obliged to commit at least two-thirds of
their capital to publicly listed equities. PIPE targets are to be
SEBI had announced regulatory proposals that would tighten its control small-sized, and not part of any market indices in exchanges
over alternative investment funds (AIFs), which include investors and having nationwide terminals.
vehicles within the private equity, venture capital, PIPE, infrastructure
and real estate spaces, among others. Some key considerations in the § SEBI notes that social venture funds must target social
draft proposals are given below. enterprises such as microfinance firms, while strategy funds
would be allowed to invest in derivatives and other structured
§ The draft defines AIF as a closed-end fund managing at least products, but must disclose their investment strategies to
INR20 million ($4.5 million) in capital. Each AIF investment investors.
tranche must account for more than 0.1% of the fund – or at
least INR10 million – and the fund’s sponsor must contribute at The proposals, which will be open to for public comment until August
least 5%. Additionally, an AIF would be prohibited from 30, are intended to improve AIF market coordination and transparency.
investing more than 25% of its capital in a single company, and
AIFs will only be permitted to have 50 limited-liability partners. Impact: Market regulator SEBI’s proposed regulations to monitor all
Each fund’s tenure must be at least five years, though this may classes of AIF seeks to make major changes in the way private equity
be extended by two years if approved by three-quarters of their firms operate in India. However, in terms of fundraising, disclosure
shareholders. and the multiple registration requirements, the regulations seems to
be a step backwards, in complicating the things.
§ Private equity funds, specifically, would be required to invest at
least 50% of capital in unlisted companies and no more than
50% in companies that have made listing proposals. SEBI proposes to frame strict rules for research analysts and wants an
independent oversight body for auditors
§ Venture capital funds (VCFs), meanwhile, are to be capped at
INR2.5 billion, and are prohibited from investing in any company With an aim to shield investors from vested interests and potential
that is backed, directly or indirectly, a top-500 domestically corporate scams, SEBI has proposed to frame a strict set of rules for
listed company. At least two-thirds of VCF capital must be research analysts and wants an independent oversight body for
invested in unlisted equity, and no more than one-third of a auditors. At the same time, the market watchdog is planning to
VCJ’s investment can be allocated to unlisted debt instruments prescribe a fresh set of guidelines for dealing with conflict of interest of
of portfolio companies. associated persons in the market. It would also set up a separate unit
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6. for monitoring ‘Systemically Important Financial Institutions’ or very- system, SEBI Complaints Redressal System (SCORES) which was
large market entities. operationalised in June to fast track the redressal of complaints against
listed companies.
SEBI has asked Promoters to disclose Initial Shareholding and Impact: Market intermediaries can view the complaints in the SCORES
thereafter considerable changes in it system by logging in with their user ID and password, which will be
communicated separately by the regulator. SEBI will also send a daily
As per the SEBI board decision, it will be mandatory for the promoters alert on pending complaints at the e-mail ID registered with it for
and those part of the promoter group of a listed company, to give the regulatory communications. SCORES facilitates online movement of
initial disclosures relating to their shareholding at the time of becoming complaints to the concerned listed companies, by enabling online
promoter or part of promoter group. Besides, they will have to make upload of ATRs by these companies.
continuous disclosures whenever there is a change in their holdings
exceeding Rs. Five lakhs in value or 25,000 shares or 1 % of total
shareholding or voting rights, whichever is lower. Similar, disclosures SEBI allows infrastructure finance firms to float long term bond
are at present required to be made by the directors and officers of the
company. SEBI has allowed Infrastructure Finance Companies (IFCs) to raise funds
overseas through long-term corporate bonds. It was decided that NBFCs
Impact: Till date, Promoters of Companies were outside the purview categorised as IFCs by the RBI shall also now be considered eligible
of Disclosures under Insider Trading law unless they held some issuers for the purposes of FII Investment under the corporate debt
managerial position, on the ground that they were not necessarily in long term infra category. This fund raising tool was so far limited to
the know about the day-to-day business of their company, unless they companies in the infrastructure sector.
held some positions with the company. This was a big anomaly and
inclusion of Promoters into the class of person is a welcome change. Investments in such bonds shall have a minimum lock-in period of three
years. However, during the lock-in period, FIIs will be allowed to trade
amongst themselves. During the lock-in period, the investments cannot,
SEBI direct brokers to redress investor complaints within a month of however, be sold to domestic investors.
receiving them
Impact: This measure along with the recent enhancement of FII limit
SEBI has directed stock brokers and sub-brokers to redress investor from USD 5 billion to USD 25 billion for corporate bonds, issued by
complaints within a month of receiving them, failure to do so would companies in the infrastructure sector, with a residual maturity of
make them liable for penal action. The direction comes after it over five years is seen as a bid by the government, to facilitate fund
announced that all investor complaints should be forwarded to it flow in the infrastructure sector.
electronically through recently established, centralised database
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7. Direct & International Taxation Transfer Pricing
Significant Decisions Significant Decisions
§ Payment made for accreditation not covered by the definition § Comparables have to be compared on similar standards (ITAT
of ‘royalty’ under Article 13(3) of India UK tax treaty (ITAT Bangalore)
Mumbai)
§ No Transfer pricing adjustment is necessary when period and
§ Payment for software cannot be treated as a payment for basis of computation of royalty is different from comparable
‘process’ liable to be taxed as royalty (ITAT Mumbai) transactions (ITAT Vishakhapatnam)
§ Fees paid to a foreign company for rendering testing and § Comparable transaction prices obtained from customs
certification services cannot be treated as income deemed to authorities can be used for Arm’s Length Pricing (ITAT Chennai)
accrue or arise in India under Section 9(1)(vii) of the Income-tax
Act (ITAT Delhi) § Internal comparability to be given preference over external
comparables (ITAT Delhi)
§ Income of non-resident attributed to its PE in India taxable as
business profits; balance income not to be taxed as fee for
technical services – (ITAT Mumbai)
§ Provisions of Section 72A would be applicable only when
‘amalgamating company’ and not ‘amalgamated company’ has
accumulated losses (ITAT Delhi)
§ Liaison Office of non-resident taxpayer would qualify as
business connection PE in India if the activities of the LO not
confined to purchase of goods in India for the purpose of export
(ITAT Bangalore)
§ When the assessee does not get exclusive right over the
technical knowhow and the trade mark, the royalty paid is
revenue expenditure (Delhi High Court)
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8. Recent Transactions that made Headlines India
Around the world ï BP and Reliance commence strategic alliance for India
ï India's GVK reaches $2.2 billion Hancock mines deal
ï US private equity house Bain Capital pays $1.3bn for MYOB ï GVK buys Siemen’s Bangalore Airport (BIAL) stake
ï Hewlett-Packard in £7bn takeover of UK software firm ï Mahindra Satyam opens a new delivery center in Netherlands
ï Foster's rejects £6.2bn hostile bid from SABMiller ï NIIT acquires Spanish firm Proyecta for $ 7 million
ï Google pays $12.5bn for Motorola Mobility. Also acquires ï GMR infra buys 30% stake in Indonesian coal asset
DealMap. ï Piramal Healthcare acquires 5.5% stake in Vodafone for 2,856cr
ï AT&T,T-Mobile left in dark about antitrust lawsuit ï Sesagoa acquires 51% stake in Western Cluster for $90 million
ï Manchester United's IPO to be two-tier ï Hinduja Global acquires Canadian firm in all cash deal
ï Lehman seeking creditor vote on $65 billion payout
ï Siam Cement eyes $1.1 billion in Indonesian acquisitions
ï Bank of America to sell China bank stake for $8.3 billion
ï Bloomberg to buy legal research firm for $990 million
ï Samsung says not interested in HP's PC business
ï Eurobank, Alpha Bank to announce merger
ï GE Announces $100 Million Joint Venture in China
ï HP to acquire Enterprise Information Management software
company Autonomy Corp PLC
ï Hitachi Ltd and Mitsubishi Heavy likely to merge – in talks
ï Mphasis to acquire Wyde in an all cash deal
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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