India: Bimonthly Legal Tablet - Law & Policy, Volume 3, Issue 1, Jan 05, 2013

Last Updated: 4 March 2013

Notifications & Circulars (November – December), 2012

National Pharmaceuticals Pricing Policy, 2012 ('NPPP-2012')

The objective of NPPP-2012 is to put in place a regulatory framework for pricing of drugs so as to ensure availability of required medicines – 'essential medicines' – at reasonable prices even while sufficient opportunity for innovation and competition to support the growth of industry, thereby meeting the goals of employment and shared economic well being for all. The key principles for regulation of prices in the NPPP-2012 are:

  1. Essentiality of drugs;
  2. Control of formulations prices only;
  3. Market based pricing.

The regulation of prices of drugs in the NPPP-2012 would be on the basis of 'essentiality of drugs'. The 'essentiality' criteria for drugs is to be met by the list of medicines specified in the National List Essential Medicines as revised from time to time and most recently declared by the Ministry of Health and Family Welfare, Government of India.

The Hon'ble Supreme Court has also emphasized the need to consider and formulate appropriate criteria for ensuring essential and life saving drugs do not fall out of price control.

The regulation of prices of drugs would be on the basis of regulating the prices of formulations only. One of the reasons for adoption of this principle for price control of 'formulations only' is that the bulk drug – Active Pharmaceutical Ingredient ('API') may not fully reflect the essentiality of the actual drug formulation due to the possible applicability of the API in manufacture of various formulations which may or may not be considered 'essential' for the larger healthcare needs of the masses.

The regulation of prices of drugs in the NPPP-2012 would be on the basis of regulating the prices of formulations through 'Market Based Pricing' ('MBP'). This is different from the principle of regulating the prices through 'Cost Based Pricing' ('CBP') under the Drug Policy 1994. Under MBP, the pricing would be based on widely available information in the public domain as against individual manufacturer level production costing data which would result in more transparent and fair pricing.

Union of India v. K.S. Gopinath & Ors., SLP No. 3668/2003.

A.P. (DIR Series) Circular No. 52 dated November 20, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation'

A.P. (DIR Series) Circular No. 40 dated November 01, 2011 enhanced the period of realization and repatriation to India of the amount representing the full export value of goods or software exported from 6 months to 12 months from the date of export. This relaxation was available up to September 30, 2012. The said relaxation has been extended with effect from October 01, 2012 till March 31, 2013.

The provisions in regard to period of realization and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to warehouses established outside India remains unchanged.

A.P. (DIR Series) Circular No. 55 dated November 26, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'Liaison Office (LO)/Branch Office (BO) in India by Foreign Entities – Reporting to Income Tax Authorities'

In terms of A.P. (DIR Series) Circular No. 24 dated December 30, 2009, the LOs/BOs are required to furnish copy of Annual Activity Certificate ('AAC') to Director General of Income Tax (International Taxation) ('DGIT'). It is clarified that copies of AACs submitted to the DGIT (International Taxation) should be accompanied by audited financial statements including receipt and payment account. Further, at the time of renewal of permission of LOs by AD banks, they may note to endorse a copy of such renewal to the office of the DGIT (International Taxation).

A.P. (DIR Series) Circular No. 58 dated December 14, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'Trade Credits for Imports into India – Review all-in-cost ceiling'

The all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 44 dated November 15, 2011 will continue to be applicable till March 31, 2013 and subject to review thereafter. All other aspects of Trade Credit policy remain unchanged.

A.P. (DIR Series) Circular No. 59 dated December 14, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'Trade Credits for Imports into India'

As per extant guidelines on Trade Credit, the companies in the infrastructure sector, where 'infrastructure' is as defined under the extant guidelines on External Commercial Borrowings ('ECB') are allowed to avail of trade credit up to a maximum period of 5 years for import of capital goods as classified by DGFT subject to the following; (i) the trade credit must be abinitio contracted for a period not less than 15 months and should not be in the nature of short-term roll overs; and (ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking ('LoU') /Letter of Comfort ('LoC') in favour of overseas supplier, bank and financial institution for the extended period beyond 3 years.

On review, it has been decided to further relax the condition of 'abinitio' buyers' credit for 15 months to 6 months for existing trade credits. However, the condition regarding 'abinitio' buyers' credit for 15 months shall continue for future trade credit. All other aspects of Trade Credit Policy will remain unchanged.

A.P. (DIR Series) Circular No. 60 dated December 14, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'External Commercial Borrowings (ECB) Policy – Review all-in-cost ceiling'

It has been decided that the all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable till March 31, 2013 and subject to review thereafter. All other aspects of ECB Policy remain unchanged.

A.P. (DIR Series) Circular No. 61 dated December 17, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'External Commercial Borrowings (ECB) for the low cost affordable housing projects'

It has been decided to allow ECB for low cost affordable housing projects as a permissible end-use, under the approval route. ECB can be availed of by developers/builders for low cost affordable housing projects. Housing Finance Companies (HFCs)/National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost affordable housing units. This Circular also lays down the detailed guidelines on ECB for low cost affordable housing scheme and includes definition of 'eligible project' and 'eligible borrowers', the end use and the nodal agency for deciding project's eligibility for low cost affordable housing.

Developers/builders/HFCs/ NHB will not be permitted to raise Foreign Currency Convertible Bonds (FCCBs) under this scheme. For the financial year 2012-13, an aggregate limit of USD 1 billion is fixed for ECB under the low cost affordable housing scheme which includes ECBs to be raised by developers/builders and NHB/specified HFCs. This limit shall be subject to annual review.

All other ECB parameters, such as, recognized lender, minimum average maturity period, all-in-cost ceilings, restrictions on issuance of guarantee, choice of security, parking of ECB proceeds, prepayment, refinancing of ECB, reporting requirements remain unchanged.

A.P. (DIR Series) Circular No. 63 dated December 20, 2012 issued by the Reserve Bank of India, Foreign Exchange Department regarding 'ECB for MFIs and NGOs engaged in micro finance activities under Automatic Route'

The extant guidelines as specified in A.P. (DIR Series) Circular No. 59 dated December 19, 2011 will continue to be applicable until further review. ECB by MFIs/NGOs should be fully hedged.

Bills Passed By Parliament of India During The Winter Session 2012 The Lok Sabha and the Rajya Sabha together have passed seven bills in this winter session of Parliament . A few of the prominent bills passed are listed below.

1. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011

It seeks to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 . The Bill proposes to provide for conversion of any part of debt into shares of a borrower company. The Bill proposes to empower banks and financial institutions to accept the immovable property in full or partial satisfaction of the bank's claim against the defaulting borrower in times when they cannot find a buyer for the securities. The Bill also seeks to enable banks or any person to file a caveat so that before granting any stay, the bank or person is heard by the Debt Recovery Tribunal. The Bill proposes to provide for registration of transactions of securitisation, reconstruction or creation of security interest in the Central Registry, which are subsisting on or before the establishment of Central Registry. It also seeks to give powers to the central government to extend the time for filing of such transaction with the Central Registry.

The Bill proposes to include multi-State co-operative banks to the existing definition of bank in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Bill also seeks to permit multi state co-operative banks with respect to debts due before or after the commencement of the proposed legislation, to opt to initiate proceedings either under the Multi State Co-operative Societies Act, 2002 or under the Debt Recovery Tribunal. The Bill proposes to enable banks and financial institutions to enter into settlement or compromise with the borrower. It also seeks to empower the Debts Recovery Tribunal to pass an order acknowledging any such settlement or compromise.

2. The Banking Laws (Amendment ) Bill, 2011

The Banking Laws (Amendment) Bill, 2011 seeks to strengthen the regulatory powers of the Reserve Bank of India. It aims to address the issue of capital raising capacity of banks in India. The Bill seeks to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980.

For persons who wish to acquire five percent or more of the share capital of a banking company, it will be mandatory to obtain prior approval from the RBI. The existing Competition Act, 2002 has given the power to the Competition Commission of India to regulate mergers and acquisitions. The Bill proposes to exempt combinations of banking companies from seeking such permission as these are regulated by RBI. The Bill proposes to establish a "Depositor Education and Awareness Fund". The Fund will take over the deposit accounts which have not been claimed or operated for a period of ten years or more. The Bill also proposes to increase the penalties and fines in certain cases of violation of the Banking Regulation Act, 1949. Such cases would include failure to furnish important information or willful provision of false information.

3. The Unlawful Activities (Prevention )Amendment Bill, 2011

The Bill amends the Unlawful Activities (Prevention) Act, 1967 to make it more effective in preventing unlawful activities, and meet commitments made at the Financial Action Task Force (an intergovernmental organization to combat money laundering and terrorism financing). The Bill amends the original Act to include the definition of a 'person'. It also clarifies that the 'proceeds of terrorism' include property intended to be used for terrorism. The Bill also expands the definition of 'property' by using the phrase 'instruments in any form including but not limited to' those listed in the original definition. The Bill increases the period for which an association can be declared as unlawful from two years to five years. It expands the definition of 'terrorist act. Under the Bill, raising funds likely to be used (in full or in part) to commit a terrorist act or for the benefit of terrorists shall be punishable irrespective of whether the funds have been raised from legitimate or illegitimate sources. The Bill inserts new sections to include offences by companies, societies or trusts. Every person who, at the time of the offence, was responsible for the conduct of the business shall be punishable with imprisonment for seven or more years and a fine between five to ten crore rupees. The Bill confers additional powers upon the court to provide for attachment or forfeiture of: a. Property equivalent to the counterfeit Indian currency involved in the offence., b. Property equivalent to the value of the proceeds of terrorism involved in the offence., c. All or any of the property of an accused, based on evidence produced before the court, in cases where the trial cannot be concluded.

4. The Prevention of Money Laundering (Amendment) Bill, 2011

This Bill seeks to amend the Prevention of Money Laundering Act, 2002. The Bills proposes to introduce the concept of 'corresponding law' to link the provisions of Indian law with the laws of foreign countries. It also adds the concept of 'reporting entity' which would include a banking company, financial institution, intermediary or a person carrying on a designated business or profession. The Bill expands the definition of offence under money laundering to include activities like concealment, acquisition, possession and use of proceeds of crime. The Prevention of Money Laundering Act, 2002 levies a fine up to Rs 5 lakh. The Bill proposes to remove this upper limit. The Bill seeks to provide for provisional attachment and confiscation of property of any person (for a period not exceeding 180 days). This power may be exercised by the authority if it has reason to believe that the offence of money laundering has taken place. The Bill states that in the proceedings relating to money laundering, the funds shall be presumed to be involved in the offence, unless proven otherwise. The Bill proposes to provide for appeal against the orders of the Appellate Tribunal directly to the Supreme Court within 60 days from the communication of the decision or order of the Appellate Tribunal. Part B of the Schedule in the existing Act includes only those crimes that are above Rs 30 lakh or more whereas Part A did not specify any monetary limit of the offence. The Bill proposes to bring all the offences under Part A of the Schedule to ensure that the monetary thresholds do not apply to the offence of money laundering.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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