India: Corporate Law Alert February 12, 2013

Last Updated: 1 March 2013
Article by Amit Kapur

Reporting under the Foreign Exchange Management Act, 1999

The Reserve Bank of India (RBI) has from time to time entrusted the responsibility of complying with the prescribed rules/ regulations framed under the Foreign Exchange Management Act, 1999 (FEMA) for foreign exchange transactions to the Authorised Dealer Banks (AD Banks).

The RBI has vide A.P. (DIR Series) Circular No. 76 dated January 17, 2013, for the purpose of ensuring compliance with the provisions of the FEMA and the rules, regulations, notifications, directions or orders made there under, reiterated that it may impose penalty on the AD Banks for contravention of any direction given by RBI under FEMA or failing to file any return as directed by RBI.

The aforementioned circular has been issued since it has been brought to RBI’s notice during the compounding process that often contraventions of the provisions of the FEMA by corporates and individuals are attributable to the acts and omissions of the AD Banks.

External Commercial Borrowings Policy – Repayment of Rupee Loans and/or Fresh Rupee Capital Expenditure

The RBI has vide A.P. (DIR Series) Circular No. 78 dated January 21, 2013 on a review of the External Commercial Borrowing (ECB) Policy decided to include Indian companies in the hotel sector ( with a total project cost of INR 250 million or more), irrespective of geographical location as eligible borrowers. The AD Bank may certify the project cost at the time of forwarding the ECB application to the RBI. All other aspects of the scheme will remain unchanged and the amended policy has come into force from the date of issue of this circular.

Exchange Earner’s Foreign Currency Account, Diamond Dollar Account and Resident Foreign Currency Domestic Account

The RBI has vide A.P. (DIR Series) Circular No. 79 dated January 22, 2013, as a measure of rationalization, decided to dispense with the stipulation made in A.P. (DIR Series) Circular No. 124 dated May 10, 2012 with respect to Exchange Earner’s Foreign Currency (EEFC) Account holders being permitted to access the forex market for purchasing foreign exchange only after utilizing fully the available balances in the EEFC accounts. This dispensation will also apply to Diamond Dollar Accounts and Resident Foreign Currency Domestic Accounts. All other provisions regarding these classes of accounts will remain unchanged.

Foreign Exchange Management (Transfer or Issue of Security by a person resident outside India) (Second Amendment) Regulations, 2013

The RBI has vide A.P. (DIR Series) Circular No. 80 dated January 24, 2013 amended, the terms by which Securities Exchange Board of India (SEBI) registered Foreign Institutional Investors (FIIs) may purchase on repatriation basis Government securities and non- convertible debentures (NCDs)/ bonds issued by an Indian company subject to such terms and conditions as mentioned therein and limits as prescribed by SEBI and RBI from time to time.

The earlier position, prior to the present review by the RBI, had been laid down in A.P. (DIR Series) Circular No. 135 dated June 25, 2012, in terms of which FIIs and long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks to be registered with SEBI could invest in Government securities having residual maturity of three years at the time of first purchase upto USD 10 billion within the overall limit of USD 20 billion for FII investment in Government securities subject to the relevant terms and conditions. In respect of infrastructure debt, RBI had provided a lock in period for the limit of USD 22 billion including USD 10 billion for non-resident investment in Infrastructure Debt Funds (IDFs) having lock in period of three years (which is within the overall limit of USD 25 billion for investment in NCDs/ bonds in the infrastructure sector) which was uniformly reduced to one year.

The RBI has reviewed the policy and the revised position is as follows:

(A) Government Securities

(i) The sub-limit of USD 10 billion for investment by FIIs and the long term investor in dated securities stands enhanced by USD 5 billion, i.e., from USD 10 billion to USD 15 billion. Accordingly, the total limit for investment in Government securities stands enhanced from USD 20 billion to USD 25 billion.

(ii) The condition of three years residual maturity of the Government securities at the time of purchase for the above sub limit shall no longer be applicable. Thus, residual maturity condition shall not be applicable for the entire sub limit of USD 15 billion but such investments will not be allowed in short term paper like Treasury Bills.

(B) Corporate Debt

The revised position regarding corporate debt limits is as set out hereunder:

(i) The limit for FII investment in corporate debt in other than infrastructure sector stands enhanced by USD 5 billion, i.e., from USD 20 billion to USD 25 billion However, the enhanced limit of USD 5 billion shall not be available for investment in Certificate of Deposits (CD) and Commercial Papers (CP). Therefore the total corporate debt limit stands enhanced from USD 45 billion to USD 50 billion with sub-limit of USD 25 billion each for infrastructure and other than infrastructure sector bonds. In addition, Qualified Foreign Investors (QFIs) will continue to be eligible to invest in corporate debt securities (without any lock-in or residual maturity clause) and Mutual Fund debt schemes subject to a total overall ceiling of USD 1 billion in terms of A.P (DIR Series) Circular No.7 dated July 16, 2012. This limit of USD 1 billion shall continue to be over and above the revised limit of USD 50 billion for investment in corporate debt.

(ii) The revised limit of USD 25 billion for corporate bonds for other than infrastructure sector shall be available for investment by FIIs and the long term investors like SWFs, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks registered with SEBI.

(iii) Further, as a measure of relaxation, RBI has decided to dispense with the condition of one year lock-in period for the limit of USD 22 billion (comprising the limits of infrastructure bonds of USD 12 billion and USD 10 billion for non – resident investment in IDFs) within the overall limit of USD 25 billion for foreign investment in infrastructure corporate bond. The residual maturity period (at the time of first purchase) requirement for entire limit of USD 22 billion for foreign investment in infrastructure sector has been uniformly kept at 15 months. The 5 years residual maturity requirement for investments by QFIs within the USD 3 billion limit has been modified to 3 years original maturity.

The RBI has vide Notification No. FEMA 255/2013-RB dated January 19, 2013 decided to notify the aforementioned amendments in the FEMA (Transfer or Issue of Security by a person resident outside India) Regulations, 2000 and the same has come into force on the date of publication in the Official Gazette that is January 22, 2013.

Revised requirements for listed companies and stock exchanges for Scheme of Arrangement under the Companies Act, 1956

SEBI has vide its Circular No. CIR/CFD/DIL/5/2013 dated February 4, 2013 revised the requirements of stock exchanges and listed companies with respect to filing of scheme of arrangement.

Prior to the aforementioned circular, pursuant to a scheme of reconstruction or merger/ de-merger/ amalgamation being sanctioned by the High Court under Sections 391-394 and Sections 101 of the Companies Act, 1956, listed companies desirous of getting their equity shares listed after merger/demerger/ amalgamation etc. were required to seek an exemption from SEBI.

SEBI on a review of the past indiscretions by certain entities is of the view that granting listing permission or exemption from the requirements of Securities Contracts (Regulation) Rules, 1957 (SCRR) would be detrimental to the interest of minority shareholders and also at the same time, if listing permission or such an exemption is delayed or denied, it would add to the uncertainty and would deprive shareholders of an exit opportunity.

Therefore, in order to avoid such situations, pursuant to the aforementioned circular, SEBI has accordingly revised the requirements. Some of the salient features of the said circular are as under:

(i) Obligations of listed companies: Listed companies are required to (a) File the draft scheme with the stock exchanges; (b) Place before its Audit Committee a Valuation Report from an Independent Chartered Accountant; (c) Designate a stock exchange with nationwide terminals for the purpose of co-coordinating with SEBI; (d) Circulate an observation letter with the EGM notice to all its shareholders seeking the approval of the scheme; and (e) bring the same to the notice of the High Court at the time of seeking approval of the scheme.

(ii) Obligations of stock exchanges: Stock exchange(s) are inter-alia required to (a) forward the scheme (along with the documents mentioned at (i) above) to SEBI within the prescribed time frame; (b) process the draft scheme filed by the listed company and forward their Objection/ No objection certificate to SEBI within the prescribed time frame; and (c) issue Observation Letter to the listed company after suitably incorporating the comments received from SEBI.

(iii) Processing of the Draft Scheme by SEBI: Upon the receipt of the documents from the stock exchange, SEBI is required to endeavour to process and provide comments on the draft scheme within the prescribed time frame.

(iv) Disclosure on the Website: Within the prescribed time frame, the listed company and the chosen stock exchange need to disclose on their respective websites the draft scheme and all the documents along with the Observation letter (as and when issued)

(v) Redressal of Complaints: The circular sets out the process for re-dressal of complaints by SEBI and the designated stock exchange.

(vi) Shareholders’ approval through special resolution passed through postal ballot and e-voting: Listed companies are required toensure that the scheme which is filed with theHigh Court inter-alia provides for obtainingshareholders’ approval through specialresolution passed through postal ballot and e-votingand the explanatory statement servedon the shareholders in relation to suchresolution sets out all the material facts.

The revised requirements will be applicable to all listed companies which, on the date of this Circular have not submitted the draft scheme to the High Court. It has also been clarified that the revised requirements will also be applicable to listed companies that have submitted the draft scheme with the stock exchanges and have already received approval thereon but have not yet submitted to the High Court, therefore such companies will be required to resubmit the scheme in accordance with the requirements of this circular.

Pursuant to the issuance of this circular, SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09 dated September 03, 2009 stands rescinded. However, anything done or any action taken or pending in respect of the said Circular shall continue to be dealt with under SEBI Circular No. SEBI/CFD/SCRR/01/2009/03/09 except as expressly provided as per the conditions set out in this circular.

Filing of Balance Sheet and Profit and Loss Account in the XBRL Mode for the financial year commencing April 1, 2011

The Ministry of Corporate Affairs (MCA) has vide General Circular 01/2013 dated January 15, 2013 incontinuance of earlier issued circulars increased thetime limit for the filing of financial statements in theXBRL mode without any additional penalty or fee upto February 15, 2013 or within 30 (thirty) days fromthe due date of the annual general meeting of thecompany, whichever is later.

Filing of Cost Audit Report in the eXtensible Business Reporting Language (XBRL) Mode

The MCA vide General Circular No. 02/2013 dated January 31,2013 in continuance of earlier issued circulars has decided that all cost auditors and companies concerned are allowed to file their Cost Audit Reports and Compliance Reports for the year 2011-12 [including overdue reports from the previous year(s)] with the Central Government in the XBRL mode, without any penalty, within 180 days from the close of the company’s financial year to which the report relates or by February 28, 2013, whichever is later.

Relaxation of additional fees and extension of last date for the filing of various forms with the MCA

The MCA has vide Circular No. 03/2013 dated February 8, 2013 decided to extend the last date of filing and relaxed the additional fees applicable on forms as per the provisions of the Companies Act, 1956 read with the rules made there under.

The following relaxations will be considered by the Regional Director (RD)/ Registrar of Companies (RoC) on a case by case basis wherein:

(i) The last date for filing of forms where the due date is falling on or after January 17, 2013 without charging any additional fee;

(ii) All documents which have expired on or after January 17, 2013 due to non-submission/ resubmission PUCL may be restored back;

(iii) All the cases related to filing of court orders/ competent authority where the due date/ date of filing was falling on or after January 17, 2013 is extended without payment of additional fee;

(iv) Expiry of name availability due to non-submission of incorporation documents will be made available for filing the same;

(v) In case of charge documents the due date will be extended by RD on a case to case basis where the due date of filing was on or after January 17, 2013 and could not be filed.

The due date for the above cases has been extended till February 28, 2013.

Further, the MCA has set out the following process for the extension of date for filing of forms:

(i) The company needs to make a request by email/post to the RD/RoC along with all supporting documents, if any.

(ii) The RD/ RoC will raise ticket on service desk immediately after examining the application.

(iii) The team operator will resolve the ticket as per the request of the RD/ RoC. A system generated mail will be sent to the RD/ RoC and the user will be informed accordingly.

(iv) The user should file the documents within the time given in the email.

As per this circular the RD/ RoC are allowed to extend the time for filing forms along with necessary documents.

It has been further clarified that corporates who have been able to file the documents on or after January 17, 2013 till the date of this Circular are not eligible for extension of time or fees relaxation. Also such corporates are not eligible for any refund of fees.

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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