Wednesday, 25 February 2015

RBI January 2015

Notification/Circular no. Date Subject Amendment
DCBR.CO.BPD (RCB).Cir.No.09/14.01.062/2014-15
7.1.2015 StCBs/CCBs-Designated Director – Amendment to section 13(2) of Prevention of Money Laundering Act (PMLA) 2002  It was advised to  State / Central cooperative banks to nominate a Director on their Boards as ‘Designated Director’ to ensure compliance with the obligations under the Prevention of Money Laundering (Amendment) Act, 2012 in the earlier circular in clarification to that, it is clarified that StCBs/CCBs can also designate a person who holds the position of senior management or equivalent as a ‘Designated Director’. but  the Principal Officer cannot be nominated as the ‘Designated Director’. 
FEMA.334/2015-RB 9.1.2015 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Amendment) Regulations, 2015 RBI amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 whereby the invesment in Pharmaceuticals sector has been revised with certian conditions and allowing investment in                                 Greenfield  100%  Automatic
Brownfield  100%  Government
15.1.2015 Entry of Banks into Insurance Business  The notification states that banks may undertake insurance business by setting up a subsidiary/joint venture, as well as undertake insurance broking/ insurance agency/either departmentally or through a subsidiary subject to the conditions of "Guidelines for Banks undertaking Insurance Broking and Agency Business"                                                                           it also states that if a bank or its group entities, including subsidiaries, undertake insurance distribution through either broking or corporate agency mode, the bank/other group entities would not be permitted to undertake insurance distribution activities, ie, only one entity in the group can undertake insurance distribution by either one of the two modes mentioned above.                                                                                              
16.01.2015 Review of Guidelines on Restructuring of Advances by NBFCs  The guidelines deals with the new cretaria for treatment of advances for restructuring by the NBFCs.                                 The guidlines revise the  date of commencement of commercial operations (DCCO) and consequential shift in repayment schedule for equal or shorter duration will not be treated as restructuring subject to conditions laid down in the Circular.
RBI/2014-15/413 DNBR.PD.CC.No.012/03.10.001/2014-15 19.01.2015 Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries Amendment to the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 
A.P. (DIR Series) Circular No.59
22.01.2015 Overseas Direct Investments by proprietorship concern / unregistered partnership firm in India Notification provides for revised terms and conditions  to be complied with for considering the proposal of Overseas Direct Investment, by a proprietorship concern / unregistered partnership firm in India, by the Reserve Bank under the approval route
A.P. (DIR Series) Circular No. 61
22.01.2015 Depository Receipts Scheme  A new scheme called ‘Depository Receipts Scheme, 2014’ (DR Scheme, 2014) for investments under ADR/GDR have been notified by the Central Government effective from December 15, 2014 which provides for repeal of extant guidelines for Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 except to the extent relating to foreign currency convertible bonds.

The salient features of the new scheme are:

    The securities in which a person resident outside India is allowed to invest under Schedule 1, 2, 2A, 3, 5 and 8 of Notification No. FEMA. 20/2000-RB dated 3rd May 2000 shall be eligible securities for issue of Depository Receipts in terms of DR Scheme 2014;

    A person will be eligible to issue or transfer eligible securities to a foreign depository for the purpose of issuance of depository receipts as provided in DR Scheme 2014.

    The aggregate of eligible securities which may be issued or transferred to foreign depositories, along with eligible securities already held by persons resident outside India, shall not exceed the limit on foreign holding of such eligible securities under the extant FEMA regulations, as amended from time to time.

    The eligible securities shall not be issued to a foreign depository for the purpose of issuing depository receipts at a price less than the price applicable to a corresponding mode of issue of such securities to domestic investors under FEMA, 1999.

    It is to be noted that if the issuance of the depository receipts adds to the capital of a company, the issue of shares and utilisation of the proceeds shall have to comply with the relevant conditions laid down in the Regulations framed and Directions issued under FEMA, 1999.

    The domestic custodian shall report the issue/transfer of sponsored/unsponsored depository receipts as per DR Scheme 2014 in ‘Form DRR’ as given in Annex within 30 days of close of the issue/ program.
A.P. (DIR Series) Circular No.64
23.01.2015 External Commercial Borrowings (ECB) Policy – Simplification of Procedure  Authorised Dealer (AD) are being notified of that the  Category-I banks were invited and under the  A.P. (DIR Series) Circulars  powers have been delegated to them to deal with cases related to change in draw-down and repayment schedules of ECBs subject to conditions specified in the Circular
DCBR.CO.LS (PCB) Cir.No.4/07.01.000/2014-15
29.01.2015 Review of norms for classification of Urban Co-operative Banks (UCBs) as Financially Sound and Well Managed (FSWM) The notification is in regards to the clarification to the defination of  "regulatory comfort" under the circular issued in October 2014. The notification define regulatory comfort for the purpose of classification of an UCB as FSWM would now include compliance to the provisions of Banking Regulation Act, 1949 (AACS), Reserve Bank of India Act, 1934 and the instructions / directions issued by RBI from time to time i.e. the bank should have track record of regulatory compliance and no monetary penalty should have been imposed on the bank on account of violation of RBI directives / guidelines during the last two financial years.

MCA January 2015

Notification/Circular no.
Notification authorizing officers for filing complaint under section 159 read with section 155 of the Companies Act, 2013
The Central Government has authorise the following officers in the office of Regional Director (Northern Region) at Noida for the purposes of filing complaint under section 159 of the siad Act in respect of offences under section 155 of the Companies Act, namely:—
 Name of Officers
1. Dr. Raj Singh, Joint Director
2. Shri A. M. Singh, Joint Director
3. Ms. P. Sheela , Joint Director
4. Shri R. K. Tiwari, Joint Director
5. Shri Ch. Jaganadh Reddy, Assistant Director

The Companies (Accounts) Amendment Rules, 2015
This amendment provides for filling of Form AOC-5 for notice towards the change of address of the books of the accounts, as per the first proviso to sub section (1) of section 128 of the Companies Act, 2013. 
GSR 42(E)
The Companies (Appointment and Qualification of Directors) Amendment Rules, 2015
The Rules further amends the Companies (Appointment and qualification of Directors) rules by way of insertion of new provisio to the Rule 16 of the Companies (Appointment and qualification of Directors) rules. The newly added proviso states that  "in case Company had already filled Form- DIR 12, with the Registrar under Rule 15, a foreign director, resigning from his office may authorise in writing a practising Chartered Accountant, Cost Accountant in practice or a Company Scertary in practice or any other resident director of the Company to sign Form- DIR 11 and file the same on his behalf intimating the reasons for resignation.

SEBI January 2015

Circular no.
Date Subject Amendment
LAD-NRO/GN/2014-15/21/85 15/01/2015 SEBI( Prohibition of Insider Trading) Regulation 2015 The new Insider Trading regulation is been notified but it has not come into effect, it will be enforce from 120 days of notification. 

Tuesday, 17 February 2015

Can't have the cake and eat it too

The instant case[1]  arises out of a Special Leave Petition No. 15314 of 2014. A special suit was filed at Aurangabad by a partnership firm being M/S Rana Sahebram Mannulal and others pertaining to the disputes arising out of the partnership business. The appellants were Defendants in the aforementioned suit. The appellants filed an application under Section 9 of the Code of Civil Procedure, which was deemed to be an application under Section 8(1) of the Arbitration and Conciliation Act 1996 (“the Act”) for dismissal of the special suit since the partnership deed contained a provision for arbitration and thus the disputes were to be resolved in terms of the Act. The application was opposed by the present Respondents (Plaintiff in the special suit) and an Arbitration Application under Section 11(6) of the act seeking appointment of an arbitrator as per the terms of the partnership deed was filed by them to the Chief Justice at the High Court of Bombay.

The following issues were to be considered by the Supreme Court:-

i) Whether a party to the proceedings can invoke the jurisdiction of the Chief Justice under Section 11(6), once the judicial authority has taken a final decision under Section 8(1) of the Act declining to refer the dispute pending before it to arbitration?
ii) What is the scope of Section 8(3) of the Act?

The trial court opined that it was within the jurisdiction of the court to try the dispute and no reference to arbitration was required under law.

The high court while interpreting Section 8(3) along with section 11 of the Act held that in accordance with the partnership deed, a proper person shall be appointed as an arbitrator to entertain dispute between the parties.

Issue No 1: Once the judicial authority takes a decision not to refer the parties to arbitration, and the said decision has become final, thereafter jurisdiction under Section 11(6) cannot be invoked by either parties

It was held by the Supreme Court that the application filed by the Respondents under Section 11 of the Act was not maintainable as it amounts to abuse of process of law. The abovementioned application was filed when the civil suit was at its final stage. The respondent themselves had opposed to the reference to Arbitration and had hence approached the civil court. Considering the decision of the court has become final, the Respondents cannot invoke the jurisdiction under Section 11(6) of the Act as the same is hit by the principle of estoppels.

Further, the Supreme Court also upheld the decision of the Lower Court regarding the jurisdiction of a civil court to adjudicate a dispute despite the existence of arbitration clause in the partnership deed. Thus, the jurisdiction under Section 11 (6) cannot be invoked as the same attracts principles of res judicata.

Issue No 2: Scope of Sub clause 3 of Section 8 of the Act

This was an ancillary issue and the court has not dealt with the same in detail. Section 8(3) of the Act permits the parties to commence and continue arbitration proceedings despite the pendency of an application under Section 8(1) of the Act.


Exclusive trading channels challenged under Competition law

Mr. Ashish Ahuja (informant) [1] had filed an information under Section 19 (1) (a) of the Competition Act, 2002 (the Act) in the Competition Commission of India against (Opposite Party 1) and SanDisk Corporation (Opposite Party 2) that both of them were acting jointly to create a monopoly on the online marketplace. The informant is engaged in selling various storage products like pen-drives, hard disks, laptops etc. at very competitive prices for which he had entered into an online agreement on 28.11.2013 with which is an online portal. Upon a letter containing the list of authorized distributor (the details of which were kept confidential from the informant) from the Indian sales office of SanDisk Corporation, USA the selling of the products of the informant were stopped without notice by Thereafter, and SanDisk asked the informant to enter into an Authorized Distributor Agreement with SanDisk. The informant alleged this act as a connivance to hinder his competitive prices which were lesser than those offered by other sellers. It was also noted by the informant that other sellers were still being allowed to sell their respective SanDisk products on Issues were as follows:

1.   Whether the insistence of SanDisk Corporation to get its product sold on online portals from its authorized distributor is abusive and in violation of Section 3 and Section 4 of the Act?
2.   Whether is in contravention of Section 3 and 4 of the Act?
3.   Whether SanDisk Corporation and are conniving against the informant because of the low prices offered by him?

The Commission observed in the present case that SanDisk’s insistence that its devices be sold on online portals should be bought only from its authorized distributors and therefore seeking a like agreement from the informant cannot by itself be considered as abusive as it has the right to protect the sanctity of its distribution channel and safeguard its brand image and goodwill. Hence, the act of SanDisk to get its product sold on online portals from its authorized distributor is not abusive or in violation of Section 3 or 4 of the Act. is also not at fault as it is not engaged in the purchase or sale of storage devices rather it owns/manages the web portal and is not even a dominant player in its sector. Hence, it cannot be held that it is in contravention of Section 3 or 4 of the Act.

The allegation by the informant that other sellers are still allowed to sell their SanDisk products on the portal fails to prove that the other sellers’ products are not sourced from authorized distributors. Hence, there is nothing to show any connivance against the particular informant. No case of contravention of the sections of the Act was made out against the opposite parties and the information was ordered to be closed as per Section 26 (2) of the Act.


Boundaries reiterated for Section 34

The present case[1] arises out of the petition filed by the Petitioner under Section 34 of the Arbitration and Conciliation Act, 1996 to assail the interim/ partial award dated 04.04.2007 passed by a three member arbitral tribunal. The dispute between the parties arose out of the differences pertaining to the quantum of deduction that could be made from the fixed lump sum price of the project, on account of exemption from customs duties and other indirect taxes (i.e. the excise duty component of the indirect taxes) granted by the Government of India in relation to the project. According to the Petitioner the agreed declared amounts of the deductions, that were permissible under the contract, were limited to Rs. 206.4 Crores as per Clause 4 of the 'contract agreement' between the parties. While the Respondent has placed reliance on the Clause 13.1 of 'General Conditions of Contract' which very clearly states that if any benefit arises due to exemption in Custom Duty or Excise Duty to the claimant (Petitioner in the present dispute), the said benefit should be passed on to the employer (Respondent in the present dispute).

The learned arbitral tribunal, on the interpretation of the clauses of the 'General Conditions of Contract' (hereinafter "GCC") along with the 'contract agreement' held that the Respondent is entitled to deductions in excess of the said amount on the basis of the "actual benefits" accrued to the Petitioner on account of exemptions.

The Hon’ble High Court upheld the decision passed by the Learned tribunal and further dismissed the petition filed by the Petitioner. Following reasons were given by the Hon’ble High Court in support of its decision dated 05.01.2015.
1.   If the intention of the parties, at the time of entering into the contract was not to pass on the benefit, beyond Rs. 206.4 Crores to the employer in case of grant of any tax/duty exemption at a later stage, they would not have included Clause 13.1 in the GCC, which forms part of the Contract. It was inserted with an aim to avoid any confusion as to who the beneficiary will be, if during the existence/course of the contract, any tax/duty exemption is granted by the Government.

It is settled law that if the arbitrator has applied his mind to the pleadings, the evidence adduced before it, and the terms of the contract, the court would not reappraise the matter as if it were an appeal. Interpretation of contractual terms is a matter within the domain of the arbitrator. Even if the interpretation adopted by the arbitrator is not the only possible view, it being a plausible view, without any patent illegality in the conclusions drawn by the arbitrator, it is beyond the scope of jurisdiction of this court under Section 34 of the Act to interfere with the award on this aspect.

Decided on:  05.01.2015 Decided by:  Delhi High Court