CII Global Regulatory Update, September 2013

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“Global Regulatory Update”, a compilation of global and domestic news, opinions on regulatory issues, CII initiatives and representations on regulatory issues. The Update is aimed at keeping CII membership apprised of developments in the international and domestic corporate governance and regulatory landscape.
  • 1. Regulatory GLOBAL UPDATE 4 NATIONAL UPDATE ARTICLES GLOBAL UPDATE 11Inside September 2013, Volume 3, Issue 10 114 1616 Confederation of Indian Industry
  • 2. DISCLAIMERCLAUSE This Regulatory Update has been compiled with a view to update readers and CII membership of changes on the covered topics in the Corporate Governance & Regulatory Affairs domain in the international as well as the domestic front. The compilation must not be taken as an exhaustive coverage of announcements and news nor should it be used as professional advice. Although, every endeavour has been made to provide exhaustive information, no claim would be entertained in the event any information/data/details/text is found to be inaccurate, incomplete, at variance with official data/information/details released through other sources prior or subsequent to release of the issue. This is only a compilationandnotareproductionofannouncements/articles/items.CIIdoesnotsubscribetotheviewsexpressedinthe items. These reflect the author’spersonal views and in the event of any violationof IPR by the subscribers,CII would not be held responsible in any manner. Further, no part of this Update may be reproduced, copied or used without the prior permissionofCII.
  • 3. 1
  • 4. 3 DOMESTIC UPDATES National Updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Appointments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 GLOBAL UPDATES International Updates . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLES Competition Law Update. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 CII's Recent Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 REPORTING AND COMPLIANCE Hedging the financials from. . . . . . . . . . . . . . . . . . . . . . . . . 16 foreign exchange fluctuations Contents
  • 5. GLOBAL REGULATORY UPDATE 4 DOMESTIC UPDATES NATIONAL By : Notification of selective sections of the Companies Act 2013 The Companies Act 2013 received Presidential assent on 29 August 2013. While the entire law comprising 29 chapters - containing 470 sections and VII Schedules - has been enacted, currently 99 sections have been notified. Section 1 (Short title, extent, commencement and application) of theActwasnotifiedon30August2013 while 98 sections were notified on 12thSeptember,2013. Someoftheimportantonesinclude (i) Definitionofsubsidiary2(87) (ii) Loanstodirectors(185) (iii) Prohibitionofinsidertrading (iv) Sections for Constitution of NationalCompanyLawTribunal (v) Offencestobenon-cognizable (vi) Punishmentforfraud (vii) Powertoremovedifficulty During the CII National Conference on Companies Act, 2013, CII had brought up that while the sections of the new Act had been notified, the corresponding sections of the old Act wereyettoberepealed. To clear this discrepancy, MCA has vide Circular No.16 dated 18-09-2013, clarified that with effect from 12-09- 2013, the relevant provisions of the Companies Act, 1956, which correspond to provisions of 98 Sections of the Companies Act, 2013 brought into force on 12.09.2013, Clarification on applicability of notified sections vis-à-vis old Companies Act cease to have effect from that date (12-09-2013). MCA has also issued Companies (Removal of Difficulties) Order, 2013 dated20thSeptember,2013 [F.No. l/l 5/20 I 3-CL-V] to clarify that matters, proceedings or cases before the Company Law Board shall continue with the Board until transfer totheTribunalu/s434. The Companies Act, 2013 relies heavily on subordinate legislation for the implementation of various provisions of the Act. Currently, the Ministry of Corporate Affairs has developed draft Companies (Removal of Difficulties) Order, 2013 MCA hosts draft Rules under the Companies Act 2013 for public consultation
  • 6. 5 Rulesfor24chaptersandpostedthem on the Ministry's website for comments from stakeholders. The first tranche of Rules cover the following16chapters: ChapterI-Preliminary Chapter II - Incorporation of Company andMattersIncidentalThereto ChapterVI-RegistrationofCharges Chapter VIII - Declaration and PaymentofDividend ChapterIX-AccountsofCompanies ChapterX-AuditandAuditors Chapter XI - Appointment and QualificationofDirectors Chapter XII - Meeting of Board and its Powers Chapter XVI - Prevention of OppressionandMismanagement Chapter XVIII - Removal of Name of Companies from the Register of Companies C h a p t e r X I X - R e v i v a l a n d RehabilitationofSickCompanies C h a p t e r X X I I - C o m p a n i e s IncorporatedOutsideIndia Chapter XXIII - Government Companies Chapter XXIV - Registration Offices andFees ChapterXXVI-Nidhi ChapterXXIX-Miscellaneous The Ministry has provided a 30 day windowtill8October2013forindustry and other stakeholders to respond to thedraftrules. The second tranche covers 9 chapters which were hosted on 20 September 2013. A similar 30 day window has also been provided for these Rules for industry and other stakeholders to submittheirviews. ChapterIII-ProspectusAndAllotment OfSecurities Chapter IV - Share Capital And Debentures Chapter VII - Management and Administration Chapter XIII - Appointment And Remuneration Of Managerial Personnel Chapter XV - Compromises, ArrangementAndAmalgamations ChapterXVII -RegisteredValuers Chapter XXI - PART I. - Companies authorizedtoregisterunderthisAct Chapter XXVIII: (Rules in respect of C l a u s e 4 4 2 : M e d i a t i o n A n d ConciliationPanel) National Company Law Appellate TribunalRules,2013. The remaining rules are slated to be placed for public consultation at the endofthismonth. CII is in the process of building up industry's viewpoints on the draft Rules. Based on a considered and consensual view emerging out of various deliberations, CII would be submittingitsdetailedinputson the drafts with an objective of making the process conducive to business environment. Members are requested to write in with their views on the draft Rules urgently to Committee for Reforming the Regulatory Environment for Doing Business in India submits its report The Committee for Reforming the Regulatory Environment for Doing Business in India submitted its report to the Ministry of Corporate Affairs in September 2013. The Committee was set up in August 2012. The proximate cause of the establishment of the Committee was the Word Bank's Doing Business Report which ranked India amongst the countries ranked at the bottom of various sub-indices. The Committee was tasked to look into various parameters which affect the regulatory environment for doing business in India and make appropriaterecommendations. The Report of the Committee has been crystallized in six thematic chapters covering the dispute resolution, architecture of the regulatory space, measures to boost efficacy of regulatory process, improving business environment for micro, small and medium enterprises, addressing issues at the state level and revisiting the report of the World Bank Review Panel on Doing Business Report.
  • 7. GLOBAL REGULATORY UPDATE 6 The Recommendations are classified in various headings, namely, (a) legal reforms (b) regulatory architecture (c) boosting efficacy of regulatory process (d) enabling MSMEs, and (e) addressing state level issues. They include: LegalReforms 1) Reviewoflawsandregulations 2) Encouraging arbitration to resolve contractualdisputes RegulatoryArchitecture 3) Carving out clear mandate for a newregulatoryauthority 4) Appointments in and supervision ofregulatoryauthorities 5) A u t o n o m y o f r e g u l a t o r y authorities 6) Self evaluation by regulatory organizations Boosting Efficacy of Regulatory Process 7) Ensuring effective consultation throughatwo-stageprocess 8) Allocating priority to systemic issues 9) P u t t i n g i n p l a c e c o n s e n t mechanism for matters of low significance 10)Draftingregulation 11) Systemofadvanceruling 12) Setting up regulatory review authority 13) R e v i e w i n g t h e p r o p o s e d regulations 14)Regulatory Impact Assessment (RIA) EnablingMSMEs 15) Setting up a overarching body to enable policy and process coordinationforMSMEs 16) Singlewindowmechanism 17) Timebounddecisionmaking AddressingStateLevelIssues 18) Information facilitation through nodalpoint 19) Incentivising regulatory reforms amongststates 20) Building in appellate process by design Indian Institution of Corporate Affairs (IICA) and BSE Ltd. have signed an MoU to work collaboratively to develop a Corporate Social Responsibility (CSR) index, take up capacity building on CSR, conduct e d u c a t i o n a n d a w a r e n e s s programmes, and other activities to facilitate a more effective corporate participation in CSR areas. In the new Companies Act, 2013 it has been mandated for eligible companies to spend 2% of their profits on CSR activities. The proposed IICA-BSE CSR Index shall assess impact and performance of companies listed at BSE in CSR Indian Institute of Corporate Affairs Signs MoU with BSE to Collaborate on Developing India's First CSR Index activities.TheIndexwouldalsolookat theperformanceofcompaniesintheir mandatory CSR spend as per the new Companies Act, 2013 as one of the important and objective criteria. The information provided in the public domain on CSR activities by these listed companies and which is also assured,shallhavemorepreferencein the various evaluation parameters of the Index. Performance of the companies in CSR areas would be c o m b i n e d w i t h t h e m a r k e t performance of companies for selection of companies. The Index would be sector neutral. Companies eligible to be included in the Index for further evaluation shall ensure basic compliance as per proposed CSR regulations. RBI has issued circular dated 13 September 2013 for revising the FDI policy for definition for control and sector specific conditions. The definitionof'control'shallbe: 'Control' shall include the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements. The Governments of Himachal Pradesh and Karnataka have also given consent to implement the FDI Notification or revision of FDI Limits in FEMA
  • 8. 7 policy on Multi Brand Retail Trading in Himachal Pradesh and Karnataka respectively. As such, the list of States/Union Territories which have conveyed their concurrence stands modified. Also in order to bring u n i f o r m i t y i n t h e s e c t o r a l classification position for FDI as notified under the Consolidated FDI Policy Circular with the FEMA Regulations, the policy on FDI caps and routes for various sectors has since been reviewed. These deal with change in the definition of control, notification of MBRT clarifications dealing with back-end infrastructure, sourcing from MSMEs and cities in which retail outlets may be set up and revision of routes and sectoral caps in sectors like telecom, courier services, ARCs, commodity exchanges, CICs, powerexchangesetc. With a view to having a broad-based representation of all classes of shareholders on the Board of Directors of the Exchange to strengthen corporate governance, the Commission has decided the following:- (i) The representation of the Anchor investor on the Board of the Exchange shall not be more than t h e p r o p o r t i o n o f t h e i r shareholding, which will be a maximum of 26% at the end of the fifth year of the Exchange's operation. Forward Markets Commission issues Guidelines for constitution of the Board of Directors, Nomination of Independent Directors and appointment of Chief Executives at the Nationwide Multi Commodity Exchanges (ii) The representation of the class of Shareholders at 3(b) and 3(c) above shall not be less than one- half of the total number of Shareholder Directors. Further, any of these shareholders shall not have more than one representativeontheBoard. (iii) The representation of other classes of shareholders on the Board shall be as per their eligibility for appointment on the Board. The RBI by its circular dated August 19, 2013 has permitted Foreign Institutional Investors ('FII') to invest in Asset Reconstruction Companies ('ARC') and has increased the cap on foreign direct investment from 49% to 74%.The ARC investment will be subject to the sponsor'sholding not exceeding50% and the FII's holding not exceeding 10%of the total paid-up capitaloftheARC. The circular has enhanced the FII investment limits in Security Receipts ('SR')from 49% to 74% of the paid up valueofeachtrancheofschemeofthe Foreign Investment in Asset Reconstruction Companies SR. The earlier individual limit for investment by a single FII in each trancheofSRhasbeenremoved. TheRBIbyitscirculardatedAugust20, 2013 has liberalised the policy for investment in Portfolio Investment Scheme ('PIS') for Non-resident Indians ('NRI') to attract inflow of foreign currency. The earlier requirement for banks to maintain a unique code for each branch, which made the process cumbersome has been dispensed with. The designated branch of the bank is now permitted to grant a one-time permission to the NRI applicant for the purchase and sale of shares or convertible debenturesofanIndiancompany.The said shares or debentures acquired by the NRI under the scheme cannot be pledged for giving loan to a third party without prior permission of the RBI or investintherealestatesector. The RBI with a view to improving transparency in the securities market has by its circular dated August 26, Portfolio Investment Scheme for NRIs relaxed Reporting of OTC transactions in Securitized Debt Instruments
  • 9. GLOBAL REGULATORY UPDATE 8 the stages of construction of the housing project. These include the exposure of the banks in case of disputes between parties, borrowers being exposed to a lower credit rating o n d e l a y e d p a y m e n t s b y developers/builders on behalf of individualborrowers. In order to avoid the aforementioned risks banks have been asked to not make upfront disbursal in cases of i n c o m p l e t e / u n d e r - construction/green field housing projects. The RBI by its Circular dated September 4, 2013 has decided to increase the permissibility for exporters to cancel and rebook forward contracts involving Rupee as one of the currencies, from 25 percent to 50 percent of the contracts booked in a financial year for hedging their contracted export exposures. Also, the importers which were earlier not permitted are now allowed to hedge their current and capital account transactions to the extent of 25 percent of the contracts booked in a financialyear. These changes have been made keeping in mind the evolving market conditions and with a view to providing operational flexibility to exporters and importers to hedge theirforeignexchangerisk. The RBI by its Circular dated September10,2013modifieditsearlier Exporter and Importers allowed tohedge their foreign exchange risk Overseas Direct Investment Regulation modified-Corporate Guarantee can be furnished by entity having indirect holding circular pertaining to overseas direct investment. The Indian party issuing a corporate guarantee on behalf of the second generation or subsequent levelstepdownoperatingsubsidiaries will be considered under the Approval Route, provided the Indian party indirectly holds 51 per cent or more stake in the overseas subsidiary for which such guarantee is intended to be issued. The dispensation of the "direct" holding of 51% now permits companiestofurnishguaranteeseven without directly holding a 51% stake in the company on behalf of which it is issuingtheguarantee. The RBI has by its circular dated September 4, 2013 decided to allow eligible borrowers to avail of external commercial borrowings ('ECB')from their foreign equity holders ('Lender')to be utilized for general corporatepurposessubjectto: i. the Lender holding directly a minimum paid-up equity of 25% of theborrower; ii. the a vailment of ECB shall be according to the extant ECB guidelines; iii. Repayment of the principal has to commence only after completion ofatleast7years.Noprepayment willbeallowedbeforematurity. The RBI by its Circular dated September 5, 2013 has decided to increase the borrowing limit for authorised dealers from Head Office/ branch or correspondent outside ECBs can now be utilized for General Corporate Purposes Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Fourth Amendment) Regulations, 2013 2013 made the reporting of over the counter ('OTC') transactions in securitized debt instruments within 15 days of its trade on the Fixed Income Money Market and Derivatives AssociationofIndiamandatory. The RBI has by its circular dated 30 August 2013 prohibited Urban Co- operative Banks ('UCBs') from making donations to trusts having charitable or benevolent objects in which the directors or their relatives of such UCBs are interested."Interest" has been defined to mean the director or his relative is either a trustee or a beneficiary or is working in a way which is likely to influence the independenceofthedirectors. The RBI by its circular dated September 3, 2013 has highlighted the risks involved in the innovative housingloan schemes (popularly known as 80:20, 75:25 Schemes) introduced by certain banks in association with developers/builders that provide up front disbursal of loans without linking the disbursals to Restriction on donations to Trusts and Institutions where Directors, their relatives hold position or are interested Innovative Housing Loan Products risky
  • 10. 9 India. This has been increased from 50% to 100% or such other limit as may bedecidedbyRBIfromtimetotime. The RBI by its circular dated September 5, 2013 has decided to permit AD Category- I bank to issue bank guarantee on behalf of a non- resident acquiring shares or convertible debentures of an Indian company through open offers / delisting/exit offers, provided that the guarantee is covered by a counter guarantee given by a bank of an internationalrepute. The RBI by its Circular dated September 6, 2013 has decided to permit an increase which now allows any person resident in India to take outside India or who had previously gone out of India on a temporary visit, to bring into India (other than to and from Nepal and Bhutan) currency notes upto Rs. 10,000 from the earlier Rs7,500. The RBI by its Circular dated September 6, 2013 has decided to allow Non-resident Indians to acquire shares of a listed Indian Company on the recognised stock exchanges through a registered broker under the FDI Scheme provided thatthe non- resident investor has already acquired and continues to hold the control in Issue of Bank Guarantee on behalf of person resident outside India for FDI transactions ExportandImportofCurrency Purchase of shares on the recognised stock exchanges in accordance with SEBI (Substantial Acquisition of Shares and Takeover) Regulations accordance with the SEBI Takeover Regulations,2011. The other conditions that are required to be complied with include those relating to pricing, manner of payment of consideration and compliance with other aspects of the FDIpolicysuchassectoralcaps. With a view to providing greater flexibility to AD Category - I banks in seekingaccesstooverseasfundsfrom its head office, overseas branches or correspondents, the RBI by its circular dated September 10, 2013 has enhanced its borrowing limit to 100% of its unimpaired Tier I capital as at the close of the previous quarter or USD 10 million, whichever is higher, subject tocertaincompliancesincluding: (i) The bank having a board approved policy on overseas borrowings which shall contain the risk management practices that the bank would adhere to while borrowing abroad
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