ranj corporate updates june 2011

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TABLE OF CONTENTS

PAGE NO.

CORPORATE AFFAIRS

Green Initiatives in the Corporate Governance

Clarification on marking a company as having management dispute by RoCs

MCA not to take any form on record unless BS, P & L Account & Annual Returns are filed

Ministry makes it mandatory for CSs, CAs, CWAs to digitally sign DIN applications

Form 32 filed with ROC can be challenged in Court of Law

Clarification of applicability of XBRL

Certification of Financial Statements in the XBRL Mode by Practising Professionals

Modification in the instruction regarding payment of MCA fees in electronic mode

Provisions of section 108A to 108I of Companies Act, 1956 not in force now

Clarification in respect of General Circular No: 2/2011 dated 08th February, 2011

Depreciation for the purpose of declaration of Dividend under Section 205 in case of companies referred to in Section 616 (C ) of the Companies Act, 1956

Clarification Loan to Public Limited Company under section 295 of Companies Act.

Clarification regarding effective date of Companies (Particulars of Employees) Amendment Rules, 2011

Limited Liability partnership of chartered accountants will not be treated as ‘Body Corporate’ for the purpose of Section 226(3)(a) of the Companies Act, 1956

The Companies (Passing of the resolution by Postal Ballot) Rules, 2011 provides for voting by electronic mode.

TAXATION

Clarification issued by Tax Research Unit, CBEC regarding Short Term Accommodation Service and Restaurant Service

Instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same by way of Digital Signature

IASB issues four new IFRS

RBI / FEMA

Pledge of shares for Business Purposes

Opening of Bank Account for FDI transactions

FDI in services come down by 22.5 pc to USD 3.4 bn in 2010-11

SEBI

Adjustment of Differential Pricing Amount

Option to hold units of MF schemes in Demat Form

OTHERS

SAT Judgement against AMC- Mutual funds [Subramanian R. Venkat vs. SEBI]

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Green Initiatives in the Corporate Governance

i. Issue of Certificate by Digital Signature

The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by

allowing paperless compliances by the Companies after considering sections 2, 4, 5, and 81 of

the Information Technology Act, 2000 for legal validity of compliances under Companies Act,

1956 through electronic mode.

The Registrar of Companies has to issue a number of certificates to the companies and other

stakeholders as required under the provisions of Companies Act, 1956 read with Companies

Regulation, 1956. At present these certificates are issued physically under the manual signature

of Registrar of Companies and issued by post.

In order to cut timelines and an another step towards “Green Initiative” it has been decided that

all certificates and standard letters issued by the Registrar of Companies will now be issued

electronically under the Digital Signature of the Registrar of Companies.

The Digital Certificates are being developed and will be available for issue by 30th June, 2011 in

phased manner.

ii. Ministry allows holding shareholders' meetings through video conferencing

The Ministry of Corporate Affairs on 20th May 2011 issued a circular allowing the Companies to

hold AGM’s online. It also stated that if a Company wants to hold such an AGM, it will have to

have send a notice informing shareholders about “the availability of participation through video

conference, and provide necessary information to enable shareholders to access the available

facility of videoconferencing.

The Ministry added that the Chairman and Secretary would have to safeguard the integrity of the

meeting via videoconferencing, ensure proper videoconference facilities, prepare the minutes of

the meeting, and ensure that no one other than the concerned shareholder or proxy to the

shareholder is attending the meeting through electronic mode.

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This announcement comes in as a response to representations being received by the Ministry

from various industry bodies to recognize participation by shareholders in meetings under the

Companies Act, 1956 through electronic mode.

This is a part of the MCA’s Green Initiative Campaign for Corporate Governance. Earlier last

month, the MCA had also allowed Companies to send Annual Reports by Email.

iii. Participation by Directors in Board / Committee Meetings through video conferencing

The Ministry of Corporate Affairs has vide Circular No. 28/2011 dated May 20, 2011 clarified that

that a Director of a company may participate in a Board/Committee meeting under the provisions

of Companies Act, 1956 through electronic mode.

Highlights:

� Audio-visual electronic communication facility shall be employed which enables all persons

participating in that meeting to communicate concurrently.

� Every director of the company must attend the meeting of Board/Committee of directors

personally at least one meeting a financial year of the company.

� The notice of the meeting must inform directors regarding availability of participation through

video conference, and provide necessary information to enable directors to access the

available facility of videoconferencing.

� The notice of the meeting shall also seek confirmation from the director as to whether he will

attend the meeting physically or through electronic mode and shall also contain the contact

number(s) / e-mail addresses of the Secretary / designated officer to whom the director shall

confirm in this regard.

� In the absence of any confirmation from the Director, it will be presumed that he will physically

attend the Board meeting.

iv. Approval of appointment of agency for providing electronic platform for e-voting under Companies Act, 1956

The MCA vide Circular No.21 /2011, Dated: 02.05.2011 has taken a “Green Initiative in the

Corporate Governance” by approving appointment of agency for providing electronic platform for

electronic voting under the Companies Act, 1956.

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In order to have secured electronic platform for capturing accurate electronic voting processes,

National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd

(CDSL) are being are being approved by the Ministry of Corporate Affairs subject to the condition

that they obtain a certificate from Standardization Testing and Quality Certification (STQC)

Directorate, Department of Information Technology, Ministry of Communications & IT, Govt. of

India.

Clarification on marking a company as having management dispute by RoCs.

In order to bring uniformity of practices by all Registrar of Companies it is clarified that the Registrar

of Companies shall mark a company as having management dispute under MCA-21 system only in

cases where:

a. the court or Company Law Board has directed to maintain the status quo with reference to any e-

forms including status of Directors in the company, or

b. the Court or Company Law Board has granted any injunction or stay in taking the document on

record and Registrar of Companies is a party in such court cases and/or the directions have

been issued to the Registrar of Companies.

c. the Registrar of Companies in not a party and such orders have been passed and has not been

served to the Registrar of Companies, it is for the parties to comply to such orders and in case of

non-compliances, the law shall take its own course.

MCA not to take any form on record unless BS, P & L Account & Annual Returns are filed It has been observed that some companies are filing only their event based information with the

Registrar of Companies without filing their upto date Balance Sheet and Profit & Loss Account and

Annual Return. In order to ensure corporate governance and proper compliances of the provisions of

Companies Act, 1956, it has been decided that no request, whether oral, in writing or through e-

forms, for recording any event based information/ changes shall be accepted by the Registrar of

Companies from such defaulting companies, unless they file their updated Balance Sheet and Profit

& Loss Accounts and Annual Return with the Registrar of Companies.

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However, in the interest of other stakeholders Form 32, Form 20B, Form 21A, Form DIN-3, Form 21,

Form23AC & 23ACA, Form 1 INV, Form 23B, Form 66, Forms related to Cost Audit Branch, Investor

Complaint Form will continue to be accepted by the Registrar of Companies from such defaulting

companies.

It may be further noted that:

� No e-filing shall be accepted by the Registrar of Companies from Directors of these defaulting

companies for any other company also.

� Company Secretaries and Auditors of these companies will also not be allowed to sign and

certify the filing with MCA-21 system, in respect of these defaulting Companies, till the defect

is rectified.

� Members of ICAI, ICSI and ICWAI must not issue any certificates to such defaulting

companies other than above mentioned e-forms.

� Action will be taken against the defaulting companies and their Directors/ officers in default in

co-ordination with RBI and SEBI.

Ministry makes it mandatory for CSs, CAs, CWAs to digitally sign DIN applications

The Ministry of Corporate Affairs has vide General Circular No. 32/2011, dated 31st May, 2011

decided that with effect from 12th June, 2011, all DIN-1 & DIN-4 applications have to be digitally

signed by the practising Company Secretaries, Chartered Accountants or Cost Accountants who shall

also verify the particulars of the applicant given in the applications. All these applications will be

approved online.

Form 32 filed with ROC can be challenged in Court of Law

In order to cut timelines and bring more transparency in the working of office of Registrar of

Companies, the Form 32 will also be taken on records under Straight Through Process (STP) mode.

The information given in the e-form 32 is being taken on file maintained by the Registrar of

Companies through electronic mode on the basis of statement of correctness given by the filing

company and further verification by the practising professional i.e., Chartered Accountants, Cost

Accountants and Company Secretaries, without prejudice to the rights of the parties to settle the

dispute, if any, in a court of competent jurisdiction.

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Clarification of applicability of XBRL

The MCA had issued a Circular bearing No 09/2010 dated 31.03.2011 which directed certain class of

companies to file balance sheets and profit and loss account for the year 2010-11 onwards by using

XBRL taxonomy. MCA has issued a Corrigendum vide circular No. 25/2011 dated 12th May, 2011

excluding banking companies, insurance companies, power companies, Non Banking Financial

Companies and overseas subsidiaries of these companies from the mandated class of Companies.

Therefore in the circular No. 09/2010 for clause (i) and (ii) of Paragraph 2 under Heading Coverage in

Phase I the following shall be substituted and read as:

(i) All companies listed in India and their subsidiaries, having paid up capital of Rs. 5 Crores and

above or a turnover of Rs. 100 Crore or above, excluding banking companies, insurance

companies, power companies, Non Banking Financial Companies and overseas subsidiaries

of these companies.

Certification of Financial Statements in the XBRL mode by Practising Professionals

The MCA had as per its circular bearing No. 14/2011 dated 8th April, 2011 entrusted practising

professionals i.e. members of ICAI, ICSI & ICWAI with the responsibility of ensuring integrity of

documents filed by them with MCA in electronic mode and the system would accept these documents

online without the approval of the ROC. The Ministry of Corporate Affairs has vide its General circular

no. 26/2011 has now included certification of Financial Statements in the Extensible Business

Reporting Language (XBRL) Mode by Practising Professionals in addition to the other documents

from the year 2011-12.

Modification in the instruction regarding payment of MCA fees in electronic mode

In partial modification of circular even number dated March 09, 2011 regarding acceptance of

payment of value above Rs. 50,000/- for MCA services, only in electronic mode, the Ministry of

Corporate Affairs vide circular dated 27.05.2011 has instructed that w.e.f. May 29th, 2011 the

payment of less than Rs. 50,000/- can be made in challan mode in following cases:

a) Payment to Investor Education and Protection Fund” through “Pay Misc. Fee” functionality

b) Any payment made by user having category as “Official Liquidator (OL) office

c) Any payment made by user having category as “MCA employee”.

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Provisions of section 108A to 108I of Companies Act, 1956 not in force now The sections 108A to 108I of Companies Act, 1956 were inserted through Monopolies Restrictive

Trade Practices (Amendment) Act, 1991. As MRTP Act, 1969 stands repealed, the legal validity of

these provisions i.e. sections 108A to 108H of Companies Act 1956 has been examined by Ministry in

consultation with Ministry of Law and Justice and clarified vide circular No. 30/2011 dated 23.05.2011

that the provision of section 108A to 108I of the Companies Act 1956 have become redundant and

will have no legal force.

Clarification in respect of General Circular No: 2/2011 dated 08th February, 2011

Companies are seeking clarification in respect of circular No. 2/11 dated 8.2.2011 issued by the

Ministry in respect of exemption u/s 212(8) of the Companies Act, 1956. The point raised is in respect

of applicability of condition No. (ii) of the circular, requesting the Ministry to delete the condition in

respect of unlisted companies as this condition is applicable to listed companies as per SEBI

guidelines.

As such, Ministry Vide Circular No.22/2011 dated 02nd May, 2011 clarified that companies which

desire to take the benefit of exemption allowed under this circular would have to fulfill the conditions

stipulated therein even if they are unlisted.

Depreciation for the purpose of declaration of Dividend under Section 205 in case of companies referred to in Section 616 (C ) of the Companies Act, 1956

It has been noticed that despite having clear provisions in section 616(C) of the Companies Act,

1956, the companies engaged in the generation or supply of electricity are approaching MCA for

fixing rate of depreciation in individual cases. The Ministry has, considered the whole matter and it is

hereby clarified that Section 616 (C) the Companies Act, 1956 provides that the same shall apply to

companies engaged in the generation or supply of electricity, except in so far as the said provision is

inconsistent with the provisions of the Indian Electricity Act, 1910 or the Electricity Supply Act, 1948

as repealed by enactment of the Electricity Act, 2003.

Since the rates of depreciation and methodology notified under Electricity Act, 2003 are inconsistent

with the rates given in Schedule XIV of the Act and the former being special Act, the former shall

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prevail over rates notified under Schedule XIV of the Companies Act by virtue of section 616(c) of the

Companies Act. Accordingly, ministry vide circular No. 31/2011 dated 31st May, 2011 clarified that

companies referred to in Section 616(c) of the Companies Act can distribute dividend out of profit

arrived at after providing for depreciation following the rates as well as methodology notified by CERC

and the same shall be sufficient compliance of section 205 of the Companies Act, 1956.

Clarification Loan to Public Limited Company under section 295 of Companies Act.

Ministry of Corporate Affairs has noticed that some companies are making applications for getting

prior approval of Central Government when they propose to make any loan to, or give any guarantee

or provide any security in connection with a loan made by any other person to a Public Limited

Company of which any such Director is a Director or a member even when the proposal does not fall

under section 295 (d) and section 295 (e) of the Companies Act, 1956.

As such, Ministry vide Circular No. 24/2011 dated 11th May, 2011 requested to note that when the

beneficiary of the loan/guarantee/security is a public limited company, approval of central government

should only be sought if the provisions of sub-section (d) or (e) of section 295 of the Companies Act,

1956 are attracted, further the application should also clearly bring out the facts.

Clarification regarding effective date of Companies (Particulars of Employees) Amendment Rules, 2011

The Ministry of Corporate Affairs has clarified that its notification of 31st March, 2011 regarding

Companies (Particulars of Employees) Amendment Rules, 2011 raising the limit of employee’s salary

to be disclosed in the Directors Reports shall be applicable to all Director’s Reports under Section

217 of the Companies Act, 1956 approved by the Board of Directors on or after April 1st, 2011. It will

be irrespective of the accounting year of the annual account, being approved by the Board.

Limited Liability partnership of chartered accountants will not be treated as ‘Body Corporate’ for the purpose of Section 226(3)(a) of the Companies Act, 1956

Ministry vide circular No. 30A/2011 dated 26.05.2011 issued a circular and clarified that Limited

Liability partnership of chartered accountants will not be treated as body corporate for the limited

purpose of section 226 (3) (a) of the Companies Act, 1956.

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This clarification follows a number of representations received in the Ministry from Institute of

Chartered accountants of India wherein they have stated that under Section 226(3)(a) of the

Companies Act, 1956 a Body Corporate is disqualified from the appointment as auditor by a

company.

The Companies (Passing of the resolution by Postal Ballot) Rules, 2011 provides for voting by electronic mode.

The Ministry of Corporate Affairs, in supercession of Companies (Passing of the resolution by postal

ballot) Rules, 2001 introduced The Companies (Passing of the resolution by postal ballot) Rules,

2011. As per the new rules voting by shareholders may be carried on in electronic mode.

Highlights: � An agency approved by the Ministry shall be appointed for providing and supervising electronic

platform for voting by electronic platform. Recently, National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd (CDSL) are being approved by the Ministry as agencies.

� The procedure for voting by electronic mode to be followed by companies shall be as

recommended by agency. � In this new methodology the entire voting gets registered and counted in a electronic registry in a

centralized server; � The company may issue notices through electronic mail provided the company has obtained

e-mail address of its member for sending the notices through e-mail, after giving an advance opportunity to the member to register his e-mail address.

� The notice shall clearly mention that whether the company is providing voting through postal ballot

or by electronic mode.

� The scrutinizer shall maintain a register to record the consent or otherwise received, including electronic media.

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Clarification issued by Tax Research Unit, CBEC regarding Short Term Accommodation Service and Restaurant Service

Since the levy of service tax on the two new services relating to services provided by specified

restaurants and by way of short-term hotel accommodation came into force with effect from 1st May

2011, a number of queries have been raised by the potential tax payers.

These are addressed as follows: Short Term Accommodation Service:

S. No Queries Clarification

1. What is the relevance of declared tariff? Is the tax required to be paid on declared tariff or actual amount charged?

“Declared tariff” includes charges for all amenities provided in the unit of accommodation like furniture, air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. The relevance of ‘declared tariff’ is in determining the liability to pay service tax as far as short term accommodation is concerned. However, the actual tax will be liable to be paid on the amount charged i.e. declared tariff minus any discount offered. Thus if the declared tariff is Rs 1100/-, but actual room rent charged is Rs 800/-, tax will be required to be paid @ 5% on Rs 800/-.

2. Is it possible to levy separate tariff for the same accommodation in respect of corporate/privileged customers and other normal customers?

It is possible to levy separate tariff for the same accommodation in respect of a class of customers which can be recognized as a distinct class on an intelligible criterion. However, it is not applicable for a single or few corporate entities.

3. Is the declared tariff supposed to include cost of meals or beverages?

Where the declared tariff includes the cost of food or beverages, Service Tax will be charged on the total value of declared tariff. But where the bill is separately raised for food or beverages, and the amount is charged in the bill, such amount is not considered as part of declared tariff.

4. What is the position relating to off-season prices? Will they be considered as declared tariff?

When the declared tariff is revised as per the tourist season, the liability to pay Service Tax shall be only on the declared tariff for the accommodation where the published/printed tariff is above Rupees 1000/-. However, the revision in tariff should be made uniformly applicable to all customers and declared when such change takes place.

5. Is the luxury tax imposed by States required to be included for the purpose of determining either the declared tariff or the actual room rent?

For the purpose of service tax luxury tax has to be excluded from the taxable value.

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Services Provided by Restaurants:

1. If there are more than one restaurants belonging to the same entity in a complex, out of which only one or more satisfy both the criteria relating to air-conditioning and licence to serve liquor, will the other restaurant(s) be also liable to pay Service Tax?

Service Tax is leviable on the service provide by a restaurant which satisfies two conditions: (i) it should have the facility of air conditioning in any part of the establishment and (ii) it should have license to serve alcoholic beverages. Within the same entity, if there are more than one restaurant, which are clearly demarcated and separately named, the ones which satisfy both the criteria is only liable to service tax.

2. Will the services provided by taxable restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to a restaurant be also liable to Service Tax?

The taxable services provided by a restaurant in other parts of the hotel e.g. swimming pool, or an open area attached to the restaurant are also liable to Service Tax as these areas become extensions of the restaurant.

3. Is the serving of food and/or beverages by way of room service liable to service tax?

When the food is served in the room, service tax cannot be charged under the restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve liquor. Also, the same cannot be charged under the Short Term Accommodation head if the bill for the food will be raised separately and it does not form part of the declared tariff.

4. Is the value added tax imposed by States required to be included for the purpose of service tax?

For the purpose of service tax, State Value Added Tax (VAT) has to be excluded from the taxable value.

Instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same by way of Digital Signature

The Income Tax Department vide Circular No. 3/2011 dated 03.05.2011 issued a circular in regard to

instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same by way

of Digital Signature.

Issue of TDS Certificates in Form No.16A

(i) For deduction of tax at source made on or after 01.04.2011:

(a) The deductor, being a company including a banking company to which the Banking

Regulation Act, 1949 applies and any bank or banking institutions, referred to in section 51 of

that Act or a cooperative society engaged in carrying the business of banking, shall issue TDS

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certificates in Form No.16A generated through TIN central system and which is downloaded

from the TIN website with a unique TDS certificate number in respect of all sums deducted on

or after the 01st day of April, 2011 under any of the provisions of chapter-XVII-B other than

section 192.

(b) The deductor, being a person other than the person referred to in item (a) above, may, at his

option, issue TDS certificate in Form No.16A generated through TIN central system and which

is downloaded from the TIN website with a unique TDS certificate number in respect of all

sums deducted on or after the 01st day of April, 2011 under any of the provisions of chapter-

XVII-B other than section 192.

(ii) For deduction of tax at source made during financial year 2010-11

(a) The deductor, may, at his option, issue TDS certificate in Form No.16A generated through TIN

central system and which is downloaded from the TIN website with a unique TDS certificate

number in respect of all sums deducted during the financial year 2010-11 under any of the

provisions of chapter-XVII-B other than section 192.

Authentication of TDS Certificates in Form No.16A

(i) The deductor, issuing the TDS certificates in Form No.16A by downloading from the TIN

website shall authenticate such TDS certificate by either using digital signature or manual

signature

(ii) The deductor, being a person other than the person referred above and who do not issue the

TDS certificate in Form No.16A by downloading from the TIN website shall continue to

authenticate TDS certificate in Form No.16A by manual signature only.

IASB issues four new IFRS On 12th May 2011, the International Accounting Standards Board (IASB) issued following four new

standards:

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� IFRS 10 Consolidated Financial Statements includes a new definition of control, which is

used to determine which entities are consolidated, and describes consolidation procedures.

� IFRS 11 Joint Arrangements describes the accounting for joint arrangements with joint

control; proportionate consolidation is not permitted for joint ventures (as newly defined).

� IFRS 12 Disclosures of Interests in Other Entities includes all of the disclosure

requirements for subsidiaries, joint ventures, associates, and “structured entities”.

� IFRS 13 Fair Value Measurement provides guidance on how to measure fair value, but does

not change when fair value is required or permitted under IFRS.

These new standards are effective for annual periods beginning on or after 1 January 2013.

Pledge of shares for Business Purposes

The Reserve Bank of India vide circular No. 57 dated May 02, 2011 has been decided to delegate

powers to the AD Category - I banks to allow pledge of shares of an Indian company held by non-

resident investor/s in accordance with the FDI policy in the following cases subject to compliance with

the conditions indicated below:

(a) Shares of an Indian company held by the non-resident investor can be pledged in favour of an

Indian bank in India to secure the credit facilities being extended to the resident investee

company for bona fide business purposes subject to the following conditions :

� in case of invocation of pledge, transfer of shares should be in accordance with the FDI

policy in vogue at the time of creation of pledge;

� submission of a declaration/ annual certificate from the statutory auditor of the investee

company that the loan proceeds will be / have been utilized for the declared purpose;

� the Indian company has to follow the relevant SEBI disclosure norms; and

� pledge of shares in favour of the lender (bank) would be subject to compliance with the

Section 19 of the Banking Regulation Act, 1949.

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(b) Shares of the Indian company held by the non-resident investor can be pledged in favour of

an overseas bank to secure the credit facilities being extended to the non-resident investor /

non-resident promoter of the Indian company or its overseas group company, subject to the

following conditions :

� loan is availed of only from an overseas bank;

� loan is utilized for genuine business purposes overseas and not for any investments either directly or indirectly in India;

� overseas investment should not result in any capital inflow into India;

� in case of invocation of pledge, transfer should be in accordance with the FDI policy in vogue at the time of creation of pledge; and

� submission of a declaration/ annual certificate from a Chartered Accountant/ Certified Public Accountant of the non-resident borrower that the loan proceeds will be / have been utilized for the declared purpose.

Opening of Bank Account for FDI transactions

To provide operational flexibility and ease the procedure for FDI related transactions, RBI vide

circular No. 58 dated May 02, 2011 has decided to permit AD to open and maintain, without prior

approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of

residents and / or non-residents, towards payment of share purchase consideration and / or provide

Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and

conditions. RBI has also decided to permit SEBI authorized Depository Participants, to open and

maintain, without prior approval of RBI, Escrow accounts for securities subject to the terms and

conditions.

In both cases, the Escrow agent shall necessarily be an AD or SEBI authorized Depository

Participant (in case of securities’ accounts). These facilities will be applicable for both, issue of fresh

shares to the nonresidents as well as transfer of shares from / to the nonresidents.

FDI in services come down by 22.5 pc to USD 3.4 bn in 2010-11

Foreign direct investment (FDI) in India’s services sector, which contribute over 50 per cent in the

country’s economic growth, declined by 22.5 per cent to USD 3.4 billion in 2010-11, according to the

industry ministry’s latest data. The services sector (financial and non-financial services) had attracted

FDI worth USD 4.39 billion during 2009-10.

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Overall FDI inflows into the country dropped by 25 per cent to USD 19.4 billion during 2010-11

against USD 25.8 billion in the year ago period. The services sector, despite the 22.5 per cent dip in

FDI, topped the chart in attracting maximum investment.

The government is taking steps like allowing FDI in Limited Liability Partnership (LLP) firms to attract

more and more foreign inflows into the country. The government is also considering to liberalize FDI

policy in multibrand retail sector.

Adjustment of Differential Pricing Amount

The Regulation 29 of SEBI ICDR Regulations allows an Issuer Company to issue specified securities

at different prices to eligible investors subject to the conditions mentioned therein.

However, it was being observed by SEBI that the effect of such differential pricing, in a public issue,

was being given to the eligible investors only at the stage of allotment of specified securities and not

at the time of filing an application for such allotment. This was taking away certain benefits from the

investors such as lower cash outflow at a price net of discount, the ability to apply for more shares

with the same cash outlay, etc.

Thus to address this issue, SEBI has vide its Circular No.CIR/CFD/DIL/2/2011 dated 16th May 2011

has clarified so as to allow investors eligible for differential pricing to make the payment of discounted

price at the time of bidding itself, subject to compliance of appropriate disclosure and other norms.

Option to hold units of MF schemes in Demat Form

Securities and Exchange Board of India vide circular CIR/IMD/DF/9/2011 dated May 19, 2011

advised AMCs to clarify by way of an addendum that units of all Mutual Fund schemes held in demat

form shall be fully transferable. It has been observed that in their close ended schemes, many

mutual funds provide an option to hold units either in physical or in demat form, but offer no such

option in case of open ended schemes. In order to facilitate investors, Mutual Funds should provide

an option to the investors to receive allotment of Mutual Fund units in their demat account while

subscribing to any scheme (open ended/close ended/Interval). Therefore Mutual Funds/AMCs are

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advised to invariably provide an option to the investors to mention demat account details in the

subscription form, in case they desire to hold units in demat form.

SAT Judgement against AMC- Mutual funds [Subramanian R. Venkat vs. SEBI]

It was held by the Securities Appelate Tribunal (SAT) that Asset Management Companies (AMCs)

cannot change the terms of the issued units / securities arbitrarily without taking consent from the

Unit-holders.

Brief Facts of case ‘Subramanian R. Venkat vs. SEBI’:

The Appellant are husband and wife who are regularly investing in shares and mutual fund scheme

through various market intermediaries. HSBC Mutual Fund i.e. Respondent No. 2 had issued a

scheme with two plans, viz. a long term plan and a short term plan. The Short term Plan is known as

HSBC Gilt Fund. In the offer document it was mentioned that the short term plan was suitable for

investors seeking to obtain returns from a plan investing in gilt across the yield curve with the average

maturity of portfolio normally not exceeding 7 years and modified normally not exceeding 5years. The

long term plan was intended to suit investors with surpluses for medium to long period and the plan

was to invest in gilts across the yield curve with the average maturity of the portfolio normally not

exceeding 20years and modified duration normally not exceeding 12 years. The appellants chose the

short term as against the long term plan and wanted to invest their personal saving in the short term

plan of the scheme. However, HSBC wound up the long-term plan, and changed the term of the

short-term plan by increasing the tenure from 5 to 7 years to not exceeding 15 years. This resulted in

a fall in the Net Asset Value (NAV) of the scheme and the grievance is that the respondent has

changed the scheme without informing the unit holders and without giving opportunity to the

unitholders to exit the scheme. The appellant filed the complaint with the board and asset

management company to direct the matter and to make good the losses suffered by the appellant.

The order of the board was against the appellant and the present appeal has been filed.

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Held:

The appeal is allowed in the favour of investors.

Reason:

1. Such a change in the term of the plan was found to be one that affects the fundamental attributes

of the scheme and modifies the interests of the unit holders. It was given effect to without notifying

the unit holders and providing an exit option as set out in Reg. 18(15A) of the SEBI (Mutual

Funds) Regulations, 1996; and

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Disclaimer: The above information is only indicative and solely for informational purpose and private circulation. RANJ &

Associates, Company Secretaries intend to, but do not guarantee or promise that it is correct, complete / up-to-date. We

expressly disclaim any liability to any person in respect of anything, and of consequences of anything done, or omitted to be

done by any such person in reliance upon the contents of this document.

The information in this document is as of May 31, 2011.

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