ICSI - WIRC FOCUS
Vol. XXX • No. 08 •Sept 2013
My Dear Professional Friends,
The month of September was full of activities at WIRC and at all levels at ICSI with the Companies Act, 2013 becoming a reality in August 2013.
I hope that the re-learning has started and all of you are fully geared up to face the challenges and opportunities that await us. With 98 sections getting notified, the transition has really begun. I hope you are all are busy understanding the Rules and e-forms that are open for public comments. ICSI-WIRC earnestly looks forward to receive your suggestions on Rules and e-forms, which may be sent to ICSI-WIRC forthwith, so that your suggestions can be forwarded to ICSI-HO.
ICSI-WIRC has been pro-actively working on the Rules and e-forms, and group of experts from industry and practice is already on job. In the meanwhile various programs were held by ICSI-WIRC and its Chapters.
During August-September 2013, Students’ Conference and Goa Conclave for members were held in Goa between 30th August 2013 and 1st September 2013. Hon’ble Chief Minister of Goa, Mr. Manohar Parikar graced the Valedictory Session, when CS Ananthasubramanian, President-ICSI and CS B. Narasimhan, Council members were also present on the occasion. Aurangabad Chapter hosted Two-Days State Conference on Corporate Scenario – Emerging Trends” on 7th and 8th September 2013, which was inaugurated by Mr. Rishikumar Bagla, Managing Director, Aurangabad Electricals Ltd.
The ICSI-WIRC published “Transfer Pricing” at State Conference at Aurangabad. I am thankful to CS A. Sekhar for authoring the publication. I also thank CS Prakash Pandya, for his continuous and untiring efforts in bringing out the publications.
Before concluding, I again appeal the members to join COMPANY SECRETARIES BENEVOLENT FUND, if they have yet not joined.
With Warm Regards,
CS Hitesh Buch
19th September 2013
SEBI Committee on Disclosures and Accounting Standards (SCODA) reviewed the Clause- 41 of the Equity Listing Agreement (LA) as part of review of the extant norms relating to disclosure requirements. The Discussion paper placed on SEBI’s website on 21st August, 2013 solicits public comments on or before September 13, 2013 by way of email to email@example.com or by post addressing SEBI’s Chief General Manager, Mr. V.S. Sundaresan
Existing Clause 41 of the LA specifies provisions with respect to the following along with Annexures:
I) Preparation and Submission of Financial Results
II) Manner of approval and authentication of the financial results
III) Intimation of Board Meeting
IV) Other requirements as to financial results
VI) Publication of financial results in newspapers
SEBI is considering revising the existing clause 41 to ensure the following:
a) non-manufacturing companies need not make disclosure in line with that of manufacturing companies;
b) the inconsistencies and ambiguities in interpretation of the policy intent that arose as a result of piece-meal updation of sub-clauses is addressed;
c) various representations received requesting for modifications are looked into;
d) adoption of Revised Schedule-VI of the Companies Act, 1956 and revision in Accounting/ Auditing Standards, etc are reflected in revised clause.
e) to improve the disclosure standards and reduce the compliance cost/time for the listed companies
f) to make the disclosure requirements consistent with requirements of Companies Bill, 2012
Highlight of new requirements:
• Format for Finance Companies
o Suitably modified and can now be used by both banking companies & other finance companies
• Mandatory Disclosure of half yearly consolidated financial statements
o In case of variation of 20% or more in the revenue / total assets / total liabilities / profits (loss) in the consolidated financial results vis-à-vis the corresponding amounts in the standalone financial results as per the last annual audited financial statements
• Inclusion of reviewed/ audited results of foreign subsidiaries/ joint ventures in the consolidated results
o Such that together with the reviewed/ audited results of all Indian subsidiaries/ joint venture, constitutes atleast 80% of the consolidated turnover/ net worth/ profit (loss)
• Book Value of equity shares to be mandatorily disclosed in every six months
• Amounts in financial statements to be mandatorily presented in Rs. Cr. with 2 decimals.
• Cashflow statements to be mandatorily submitted every six months in addition to the statement of assets and liabilities.
• Details of discontinued operations to be mandatorily disclosed as a part of notes to the financial results.
• Option to form a Committee for approval of financial results in the absence of Managing Director
o Committee to comprise of atleast one third of the directors and to include atleast one whole-time director and one independent director.
Detailed Comparison of Existing & Revised Clause 41of LA:
For our other write-ups and analysis on SEBI related issues, you can please click:
For our other write-ups on issues related to corporate laws, you can please click:
The most awaited companies bill, was passed by Lok Sabha on 18th December, 2012 and by Rajya Sabha on 8th August, 2013. Now it awaits the assent of President before it becomes the Act. Many new changes have been brought through this bill to plug the loopholes in current act by more stricter provisions and more disclosures, to provide the stimulus for growth opportunities to business community, to help the small entrepreneurs by setting up One Person Company. However one thing that is much highlighted in this new bill is the concept of legislating CSR-Corporate Social Responsibility. In speech at Rajya Sabha and at Lok Sabha this was the topic that was most spoken about by the Minister of Corporate Affairs Shri Sachin Pilot. So what is this CSR and what would be its implication in corporate world is will be seen in time to come.
Provision of CSR under the Bill.
The provision of CSR wil be applicable to following companies having:
a. networth of Rs. 500 crore or more; or
b. turnover of Rs. 1000 crore or more; or
c. net profit of Rs. 5 crore or more.
The provisions require:
• Formation of CSR committee consisting of atleast 3 directors, one of them being independent director.
• Formulate and recommend to the Board the CSR policy and the activity to be undertaken by the company as per Schedule VII.
• Recommend the expenditure to be incurred for the said activity.
• Spend atleast 2% of average net profits of company made during immediately preceding 3 financial years in pursuance of Corporate Social Responsibility Policy
• Monitor the CSR policy from time to time.
The preference has to be given to the local areas and areas around where it operates for spending the amount. Further if the company is unable or fails to spend the said amount, then the Board will have to specify the reasons for the same. The CSR activity carried out by the company will have to be displayed on the website of the company and in the Board Report. The Bill does not specify any penalty for non compliance of same.
Government Intention behind the concept of CSR.
The government has tried to introduce this concept with all positive approach. If one observes the view of the minister on the CSR provision, it makes an attempt to show that government does not wish to regulate the CSR activities of the company but to provide loose guidelines for the same. The idea not being to operate as Inspector Raj or requirement of any Government Certification, but is left to the conscience of the company to deploy the funds for the betterment of the society. There are large number of corporates undertaking CSR activities and the provision in the bill will only help corporates create goodwill and give a structured format to tell the shareholders about the CSR activities. The CSR is not a tax or a levy which the company has to give the government. It is only an urge to the companies to spend the amount through the agencies they are familiar with, for the issues they wish to address. As the corporates earn huge amount of profits, it does sometimes create a sense of exploitation among the community in which operate. However CSR gives an opportunity to the corporates to give back to the society and also fulfil its responsibility from where it has received a lot.
How is CSR viewed by the Corporate Community:
The concept of CSR is not a new concept, however legislating the same is surely a new one. Fulfilment of one's social responsibility is to be done voluntarily and not through compulsion or legislation. The concept not being new is said because there are many corporates who have given back to the society and have been doing so since many years even before the concept of Corporate Social Responsibility emerged or even existed. A company which wants to give back to the society does not need any kind of legislation. Also even though it is not a tax levied by government to be given to the government, yet it is a mandatory amount to be shelled out by the corporates. It can be said that a levy given a different name. Many questions have been raised through legislation of CSR like: How is it different from levy or tax or cess? Isn't the corporates giving back to the society by paying huge amount of education cess? Will not the funds be misappropriated under the name of CSR as there being no check for the spending of same? Will not there be political interference for diverting the funds of CSR for a particular cause or wont there be political pressure cannot be said. Isn't the government shying away from fulfilling its duty of giving the facilities to the society by asking the corporates to do the same? These are some of the question which do cause apprehension about the success of this concept, but which can be best answered when the CSR comes into practice. Although the concept has been introduced by taking into consideration all positive aspects, however the eyes cannot be closed to its negative impact also.
The idea behind mandating the CSR is very noble by providing a platform to the corporates to give back to the society from where they operate and also enable the people to take the fruits of the of the corporate. However this can become successful only if Board fulfils its responsibility diligently, the shareholders monitor or is aware of the activities undertaken by the corporates and question if they find that the funds are not utilised in the manner they should be as there will surely be full disclosure about the same. It is a collective duty of everyone to make CSR a success. But it is yet to be seen whether this new concept does help to create a better society or will emerge as another biggest corporate blunder.
It is rightly said by someone that “You create your own opportunities.”
It is observed that Company Secretaries are less agile at Job as well as at practice whenever something new is approached. Majority of us restrict ourselves to Company Law, Listing Agreement and ROC work and if we happen to assign new areas of work, we think “it’s not in our domain, how can we do this!!”
Don’t you think we should explore our Brand ‘The Company Secretary’ over and above the normal monotonous compliance work? Here, we have thrown light on few areas where Company Secretary can step in:
• The Capital Market division of Banks deal with various transactions like IPO, Rights Issue, Delisting of shares, Takeover etc., as “Bankers to the issue”.
• Although majority of banks appoint legal advisors or have their own legal department assisting them for such assignments but there is always a comfort if the concerned person from Capital Market Division itself is a CS. It will be beneficial as the CS can resolve the investor grievances /queries more comfortably and they do not have to approach legal advisor /legal department for every small matters.
• It is one of the creamy area where Chartered Accountants and MBAs have established themselves but Company Secretaries are still finding it hard to manage.
• Investment Banker assists an organization in raising capital and restructuring process. Due diligence is the basic for initiation of any kind of structuring process. CS having knowledge of corporate compliances, listing compliances, restructuring compliances and other legal formalities can play a very important role. CS with the excellent skill of analyzing the balance sheet is preferred to be part of Investment Banking Company.
STOCK BROKERS & SUB-BROKERS
• Stock Brokers have to comply with SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992.
• In accordance with Regulation 18A of the SEBI (Stock-brokers and Sub-brokers) Regulations, 1992, every trading member has to appoint a compliance officer who shall be responsible for monitoring the compliance of the trading members in respect of the Act, Rules, Regulations, notifications, guidelines, instructions, etc. issued by SEBI or the Central Government and for redressal of investor’s grievances.
• The Stock Brokers registered with SEBI have to deal with number of compliances on regular basis. This includes the limit of credit amount to be allowed to clients for trading alongwith the regular updation and reporting to stock exchange, appointment of and change in designated directors, intimation of change in control, Change in name and all other Compliances which are laid down in Rules, Regulations and Byelaws of the Exchange and their Clearing Corporation.
• Further Stock Brokers are involved as “Trading Members” in the securities market transactions like IPO, Right Issue and Delisting. CS is the most suitable person to deal with it conveniently.
• Considering more stringent rules & regulations constantly introduced by SEBI, Compliance Officer of the Stock Broker/Sub-broker is the emerging field for the Company Secretaries.
Listing Department –
• There are various applications made by the Companies to the listing department of the Stock Exchange for getting their shares listed. Stock Exchange sets a procedure for forwarding the application in accordance with the ICDR Regulations of SEBI. The job of verifying the application in accordance with ICDR Regulations and coordination with the Compliance Officer of the company for any queries and doubts can be dealt easily by a CS.
• Pursuant to listing agreement there are various quarterly, annual and incidental compliances for corporate. These compliances are carried out by CS of the company periodically. However, a person with equivalent knowledge of Company law and listing agreement is required for verification of such compliance related documents at the Stock Exchange. CS can not only improve the quality of verification but also understand the basis of the documents filed with Stock Exchange.
Investor Grievance Department –
• All the Stock Exchanges have established separate cell for resolving Investor Grievances which is known as Investor Grievance Cell (IGC).Due to various initiatives taken by SEBI, Investors are becoming more alert and approach Stock Exchanges frequently with queries .
• Having in depth knowledge of Company Law and various applicable rules, regulations and bye laws, CS can be deputed in IGC of Stock Exchanges and can apply his/her knowledge in resolution of grievances.
• Legal Department at stock Exchanges involves the work relating to managing various litigations, drafting replies with respect to various cases, facilitate the amendments to the Rules, Byelaws and Regulations of Stock Exchange, drafting and preparing legal notices, agreements, internal department queries and letters, provide advice on non-litigation matters to various departments etc.
• The CS with LLB is the most suitable for the aforementioned functions of the Legal Department of Stock Exchanges. Nowadays many companies prefer such dual degree combination in order to have single control over compliance and legal department.
• Inspection Department of the Stock Exchanges is responsible for conducting Inspections of Trading Member and Clearing Member at regular intervals or in case of any suspect of the fraud. • They have to ensure that whether there is any violation of Prevention of Money Laundering Act any other rules, regulation and bye laws of Stock Exchanges. If they find any non- compliance, they ask the respective authorized person to rectify the same and impose the penalty also. • CS with good analytical skill and Financial Knowledge would have an edge to be part inspection department.
Similarly other Regulatory bodies like Ministry of Corporate Affairs, Securities Exchange Board of India, and Competition Commission of India do have such similar areas to be part of.
• There are various legal consultants which provide consulting services to the corporate for legal formalities which company secretary can get involve into. CS is very good at Corporate Compliances which is an advantage and such knowledge will be the base to provide legal consultancy. For example there are end numbers of legal opinions and consultancy provided on section 397 & 399 of Companies Act, 1956, which the CS should be most comfortable to handle as the base of it is derived from Companies Act.
• This is the new flourishing area with high demand for qualified CS who is good at public speaking and can make people understand well. The Institute of Company Secretaries of India has been trying hard since past few years to enroll more and more students to this profession. As a result a large chunk of students has enrolled themselves creating high demand for coaching classes.
• CS who are ready to take teaching as their area of practice can jump into this area as the future outlook is undoubtedly much more greener than the current state. The remuneration offered to such professionals is generally per lecture, which runs in thousands.
• The complicated areas of Foreign Exchange Management Act (FEMA) are worth exploring. Growth in MNCs and Foreign Investors has brought this field in great demand.
• Some of the transactions with complicated schemes include External Commercial Borrowing, Transfer of shares, between resident & non-resident entity, Allotment of shares to non- resident, Setting up Joint Venture (JV) / Partnership by NRI'S or persons of Indian origin, Approval and issues relating to Foreign Direct Investment, Opening branch office/liaison/project in India and many other aspects.
• There is no defined criterion to be part of this field and the two preferred streams are CA and CS.
• Many of us have phobia of Taxation and accounting. However, this is the stream where we need to open up our eyes and see the endless opportunities.
• Tax consultancy encompasses Direct as well as Indirect Tax. Direct tax includes Income Tax services, Fringe Benefit Tax, transfer pricing and many other areas. Further, each area has various sub-divisions. Indirect Tax is vast area of practice which contains Value Added Tax, Service Tax, Excise, Custom etc.
• However, for practicing as Tax Consultant, we must strive hard to shape our skill and knowledge by keeping ourselves constantly updated by various amendments, case laws. It involves deep knowledge of all applicable laws.
• Undoubtedly this field is practiced and preferred for CAs but it’s not too hard to be part of.
FORMATION AND REGISTRATION SERVICES
• Making available single window services to the clients by providing services like registration services which comprise registration with Income Tax Authority(PAN, TAN), Service Tax Authority, VAT authority, Excise & Custom Authority, Custom Authority, obtaining of IEC code, Labour Law related authority such as Employee State Insure Corporation(ESIC), Employment Exchange, registration under Factories Act, Shops & Establishment etc, registration of Company or Unit as Special Economic Zone(SEZ), Software Technology Park of India, registration/clearances under various environment authorities such as Pollution Control Board etc., registration for various Intellectual property rights (Trademark, copyright, patent) alongwith the formation of the entity.
SOX ADVISORY SERVICES:-
• The Companies registered with SEC (Securities Exchange Commission) have to comply with Sarbanes Oxley Act known by SOX.
• The CS in employment can look after SOX compliances and CS in practice can offer SOX advisory services such as establishing SOX compliance life cycle, document and review, control testing, continuous monitoring and review and ongoing SOX compliances.
KNOWLEDGE PROCESS OUTSOURCING(KPO):
• One more booming area for a CS is KPOs.
• This is the colossal area which includes Market Analysis, Equity Research, Investment Analysis, Cost Management, Internal Control, Strategy & Risk Management, Dispute Resolution, Compliance Management, Documents Management, Inventory Management, Physical Asset verification, Employee Training etc.
• The CS in employment can also handle corporate finance which involves many approvals and documentations. The CS can act as intermediary between Banks and the Companies for Corporate Finance.
• The CS in practice can provide advisory services to the clients for the Corporate Finance.
CORPORATE GOVERNANCE ADVISOR:
• Nowadays, Companies are turning towards adhering best Corporate Governance practices to gain the trust & confidence of the stakeholders and to establish in the global market.
• CS in employment can take initiative and set up policies for high standard corporate governance practices.
• CS in practice can provide Corporate Governance advisory services which includes Corporate Governance rating, Corporate Social Responsibility, assessment of effectiveness of Board and Audit Committee, Communication, Integrity & ethics, external relationship, Risk management and better Internal control system etc.
HUMAN RESOURCE & LABOUR LAWS RELATED CONSULTANCY:
• Managing Human Resource is a powerful and important job to lead the Company. Company Secretaries should take an opportunity for HR related work such as manpower planning, recruitment, selection, training and development, employee motivation, compliance with the various labour laws etc. There are ample of opportunities in HR Consultancy.
INTELLECTUAL PROPERTY RIGHTS CONSULTANT:
• The Company Secretaries in practice can provide Intellectual Property Rights (IPR) related services such as acquiring, maintaining, transferring and litigating IPR, patent validity, trademark applications, work relating to domestic & international utility patent, non-disclosure and non-competition agreements etc.
To conclude, it is rightly said by Dale Carnegie “The man who grasps an opportunity as it is paraded before him, nine times out of ten makes a success, but the man who makes his own opportunities is, barring an accident, a sure-fire success”
Therefore, let us strive hard to expand and explore our Brand ‘The Company Secretary’ by creating opportunities and preparing ourselves for the same rather than waiting for the opportunities to occur and be prepared.
The great Greek philosopher Heraclitus has said very well that ‘Change is the only thing that is constant in this world’. Things never remain the same and keep on changing. One needs to accept those along with the changing situations. The new Companies Act is one of the examples of such a major change in the Indian corporate environment.
The much awaited Companies Bill has been passed by both the houses of parliament i.e. Lok sabha and Rajya sabha on December 18, 2012 and August 08, 2013 respectively, thus replacing more than fifty years old Companies Act. Further, the President of India has also given his assent. During the course of time, the new companies rules would be drafted for public comments and the same would be notified in the official gazette resulting in the new Companies Act to be effective.
Once the new Companies Act gets effective, all the Indian as well as foreign Companies registered under Companies Act will have to comply with the updated provisions of this new Companies Act. Though this Act will create new and improved regulatory environment in India, the Company’s management and professionals need to prepare themselves to adapt to the changing environment. For this purpose it is very much important to highlight the differences between the existing and the new Companies Act and the watershed period allowed for the existing Companies to adapt to the requisite changes once the Act comes into force.
Here are some of the points which shed light on the major differences in provisions of existing Companies Act, 1956 and the new Companies Act:
It is true, that it would be a rework for all the stakeholders, management and professionals to check for all the provisions of the new Companies Act. However, keeping in mind that ‘change is not a threat but an opportunity’, one needs to take it in a positive way and strive to build a better corporate environment by means of improved level of transparency, better governance, enhanced accountability, inculcating self-compliance and making corporates more socially responsible.
Alvin Toffler has very aptly quoted “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn”; thus this change is an opportunistic window for professionals to relearn.
Company secretaries, foreign currency managers, commodity traders, bankers, chief risk and investment officers, CFOs and Board members are often concerned with how the value of the World’s reserve currency U. S. Dollar is determined. They are also asked to explain the global phenomenon as to what makes the oil prices so high, given the fact that oil is traded in U. S. Dollars. This article has endeavored toanalyse markets pandemonium that impacts almost all businesses, consumers and global economy, and provides company secretaries with ways for value creation in efficient deployment of capital in a given market and financial risk environment.
1) Dollar Is Losing Value over the Long-term –five ways
No matter how you measure it, the dollar is losing value over the long-term. Here's why:
(i)U.S. debt is more than $16 trillion. Foreign holders of this debt are concerned that the U.S. will let the dollar value decline so the relative value of its debt is less –a higher denominator USD rate amount when applied to debt denominated in say euro will give a lower debt amount.
(ii)Large debt could force the U.S. to raise taxes to pay it off, which would sloweconomic growth.
(iii)As more countries join or trade with the European Union, demand for the euroincreases.
(iv) Foreign investors are diversifying their portfolios with more non-dollar denominated assets.
(v) As the dollarlosesvalue, investors are less likely to hold assets in dollars as they wait for the declineto stop.
2) Methods to measure dollar value –three methods
U. S. dollar's value can be measured by three methods:
(iii)Foreign exchange reserves (the amount of dollars held by foreign countries).
These three measurements usually are in sync with each other.
3) Dollar Value Is Measured by Exchange Rates
U.S. dollar is most easily measured by its exchange rate, which compares its value to other currencies. Currency exchange rates allow you to determine how much of one currency you can exchange for another.A currency's forex value depends on a lot of factors, including central bank interest rates, the country's debt levels, and the strength of its economy. Most countries allow their currencies to be determined by the forex market. This is known as a flexible exchange rate.
Example of dollar exchange rate with euro
1) 2012 - dollar lost value against the euro, as it appeared the eurozone crisis was being managed. By the end of 2012, the euro was worth $1.3186.
2) 2011 - The dollar's value against the euro fell10%, and then regained ground. As of December 30, 2011, the euro was worth $1.2973.
3) 2010 - The Greece debt crisis strengthened the dollar. By year end, the euro was only worth $1.32.
4) 2009 - The dollar fell20% thanks to debt fears. By December, the euro was worth $1.43.
5) 2008 - The dollar strengthened22% as businesses hoarded dollars during the global financial crisis. By year end, the euro was worth $1.39.
6) 2002-2007 - The dollar fell40% as the U.S. debt grew 60%. In 2002, a euro was worth $.87 v. $1.44 by December 2007. (source: Federal Reserve rates).
4) Dollar's Value Is Measured by Treasury Notes
Dollar's value is usually in sync with demand for U.S. Treasury notes. The Treasury Department sells notes for a fixed interest rate and face value. Investors bid at a Treasury auction for more or less than the face value, and can resell them on a secondary market.
High demand means investors pay more than face value, and accept a loweryield.
Low demand means investors pay less than face value and receive a higheryield.
That's why a highyield means lowdollardemand -- until the yield goes high enough to trigger renewed dollar demand.
(i)Example: Yield rates on U. S. Treasury Notes
1) 2012 - The dollar strengthened significantly, as the 10-yearTreasury note yield fell in June to 1,443 -- a 200-year low. By the end of the year, the yield had risen to 1.78%. (Remember, low yields mean a strong demand for Treasuries and dollars).
2) 2011 - The dollar weakened in early spring but rebounded by the end of the year. The 10-year Treasury note yield was 3.36% in January, rose to 3.75% in February, then plummeted to 1.89% by December 30.
3) 2010 - The dollar strengthened, as the yield fell from 3.85% to 2.41% (January 1-October 10). It then weakened due to inflation fears from the Fed's QE2 strategy.
4) 2009 - The dollar fell as the yield rose from 2.15% to 3.28%.
5) 2008 - The yield dropped from 3.57% to 2.93% (April 2008-March 2009), as the dollar rose.
6) Prior to April 2008, the yield stayed in a range of 3.91%-4.23%, indicating a stable dollar demand as a world currency.(Source: U. S. Daily Treasury Yield Curve Rates).
(ii) Dollar value impacted by huge debt burden
Value of the dollar, whether measured by exchange rates or Treasury yields, is undermined by the $16 trillion U.S. debt.
During the recession, investors wanted a safe investment, which strengthened the dollar. When global confidence picked up, the dollar resumed its downward trend and Treasury yields rose as long as the Federal government auctioned more notes to fund the debt.
Fed's quantitative easing plan sopped up some of the excess debt by monetizing it. The dollar benefited from a temporary flight to safety, as investorswere worried about the outcome of the 2012U. S. Presidential campaign and the fiscal cliff.
5) Value of the Dollar as Measured by Foreign Currency Reserves
Dollar is held by foreign governments who have an excess of dollars, which they hold in foreign currency reserves. Excess happens when countries, such as Japan and China, exportmore than they import. As the dollar declines, the value of their reserves also declines. As a result, they are less willing to hold dollars in reserve.
They diversify into other currencies, such as the euro or even the Chinese Yuan. This reducesdemand for the dollar, putting further downward pressure on its value.
(i)Dollar reserves are declining in relative terms
As of Q3 2012 (most recent report), there was a record $3.716 trillion in foreign government reserves held in dollars. This represents 61.8% of total measurable reserves, down from Q3 2008, when dollars comprised 67% of reserves.
Since the percentage of dollars is slowly declining, this means that foreign governments are slowly moving their currency reserves out of dollars.
In fact, the value of euros held in reservesincreased from $393 billion to $1.45 trillion during this same time period, despite the eurozone crisis. Despite this growth, this is still less than half the amount held in dollars. (Source: IMF).
(ii) How the Value of the Dollar Affects the U.S. & global economy
When the dollar declines, it makes American-madegoodscheaper and morecompetitive when compared to foreign producedgoods. This helps increase U.S. exports, boosting economic growth.
However, it also leads to higheroil prices in the summer, since oil is priced in dollars.
Whenever the dollardeclines, oil producing countries raise the price of oil to maintain profit margins in their local currency.
(iii) Example of how the dollar value changes affect the U. S. economy
1) For example, the dollar is worth 3.75Saudi riyals. Let's say a barrel of oil is worth $100, which makes it worth 375Saudi riyals. If the dollar declines20% against the euro, two things happen.
2) First, the value of a barrel of oil has declined 20% to the Saudis.
3) Second, the value of the riyal, which is fixed to the dollar, has also declined20% against the euro.
4) To purchase French pastries, the Saudis must now pay more than they did before the dollar declined.
5) To avoid this, the Saudis raise the price of oil, which they do by threatening to limit supply. You notice this when you pay more for gas each week.
6) What decides putting a price onoil? –oil price volatility analytics
If the global economy is healthier than in 2008, why wouldn't oil prices be higher?
That's because there are many more outlets for investment funds. In 2008, the global markets were so risky and uncertain, investors turned from stocks, bonds and even housing to the U.S. dollar, gold and oil.
In 2012, despite uncertainty around the eurozone crisis, investors have many more options. The stock market is rising, the bond market is less risky, and even housing is seen as less dismal. Although the global market is still in slow growth mode, it is stabilizing, and that means oil prices shouldn't break the peak hit in 2008.
7) Reasons for high oil prices in 2012 onwards
Oil prices started rising much sooner in 2012 than they did in 2011. The price for WTI crude oil broke above $100 a barrel on February 13, 2012 two weeks earlier than in 2011.Rising oil prices drove gas prices above $3.50 a gallon that same week. Gas prices had already breached $3.50 a gallon on the East and West coasts in January 2012.
By March 2012, Brent Crude Oil (which is more expensive than WTI) peaked at $125 a barrel. It settled down to $95 a barrel in June, but rose $113.36 by August 2012. Normally, oil prices drop in the Fall and Winter. However, commodities futures traders were bidding up oil prices to offset what the Fed's expansive monetary policy. Traders were betting the dollar would drop, which drives up oil prices. They were wrong about the dollar, but oil prices rose despite lowerdemand.
8) Oil prices driven by commodities markets
People were concerned because gas and oil prices rose earlier than in the past. However, less and less of oil prices are due to supply and demand. More and more of it is based on the expectations of commodities markets. Commodities trading drove up oil prices.
Why? Although the EIA pinned part of the blame on volatility in Venezuela and Nigeria, it warned of an influx of investment money into commodities markets.
Investors were stampeding out of the fallingreal estate and stock markets. Instead, they diverted their funds to oil futures
This sudden surge drove up oil prices, creating a speculative bubble. (Source: EIA –short term energy outlook).This bubble soon spread to othercommodities. Investor funds swamped wheat, gold and other related futures markets.
9) Trading of Oil futures contracts by traders
Commodities traders look at projected supply and demand to help them decide how high to bid on oil futures prices. However, if all traders think the price of oil will be high, they can create a self-fulfilling prophecy by bidding up oil prices. This can create high oil prices even when there is plenty of supply on hand. Once this starts, other investors will bid on oil prices just like any other commodity, such as gold, creating an asset bubble.
(i)What is an oil futures contract?
Oil futures contract is an agreement to buy or sell a specified amount of barrels of oil at a specifiedprice on a specificdate. Futures contracts are executed on the floor of a commodity exchange by traders who are registered with the exchange or with the Commodities Futures Trading Commission.
Although these contracts are binding and based on realcommodities, speculativeinvestorstrade them on a market with no intention of actually purchasing or delivering any products.
Savvy investors can take advantage of changing commodities prices by trading futures contracts. You can make a lot of money, but you could also lose big; you could call it legalized gambling.
(ii) Purpose of futures contracts and use by oil producers
Writers create contracts in order to lock in prices in case of fluctuation. For example, if you produceoil and you think prices will go down (from $100 –current market price to $97 -your price in future), you can write contracts to lock in your prices ($97) now,to hedge against risk of fallingoil prices beyond $97; So, if future price goes down to $95, you will gain $2 a barrelon contracted quantity. If future price is $98, you will lose $1.
Similarly, if you believe that prices will go up (from $100 to $103), you'll buy contracts that lock in your prices ($103) now; if future price goes up only to $102, you will lose$1 a barrel. If future price is $104, you will gain$1.
Futures contracts are often used by pairs of business professionals to hedge their own bets.
(iii) Use of oil futures by speculative traders
Traders who aren't interested in actual products will buy and sell these contracts in order to benefit from changingprices.
If you think that prices will go up ($82), you'll buy the futures contract to deliver goods at $80 a barrel, and then sell them to someone else(at prevailing oil price $82 on date of sale of the contract) before the due date –you gain $2.
If you buy the same position at $80 but the price begins to decline ($77) before the contractdue date, you can sell the contracts to someone elsewho still thinks that prices will rise beyond $77 or that they'll hold steady for a profit. –you lose $3.
(iv) Risk for investors (speculative traders)
Major risk for investors is that oil prices will move in the opposite direction of yourposition (oil producer or another speculative trader or actual user –in short, commodities trader).
You (investors or traders) must get out of the position before the due date, or you'll end up with a lot of oil at your doorstep that will cost you a lot of money.
If necessary, you'll have to sell at a loss ($2, actual oil price in future being at $78) to close out your position before the due date of the contract–contract price $80.
Both parties of a "futures contract" must fulfill the contract on the settlement date.
(v) Tip –what should be the price direction to buy or sell a futures
If you think the price of oil will rise (from $80 to $84), buylow-priced ($81-$83) oil contracts -you will gain $1-$3; if oil price will fall (from $80 to $76), buyhigh-priced ($77-$79) oil contracts –you will gain $1-$3.
Your pricebet should be in the opposite direction to future market oil prices,to enable you to gain either or contractdelivery on due date or on getting out of theContract position before its due date.
10) All-Time High Was $145 a Barrel
Oil prices hit an all-time high of $145 a barrel in July 2008. This drove gas prices to $4.00 a gallon.
Most news sources blamed this on surging demand from China and India, combined with decreasingsupply from Nigeria and Iraq oil fields.
However, even then this wasn't logical, since the U. S. economy was already in a recession.
11) Supply and Demand Are Not Alone in Driving Up Oil Prices –price rise in recession too
Price of oil is driven by much, much more than supply and demand. This was proven in 2008. Thanks to the recession, global demand in 2008 was actually down and global supply was up. Prices rose, nevertheless.
Oil consumptiondecreased from 86.66 million barrels per day (bpd) in the fourth quarter 2007 to 85.73 million bpd in the first quarter of 2008. At the same time, supplyincreased from 85.49 to 86.17million bpd.According to the laws of supply and demand, prices should have decreased. Instead, they increased almost 25% in that time - from $87.79 to $110.21 a barrel. (Source: U. S. Energy Information Administration -EIA).
12) Oil prices are raised to maintain profit margins
High oil prices are also driven by a decline in the dollar. Most oil contracts around the world are traded in dollars. As a result, oil-exporting countries usually peg their currency to the dollar. When the dollardeclines, so do their oil revenues, but their costsgo up.
Therefore, OPEC must raise the price of oil to
1) Maintain its profit margins and
2) Keep costs of importedgoods constant. (Source: USA Today, Oil Briefly Spurts Near $104 per Barrel, March 3, 2008).
13) Risk of alternative fuel source drops oil prices
However, OPEC doesn't want oil prices too high, or alternative fuel sources start to look good. OPEC has said its target price for oil is between $70 and $80 a barrel. In 2008, Saudi Arabia announced it would increasesupply. This was one reason prices started to drop.
14) Oil reserves, a monopoly in most countries –responsible for high prices
Oil reserves are a monopoly in most countries which have oil reserves. Prices remain high in a monopoly market structure.
Additionally, with a view to increase their negotiating powers of supplying and pricing, a few countries have joined hands together, like the OPEC in 1960. These exporters have done so to keep the price of oil fairly high. Since oil is a non-renewable resource, when it's gone these exporters have nothing left to sell. Therefore, they want to get the highest profit possible while it lasts. They can only do this if they collude, rather than compete.
The 12 OPEC members hold 80% of the world's proven reserves. The biggest importers are the U.S., the European Union and China. There is 1.532 trillion barrels of oil in the world as of January 2012. That's enough to last around another 50 years, since the world uses 84 million barrels per day. Reserve keeps fluctuating due to oil reserves growth.
15) World crises and oil prices -examples
(i)Oil energy is attributable to the massive economic advances in the 20th century and into the 21st. Oil accounts for 40% of the World energy-mix. Importance of oil was realized when in October 1973. OPEC nations stopped exporting oil to the U. S. and other western economies consequent to the Arab-Israel conflict in 1967. One of the long-term effects of the embargo was an economic recession throughout the world. Inflation remained above ten percent in U. S. and unemployment was at its record high. The era of economic growth, in effect since World War II, ended in 1973. Arabs began to ship oil to Western nations again, but this time at inflated prices. Speed limits and fuel economy stickers are a result of theGovernments’ efforts to preserve oil. Third World states discovered that their natural resources, on which they depended upon, specifically oil, could be used as a weapon in both political and economic situations. The rising oil prices continued to be a threat to not only America’s economy, but also that of the world. President Jimmy Carter would later call the oil situation in the 70’s "the moral equivalent of war." Never had the price of an essential commodity risen so quickly and dramatically.
(ii) Iran crisis–prices of oil and gasoline rose
This happened in January 2012, after inspectors found more proof that Iran was closer to building nuclear weapons capabilities. U.S. and European Union began financial sanctions.Iran situation remains a wild card for oil prices.Potential world crises in oil-producing countries can also dramatically increaseoil prices. That's usually because traders anticipate the crisis will limit supply.
(iii) World unrest–Arab Spring–Oil prices rose but declined later
World unrest also caused oil prices to rise in the spring of 2011. In March 2011, investors became concerned about unrest in Libya, Egypt and Tunisia in what became known as the Arab Spring. Oil prices rose above $100 a barrel in early March, reaching its peak of $113 a barrel in late April 2011.
(iv) Effect of Disasters on Oil Prices –natural
• Hurricane Katrina–Oil and gasoline prices rose Natural and man-made disasters can drive up oil prices if they are dramatic enough. Hurricane Katrina caused oil prices to rise $3 a barrel, and gas prices to reach $5 a gallon in 2005. Katrina affected 19% of the nation's oil production. It came on the heels of Hurricane Rita. Between the two, 113 offshore oil and gas platforms were destroyed, and 457oil and gas pipelines were damaged.
• Mississippi River Flooding May 2011–Gasoline prices rose Gas prices rose to $3.98 a gallon. Traders were concerned the flooding would damage oil refineries.
(v) Effect of Disasters on Oil Prices –man made
• Exxon-Valdez oil spill–Oil price did not rise
• BP oil spillin the Gulf of Mexico–Oil and gasoline prices barely rose BP oil spill spewed more than 18 times the oil than did the Exxon Valdez. Yet, oil and gasprices barely budged as a result. Why?
For one thing, globaldemand was down thanks to a slow recovery from the 2008 financial crisis and recession. Second, even though 174million gallons of oil was spilled, it was over a long period of time, and it wasn't a large percentage of total oil used by the U.S. In fact, it was only about 9days’ worth of oil. U.S. consumed 6.99billion barrels in 2010, according to the U.S. Energy Information Administration. That's a little over 19million barrels per day.
16) World global oil demand weighs on U. S. forced budget cuts
price has fallen According to the IMF, the U.S. spending cuts could cost the world's biggest oil consumer about 0.5 percent of its economic growth, a factor that could weigh on global oil demand.U.S. crude has fallen around $8 per barrel over February 2013. Fall in oil prices is coincidental to forced budget cuts effective 1 March 2013.U.S. oil futures fell to their lowest level in 2013 on 4 March (below $90)in reaction to weak U. S. economic data, Europe’s malaise,slowinggrowth in China and indicators that oil markets are amply suppliedand is unlikely to reverse course without signs of world economy improving.
17) Crude oil grades as benchmark in oil pricing (oil markets)
Types of crude oil grades used as a benchmark in oil pricing are: (1) Brent crude from North Sea. (2) West Texas Intermediate (WTI) –benchmark for U. S. crude market- which is relatively low density, and sweet because of its low sulfur content. (3) Other important oil markets include the Dubai Crude, Oman Crude, and the OPEC Reference Basket.
18) Concluding comments
Business managers and professional leaders like company secretaries would find it satisfying to drive the businesses of their entities by developing expectations of (i) valuation of the U. S. Dollar and (ii) oil prices in various oil markets like Brent crude, WTI, OPEC, NYMEX, thus laying down a sound strategy for spending and investing the scarce resource of capital most effectively, profitably and prudently, in an environment that is fraught with high risks andvolatilityin global economy and markets.
(Sources have been quoted in the article)
This word had been on everyone’s mind since last month and there were a lot of rallies and agitation on the roads by traders against LBT. All the trade unions coming together to keep their shops closed for more than a week to create pressure on the government to eradicate LBT from Mumbai. Governments defense for LBT was it’s simply a replacement of Octroi and a new name i.e. Local Body Tax (LBT). Let us understand the intricacies of LBT in the article ahead.
Inception of LBT
As per sub section (1) of Section 152T of the Bombay Provincial Municipal Corporation Act, 1949; and of all other powers enabling it in that behalf, the Government of Maharashtra, made rules namely “Bombay Provincial Municipal Corporations (local body tax) Rules, 2010” and tried to levy LBT in all Corporations of Maharashtra. The concerned sections are sec. 152A to sec. 152 O in chapter XI–A and sec 152 P to sec 152 T in chapter XI-V. The Act is governed by Urban Development Department.
What is LBT?
It is a tax which can be collected by Corporations on the basis of books of accounts. Any goods which are brought into the Corporation area (import) from outside Corporation area for use, consumption or sale are liable for LBT; it’s a type of Self Assessment (SA) tax
So what are goods?
Goods can be defined anything which includes animals. It is a very wide definition with an intention to include anything and everything bought into one municipal limit from other municipal limits.
Who is an importer?
“Importer” means a person who brings or causes to be brought any goods into the limits of city from any place outside the area of the city for use, consumption or sale therein.
Who is a dealer?
“Dealer” means any person who weather for commission, remuneration or otherwise imports, buys or sells any goods in the city for the purpose of business or in connection with or incidental to his business and includes factor, broker, commission agent, auctioneer, Central & State Government, Society, Club and A.O.P all dealers registered under the MVAT Act etc.
Is there an exception?
Any individuals who imports goods for his exclusive consumption or use.
Who all are covered under LBT?
“Business” includes any trade, commerce, profession, consumption or manufacturer carried on with a motive to gain or profit and whether or not any gain or profit accrues and whether or not there is a volume, frequency, continuity or regularity in such trade. All of them are covered. Professionals like Doctors, Advocates, Chartered Accountants, Company Secretaries, service providers who import the goods for consumption or use in profession are also included. However, any individual who imports the goods for his exclusive consumption or use is not liable to pay LBT.
Rate of Tax?
Rates of LBT are given in Schedule A Sec. 99: Taxable goods and vary from corporation to corporation.
Schedule B, provides list of goods which are exempt from LBT Sec.152Q: Tax free goods. There is a reference of MVAT Act especially for notified goods
Registration under LBT?
Any one liable to pay LBT shall not carry on business as a dealer without possessing a valid certificate of Registration. There are 3 types of Registration
The dealer who is an importer and whose turnover of sale or purchases of taxable goods during the year, equals or exceeds Rs. 5,000/- and the value of goods imported equals or exceeds Rs. 5,000/- and the turnover of Sales or Purchases equals or exceeds Rs. 1,00,000/-, then he is liable for registration under LBT Rules.
b. In any other case:
The dealer who is not an importer and whose turnover of purchases of taxable goods equals or exceeds Rs. 5,000/- and turnover of all his sale or purchases during such year equals or exceeds Rs. 1, 50,000/-.
c. Temporary Registration [Rule 3(2)]
If a dealer is carrying on a business in the city on a temporary basis, then he shall be liable for temporary registration under the Act & Rules, irrespective of turnover of Sales & Purchases mentioned in sub-rule (1) as above.
Liability for registration accrues even if the limits mentioned above are crossed in the immediately preceding year (when LBT is introduced). A dealer (Temporary Dealer) liable for registration has to make an application within 30 days from the notified day and for Temporary dealer is 15 days. The application has to be made in Form “A” alongwith the details of documents mentioned therein.
How to determine the value of LBT goods?
LBT is to be paid on value of import. Normally it will be considered as purchase price other direct related expenses. Commissioner is empowered to fix tariff values for goods specified in Schedule A to determine the fair market price of goods, if there are reasons to believe that sale price/ purchase price is less than the fair market value, in the specified different scenarios.
Liability of LBT on whom?
Where any goods on which LBT is leviable, are imported into the limit of the City by any person (not being a registered dealer) from any place outside of the City area and sold to a registered dealer, there shall be levied and collected LBT on such goods at the rate fixed by the Corporation, under the rules, from time to time, and such registered dealer shall be liable to pay the LBT so levied. Provided that no LBT on the same goods shall be levied if such purchasing dealer proves to the satisfaction of the Commissioner that the LBT has been paid earlier on the said goods to the Corporation.
Returns to be filed?
A registered dealer has to furnish a half yearly return for the first six months of a year in Form E-I and an annual return in Form E-II.
Registered dealer opting for composition has to furnish only an annual return in Form E-II. Temporary dealer will have to file Form E-I on monthly basis.
Due dates of filing Returns?
15 days from the end of half year in case of half yearly return (Form E-I). 15 days from the end of the year in case of annual return (Form E-II). In case of a temporary dealer within 10 days from the last day of month. The Commissioner may also exempt any dealer from furnishing a return.
Records to be maintained by the dealer?
A dealer has to maintain account of the value of goods imported, purchased, consumed, used and sold as prescribed. However, only a purchase register in Form ‘D’ is prescribed by the rules, as follows: S. No. of bill/Cash memo, Name/ Address of Vendor / Commodity Purchase Value/ Processing Charges / LBT Payable to be chronologically maintained. The entries are to be recorded on the date of receipt in city. Following further details of purchase/imports are to be recorded in said purchase register:
What is Composition Scheme?
• A composition scheme of lump sum payment of LBT is provided for dealers having purchases up to Rs. 10 lakhs per year. It starts with nil tax up to turnover of purchases of Rs. 1 lakh and ends with Rs. 20 thousand for turnover between 9 to 10 lakhs. Dealer opting for composition will have to furnish a declaration in Form R to the Commissioner.
• Any builder or contractor who undertakes the work of construction within the Municipal limits shall get himself registered with the Corporation under LBT and shall have the option of either paying LBT on the value of the goods imported into the limits of the City for construction or use, or alternatively making the lump sum payment of LBT in accordance with the following norms-
a) For construction up to 4 floors (where the building is without lift) - Rs. 100 per sq. meter
b) For construction up to 7 floors(where the building is with lift) – Rs. 150 per sq. meter
c) For construction high rise building (above 7 floors) – Rs. 200 per sq. meter
• There is no mention of built up area or carpet area or super built up area for the above sq.meters. The contractor who opts for lump sum payment of tax may make the payment of LBT, in advance to the extent of 50% of such amount due, on applying for grant of commencement certificate for such construction.
• Any dealer or person undertaking any work within the area of Municipal Corporation shall have the option of either paying LBT on the value of goods imported into the limits of the City for undertaking such work or alternatively, paying the said tax on lump sum basis at 0.25% of their total amount of contract value.
Whether any invoice is required to be issued under LBT?
Invoice is required to be issued when a registered dealer sells goods to another registered dealer or a registered dealer sells any goods exceeding Rs. 10/- in value in any one transaction to any other person. Counterfoil to be preserved for 5 years
Penalty: Sum not exceeding double the amount that would have been payable, if the goods sold had been imported by selling dealer in the city.
Assessment under LBT?
LBT due from a registered dealer liable to pay tax shall be assessed separately for each period.
Assessment can be made in following cases:
• Failure to file return
• Commissioner not satisfied with correctness
• Completion of the return.
• Dealer has claimed refund.
• Applied for cancellation of R.C.
• Dealer is liable to pay LBT but remained unregistered.
• Directed to file returns
The appeals under this Act shall be heard and determined by the judge. If the demand notice is raised by any officer, the appeal shall lie to Deputy Commissioner and if demand notice is raised by Deputy Commissioner then appeal shall lie to the Commissioner. Appeal to be filed within 15 days from the date of demand notice. The appeal will be admitted only if disputed tax has been deposited by the appellant.
Readers may wonder as to whether it is worthwhile to have a discussion on the above subject at this juncture , given the fact that the Companies Bill 2012 is now only awaiting presidential assent before it becomes an Enactment to substitute the antiquated Companies Act,1956 (hereinafter referred to as “The 1956 Act”)which has survived the trials and tribulations of India Inc for over five decades. Notwithstanding that the 1956 Act will soon become a piece of history, considering that the sub-ordinate legislation in the form of Rules which are necessary to make the Bill 2012 complementary have not yet been placed in the public domain ,we are of the view that the prospective date from which the new law will become enforceable is some distance away . Besides the provisions in the New Bill retain substantially the features in the 1956 Act where it comes to holding an Annual General Meeting. For these reasons, a discussion on the above subject against the milieu of the !956 Act is worth our while as it gives us some food for thought and scope for introspection.
The Substantive law
Section 166(2) of the1956 Act unequivocally asserts that every annual general Meeting of a company shall, inter alia, be called on a day which is not a public holiday. A plain reading of the above Provision suggests that there are three basic ingredients which have to be satisfied in the aggregate for an Annual General Meeting (AGM) to be validly held. These are as under:
• The Meeting should be called for a time during business hours.
• The day on which the Meeting is called shall not be a public holiday.
• The Meeting shall be held either at the Registered office of the Company or at some other place which is located within the city, town or village in which the Registered office is situated.
We would hasten to add that the first proviso under the above Sub-section empowers the Central Government to exempt any class of Companies from the rigours of this Sub-section subject to such conditions , as it may impose.
Our intention is not to provide a pedantic and insipid run down on the statutory provisions to the informed readers as this would be analogous to carrying coal to Newcastle. What we shall endeavour to do in this discussion is to look at some issues which crop up largely out of Departmental pronouncements in the form of circulars, clarifications, as also run through with a tooth comb the clauses (a) and (b) in the second proviso that follow Section 166(2) which offer considerable scope for debate.
Section 166 –A mandatory Provision
Before we widen the contours of our discussion, at the outset, let it be said that Section 166 is a mandatory provision and not a regulatory provision as clarified by the Department vide circular F No.34/1/75-CL-III dated nil. The section casts upon the directors a statutory duty to call an Annual General Meeting (AGM) of its members regardless of whether the Accounts of the Company which are to be adopted at this Meeting are ready or not . (Dalmia Cement (Bharat)Ltd vs Registrar of Companies (1953)23 Comp Cas 139(Mad).The Section applies in equal measure to both Public and Private Companies. There is no immunity from compliance for a Private Company merely because the shareholders belong to one family.
Meaning- “Business Hours”-Section 166(2)
Section 166(2) contemplates , inter alia, that the AGM shall be “called for a time during business hours”. The expression “called for a time” connotes the time specified in the notice of the AGM at which the meeting is intended to begin. The Department has also clarified that it can only be the starting point at which the Meeting is scheduled to commence.(Circular F No.34/1/75 –CL.III dated Nil)Therefore it follows from the above that it is necessary that the Meeting should commence during business hours. There is no bar to the Meeting spilling over beyond the confines of “business hours” as clarified by the Departmental circular F No.34/1/75-CL-III dated nil.. The term “Business hours “ has not been defined in the Act and it should therefore be given the same meaning as applied in common parlance. It refers to the period of time during which an office/shop is open for work. It would therefore be in order if the AGM is held during normal working hours of the company’s Registered office.
Meaning “Public Holiday”-Section 166(2)
The second limb of Section 166(2) enjoins upon the Company not to convene the AGM on a “public holiday’’. Section 2(38) of the Act defines the expression to mean “ a public holiday within the meaning of the Negotiable Instruments Act,1881”.
An inbuilt protection is provided in the meaning of the term to clarify that if ,after the issue of a Notice convening the Meeting on a particular day , the said day is declared by the Central Government to be a public holiday ,in so far as the holding of the Meeting for which Notice has been issued is concerned, the said day shall not be considered as a ‘public holiday” for the purpose of the Meeting. The above insulation ensures that a company can proceed unhindered with an AGM even if the date on which the meeting is convened to be held is declared as a public holiday subsequent to the issue of the Notice for the Meeting.
Explanation under Section 25 of the Negotiable Instruments Act,1881 states that the term ”public holiday “shall include Sundays and any other day declared by the Central Government by notification in the official Gazette to be a public holiday. From the above , it can be inferred that the exception carved out in the definition of public holiday u/s 2(38) supra cannot be applied for the purpose of holding the AGM on a Sunday which is always a public holiday and does not need any notification from the Govt.
Therefore it can be said without exception that an AGM can never be held on a Sunday, save and except through the process of dispensation given by the Central Govt. pursuant to the first proviso to Section 166(2).
Place of Holding AGM
Section 166(2) provides in no unambiguous terms that the Company’s AGM has to be held either at the Registered Office of the Company or within the city, town or village in which the Registered office is located. It is interesting to note as Section 166 is a mandatory provision as stated earlier ,the direction of the Court to hold the Meeting outside the limits of the city, town or village has been held to be invalid in Dinkar Rai Desai vs Bhasin (RP)(1986)(60Comp Cas 4(Del).
The Department has clarified vide letter no.1/1/80-CL-V dated February 16,1981 that a Company can hold its AGM within the postal limits of the city in which the Registered office is located as this would be more convenient to its members.
Central Govt’s Power to exempt-First Proviso to Section 166(2)
The Central Govt is empowered under this proviso to exempt any class of companies from the provisions of Section 166(2).it is pertinent to note this dispensation cannot be given to any individual Company but only to Companies belonging to a particular genre. Pursuant to the above, Section 25 Companies have been spared from requirements of Section 166(2)provided that the time, date and place of each AGM is decided upon before hand by the Board of directors ,having regard to the directions, if any, given by the Company in this regard in General Meeting vide circular No.S.o.No.1578 dated 1/7/1961.
Clauses (a) and (b) of second proviso to Section 166(2)
For facility of discussion, the above is reproduced below:
Provided further that—
(a) a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and
(b) a private company which is not a subsidiary of a public company, may in like manner and also by a resolution agreed to by all the members thereof, fix the times as well as the place for its annual general meeting.]
A plain reading of Clause (a) above reveals that a public company or a private company which is a Subsidiary of a Public Company, may either by its Articles fix the time for its AGMs and by resolution passed in one AGM fix the time for its subsequent AGMs. The moot point to consider here is whether a Public company or its Subsidiary either by having enabling provisions in its Articles or by resolution passed at an AGM , can decide to hold its Subsequent AGMs at a particular time as also the day of the Meeting even if the day fixed happens to be a public holiday. Such an interpretation is plausible if the expressions “time “ and “day” are considered as synonymous with each other.
As per the Law Lexicon of P.Ramanatha Aiyer , ”Time” is defined to mean “a measure of duration: a space or extent of time”.”Day” refers to “ a certain space of time ,containing twenty four hours’ .Time would denote therefore a sub-set of a duration of 24 hours which constitutes a day .
The above line of interpretation could also perhaps lead to the view that Sub clause (a) above, allows the members of a Public company to fix the time and day of holding the AGM either through its Articles or through enabling authority granted at an AGM in complete disregard to the requirements of section 166(2) which provides as stated earlier that an AGM cannot be held on a public holiday , that it has to be held during business hours and in the place where the company’s Registered office is located.. Put differently can we say that sub-clause (a) above can be read in isolation without any reference to the mother provision namely Section 166(2) In our view, taking the above view may not be correct as both the mother provision and the proviso thereto should be read conjointly .We therefore hold the view that notwithstanding the provisions contained in clause (a) above, the expression “time” would refer to “business hours” as envisaged in Section 166(2).Therefore in our view,, Clause (a) only gives the liberty to the Members of a Public Company to decide in advance the day and time for holding subsequent AGMs which will have to be necessarily be called for a time during business hours and held on a day other than on a “public holiday’’.
Clause (b) above provides to the members of a Private company which is not a subsidiary of a Public Company the opportunity to fix either through its Articles, or through enabling Authority granted by Members, not only the time but also the place for holding the AGM. Here again our view is that the time so fixed should fall within the period of “business hours” and the “place” should be limited to the geographical confines of the place of the Company’s Registered Office.
If a contrary view is taken to mean that both clauses (a) and (b) in the second Proviso are intended to carve out exceptions to the conditionality laid down in Section 166(2) ,to our mind ,Section 166(2) would be rendered in fructuous in the process. In such an eventuality, both clauses (a) and (b) would serve as convenient gateways to enable both public as also private companies to hold their Meetings on public holidays, outside business hours and where private companies are concerned outside the geographic confines of the place of the company’s Registered office, albeit, after following the procedure laid down in the said clauses. This would also in a way defeat the very purpose of Section 166(2) in the Law which is intended to ensure member participation in AGMs by holding them on days other than on public holidays and during business hours.
Relevance of Departmental Circulars on the issue
It would be appropriate at this juncture to discuss the implications of two Departmental circulars on this point.
Departmental letter No.8/16(1)/61-PR dated May 19,1961 reads as under:
“There is no contravention of Section 166(2) if an adjourned meeting comes to be held on a public holiday”.
In our view, that this is a benevolent circular which is intended to avoid causing hardship to a company if the adjourned Meeting convened by it accidentally come up on a public holiday.
The second circular (Letter No.8/5(166)/65 –PR dated 21.1.1963 reads as under:
“Section 166(2) of the Companies Act, 1956 does not now make it absolutely obligatory on every company to hold its AGM only on a day which is not a public holiday. In this connection, attention is invited to the provisions contained in the second proviso to subsection(2) of section 166(2) of the Companies Act which enable a company to fix by its Articles of Association or by a resolution passed in one AGM the time of its AGMs generally or any subsequent such Meeting”
It is respectfully submitted that the above circular does not state the correct position in the law. Section 166(2) states unequivocally inter alia, that the AGM shall not be held on a day which is a public holiday. Sub-clauses (a) and (b) to the second proviso to section 166(2) only provide the flexibility to fix the time and in the case of private companies the venue of the AGM also after due compliance with the procedure laid down therein. Admittedly the circular is benevolent to the Company Management in that it speaks about the possibility of holding an AGM on a public holiday. Having said this, it can be said that the circular cuts across the procedure envisaged by section 166(2).It is settled law that sub-ordinate legislation in the form of rules cannot travel beyond the scope of the mother law and in our opinion, it is humbly submitted that the above circular has no legal force or support.
To summarize our discussion, it is submitted that the provisions of section 166(2) are sacrosanct in so far as the procedure to be administered in so far as holding of AGMs is concerned. Sub clauses (a) and (b) to the second proviso to section 166(2)only facilitate fixing beforehand the time of holding an AGM and in case of private companies the place of the Meeting as well.
We would also reiterate that ,save the exceptions discussed above ,the AGM of a Company has to be held invariably on a day which is not a public holiday ,should commence during business hours and be held in the place of the Company’s registered office.
Position under the New law
Our discussion on the above subject would be incomplete unless we refer to the provisions contained in the new Enactment which is in anvil. Clause 96(2) which corresponds to Section 166(2) in the 1956 Act now defines what constitutes “Business hours” to mean the period between 9 A.M to 6 P.M. The clause also provides that the AGM shall not be held on “National Holiday” which expression has been clarified to include a day declared as a national holiday by the Central Government. It follows from the above that the AGM can now be held on a ”public holiday’ as declared under the Negotiable instruments Act,1881.By inference it follows that the AGM can now be held on a Sunday which is a public holiday.
The existing requirement of holding the AGM in the place of the company’s Registered office is being retained.
In addition, the Central Government shall be empowered to exempt any Company from the requirements of clause 96(2) as opposed to being empowered at present to exempt a particular class of companies as envisaged by the first proviso to Section 166(2).
Based on the above discussion, we would reiterate that an AGM cannot be held on a public holiday by choice, notwithstanding the contents in sub-clauses (a) and (b) to the second proviso u/s 166(2).The above clauses only allow in the case of a public company the flexibility to fix the time for holding the Meeting before hand ,subject to adherence with the compliance envisaged therein .Additionally a Private Company shall have the flexibility to decide on the venue of the Meeting as well.
Some may disagree with the above view and opine that the sub-clauses (a) and (b) ibid carve out an exception to Section 166(2) making it possible to hold an AGM on a pre-determined day and time even if the day happens to be a public holiday. Our .submission is that such a view would negate the contents of Section 166(2) and encourage Companies where the promoters rule the roost to decide by choice to hold the AGM on a public holiday and also hold it outside of business hours and .thus avoid the disquieting glare and introspection by the minority shareholders. This would only cut across the time tested tradition of corporate democracy which is the underpinning of Corporate law.
Taking a cue from UK and others wherein Limited Liability form of organisations were already into existence, the Government mooted proposals for introducing Limited Liability form of Partnerships in the year 2006 and finally was made an enactment in the year 2009. A new avenue for entering into partnerships with limited liability entire was therefore opened up for entrepreneurs and professionals as a Limited Liability Partnership has been given a stature of a registered entity.
The main objective of the Limited Liability Partnership Act, 2009 (“LLP Act”) was to provide a separate form of an organisation distinct from the partners and with a Limited Liability. Also, there was a need to provide an alternative to the Indian Partnership Act, 1932 wherein, the partners were subjected to unlimited liability. The key features of a Limited Liability Partnership (“LLP”) are enumerated hereunder:
1. Designated Partners: Section 2(j) of the LLP Act states that a designated partner is a partner who is designated to act as such. The law casts upon the designated partners an additional duty to ensure the filings etc. with several agencies to ensure requisite compliances. An LLP shall have minimum two designated partners, out of which one shall be a resident of India. A person who has stayed for a period not less than 182 days shall be deemed to be a resident of India. Also, the details of the residential status of the persons acting as a designated partner should be updated with the MCA through filing of Form DIN - 4 to avoid any technical hindrances whilst filing of e-forms.
2. LLPs for profit only: Section 11 of the LLP Act states that two or more persons for carrying out a lawful business with a view to profit shall subscribe their name to the incorporation document. The sole objective LLPs being profit, such corporate form cannot be used for charitable purposes.
3. LLP Agreements: The mutual rights and duties of the partners of LLP and the mutual rights and duties of partners and LLP are, as per section 23 of the LLP Act, to be governed by the agreement between the partners. The partners, therefore, have a lot of flexibility in terms determining matters concerning rights and duties inter– se and other matters in relation to administrative functions of LLPs. It is however, not mandatory for the partners to enter into an agreement. In absence of agreement, the rights and duties of the partners and the rights and duties of the LLP shall be governed by the provisions set out in the First Schedule to the Act. The partners are however, not exempted from the filing requirements of form 3 with the registrar of LLP. The partners will be required to intimate the registrar that the rights and duties are to be determined in accordance with provisions of Schedule I of the Act.
4. Stamp Duty on LLP Agreements: As of now, no specific provisions are incorporated in the stamp acts of respective states regarding stamp duty payable on LLP Agreement. In view of the Finance Bill, 2009 the stamp duty on LLP Agreement is to be the same as paid on the Partnership Agreements.
5. Application to the registrar for directing LLPs to change the name: As per section 18 of the Act, an entity which already has a name similar to the name of an LLP may apply to the registrar for a direction to the LLP to change its name. As per section 2(k) of the LLP Act, an entity includes a firm set up under the Indian Partnership Act, 1932.
As on date, the MCA site throws up results only for names Companies and LLPs. The details of registered partnerships are not shown in the MCA website. The stakeowners may face difficulties in ascertaining whether the names proposed to be used are actually available for usage.
6. Whistle Blower Mechanism: The Act contains provisions for vigil mechanism, whereby adequate safeguards are provided to the person reporting to the Court or tribunal in the course of investigation. The Act also contains provisions for reduction or waiver of penalty leviable against any partner when the partner has provided any useful information which the partner or employee has provided during the course of investigation.
7. Transferable interest of partners: The right of partner to receive the profits and losses and other distributions are wholly or partly transferable in accordance with the provisions of the Limited Liability Partnership and such transfer of right does not cause disassociation of the partner from the LLP neither entitles the transferee to take part in the management or conduct of the activities of the LLP.
The assignment of profits shall not be taxable in the hands of the assignee as the same would be in the nature of distribution of profits by the LLP to its partners and assignment thereof by the partners to the assignees.
8. Contribution Obligations: The obligation of a partner to bring in contribution is governed in accordance with the provisions of the Limited Liability Partnership Agreement. The partners may bring in cash contribution or property or benefit to perform services as per the LLP Agreement. LLP Rules, 2009 state that valuation of properties or assessment of the services shall be done by a practising Chartered Accountant or Cost Accountant or a Registered Valuer form the panel maintained by the Central Government.
Neither the Act nor Schedule I prescribe minimum contribution thresholds. The contribution obligations only arise by virtue of the provisions in the Agreement. The Registrar of LLPs however, emphasise on a minimum Re. 1 contribution. Cases of nil contribution are, as on date, not taken into consideration.
9. Place of maintenance of Books of Accounts and other records: Section 209 of the Companies Act, 1956, provides an alternative to the Company to maintain books of accounts and other records at places other than the Registered Office of the Company. However, there are no provisions in the LLP Act, 2009, for maintenance of books of Accounts at places other than its Registered Office.
10. Financial year: The financial year as defined in Section 2(l) of the Limited Liability Partnership Act would mean 1st day of April of a year to 31st day of March of the following year. The financial year in case of a newly incorporated LLP or a LLP formed consequent to conversion of Company or a partnership will accordingly have to be construed from the date of certificate of Incorporation issued by the Registrar of LLP.
It is also worthwhile to note that unlike the Companies Act, 1956 and the Indian Partnership Act, 1932 the LLP Act does not provide an option for extension of the financial year and accordingly, the partners are mandated to close their accounts on 31st March only.
11. Unlimited Liability in cases of fraud: The partners will loose the privilege of limited liability they enjoy in cases where acts are carried out by the partner(s) with the intent to defraud the creditors or where they act in a fraudulent manner.
12. Maintenance of Accounts: An option is provided in the LLP Act, to either to maintain the books of accounts in on cash basis or accrual basis. The LLPs are also required to prepare statement of Account in respect of the previous financial year and the designated partners are required to sign the same.
It is worthwhile to note that the Act does not prescribe the number of designated partners who shall sign the statement of affairs. It merely states that the Designated Partners of the LLP are required to sign. The LLPs therefore have to ensure that its Statement of Affairs are to be signed by all its designated partners.
13. Conversion into LLP and vice versa: Chapter X and the Second, Third and Fourth Schedule of the LLP Act contains provisions with respect to conversion of Partnerships and Companies into an LLP.
As per the Indian Partnership Act, the partners forming a partnership have an option either to register the same with the Registrar of Firms or may simply carry out without getting into the modalities of registering the same. No specific demarcation has been made in the LLP Act or the rules framed thereunder in terms of registered and unregistered partnerships. As per Section 69 of the Indian Partnership Act, 1932 spells out the effect of non registration of a Partnership Firm wherein, it has been mentioned that neither the partners of such firm nor the third parties can institute a suit for enforcing any right arising out of a contract or any right conferred by the Act. The Apex court in the matter of M/s. Shreeram Finance Corporation, Appellants v. Yasin Khan AIR 1989, 1769 SCR (3) 484 held that suit was not maintainable by or on behalf of the firm against the third parties by virtue of its being an Unregistered Partnership Firm. It is worthwhile to note that although provisions for unregistered partnerships for conversions are included, there are no express provisions for conversion of listed companies into LLPs even though the Company takes care of interest of stakeowners and the Company and its shareholders arrive at a consensus.
Section 565 of the Companies Act, 1956 spells out provisions in respect of Companies capable of being registered under the Companies Act, 1956. The extant legislation does not mention anything of conversion of LLPs into a Company whereas, the provisions with respect to conversion of LLP again into a Company are included in clause 366 the Companies Bill, 2012.
LLP is a very effective form of an organisation. The compliances of the same are also kept minimal to ensure the entrepreneurs / professionals using such form to carry on activities without ensuring much compliance. The department of Industrial Policy and Promotion vide press note 1 of 2011 has given a go ahead for Foreign Direct Investment in LLPs in certain sectors subject to terms and conditions prescribed therein. The Ministry of corporate affairs has also given a go ahead to the professionals to use the form of LLPs by furnishing to the Registrar of LLP a no objection certificate from the concerned regulator. Considering the flexibility granted to LLPs vis-a-vis other corporate forms and developments pertaining thereto, there will be a preference for usage of LLPs as a form of corporate entity.
The partners shall, however be very much vigilant about the timelines within which the forms of mandatory nature viz. Form 8 for filing of Statement of Accounts and Solvency and Form 11 in respect of Annual return and other event based forms well within the prescribed timelines as the penalty in respect of delay of filing of documents with the registrar enhances on a daily basis. Also, in view of the recent convergence of platforms from TCS to Infosys and the difficulties posed there from, the Ministry vide its Circular No. 3 dated 8th February, 2013 stated that it would consider waiver of additional penalty in genuine cases, but the same was for a limited period.
The stakeowners are also, at times unnecessarily subjected to hefty penalties on account of MCA website maintenance and certain technical glitches on the LLP portal. The Ministry should frame a scheme for halting penalties and waiver of penalties in genuine cases which will furthermore add to the effectiveness of usage of LLPs as a corporate form.
Motherhood is a very special experience in woman’s life. It alters her lifestyle and requires her to make certain compromises. That is where the concept of maternity leave and the benefits it entails, comes in handy. A woman needs to be able to give quality time to her child without having to worry about whether she will lose her job and her source of income. The Maternity Benefit Act, 1961, gives her the assurance that her rights will be looked after while she is at home to care for her child. Under this law, no employer can knowingly employ a woman in his establishment during the six weeks following the day of her delivery or her miscarriage. However, if the pregnant woman herself makes a request, she should not be forced to indulge in work of an arduous nature, or be forced to stand for long hours. Such work might adversely affect her pregnancy or health or normal development of the foetus or cause miscarriage.
The object of maternity leave and benefit is to protect the dignity of motherhood by providing for the full and healthy maintenance of women and her child when she is not working. With the advent of modern age, as the number of women employees is growing, the maternity leave and other maternity benefits are becoming increasingly common. But there was no beneficial piece of legislation in the horizon which is intended to achieve the object of doing social justice to women workers employed in factories, mines and plantation.
Maternity benefits were first recognized when the Maternity Protection Conference was held by the International Labour Organization in 1919. In a case in 1977, B. Shah v. P.O. It was held that in interpreting provisions of beneficial pieces of legislation which is intended to achieve the object of doing social justice to woman workers employed in the plantations and which squarely fall within the purview of Article 42 of the Constitution, the beneficent rule of construction which would enable the woman worker not only to subsist but also to make up her dissipated' energy, nurse her child, preserve her efficiency as a worker and maintain the level of her previous efficiency and output has to be adopted by the Court. The women need to be withdrawn from the workforce during pregnancy and after the birth also they need the steady income for medical expenses etc. and therefore to preserve her health law should make provisions for maternity benefit so women can ensure their productivity as well as reproductivity.
As per Maternity Benefits Act, 1961 which was assented by President on 12th December, 1961 and published in Gazette of India, the object is “to regulate the employment of women in certain establishments for certain period before and after child-birth and to provide for maternity benefit and certain other benefits.”
WHO IS ENTITLED TO MATERNITY BENEFIT?
Every woman is entitled to the payment of maternity benefit at the rate of average daily wage for the period of her actual absence immediately preceding and including the day of her delivery and for the six weeks immediately following that day.
The average daily wage is calculated on the basis of the amount payable to her for the days on which she has worked during the period of three calendar month immediately preceding the date from which she has absented herself on account of maternity or one rupee a day, whichever is higher.
To be eligible for maternity benefit, a woman should have worked in an establishment for not less 160 days in the twelve months immediately prior to the date of her expected delivery.
The maximum period for which any woman can be entitled to maternity benefit is twelve weeks.
This includes six weeks up to and including the day of her delivery and six weeks following that day. If a woman dies during this period, the maternity benefit will be payable only for the days up to and including the day of her death.
However, if she delivers a child and dies during delivery or during the period of six weeks following the delivery or during the period of six weeks following the delivery, the employer will be liable for the maternity benefits of the entire periods of six weeks immediately following the day of her delivery. If the child dies during this period, the liability will be only and including the day of death of the child.
In case the woman dies before receiving the benefit, the amount must be paid to her nominee or legal representative.
In the event of miscarriage, the woman must produce relevant proof that she has suffered as miscarriage. This will entitled her to receive leave with full wages at the rate of maternity benefit, for a period of six weeks immediately following the date of miscarriage.
Woman who are ill on account of pregnancy, delivery, premature birth of a child or a miscarriage are also entitled to period of absence or leave with wages at the rate of the maternity benefit for a maximum period of one month. To support this claim, a woman has to submit proof of her illness.
RESTRICTIONS PLACED BY THE ACT ON THE EMPLOYMENT OF WOMEN:
The restrictions placed by the Act on the employment of women are as follows:
i. The employer is prohibited from knowingly employing a woman in any establishment during the six weeks immediately following the day of her delivery or her miscarriage;
ii. A woman also, on her part, is required to abstain from working in any establishment during the said period;
iii. A pregnant woman can also request her employer not to give her any work which is of an arduous nature or which involves long hours of standing, etc. during the period of one month immediately preceding the period of six weeks, before the date of her expected delivery or any period during the said period of six weeks for which the pregnant woman does not avail of leave of absence, under the Act. On such a request being made by her, the employer shall not give her such work during such period.
NOTICE OF CLAIM FOR MATERNITY BENEFIT:
A pregnant woman is required to give her employer a notice in writing, stating that the maternity benefit that she is entitled to should be given to her or any person nominated by her and that she will not be working during the period in which she receives the benefit. This notice should start from the date when she was absent from work, provided that the date is not earlier than six weeks from the date of expected date of delivery. This notice can also be given soon after delivery. On receiving the notice, the employer is bound to permit the woman to absent herself from work until the expiry of six weeks after the delivery.
DISMISSAL DURING ABSENCE ON ACCOUNT OF PREGNANCY:
When a woman absents herself from work on account of illness during pregnancy, she may not be discharged or dismissed by her employer or issued notice for dismissal. It is equally unlawful for the employer to alter any of the conditions of her service to her disadvantage. If she is discharged or dismissed from service, she should still be entitled to receiving maternity benefit or medical bonus. She cannot be deprived of these. The woman can be dismissed only if she is guilty of gross misconduct. In this case, the employer is well within his rights to deprive her maternity benefit or medical bonus. A woman who has been deprived of maternity benefit or medical bonus may, within sixty days from the date on which the order was communicated to her, appeal to the relevant authority. This authority has the final say on whether the woman should or should not be deprived of these benefits. According to the law, if a woman continues to report to work during the period when she is entitled to maternity benefit, she forfeits her claim to the maternity benefit for th4 period. However, individual companies may allow the woman to take her leave as late as possible so that she may have more time to nurse the baby later on.
MATERNITY BENEFIT RULES:
i. The employer of every factory in which woman are employed shall prepare and maintain up to date a maternity benefit register in Form 10 appended to the Maternity Benefit Rules and shall enter therein particulars of all women workers in the factory.
ii. All entries in the register shall be made in ink and it shall always be available for inspection by the inspector during working hours.
iii. The employer of every factory shall on or before the 15th day of January in each year submit to the Competent Authority a return in Form 11 appended to the Maternity Benefit Rules.
VIOLATION OF THE PROVISION BY THE EMPLOYER:
An employer who violates the provisions of the Maternity Benefit Act, 1961 can be punishable with imprisonment up to three months or with fine to five hundred rupees or both. Beside, if the violation is related to non-payment of the maternity benefit or any other amount, the court can recover this amount as if it is a fine and pay it to the aggrieved party/person.
ROLE OF HR (HUMAN RESOURCE) POLICY IN DRAFTING OF COMPANY’S MATERNITY RULES:
Any additional benefits from the employer’s side would have to be determined with reference to the employee’s contract of employment, a company policy dealing with this issue or an established practice.
In the absence of a provision stipulating that such contributions forms part of the employee’s remuneration, the contributions to such funds would constitute a “benefit” – (i.e. a separate obligation to pay such contributions during maternity leave) and the employer would be obliged to continue to pay the employee’s medical aid and retirement fund contributions during maternity leave.
In order to avoid confusion around this issue, it is recommended that employers ensure that the treatment of such contributions during maternity leave is clearly specified in the employees contracts of employment and a maternity leave policy setting out the company’s policy on maternity benefits. Should the employer wish to introduce a policy that excludes the payment of medical aid and retirement fund contributions during maternity leave then it is recommended that the employer:
i. record an agreement that any contributions by the employer to the medical aid and retirement funds constitute “remuneration” as defined in the legislation;
ii. record that employees will not be remunerated during the course of maternity leave, including contributions to the medical aid fund and retirement fund; and
iii. the employee will be responsible for the payment of medical aid contributions in total during the course of maternity leave.
ADVANTAGES AND DISADVANTAGES OF MATERNITY LEAVE:
Laws and social practices surrounding maternity leave vary widely from one country to another. Equally varied are the positions people take on whether maternity leave brings with it more advantages or disadvantages. A conclusion will be reached following this essay’s discussion of these two positions.
On the one hand, the benefits of young families receive from paid work leave are evident. For one, it gives new mothers a chance to properly prepare for the birth of their child and recuperate afterward. Not having to shoulder the financial burdens that come with taking unpaid leave, mothers can focus entirely on providing a healthy home environment for their new baby. Thus, the advantages that come from maternity leave are obvious.
However, paid maternity leave can also cause some hesitation towards the hiring of women, particularly among high-pressure corporate positions. For example, often companies in Shanghai will ask job seeking women whether they are married or not. By hiring unmarried women, these firms hope to circumvent the need to provide parental leave should one of their married employees decide to start a family. As these sorts of practices are not isolated to only Shanghai, it is clear that maternity programs have the disadvantage of indirectly encouraging sexism.
Following this look, it is difficult to say the disadvantages of maternity leave outweigh the advantages. Thus, programs that offer new mothers paid work leave are thought to provide more benefits than drawbacks. It is hoped that parental leave programs will continue to develop and improve into the foreseeable future.
NEW AMENDMENTS PROPOSED BY AIDWA (ALL INDIA DEMOCRATIC WOMEN’S ASSOCIATION):
This presentation regarding the proposed Amendment to the Maternity Benefit Act (1961) is being submitted by the All India Democratic Women’s Association (AIDWA). AIDWA is a national women’s organization with a membership of more than one crore women, of whom an overwhelming majority are working women, and a large number belong to the most oppressed, and deprived sections of society.
AIDWA believes that the issue of availability of maternity entitlements for women in India is a matter of deep concern, in a situation where most working women are not able to access what is their basic right. The huge majority of working women fall within the unorganized sector, and though the Act itself states that they too are entitled to maternity benefits, the reality is that most of these women are denied their rights. Indeed, in many cases, pregnancy (or even marriage in some cases) is a reason for depriving the poor woman of her job. Ironically, the situation gets aggravated by the presence of this protective legislation, which often serves to make women more vulnerable in the job market.
Hence one of the most important tasks of the Labour Ministry would be to make sure that the maternity entitlements of women reach them when they are most needed. Enhancing the entitlements should also be accompanied by measures to ensure that women don’t become victims of this unjust practice of reducing women’s employment which is engaged in by many employers to avoid their commitment on maternity benefits. Unfortunately, the legal provision for penalizing the employers who resort to such tactics is observed more in the breach. This lacuna will have to be dealt with seriously.
In this context, an Amendment has been proposed by the Ministry of Labor regarding up gradation of the bonus amount payable by the employer, if no prenatal and post confinement care is provided to the working mother. This is a welcome even if limited intervention on this issue. However, considering the escalation in the prices of all essentials in the past 50 years, the amount of increase envisaged is very meager. AIDWA suggests that the amount should be increased to Rs. 5000/- , to provide some relief for the pregnant woman and the lactating mother. The payment of the amount should be done in 3 installments – twice in the prenatal stage, and once in the post natal stage. This also assumes that the Janani Suraksha Yojana will be available at least at the time of delivery.
Secondly, the amendment has suggested that the amount of maternity bonus should be enhanceable by notification, as and when the need arises. This is acceptable. However, there is no need to prescribe an upper limit on the amount that would be payable as medical bonus.
Over and above these aspects, AIDWA would like to bring to the attention of the members the urgent need to expand the scope of maternity entitlements and improve their implementation. The Hon’ble members are no doubt aware that the recent National Family Health Survey outcomes show an unacceptable degree of malnutrition prevalent amongst women, and a very high MMR (Measles, Mumps, And Rubella). One thirds of all women in this country are malnourished and over half of the women are anaemic. The corresponding figure for men is 28% indicating that even within poverty there is a definite female preponderance. Anaemia, a good index of the quality of nutrition in relation to women’s nutritional needs is at 56.2%- over twice the corresponding level for men (24.3%). Children who are more vulnerable are much more affected. Over 45.9% of children are underweight and 79.2% are anaemic. And of these underweight children almost 38.4% are stunted – their growths affected by lack of nutrition – while 19.1% are wasted – literally starving. The MMR (Measles, Mumps and Rubella) at 301 per lakh live births is also a damning indicator of the vulnerability of mothers.
Thus, it is a matter of concern that even the minimum provisions made by the State to protect working women during the time of pregnancy and child birth do not reach them.
The important issues that have to be addressed include
i. Safeguarding the job of working women while enhancing the maternity entitlement to an acceptable level.
ii. Registration of women in the unorganized sector and creating a monitoring structure for maternity entitlements.
iii. Extensive provision of crèche facilities for working women, and facilities for breastfeeding the child at the work site.
iv. Providing adequate maternity leave with pay.
In marginal industries, and in the unorganized sector, the state can create a mechanism by which it can contribute to the provision of the above minimum set of maternity entitlements. At the same time, employers must not be allowed to abdicate from their primary responsibility on this score.
Hence, along with the present amendments that have been suggested to the Act, we request this Committee to undertake a larger review of maternity entitlements, addressing issues like broadening the scope of the Act, and improving access and implementation of this important legislation, so that many more working women can be benefited and the health rights of mother and child can be legally safeguarded.
MATERNITY LEAVE LAWS IN OTHER COUNTRIES:
a) United Kingdom (UK):
Employed mothers may use up to a year of job-protected maternity leave and are entitled to up to 39 weeks of paid leave. Benefits are paid either as Statutory Maternity Pay (SMP) or Maternity Allowance (MA) depending on the mother’s employment status.
In Canada, maternity benefits for working mothers and parents remain the responsibility of the federal government.
Canada’s Employment Insurance (EI) gives paid maternity leave for 15 weeks. To receive maternity benefits the woman is required to have worked for 600 hours in the last 52 weeks or since your last claim. A woman needs to prove her pregnancy by signing a statement declaring the expected due or actual date of birth.
c) United States of America (USA):
The United States is one of only five countries that do not provide employers to paid maternity leave. While, they provide unpaid leave of 84 days.
The United States, Lesotho, Liberia, Swaziland, and Papua New Guinea were the only countries out of 173 studied that didn't guarantee any paid leave for Mothers.
Maternity Leave Entitlements in Australia are determined by Federal Government regulations. State Government laws and individual employer policies are also applicable.
If you earn less than $150,000 per year then you can take up to 18 weeks paid maternity leave funded by the government. This can be taken entirely by the child’s mother as the child’s primary carer or should the child’s mother wish to return to work part way through this period the remainder can be transferred to the child’s father if he takes over full time care of the child.
According to the Special Provisions, female employees of China are now entitled to 98 days of maternity leave for childbirth, an increase of 8 days from the current 90. Among the 98 days, 15 may be taken before giving birth. In cases of dystocia (difficult delivery), the maternity leave will be extended by 15 days; in cases of multiple births, the maternity leave will be extended by 15 days for each additional newborn.
SHOULD MEN GET PATERNITY LEAVE FROM WORK?
The debate rose on this topic and 81% were on positive side that men should get paternity leave from work The United Kingdom.
As per the law passed in The United Kingdom, since 2003 men are allowed to have paid paternity leave for two weeks. From 2011, they have also been entitled to take up to 26 weeks additional paternity leave (APL) and to receive additional statutory paternity pay (ASPP) for some of that period. APL does not work by transferring leave entitlement between parents. APL is a separate right of fathers. APL can be started by the father at any point after the baby is 20 weeks old, and must be completed by the baby's first birthday.
Father is entitled to the benefit of all of the terms and conditions of the contract, apart from the right to normal pay, which would have applied if he had not been absent on APL. Benefits such as share schemes, a company car or mobile phone (unless provided for business use only) continue during paternity leave.
Scenario in today’s corporate world:
‘MOTHERHOOD OR DREAM JOB’
As the above heading is today’s fashion and all are following the same in day to day life.
In controversy of the heading, it is nicely said by Margaret Sanger - “When motherhood becomes the fruit of a deep yearning, not the result of ignorance or accident, its children will become the foundation of a new race.”
Women are held back by many things, including bias and lack of opportunity. Statistics indicate that women still have a lot of barriers to just earning pay equal to that of their male counterparts. A phrase we’re hearing a lot these days, “Working moms who want to have it all” often with a question mark attached - as in, is it possible?
POWER / IMPACT OF A WOMEN
The Austrian social scientist and gender activist believes that a mother can curb conflicts and extremist ideas within her family. Mothers are strategically located at the core of their families. Women and mothers in particular possess the unique ability to recognize early warning signs of radicalization in their children, they can play a key role in curtailing violent extremism.
We are currently launching 'mother school' programmes around the world, from Tajikistan to Indonesia, from Northern Ireland to India. The programme aims to equip women with the appropriate tools to raise delicate issues within their families.
"Women and mothers in particular possess the unique ability to recognize early warning signs of radicalization in their children. They can play a key role in curtailing violent extremism."
To end on a small motivating note, we would like to quote certain some practical examples of females who have balanced the art of being a supermom and successful as a professional in the corporate world:
a) Indra Krishnamurthy Nooyi (CHAIRMAN and CEO, PEPSICO):
Indra Krishnamurthy Nooyi (born 28 October 1955) an Indian-American business executive and the current Chairman and Chief Executive Officer of PepsiCo, the second largest food and beverage business in the world by net revenue. According to Forbes, she is consistently ranked among World's 100 Most Powerful Women.
b) Chanda Kochhar (MD and CEO, ICICI Bank):
Chanda Kochhar, 50, the first woman to run ICICI Bank, oversees assets of $93 billion, more than 2,750 branches in India and the bank's presence in 19 countries.
After handling the position of MD and CEO also she has a son and daughter.
c) Kiran Mazumdar-Shaw (Chairman & Managing Director, Biocon Limited):
In 1978, she joined Biocon Biochemicals Limited, of Cork, Ireland as a Trainee Manager.
Women who identify with having a career report they are more satisfied and feel more positive in every area of work and life. Career - oriented working mothers are more satisfied with the opportunities available to develop their skills, the level of respect they receive at work, and their manager’s support in meeting demands from family and home. Eliminating bias against working mothers is not an easy task, by any means. Provide exposure to working mothers as role models, women who are committed to both their careers and their families.
CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and Strategies; CSR is not charity or mere donations.
CSR is a way of conducting business, which makes corporate entities socially responsible citizens, visibly contributing to the social good; Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits; they use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.
Companies may engage in CSR activities in different modes – projects or ongoing programmes. Such activities may focus on integrating business models with social and environmental priorities and processes in order to create shared value. .
Provision for CSR -
2% of the average net profit of preceding 3 financial years to be sent annually on CSR or explain why not; for Companies with net worth of Rs 500 crore or more, turnover of Rs 1000 crore or net profit more than Rs 5 crore.
Calculation of Net Profit –
The term average net profit in context of Section 135 (5), the following explanation has been inserted in Section 135(5):
Explanation – For the purpose of this section “average net profit shall be calculated in accordance with the provisions of Section 198”
According to the Act, the figure of “average net profit”, out of which 2% is to be spent by companies, shall be ‘net profit before payment of tax’.
CSR Committee –
• The Board to constitute a CSR Committee of 3 or more Directors out of which atleast more than 1 shall be Independent Director. The Committee shall formulate and recommend to the Board – CSR policies, amount of expenditure to be incurred and monitor the CSR policy from time to time.
Area for CSR –
• Companies may locate their CSR and Sustainability projects in any backward area of the country; some companies by the very nature of their business have no specific geographical area of commercial operations, like companies in the financial and consultancy services. Such companies can take up CSR and Sustainability projects at any location of their choice within the country, including the backward regions.
• The backward districts referred to here are those which have been identified by the Planning Commission, Government of India for its Backward Region Grant Fund (BRGF) Scheme.
Compliances under CSR -
• In companies which have only two directors, the CSR Committee should include both these directors;
• In order to ensure that there is no conflict of interest it should be ensured that:
a) If a company has formed a Foundation/Trust/Society/Section 8 company to manage and implement its CSR Programmes, no member of the company’s CSR Committee (as constituted under Section 135 of the Act) should be a member of the Board of that Foundation/Trust;
b) If a company has partnered with a Foundation/Trust/Society/Section 8 Company for managing and implementing its CSR programme, no member of the company’s CSR Committee should be represented on the board of the partnering expert implementing agency. Companies should devise their own effective monitoring mechanisms bearing this in mind.
• All companies falling under the provision of Section 135 (1) of the Act shall report the details of their CSR initiatives as part of the Directors’ Report in the Annual Report which should also be available on the company’s website.
• Companies falling under Section 135(1) of the Act are mandated to provide information to the Ministry of Corporate Affairs (or to such Agency as designated by it from time to time) on their CSR activities on or before the 30th of April each year.
Reporting and Manner of Reporting -
• Whereas all companies shall mandatorily report on CSR within their Annual Report as specified in Rule 13(a), it is entirely voluntary on the part of companies to prepare detailed CSR reports or include CSR reporting in other reporting frameworks in India and elsewhere.
• Schedule VII is only an illustrative and not exhaustive list. The stakeholders are invited suggestions for adding activities in this field.
• The Ministry is of the view that companies can select any activity as CSR as the Board of Directors decides. There will be no interference by the Ministry.
Not to be covered under CSR –
• Any activity that is undertaken exclusively for the benefit of employees of the company or their family members shall not be considered as CSR activity for the purposes of compliance with this section;
• Activities undertaken in compliance of any other Central or State Act (other than the Companies Act) would not count as CSR activities.
Initiative Taken By Ministry -
1. The Ministry has set up the NFCSR – National Foundation for CSR.
2. Mandated to rollout the new/evolving CSR agenda.
3. CSR trainings – Director level, CSR Head/ Sr. Managers, Program Managers etc.
4. A CSR Certificate Program – 9 months – to evolve into a 12 month Diploma from next year.
5. CSR Gateway as a one stop shop / window for all that concerns CSR.
6. CSR Roundtables / Workshops – Sector-wise
7. Collaborative platform/Cloud – hosting projects for multiple CSRs to join hands
This will help the Companies to undertake CSR Activities in a true spirit and not only as a letter of law or simple compliances.
1) COMPROMISE AND ARRANGEMENT
In a scheme of arrangement between company and a class of its creditors, wishes of other classes of creditors, especially public sector scheduled banks must be ascertained. Companies had not disclosed to Court all material facts, such as latest financial position and auditor’s report and had not made full and frank disclosure of effect of scheme to persons affected, by way of an explanatory memorandum before scheme meeting, scheme could not be approved. Court has discretion to reject scheme approved by statutory majority, if it is against public interest. Scheme was merely a device to avoid repayment of principal as well as interest of creditors and bondholders of both companies and obtain stay under section 391(6), which was procrastinated for several years by abusing process of Court, scheme was against public interest and could not be approved.
– MODEL FINANCIAL CORPN. LTD. V. A. P. MAHESH CO-OPERATIVE URBAN BANK LTD.  118 SCL 195 (AP) (MAG.)
2) POWERS OF COMPANY LAW BOARD
Regulation 3(3) of CLB Regulations delegates power of intra Bench allocation of matters to Chairman i.e., transfers of a matter from one Member of Bench to another Member of a Bench but not inter Bench transfer i.e. from one Member of Bench to a Member of another Bench. Power delegated to Chairman is power to transfer matters before Regional Benches only to Principal Bench since any other transfer inter se between Regional Benches would otherwise violate mandate of regulation 7(1), and this is not power that CLB has delegated to Chairman. Chairman cannot have direct recourse to powers of CLB over and above what is delegated to him under CLB Regulations. One Regional Bench cannot direct another Regional Bench to do anything or to hear a matter; similarly a Regional Bench can neither direct that a matter before it be transferred to another Regional Bench for hearing nor can it transfer a matter pending before another Regional Bench to itself for hearing. Thus, Chairman has no power and/or jurisdiction to transfer a case from one Regional Bench to another. However, Chairman has power to form any Bench and specify therein powers and functions which shall be exercised/discharged by such Bench.
– ARUNACHALAM MUTHU V. NAFAN BV  119 SCL 434 (BOM.)
3) RECTIFICATION OF COMPANY
Word ‘if’ in section 22(l)(b) indicates that it does not follow as a rule that merely because a company is, through inadvertence or otherwise, registered by a name which is identical with or a nearly resembles name by which a company in existence has been previously registered, it is bound to be ordered to change its name, Central Government must satisfy itself that name by which subsequent company registered through inadvertence or otherwise is undesirable.
– VOV COSMETICS (P.) LTD. V. UNION OF INDIA  119 SCL 354 (BOM)
4) AMALGAMATION / ARRANGEMENT
Appeal in which subsequent order is not subject-matter of challenge is liable to be rejected because original order stands merged in subsequent order – section 10F read with section 391 to 394.
– LAKSHAMI SUGAR MILLS CO. V. UNION OF INDIA  115 CLA 322 (DEL.)
5) OPPRESSION / MISMANAGEMENT
Company and shareholders are free to decide on procedure and method to be adopted for appointment of its directors, and Bench/Board will not interfere in the internal affairs of the company. – Section 397 and 398
– DR. FRANCIS CLEETUS V. RASHTRA DEEPIKA LTD.  115 CLA 299 (CLB)
6) ARRANGEMENT BY A NON-BANKING FINANCE COMPANY
Relevant material has to be provided by company to creditors or members to enable them to take informed decision about the proposed scheme of arrangement. Sections 391 to 394 read with section 45QA of the Reserve Bank of India Act, 1934.
– INTEGRATED FINANCE CO. LTD. V. RESERVE BANK OF INDIA  115 CLA 329 (SC)
MINISTRY OF CORPORATE AFFAIRS
1. REGARDING RELAXATION OF LAST DATE AND ADDITIONAL FEE IN FILING OF E-FORM 23C FOR APPOINTMENT OF COST AUDITOR.
General Circular No. 14/2013
Reference is invited to General Circular No. 15/2011 dated 11th April 2011 (amended further by General Circular No. 36/2012 dated 6t1 Nov. 2012), under the clause (f) of which, the company shall e-file its application in Form 23C for appointment of Cost Auditor within 90 days from the date of commencement of each financial year along with prescribed fee. Further, vide Notification, G.S.R. 617(E), dated 7th August 2012 the additional fee for delay in filing applications for appointment of cost auditor under sub-section (2) of section 233(B) of Companies Act 1956 were also prescribed.
It has now been decided to extend the last date of filing and to relax the additional fee applicable on e-form 23C up to 31' October, 2013 and as such the e-form 23C can be filed for appointment of cost auditor with normal applicable fee, up to 31st October, 2013 or within 90 days of the commencement of the company's financial year to which the appointment relates, whichever is later
2. REGARDING CLARIFICATION ON THE NOTIFICATION DATED 12.9.2013.
General Circular No. 14/2013
The Companies Act 2013 received the assent of the President on 29th August, 2013 and was notified in the Gazette of India on 30th August, 2013. Towards the proper implementation of the Companies Act 2013, first tranche of Draft Rules on 16 Chapters have been placed on the website of the Ministry on 9.9.2013 for inviting comments and objections/suggestions from the general public/stakeholders. Of the 16 Chapters, only 13 Chapters require specifying of Forms referred to in those Chapters. The draft Forms shall be placed on the website shortly.
2. Ministry of Corporate Affairs has also notified 98 sections for implementation of the provisions of the Companies Act, 2013 (the "said Act") on 12.9.2013. Certain difficulties have been expressed by the stakeholders in the implementation of following provisions of the said Act. With a view to facilitate proper administration of the said Act, it is clarified that —
(i) Sub-section (68) of section 2:- Registrar of Companies may register those Memorandum and Articles of Association received till 11.9.2013 as per the definition clause of the 'private company' under the Companies Act 1956 without referring to the definition of 'private company' under the "said Act".
(ii) Section 102:- All companies which have issued notices of general meeting on or after 12.9.2013, the statement to be annexed to the notice shall comply with additional requirements as prescribed in section 102 of the "said Act".
(iii) Section 133:- Till the Standards of Accounting or any addendum thereto are prescribed by Central Government in consultation and recommendation of the National Financial Reporting Authority, the existing Accounting Standards notified under the Companies Act, 1956 shall continue to apply.
(iv) Section 180:- In respect of requirements of special resolution under Section 180 of the "said Act" as against ordinary resolution required by the Companies Act 1956, if notice for any such general meeting was issued prior to 12.9.2013, then such resolution may be passed in accordance with the requirement of the Companies Act 1956.
1. REGARDING PROCEDURE AND GUIDELINES FOR IMPORT OF GOLD AND GOLD DORE BARS
Circular No. 34/2013 – Customs
Reference is invited to Board's Circular No. 28/2009 dated 14.10.2009 regarding procedure to be followed by the Nominated Agencies for supplying duty free gold to exporters. RBI has now issued fresh guidelines for import of gold and gold dore bars vide circular RBI/2013-14/187, AP (DIR Series) Circular No. 25 dated 14.8.2013, as revised (copy enclosed). In order to operationalize the same, the following procedure shall be followed for import of gold. This circular shall supersede the customs circular no. 28/2009-Cus dated 14.10.2009 insofar as the import of gold is concerned. The import of silver and platinum shall continue to be governed by the customs circular dated 14.10.2009.
2. Henceforth, gold shall be permitted to be imported only by the agencies notified by DGFT, which as of now are as follows:
i. Metals and Minerals Trading Corporation limited (MMTC);
ii. Handicraft and Handloom Export Corporation (HHEC);
iii. State Trading Corporation (STC);
iv. Project and Equipment Corporation of India Ltd. (PEC);
v. STCL Ltd;
vi. MSTC Ltd;
vii. Diamond India Limited (DIL);
viii. Gems & Jewellery Export Promotion Council (G&J EPC);
ix. A Star Trading House (only for Gems & Jewellery sector) or a Premier Trading House under paragraph 3.10.2 of Foreign Trade Policy; and
x. Any other agency authorized by Reserve Bank of India (RBI).
3. Import of gold by the banks/agencies/entities specified in para 2 above, henceforth referred to as Nominated Agencies for the purpose of this Circular, shall be subject to the following:
a. Import of gold in the form of coins and medallions is prohibited.
b. It shall be incumbent on the nominated banks/agencies/entities to ensure that at least one fifth, i.e., 20%, of every lot of import of gold imported to the country is exclusively made available for the purpose of exports and the balance for domestic use. A working example of the operations of the 20/80 scheme is given in the Annexure to the RBI Circular dated 14.8.2013, as revised.
c. Entities/units in the SEZ and EOUs, Premier and Star Trading Houses shall be permitted to import gold exclusively for the purpose of exports only and these entities shall not be permitted to clear imported gold for any purpose other than for exports (irrespective of whether they are nominated agencies or not).
d. Gold made available by a nominated agency to units in the SEZ and EoUs, Premier and Star Trading Houses shall not qualify as supply of gold to the exporters, for the purpose of the 20/80 Scheme;
e. Gold imported against any authorization such as Advance Authorization/Duty Free Import Authorization (DFIA) shall be utilized for export purposes only and no diversion for domestic use shall be permitted.
4. For import of gold, following procedure is prescribed:
i. all imports shall be routed through customs bonded warehouses only;
ii. Jurisdictional Commissioner may permit the vaults of the nominated agencies as customs bonded warehouse subject to the procedure prescribed under Section 58 of the Custom Act;
iii. for every consignment of gold imported, at least 20% quantity shall be for supply to the exporters only and remaining can be cleared on payment of duty in accordance with RBI circular dated 14.8.2013, as revised;
iv. the Nominated Agencies shall furnish a bond to the satisfaction of the said officer undertaking to properly account for the warehoused gold and also to discharge the duty liability at the prescribed effective rate of duty;
v. the Nominated Agencies may be permitted by the jurisdictional Commissioner of Customs to give a general bond for an estimated amount of duty worked out at the effective rate involved in their monthly import or a revolving bond starting with a bond equal to the duty estimated at the effective rate on quantity of gold likely to be imported in a month;
vi. the Nominated Agencies (other than designated banks nominated by RBI and public sector undertakings) shall also furnish a bank guarantee equal to 25% of the estimated amount of duty involved on import of gold in a month or the bonds executed by them. The exemption from bank guarantee to the designated banks nominated by RBI and public sector undertakings shall be permissible subject to the following conditions:
a. the said entity has not defaulted in following the procedure and condition specified by Customs and/or DGFT;
b. in case of default in export of jewellery manufactured out of precious metal supplied by nominated agency within the prescribed period, the said entity has not defaulted in payment of duty within the specified period;
c. the said entity has not been served with a show cause notice or no demand confirmed against it, during the preceding 3 years, for violations involving fraud or collusion or any willful misstatement or suppression of facts under relevant provisions of the Customs Act 1962, the Central Excise Act 1944, the Finance Act 1994 covering Service Tax, the Prevention of Money Laundering Act 2002, the Foreign Trade (Development & Regulation) Act 1992, the Foreign Exchange Management Act 1999 and the Rules made thereunder;
vii. the Commissioner of Customs may allow more than one Nominated Agencies to keep their imported goods in the same bonded warehouse provided the quantities are kept segregated and separate accounts are maintained;
viii. the Nominated Agencies shall be exempt from following the double lock system. Physical presence of the Bond Officer will not be required for bonding or ex-bonding the goods. No cost recovery charges would be payable by the Nominated Agencies;
ix. the Nominated Agencies can be visited by Custom officers for surprise audit or checks. The jurisdictional Commissioner should devise a system of random audit at least once in 3 months during the first year and twice in a year subsequently;
x. the Nominated Agencies, intending to clear gold to an exporter, shall file an ex-bond Bill of entry, clearly stating the name, address and details of owners/promoters/Managing Director/Partners etc of the exporter to whom the gold is being sold, with the jurisdictional customs officer where the gold has been bonded. The Nominated Agencies shall clear gold for domestic use on payment of duty by filing appropriate ex-bond Bill of Entry.
xi. the exporters intending to receive precious metal from the Nominated Agencies will register themselves with their jurisdictional Deputy/ Assistant Commissioners who will issue them a one-time Certificate specifying therein the details of their units such as name and address of the unit and the owners/promoters/Managing Director/Partners etc. of the organization. Exporters already registered with the customs authorities under the provisions of circular 28/2009-Cus dated 14.10.2009 need not take a fresh registration under this circular. This certificate has to be produced to the Nominated Agencies while taking gold. The units shall submit an undertaking to the Deputy/ Assistant Commissioner without bank guarantee to follow the conditions of notification under which they are receiving duty free gold and export the jewellery made therefrom within the period stipulated in the Foreign Trade Policy. The same procedure will be followed by the EOU/SEZ units intending to receive gold from nominated agencies;
xii. the customs officer shall permit clearance of the gold for export production under the relevant exemption notification after submission of the documents stated above and shall make necessary entries in the Register in the form prescribed in Annexure-I. This register shall be maintained by the customs officer separately for each of the nominated agency importing gold under his/her jurisdiction;
xiii. the Nominated Agencies shall also maintain an account of the goods released to the exporters (exporter-wise) on day-to-day basis. This account shall be liable for inspection by any Customs authority as the account of a bonded warehouse;
xiv. proof of export by the exporter shall be furnished in accordance with para 4A.8(a) of HBP V.1, to the nominated agencies as a proof of having exported the jewellery made from the duty free gold released to them within the period prescribed in the Foreign Trade Policy. The Nominated Agency shall furnish a self-certified copy of the same to the customs officer where the gold was bonded;
xv. wherever such proof of export is not produced within the period prescribed in the Foreign Trade Policy, the Nominated Agency shall (without waiting for its recovery from the exporter) deposit the amount of duty calculated at the effective rate leviable on the quantity of precious metal not exported, within 7 days of expiry of the period within which the jewellery manufactured out of the said quantity of gold was supposed to be exported. The Nominated Agencies will settle their claim with the exporter at their own level. The Nominated Agencies shall also report the cases of failure to export the jewellery made out of gold released to the exporter, to the Commissioner of Customs in whose jurisdiction the gold was originally warehoused;
xvi. the customs officer shall ensure that all clearances of gold from the customs bonded warehouse are in accordance with the RBI circular, especially that the quantity of gold imported by the Nominated Agency, in the third consignment onwards from the date of notification of the RBI Circular dated 14.08.2013, as revised, does not exceed five times the quantity of gold contained in the exported products for which proof of export and realization of payments related thereto, has been submitted to the customs officer;
xvii. the reconciliation of exports and calculation of quantities for subsequent imports shall be done nominated agency-wise and port-wise by the jurisdictional customs officer.
5. For the import of gold dore bars, the following procedure is prescribed:
i. import of gold dore bars shall be permitted only against a license issued by the DGFT;
ii. the entity to whom the license has been issued by DGFT, hereinafter referred to as the license-holder, shall be permitted to import gold dore bars subject to the conditions laid down in notification 12/2012-Cus dated 17.3.2012 as amended;
iii. the customs officer at the port from where gold dore bars are imported shall ensure that the quantity of gold imported by the license-holder, in the third consignment onwards from the date of notification of the RBI Circular dated 14.08.2013 as revised, does not exceed five times the quantity of gold contained in the exported products for which proof of export in accordance with Para 4A.8 (a) of HBP Volume 1 has been submitted to the customs officer;
iv. the customs officer at the port from where gold dore bars are imported shall maintain a license-holder wise record of the gold imported as per Register prescribed in Annexure-II. He/she shall also maintain a record of proof of export of the goods manufactured out of gold supplied by the license-holder to exporters from the refined gold. The proof of export, duly certified by the central excise officer in whose jurisdiction the refinery is registered, shall be submitted to the customs officer by the license holder.
v. the license holder shall ensure that at least 20% of the gold manufactured out of each consignment of gold dore bars is supplied to the exporters and the remaining is supplied for domestic use in accordance with the RBI circular dated 14.8.2013, as revised;
vi. entities/ units in the SEZ and EOUs, Premier and Star Trading Houses shall be permitted to procure gold from the refinery of the license holder exclusively for the purpose of exports only and these entities shall not be permitted to clear such gold for any purpose other than for exports (irrespective of whether they are nominated agencies or not). Further, gold made available by such refineries to units in the SEZ and EoUs, Premier and Star trading houses shall not qualify as supply of gold to the exporters, for the purpose of the 20/80 Scheme;
vii. the central excise officer, in whose jurisdiction the refinery is registered, shall monitor that at least 20% quantity of refined gold shall be for the supply to the exporters only and remaining can be cleared in accordance with the RBI circular dated 14.8.2013, as revised;
viii. for each consignment of gold dore bars imported, the license holder shall submit a report on utilization of gold dore bars, gold produced after refining, gold issued to exporters and the proof of export for the goods manufactured and exported by these exporters to the central excise officer under whose jurisdiction the refinery of the license holder is registered. A copy of the same, duly authenticated by the central excise officer, shall be submitted to the customs officer under whose jurisdiction the consignment was initially imported.
6. This Circular shall be deemed to be modified as and when, and in the manner RBI issues any circular to amend the policy related to import of gold as contained in their circular dated 14.08.2013 as revised.
7. Wide publicity may be given to these instructions by way of issuance of Public/Trade Notice. Difficulties, if any, in implementation of these instructions, may be brought to the notice of the Directorate General of Export Promotion.
2. REGARDING AUDIT REPORT NO. 15/2011-12, SECTION 2 – DUTY DRAWBACK SCHEME: ALL ASPECTS TO BE COVERED IN SPEAKING ORDERS ISSUED IN EACH CASE OF EXPORT UNDER SECTION 74 OF CUSTOMS ACT, 1962
Circular No. 35/2013 – Customs
Reference is drawn to Board’s Circular No.46/2011-Cus dated 20.10.2011 and Instructions of even number dated 31.7.2013 related to Audit Report No. 15/2011-12, Section 2 – Duty Drawback Scheme.
2. Board has noted that the Circular No. 46/2011- Customs had earlier directed, inter alia, passing of speaking orders, after following the principles of natural justice, under section 74 of Customs Act on the issues of establishing identity/determination of use of goods under re-export under section 74 of Customs Act. Further, taking note of Audit observations regarding payment of claims under section 74 in a manner inconsistent with provisions of Rule 5 of Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995relating to manner and time of claiming drawback, the Board’s Instructions dated 31.7.13 had directed field formations to, inter alia, ensure due diligence in the application of said Rule.
3. In the light of the overall position that appealable speaking orders in original are to be issued in section 74 cases, it is clarified for removal of doubts that the aspect of how the provisions, of the various sub-rules of said Rule 5, are satisfied or not satisfied, as also other attendant aspects relevant to sanction of the re-export drawback, should also invariably be covered in the speaking order in original issued by the officer.
3. REGARDING ALL INDUSTRY RATES OF DUTY DRAWBACK EFFECTIVE 21.09.2013
Circular No. 37/2013 – Customs
The Ministry has notified the revised All Industry Rates (AIR) of Duty Drawback vide Notification No. 98/2013- Customs (N.T.), dated 14.09.2013. This notification comes into force on 21.09.2013.
2. Some of the broad aspects, from amongst the changes notified with respect to AIR of duty drawback and entries in the Schedule, are the following –
(a) As in previous years, the drawback rates have been determined on the basis of certain broad average parameters including, inter alia, prevailing prices of inputs, standard input output norms, share of imports in input consumption, the applied rates of central excise and customs duties, the factoring of incidence of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods, factoring incidence of duty on HSD/Furnace Oil, some reduction in AIR of duty drawback. Few items like gold and silver value of export goods, etc. Many items, but not all, that were already covered under the drawback schedule prior to incorporation of erstwhile DEPB items, shall see jewellery, silk yarn, silk fabric, silk garments and made-ups, wooden art-ware etc. shall see an increase in AIR.
(b) The residuary AIR of 1% (composite) and 0.3% (customs) is being provided to hitherto Nil rated items under chapters 4, 15, 22, few items in chapter 24 and casein and its derivatives in chapter 35. AIR is being provided to articles of silver (silversmiths’ wares) subject to similar conditions as applicable to gold/silver jewellery and the Notes and Conditions (22)/(23) of the said Notification shall also have relevance.
(c) The specific rate provided to Ethanol/ENA under tariff item no. 22071090 is being changed to ad valorem 1% (composite) and 0.3% (customs). Ad valorem rates are being provided to certain items of chapter 37 and imitation jewellery of chapter 71.
(d) Though, the existing residuary rate of 1% ad valorem (composite) and 0.3% (customs) continues, the higher residuary rates are being reduced from 1.5% to 1.3% (customs) or from 2% to 1.7% (customs), as the case may be.
(e) The process of realignment of rates, on items incorporated in the drawback schedule from the erstwhile DEPB scheme, is continued along with rationalizing these rates. In general, these items shall see a reduction in the AIR, including some to the applicable residuary rate. In the case of certain electronic goods of chapter 84, 85 or 93, the residuary rate is being provided at 1% (customs).
(f) In the case of most tariff items with ad valorem all industry rates above 2%, the rates are being supplemented with drawback caps.
(g) Separate tariff entries are being created for cotton bags, grey and dyed knitted fabrics of cotton, of MMF, of blend where cotton predominates and of blends where MMF predominates, grey and dyed cotton fabrics with lycra, women’s/girls’ tops, embroidered fabrics of MMF, imitation jewellery of glass, multi-speed complete bicycle with geared hubs, cranks made of aluminium, single speed chain wheel and crank (crank made of aluminium), pillows/cushions/quilts/pouffles filled with poly-fill/polyfill etc. A few tariff items are also being replicated with same rates and caps under different four digit levels and descriptions of certain tariff items are being modified to address classification issues.
(h) AIR on wheat is being made Nil. Amendments vide Notification No. 97/2013- Customs (N.T.), dated 14.09.2013 shall also make the brand rate unavailable on export of wheat.
3. For entries in the Schedule that are related to pharmacopeia, where the product descriptions bear suffix like IP and/or BP and/or USP, it is hereby clarified that the pharmacopeia standards IP, BP, USP, EP, JP shall be treated as inter-changeable.
4. Commissioners are expected to ensure that the due diligence is exercised to prevent any misuse. As before, it may be ensured that exporters do not avail of the refund of service tax paid on taxable services which are used as input services in the manufacturing or processing of export goods through any other mechanism while claiming AIR. Moreover, there is need for continued scrutiny for preventing any excess drawback arising from mismatch of declarations made in the Item Details and the Drawback Details in a shipping bill. For example, when quantities declared in Item details and Drawback details are same, but units of their measurement are different, or unit of measurement is same but quantities declared do not match or the 4-digit RITC in the Item Details and Drawback Tariff Item No. in Drawback Details are different.
5. It is requested to download the notification with the revised Schedule of AIR effective 21.09.2013 from Board’s website (www.cbec.gov.in) and carefully peruse it and thereby take note of all the specific changes notified. While every effort has been made to avoid errors / omissions, these are not ruled out. If an error is noticed, please immediately inform the Board for appropriate corrective action. Difficulties faced, if any, in implementation of the changes may also be brought to Board’s notice. In cases where the drawback caps have not been provided against a particular tariff item, suggestions may be sent to the Board. In the case of export of articles of silver (silversmiths’ wares), which are high value items, there should be close monitoring and a monthly report indicating quantum of export and drawback availed may be sent to the Board for the next 12 months by the Commissioners having jurisdiction over the relevant Custom Houses. Suitable public notice and standing order may be issued for guidance of the trade and officers. Receipt of this Circular may be acknowledged.
1. REGARDING REVERSAL OF AMOUNT UNDER RULE 6(3) THE CCR, 2004 ON DOMESTIC CLEARANCES UNDER NOTIFICATION NOS.29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE AND 33/2012-CE ALL DATED 9TH JULY, 2012
Circular No. 973/07/2013-CX
Central Government has issued notifications no 29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 9th July, 2012 to exempt certain manufactured goods when cleared against the specified duty credit scrip issued to an exporter. The holder of the said scrip, to whom the goods are cleared, is entitled to avail Cenvat credit of duties of excise, against the amount debited in the said scrip as per one of the conditions of the notification.
2) Representations have been received from the trade that such clearances are being treated as clearances of exempted goods and payment of amount under rule 6(3), as applicable, of the Cenvat Credit Rules, 2004 is being demanded. Trade has requested that a clarification be issued that these goods be treated as equivalent of duty paid goods so that such payment of amount under rule 6(3) is not required to be made.
3) The matter has been examined. One of the conditions for availing of these exemptions is that duties leviable, but for these exemptions, shall be debited in or on the reverse of said scrip. The scrip holder is also permitted to avail of cenvat credit of the duties debited in the scrip. In view of these provisions it has been decided that such debit of duty in these scrips shall be treated as payment of duty for the purpose of determining the applicability of rule 6 of the Cenvat Credit Rules, 2004. Therefore, it is clarified that in respect of goods cleared availing the benefit of any of notifications no. 29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 9th July, 2012, payment of amount under rule 6(3) of the Cenvat Credit Rules, 2004 is not applicable.
Awareness Program on Companies Act 2013
The WIRC of ICSI organised its maiden awareness program in Companies Act 2013 on Saturday August 17,2013 at its premises at Nariman Point.
Shri Prakash K Pandya, Regional Council Member and Chairman,Professional Development Committee of ICSI-WIRC during his introductory talk spoke on the scope of the new legislation and the changing role of CS professionals. He opined that as per the new Act a professional has various avenues to specialise and gain mastery.
Shri Narayan Shankar,Company Secretary of Mahindra and Mahindra limited spoke in detail the scope and critical issues of the novel legislation. MS.Prachi Manekar,Advocate,Bombay High Court deliberated on Class action Suits and remedies
Shri Himanshu L Chapsey, Chartered Accountant, B K Khare & Co.,Mumbai spoke on accounts and audit provisions and Shri S V Subramanian spoke on the role of Secretarial Standards as per the new legislation.
The program was well attended by members, from both practice and employment. The queries raised by participants were appropriately responded by the speakers.