My Book on ISCA - CA Final

My Book on ISCA for CA Final

Recent Amendments by SEBI

SEBI in its board meeting dated 18^th January 2013 made the following amendments –

Changes in Offer for Sale Mechanism

Offer for Sale is one of the mechanism allowed by SEBI for the Promoters to off load there shares in order to meet the minimum public shareholding criteria. In order to make it simpler following changes have been made for Institutional Orders –

Conditions for 100% Upfront Margin Orders	·         Institutions may place orders/bids with 100% upfront margin ·         Modification/cancellation of such orders/bids shall be permitted ·         Settlement of funds and securities shall take place on T+1 day
Without Upfront Margin	·         Institutions may place orders without upfront margin in line with secondary market practice ·         Such bids cannot be modified/cancelled ·         Upward revision in the price or quantity is permitted

Amendment to SEBI Takeover Regulation

Relevant Date for PA in case of combined modes of acquisition	Where open offer obligations are triggered in combination of ay modes of acquisition the relevant date shall be the earliest date on which the obligations are triggered
Relevant Date in case of Preferential Allotment	The date of Board Resolution authorizing the preferential allotment shall be the relevant date instead of date of special resolution
Aligning disclosure requirements with SEBI (Prohibition of Insider Trading) Regulation	Disclosure requirement with regard to buy or sell two percent  by persons holding more than five percent as specified in Takeover Regulations, 2011 shall be modified in line with SEBI (Prohibition of Insider Trading) Regulations, 1992
Clarification on period of 90 days for increase in voting right due to buy back	It has been clarified that the period of 90 days will be reckoned from the date of closure of buyback offer.

Note: There are various other changes apart from those mentioned above. However the above changes are the most significant one.

Amendment to Section 15M of SEBI Act

The Cabinet has approved the proposal made by the Department of Economic Affairs to amend Section 15M of the SEBI Act 1992 to enlarge the field of selection for the post of Presiding Officers (PO) of the Securities Appellate Tribunal (SAT) by including a sitting or a retired judge of a High Court with a minimum experience of 7 years as one of the qualification.

Amendment to the SEBI Act, 1992 will be done on the lines of the approved ordinance and a Bill will be introduced in the ensuing session of the parliament to replace the Ordinance in consultation with the Legislative department.

Currently following are elligible to hold the post of PO -

• Sitting or Retired judge of Supreme Court
• a sitting or retired Chief Justice of a High Court

Report on Mandatory 25% Public Shareholding

Meaning of the term Public:

"Public" means person’s other than -

I.            The promoter and promoter group;

II.            Subsidiaries and associates of the company.

Explanation: For the purpose of this clause the words "promoter” and "promoter group” shall have the same meaning as assigned to them under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Meaning of the term “Public Shareholding”:

                "Public shareholding" means equity shares of the company held by public and shall exclude shares which are held by custodian against depository receipts issued overseas

Amended Provision:

I.            At least twenty five per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or

II.            At least ten per cent of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand Cr. rupees;

Provided that the requirement of post issue capital being more than four thousand Cr. rupees shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, if it satisfies the conditions prescribed in clause (b) of sub-rule 2 of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed

Provided further that the company, referred in sub-clause (ii), shall bring the public shareholding to the level of at least twenty five per cent by increasing its public shareholding to the extent of at least five per cent per annum beginning from the date of listing of the securities, in the manner specified by the Securities and Exchange Board of India .

Provided further that the company may increase its public shareholding by less than five per cent in a year if such increase brings its public shareholding to the level of twenty five per cent in that year

Continuous Listing Requirement:

(1)    Every listed company shall maintain public shareholding of at least twenty five per cent

Provided that any listed company which has public shareholding below twenty five per cent on the commencement of the Securities Contracts (Regulation) (Amendment) Rules, 2010, shall bring the public shareholding to the level of at least twenty five per cent by increasing its public shareholding to the extent of at least five per cent per annum beginning from the date of such commencement, in the manner specified by the Securities and Exchange Board of India.

Provided further that the company may increase its public shareholding by less than five per cent in a year if such increase brings its public shareholding to the level of twenty five per cent in that year.

(2)    Where the public shareholding in a listed company falls below twenty five per cent at any time, such company shall bring the public shareholding to twenty five per cent within a maximum period of twelve months from the date of such fall in the manner specified by the Securities and Exchange Board of India."

Time Limit Given to Companies:

Listed companies were given three years time to meet the requirement of minimum public holding. While the private companies have to meet the norms by June 2013, for PSUs the deadline is August 2013.

Manner of reducing the promoter holding:

Following manners are specified by SEBI –

·         Institutional Placement Programme (means a further public offer of eligible securities by an eligible seller, in which the offer, allocation and allotment of such securities is made only to qualified institutional buyers)

·         Offer for Sale

·         Auction

·         Select Bonus Issue

Select Right Issue

SEBI notifies SEBI (Alternative Investment Funds) Regulations 2012

a.    All AIFs whether operating as Private Equity Funds, Real Estate Funds, Hedge Funds, etc. must register with SEBI under the AIF Regulations.

b.    SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) have been repealed. However, existing VCFs shall continue to be regulated by the VCF Regulations till the existing fund or scheme managed by the fund is wound up. Existing VCFs, however, shall not increase the targeted corpus of the fund or scheme as it stands on the day of   Notification of these Regulations. Such VCFs may also seek re-registration under AIF regulations subject to approval of 66.67% of their investors by value.

c.    Existing funds not registered under the VCF Regulations will not be allowed to float any new scheme without registration under AIF Regulations. However, schemes floated by such funds before coming into force of AIF Regulations, shall be allowed to continue to be governed till maturity by the contractual terms, except that no rollover/ extension or raising of any fresh funds shall be allowed.

d.    Existing funds not registered under the VCF Regulations which seek registration but are not able to comply with all provisions of AIF Regulations may seek exemption from the Board from strict compliance with the AIF Regulations.

Categories of funds

The Regulation seeks to cover all types of funds broadly under 3 categories. An application can be made to SEBI for registration as an AIF under one of the following 3 categories:-

 i.    Category I AIF – those AIFs with positive spillover effects on the economy,  for which certain incentives or concessions might  be considered by SEBI or Government of India or other regulators in India; and which shall include Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds and such other Alternative  Investment Funds as may be specified. These funds shall be close ended, shall not engage in leverage and shall follow investment restrictions as prescribed for each category. Investment restrictions for VCFs are similar to restrictions in the existing VCF Regulations.

ii.    Category II AIF – those AIFs for which no specific incentives or concessions are given by the government or any other Regulator; which shall not undertake leverage other than to meet day-to-day operational requirements as permitted in these Regulations; and which shall include Private Equity Funds, Debt Funds, Fund of Funds and such other funds that are not classified as category I or III.  These funds shall be close ended, shall not engage in leverage and have no other investment restrictions.

 iii.    Category III AIF – those AIFs including hedge funds which trade with a view to make short term returns; which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.     These funds can be open ended or close ended. Category III funds shall be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, and restrictions on redemption, conflict of interest as may be specified by the Board.

                   Other salient features

a.    The Alternative Investment Fund shall not accept from an investor an investment of value less than rupees one crore. Further, the AIF shall have a minimum corpus of Rs. 20 crore.

b.    The fund or any scheme of the fund shall not have more than 1000 investors.

c.    The manager or sponsor for a Category I and II AIF shall have a continuing interest in the AIF of not less than 2.5% of the initial corpus or Rs.5 crore whichever is lower and such interest shall not be through the waiver of management fees.

d.    For Category III Alternative Investment Fund, the continuing interest shall be not less that 5% of the corpus or rupees ten crore, whichever is lower.

e.    Category I and II AIFs shall be close-ended and shall have a minimum tenure of 3 years. However, Category III AIF may either be close-ended or open-ended.

f.     Schemes may be launched under an AIF subject to filing of information memorandum with the Board along with applicable fees.

g.    Units of AIF may be listed on stock exchange subject to a minimum tradable lot of rupees one crore. However, AIF shall not raise funds through Stock Exchange mechanism.

h.    Category I and II AIFs shall not be permitted to invest more than 25% of the investible funds in one Investee Company. Category III AIFs shall invest not more than 10% of the corpus in one Investee Company.

i.      AIF shall not invest in associates except with the approval of 75% of investors by value of their investment in the Alternative Investment Fund.

j.      All AIFs shall have QIB status as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Informal Guidance - SEBI

Who can request for Informal Guidance?	Intermediary registered with SEBI
	Listed Company
	Company intending to get its shares listed and who has filled listing application or draft offer
	Mutual fund trustee company
	Asset Management Company
	Acquirer or Prospective Acquirer
Forms of Informal Guidance	No Action Letters: SEBI indicates that the Department would or would not recommend any action under any Act
	Interpretive Letters: Department of SEBI provides an interpretation of a specific provision of any Act, Rules, Regulations, Guidelines
Fees for Informal Guidance	Every application shall be accompanied with a fees of Rs. 25,000
Disposal of Request	Request is to be disposed off within 60 days. Department may give a hearing or conduct an interview if it feels necessary to do so.
Rejection of Application	Application may be rejected if any condition is not complied with
	Application money will be refunded after deducting Rs. 5000 as processing fees
Confidentiality of Request	Request to give the application a confidential treatment can be made by the applicant
	The period of confidential treatment will not exceed 90 days
	Department will communicate the applicant if no special treatment can be given
	In case of such communication applicant may withdrew the application within 30 days of communication

Advance Pricing Agreement (APA) Provisions under I.T. Act

APA provisions have been introduced under the Income Tax Act, 1961 through Finance Act 2012. This provision was initially under the Direct tax Code but now has been incorporated under I.T. Act. This was one of the steps taken by the ministry to incorporate some of the provisions of Direct Tax Code under the Income Tax Act 1961.  

APA is nothing but the determination of arms length price between the assesse and the income tax authority in advance for a specified period of time. This scheme was first introduced in Japan and was then followed by various other countries including United States. Currently transfer prices are determined by the associated parties though various given methods which lead to large number of litigations. Entering into APA will certainly reduce the number of transfer pricing litigations. There will be three forms of APA –

A Unilateral APA is the one which is entered into between the tax assesse and government of a country with respect to taxability of particular cross-border transfer pricing transaction(s) in that country.

A Bilateral APA is the agreement entered into between two countries having a Double Tax Avoidance Agreement (‘DTAA’) between them, in accordance with article of Mutual Agreement Procedure therein; with respect to taxability of transfer pricing transactions affecting both.

A Multilateral APA is an extension of Bilateral APA, whereby more than two countries involved in certain transfer pricing transaction(s)  – under their respective DTAA with each other – decide on the tax sharing thereof.

The key difference between the APA in India and the other parts of the world is that APA is applicable to all persons and is not restricted to legal entity, business, etc as specified in APA provisions in other parts of the world.

The provisions, contained in the proposed section 92CC of the Income-tax Act, 1961, (‘the Act’) provide that the CBDT, with the approval of Central Government, may enter into an APA with any person, determining the arm’s length price or specifying the manner (including the TP Method to be applied) in which the same would be determined, with respect to an international transaction to be entered into by that person

Government has also secured the power to declare any APA to be void ab initio if it is found that the agreement was obtained by fraud, misrepresentations, etc.

The most sophisticated APA provisions is said to be in Australia where the authority set to deal in these matters are working efficiently and this is one of the key draw back which is argued by many learned people. It is argued that whether bring such provisions with no adequate infrastructure will serve its purpose.