Northern India Regional Council 

is

organising

ONE DAY SEMINAR 

on 

“COMPANY SECRETARIES‐ ENHANCED RESPONSIBILITIES” 

On   

Saturday, the 30th August, 2014  

At

Hotel Le-Meridien, Janpath, New Delhi  

Background Material   

Foreign Exchange RegulationsAn overview

Contents

FEMA, 1999 Branch/Liaison/Project OfficeFDI PolicyFDI PolicyECB PolicyOutbound InvestmentTrade RegulationsTrade RegulationsCompounding of Contraventions

FEMA, 1999

FEMA Legislation

Provisions with respect to foreign exchange and related transactions are

governed by:

• Foreign Exchange Management Act, 1999 (“FEMA”);

• Regulations made there under;

• Press notes issued by DIPP, Ministry of Commerce;

• Amendments in the law are carried out through;

Notifications/ Clarifications issued by RBI

Notifications/ Clarifications issued by DIPP

FEMA - Structure

DefinitionsSection 2

Regulation & Management of Foreign Exchange

Section 3 - 9

Provisions relating to Authorised Persons

Section 2(c) & 10 - 12

Contravention & PenaltySection 13 - 15 Contravention & PenaltySection 13 15

Adjudication & AppealsSection 16 - 35

Enforcement DirectorateSection 36 - 38

MiscellaneousSection 39 - 49

FEMA - Types of Transactions

Capital Account Current Account

Prohibited unlessspecifically permitted

Freely permitted

Subject to ceilingsRemittance

Whereceilings

breached

Reserve Bank of India Authorised Dealers*

Central Government/RBI

Approvingauthority

approvalsrequired

Illustrations

► Investment in immovable property in India

► Foreign currency accounts► Foreign currency accounts in India

* Banks approved by RBI to deal in foreign exchange

Types of Transaction - Capital Account Transactions • Definition: A transaction that alters the assets and liabilities including contingent liabilities:• Definition: A transaction that alters the assets and liabilities, including contingent liabilities:

• Outside India, of PRI• In India, of PROI

• RBI can prohibit restrict (or) regulate certain transactions (Sec 6(3)) which includes:• RBI can prohibit, restrict (or) regulate certain transactions (Sec 6(3)) which includes:• Transfer/ issue of foreign security by a person resident in India • Transfer/ issue of security by a person resident outside India• Borrowing/ lending in foreign exchange/ India rupees • Deposits between a PRI and PROI• Deposits between a PRI and PROI• Export/Import of currency• Cross border transactions in immovable properties other than a lease upto 5 Yrs.• Giving of guarantees in connection to any debt, obligation or other liability incurred by PROI or by a PRI for

debt owed to PROI

• PRI can hold/ own/ transfer/ invest in foreign currency/ security/ immovable property outside India, if they are acquired/ held when he was PROI.

• PROI can hold/ own/ transfer/ invest in foreign currency/ security/ immovable property in India , if they are acquired/ held when he was PRI (or) inherited/ gifted from PRI

Current Account Transactions Rules

Schedule I – Prohibited transactions- Drawal of Forex prohibited for:

R itt t f l tt i i

Schedule II - Transaction permitted against specific approval of relevant ministry/ Govt. department:

• Cultural Tours- Remittance out of lottery winnings.- Remittance of income from racing/riding or any other hobby.- Remittance for purchase of lottery tickets, banned

/proscribed

Cultural Tours• Advertisement in foreign print media for the purposes

other than promotion of tourism, foreign investments and international bidding (exceeding US$ 10K) by a State Government and its PSU Undertakings. Multi modal transport operators making remittance to theirp

magazines, football pools, sweepstakes, etc.- Payment of commission on exports made towards equity

investment in JV/WOS abroad of Indian companies.- Remittance of dividend by any company to which dividend

modal transport operators making remittance to their agents abroad

• Remittance of freight of vessel charted by a PSU • Multi-modal transport operators making remittance to

their agents abroad .balancing condition is applicable.

- Payment of commission on exports under Rupee StateCreditRoute, except commission up to 10% of invoice value ofexports of tea and tobacco

g• Remittance of hiring charges of transponders by TV

channels/ Internet Service Providers.• Remittance of container detention charges exceeding

the rate prescribed by Director General of Shipping.P t f i h lth i fexports of tea and tobacco.

- Payment related to "Call Back Services" of telephones.- Remittance of interest income on funds held in Non-

ResidentSpecial Rupee (Account) Scheme.

• Payment for securing health insurance from acompany abroad etc. (Separate regulation oninsurance provides that permission of RBI is requiredfor securing life insurance from a company abroad).

• Remittance of prize money/sponsorship of sportsSpecial Rupee (Account) Scheme.activity abroad by a person other thanInternational/National/ State Level sports bodies, ifthe amount involved exceeds US $ 100K

Current Account Transactions Rules

Schedule III - Transactions requiring prior RBI approval beyond ceilings provided:

Private travel/ business travel USD 10K per person p.a.

Expenses for medical Treatment Estimate from Indian/ overseas doctor/ hospital

Business Travel/Training/ Maintenance expenses of a patient for overseas treatment/ expenses of attendant with Patient

USD 25K per person per visit

Gift USD 5Kper remitter p.a.

Donation USD 5K per donor p.a.

Employment Abroad (Exchange Facility) USD 100KEmployment Abroad (Exchange Facility) USD 100K

Emigration (Exchange Facility) USD 100K or as prescribed by Emigration Country

Studies Abroad Estimate of institution or USD 100K per academic year whichever is higher

Any consultancy service procured from outside India US$ 1million per project – In case of infrastructure project the limit stands increased to US$ 10 million

Reimbursement of pre-incorporation expenses US$ 100K or 5% of the investment cost

Maintenance of close relatives abroad 100% net salary (facility only for individual not permanently resident subject to conditions), otherwise US$ 100K per year per recipient

Liberalized Remittance Scheme (“LRS”) – recent changes/clarifications • Resident Individuals are permitted make remittance under LRS Scheme – USD 125,000 per

annum • For acquiring immovable property within the annual limit of USD 125000 for already contracted

i l f th t t hi h t d i t b f th d t f th i lcases, i.e. only for those contracts which were entered into on or before the date of the circular, i.e. August 14, 2013.

• The remittances can be made over and above the annual limit of USD 125000 permissible under LRS:

f di l t t t b d t th ti t f d t i I di h it l/ d to for medical treatment abroad up to the estimate from a doctor in India or hospital/ doctor abroad.

o up to USD 25,000 for maintenance expenses of a patient going abroad for medicaltreatment or check-up abroad or for accompanying as attendant to a patient going abroadf di l t t t/ h kfor medical treatment/ check-up

o for studies up to the estimates from the institutions abroad or USD 100,000, whichever is higher

o resident individual can also make all other remittances (other than donation and gifts) as ti l t d d S h d l III f C t t t ti l d th i iblstipulated under Schedules III of Current account transaction rules and other permissible

current account transactions• LRS can be used to acquire both listed and unlisted shares of an overseas company

Branch/Liaison/Project Office

Branch and Liaison Office

Who can set up • Body Corporate, Firm or Association of Individuals incorporated o/s India

• EXCEPT Partnership /Proprietary Concerns. • Nepal can set up LO only• Prior Permission of RBI

Different Routes• RBI Route: If principle activity of foreign

entity falls u/sector where 100% FDI allowedunder Automatic Route(AR)

Government Route: : If principle activity of• Government Route: : If principle activity offoreign entity falls in the sector where 100%FDI not allowed under AR, NGOs, NPOs etc.

• LO of Insurance/Bank: IRDA/DBOD of RBIl i l di t iapproval including extension

• BO of Bank: DBOD of RBI approval includingextension

BO i SEZ N RBI P i i l th• BO in SEZ : No RBI Permission, only thosesectors where 100% FDI permitted

Branch and Liaison Office

Permissible Activities• Liaison Office (also known as RO)

a. Representing Parent/Groupb. Promoting Export and Importc. Promoting Foreign/Technical Coll.d. Acting as Communication Channel

• Branch Office:a EXIM of goods B2Ba. EXIM of goods B2Bb. Professional or Consultancy

services. c. R&D activity of Parent. d. Promoting TC/FC, Technical

Support; e. Acting as buying/selling agent f. IT and ITES Services. g. Foreign airline / shipping company.

Branch and Liaison OfficeCriteria of considering Permission by RBI

• Liaison Officea. Track Record of 3 FYrs Profitb. Net worth of U$ 50KPermission by RBI b. Net worth of U$ 50K

• Branch Office:a. Track Record of 5 FYrs Profitb. Net worth of U$ 100K

If above criteria cannot be met….LOCof Parent of LO/BO can be considered ifthey satisfies the criteria

LO cannot carry any commercial activityor earn income, meet expenses fromO/S

LO Initial regn. for 3 Yrs …Renewableby AD except for NBFCs and ConstnDevelopment (excluding IDCs)

• FNC-1 to AD

Documents to fileFNC 1 to AD

• English version of COI/MOA duly attested byEmbassy or Notary Public of country ofregistration

Branch and Liaison Office

Expansion/Additional A i i OR Offi b

• RBI Prior Approval• If more than 4 Offices…NEWS justification

Activity OR Office by BO

to RBI….One Nodal Office

Annual Activity Certificate

• LO/BO/PO to intimate to DGP of Stateconcerned within 5 days of its establishment

• LO/BO to file AAC alongwith its audited• LO/BO to file AAC alongwith its auditedaccounts within 6 months of close of the FY toAD and DGIT duly certified by the CA

• Through AD by filing of :

Closure g y g

1. RBI permission;2. Auditor Certificate;3. NOC of Income Tax;4. No pending Litigation;5 ROC Certificate;5. ROC Certificate;6. Any other document as advised by

RBI while granting registration

Project Office• General Permission:

Who can set up Foreign Company if Project awarded byIndian Company

Conditions• Project should be funded from overseas

• Non Interest Bearing Bank A/C can bed i l di F i C A/Copened including Foreign Currency A/C

• Only permissible Debits and Credit

• Inter Project funds transfer require RBIj qprior approval

• Bank A/C should be closed on completionof Project

General Conditions applicable to all

• BO/PO (not LO)can acquire Immovable Property for their own use or to• BO/PO (not LO)can acquire Immovable Property for their own use or to carry out permitted activities but not for leasing or renting out the property.

• BO/PO/LO can take real estate on lease upto 5 yrs. for permissible activity

• BO/LO/PO can open non interest bearing account with AD

• BO can remit profit out of India through AD on submitting documentsBO can remit profit out of India through AD on submitting documents.

• Transfer of Assets of LO/BO/PO require prior approval of AD Bank/RBI. AD bank may approve matters when the foreign entity intends to close their LO/BO/PO ti i bj t t li f ib d ditiLO/BO/PO operations in subject to compliance of prescribed conditions.

• Term deposit out of temporary surplus funds for 6 months can be allowed by AD – Utilization in India within 3 months of maturityy

FDI Policy

Entity Options

Foreign Company

Operates as a Establishes anEstablishes anOperates as a foreign company

Establishes an Indian company

Establishes an Indian LLP*SP/PF/AOP

BranchOffice

Project Office

Wholly Owned SubsidiaryJoint VentureLiaison

Office

* LLPs (after obtaining FIPB approval) are permitted to be engaged in activities that are currently eligible for 100% FDI under automatic route, without any FDI-linked performance

diticonditions.

FDI Policy – Overview

R t i t dP hibit d P itt dSome Sectors FDI Cap

• Civil Aviation 49%

• Petroleum &

Restricted

• Agriculture (some exceptions)

• Betting, Gambling & Lottery

• Chit funds & Nidhi company

Prohibited Permitted

Natural Gas 49%• Telecom services 100%• Pharma 100%

(Brownfield) • Single brand retail trading 100%

• Chit funds & Nidhi company

• Real estate (except construction

development)

• Retail Trading except SBRT/MBRT

100% FDI permitted under

auto route Single brand retail trading 100%• Multi brand retail trading 51%• Teleports/DTH/Mobile TV/HITS

MSOs taking up digitalization withaddressability. 74%

• Tobacco products

• Trading in Transferable Development

Rights

• Atomic Energy and Railway

in otherSectors

• Cable Networks (Other MSOs) 49%• FM Radio 26%• Up-linking of News & Current Affairs TV

Channels 26%• Up-linking of Non-News & Current Affairs

TV Ch l / D li ki f TV

Atomic Energy and Railway

Operations (other than permitted

activities)

TV Channels/ Down-linking of TV Channels 100%

• Defence 49%• Insurance (under automatic route) 26%

Foreign Direct investment in Partnership Firms

Not Permitted:Investment in Firm / proprietary concern engaged i i lt l / l t tiNRI / PIO

resident outside India may invest

by way of contribution of

in agricultural / plantation activities, real estate business ,print media business

contribution of capital

Investments by id t

Investments by NRI / PIO with non-residents

other than NRI/ PIO – RBI prior

permission required

NRI / PIO with repatriation

benefits - RBI Prior permission

required

Foreign Direct investment in Venture Capital Fund (VCF)

FDI in Trusts

Only SEBI registered FVCI may

FDI in Trusts other than VCF is not permittedg y

contribute up to 100% of the capital of an Indian Venture Capital Undertaking

FVCI may also set up a Domestic asset

tCapital Undertaking management company to manage the fund

Foreign Direct investment in LLPs

100% FDI is allowed:• Activities currently eligible for 100% FDI under automatic route • Prior approval from FIPBPrior approval from FIPB• LLPs with FDI cannot make downstream investment• FII and FVCI investment not permitted in LLPs• LLPs with FDI cannot raise foreign currency loan (ECB)g y ( )

Permissible ActivitiesServices

Trading• Wholesale / B2B / Exports

IT / ITeS / KPOBusiness services, Advertising and films Engineering, technical support and R&DHealthcare and medical services

Wholesale / B2B / Exports• Sourcing

Manufacturing and processing Healthcare and medical servicesLogistics, supply chain management Hotels, tourism, F&B, restaurants etc.

g p gSpecial Economic Zones• Developers• Units

NBFCs, Construction Development Projects etc. where FDI Linked performance conditions are prescribed – Not permitted

FDI Policy in Trading Sector

• FDI Upto 100% is permitted in Single Brand Retail Trading (“SBRT”)- upto 49% under automatic route and beyond 49 under approval route

• FDI is permitted in SBRT subject to following conditions:P d t t b ld h ld b f “ i l b d”• Products to be sold should be of a “single brand”

• Product to be sold Internationally under “same brand” only• Products should be branded during manufacturing• Foreign investor should be the owner of the brand• More than one non resident entity shall be permitted to undertake SBRT in the country for the

specific brand, directly or through a legally tenable agreement with the brand owner for undertaking SBRT trading

• FDI beyond 51% is permitted in SBRT subject to additional condition (apart from mentioned above):

• Mandatorily sourcing of at least 30% of the total value of goods purchased from India

• India sourcing should be preferably from MSMEs, village and cottage industries, artisans and f Th i i f h G i h b H i hcraftsmen. The intention of the Government is to promote the above. However, in case the

same is not feasible specific exemption can be obtained from the Government

• The above requirement can be met within a period of 5 years for the first compliance; Thereafter, the mandatory procurement requirement has to be complied on an annual basis

FDI Policy in Trading Sector 51% FDI i itt d i M lti B d R t il T di (“MBRT”)• 51% FDI is permitted in Multi Brand Retail Trading (“MBRT”):

• Fresh agriculture produce may be unbranded• Minimum amount of USD 100 million to be brought as FDI• At least 50%* of total FDI brought in shall be invested in 'backend infrastructure' within three

years of the first tranche of FDI• At least 30% of the value of procurement of manufactured/processed products purchased

shall be sourced from Indian small industries which have a total investment in plant & machinery not exceeding USD 2 million.

• 100% FDI is permitted in:• Business to Business e-Commerce activities• Retailing of its products by a manufacturerRetailing of its products by a manufacturer• Wholesale cash & carry trading (including B2B sales)• Franchisee activities whereby the Company provides franchise rights to a third party to run a

business under its brand, format and standards against franchisee fee

• Retail trading by means of e-commerce (in any form) is not permissible

* only 50% of total FDI brought in the first tranche of USD 100 million, shall be invested in `backend i f t t ` ithi thinfrastructure within three years

FDI Policy in Railway Sector100% FDI i itt d i f ll i ti iti l t d t R il I f t t d t ti• 100% FDI is permitted in following activities related to Railway Infrastructures under automatic route:

• Suburban corridor projects through PPP;• High speed train projects;• Dedicated freight lines;• Rolling stock including train sets, and locomotives/coaches maintenance facilities;• Railway electrification• Signaling systemsg g y• Freight terminals• Passenger terminals• Infrastructure in industrial park pertaining to railway line/sidings including electrified railway

lines and connectivity's to main railway linelines and connectivity s to main railway line• Mass rapid transport systems

• FDI in above mentioned activities is opened to private sector participation including FDI bj t t id li f Mi i t f R ilsubject to guidelines of Ministry of Railways

• Proposal beyond 49% will be brought by the ministry of Railways before the cabinet committee on security (CCS)

• FDI is not permitted in Railway Operations other than above.

FDI Policy in Defence Sector49% FDI i itt d d G t R t (FDI b d INR 1 200 C i d t b• 49% FDI is permitted under Government Route (FDI beyond INR 1,200 Crore required to be approved by CCEA)

• FDI beyond 49% will require approval of CCS which will be given based on recommendation of Ministry of Defence and FIPB. (No CCEA approval required if CCS approval is obtained)FDI Li i i l d FII FPI NRI FVCI d QFI• FDI Limit includes FIIs, FPIs, NRIs, FVCI and QFIs.

• Portfolio Investment by FPIs/FFIs/NRIs/FVCI/QFIs together should not exceed 24% of total equity of the investee/joint venture company. Portfolio Investments will be under automatic route.

Key Conditions:• The applicant company seeking permission upto 49% FDI shall be an India company owned and

controlled by resident Indian citizens.• Majority of the directors on board of applicant company including Chief Executives should be j y pp p y g

resident Indians.• Chief security officer of the investee/joint venture company should be resident Indian citizen.

Entity Analysis

Nature Sole proprietor/Partne

rship firms

P.O Branch/L.O WOS/JV L.L.P

Permissible All ( except for NRI/PIOs Only project Branch: specific activities All Activities Activity investment in

Agricultural/ plantation activity or real estate business or print media)

related and incidental activities

-Export/Import, rendering professional, consultancy, technical support

LO: Communication channel with parent

permitted under 100% automatic route without any FDI-Linked performance

ditipcompany. Not permitted to earn any income from business activities.

conditions

RBI / FIPB NRI/PIO : Not required, if Not Required . Required. Fulfillment of Not Required. if Required.Approval investment on Non

Repatriable basis

Others – Required

Only intimation needs to be filed with RBI

Profit making track record and Net worth criteria

operate under automatic sector

Set up time 2 – 4 Weeks 2 weeks Branch/L.O : 8-12 weeks, Automatic: 6-12 6-12 weeksp

Post intimation ROC compliance needs to be fulfilled

,if under automatic route.

5-7 months if under Government route or from any sensitive country like China

weeks

Approvals:16-20 weeks

fulfilled. China

Funding Options

Equity ECB Local Debt

Foreign Company

CCPS/CCD

• Ownership rights

• Limited Redemption

• Eligibly norms for borrowers /lenders

• Minimum Avg Maturity

• No end use restriction

• RBI approval if

• Carry fixed rate of Dividend/Interest

• RPS/OCPS/NCD/OCDRedemption

• No cap on rate of dividend (Transfer to

• Minimum Avg. Maturity

• Monetary limit

• End use restrictions

• RBI approval if structured obligations

RPS/OCPS/NCD/OCD regarded as ECB

• Coupon rate – SBI PLR + 300 basis (

reserve)

• Optionality clause permitted

• All in cost ceiling on interest

points

• Converted in to equity after specified period

• Optionality clause is permitted

Indian company

Funding Options

• An FII/FPI may invest in the capital of an Indian company under PIS (individual holding below 10% of the capital of the company and the aggregate limit for FII/FPI/QFI investment to 24% of the capital of the company) - can be increased up to sectoral cap through a Board resolution followed by a special resolutionthrough a Board resolution followed by a special resolution

• Non-convertible, optionally convertible or partially convertible considered as Debt - all ECB norms shall apply

• FIIs, QFIs, FPIs and long term investors registered with SEBI may invest on repatriation and non repatriation basis in non-convertible/redeemable preference shares or debentures issued by an Indian Company

• FIIs, QFIs and Long terms investors registered with SEBI may invest Corporate Debt including Commercial Papers – upto USD 51 billion (Commercial Papers only upto USD 2 billion)

• Indian Company may issue non-convertible/redeemable preference shares or debentures to non-resident shareholders, including the depositories that act as trustees for the ADR/GDR holders, by way of distribution as bonus from its general reserves under a Scheme of Arrangement approved by an Indian Court g pp y

Funding Options

Optionality clauses are allowed in equity shares and CCPs/CCDs issued under the FDI Schemesubject to following conditions:

• There is a minimum lock-in period of one year or a minimum lock-in period as prescribed underFDI Regulations, whichever is higher.

• After the lock-in period, the non-resident investor exercising option/right shall be eligible to exitwithout any assured return, as mentioned hereunder:

Li t d li ibl t it t th k t i ili t th i d t k• Listed company - eligible to exit at the market price prevailing at the recognised stockexchanges

• Unlisted company - the non-resident investor shall be eligible to exit from the investment inequity shares of the investee company at a price not exceeding that arrived at on the basisof Return on Equity (RoE) as per the latest audited balance sheet Any agreement permittingof Return on Equity (RoE) as per the latest audited balance sheet. Any agreement permittingreturn linked to equity as above shall not be treated as violation of FDI policy/FEMARegulations

• Investments in CCDs/CCPS may be transferred at a price worked out as per anyinternationally accepted pricing methodology at the time of exit duly certified by a CA or ay p p g gy y ySEBI registered Merchant Banker. The non-resident investor should not be guaranteed anyassured exit price at the time of making such investment/agreement and shall exit at theprice prevailing at the time of exit, subject to lock-in period requirement, as applicable.

Pricing of Instrument

Rights Issue

Transfer R to NR:• Listed Co……..

Preferential Allotment • Listed Cos. –Atleast

at a price as per

g• Listed Cos.-• As determined by

Co.• Unlisted Cos. – Not

Not less than the price at which preferential allotment are madeFresh Issue

• Listed Cos. - SEBI Guidelines

• Unlisted Cos.-Atl t f i l f

at a price as per Preferential Allotment SEBI Guidelines

• Unlisted Cos.- Atleastfair value of shares*

less than price offered to resident S/H

made• Unlisted Co –

Minimum fair value of shares*

Atleast fair value of shares* • NR to R:

• Listed Co –Minimum price at which

f ti lpreferential allotment made

• Unlisted Co -Maximum Fair value of shares*value of shares

*The fair valuation of shares done as per any internationally accepted pricing methodology for valuation of shares on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker

Consideration for Investment

Non Cash

Cash Inward Remittance

Automatic• ECB Conversion• Royalty

Inward RemittanceDebit of FC A/C in India

• Technical Know-how

Approval Route -FIPB• Import of New Plant &

Machinery • Pre-Incorporation Expenses• Preliminary Expenses

Shares to be allotted or refund to be made within 180 days of receipt of subscription money

Reporting and Remittance

• Investment : 30 RBI reporting on receipt of money : FC(GPR) to RBI in 30 day through AD for FDI ESOP

Reporting

FC(GPR) to RBI in 30 day through AD for FDI, ESOP, Right, Bonus, M&A, ECB, FCCB/ADR/GDR

• Transfer : FC(TRS) to AD within 60 days of receipt of consideration by Resident

R itt

• Through Authorized Dealer subject to WHT:• Dividend• Interest• Sale Proceeds of shares and other instrumentsRemittance Sale Proceeds of shares and other instruments• Winding up/ Liquidation: Auditor Certificate for no o/s

Liabilities or adequately provided for, If voluntary W/L no pending legal proceeding

ECB Policy

ECB Policy- An Overview

External Commercial Borrowing (ECB)

Automatic Route Approval Route

M i $ 750 M (U$ 200 MMaximum - $ 750 M (U$ 200 M Hotel, Hospital, S/W and uptoU$10 M by NGO in Micro Finance, NBFC-IFC upto 75% of its O ned F nd)

Approval route applicable -when not covered in Automatic route

its Owned Fund) per financial year etc.

Minimum average maturityMinimum average maturity 3 or 5 years depending on the quantum of ECB

36

Short term debt not encouraged

ECB Policy- At a glance

Real/ Industrial sector (SME)–• Import of capital goods,

New Projects Expansion/

• Corporates• NGOs in Micro Finance

International BanksInternational Capital Markets

Eligible Lender Eligible Borrowers End Use

• New Projects, Expansion/ modernization of existing units

• ODI in JV/ WoS abroadPayment of Interest DuringConstruction (IDC)

• SEZ Units (except financial intermediaries, individuals, Trusts)

• NBFC-IFC

Multilateral Financial InstitutionsExport credit agenciesSuppliers of equipmentForeign collaborators Foreign Equity Holders (min 25%)

First stage acquisition of shares inthe disinvestment process and alsoin the mandatory second stage offerunder GOIs disinvestment programPayment for obtaining License/

• NBFC-AFC• Micro Finance Institution

Foreign Equity Holders (min. 25%)

• For ECB > USD 5M – Debt- Equity 7:1(approval route)

Maturity and Interest

Minimum avg. maturity periodUSD 20 M – 3 years >USD 20 upto 750 M – 5 years

Payment for obtaining License/permit for 3G spectrum.For lending to self help groups orfor micro credit by NGO’sRepayment of rupee loans by

Prohibition

All in Cost Ceiling 3-5 years - LIBOR + 350 b.p. >5 years - LIBOR + 500 b.p.

p y p ycompanies in infrastructure sectormanufacturing and hotel sector (withproject cost of NR 250 or more)Working capital for Civil Aviationsector

• On lending • Investment in capital market or sector

General corporate purpose (w.e.f. 4September 2013) for ECB fromforeign direct equity holder

pacquiring a company in India

• Real Estate

ECB Policy- Other Issues & Procedures

Guarantee

Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort bybanks, Financial Institutions and Non-Banking Financial Companies (NBFCs) from India relatingto ECB is not permitted.

Possible only after obtaining no objection from AD bank:oss b e o y a te obta g o object o o ba

• Pledge of shares by promoters, domestic associate companies of the borrower

• Corporate Guarantee, Personal Guarantee ,

• Creation of Charge over immoveable assets and financial securities is

• Incase of enforcement of charge – property will be transferred only to person resident inIndia

ECB Policy- Procedures & Compliance

Execution of Loan

Agreement(filing is not

compulsory)

Filing of Form 83 duly certified by

CA/CS to AD

AD to process the request and send to RBI for

LRN

Drawn should take place post

allotment of LRN

Filing of Monthly Return in ECB 2

by 7th of next month

p y)

*Prior approval of RBI in case of approval route

External Commercial Borrowings (ECB) – Recent change

RBI has delegated powers to AD Banks to approve those cases where Average Maturity Period of the fresh ECB is exceeding the residuary maturity period the existing ECB under the automatic route subject to the following conditions:

a) Both the existing and fresh ECBs should be in compliance with the applicable guidelines;b) All-in-cost of fresh ECB should be less than that of the all-in-cost of existing ECB; c) Consent of the existing lender is available;

Advisory

d) Refinancing is to be undertaken before the maturity of the existing ECB;e) Borrower should not be in the default / Caution List of RBI and should not be under the

investigation of the Directorate of Enforcement (DoE);f) Overseas branches / subsidiaries of Indian banks will not be permitted to extend ECB for

refinancing an existing ECB;g) All requirements in respect of reporting arrangements like filing of revised Form 83, etc. are

followed.

External Commercial Borrowings (ECB) – Recent changesRBI has delegated powers to AD banks to approve the following cases under the automatic• RBI has delegated powers to AD banks to approve the following cases under the automatic route:

a) Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels hospitals and software sectors from indirect equity holders and grouphotels, hospitals and software sectors from indirect equity holders and group companies.

b) Proposals for raising ECB for companies in miscellaneous services from direct / indirect equity holders and group companies. Miscellaneous services mean companies engaged in training activities (but not educational institutes) research and development

Advisory

engaged in training activities (but not educational institutes), research and development activities and companies supporting infrastructure sector. Companies doing trading business, companies providing logistics services, financial services and consultancy services are, however, not covered under the facility.

c) Proposals for raising ECB by companies belonging to manufacturing infrastructurec) Proposals for raising ECB by companies belonging to manufacturing, infrastructure, hotels, hospitals and software sectors for general corporate purpose. ECB for general corporate purpose (which includes working capital financing) is, however, permitted only from direct equity holder.

d) Proposals involving change of lender when the ECB is from FEH direct / indirectd) Proposals involving change of lender when the ECB is from FEH – direct / indirect equity holders and group company.

• ECB for working capital for Civil Aviation Sector will continue till March 31, 2015.

External Commercial Borrowings (ECB) – Recent changesFor forex conversion of ECB/ Import of capital goods liability:• For forex conversion of ECB/ Import of capital goods liability:• Apply the exchange rate prevailing on the date of the agreement between the parties

concerned for such conversion.• RBI will have no objection if the borrower company wishes to issue equity shares for a

rupee amount less than that arrived at as mentioned above by a mutual agreement withrupee amount less than that arrived at as mentioned above by a mutual agreement withthe ECB lender.

• The fair value of the equity shares to be issued shall be worked out with reference to thedate of conversion only.

Advisory• ‘Maintenance, Repairs and Overhaul’ (MRO) will also be treated as a part of airport

infrastructure.

• RBI has delegated the power to the designated AD bank to allow re schedulement of ECB• RBI has delegated the power to the designated AD bank to allow re-schedulement of ECBdue to changes in draw-down schedule and / or repayment schedule subject to certainconditions

• Eligible Indian companies will not be permitted to raise ECB from overseas branches /• Eligible Indian companies will not be permitted to raise ECB from overseas branches /subsidiaries of Indian banks for the purpose of refinance / repayment of the Rupee loansraised from the domestic banking system in respect of the following:a) Scheme of take-out financing;b) Repayment of existing Rupee loans for companies in infrastructure sector;b) Repayment of existing Rupee loans for companies in infrastructure sector;c) Spectrum allocation;d) Repayment of Rupee loans.

Outbound Investment

• Automatic approval only to ICo and Partnership Firm (including LLP)

ODI Regulations – An Overview • Automatic approval……only to…….ICo and Partnership Firm (including LLP)

– All sectors for bonafide business activity except Real Estate n Banking

– All countries except Pakistan- Rupee funding for Nepal and Bhutan

Sole Proprietors, registered Trust n Societies can invest with RBI

– Financial commitment upto 400% of Net Worth

– All remittance through one AD

invest with RBIapproval.

Permissible sources of funding

EEFC RupeeCapitalization

f tShare swapEEFC

balance ECBRupee SourcingADR / GDR issue of export

receivables/ Other dues

No limit

Financial Commitment – Equity, CMCPS, Preference Shares, Loan + 100% of guarantees issued by Indian investor to/ on behalf of foreign JV/ WOS, 50% of the Performance Guarantee

No limit

Individual can invest outside India

• From the balance in RFC A/C

• Gift, Inheritance

• Cashless ESOP

• ESOP of overseas Company by resident employees or Directors of the Indian Company ifSO S f f fESOP Scheme is global and uniform irrespective of the percentage of the direct or indirect

equity stake in the Indian company.

• Right Issueg

• Bonus Issue

A i iti f Sh ithi th ll ili f U$ 125K ib d i LRS• Acquisition of Shares within the overall ceiling of U$ 125K as prescribed in LRS as:Qualification Shares being a Director;Acquiring Shares of a foreign entity in part / full consideration of Professional Services rendered to the foreign company or in lieu of Director’s Remuneration.

Guarantee • Indian entities (promoter, group or associate company) permitted to offer

guarantee (corporate / personal / primary / collateral etc.) provided:

• 100% of the Net worth

• 50% of the Performance Guarantee. Prior RBI approval for remittance beyond financial limits

• No guarantee is 'open ended'No guarantee is open ended

• Report in Form ODI-to be submitted to RBI

RBI approval required for creating charge on immovable property / pledge of shares

Pre Investment Pre Investment

Pre and Post Investment Changes

Submit Form ODI to AD for onward submission to RBI.

Valuation Certificate from CA/CPA, if investment upto U$ 5 Mio, otherwise from Cat I-MB

Pre Investment

Post Investment

• Receive evidence of investment in 6 months

EXIT from JV/WOS … Automatic

• No Outstanding, No default, Investigation in India

• Minimum 1 year elapsed•Bring dues in 60 days

•Diversifies of activities

• Setting up of its step downsubsidiary

30 Days RBI reporting through AD

Minimum 1 year elapsed

• Valuation of unlisted shares as per CA/CPA

• Sale proceeds be repatriated within 90 days

• AD reporting 30 dayssubsidiary

• Alteration of Shareholding

•File APR alongwith auditedaccounts within 3 months of

through AD AD reporting 30 days

WOS/JV having atleast 51% investment can w/o

W/o of Investment/Restructuring of B/S

closing of financials. Ifaccounts are unaudited, thesame should be certified byIndian Auditor

ginvestment/other receivables even during existenceof JV/WOS:

• Listed Cos upto 25% of equity investmentwithout permission of RBI;

• Unlisted Cos upto 25% of equity investment withprior approval of RBI

Registered Trusts and Societies engaged in manufacturing / educational / hospital sector are

ODI by Trust & Societies

Registered Trusts and Societies engaged in manufacturing / educational / hospital sector areallowed to make investment in the same sector(s) in a JV/WOS outside India, with the priorapproval of the RBI.

Eli ibilit C it iEligibility Criteria:

TrustTrust must be registered under Indian Trust Act, 1882;g , ;Investment must be in terms of the Trust Deed and approval of TrusteesTrust must be in existence from last 3 Yrs.The Trust has not come under the adverse notice of any Regulatory / Enforcement agencylike the DOE CBI etclike the DOE, CBI etc.

SocietySociety must be registered under Societies Registration Act, 1860;y g g , ;Investment must be in terms of the MOA and rules/regulations of Society.Society must be in existence from last 3 Yrs.The Society has not come under the adverse notice of any Regulatory / Enforcement agencylike the DOE CBI etclike the DOE, CBI etc.

Trade Regulations

Export of Goods & pServices

CompliancesForm EDF (in duplicate): For from non-EDI Ports including export of software in physicalform i.e., magnetic tapes/discs and paper media.

Form SDF (in duplicate): For exports declared to Customs Offices under Electronic DataInterchange (EDI) system for processing shipping bills notified by Central Government.

Form SOFTEX (in quadriplicate): Declaration of export of software otherwise than inphysical form

‘Software’ means any computer programme, database, drawing, design, audio/videosignals, any information by whatever name called in or on any medium other than in or on anyphysical medium.

Exemptions From Declaration

• Trade samples of goods and publicity material supplied free of payment

• Personal effects of travellers

• Ship’s stores, trans-shipment cargo and goods supplied under the orders of CentralGovernment or of the military, naval or air force authorities

• Gift of goods not more than INR 5 lakh in valueGift of goods not more than INR 5 lakh in value

• Aircrafts or aircraft engines and spare parts for overhauling and/or repairs abroad subjectto their re-import into India after overhauling/ repairs, within a period of six months fromthe date of their exportt e date o t e e po t

• Goods imported free of cost on re-export basis

• Goods not exceeding USD 1000 per transaction exported to Myanmar under Barter Tradeg p p yAgreement

Exemptions From Declaration

• Replacement of goods exported free of charge as per Exim Policy

• Goods sent outside India for testing subject to re-import defective goods sent outside Indiafor repair

• Imported goods found defective; goods imported from foreign suppliers/collaborators onloan basis; or goods imported from foreign suppliers/collaborators free of cost, foundsurplus after production operations as may be permitted by Development Commissioner ofthe EPZ, EHTP, ESTP or FTZ, to be re-exported

Procedure

Submission of Export Documents within 21 days from the date of export be submitted to ADBank.

Invoicing of Software Exports– For long duration contracts

– Invoice their overseas clients periodically i.e., at least once a month or on reachingthe ‘milestone’ a

– last invoice should be raised not later than 15 days from the date of completion of thecontract.

– Contracts involving only ‘one-shot operation’, the invoice should be raised within 15 daysfrom the date of transmission.

.

Export of Goods & Services – Recent change Long term Export Advance (10 years)Long term Export Advance (10 years)

AD bank may permit exporters having a minimum of three years’ satisfactory track record to receive long term export advance up to a maximum tenor of 10 years to be utilized for execution of long term supply contracts for export of goods subject to the conditions asexecution of long term supply contracts for export of goods subject to the conditions as under:

a) Firm irrevocable overseas supply orders should be in place. - clearly specify the nature, amount and delivery timelines of products over the years and penalty in case of nonamount and delivery timelines of products over the years and penalty in case of non-performance or contract cancellation. Product pricing should be in consonance with prevailing international prices

b) Capacity, systems and processes should be in place to ensure that the orders over the duration of the said tenure can actually be executedduration of the said tenure can actually be executed

c) Not under the adverse notice of ED or any such regulatory agency or have not been caution listed

d) Such advances should be adjusted through future exportse) The rate of interest payable should not exceed LlBOR plus 200 b pe) The rate of interest payable should not exceed LlBOR plus 200 b.pf) The documents should be routed through one AD bank only

Import of Goods & pServices

Compliances & Procedures

• Form A-1 for making applications by persons, firms and companies for making payments,g pp y p p g p yexceeding USD 5000 or its equivalent.

• Except for goods included in the negative list which require licence under the Foreign TradePolicy in force, AD Bank may freely open letters of credit and allow remittances for import.y y y p p

• Importer should furnish evidence of import viz., Exchange Control copy of the Bill of Entry,Postal Appraisal Form or Customs Assessment Certificate, etc.

• Advance Remittance:• upto U$ 200K for import of Goods beyond which BG• upto U$ 50 Mm for import of Aircraft SOP Companies-import wihing 6 months• upto U$ 500K for import of Goods beyond which BG

• Receipt of Import bill directly not allowed by the importer except• upto U$ 3Lacs;• Overseas HoldCo. to its Indian WOS• Status Holders/EOU/FTZ/ICOs

• Submission of EC of BOE to AD in excess of import of U$ 100K• Evidence in lieu of BOE can be accepted by AD if certificate by CEO/Auditor subject to:

• if value of import < U$ 1Mn, importer is a ListCo. having NW of Rs 100 Cr. OR• Importer is a PSU or Govt. Undertaking.

Revised “Merchanting Trade” guidelines

Import of Goods & Services – Recent change

Import and export transactions by an Indian party without physical movement of goods into and out of India may be considered as a “Merchanting Trade” transaction.

AD b k d l t d i it t it itt f b fid “M h ti T d ”AD banks are delegated requisite powers to permit remittance of bona fide “Merchanting Trade” transactions subject to compliance of conditions which inter-alia include:

• Trade classified as “Merchanting Trade” when:• Goods acquired should not enter the Domestic Tariff Area andGoods acquired should not enter the Domestic Tariff Area and• The state of the goods has not undergone any transformation

• Goods involved in the transactions are permitted for export/import under the prevailing FTP

• Both the legs of a Merchanting Trade transaction are routed through the same AD bank

• The entire Merchanting Trade transactions should be completed within an overall period of nine months and there should not be any outlay of foreign exchange beyond four months.

•• Short-term credit either by way of suppliers' credit or buyers' credit will be available for

Merchanting Trade transactions, to the extent not backed by advance remittance for the export lag, including the discounting of export leg letter of credit by an AD bank, as in the case of import transactionstransactions.

Situation so far….

I read all the sections and clarifications in detail but I can't make out if we are defaulting or compliant!or compliant!

Compounding of Contraventions

Compounding of Contravention Compounding of Contraventions

Means..

Settle an offence committed by the contravener through imposition of aSettle an offence committed by the contravener through imposition of amonetary penalty without going in for litigation after the contraveneracknowledges having committed the contravention..

Objective..

To provide comfort by minimizing transaction costs, while taking severe view of willful, malafide and fraudulent transactions…….

But it is not equal to withdrawal of a charge or a complaint but anagreement not to pursue the legal battle and spare the accusedfrom further consequences.

Compounding of Contraventions

Penalties for CONTRAVENTION Section 13

Contravention ofContravention of

Act

Rules,

Sum for ContraventionQuantifiable offence –Upto 3 timesRules,

Regulations,

Notifications,

Upto 3 times

Non quantifiable offence –Upto Rs 200 000,

Directions or

Orders

Upto Rs. 200,000

Continuing penalty –Rs 5000 per dayRs. 5000 per day

COMPOUNDING Section 15

Compounding – Salient Features• Voluntary

Compounding – Salient Features

Voluntary• No suo-motto investigation • Time Bound completion (Within 180 days)• No further proceedings for contravention so compoundedNo further proceedings for contravention so compounded• Payment of sum of contravention (within fifteen days)• Once the order is passed, no contravener seek to withdraw the order or to hold it

as void or request a review of the orderas void or request a review of the order• No appeal against the Order• Non payment shall be deemed as no application is made • No compounding before expiry of 3 years of previous order for similarNo compounding before expiry of 3 years of previous order for similar

contravention• No Compounding of cases where approval of any statutory authority/Govt. etc.

was required unless such approvals has been sought

Contraventions & Penalties at a glance

Contravention

Application for Condonation

A li ti f diApplication for compounding

Adjudication proceedings

Penalty/ ConfiscationQuantifiable offence - Upto 3 times

Non quantifiable offence - Upto Rs. 200,000Non quantifiable offence Upto Rs. 200,000Continuing penalty - Rs. 5000 per day

Imprisonment if penalty not paid ithi ib d tiwithin prescribed time

Courtesy: Atul Mittal, Director , Deloitte Touche Tohmatsu India Pvt. Ltd

E l t &I d t i lEmployment &Industrial in India

LLaws

Courtesy: Deloitte Touche Tohmatsu India Pvt. Ltd.

EMPLOYMENT & IN

Deloitte

NDUSTRIAL LAWS

Employment Laws

LAWS RELATTO WAGES

LAWSRELATED TO INDUSTRIAL

LABOUR LAW

DISPUTES

SOCIAL SECURITY

LAWS

TED S

LAWS RELATED TO TERMS AND CONDITIONS OF

WS

CONDITIONS OF EMPLOYMENT

WOMEN AND CHILDREN

RELATED LAWS

Employment Laws - Laws Relat

PAYMENTOF

GRATUITYACT, 1972

LAWS RELATEWAGES

PAYMENT OF BONUS ACT, 1965

PAYMENTOF WAGESACT, 1936

ted To Wages

T

Y 2

ED TO MINIMUM WAGES

ACT, 1948

T S 6

Employment Laws - Laws Relat

Payment of Wages Act, 1936• Employee receiving wages below INR

the Act• The Act governs the mode and time pa

wages, etc.

Minimum Wages Act, 1948• Employers to pay to every employee w

minimum rate of wages fixed by the apAct.

Payment of Bonus Act, 1965• Applies to every factory/establishment

employed on any day during an accouemployed on any day during an accou• Payment of Bonus to every employee d

has worked for atleast 30 days in a yeaMi i B 8 33% M i B• Minimum Bonus - 8.33%, Maximum B

ted To Wages

10,000 per month are covered under

ayment of wages viz., timely payment of

wages at a rate not less than the pplicable State Government under the

in which 20 or more persons are nting yearnting year.drawing salary upto INR 10,000 if he ar.

20%onus 20%.

Employment Laws - Laws R

Payment of Gratuity Act 1972Payment of Gratuity Act, 1972• Provides for Payment of Gratuity to e

- Resignation;

- Termination on account of death or

- Retirement;

E l h i d d i• Employees having rendered continuoare entitled to gratuity.

• Gratuity is calculated at 15 days wageeach completed year of service

Related To Wages (contd.)

mployees upon:

r disablement;

i f l hous service of not less than 5 years

es last drawn by the employee for

Employment Laws – Terms and

SHOPSCOMME

ESTABLILEGISLA

LAWS RELTERMS

CONDITIEMPLOY

INDUSTRIAL EMPLOYMENT

(STANDING ORDERS) ACT, 1946 EMPLOYACT, 1946

CONTRACT(REGULAT

ABOLITION

d Conditions of Employment

S AND ERCIAL SHMENT ATIONS

LATED TO S AND ONS OF YMENT

FACTORIES ACT, 1948

YMENT

T LABOUR TION AND ) ACT, 1970

Employment Laws – Terms and

Factories Act, 1948

• Applicable to premises in which manu10 k ith t i i10 workers ; without power –minimum

• The factory needs to obtain license utime.

• Regulates aspects such as working hprovided, overtime, leave, termination

Shops and Commercial Establishmen

• Applicable to commercial establishmecarried out.

• Regulates aspects such as working hRegulates aspects such as working htermination of service etc.

d Conditions of Employment

ufacturing process (with power – minimum 20 k ) i i d tm 20 workers) is carried out.

under the Act and renew it from time to

hours, facilities and convenience to be n of service etc.

nts

ents wherein any trade or business is

hours, payment of wages, overtime, leave,hours, payment of wages, overtime, leave,

Employment Laws– Terms a

Industrial Employment (Standing Ord

• Applicable to every industrial establisemployed on any day preceding 12 m

• The Act requires the employers in indconditions of employmentconditions of employment.

Contract Labour (Regulation and AboContract Labour (Regulation and Abo

• Applicable to every establishment in wemployed on any day of the precedin

• Contract labors are labors hired throuemployment with the establishment

• Regulates the employment of contrac• Regulates the employment of contrac

• The principal employer is required to required to obtain license prior to eng

and Conditions of Employment

ders) Act, 1946

hment wherein 100 or more workmen are months.

dustrial establishment formally to define

olition) Act, 1970olition) Act, 1970

which 20 or more contract labour are/were g 12 months.

ugh contractor and not in directly

ct labour in establishmentsct labour in establishments.

obtain registration and the contractor is gaging contract labour.

Employment Laws - Social S

EMPLOYEES’ENT FUND

MISCELLANMISCELLANPROVISIONS

1952

SOCIAL SECSOCIAL SECLAWS

EMPLOYEES STATE INSURANCE ACT, 1948

Security Laws

PROVID AND

NEOUSNEOUS S ACT,

CURITYCURITY S

EMPLOYEESEMPLOYEES COMPENSATION ACT,

1923

Employees’ Provident Fund and Miscell

Employment Laws - Social Sec

• Applicable to factory/establishments em• The factory/establishment requires to se• If the employee’s emoluments exceed INIf the employee s emoluments exceed IN

to enrol with the consent of employer.• Statutory contribution by employer and e

wages dearness allowance and retaininwages, dearness allowance and retainin

Employees State Insurance Act, 1948• Applicable to factories (employing 10 or

(employing 20 or more persons). • Applicable to employees drawing wagespp p y g g• Employers Contribution Rate: 4.75% of

period.• Employees Contribution Rate: 1 75% of• Employees Contribution Rate: 1.75% of

Employees Compensation Act, 1923• The Act provides for payment of compen

an accident arising out of the employme

laneous Provisions Act, 1952

curity Laws

mploying 20 or more persons. eek registration under the Act.NR 15,000 per month, he has the optionNR 15,000 per month, he has the option

employee at the rate of 12% of basic ng allowanceng allowance.

r more persons)/ establishments

s upto INR 15,000.p ,employees’ wages paid in every wage

f wages paid in every wage periodf wages paid in every wage period.

nsation to employees for injury caused by ent.

Employment Laws - Women a

MATERNITY BE19611961

WOMEN AND CWOMEN AND CRELATED

CHILD LABOUR (PROHIBITION AND

REGULATION), ACT, 1986

nd Children Related Laws

NEFIT ACT,

CHILDRENCHILDREN LAWS

EQUAL REMUNERATION ACT, 1976

Employment Laws - Women a

Equal Remuneration Act, 1976

• The Act provides for the payment of ewomen workerswomen workers.

• Prevention of discrimination on the grmatter of employment and incidental

Maternity Benefit Act, 1961

• The Act provides for Maternity Benefiestablishment.

Child Labour (Prohibition and Regula

• The Act prohibits the engagement of• The Act prohibits the engagement of certain employments (especially estahazardous substances).

• Regulates the conditions of work of c

and Children Related Laws

equal remuneration to men and

rounds of sex, against women in the matters.

ts to women employed in an

ation), Act, 1986

persons below 14 years (children) inpersons below 14 years (children) in blishments engaged in handling

hildren in certain other employments.

Employment Laws - Laws Re

INDUSTRIAL ACT, 1

LAWS RELAINDUSTRIAL

TRADE UNION

elated to Industrial Disputes

DISPUTES 947

ATED TO DISPUTES

N ACT, 1926

Industrial Disputes Act, 1947

Employment Laws - Laws Rela

Industrial Disputes Act, 1947• The Act provides for investigation and

betweenl d k- employer and workmen

- workmen and workmen- employer and employeremployer and employer

• The Act also deals with strikes, lockouundertaking, closure of business etc.

Trade Union Act, 1926• The Act regulates trade unions• The Act regulates trade unions.• Trade Union: Combination formed pri

relations between workmen and empl• Imposes restrictive conditions on the

ted to Industrial Disputes

d settlement of industrial disputes

uts, lay offs, retrenchments, transfer of

marily for the purpose of regulating the loyers/workmen and workmen.conduct of any trade or business.

KEY COMPLIANCESKEY COMPLIANCES CON

Deloitte

&& NSEQUENCES

Key Compliances and Conse• Applicable Law • Nature of K

Compliance• Employees Provident

F d d Mi ll• Compulsory

20Fund and Miscellaneous Provisions Act, 1952

20 or ememployed;

• Notification oownership.

• Monthly depcontribution

• Monthly repjoinees and

• Filing of Perannual retur

• MaintenanceRegisters an

17

equencesKey es

• Consequences of • Non-Compliances

y Registration ifl

• Fine upto Rs. 10,000 OR I i 3mployees are

of change in

f

• Imprisonment upto 3 years.

posit of

orting of resignees

riodical / rns with EPFOe of Statutory nd Records.

Key Compliances and Conse

Applicable Law Nature of Key C

Emplo ees’ State Ins rance Act • Registration wEmployees’ State Insurance Act, 1948

• Registration wState Insuran(ESIC).

• Monthly depot ib ti bcontribution b

succeeding m• Periodical sub

annual return

Th P t f G t it A t

• Maintenance Registers and

• Display of absThe Payment of Gratuity Act, 1972

• Display of absRules near thfactory / estab

• Intimation regof Gratuityof Gratuity.

• Notice within opening, anyname/ addres

t l

18

nature or closbusiness.

equences

Compliances Consequences of Non-Compliances

with Employees Fine pto Rs 10 000 ORwith Employees nce Commission

osit of b 21st f

• Fine upto Rs. 10,000 OR • Imprisonment upto 3 years. • Criminal proceedings for

criminal breach of trust.by 21st of month. bmissions of s of Statutory

d Records

stract of Act & • Fine upto Rs 20 000 ORstract of Act & e entrance of blishment. garding payment

• Fine upto Rs. 20,000 OR• Imprisonment 2 years OR• Both

30 days of y change in ss/ employer/

fsure of

Key Compliances and Conseq

Applicable Law Nature of Key Com

Mi i W A t 1936 P t f i iMinimum Wages Act 1936 • Payment of mininotified by the S

• Working Hours r• Atleast one wee

O ti• Overtime paymeworking beyond

• Filing of Annual • Maintenance of s

R i t d R

Payment of Wages Act 1936

Registers and R

• Timely payment • Filing of Annual r

M i t f1936 • Maintenance of sRegisters and R

• Display of AbstrRules near the ef t / t blifactory / establis

19

quences

mpliances Consequences of Non-Compliances• Fine upto Rs 500 ORmum wages as

tate Govt.restricted kly holiday

t t l

• Fine upto Rs. 500 OR• Imprisonment upto 6 month or• Both

ent to employees 8 hoursReturn.statutory

decords.

of wagesreturn.t t t

• Fine upto Rs. 22,500 OR • Imprisonment upto 6 months

Ostatutory ecords.ract of Act & entrance of h t

Or• Both.

shment.

Key Compliances and Consequen

Applicable Law Nature of Key Com

Payment of Bonus Act, 1965 • Compulsory payif employee drawupto Rs. 10K

• Filing of AnnualFiling of Annual • Maintenance of S

Registers and R

Equal Remuneration Act, 1976

• Equal remunerat• Maintenance of S

Registers and R

The Maternity Benefit Act, 1961

• Maternity leave oweeks to women

1961

20

nces

mpliances Consequences of Non-Compliances

yment of Bonus wing Salary

Return

• Fine upto Rs. 20, 000 OR • Imprisonment upto 1 year OR • Both.

ReturnStatutory ecords

tion to womenStatutory ecords

• Fine upto Rs. 20, 000 OR • Imprisonment upto 1 year OR • Both.

of atleast 6 n employee

• Fine upto Rs. 5, 000 OR • Imprisonment 3 -12 months OR • BothBoth.

Key Compliances and Conse

Applicable Law Nature of Key C

Shops and Establishment Act • CompulsoryShops and Establishment Act Compulsorywith State Go

• Working hoLeaves, term

• Display of AbDisplay of AbRules at conin the establis

• Maintain Insand other sta

Contract Labour Act

and other sta

• Contract labhired fromhired fromContractors o

• Compulsorythe CompanEmployerEmployer

• All statutory lcontractor laContractor anfails to discha

21

fails to dischaCompany.

equences

Compliances Consequences of Non-Compliances

Registration • Penal provisions for nonRegistrationovernmenturs, Intervals,ination etc.bstract of Act &

Penal provisions for non compliance may differ state to state.

bstract of Act &spicuous placeshmentspection Booktutory registerstutory registers

our should bem registeredm registeredonly

registration ofy as Principle

iabilities towardbour is of thend if Contractorarge it is of thearge, it is of the

ENVOIRNMENTALENVOIRNMENTAL

Deloitte

LAWSLAWS

Environmental Laws

WATER (PRECONTROL OF

ACT

ENVIRONMENT (PROTECTION) RULES, 1986

HAZARDOU(MANAGEM

HANDLING))

EVENTION AND F POLLUTION)

T, 1974

AIR (PREVENTION AND CONTROL OF POLLUTION) ACT,

1981

US WASTES MENT AND RULES, 1989, 9 9

Environmental Laws

Environmental Laws

Environmental Laws

• Consent letter needs to be obtained fromBoard of India(Board) under:( )

- Air (Prevention and Control of Pollutio

Water (Prevention and Control of Pol- Water (Prevention and Control of Pol

- Hazardous Wastes (Management an

• Compliance with terms and conditions o

• Immediate reporting to the Board for anffl t d / ll t t i feffluents and /or pollutants in excess of

immediate remedial measures

• Filing of annual Environment StatementFiling of annual Environment Statement

• Non compliance results into heavy pena

m the applicable State Pollution Control

on) Act, 1981

lution) Act 1974lution) Act, 1974

d Handling) Rules, 1989

of the consent letter

y accidents and discharge of trade ib d t d d d t kiprescribed standards and taking

tsts

alties and imprisonment

Public Liability Insurance

PUBLICINSU

AC

C LIABILITY URANCE

CT, 1991

Public Liability Insurance

Public Liability Insurance Act 1991Public Liability Insurance Act, 1991

• The director or officer directly in charhazardous substances shall take out

• The insurance policies should be reneout the period during which handling o

• The insurance policy shall not be lessINR 500,000,000.

rge of an establishment handling one or more insurance policies.

ewed and shall remain in force through of hazardous substances is continued.

s than the paid up capital and more than

Key Compliances and Conse

Applicable Law Nature of Key Complianc

En ironmental La s Comp lsor conseEnvironmental Laws • Compulsory conseapplicable State PBoard under:

Air Pollution Act- Air Pollution Act

- Water Pollution) A

Hazardous Waste- Hazardous Wasteand Handling) Ru

• Compliance with terconditions of the conconditions of the con

• Immediate reportingany accidents and eof trade effluents anof trade effluents anand taking immediatmeasures

• Filing of annual Env

27

Filing of annual EnvStatements

equences

ces Consequences of Non-Compliances

ent from the Hea Penalties andent from thePollution Control

• Heavy Penalties and Imprisionments

Act

es (Managementes (Management ules

ms and nsent letternsent letter

g to the Board for excess discharge d /or pollutantsd /or pollutants te remedial

ironmentironment

Key Compliances and Conse

Applicable Law Nature of Key Com

P blic liabilit Ins rance La Comp lsorPublic liability Insurance Law • CompulsoryPolicy of the C

• Insurance PoOfficer in charOfficer in char

28

equences

mpliances Consequences of Non-Compliances

obtaining Ins rance Hea Penalties andobtaining InsuranceCompany

olicy of Director orrge

• Heavy Penalties and Imprisionments

rge

Why the compliance risks m

Listed below are the possible consequenceregulations

Penalties and fine

consequences P ti d i

Risk of ban on bu

e a es a d e

of non-compliances

Loss of reputation

Prosecution and i

Loss of investor c

29

matter

es of non-compliances with laws and

es

i i t

usiness

es

n and other bad press

imprisonment

confidence and reduction of shareholder value

 

 

 

 

SEBI‐ RECENT CIRCULARS 

PR No. 49/2014

Notification of SEBI (Payment of Fees) (Amendment) Regulation, 2014

 

1. Consequent upon approval of the proposals for revision in regulatory fees, by the SEBI Board in its meeting heldon March 20, 2014, the SEBI (Payment of Fees) (Amendment) Regulations, 2014 has been notified on May 23,2014.

2. The revised fees structure is essentially to help in strengthening the investor awareness and education measures,enlarging reach among investors / potential investors through regional and new local offices, enhancing focus oncapacity building and raising standards of supervision and enforcement function in the market place such asstrengthening market surveillance and investigation function.

3. It has been notified that fees for mutual funds, stock exchanges, brokers as also for the listed and to-be-listedcompanies for filing of offer documents, rights issues and takeover has been revised. While revising the fees, carehas been taken to ensure that the impact on retail investors is minimal.  For example, for a cash market transactionof Rupees One crores the fees has been enhanced from Rs. 10 to Rs. 20 i.e. the total cost for the investors for sucha transaction will change from Rs. 33,330 to Rs. 33,340. The fee collected by SEBI will be only 6 basis point of suchcost of transaction. As in the past SEBI will be periodically reviewing its fees structure downward or upward as theneed arise.

 

4. The details of the revised fees is available on SEBI website http://www.sebi.gov.in.

Mumbai

May 23, 2014

page: 1 [ www.sebi.gov.in ]

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 1 of 36

CIRCULAR

CIR/CFD/POLICY CELL/2/2014 April 17, 2014

To All Recognised Stock Exchanges

Dear Sir(s)/Madam(s),

Sub: Corporate Governance in listed entities - Amendments to Clauses 35B and 49

of the Equity Listing Agreement

1. Please refer to master circular No. SEBI/CFD/DIL/CG/2004/12/10 dated October 29,

2004 on Clause 49 of the Equity Listing Agreement.

2. The Companies Act, 2013 was enacted on August 30, 2013 which provides for a major

overhaul in the Corporate Governance norms for all companies. The rules pertaining to

Corporate Governance were notified on March 27, 2014. The requirements under the

Companies Act, 2013 and the rules notified there under would be applicable for every

company or a class of companies (both listed and unlisted) as may be provided therein. It

has been decided to review the provisions of the Listing Agreement in this regard with the

objectives to align with the provisions of the Companies Act, 2013, adopt best practices

on corporate governance and to make the corporate governance framework more

effective.

3. The full text of the revised Clause 35B of the Equity Listing Agreement is given in Part-A

of the circular. The full text of the revised Clause 49 of the Equity Listing Agreement is

given in Part-B of the circular.

4. Applicability

4.1 The revised Clause 49 would be applicable to all listed companies with effect

from October 01, 2014. However, the provisions of Clause 49(VI)(C) as given in

Part-B shall be applicable to top 100 listed companies by market capitalisation

as at the end of the immediate previous financial year.

4.2 The provisions of Clause 49(VII) as given in Part-B shall be applicable to all

prospective transactions. All existing material related party contracts or

arrangements as on the date of this circular which are likely to continue beyond

March 31, 2015 shall be placed for approval of the shareholders in the first

General Meeting subsequent to October 01, 2014. However, a company may

choose to get such contracts approved by the shareholders even before

October 01, 2014.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 2 of 36

4.3 For other listed entities which are not companies, but body corporate or are

subject to regulations under other statutes (e.g. banks, financial institutions,

insurance companies etc.), the Clause 49 will apply to the extent that it does not

violate their respective statutes and guidelines or directives issued by the

relevant regulatory authorities. The Clause 49 is not applicable to Mutual Funds.

4.4 The revised Clause 35B would be applicable to all listed companies and the

modalities would be governed by the provisions of Companies (Management

and Administration) Rules, 2014. Circular No. CIR/CFD/DIL/6/2012 dated July

13, 2012 stands amended to that extent.

5. The monitoring cell formed by the Stock Exchanges in terms of Circular No.

CIR/CFD/POLICYCELL/13/2013 dated November 18, 2013 shall also monitor the

compliance with the provisions of the revised Clause 49 on corporate governance for

all listed companies. The cell shall ascertain the adequacy and accuracy of

disclosures in the quarterly compliance reports received from the companies and shall

submit a consolidated compliance report to SEBI within 60 days from the end of each

quarter.

6. The above listing conditions are specified in exercise of the powers conferred under

Section 11 read with Section 11A of the Securities and Exchange Board of India Act,

1992. The said listing conditions should form part of the existing Equity Listing

Agreement of the Stock Exchange.

7. All Stock Exchanges are advised to ensure compliance with this circular and carry out

the amendments to their Listing Agreement as per Part-A and Part-B of this circular.

8. This master circular will supersede all other earlier circulars issued by SEBI on

Clauses 35B and 49 of the Equity Listing Agreement.

9. This circular is available on SEBI website at www.sebi.gov.in under the categories

“Legal Framework” and “Issues and Listing”.

Yours faithfully,

Amit Tandon

Deputy General Manager +91-22-26449373

amitt@sebi.gov.in Enclosures:

Part-A: Clause 35B of the Equity Listing Agreement Part-B: Clause 49 of the Equity Listing Agreement

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 3 of 36

Part-A

Clause 35B

35B. (i) The issuer agrees to provide e-voting facility to its shareholders, in respect of all

shareholders' resolutions, to be passed at General Meetings or through postal ballot.

Such e-voting facility shall be kept open for such period specified under the Companies

(Management and Administration) Rules, 2014 for shareholders to send their assent or

dissent.

(ii) Issuer shall continue to enable those shareholders, who do not have access to e-

voting facility, to send their assent or dissent in writing on a postal ballot as per the

provisions of the Companies (Management and Administration) Rules, 2014 or

amendments made thereto.

(iii) Issuer shall utilize the service of any one of the agencies providing e-voting platform,

which is in compliance with conditions specified by the Ministry of Corporate Affairs,

Government of India, from time to time.

(iv) Issuer shall mention the Internet link of such e-voting platform in the notice to their

shareholders

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 4 of 36

Part-B

49. Corporate Governance I. The company agrees to comply with the provisions of Clause 49 which shall be

implemented in a manner so as to achieve the objectives of the principles as

mentioned below. In case of any ambiguity, the said provisions shall be interpreted

and applied in alignment with the principles.

A. The Rights of Shareholders

1. The company should seek to protect and facilitate the exercise of shareholders’

rights.

a. Shareholders should have the right to participate in, and to be sufficiently

informed on, decisions concerning fundamental corporate changes.

b. Shareholders should have the opportunity to participate effectively and vote

in general shareholder meetings.

c. Shareholders should be informed of the rules, including voting procedures

that govern general shareholder meetings.

d. Shareholders should have the opportunity to ask questions to the board, to

place items on the agenda of general meetings, and to propose resolutions,

subject to reasonable limitations.

e. Effective shareholder participation in key Corporate Governance decisions,

such as the nomination and election of board members, should be

facilitated.

f. The exercise of ownership rights by all shareholders, including institutional

investors, should be facilitated.

g. The Company should have an adequate mechanism to address the

grievances of the shareholders.

h. Minority shareholders should be protected from abusive actions by, or in the

interest of, controlling shareholders acting either directly or indirectly, and

should have effective means of redress.

2. The company should provide adequate and timely information to shareholders.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 5 of 36

a. Shareholders should be furnished with sufficient and timely information

concerning the date, location and agenda of general meetings, as well as

full and timely information regarding the issues to be discussed at the

meeting.

b. Capital structures and arrangements that enable certain shareholders to

obtain a degree of control disproportionate to their equity ownership should

be disclosed.

c. All investors should be able to obtain information about the rights attached

to all series and classes of shares before they purchase.

3. The company should ensure equitable treatment of all shareholders, including

minority and foreign shareholders.

a. All shareholders of the same series of a class should be treated equally.

b. Effective shareholder participation in key Corporate Governance decisions,

such as the nomination and election of board members, should be

facilitated.

c. Exercise of voting rights by foreign shareholders should be facilitated.

d. The company should devise a framework to avoid Insider trading and

abusive self-dealing.

e. Processes and procedures for general shareholder meetings should allow

for equitable treatment of all shareholders.

f. Company procedures should not make it unduly difficult or expensive to

cast votes.

B. Role of stakeholders in Corporate Governance

1. The company should recognise the rights of stakeholders and encourage co-

operation between company and the stakeholders.

a. The rights of stakeholders that are established by law or through mutual

agreements are to be respected.

b. Stakeholders should have the opportunity to obtain effective redress for

violation of their rights.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 6 of 36

c. Company should encourage mechanisms for employee participation.

d. Stakeholders should have access to relevant, sufficient and reliable

information on a timely and regular basis to enable them to participate in

Corporate Governance process.

e. The company should devise an effective whistle blower mechanism

enabling stakeholders, including individual employees and their

representative bodies, to freely communicate their concerns about illegal or

unethical practices.

C. Disclosure and transparency

1. The company should ensure timely and accurate disclosure on all material matters

including the financial situation, performance, ownership, and governance of the

company.

a. Information should be prepared and disclosed in accordance with the

prescribed standards of accounting, financial and non-financial disclosure.

b. Channels for disseminating information should provide for equal, timely and

cost efficient access to relevant information by users.

c. The company should maintain minutes of the meeting explicitly recording

dissenting opinions, if any.

d. The company should implement the prescribed accounting standards in

letter and spirit in the preparation of financial statements taking into

consideration the interest of all stakeholders and should also ensure that

the annual audit is conducted by an independent, competent and qualified

auditor.

D. Responsibilities of the Board

1. Disclosure of Information

a. Members of the Board and key executives should be required to disclose to

the board whether they, directly, indirectly or on behalf of third parties, have a

material interest in any transaction or matter directly affecting the company.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 7 of 36

b. The Board and top management should conduct themselves so as to meet the

expectations of operational transparency to stakeholders while at the same

time maintaining confidentiality of information in order to foster a culture for

good decision-making.

2. Key functions of the Board

The board should fulfill certain key functions, including:

a. Reviewing and guiding corporate strategy, major plans of action, risk policy,

annual budgets and business plans; setting performance objectives;

monitoring implementation and corporate performance; and overseeing

major capital expenditures, acquisitions and divestments.

b. Monitoring the effectiveness of the company’s governance practices and

making changes as needed.

c. Selecting, compensating, monitoring and, when necessary, replacing key

executives and overseeing succession planning.

d. Aligning key executive and board remuneration with the longer term

interests of the company and its shareholders.

e. Ensuring a transparent board nomination process with the diversity of

thought, experience, knowledge, perspective and gender in the Board.

f. Monitoring and managing potential conflicts of interest of management,

board members and shareholders, including misuse of corporate assets and

abuse in related party transactions.

g. Ensuring the integrity of the company’s accounting and financial reporting

systems, including the independent audit, and that appropriate systems of

control are in place, in particular, systems for risk management, financial

and operational control, and compliance with the law and relevant

standards.

h. Overseeing the process of disclosure and communications.

i. Monitoring and reviewing Board Evaluation framework.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 8 of 36

3. Other responsibilities

a. The Board should provide the strategic guidance to the company, ensure

effective monitoring of the management and should be accountable to the

company and the shareholders.

b. The Board should set a corporate culture and the values by which

executives throughout a group will behave.

c. Board members should act on a fully informed basis, in good faith, with due

diligence and care, and in the best interest of the company and the

shareholders.

d. The Board should encourage continuing directors training to ensure that the

Board members are kept up to date.

e. Where Board decisions may affect different shareholder groups differently,

the Board should treat all shareholders fairly.

f. The Board should apply high ethical standards. It should take into account

the interests of stakeholders.

g. The Board should be able to exercise objective independent judgement on

corporate affairs.

h. Boards should consider assigning a sufficient number of non-executive

Board members capable of exercising independent judgement to tasks

where there is a potential for conflict of interest.

i. The Board should ensure that, while rightly encouraging positive thinking,

these do not result in over-optimism that either leads to significant risks not

being recognised or exposes the company to excessive risk.

j. The Board should have ability to ‘step back’ to assist executive

management by challenging the assumptions underlying: strategy, strategic

initiatives (such as acquisitions), risk appetite, exposures and the key areas

of the company's focus.

k. When committees of the board are established, their mandate, composition

and working procedures should be well defined and disclosed by the board.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 9 of 36

l. Board members should be able to commit themselves effectively to their

responsibilities.

m. In order to fulfil their responsibilities, board members should have access to

accurate, relevant and timely information.

n. The Board and senior management should facilitate the Independent

Directors to perform their role effectively as a Board member and also a

member of a committee.

II. Board of Directors

A. Composition of Board

1. The Board of Directors of the company shall have an optimum combination of

executive and non-executive directors with at least one woman director and not

less than fifty percent of the Board of Directors comprising non-executive

directors.

2. Where the Chairman of the Board is a non-executive director, at least one-third

of the Board should comprise independent directors and in case the company

does not have a regular non-executive Chairman, at least half of the Board

should comprise independent directors.

Provided that where the regular non-executive Chairman is a promoter of

the company or is related to any promoter or person occupying management

positions at the Board level or at one level below the Board, at least one-half of

the Board of the company shall consist of independent directors.

Explanation: For the purpose of the expression “related to any promoter”

referred to in sub-clause (2):

i. If the promoter is a listed entity, its directors other than the independent

directors, its employees or its nominees shall be deemed to be related to it;

ii. If the promoter is an unlisted entity, its directors, its employees or its

nominees shall be deemed to be related to it.”

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 10 of 36

B. Independent Directors

1. For the purpose of the clause A, the expression ‘independent director’ shall mean

a non-executive director, other than a nominee director of the company:

a. who, in the opinion of the Board, is a person of integrity and possesses

relevant expertise and experience;

b. (i) who is or was not a promoter of the company or its holding, subsidiary or

associate company;

(ii) who is not related to promoters or directors in the company, its holding,

subsidiary or associate company;

c. apart from receiving director's remuneration, has or had no pecuniary

relationship with the company, its holding, subsidiary or associate company,

or their promoters, or directors, during the two immediately preceding

financial years or during the current financial year;

d. none of whose relatives has or had pecuniary relationship or transaction with

the company, its holding, subsidiary or associate company, or their

promoters, or directors, amounting to two per cent. or more of its gross

turnover or total income or fifty lakh rupees or such higher amount as may be

prescribed, whichever is lower, during the two immediately preceding

financial years or during the current financial year;

e. who, neither himself nor any of his relatives —

(i) holds or has held the position of a key managerial personnel or is or has

been employee of the company or its holding, subsidiary or associate

company in any of the three financial years immediately preceding the

financial year in which he is proposed to be appointed;

(ii) is or has been an employee or proprietor or a partner, in any of the three

financial years immediately preceding the financial year in which he is

proposed to be appointed, of —

(A) a firm of auditors or company secretaries in practice or cost auditors of

the company or its holding, subsidiary or associate company; or

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 11 of 36

(B) any legal or a consulting firm that has or had any transaction with the

company, its holding, subsidiary or associate company amounting to ten

per cent or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent or more of the total voting

power of the company; or

(iv) is a Chief Executive or director, by whatever name called, of any non-profit

organisation that receives twenty-five per cent or more of its receipts from

the company, any of its promoters, directors or its holding, subsidiary or

associate company or that holds two per cent or more of the total voting

power of the company;

(v) is a material supplier, service provider or customer or a lessor or lessee of

the company;

f. who is less than 21 years of age.

Explanation

For the purposes of the sub-clause (1):

i. "Associate" shall mean a company which is an “associate” as defined in

Accounting Standard (AS) 23, “Accounting for Investments in Associates in

Consolidated Financial Statements”, issued by the Institute of Chartered

Accountants of India.

ii. “Key Managerial Personnel" shall mean “Key Managerial Personnel” as

defined in section 2(51) of the Companies Act, 2013.

iii. “Relative” shall mean “relative” as defined in section 2(77) of the Companies

Act, 2013 and rules prescribed there under.

2. Limit on number of directorships

a. A person shall not serve as an independent director in more than seven

listed companies.

b. Further, any person who is serving as a whole time director in any listed

company shall serve as an independent director in not more than three

listed companies.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 12 of 36

3. Maximum tenure of Independent Directors

a. An independent director shall hold office for a term up to five consecutive years

on the Board of a company and shall be eligible for reappointment for another

term of up to five consecutive years on passing of a special resolution by the

company.

Provided that a person who has already served as an independent director

for five years or more in a company as on October 1, 2014 shall be eligible for

appointment, on completion of his present term, for one more term of up to five

years only.

Provided further that an independent director, who completes his above

mentioned term shall be eligible for appointment as independent director in the

company only after the expiration of three years of ceasing to be an

independent director in the company.

4. Formal letter of appointment to Independent Directors

a. The company shall issue a formal letter of appointment to independent

directors in the manner as provided in the Companies Act, 2013.

b. The letter of appointment along with the detailed profile of independent

director shall be disclosed on the websites of the company and the Stock

Exchanges not later than one working day from the date of such

appointment.

5. Performance evaluation of Independent Directors

a. The Nomination Committee shall lay down the evaluation criteria for

performance evaluation of independent directors.

b. The company shall disclose the criteria for performance evaluation, as laid

down by the Nomination Committee, in its Annual Report.

c. The performance evaluation of independent directors shall be done by the

entire Board of Directors (excluding the director being evaluated).

d. On the basis of the report of performance evaluation, it shall be determined

whether to extend or continue the term of appointment of the independent

director.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 13 of 36

6. Separate meetings of the Independent Directors

a. The independent directors of the company shall hold at least one meeting in

a year, without the attendance of non-independent directors and members of

management. All the independent directors of the company shall strive to be

present at such meeting.

b. The independent directors in the meeting shall, inter-alia:

i. review the performance of non-independent directors and the Board as

a whole;

ii. review the performance of the Chairperson of the company, taking into

account the views of executive directors and non-executive directors;

iii. assess the quality, quantity and timeliness of flow of information

between the company management and the Board that is necessary for

the Board to effectively and reasonably perform their duties.

7. Training of Independent Directors

a. The company shall provide suitable training to independent directors to

familiarize them with the company, their roles, rights, responsibilities in the

company, nature of the industry in which the company operates, business

model of the company, etc.

b. The details of such training imparted shall be disclosed in the Annual Report.

C. Non-executive Directors’ compensation and disclosures

All fees / compensation, if any paid to non-executive directors, including independent

directors, shall be fixed by the Board of Directors and shall require previous approval

of shareholders in general meeting. The shareholders’ resolution shall specify the

limits for the maximum number of stock options that can be granted to non-executive

directors, in any financial year and in aggregate.

Provided that the requirement of obtaining prior approval of shareholders in

general meeting shall not apply to payment of sitting fees to non-executive directors,

if made within the limits prescribed under the Companies Act, 2013 for payment of

sitting fees without approval of the Central Government.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 14 of 36

Provided further that independent directors shall not be entitled to any stock

option.

D. Other provisions as to Board and Committees

1. The Board shall meet at least four times a year, with a maximum time gap of one

hundred and twenty days between any two meetings. The minimum information to

be made available to the Board is given in Annexure - X to the Listing Agreement.

2. A director shall not be a member in more than ten committees or act as Chairman of

more than five committees across all companies in which he is a director.

Furthermore, every director shall inform the company about the committee positions

he occupies in other companies and notify changes as and when they take place.

Explanation:

i. For the purpose of considering the limit of the committees on which a director

can serve, all public limited companies, whether listed or not, shall be included

and all other companies including private limited companies, foreign companies

and companies under Section 8 of the Companies Act, 2013 shall be excluded.

ii. For the purpose of reckoning the limit under this sub-clause, Chairmanship /

membership of the Audit Committee and the Stakeholders' Relationship

Committee alone shall be considered.

3. The Board shall periodically review compliance reports of all laws applicable to the

company, prepared by the company as well as steps taken by the company to rectify

instances of non-compliances.

4. An independent director who resigns or is removed from the Board of the Company

shall be replaced by a new independent director at the earliest but not later than the

immediate next Board meeting or three months from the date of such vacancy,

whichever is later.

5. Provided that where the company fulfils the requirement of independent directors in

its Board even without filling the vacancy created by such resignation or removal, as

the case may be, the requirement of replacement by a new independent director

shall not apply.

6. The Board of the company shall satisfy itself that plans are in place for orderly

succession for appointments to the Board and to senior management.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 15 of 36

E. Code of Conduct

1. The Board shall lay down a code of conduct for all Board members and senior

management of the company. The code of conduct shall be posted on the website of

the company.

2. All Board members and senior management personnel shall affirm compliance with

the code on an annual basis. The Annual Report of the company shall contain a

declaration to this effect signed by the CEO.

3. The Code of Conduct shall suitably incorporate the duties of Independent Directors

as laid down in the Companies Act, 2013.

4. An independent director shall be held liable, only in respect of such acts of omission

or commission by a company which had occurred with his knowledge, attributable

through Board processes, and with his consent or connivance or where he had not

acted diligently with respect of the provisions contained in the Listing Agreement.

Explanation: For this purpose, the term “senior management” shall mean personnel

of the company who are members of its core management team excluding Board of

Directors. Normally, this would comprise all members of management one level

below the executive directors, including all functional heads.

F. Whistle Blower Policy

1. The company shall establish a vigil mechanism for directors and employees to report

concerns about unethical behaviour, actual or suspected fraud or violation of the

company’s code of conduct or ethics policy.

2. This mechanism should also provide for adequate safeguards against victimization

of director(s) / employee(s) who avail of the mechanism and also provide for direct

access to the Chairman of the Audit Committee in exceptional cases.

3. The details of establishment of such mechanism shall be disclosed by the company

on its website and in the Board’s report.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 16 of 36

III. Audit Committee

A. Qualified and Independent Audit Committee

A qualified and independent audit committee shall be set up, giving the terms of

reference subject to the following:

1. The audit committee shall have minimum three directors as members. Two-thirds

of the members of audit committee shall be independent directors.

2. All members of audit committee shall be financially literate and at least one

member shall have accounting or related financial management expertise.

Explanation (i): The term “financially literate” means the ability to read and

understand basic financial statements i.e. balance sheet, profit and loss account,

and statement of cash flows.

Explanation (ii): A member will be considered to have accounting or related

financial management expertise if he or she possesses experience in finance or

accounting, or requisite professional certification in accounting, or any other

comparable experience or background which results in the individual’s financial

sophistication, including being or having been a chief executive officer, chief

financial officer or other senior officer with financial oversight responsibilities.

3. The Chairman of the Audit Committee shall be an independent director;

4. The Chairman of the Audit Committee shall be present at Annual General Meeting

to answer shareholder queries;

5. The Audit Committee may invite such of the executives, as it considers appropriate

(and particularly the head of the finance function) to be present at the meetings of

the committee, but on occasions it may also meet without the presence of any

executives of the company. The finance director, head of internal audit and a

representative of the statutory auditor may be present as invitees for the meetings

of the audit committee;

6. The Company Secretary shall act as the secretary to the committee.

B. Meeting of Audit Committee

The Audit Committee should meet at least four times in a year and not more than four

months shall elapse between two meetings. The quorum shall be either two members

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 17 of 36

or one third of the members of the audit committee whichever is greater, but there

should be a minimum of two independent members present.

C. Powers of Audit Committee

The Audit Committee shall have powers, which should include the following:

1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

4. To secure attendance of outsiders with relevant expertise, if it considers

necessary.

D. Role of Audit Committee

The role of the Audit Committee shall include the following:

1. Oversight of the company’s financial reporting process and the disclosure of its

financial information to ensure that the financial statement is correct, sufficient and

credible;

2. Recommendation for appointment, remuneration and terms of appointment of

auditors of the company;

3. Approval of payment to statutory auditors for any other services rendered by the

statutory auditors;

4. Reviewing, with the management, the annual financial statements and auditor's

report thereon before submission to the board for approval, with particular

reference to:

a. Matters required to be included in the Director’s Responsibility Statement to be

included in the Board’s report in terms of clause (c) of sub-section 3 of section

134 of the Companies Act, 2013

b. Changes, if any, in accounting policies and practices and reasons for the

same

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 18 of 36

c. Major accounting entries involving estimates based on the exercise of

judgment by management

d. Significant adjustments made in the financial statements arising out of audit

findings

e. Compliance with listing and other legal requirements relating to financial

statements

f. Disclosure of any related party transactions

g. Qualifications in the draft audit report

5. Reviewing, with the management, the quarterly financial statements before

submission to the board for approval;

6. Reviewing, with the management, the statement of uses / application of funds

raised through an issue (public issue, rights issue, preferential issue, etc.), the

statement of funds utilized for purposes other than those stated in the offer

document / prospectus / notice and the report submitted by the monitoring agency

monitoring the utilisation of proceeds of a public or rights issue, and making

appropriate recommendations to the Board to take up steps in this matter;

7. Review and monitor the auditor’s independence and performance, and

effectiveness of audit process;

8. Approval or any subsequent modification of transactions of the company with

related parties;

9. Scrutiny of inter-corporate loans and investments;

10. Valuation of undertakings or assets of the company, wherever it is necessary;

11. Evaluation of internal financial controls and risk management systems;

12. Reviewing, with the management, performance of statutory and internal auditors,

adequacy of the internal control systems;

13. Reviewing the adequacy of internal audit function, if any, including the structure of

the internal audit department, staffing and seniority of the official heading the

department, reporting structure coverage and frequency of internal audit;

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 19 of 36

14. Discussion with internal auditors of any significant findings and follow up there on;

15. Reviewing the findings of any internal investigations by the internal auditors into

matters where there is suspected fraud or irregularity or a failure of internal control

systems of a material nature and reporting the matter to the board;

16. Discussion with statutory auditors before the audit commences, about the nature

and scope of audit as well as post-audit discussion to ascertain any area of

concern;

17. To look into the reasons for substantial defaults in the payment to the depositors,

debenture holders, shareholders (in case of non-payment of declared dividends)

and creditors;

18. To review the functioning of the Whistle Blower mechanism;

19. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other

person heading the finance function or discharging that function) after assessing

the qualifications, experience and background, etc. of the candidate;

20. Carrying out any other function as is mentioned in the terms of reference of the

Audit Committee.

Explanation (i): The term "related party transactions" shall have the same

meaning as provided in Clause 49(VII) of the Listing Agreement.

E. Review of information by Audit Committee

The Audit Committee shall mandatorily review the following information:

1. Management discussion and analysis of financial condition and results of

operations;

2. Statement of significant related party transactions (as defined by the Audit

Committee), submitted by management;

3. Management letters / letters of internal control weaknesses issued by the statutory

auditors;

4. Internal audit reports relating to internal control weaknesses; and

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 20 of 36

5. The appointment, removal and terms of remuneration of the Chief internal auditor

shall be subject to review by the Audit Committee.

IV. Nomination and Remuneration Committee

A. The company shall set up a nomination and remuneration committee which shall

comprise at least three directors, all of whom shall be non-executive directors and

at least half shall be independent. Chairman of the committee shall be an

independent director.

B. The role of the committee shall, inter-alia, include the following:

1. Formulation of the criteria for determining qualifications, positive attributes and

independence of a director and recommend to the Board a policy, relating to

the remuneration of the directors, key managerial personnel and other

employees;

2. Formulation of criteria for evaluation of Independent Directors and the Board;

3. Devising a policy on Board diversity;

4. Identifying persons who are qualified to become directors and who may be

appointed in senior management in accordance with the criteria laid down, and

recommend to the Board their appointment and removal. The company shall

disclose the remuneration policy and the evaluation criteria in its Annual

Report.

C. The Chairman of the nomination and remuneration committee could be present at

the Annual General Meeting, to answer the shareholders' queries. However, it

would be up to the Chairman to decide who should answer the queries.

V. Subsidiary Companies

A. At least one independent director on the Board of Directors of the holding company

shall be a director on the Board of Directors of a material non-listed Indian

subsidiary company.

B. The Audit Committee of the listed holding company shall also review the financial

statements, in particular, the investments made by the unlisted subsidiary

company.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 21 of 36

C. The minutes of the Board meetings of the unlisted subsidiary company shall be

placed at the Board meeting of the listed holding company. The management

should periodically bring to the attention of the Board of Directors of the listed

holding company, a statement of all significant transactions and arrangements

entered into by the unlisted subsidiary company.

D. The company shall formulate a policy for determining ‘material’ subsidiaries and

such policy shall be disclosed to Stock Exchanges and in the Annual Report.

E. For the purpose of this clause, a subsidiary shall be considered as material if the

investment of the company in the subsidiary exceeds twenty per cent of its

consolidated net worth as per the audited balance sheet of the previous financial

year or if the subsidiary has generated twenty per cent of the consolidated income

of the company during the previous financial year.

F. No company shall dispose of shares in its material subsidiary which would reduce

its shareholding (either on its own or together with other subsidiaries) to less than

50% or cease the exercise of control over the subsidiary without passing a special

resolution in its General Meeting.

G. Selling, disposing and leasing of assets amounting to more than twenty percent of

the assets of the material subsidiary shall require prior approval of shareholders by

way of special resolution

Explanation (i): The term “material non-listed Indian subsidiary” shall mean an

unlisted subsidiary, incorporated in India, whose income or net worth (i.e. paid up

capital and free reserves) exceeds 20% of the consolidated income or net worth

respectively, of the listed holding company and its subsidiaries in the immediately

preceding accounting year.

Explanation (ii): The term “significant transaction or arrangement” shall mean any

individual transaction or arrangement that exceeds or is likely to exceed 10% of

the total revenues or total expenses or total assets or total liabilities, as the case

may be, of the material unlisted subsidiary for the immediately preceding

accounting year.

Explanation (iii): Where a listed holding company has a listed subsidiary which is

itself a holding company, the above provisions shall apply to the listed subsidiary

insofar as its subsidiaries are concerned.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 22 of 36

VI. Risk Management

A. The company shall lay down procedures to inform Board members about the risk

assessment and minimization procedures.

B. The Board shall be responsible for framing, implementing and monitoring the risk

management plan for the company.

C. The company shall also constitute a Risk Management Committee. The Board

shall define the roles and responsibilities of the Risk Management Committee and

may delegate monitoring and reviewing of the risk management plan to the

committee and such other functions as it may deem fit.

VII. Related Party Transactions

A. A related party transaction is a transfer of resources, services or obligations

between a company and a related party, regardless of whether a price is charged.

B. A ‘related party' is a person or entity that is related to the company. Parties are

considered to be related if one party has the ability to control the other party or

exercise significant influence over the other party, directly or indirectly, in making

financial and/or operating decisions and includes the following:

1. A person or a close member of that person’s family is related to a company if

that person:

a. is a related party under Section 2(76) of the Companies Act, 2013;or

b. has control or joint control or significant influence over the company; or

c. is a key management personnel of the company or of a parent of the

company; or

2. An entity is related to a company if any of the following conditions applies:

a. The entity is a related party under Section 2(76) of the Companies Act, 2013;

or

b. The entity and the company are members of the same group (which means

that each parent, subsidiary and fellow subsidiary is related to the others); or

c. One entity is an associate or joint venture of the other entity (or an associate

or joint venture of a member of a group of which the other entity is a

member); or

d. Both entities are joint ventures of the same third party; or

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 23 of 36

e. One entity is a joint venture of a third entity and the other entity is an

associate of the third entity; or

f. The entity is a post-employment benefit plan for the benefit of employees of

either the company or an entity related to the company. If the company is

itself such a plan, the sponsoring employers are also related to the company;

or

g. The entity is controlled or jointly controlled by a person identified in (1).

h. A person identified in (1)(b) has significant influence over the entity (or of a

parent of the entity); or

Explanation: For the purpose of Clause 49(V) and Clause VII(B), the term

“control” shall have the same meaning as defined in SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 2011.

C. The company shall formulate a policy on materiality of related party transactions

and also on dealing with Related Party Transactions.

Provided that a transaction with a related party shall be considered material

if the transaction / transactions to be entered into individually or taken together

with previous transactions during a financial year, exceeds five percent of the

annual turnover or twenty percent of the net worth of the company as per the last

audited financial statements of the company, whichever is higher.

D. All Related Party Transactions shall require prior approval of the Audit Committee.

E. All material Related Party Transactions shall require approval of the shareholders

through special resolution and the related parties shall abstain from voting on such

resolutions.

VIII. Disclosures

A. Related Party Transactions

1. Details of all material transactions with related parties shall be disclosed

quarterly along with the compliance report on corporate governance.

2. The company shall disclose the policy on dealing with Related Party

Transactions on its website and also in the Annual Report.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 24 of 36

B. Disclosure of Accounting Treatment

Where in the preparation of financial statements, a treatment different from that

prescribed in an Accounting Standard has been followed, the fact shall be

disclosed in the financial statements, together with the management’s explanation

as to why it believes such alternative treatment is more representative of the true

and fair view of the underlying business transaction in the Corporate Governance

Report.

C. Remuneration of Directors

1. All pecuniary relationship or transactions of the non-executive directors vis-à-

vis the company shall be disclosed in the Annual Report.

2. In addition to the disclosures required under the Companies Act, 2013, the

following disclosures on the remuneration of directors shall be made in the

section on the corporate governance of the Annual Report:

a. All elements of remuneration package of individual directors summarized

under major groups, such as salary, benefits, bonuses, stock options,

pension etc.

b. Details of fixed component and performance linked incentives, along with

the performance criteria.

c. Service contracts, notice period, severance fees.

d. Stock option details, if any - and whether issued at a discount as well as the

period over which accrued and over which exercisable.

3. The company shall publish its criteria of making payments to non-executive

directors in its annual report. Alternatively, this may be put up on the

company’s website and reference drawn thereto in the annual report.

4. The company shall disclose the number of shares and convertible instruments

held by non-executive directors in the annual report.

5. Non-executive directors shall be required to disclose their shareholding (both

own or held by / for other persons on a beneficial basis) in the listed company

in which they are proposed to be appointed as directors, prior to their

appointment. These details should be disclosed in the notice to the general

meeting called for appointment of such director

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 25 of 36

D. Management

1. As part of the directors’ report or as an addition thereto, a Management

Discussion and Analysis report should form part of the Annual Report to the

shareholders. This Management Discussion & Analysis should include

discussion on the following matters within the limits set by the company’s

competitive position:

a. Industry structure and developments.

b. Opportunities and Threats.

c. Segment–wise or product-wise performance.

d. Outlook

e. Risks and concerns.

f. Internal control systems and their adequacy.

g. Discussion on financial performance with respect to operational

performance.

h. Material developments in Human Resources / Industrial Relations front,

including number of people employed.

2. Senior management shall make disclosures to the board relating to all material

financial and commercial transactions, where they have personal interest, that

may have a potential conflict with the interest of the company at large (for e.g.

dealing in company shares, commercial dealings with bodies, which have

shareholding of management and their relatives etc.)

Explanation: For this purpose, the term "senior management" shall mean

personnel of the company who are members of its core management team

excluding the Board of Directors). This would also include all members of

management one level below the executive directors including all functional

heads.

3. The Code of Conduct for the Board of Directors and the senior management

shall be disclosed on the website of the company.

E. Shareholders

1. In case of the appointment of a new director or re-appointment of a director

the shareholders must be provided with the following information:

a. A brief resume of the director;

b. Nature of his expertise in specific functional areas;

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 26 of 36

c. Names of companies in which the person also holds the directorship and

the membership of Committees of the Board; and

d. Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v)

above

2. Disclosure of relationships between directors inter-se shall be made in the

Annual Report, notice of appointment of a director, prospectus and letter of

offer for issuances and any related filings made to the stock exchanges where

the company is listed.

3. Quarterly results and presentations made by the company to analysts shall be

put on company’s web-site, or shall be sent in such a form so as to enable the

stock exchange on which the company is listed to put it on its own web-site.

4. A committee under the Chairmanship of a non-executive director and such

other members as may be decided by the Board of the company shall be

formed to specifically look into the redressal of grievances of shareholders,

debenture holders and other security holders. This Committee shall be

designated as ‘Stakeholders Relationship Committee’ and shall consider and

resolve the grievances of the security holders of the company including

complaints related to transfer of shares, non-receipt of balance sheet, non-

receipt of declared dividends.

5. To expedite the process of share transfers, the Board of the company shall

delegate the power of share transfer to an officer or a committee or to the

registrar and share transfer agents. The delegated authority shall attend to

share transfer formalities at least once in a fortnight.

F. Disclosure of resignation of directors

1. The company shall disclose the letter of resignation along with the detailed

reasons of resignation provided by the director of the company on its website

not later than one working day from the date of receipt of the letter of

resignation.

2. The company shall also forward a copy of the letter of resignation along with

the detailed reasons of resignation to the stock exchanges not later than one

working day from the date of receipt of resignation for dissemination through

its website.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 27 of 36

G. Disclosure of formal letter of appointment

1. The letter of appointment of the independent director along with the detailed

profile shall be disclosed on the websites of the company and the Stock

Exchanges not later than one working day from the date of such appointment.

H. Disclosures in Annual report

1. The details of training imparted to Independent Directors shall be disclosed in

the Annual Report.

2. The details of establishment of vigil mechanism shall be disclosed by the

company on its website and in the Board’s report.

3. The company shall disclose the remuneration policy and the evaluation criteria

in its Annual Report.

I. Proceeds from public issues, rights issue, preferential issues, etc.

When money is raised through an issue (public issues, rights issues, preferential

issues etc.), the company shall disclose the uses / applications of funds by major

category (capital expenditure, sales and marketing, working capital, etc), on a

quarterly basis as a part of their quarterly declaration of financial results to the

Audit Committee. Further, on an annual basis, the company shall prepare a

statement of funds utilized for purposes other than those stated in the offer

document / prospectus / notice and place it before the audit committee. Such

disclosure shall be made only till such time that the full money raised through the

issue has been fully spent. This statement shall be certified by the statutory

auditors of the company. Furthermore, where the company has appointed a

monitoring agency to monitor the utilisation of proceeds of a public or rights issue,

it shall place before the Audit Committee the monitoring report of such agency,

upon receipt, without any delay. The audit committee shall make appropriate

recommendations to the Board to take up steps in this matter.

IX. CEO/CFO certification

The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies

Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person

heading the finance function discharging that function shall certify to the Board that:

A. They have reviewed financial statements and the cash flow statement for the year

and that to the best of their knowledge and belief :

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 28 of 36

1. these statements do not contain any materially untrue statement or omit any

material fact or contain statements that might be misleading;

2. these statements together present a true and fair view of the company’s affairs

and are in compliance with existing accounting standards, applicable laws and

regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into

by the company during the year which are fraudulent, illegal or violative of the

company’s code of conduct.

C. They accept responsibility for establishing and maintaining internal controls for

financial reporting and that they have evaluated the effectiveness of internal

control systems of the company pertaining to financial reporting and they have

disclosed to the auditors and the Audit Committee, deficiencies in the design or

operation of such internal controls, if any, of which they are aware and the steps

they have taken or propose to take to rectify these deficiencies.

D. They have indicated to the auditors and the Audit committee:

1. significant changes in internal control over financial reporting during the year;

2. significant changes in accounting policies during the year and that the same

have been disclosed in the notes to the financial statements; and

3. instances of significant fraud of which they have become aware and the

involvement therein, if any, of the management or an employee having a

significant role in the company’s internal control system over financial reporting.

X. Report on Corporate Governance

A. There shall be a separate section on Corporate Governance in the Annual Reports

of company, with a detailed compliance report on Corporate Governance. Non-

compliance of any mandatory requirement of this clause with reasons thereof and

the extent to which the non-mandatory requirements have been adopted should be

specifically highlighted. The suggested list of items to be included in this report is

given in Annexure - XII to the Listing Agreement and list of non-mandatory

requirements is given in Annexure - XIII to the Listing Agreement.

B. The companies shall submit a quarterly compliance report to the stock exchanges

within 15 days from the close of quarter as per the format given in Annexure - XI

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 29 of 36

to the Listing Agreement. The report shall be signed either by the Compliance

Officer or the Chief Executive Officer of the company.

XI. Compliance

A. The company shall obtain a certificate from either the auditors or practicing

company secretaries regarding compliance of conditions of corporate governance

as stipulated in this clause and annex the certificate with the directors’ report,

which is sent annually to all the shareholders of the company. The same certificate

shall also be sent to the Stock Exchanges along with the annual report filed by the

company.

B. The non-mandatory requirements given in Annexure - XIII to the Listing

Agreement may be implemented as per the discretion of the company. However,

the disclosures of the compliance with mandatory requirements and adoption (and

compliance) / non-adoption of the non-mandatory requirements shall be made in

the section on corporate governance of the Annual Report.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 30 of 36

Annexure - X to the Listing Agreement

Information to be placed before Board of Directors 1. Annual operating plans and budgets and any updates.

2. Capital budgets and any updates.

3. Quarterly results for the company and its operating divisions or business segments.

4. Minutes of meetings of audit committee and other committees of the board.

5. The information on recruitment and remuneration of senior officers just below the

board level, including appointment or removal of Chief Financial Officer and the

Company Secretary.

6. Show cause, demand, prosecution notices and penalty notices which are materially

important.

7. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution

problems.

8. Any material default in financial obligations to and by the company, or substantial

nonpayment for goods sold by the company.

9. Any issue, which involves possible public or product liability claims of substantial

nature, including any judgement or order which, may have passed strictures on the

conduct of the company or taken an adverse view regarding another enterprise that

can have negative implications on the company.

10. Details of any joint venture or collaboration agreement.

11. Transactions that involve substantial payment towards goodwill, brand equity, or

intellectual property.

12. Significant labour problems and their proposed solutions. Any significant development

in Human Resources/ Industrial Relations front like signing of wage agreement,

implementation of Voluntary Retirement Scheme etc.

13. Sale of material nature, of investments, subsidiaries, assets, which is not in normal

course of business.

14. Quarterly details of foreign exchange exposures and the steps taken by management

to limit the risks of adverse exchange rate movement, if material.

15. Non-compliance of any regulatory, statutory or listing requirements and shareholders

service such as non-payment of dividend, delay in share transfer etc.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 31 of 36

Annexure - XI to the Listing Agreement

Format of Quarterly Compliance Report on Corporate Governance

Name of the Company:

Quarter ending on:

Particulars Clause of Listing agreement

Compliance Status Yes/No

Remarks

II. Board of Directors 49 (II)

(A) Composition of Board 49 (IIA)

(B) Independent Directors 49 (IIB)

(C) Non-executive Directors’ compensation & disclosures

49 (IIC)

(D) Other provisions as to Board and Committees

49 (IID)

(E) Code of Conduct 49 (IIE)

(F) Whistle Blower Policy 49 (IIF)

III. Audit Committee 49 (III)

(A) Qualified & Independent Audit Committee

49 (IIIA)

(B) Meeting of Audit Committee 49 (IIIB)

(C) Powers of Audit Committee 49 (IIIC)

(D) Role of Audit Committee 49 (IIID)

(E) Review of Information by Audit Committee

49 (IIIE)

IV. Nomination and Remuneration Committee

49 (IV)

V. Subsidiary Companies 49 (V)

VI. Risk Management 49 (VI)

VII. Related Party Transactions 49 (VII)

VIII. Disclosures 49 (VIII)

(A) Related party transactions 49 (VIIIA)

(B) Disclosure of Accounting Treatment

49 (VIIIB)

(C) Remuneration of Directors 49 (VIII C)

(D) Management 49 (VIII D)

(E) Shareholders 49 (VIII E)

(F) Disclosure of resignation of directors

49 (VIII F)

(G) Disclosure of formal letter of appointment

49 (VIII G)

(H) Disclosures in the Annual report 49 (VIII H)

(I) Proceeds from public issues, rights 49 (VIII I)

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 32 of 36

Particulars Clause of Listing agreement

Compliance Status Yes/No

Remarks

issue, preferential issues, etc

IX. CEO/CFO Certification 49 (IX)

X. Report on Corporate Governance 49 (X)

XI. Compliance 49 (XI)

Note: 1. The details under each head shall be provided to incorporate all the information

required as per the provisions of the Clause 49 of the Listing Agreement.

2. In the column No. 3, compliance or non-compliance may be indicated by Yes/No/N.A..

For example, if the Board has been composed in accordance with the Clause 49 I of

the Listing Agreement, "Yes" may be indicated. Similarly, in case the company has no

related party transactions, the words “N.A.” may be indicated against 49(VII).

3. In the remarks column, reasons for non-compliance may be indicated, for example, in

case of requirement related to circulation of information to the shareholders, which

would be done only in the AGM/EGM, it might be indicated in the "Remarks" column

as – “will be complied with at the AGM”. Similarly, in respect of matters which can be

complied with only where the situation arises, for example, "Report on Corporate

Governance" is to be a part of Annual Report only, the words "will be complied in the

next Annual Report" may be indicated.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 33 of 36

Annexure - XII to the Listing Agreement

Suggested List of Items to Be Included In the Report on Corporate Governance in

the Annual Report of Companies

1. A brief statement on company’s philosophy on code of governance.

2. Board of Directors:

a. Composition and category of directors, for example, promoter, executive,

nonexecutive, independent non-executive, nominee director, which institution

represented as lender or as equity investor.

b. Attendance of each director at the Board meetings and the last AGM.

c. Number of other Boards or Board Committees in which he/she is a member or

Chairperson.

d. Number of Board meetings held, dates on which held.

3. Audit Committee:

i. Brief description of terms of reference

ii. Composition, name of members and Chairperson

iii. Meetings and attendance during the year

4. Nomination and Remuneration Committee:

i. Brief description of terms of reference

ii. Composition, name of members and Chairperson

iii. Attendance during the year

iv. Remuneration policy

v. Details of remuneration to all the directors, as per format in main report.

5. Stakeholders' Grievance Committee:

i. Name of non-executive director heading the committee

ii. Name and designation of compliance officer

iii. Number of shareholders’ complaints received so far

iv. Number not solved to the satisfaction of shareholders

v. Number of pending complaints

6. General Body meetings:

i. Location and time, where last three AGMs held.

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 34 of 36

ii. Whether any special resolutions passed in the previous 3 AGMs

iii. Whether any special resolution passed last year through postal ballot – details of

voting pattern

iv. Person who conducted the postal ballot exercise

v. Whether any special resolution is proposed to be conducted through postal ballot

vi. Procedure for postal ballot

7. Disclosures:

i. Disclosures on materially significant related party transactions that may have

potential conflict with the interests of company at large.

ii. Details of non-compliance by the company, penalties, strictures imposed on the

company by Stock Exchange or SEBI or any statutory authority, on any matter

related to capital markets, during the last three years.

iii. Whistle Blower policy and affirmation that no personnel has been denied access to

the audit committee.

iv. Details of compliance with mandatory requirements and adoption of the non-

mandatory requirements of this clause

8. Means of communication:

i. Quarterly results

ii. Newspapers wherein results normally published

iii. Any website, where displayed

iv. Whether it also displays official news releases; and

v. The presentations made to institutional investors or to the analysts.

9. General Shareholder information:

i. AGM: Date, time and venue

ii. Financial year

iii. Date of Book closure

iv. Dividend Payment Date

v. Listing on Stock Exchanges

vi. Stock Code

vii. Market Price Data: High., Low during each month in last financial year

viii. Performance in comparison to broad-based indices such as BSE Sensex, CRISIL

index etc.

ix. Registrar and Transfer Agents

x. Share Transfer System

xi. Distribution of shareholding

xii. Dematerialization of shares and liquidity

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 35 of 36

xiii. Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion

date and likely impact on equity

xiv. Plant Locations

xv. Address for correspondence

¼ããÀ¦ããè¾ã ¹ãÆãä¦ã¼ãîãä¦ã ‚ããõÀ ãäÌããä¶ã½ã¾ã ºããñ¡Ã

Securities and Exchange Board of India

Page 36 of 36

Annexure - XIII to the Listing Agreement

Non-Mandatory Requirements

1. The Board

The Board - A non-executive Chairman may be entitled to maintain a Chairman's

office at the company's expense and also allowed reimbursement of expenses

incurred in performance of his duties.

2. Shareholder Rights

A half-yearly declaration of financial performance including summary of the

significant events in last six-months, may be sent to each household of

shareholders.

3. Audit qualifications

Company may move towards a regime of unqualified financial statements.

4. Separate posts of Chairman and CEO

The company may appoint separate persons to the post of Chairman and

Managing Director/CEO.

5. Reporting of Internal Auditor

The Internal auditor may report directly to the Audit Committee.

CIRCULAR CIR/CFD/POLICYCELL/5/2014 August 25, 2014 To All Recognised Stock Exchanges All Registered Merchant Bankers Dear Sir/Madam, Sub: Formats for disclosure under Regulation 30 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011(Regulations).

1. The format for the reports/disclosures to be filed under Regulation 30 of the Regulations has been prescribed by SEBI vide circular No. SEBI/CFD/DCR/SAST/ 1/2011/09/23 dated September 23, 2011.

2. The format for continual disclosures under regulation 30(1) and 30(2) of the Regulations has been revised and is placed as Annexure-1.

3. A copy of this circular and the above stated formats are available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Takeovers”.

4. This Circular shall come into force with immediate effect.

Yours faithfully,

Amit Tandon Deputy General Manager

+91-22-26449373 amitt@sebi.gov.in

ANNEXURE - 1

Format for Disclosures under Regulation 30(1) and 30(2) of SEBI (Substantial Acquisition of

Shares and Takeovers) Regulations, 2011

Part-A- Details of Shareholding

1. Name of the Target Company (TC)

2. Name(s) of the stock exchange(s) where the

shares of the TC are listed

3. Particulars of the shareholder(s) :

a. Name of person(s) together with Persons Acting

in Concert (PAC) whose total holding (including

that in the form of shares, warrants, convertible

securities and any other instrument that would

entitle the holder to receive shares in the TC) is

more than 25% of the voting rights of the TC.

or

b. Name(s) of promoter(s), member of the promoter

group and PAC with him.

4. Particulars of the shareholding of person(s)

mentioned at (3) above

Number of

shares % w.r.t. total

share /voting

capital

wherever

applicable

% of total diluted

share/voting capital

of TC (*)

As of March 31st of the year, holding of:

a) Shares b) Voting Rights (otherwise than by shares) c) Warrants, d) Convertible Securities

e) Any other instrument that would entitle the

holder to receive shares in the TC.

Total

Part-B**

Name of the Target Company:

Name(s) of the person and Persons

Acting in Concert (PAC) with the

person

Whether the person belongs to

Promoter/ Promoter group PAN of the person and

PACs

Signature of the Authorised Signatory

Place:

Date:

Note:

1. In case of promoter(s) making disclosure under regulation 30(2), no additional disclosure under

regulation 30(1) is required.

(*) Diluted share/voting capital means the total number of shares in the TC assuming full conversion of

the outstanding convertible securities/warrants into equity shares of the TC.

(**) Part-B shall be disclosed to the Stock Exchanges but shall not be disseminated.

C titi A t 2002Competition Act, 2002 An overview

Contents

Background

Combination

Combination Regulations

Process flow for M & A dealProcess flow for M & A deal

Anti-competitive agreements

Ab se of dominant positionAbuse of dominant position

Service offerings

Why Deloitte

Way forward

Contact Details

Backgroundg

Competition Act

Competition Act: to provide for the establishment of CCI, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in

k t i I dimarkets in India

Competition Act

Anti-competitive agreements *

Abuse of dominant position *

Combinations @Combinations @

* Effective - 20th May 2009@ Effective - 1 June 2011

Coverage of Competition Act

Applicable to an "enterprise" which is a

PersonIncludes individual, HUF, company, firm, Government company, body corporate (foreign entity), Department of the Government

Engaged in

• Production, storage, supply, distribution, acquisition or control of articles or goods or provision of servicesI t t i th b i f i i h ldi

g g• Investment or in the business of acquiring, holding,

underwriting or dealing with securities

Combination

Combination

• Section 5 - Combination comprises of the following -any acquisition – control / shares / voting rights / assets of an enterprisesacquiring of control by person over an enterprises, where such personalready has direct/ indirect control over another enterprise engaged insimilar / competitive businessany merger or amalgamation between enterprisesany merger or amalgamation between enterprises

if these exceeds the threshold as under

Person/Enterprise

`. USD / `.In India In or Outside Indiap In India In or Outside India

Assets Turnover Assets TurnoverAcquirer + Target

> `. 15 billion > `. 45 billion USD > 750 millionIncluding at least `. 7.5 billion should be i I di

USD > 2.25 billionIncluding at least `. 22.5 billion should b i I diin India be in India

Group post acquisition

> `. 60 billion > `. 180 billion USD > 3 billionIncluding at least Rs. `. 7.5 billion should be in

USD > 9 billionIncluding at least `. 22.5 billion should

India be in India

CG has powers to revise above limits every 2 years in consultation with CCI

Combination

• Assets – book value as per audited accounts and includes intangibles• "Group" means two or more enterprises, directly or indirectly –

Exercise => 26% of voting rights in other enterpriseAppoint > 50% of board membersControl the management or affairs of the other enterprise

• "Control" includes controlling the affairs or management by-One or more enterprises either jointly or singly over another enterprise orOne or more enterprises, either jointly or singly, over another enterprise orgroup;One or more groups, either jointly or singly, over another group orenterprise

Exemption from Combination • An enterprise, whose control, shares, voting rights or assets are being

acquired has assets of the value of not more than `. 2.50 billion in India or turnover of not more than ` 7 50 billion in India is exempted from theturnover of not more than . 7.50 billion in India is exempted from the provisions of Combination for a period of 5 years from 4 March 2011

• A ‘Group’ exercising less than 50% of voting rights in other enterprise is exempted from the provisions of Combination for a period of 5 years from 4 March 2011

Combination

• Combination causing Appreciable Adverse Effect (AAE) on competition within the relevant market in India shall be void

• Notice of the proposed combination to be given to CCI within 30 days of boardNotice of the proposed combination to be given to CCI within 30 days of board approval or entering into the agreement

No combination can be effective until 210 days have lapsed from the date the notice to CCI or CCI has passed an order, whichever is earlier

• CCI has notified the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 [Combinations Regulations] containing procedures for obtaining CCI approval for combinations.

Combination Regulations are effective from 1 June 2011Combination Regulations are effective from 1 June 2011• Possible to get an informal view of CCI on proposed combination • Penalty for delay / non-furnishing of information on combinations – 1% of total

turnover or the assets, whichever is higher of such combinationturnover or the assets, whichever is higher of such combination

CombinationF t l t f d t i i h th bi ti h AAE titiFactors relevant for determining whether a combination has AAE on competition

effective competition likely to sustain

substitutes available

market share in the relevant market

parties garnering significantly & sustainably increase prices / profit margins

to sustain market

removal of a vigorous and effective competitor

Factors for countervailing

profit marginsverticals integration

determining AAE

Cost benefit

gpower Possibility of

failing business

Actual or Potentialentry barriers and level of

Cost benefit analysis

Nature and extent of innovation

relative advantage by way ofActual or Potential

competition through imports

level of combination

by way of contribution to economic development

Combination Regulationsg

Combination Regulations

• Combination Regulations requires filing of notice to CCI in Form I or Form II • Ordinarily Form I is to be filed• Filing of Form II is at the option of the parties However it is preferred in following• Filing of Form II is at the option of the parties. However, it is preferred in following

cases –Parties to combination are engaged in the production / supply etc. of similar / identical / substitutable goods / services and combined market share is more than 15% in the

l t k trelevant market; orParties to the combination are engaged at different stages of the production chain in different markets in production/ supply etc. of goods / services, and their individual or combined market share is more than 25% in the relevant market.

• Filing fees are as under:Form I: ` 1,500,000Form II: ` 5,000,000

• The requirement of filing notice shall be determined with respect to the substance of the transaction and any structure of the transaction(s), comprising a combination, that has the effect of avoiding notice in respect of the whole or a part of the combination shall be disregardedpart of the combination shall be disregarded.

Combination Regulations

• Combination Regulations exempts filing notice in respect of the following : Acquisition of shares or voting rights solely as an investment or in ordinary course of business such that total shares or voting rights held by the acquirercourse of business such that total shares or voting rights held by the acquirer directly or indirectly does not entitle the acquirer to hold 25% of the total shares or voting rights of the company and not resulting in acquisition of 'control' are exempted from filing of notice.An acquisition of additional shares or voting rights of an enterprise by the acquirer or its group, not resulting in gross acquisition of more than five per cent (5%) of the shares or voting rights of such enterprise in a financial year, where the acquirer or its group, prior to acquisition, already holds twenty five per centthe acquirer or its group, prior to acquisition, already holds twenty five per cent (25%) or more shares or voting rights of the enterprise, but does not hold fifty per cent (50%) or more of the shares or voting rights of the enterprise, either prior to or after such acquisition:

Provided that such acquisition does not result in acquisition of sole or joint control of such enterprise by the acquirer or its group.

• Acquisition of shares or voting rights by an acquirer who already has 50% or more shares or voting rights in the target enterprise other than transfer frommore shares or voting rights in the target enterprise, other than transfer from joint control to sole control

Combination Regulations (2)

Acquisition of assets, not directly related to the business activity of the acquirer or made solely as an investment or in the ordinary course of business not leading to control of the target enterprise except where the assets being g g p p gacquired represent substantial business operations in a particular location or for a particular product or service of the enterprise, of which assets are being acquired, irrespective of whether such assets are organized as a separate legal entity or notentity or not.Amended or renewed tender offer where a notice to CCI has been filed by the party making the offer subject to procedures.Acquisition of stock-in-trade, raw materials, stores and spares, tradeAcquisition of stock in trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of businessAcquisition of shares or voting rights pursuant to a bonus issue or stock splits or consolidation of shares or subscription to rights issue, buyback of shares, subscription of rights issue (without the restriction of their ‘entitled proportion’), not leading to acquisition of controlAcquisition of shares or voting rights by underwriter or stock broker for clients

Combination Regulations

• Exemption from filing notice of Combination (contd.): Acquisition of shares or voting rights or assets by one person or enterprise of another person or enterprise within the same group except in cases where theanother person or enterprise within the same group except in cases where the acquired enterprise is jointly controlled by enterprises that are not part of the same group. A merger or amalgamation of two enterprises where one of the enterprises has more than fifty per cent (50%) shares or voting rights of the other enterprise, and/or merger or amalgamation of enterprises in which more than fifty per cent (50%) shares or voting rights in each of such enterprises are held by enterprise(s) within the same group:enterprise(s) within the same group:

Provided that the transaction does not result in transfer from joint control to sole control.

Process flow for M & A deal

Process Flow for approval of CCIM&A deal

Analysis as Combination – sec 5 of the Act

Not Applicable

Whether Exemption available

Applicable

Proceed with Deal Closure

Not Applicable

File notice with CCI

To call for more detailsShort Form Long Form

Approval of CCI

Approval of CCIDeal Reject *

To call for more details

* Grounds for rejection - If combination causes AAE or modifications to Combination sought by CCI are not carried out, etc.

Identifying whether a Combination or notM&A deal

Identify whether a Combination or not

Section 5(a) –Acquisition of shares, control,

Section 5(b) - acquiring of control by person over an enterprises, where such

Section 5(c) - any merger or

l tishares, control, voting rights or assets

enterprises, where such person already has direct/ indirect control

amalgamation between enterprises

Assets + Turnover of Acquirer + Target

Assets + Turnover Of Group Post the Combination

Not a Combination, Hence, no approval

of CCI required

Check whether threshold trigger

orq g Combination

File Notice with CCICheck whether exemption are available

of CCI required

Determining Group under Competition ActGroup under Competition Act means two or moreGroup under Competition Act means two or more

enterprises, directly or indirectly –

Exercise => 26% of voting rights in other enterprise

Appoint > 50% of board members

Control the management or affairs of the other enterprise

"Control" includes controlling the affairs or management by-• One or more enterprises either jointly orOne or more enterprises, either jointly or

singly, over another enterprise or group;• One or more groups, either jointly or

singly, over another group or enterprise

Factors to be considered for identifying group –• Equity stake• Terms of Preference shares• Joint Venture Agreement / Shareholders• Joint Venture Agreement / Shareholders

Agreement• Articles of Association etc..

Way Forward – Combination

Investment decision - examine applicability of the Combination Rules by • Identifying entities that would be regarded as ‘Group’ (global basis i.e. India +

overseas)overseas)• Review of shareholders / JV agreements for additional investments in existing

ventures• Target screening for applicability on proposed investment • Availing of exemption, if any• Obtain approval where applicable

Divestment decisions • If the acquirer is required to obtain approval, it would delay the exit time line

Anti-competitive agreementsp g

Anti-competitive agreements

• Anti-competitive agreements are void• Enterprise / person or an association thereof is prohibited from entering into

agreement for:agreement for:ProductionSupplyDistributionStorageAcquisition of shares, voting rights or control over management / control over assetsControl of goods or provision of services

• which causes or is likely to cause an AAE on competition within India

• Agreement includes any arrangement or understanding or action in concertwhether or not it is formal or in writingwhether or not intended to be enforceable by legal proceedings

Anti-competitive agreements

Factors relevant for determining whether an agreement has AAE on competition

• Accrual of benefits to consumers• Accrual of benefits to consumers• Foreclosure of competition by hindering entry into the market• Improvement in production & distribution of goods or provisions of services• Driving existing competitors out of the marketDriving existing competitors out of the market• Creation of barriers to new entrants in market• Promotion of technical, scientific and economic development by means of

production or distribution of goods or provisions of services

Anti-competitive agreements

• Agreements / decisions [Horizontal agreements] including "Cartel" engaged in identical or similar trade of goods / services are presumed to have AAE on competition –p

Price - Directly or indirectly determining purchase or sale price; Quantities - Limit / control production, supply, markets, technical development, investment or provision of services;Market sharing - Sharing of market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;Bids Bid rigging or collusive tenderingBids – Bid rigging or collusive tendering

Anti-competitive agreements

• Following agreements [Vertical agreements] could be considered, on facts, as having AAE on Competition:

Tie-in arrangement [Purchaser of goods X compulsorily required to purchaseTie in arrangement [Purchaser of goods X compulsorily required to purchase goods Y]Exclusive supply agreement [Restricting the purchaser, in the course of its trade, from buying or dealing in any goods other than those of the Seller or any other person]Exclusive distribution agreement [restriction on market, production etc. of goods]Refusal to deal [refusal to sale or refusal to buy]Refusal to deal [refusal to sale or refusal to buy]Resale price maintenance [Seller X to sell goods to buyer Y on condition that buyer Y to re-sale that goods at a price directed by X]

Anti-competitive agreements

Exceptions to Anti-competitive agreements• Joint venture Agreement if agreement increases efficiency in production, supply,

distribu-tion, storage, acquisition or control of goods or provision of servicesdistribu tion, storage, acquisition or control of goods or provision of services• Right of any person to restrain any infringement of / impose reasonable

conditions for protecting any of his rights which have been or may be conferred upon him under Intellectual Property laws

• Agreement for export of goods from India to the extent to which the agreement relates exclusively to the production, supply, distribution or control of goods or provision of services for such export

Abuse of dominant positionp

Abuse of dominant position

• No enterprise shall abuse its dominant position• "Dominant position" means a position of strength, enjoyed by an enterprise, in the

relevant market, in India, which enables it to -relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; oraffect its competitors or consumers or the relevant market in its favour.

• An enterprise is said to have abused dominant position if it –p pDirectly or indirectly imposes unfair or discriminatory condition in purchase or sale of goods/ services or prices of goods/ services including predatory pricesLimits production, markets or technical or scientific development to the prejudice of the consumersIndulges in practice resulting in denial of market accessMakes conclusion of contracts subject to acceptance by other party of supplementary obligations which have no connection with the subject of suchsupplementary obligations which have no connection with the subject of such contractsUses dominance in one relevant market to enter into or protect other marketDominance is not considered bad per se. Abuse is stated to occur when an enterprise or

a group of enterprises uses its dominant position in the relevant market in ana group of enterprises uses its dominant position in the relevant market in an exclusionary and /or an exploitative manner

Abuse of dominant position

• CCI (Determination of Cost of Production) Regulations, 2009 notified on 20 August 2009Cost - average variable cost, as a proxy for marginal cost. In specific cases, CCI may, depending on the nature of the industry, market and p , y, p g y,technology used, consider other relevant cost like Avoidable Cost, Long Run Average Incremental Cost, Market Value.

• CCI with due regard to the relevant geographical market and relevant product market to determine the relevant market.determine the relevant market.

• CCI to consider following factors for determining dominant position of an enterprise Market shareSize and resourcesSize and importance of competitorsEconomic powerVertical integrationDependence of consumer on enterpriseDependence of consumer on enterpriseMonopolyEntry barriersMarket structure and size of marketSocial obligation and social cost etc.

Inquiry and order by CCI for anti-competitive agreements and dominant positionand dominant position• CCI may inquire into any anti-competitive agreements and abuse of dominant position on

its own or receipt of a complaint from any person, consumer or their association or trade association or a reference made by the Central Government or a State Government or a t t t th itstatutory authority

• If CCI is of the opinion that there exists a prima-facie case, it shall direct Director General (DG) to cause an investigation. DG to submit report within specified time

• If CCI finds existence of anti-competitiveness or abuse of dominant position, it can pass p p porders to –

Discontinue and not to re-enter such agreement or discontinue such abuse of dominant positionImpose penalty –Impose penalty • <= 10% of the average of the turnover for the last 3 preceding financial years on each of such

person or enterprises• In case of cartel for entering into agreement CCI may impose penalty on each producer / seller /

distributor / trader / service provider higher of the following p g g3 times of profit made out of cartel; or10% of average turnover for past 3 year of cartel

• of the continuance of such agreement. Award compensationDirect suitable modification in the agreementRecommend to the Central Government for the division of an enterprise enjoying dominant positionPass such other order as it may deem fit

Glossary

Act - Competition Act, 2002AAE - Appreciable Adverse EffectAOP - Association of PersonsAOP - Association of PersonsBSE - Bombay Stock Exchange LimitedCCI - Competition Commission of IndiaDG - Director GeneralDG Director GeneralFII - Foreign Institutional Investor HUF - Hindu Undivided FamilyLIC - Life Insurance Corporation of IndiapM&A - Mergers & AcquisitionsNSE - National Stock Exchange of India LimitedPFI - Public Financial InstitutionSARFAESI - The Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002SEBI - Securities and Exchange Board of IndiaS C S CSICA - Sick Industrial Companies Act, 1985VCF - Venture Capital Fund

Courtesy: Atul Mittal, Director , Deloitte Touche Tohmatsu India Pvt. Ltd

THANK YOU

TEAM NIRC