Companies Act Needs Comprehensive Review: CII President Jun 04, 2014 | |
| CII has called for a comprehensive review of the Companies Act 2013 and Companies Rules, 2014 issued thereunder. "Due to the hurried pace in which the Companies Act, 2013 and the Companies Rules, 2014 were implemented, the industry barely got an opportunity to absorb and understand the provisions or their impact in their entirety. Many new concepts are being introduced in the legislation for the first time, and practices with respect to these need to be allowed to evolve over time. However, the rush to notify the Act has introduced disruptive features making it harder for corporates to ensure compliance", said Mr Ajay Shriram, President, CII, referring to the fact that the final set of Rules were released in the last week of March 2014 to be implemented from April 1, 2014.
Mr Shriram further added that "the Government needs to trust Industry. One or two incidence of corporate malfeasance should not lead to mistrust of the entire spectrum of corporate India and should not make normal business activities difficult. While the country is looking to improve its image after a series of setbacks like retrospective changes to tax laws, poor economic conditions, etc, an unclear and cumbersome Companies Act would make things worse. India already ranks very low in terms of ease of doing business and the new act will further add to the cost and complications of doing business".
In absence of any unambiguous clarifications from the Ministry of Corporate Affairs, companies are resorting to different interpretations of the provisions. There is no uniform interpretation of even items of ordinary business such as appointment of Independent Directors. CII has made detailed representation to the Government on the subject. Some of the key issues highlighted include:
One, clarity is required vis-à-vis transitional provisions. For example, while the Act provides transitional period of one year for the appointment of independent directors, constitution of Audit Committee and Nomination & Remuneration Committees is mandatory with effect from 1 April 2014. The two requirements need to be aligned.
Two, Directors of the Nomination and Remuneration Committee are expected to prescribe the criteria for evaluation of all directors; carry out evaluation of every director's performance and recommend the appointment and removal of directors. It is also required to lay down remuneration policies. Provisions such as this could make board's functioning difficult resulting in break-down of trust and too much caution. The Act should lay down specific and objective parameters in this regard.
Three, provisions pertaining to Related Party Transactions indirectly seeks to vest power in minority in most of cases which is against the fundamental principle of shareholders' democracy and majority rule. Legislation should balance interests of multiple stakeholders and equity must apply to both big and small shareholders to avoid misuse of the provisions by any class – majority or minority Further, the compliance requirement to obtain prior approval of audit committee for all related party transactions is too onerous and may result in Audit Committees not being able to give due focus to key items. .
Further, transactions between a holding company and its 100% subsidiary does not compromise interests of any stakeholders. However, it still has to comply with all procedural requirements as transactions with other parties.
Four, a careful review of the mandate of the Audit Committee is also required. It is for the auditors to monitor and confirm the effectiveness of the systems, processes and controls to the Audit Committee. A reverse obligation on the Audit Committee is clearly unwarranted. Requiring the Audit Committee to evaluate risk management system is also unreasonable.
Five, corporates should be allowed adequate legroom to comply with the CSR provision in a self-responsible manner. Incidental and supplementary activities even if related to Company's business should be allowed as CSR so long as they fall in the activities specified in schedule VII. Onerous provisions would hold back innovation, defeat legislative intent and shift the focus from 'comply with conscience' to 'tick-box compliance.' Government had in fact assured that it will authorize the Boards to choose the scope of CSR activities as it deems fit – this power has not been given in the Act as of now.
Six, private companies which are neither subsidiaries of listed companies nor have substantial borrowings from banks or financial institutions should be exempted from certain provisions of the Act. Such companies should not be treated at par with other public interest entities.
Seven, applicability of the requirement of rotation of auditors for companies other than listed companies is also prescribed under the Act. CII strongly suggests that private companies and public companies which do not have substantial public funding be exempted from this requirement.
In addition to the above, there are several inconsistencies between the Act and Rules and at times within the Act itself. CII has highlighted these anomalies in its detailed representation.
CII has all along underscored the need for ensuring that the new law aims at progression and development of business instead of impeding it. Law needs to contemplate and weigh up the interests not just of stakeholders but also take forward the business objects of the corporates. At a time when the situation warrants decentralisation of decision making to lower levels, the new act is proposing more centralization at Board levels.
CII hopes that the new government would take into consideration the difficulties being faced by corporates and take corrective steps in consultation with all | |
05 June 2014
Representation on Companies Act,2013
04 June 2014
PF Contribution capped at Rs.6,500
LRS Limit Increased to USD 125,000
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| Date: Jun 03, 2014 | |
| Liberalised Remittance Scheme (LRS) for resident individuals-Increase in the limit from USD 75,000 to USD 125,000 | |
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02 June 2014
TDS Credit-Interest and Cost Payable
Assessee cannot be denied credit for TDS on the ground of Form 26AS mismatch because he is not at fault. Non-grant of TDS credit causes harassment, inconvenience & makes the assessee feel cheated. Dept to pay interest + costs of Rs. 25,000
The assessee filed a return in which he claimed a refund of Rs. 2.32 lakhs on account of excess TDS by the Government department. The return was processed by the Central Processing Centre (CPC) of the Income-tax Department at Bangalore and a refund of only Rs.43,740 was issued. No intimation was given to the assessee as to why the balance amount of Rs.1.88,630 was not refundable. The assessee filed an application u/s 154 for rectification of the mistake and asked for refund of the balance amount. As there was no response from the department despite several reminders, the assessee filed a writ petition in the High Court. HELD by the High Court allowing the Petition:
(i) The difficulty faced by the tax payers relating to credit of TDS was considered by the Delhi High Court in Court On its Own Motion vs. CIT 352 ITR 273 and the CBDT was directed to issue directions with regard to giving credit of unmatched and mismatched TDS certificates. Pursuant thereto, the CBDT issued Instruction No.5 of 2013 dated 8.7.2013 directing that where the assessee approaches the AO with requisite details and particulars in the form of TDS certificate as evidence against any mismatch amount the AO would verify whether or not the deductor had made payment of the TDS in the government account and, in the event, the payment had been made, credit of the same would be given to the assessee.
(ii) On facts, no effort has been made by the AO to verify whether the deductor had made the payment of the TDS in the government account. On the other hand, the Income-tax department has shown helplessness in not refunding the amount on the sole ground that the details of the TDS did not match with the details shown in Form 26AS. There is a presumption that the deductor has deposited TDS amount in the government account especially when the deductor is a government department. By denying the benefit of TDS to the Petitioner because of the fault of the deductor causes not only harassment and inconvenience, but also makes the assessee feel cheated. There is no fault on the part of the Petitioner. The fault, if any, lay with the deductor. The mismatching is not attributable to the assessee. The department must refund the amount within 3 weeks with interest. The department must also pay costs of Rs. 25,000 to the Petitioner.
01 June 2014
CBDT released ITR FORM ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 for A.Y. 2014-15
CBDT released ITR FORM ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 for A.Y. 2014-15.
Notification No. 28/2014, Dt 30.05.2014
http://law.incometaxindia.gov.in/DIT/Notifications.aspx
31 May 2014
SIT
Union Cabinet nods to constitution of SIT on black monies stashed abroad
May 28, 2014
CONSTITUTION OF SPECIAL INVESTIGATING TEAM (SIT) TO IMPLEMENT DECISION OF SUPREME COURT ON LARGE AMOUNTS OF MONEY STASHED ABROAD
PRESS RELEASE, DATED 27-5-2014
The Union Cabinet today approved constitution of Special Investigating Team (SIT) to implement the decision of the Hon'ble Supreme Court on large amounts of money stashed abroad by evading taxes or generated through unlawful activities.
The SIT will be headed by Hon'ble Mr. Justice M.B. Shah, former Judge of the Supreme Court as Chairman and Hon'ble Mr. Justice Arijit Pasayat, former Judge as Vice Chairman.
The Members of the High Level Committee will comprise:
| i. |
| Secretary, Department of Revenue |
| ii. |
| Deputy Governor, Reserve Bank of India, |
| iii. |
| Director (IB), |
| iv. |
| Director, Enforcement |
| v. |
| Director, CBI |
| vi. |
| Chairman, CBDT, |
| vii. |
| Director General, Narcotics Control Bureau |
| viii. |
| Director General, Revenue Intelligence |
| ix. |
| Director, Financial Intelligence Unit |
| x. |
| Director, Research and Analysis Wing and |
| xi. |
| Joint Secretary (FT&IR-1), CBDT |
The SIT has been charged with the responsibility and duties of investigation, initiation of proceedings and prosecution in cases of Hasan Ali and other matters involving unaccounted money. SIT shall have jurisdiction in the cases where investigations have already commenced or are pending or awaiting to be initiated or have been completed. SIT will prepare a comprehensive action plan including creation of necessary institutional structure that could enable the country to fight the battle against unaccounted money. The SIT should report to the court the status of work from time to time.
30 May 2014
Revised TDS returns to be accepted without Original Provisional receipts
Revised TDS returns to be accepted without Original Provisional receipts wef 01.06.14
May 28
Circular No: NSDL/TIN/2014/024
Subject: Revised procedure for acceptance of e-TDS/TCS correction statements and upload of scanned documents to TIN Central System
Attention of all TIN Facilitation Centers (TIN-PCs) is invited to the procedure of acceptance of e-TDS/TCS correction statements and upload of scanned images as provided in chapter 6 and 7 of the TIN-PC Operating Manual (TOM).
As per approval from Income Tax Department, the procedure for acceptance of e-TDS/TCS correction statement stands revised. The same is intimated vide this circular. The revised procedure applicable with effect From June 1, 2014 is as per table below:
Sr. No. Documents to be accepted along with e- TDS/TCS correction statements – Existing procedure
1 Physical Form 27A Physical Form 27A
2 Statement Statistics Report (SSR)
3 Copy of Provisional Receipt of Original Statement
In view of the above, TIN-PCs are required to accept e-TDS/TCS correction statements from Deductors/Collectors with .FVU file and duly signed Form 27A (generated from the latest File Validation Utility). The copy of Original Provisional Receipt and Statement Statistic Report need not be accepted from Deductor/Collector.
The verification of control total screen has to be carried out on the basis of information present on Form 27A.
Further, the revised procedure for upload of scanned images of e-TDS/TCS correction Statements, is as per the following table wherein e-TDS/TCS statements are accepted on or after June 1, 2014.
Note: For e-TDS/TCS statements accepted upto May 31, 2014, the scanned images of Form 27A and Provisional Receipt needs to be scanned and uploaded as referred vide circular number NSDL/T1N/2011/009 dated May 6, 2011.
The version of TOM after the above said updates is 5.10. The version control sheet is attached as Anneyure A
In case of any clarifications, contact TIN Support Desk on 022-24994201.
For and on behalf of
NSDL e-Governance Infrastructure Limited
Bushan Maideo
Senior Vice President
29 May 2014
Sharing of Asset Details from Wealth Tax Returns with PSBs - CBDT Instructions
Sharing of Asset Details from Wealth Tax Returns with PSBs - CBDT Instructions
IN a meeting on the performance of Public Sector Banks (PSBs) taken by Finance Minister on 5.3.2014, the PSBs raised concern that the details of assets as available in the Wealth Tax Returns of loan defaulters are not being shared by Income Tax Department with the Banks despite repeated requests.
Section 42B of the Wealth Tax Act 1957 states:
42B Disclosure of information respecting assessees:- Where a person makes an application to the Chief Commissioner or Commissioner in the prescribed form for any information relating to any assessee in respect of any assessment made under this Act, the Chief Commissioner or Commissioner may, if he is satisfied that it is in the public interest so to do, furnish or cause to be furnished the information asked for in respect of that assessment only and his decision in this behalf shall be final and shall not be called in question in any court of law.
CBDT observes in a letter to all the Principal Chief Commissioners that in view of the fact that every Return of Wealth filed by the assessee is subject to assessment under section 16 of the Wealth Tax Act, the information contained therein qualifies for being supplied u/s 42B of the Wealth Tax Act, provided the CCWT/CWT is satisfied that supply of such information to PSBs is in public interest.
CBDT in this context clarifies that information on assets of loan defaulters to enable recovery of loans by PSBs from such defaulters is in public interest.
CBDT further clarifies that such information may be provided in respect of the borrower/mortgager/guarantor of the loan only. At the time of supply of such information a confidentiality clause may be included specifying that such information be used only for the purpose of recovery of loan and will not be shared with any other person/agency. An undertaking to this effect shall be obtained from the Bank (to be signed by an officer not below the rank of the Manager of the Branch concerned) before furnishing the information.
At the same time CBDT wants to protect its own interests. The Board directs that in order to ensure that the tax dues of the Department against the defaulter (if any) are safeguarded, an undertaking be obtained from the PSB to obtain a No Objection Certificate (NOC) from the jurisdictional CIT of the loan defaulter before appropriation of the surplus amount recovered from sale of immovable/movable asset of the defaulter, information in respect of which is shared, after adjustment of its loan dues.
CBDT wants the Principal Chief Commissioners to bring these guidelines to the notice of the Chief Commissioners, DGs and Commissioners of their charges.
Prior approval of RBI in cases of acquisition/ transfer of control of NBFCs.
RBI CIRCULAR Regarding Prior approval of RBI in cases of acquisition/ transfer of control of NBFCs. The prior written permission of the Reserve Bank of India shall be required for – (i) any takeover or acquisition of control of an NBFC, whether by acquisition of shares or otherwise; (ii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC that would give the acquirer / another entity control of the NBFC; (iii) any merger/amalgamation of an NBFC with another entity or any merger/amalgamation of an entity with an NBFC which would result in acquisition/transfer of shareholding in excess of 10 percent of the paid up capital of the NBFC. (iv) Prior written approval of the Reserve Bank would also be required before approaching the Court or Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs.
22 May 2014
CAS can't write accounts and then audit.
FYI - CAs cannot undertake assignment of audit & accounting work together for same entity
Announcement on prohibition to undertake the assignment of audit and accounting work together for the same entity. – (20-05-2014)
No. ICAI/ESB/2014/03
It has come to the knowledge of some members that certain entities , while inviting tenders for services of chartered accountants for the assignment of statutory audit , are mentioning accounting and book keeping related works in the scope of works required to done by the auditor.
Members are hereby advised not to undertake such assignment since it is violative of the provisions of ‘Code of Ethics’ and ‘Guidance Note on Independence of Auditors’ for auditor of an entity to do book keeping work of the entity. The said prohibition in the case of Companies is further also mentioned in Section 144 of the Companies Act, 2013.
21 May 2014
PAN application revised
CBDT has revised PAN Application form 49A and 49AA wef from 16.05.2014 vide its notification no. 26/2014 , Dated- 16-5-2014. Revised Form 49A and 49AA provides option to get printed Mothers Name on PAN card.
20 May 2014
Whistle Blowers Protection Act, 2011
Whistle Blowers Protection Act, 2011
Whistle Blowers Protection Act, 2011 is an Act of the Parliament of India which provides a mechanism to investigate alleged corruption and misuse of power by public servants and also protect anyone who exposes alleged wrongdoing in government bodies, projects and offices. The wrongdoing might take the form of fraud, corruption or mismanagement. The Act will also ensure punishment for false or frivolous complaints.
The Act was approved by the Cabinet of India as part of a drive to eliminate corruption in the country';s bureaucracy and passed by the Lok Sabha on 27 December 2011.The Bill was passed by Rajya Sabha on 21 February 2014 and received the President';s assent on 9 May 2014.The Act has not come into force till now.
Intent
An Act to establish a mechanism to receive complaints relating to disclosure on any allegation of corruption or willful misuse of power or willful misuse of discretion against any public servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimization of the person making such complaint and for matters connected therewith and incidental thereto.
Salient Features
- The Act seeks to protect whistle blowers, i.e. persons making a public interest disclosure related to an act of corruption, misuse of power, or criminal offense by a public servant.
- Any public servant or any other person including a non-governmental organization may make such a disclosure to the Central or State Vigilance Commission.
- Every complaint has to include the identity of the complainant.
- The Vigilance Commission shall not disclose the identity of the complainant except to the head of the department if he deems it necessary. The Act penalizes any person who has disclosed the identity of the complainant.
- The Act prescribes penalties for knowingly making false complaints.
19 May 2014
HC on Restaurant Service- Validity & Double Taxation
High Court on Restaurant Service
HC dismisses writ, upholds constitutional validity of Sec 66E(i) of Finance Act declaring service portion in activity of supply of food and drinks as "declared services"; Article 366(29-A) of Indian Constitution does not indicate subsuming of service part in sale of food, it rather separates sale of food and drinks from service; Sec 65B(44) and Sec 66E(i) only charge service tax on service part and not on sale part, which indicate exclusion of sale element from service as interpreted by SC in Associated-Hotel and Northern Caterers cases; Rejects assessee's reliance on SC ruling in K Damodarsamy, calling it irrelevant for determining Parliament's power to levy service tax on service element in sale; However, HC shows reservation in the rule quantifying fixed sum towards service and its functioning in restaurant, vis-a-vis tax under VAT Act; 40% over which service tax is charged cannot be subject to VAT; Absent provision in VAT Act to bifurcate amount between sale and service, HC advises State Govt to frame rules / issue clarification in conformity with provisions under Finance Act to avoid double taxation on same amount; Also allows assessee to object to VAT levy on service portion of bill value before VAT Authorities : Chattisgarh HC
Case Law on Section 50B
S. 50B applies only to a "sale" for a "monetary consideration" and not to a case of "exchange" of the undertaking for shares under a s. 391/394 scheme of arrangement
The assessee transferred its Lift Division to Tiger Elevators Pvt. Ltd under a scheme of arrangement u/s 391 & 394 of the Companies Act, 1956. The transfer of the undertaking took place in exchange of preference shares and bonds issued by Tiger Elevators as per a valuation report. The assessee claimed that the transfer was not liable to tax on capital gains on the basis that there was no "cost of acquisition" of the undertaking. The AO held that the transaction was a "slump sale" as defined in s. 2(42C) and that the gains had to be computed u/s 50B. This was upheld by the CIT (A). On appeal by the assessee to the Tribunal, the Tribunal accepted the claim of the assessee. On appeal by the department to the High Court HELD dismissing the appeal:
The definition of the term "slump sale" in s. 2(42C) means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sale. In Motors & General Stores (P) Ltd 66 ITR 692 (SC) it was held that a "sale" meant a transfer for a monetary consideration and that an "exchange" would not amount to a "sale". On facts, scheme of arrangement shows that the transfer of the undertaking took place in exchange for issue of preference shares and bonds. Merely because there was quantification when bonds/preference shares were issued, does not mean that monetary consideration was determined and its discharge was only by way of issue of bonds/preference shares. In other words, this is not a case where the consideration was determined and decided by parties in terms of money but its disbursement was to be in terms of allotment or issue of bonds/preference shares. All the clauses read together and the entire Scheme of Arrangement envisages transfer of the Lift Division not for any monetary consideration. The Scheme does not refer to any monetary consideration for the transfer. The parties were agreed that the assessee was to transfer the undertaking and take bonds/preference shares as consideration. Thus, it was a case of exchange and not a sale. Therefore, s. 2(42C) of the Act was inapplicable. If that was not applicable and was not attracted, then, s. 50B was also inapplicable. The judgement of the Delhi High Court inSRIE Infrastructure Finance Ltd 207 Taxman 74 (Del) is distinguishable on facts. There is no necessity to analyze the circumstances in which s. 50B was inserted in the statute book.
17 May 2014
RBI on ECB
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| Date: May 16, 2014 | |
| External Commercial Borrowings (ECB) from Foreign Equity Holder - Simplification of Procedure | |
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16 May 2014
Dena Bank concurrent Audit
Applications for concurrent audit of Dena Bank for 2014-15
http://www.denabank.co.in/viewdetail.jsp?lang=0&did=139972780868505EA0AEA3057FD38A5D83AFAEE96DB32&id=0,47
15 May 2014
NSE-BSE Circuit Rules
NSE-BSE Circuit Rules & Election Counting Timings for 16th may.
If 10% circuit till 1pm then mkt shuts for 45 minutes if 15% circuit till 1pm then mkt shuts for 15 minutes if 20% circuit anytime, mkt closed for the day if 10%circuit from 1-2.3 pm then mkt shuts for 15mins if 15% circuit from 1-2.30 pm then mkt shuts for 45mins if 20% circuit anytime, mkt closed for the day. post 2.30pm , if 10% circuit mkt will continue trading but if 15% post 2.30 pm then closed the day.
### election counting for general election 2014 due to start on 8.00 am on may 16 across 989 counting centres. Trends will be in by 11 am on Friday, final results on 4 pm
Bombay HC on CA 2013
| Important Judgement of Hon'ble Bombay High Court with respect to Companies Act, 2013 |
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Concurrent Audit P & bank
FYI - APPLICATION FOR ASSIGNMENT OF CONCURRENT AUDIT FOR CHARTERED ACCOUNTANT FIRM IN PUNJAB & SIND BANK
for online application
https://www.psbindia.com/OnLine_Application_CCA.php
opening date : 12-05-2014
last date :26-05-2014
14 May 2014
Supreme Court on Sale and WC
Important principles on distinction between "contract for sale of goods" and "works contract" explained
A Constitutional Bench of 5 Judges of the Supreme Court had to consider whether the law laid down by a three-Judge Bench in State of A.P. v. Kone Elevators (India) Ltd (2005) 3 SCC 389 that a contract for manufacture, supply and installation of lifts in a building is a "contract for sale of goods" and not a "works contract" is correct or not. HELD by the Constitution Bench over-ruling the three-Judge Bench judgement:
(i) In the case of a "contract for sale of goods", the entire sale consideration is taxable under the sales tax or value added tax enactments of the State legislatures. In the case of a "works contract", the consideration paid for the labour and service element has to be excluded from the total consideration received and only the balance is chargeable to sales tax or value added tax;
(ii) Four concepts have clearly emerged from the numerous judgements of the Supreme Court on the point. They are (a) the works contract is an indivisible contract but, by legal fiction, is divided into two parts, one for sale of goods, and the other for supply of labour and services; (b) the concept of "dominant nature test" or, for that matter, the "degree of intention test" or "overwhelming component test" for treating a contract as a works contract is not applicable; (c) the term "works contract" as used in Clause (29A) of Article 366 of the Constitution takes in its sweep all genre of works contract and is not to be narrowly construed to cover one species of contract to provide for labour and service alone; and (d) once the characteristics of works contract are met with in a contract entered into between the parties, any additional obligation incorporated in the contract would not change the nature of the contract;
(iii) The "dominant nature test" or "overwhelming component test" or "the degree of labour and service test" are really not applicable. If the contract is a composite one which falls under the definition of works contracts as engrafted under clause (29A)(b) of Article 366 of the Constitution, the incidental part as regards labour and service pales into total insignificance for the purpose of determining the nature of the contract;
(iv) On facts, the three-Bench judgement erred in taking the view that the major component was the equipment and that the skill and labour employed for converting the main components into the end product were only incidental. The principal logic applied, i.e., the incidental facet of labour and service is not correct because in all the cases, there is a composite contract for the purchase and installation of the lift. The price quoted is a composite one for both. Various technical aspects go into the installation of the lift. There has to be a safety device. In certain States, it is controlled by the legislative enactment and the rules. In certain States, it is not, but the fact remains that a lift is installed on certain norms and parameters keeping in view numerous factors. The installation requires considerable skill and experience. The labour and service element is obvious. The preparatory work has to be done taking into consideration as to how the lift is going to be attached to the building. The nature of the contracts clearly exposit that they are contracts for supply and installation of the lift where labour and service element is involved. Individually manufactured goods such as lift car, motors, ropes, rails, etc. are the components of the lift which are eventually installed at the site for the lift to operate in the building. In constitutional terms, it is transfer either in goods or some other form. In fact, after the goods are assembled and installed with skill and labour at the site, it becomes a permanent fixture of the building. However, if there are two contracts, namely, purchase of the components of the lift from a dealer, it would be a contract for sale and similarly, if separate contract is entered into for installation, that would be a contract for labour and service. But, a pregnant one, which is a composite contract for supply and installation, has to be treated as a works contract, for it is not a sale of goods/chattel simpliciter. It is not chattel sold as chattel or, for that matter, a chattel being attached to another chattel.
13 May 2014
Court-Convened Meetings and Postal Ballot
Court-Convened Meetings and Postal Ballot
-Dhananjay Trivedi
Background
In one of the first few cases interpreting the provisions of the Companies Act, 2013 (the 2013 Act), the Bombay High Court last week issued its judgment on the use of postal ballot facility at a court-convened meeting to consider a scheme of arrangement. In re Godrej Industries Limited, the court was concerned with a scheme of amalgamation of Wadala Commodities Limited into Godrej Industries Limited under sections 391 to 394 of the Companies Act, 1956 (the 1956 Act).[1] The narrow question at the initial stage for summons for direction to convene the meetings was “whether in view of the provisions of Section 110 of the [the 2013 Act] and SEBI Circular dated 21st May 2013, a resolution for approval of a Scheme of Amalgamation can be passed by a majority of the equity shareholders casting their votes by postal ballot, which includes voting by electronic means, in complete substitution of an actual meeting. In other words, whether the 2013 Act, read with various circulars and notifications, has the effect of altogether eliminating the need for an actual meeting being convened.”
The court answered this question in the negative to effectively find that while the mechanism of postal ballot (which includes electronic voting) ought to be offered as an additional facility for voting by shareholders, that cannot do away with the need for conducting a meeting. In arriving at this conclusion, the court considered various aspects of the purpose and conduct of shareholders’ meetings, issues of corporate law and governance contained in the 2013 Act as well as various SEBI
circulars.
Reasoning
Even though the issue at hand was quite focused, the opinion of the court rendered by Justice G.S. Patel is elaborate and insightful on various legal and practical matters involving shareholder rights and corporate democracy (and hence I have taken the liberty of extracting some of the important observations). Some of the key issues considered are as follows:
Purpose and Importance of a Meeting
One consideration before the court was whether the purpose of corporate democracy is to simply permit shareholders to cast their vote or whether it was still important to hold a meeting of shareholders so as to enable them to deliberate on the issues and express their opinions. If deliberation is a crucial aspect of corporate democracy, then even where a postal ballot is provided for it is not possible to avoid a meeting altogether. The court expressed its views in the following manner:
We must remember that at the heart of corporate governance lies transparency and a well-established principle of indoor democracy that gives shareholders qualified, yet definite and vital rights in matters relating to the functioning of the company in which they hold equity. Principal among these, to my mind, is not merely a right to vote on any particular item of business, so much as the right to use the vote as an expression of an informed decision. That necessarily means that the shareholder has an inalienable right to ask questions, seek clarifications and receive responses before he decides which way he will vote. It may often happen that a shareholder is undecided on any particular item of business. At a meeting of shareholders, he may, on hearing a fellow shareholder who raises a question, or on hearing an explanation from a director, finally make up his mind. In other cases, he may hold strong views and may desire to convince others of his convictions. This may be in relation to matters that are not immediately obvious to the shareholder merely on receipt of written information or a notice. The right to persuade and the right to be persuaded are, as I see it, of vital importance. In an effort for greater inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and that the shareholder must cast his vote only on the basis of the information that has been send to him by post or email seems to me to be completely contrary to the legislative intent and spirit to the express terms of the SEBI circular and amended Listing Agreement’s Clauses 35B and 49.
Hence, the purpose of shareholder democracy is not simply to exercise franchise but to meet, deliberate, persuade and be persuaded as a collective, which is possible only when the facility of a meeting is provided, and not simply when each shareholder casts a ballot in isolation without interaction.
Possibility of Amendments
An important aspect of shareholder right is the ability to propose amendments to resolutions put forth at a meeting. The court found that if the only facility provided is postal ballot without a shareholders’ meeting, then it would take away the power of directors or shareholders to propose amendments, as a result of which the resolution can only be put to vote as originally proposed. This is not desirable. The schemes of both the 1956 Act as well as the 2013 Act provide that schemes are “subject not only to approval by voting but also, possibly, to an amendment at the meeting itself”. The ability to decide upon the scheme along with amendments is important for achieving a meeting of minds, especially on crucial matters such as the share exchange ratio.
Broader Corporate Governance Concerns
The court also expressed its views on the broader governance impact that necessitates greater shareholder participation in companies, especially on crucial matters such as amalgamations.
Nothing could be more detrimental to shareholders’ rights than stripping them of the right to question, the right to debate, the right to seek clarification; and, above all, the right to choose, and to choose wisely. A vote is an expression of an opinion. That vote must reflect an informed decision. Dialogue and discourse are fundamental to the making of every such informed decision. [Counsel’s] submission seems to me to relegate shareholders, in the guise of greater inclusiveness, to a very distant second place in the scheme of corporate governance, seeing them merely as a necessary evil. Nothing could be further from the mandate of corporate law and governance. We strive today to greater transparency; that means that more should be given the opportunity to speak and to exercise their rights as shareholders. But that cannot come at the price of their right to speak, to be heard, to persuade, even to cajole. What corporate governance demands is the government of the tongue, not the tyranny of a finger pressing a button.
Electronic Voting at the Meeting
The court held that the facility of electronic voting must be made available at the meeting itself for those who wish to attend and vote at the meeting. In other words, electronic voting is not limited only to those who are unable or unwilling to attend the meeting. The objective behind this situation is that “[g]reater inclusiveness demands the provision of greater facilities, not less; and certainly not the apparent giving of one ‘facility’ while taking away a right.” Based on the court’s reasoning, the voting options available to shareholders are as follows:
1. Shareholders may exercise their votes through postal ballot or electronic votes in advance and not attend the physical meeting;
2. Shareholders may exercise their votes through postal ballot or electronic votes in advance and nevertheless attend and speak at the physical meeting so as to be able to persuade the other shareholders as to their point of view on matters discussed at the meeting (but they cannot vote again at the meeting);
3. Shareholders may attend and speak at the meetings, and then vote electronically at the meeting itself.
This way, there could be a “single integrated system of voting” for all shareholders who exercise their votes, whether or not they attend the meeting.
Notification of Rules under the 2013 Act
Finally, the court was confronted with some procedural issues relating to the notification of various provisions of the 2013 Act as well as the Rules thereunder. It observed:
A final word about the manner in which these rules and sections are purportedly being brought into force. The website of the Ministry of Corporate Affairs has, on its front page, a link to a single scanned PDF file entitled “COMPANIES ACT 2013 - STATEMENT OF NOTIFICATION OF RULES”. Some 21 rules are listed. They are all said to be effective 1st April 2014. Several of these are not yet gazetted; at least I have not been able to find any gazette. I do not see how any such rules can be made effective on this basis where a ministry simply puts up some scanned document under the signature of one of its officers but sans any publication in the official gazette. That publication is not an idle formality. It has a well-established legal purpose. That purpose is not and cannot be achieved in this ad-hoc manner. Therefore, till such time as these rules are gazetted, or there is some provision made for the dispensation of official gazette notification, none of the rules in the Ministry of Corporate Affairs PDF document that are not yet gazetted can be said to be in force. [footnotes omitted]
These are significant questions, which will require urgent attention of the Ministry of Corporate Affairs (MCA).
Analysis
The judgment of the Bombay High Court is a significant one as it clarifies the rights of shareholders to attend and vote for (or against) resolutions proposed by the company, especially in the case of court-convened meetings for schemes of arrangement (and amalgamation). The courts grants wide amplitude to shareholder franchise and re-emphasises that the methods of voting are a facility provided to shareholders that cannot be circumscribed. Moreover, it highlights the importance of deliberations at a general meeting and the power of persuasion, both of which cannot be treated as empty formalities. This judgment also provides further impetus to shareholder participation in corporate decision-making, which is an important component of the overall phenomenon of shareholder activism, which is gaining ample momentum in the Indian context.
Furthermore, the judgment also raises questions regarding the implementation of the 2013 Act and highlights some key gaps such as the notification of the Rules. Such matters require urgent regulatory attention.
Although the judgment is only at the initial stage of summons for directors (for convening class meetings in a scheme of amalgamation), it raises significant issues that are pertinent more generally to similar cases. The fact that the court has observed that the matter requires fuller consideration and has sought to hear various interested parties such as the Registrar of Companies, the Central Government (through the Additional Solicitor General) and SEBI suggests that the issues will be subject to still further scrutiny. The wider ramifications of the judgment are evident in the observations of the court that “[o]n a prima-facie view that the elimination of all shareholder participation at an actual meeting is anathema to some of the most vital of shareholders’ rights, it is strongly recommended that till this issue is fully heard and decided, no authority or any company should insist upon such a postal-ballot-only meeting to the exclusion of an actual meeting.”
[1] The scheme was considered under these provisions of the previous 1956 Act as they continue to be in force. The equivalent provisions of sections 230 and 232 of the new 2013 Act are yet to come into force.
08 May 2014
Power to quick inquiry to regional director
FYI - The Ministry of Corporate Affairs Vide its circular dated 07/05/2014 has empowered the Registrar/ Regional Director to conduct quick inquiry against professionals and officers where it is observed that any e-Form/document/information/application certified contains incomplete information, false or misleading information or omission of material information.
The said circular further states that cases shall be referred by the Registrar/ Regional Director to the e governance cell of the MCA which shall also refer the case to the concerned institute for conducting disciplinary proceedings as well as debar the errant professional from filing any document on the MCA Portal.
“National Judicial Reference System” (NJRS).
FYI - The CBDT has announced the setting up of a “National Judicial Reference System” (NJRS).
The NJRS comprises of two components, the “Appeals repository and Management System” and the “Judicial Research and Reference System”.
The Appeals repository is a database of all appeals pending in the ITAT, High Court and Supreme Court.
The Judicial Research and Reference System is a database of all decisions of the ITAT, High Courts & the Supreme Court. The cases will be indexed, searchable and cross-linked. The database will also have the relevant statutory enactments, circulars etc.
It is expected that the NJRS will go-live by November/ December 2014.
06 May 2014
Real Estate heading downfall?
"Mumbai has maximum inventory of unsold homes at 155.27 million sq feet I.e approximately 250000 houses which is equivalent to 40 months of unsold inventory. Unsold inventory denotes the number of months required to clear the stock at the existing absorption rate. An ideal scenario implies inventory should be in a range of 8 to 10 months. But Mumbai will take 4 years to sell these houses despite a slew of discount rates, new launches and back room negotiations. Same is the situation in NCR , Chennai , Kolkata, Banglore and Tier II cities. Builder's face crash crunch after RBI put brakes on 20:80 Ponzi scheme. This crisis will worse post 16 May if there is Hung Parliament. India to expect big real estate crash in next 6 to 10 months.".... Dean Baker ....renowned Economist who predicted 2008 US crisis. His advice to indian consumers ...."Indian consumers should be smart to defer their decision on investing in real estate ....and be greedy to sell their current exposure in real estate"Please forward this message to all your friends and family members.
Misuse of PAN from Tatkal
Don't give PAN number for railway Tatkal booking as proof of ID.
The Railways display the PAN. name, sex and age of passengers on reservation charts pasted on railway compartments.
This is a boon for benami transactions. It is mandatory for traders like jewelers to collect tax (TCS) from customers on purchase of jewelry worth Rs 5 lakh & bullion worth Rs 2 lakh.
While complying with TCS rules for collection, payment and uploading of TCS information (e-filing of TDS returns) jewellers have to furnish PAN of customers. For certain customers it is not convenient to provide PAN.
To accommodate high net worth customers, traders have a easy source of benami PAN numbers, name, sex and age from reserved railway compartments. A traveller recently noticed a chap copying PAN particulars along with name, age and sex pasted on reserved compartments, and when confronted with the help of railway police, he admitted that he gets Rs 10 per PAN particulars from jewellers. These persons are copying PAN information of senior citizens, women etc from sleeper class with the intention that passengers in sleeper class are not serious tax payers and generally salaried class.
This wrong usage of a PAN number is known only to the regular tax payers, who regularly check their tax credit on form 26 AS provided by the Income Tax department on their website.
This form 26AS is updated only on filing of e-TDS returns by the traders. There is almost 6-12 months time delay for the PAN holder to know that a transaction of above nature has taken place on his name and that too only if he goes through form 26 AS.
On noticing the tax credit of above nature while reconciling form 26 AS for tax credits for filing the return during subsequent financial year i.e. July / September, the tax payer has an option to exclude the same and go ahead in filing the return.
In that case the department will first initiate action from the tax payer's side asking him to explain the sources of money for the above transaction done in his name and also to prove that he has not carried on the above transaction.
The onus lies on the genuine tax payer for the fault committed by the traders.
This dispute may even take more than 2 years to be settled.
In conclusion, the only way to protect yourself from these fraudulent transactions, is to avoid quoting PAN details for identity proof at any source except for income tax related matters for which your Government had issued for.
You may quote your driving licence #, Voter ID # etc as your ID Proof but definitely not your PAN.
05 May 2014
NO VAT on 40% of Restaurant Bill
VAT not leviable on 40% of the restaurant bill, which is subject to service tax
In the recent decision of the Uttarakhand High Court, in the case of Valley Hotels & Resorts vs. The Commissioner, Commercial Tax, Dehradun [TS-129-HC2014 (UTT)-VAT].
The High Court allowed the revision application filed by the assessee and held that, where the element of service has been declared and brought to tax vide notification dated 6 June 2012, by which Service tax is levied on 40% of the billed value in restaurant, no VAT can be imposed thereon.
The issue of double taxation seems to have been addressed and it has been held that VAT cannot be imposed on that portion of the restaurant bill, which has already suffered Service tax.
30 April 2014
Sec 234E-Bombay HC Stay Order
S. 234E: High Court grants ad-interim stay against operation of notices levying fee for failure to file TDS statement
S. 234E of the Income-tax Act, 1961 inserted by the Finance Act, 2012 provides for levy of a fee of Rs. 200/- for each day's delay in filing the statement of Tax Deducted at Source (TDS) or Tax Collected at Source (TCS). A Writ Petition to challenge the validity of s. 234E has been filed in the Bombay High Court. The Petition claims that assessees who are deducting tax at source are discharging an administrative function of the department and that they are a "honorary agent" of the department. It is stated that this obligation is onerous in nature and that there are already numerous penalties prescribed for a default. It is stated that the fee now levied by s. 234E is "exponentially harsh and burdensome" and also "deceitful, atrocious and obnoxious". It is also claimed that Parliament does not have the jurisdiction or competence to impose such a levy on tax-payers.
The Bombay High Court has, vide order dated 28.04.2014, granted ad-interim stay in terms of prayer clause (d) i.e. stayed the operation of the impugned notices levying the fee.
See also Narath Mapila LP School vs. UOI (Ker), Adithya Bizorp Solutions India vs. UOI (Kar) & Om Prakash Dhoot vs. UOI (Raj) where similar interim orders of stay have been passed. The CBDT has vide Circular No. 07/2014 dated 04.03.2014 extended the due date of filing of the TDS/TCS statement for Government deductors
Rashmikant Kundalia vs. UOI (Bombay High Court)
29 April 2014
crossed cheque and account payee cheque
FYI - Rajmoti Industries vs. ACIT (Gujarat High Court)
S. 40A(3): There is a difference between “crossed cheque” and “account payee cheque”. Payment by crossed cheque attracts s. 40A(3) disallowance
28 April 2014
FATCA
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