Comments on SEBI Paper on proposed changes to buy back through open market purchase

The CFLS has made its first foray in shaping policy! 

Thanks to Jenisha Parikh, Pritika Rai Advani and Trisha Singhvi, the CFLS submitted comments on a discussion paper released by SEBI /on the proposed modifications to the existing mechanism of buy back through open market purchase. 

[You can find the discussion paper here:http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357124740967.pdf]

To go through the CFLS' comments on the same, visit:http://bit.ly/WDdCgq] 

If anyone would like to help us in similar endeavours in the future, please do let us know by emailing us at corpfiscnujs@gmail.com. We would be happy to have you on board!

The Banking (Amendment) Bill, 2012: Changes afoot

The Parliament, before concluding its winter session, has brought about a host of changes to the banking law by passing the Banking Regulation (Amendment) Bill, 2012. The bill has primarily amended the Banking Regulation Act, 1949; the Banking Companies (Acquisition and transfer of undertaking) Act, 1970 and the Banking Companies (Acquisition and transfer of undertaking) Act, 1980.

The primary legal developments in the banking sector introduced by the bill include:

1. RBI’s power to issue new bank licenses: The present amendment paves way for new bank licenses to be given by the RBI. This would be a boon to the banking sector in general as more upcoming banks would increase the competition in the banking sector, which would eventually benefit the customers. Further, in a country where 2/3^rd of the population does not enjoy access to the most basic banking services or are ‘unbanked’, new licenses will greatly boost the availability of services across the country. This can be ensured as long as the RBI mandates operation in unbanked areas as a condition of granting a banking license.
2. Increase in voting Rights of the investors: The amendment has increased the cap of voting rights of private investors to 26% in case of a private sector bank from an initial of 10%. Similarly, in the public sector banks also the said cap has been increased from 1% to 10%. This hike will make the sector a viable area of investment especially as it allows investors to wield more power for instance, by blocking special resolutions.
3. Power conferred on the nationalised banks to issue rights issue and bonus shares: The bill seeks to empower publc sector banks to issue bonus shares and rights shares. This will greatly benefit shareholders as such banks have traditionally sat on massive cash reserves without being able to pass on the benefit to its shareholders. It may also benefit banks to reduce their debt footprint and complying with the rigid Basel norms.
4. Greater autonomy to nationalised banks regarding the ‘authorised capital’: Till now, the ‘authorised capital’ of the nationalised banks had been fixed at 3000 crores as per the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. After the bill, banks can either increase or decrease the authorised capital subject to prior approval from both the central government and the RBI.
5. RBI approval when a 5% shareholding is sought in any bank: The bill mandates the prior approval of RBI when a person seeks to acquire a shareholding of 5% or more in a banking Company. In addition, the RBI can give additional directions which it deems fit in such scenarios.
6. Increase in RBI’s power to call for information, conduct inspections etc: The bill has paved the way for RBI to call for information from the associate enterprises of the banking companies as well as to inspect the disclosed records. This will be done on the lines of the norms given by the Basel Committee on international banking regulation, which aims at establishing a sound banking system across the globe.
7. Establishment of a “Depositor Education and Awareness Fund”: The bill has aimed at promoting the depositor’s interests by mandating the banks to create the said fund out of ‘inoperative deposit accounts’ (which have not been claimed for a period not less than ten years).

With all these promising amendments brought forth via the Bill, it would be interesting to see whether these amendments would in fact prove to be a boon to the banking regime in India. There have been some concerns voiced regarding the supposed benefits of the bill. For instance, while attracting investmnets, an increase in voting rights may lead to a scenario where investors, not having adequate knowledge of the nuances of banking sector, might decide against an otherwise appropriate decision taken by the board of the banking company.  

It is hoped that the RBI judiciously uses the wide powers vested in it vide the said amendment and succeeds in infusing a pro-banking culture in India.

1st NUJS CFLS Competition

The CFLS is proud to announce the first of its kind competition at NUJS, the 1st NUJS Corporate And Fiscal Laws Competition. The competition is held by CFLS in association with PXV Law Partners.

The competition is a hypothetical problem prepared by certain members of the society. The task at hand is to identify the potential issues, risk areas, etc.. The problem and the rules of the competition are provided here and here.

PRIZES!! 

Up for grabs are 2 (two) internships at the Bangalore and the Mumbai offices of PXV Law Partners. In addition to the same, the top 3 entries also get cash prizes of INR 2500, 1500, 1000 respectively.

Please read the instructions and rules carefully. Do write to us at corpfiscnujs@gmail.com in case of any queries.

SEBI to bring in E-IPOs

The Securities Exchange and Board of India, the capital market regulator has decided to introduce electronic Initial Public Offerings [‘IPO’] from January 1, 2013.  Such a decision was taken so as to increase the reach of distribution of the IPOs.  Electronic IPO is a mechanism through which investments in the public offering can be done without any physical paperwork. E-IPO ensures a quick and efficient way to reach the widest possible investors.  This mechanism will also help the investors to check the status of their issue applications on the websites of the Stock Exchanges.

Service tax on railway travel!

Travelling across the country in trains has become more expensive in compliance with the Finance Bill, 2012 and notifications by the Finance Ministry. The hike in fare is owing to the imposition of service tax on railway passenger, starting October 1, 2012. This hike has been imposed in the following classes:

(i) AC First Class,

(ii) Executive Class,

(iii) AC-2 tier Class,

(iv) AC-3 tier class,

(v) AC Chair Car class,

(vi) AC Economy class and

(vii) First Class.

Service tax on transport of goods by rail

The Government of India has implemented the service tax levy of 3.7% on transport of goods by rail, which is effective from October 1, 2012. This was introduced by the Finance Bill 2010 and was originally planned to be implemented on April 1, 2010, but was deferred by repeated notifications. However, in order to raise its revenue and plug the fiscal deficit (see here), the government has finally released a circular on September 26, 2012, imposing service tax on railway freight.

Customs self-assessment regime introduced

The budget 2011-12 which introduced significant customs related changes also brought about one significant change relating to the assessment of goods under the Customs Act, 1962. The new Section 17 of the Customs Act mandates self-assessment of goods which may be re-assessed by the department for correctness of classification in doubtful cases. This re-assessment shall be done selectively on the basis of the Risk Management Model/System (RMS) targeting mainly the high-risk consignments. The provision for provisional assessment has however, been retained with certain consequential modifications. It must be also noted that the importers or exporters, as the case may be, must at the time of presenting the Bill of Entry, make a declaration about the correctness of the statements regarding the classification and applicable rate of duty, its value, benefit of exemption under Notifications etc.

RBI allows ECB for MFIs

The RBI has recently issued a notification considering the specific needs of the micro finance sector, allowing the MFIs to raise ECB up to USD 10 million or equivalent during a financial year for permitted end-uses, under the Automatic Route.

This notification issued by the RBI in December 2011 can be seen as a welcome change for the Micro Financing institutions and the NGOs engaged in such activities.

Read further to know about the guidelines issued on external commercial borrowing by MFIs by Reserve Bank of India. You can see the notification here.

Regulation of IPOs by SEBI-Some recent developments

There have been a string of developments in the field of IPOs, overseen by the SEBI. In fact, more focussed regulations has been an agenda of the SEBI for some time now. The SEBI had already set up an expert group to examine the entire IPO process. The SEBI has deemed the current regulations as not being investor friendly, and has therefore agreed to change the format, and to bring down the pages of the document. The SEBI is also attempting to bring in an e-IPO process, which would be paperless, and would make the bidding process faster.

But the last few days have seen a flurry of activity relating to IPOs and regulation by the SEBI.

Qualified Foreign Investors allowed to invest in Indian equity markets

India has been facing a bearish run in terms of foreign investment in its capital markets. The poorly performing market has churned out astonishingly bad results in the past year. So much so that it reportedly prompted a net outflow of almost USD 380 Million in foreign investment in 2011.

To overturn this dismal trend, the Ministry of Finance, Government of India announced on January 1, 2012 in a press release, that it had decided to allow Qualified Foreign Investors [‘’QFIs’] to invest directly in the Indian equity market. This is a welcome initiative that should go a long way in dispelling the gloom that has gripped the Sensex.  This is the second measure taken in 2011 to increase foreign activity in Indian capital markets. The first was in August when QFIs were permitted direct access to Indian mutual fund schemes.