KANTH AND ASSOCIATES · The Companies (Dematerialization of Certificates) Rules, 2011, are proposed...

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NEWS ALERTS

TAX

Govt. allows tax relief for Infra funding companies

Double Taxation Avoidance Agreement between India and Mozambique notified

The Government amended guidelines for Public Financial Institutions (PFIs) permitting private companies, primarily engaged in infrastructure funding, to attain the status of a PFI and, seek tax and other benefits. Under the new norms notified by the Ministry of Corporate Affairs, any company which has been in existence for more than three years and earns more than 50% income from industrial and infrastructural financing can opt to be a PFI. According to the Guidelines, the main business of the company should be industrial/ infrastructural financing; it must be in existence for at least 3 years and their financial statement should show that their income from the area exceeds 50% of their income, to be declared as a PFI. Besides, the company should have a net-worth of Rs.1,000 Crore and should be registered as an infrastructure finance company with the RBI or as a housing finance company.

India has notified the Double Taxation Avoidance Agreement (DTAA) with the Government of Mozambique for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The DTAA has a provision that business profits will be taxable in the source state in case the activities of an enterprise constitute a permanent establishment in the source state. Factory, office, place of managements, profits of construction, installation projects will come under the ambit of permanent establishment. Any permanent establishment will be taxed in the state of source if the project continues in that state for more than 12 months. The DTAA further provides for effective exchange of information and assistance in collection of taxes between tax authorities of the two countries. It will also provide tax stability to the residents of India and Mozambique and facilitate mutual economic cooperation as well as stimulate the flow of investment, service and technology between India and Mozambique.

CONTENTS

— Article 3

— News AlertsTax 1Corporate, Capital Market & Foreign Trade 1Notifications 2

Online Dispute ResolutionBy Ms. Rashmi Rai, Associate, K&A

Tax exemption on postal account interest capped at Rs.3,500

Stringent rules for preferential allotment of shares proposed

A tax has to be paid on an interest earned beyond Rs.3,500/- with respect to a postal savings bank account. Recently, the Central Board of Direct Taxes withdrew the blanket exemption enjoyed hitherto by the scheme. The exemption will be available only on interest earned up to Rs.3,500/- in case of individual accounts and Rs.7,000/- in case of joint accounts from the current fiscal year itself. The exemption on the postal savings account was introduced in 1989. With post office savings account coming under tax net, interest earned beyond the exemption limit will have to be added to a tax payer's total income and the tax will have to be paid accordingly.

The Government has proposed tighter rules for preferential allotment of shares and other financial instruments that can be converted into equity at a later date. The new rules require the issuer to seek Government permission if the cumulative value of the allotment is over Rs.5 Crore. The Ministry of Corporate Affairs has put up its draft Unlisted Public Companies (Preferential Allotment) Rules, 2011 for comments. The new rules have proposed that the securities should be issued in demat mode and imposed more disclosures on both the company and the buyer. The new rules will replace the Unlisted Public Companies (Preferential

CORPORATE, CAPITAL MARKET & FOREIGN TRADE


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Allotment) Rules, 2003. The guidelines will apply to preferential issue of equity shares, fully convertible debentures, partly convertible debentures, or any other financial instrument that can be converted into equity shares. A company will be allowed to issue securities on a preferential basis only if it allowed under Articles of Association and backed by a special resolution passed by the members in a general meeting. In case of warrants the conversion price has to be fixed at the time of allotment. The issuer has to file a return of allotment with the Registrar of Companies within 30 days of allotment. Apart from the routine information about the issue and its purpose, the issuer will have to disclose details of loss making group companies, outstanding loans and advances, unsecured debt investments or those carrying lower than market rate, negative cash flow (if any), and contested tax demand.

The Ministry of Corporate Affairs (MCA) has proposed vide notification dated 06.06.2011 that all public companies and their subsidiaries convert share certificates and bonds into an electronic (demat) form. The Companies (Dematerialization of Certificates) Rules, 2011, are proposed to come into force from October 1. All new issuances will also have to be in demat form. MCA has also proposed to make this mandatory for all existing paper certificates by September 30. The rules will cover all public companies “which have raised money by issue of shares and debentures, by accepting public deposits, stock, bond or any other financial instruments from public.

Listed companies will have more flexibility in changing their names. The Securities and Exchange Board of India (SEBI) has relaxed an earlier norm, which required all listed companies to have about 50% of its total revenue from the new activity for a period of one year preceding the change of name. Now, companies can also change their names if they have invested at least 50% in the assets of the new business. Even if a company is in the process of setting up a business it could still go ahead and change the name if they have made substantial investment, the new provision will reduce their compliance burden.

MCA proposes mandatory demat of shares, debentures and other deposit receipts of Unlisted Public Companies

SEBI eases norms on name changes for Listed Companies

Fast track exit mode for defunct companies

CCI has released regulation of combinations

New rules for passing resolution through postal ballot

NBFCs to seek permission from RBI to open subsidiaries abroad

In order to give an opportunity for fast track exit by a defunct company for getting its name struck off from the Registrar of Companies (ROC), the Ministry Corporate Affairs (MCA), Government of India has prescribed 'Fast Track Exit mode Guidelines' for defunct companies under section 560 of the Act, without going through elaborate liquidation procedure. As per section 560 of the Act, ROC may strike off the name of companies on satisfying the conditions therein. As per present practice, a company desirous of getting its name struck off has to apply to ROC in e-form 61. All pending statutory returns are required to be filed along with e-form 61. The said Guidelines will be effective

rdfrom 3 July, 2011.

The Competition Commission of India (CCI) has released the regulation of combinations related with the implementation of provisions of sections 5 and 6 of the Competition Act. The combination provisions are coming into effect from June 1.

In 2001, to give effect to the provisions of Section 192A of the Companies Act, 1956, the Central Government in exercise of the powers issued rules for passing resolution by Postal Ballot called the Companies (Passing of Resolution by Postal Ballot) Rules, 2001. Even though the Companies (Passing of Resolution by Postal Ballot) Rules, 2001 defined the term Postal Ballot to include voting by shareholders by postal or electronic mode, the appropriate mechanism for electronic voting was not prescribed therein. The Central Government has vide Notification dated 30 May, 2011 issued new set of rules for passing of resolution by Postal Ballot called, the Companies (Passing of Resolution by Postal Ballot) Rules, 2011, which will supersede the earlier Rules.

The Reserve Bank of India (RBI) announced that the Non Banking Finance Companies (NBFCs) cannot open subsidiaries or enter into joint ventures abroad without its permission. According to the notification issued by

NOTIFICATIONS




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RBI, “No NBFC shall open subsidiaries/joint ventures/ representative office abroad or shall make investment in any foreign entities without obtaining prior approval in writing from the Reserve Bank of India”.

It further said that the investments will be permitted only in those entities having their core activity regulated by a financial sector regulator in the host jurisdiction or country. Besides, the aggregate overseas investment by NBFCs should not exceed 100% of their Net Owned Fund. According to RBI, “the overseas investment in a single entity, including its step down subsidiaries, by way of equity or fund based commitment shall not be more than 15% of the NBFC's owned funds.

However, NBFCs will not be allowed to make investment in non financial service sectors overseas. Besides as a general policy, NBFCs would not be allowed to open a branch abroad. For opening of a subsidiary abroad by the NBFC or entering into JV overseas, the parent NBFC would not be permitted to extend implicit or explicit guarantee to or on behalf of such subsidiaries.

The On-line Dispute Resolution (ODR) can be construed as an Alternate Dispute Resolution (ADR) being supplemented by the application of the Information Technology. ODR supplements existing ADR methods based on the assumption that certain disputes (more specifically e-disputes) can also be resolved quickly and

1adequately via the Internet.

With increased dependence on the internet and omnipresence, in the post internet revolution era, commerce across jurisdictions has only got a boost and has increasingly been relying on the electronic means of communication. This further mandates a requirement of a swift mechanism and mode for dispute resolution. ADR has already been a swift mode of resolution of the disputes. Effective utilization of the information technology resources and tools may further help in the swiftness of resolution of such disputes by way of ADR. This necessitated the need of ODR.

ARTICLE

ONLINE DISPUTE RESOLUTION

By Ms. Rashmi Rai, Associate, K&A



In general, ODR involves four components:

· Similar to ADR, companies agree to resolve their disputes outside the courts, the difference being to use the Internet to enhance the process,

· Professionals guide the parties and apply their ADR experience to support the Internet process,

· ADR rules and practices are adapted to the Internet environment, and

· Software tools are used to enhance Internet 2exchanges.

Due to increasing use of the Internet worldwide, the number of disputes arising from Internet commerce is on the rise. Numerous websites have been established to help resolve these Internet disputes, as well as to

3facilitate the resolution of disputes that occur offline. A number of web-sites provide for some type of online dispute resolution method like arbitration, negotiation, mediation etc. and also certain conflict management services. There are many websites which offer ODR services including:

· Accessing databases with precedents,

· Meeting online including voice and video conferencing as desired and with translation services as needed,

· working in shared, protected work spaces, and

· Retrieving and managing material documents.

In India the ODR is in the infancy stage. The provisions which are relevant for the proper analysis of the ODR in Indian scenario are essential to be looked into:

· Code of Civil Procedure - A new 'Section 89' and related rules have been introduced by the CPC (Amendment) Act, 1999, which talks about the settlement of disputes outside the Court. As per the said section when the court finds that there exists an element of settlement acceptable to the parties it shall refer the same for the Arbitration, conciliation, judicial settlement including through Lok Adalat or Mediation.


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· Arbitration and Conciliation Act 1996 - It is drafted on the lines of the UNCITRAL Model Arbitration Law and the UNCITRAL Conciliation Rules and for the first time statutorily recognizes conciliation by providing elaborate rules of engagement. Act recognizes the autonomy of the party to choose the procedure and applicable law if both agree thereon.

· The Information Technology Act, 2000 Act – It is enacted to encourage e-commerce. It gives legal recognition to electronic records and digital signatures and in spirit is applicable to alternatives to paper based methods of communication and storage of information. The Act gives legal sanctity to electronic records therefore the parties can safely settle their disputes online and settlement agreement would be enforceable in a court of law.

In addition to the provisions discussed above, the Supreme Court of India has also shown its approval to the use of technology in dispute resolution. In State of Maharashtra v. Dr. Praful B. Desai (2003) 4 SCC 601, it was held that video-conferencing could be resorted to for the purpose of taking evidence of a witness. Video-conferencing is advancement in science and technology which permits one to see, hear and talk with someone far away, with the same facility and ease as if he is present before you i.e. in your presence. In an earlier case Grid Corpn. Of Orissa Ltd. v. AES Corpn. 2002 A.I.R. (S.C.) 3435 also the Hon'ble Supreme Court of India had held that “When an effective consultation can be achieved by resort to electronic media and remote conferencing it is not necessary that the two persons required to act in consultation with each other must necessarily sit together at one place unless it is the requirement of law or of the ruling contract between the parties.” Therefore, a conducive environment appears to have been created with the legislations in place, for ODR to be utilized because we have both an ADR-friendly civil procedure and the technology and the statutory recognition for the use

4thereof.

ODR can be used by companies in any field to resolve disputes by the help of Information Technology. The transaction may have been concluded orally, written or

Advantages of ODR

through e-commerce. The ODR offers online tools that make the process of resolution of disputes quick and efficient and has potential to save companies much time and money. It also helps not only resolving issues but also to build stronger relationships between trading partners. It adapts ADR rules and practices to take advantage of the Internet and to provide parties with web-enabled tools to enhance problem solving. ODR by its very nature is well suited to facilitate electronic commerce and supply chains but it can help companies in any field to better handle disputes and keep their business relationships strong and free of costly

5litigation. After modifying as per need the ADR mechanism can be used to settle online disputes. The major advantage of the ODR is effectiveness on the front of time and cost in addition to the ability to overcome the geographical hurdles. However, because of the advantage of the affordable technological infrastructure it could be used as preferred medium for dispute resolution even if the parties reside in the same city.

The practical challenges for ODR are the ones which are its advantages i.e. technical and social. The first concern involves security and confidentiality, a basic concern of ADR which becomes even more crucial in an online environment. Then, the neutral third party needs to be provided with “an array of communication capabilities for communicating and working with information in as easy a manner as one can work with information while sitting face to face with someone with a problem”. In addition, it is necessary for the parties to be computer literate and to overcome the language barriers. All these requirements show that ODR is not always the most appropriate medium to further the goals of fair and equitable dispute

6settlement. In addition to it the advantage overcoming geographical limitations is correct only till the time of enforcement of the outcome of the ODR procedure. If the outcome is a binding award, the winner will have to apply for an exequatur, possibly on the other side of the globe, as online award enforcement is still far away. If the outcome is a settlement that is not being performed, then the situation is even more problematic, as the creditor will have to start a new

7court action, not simply enforcement proceedings.

Challenges


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CONCLUSION

The ODR is the powerful means for the dispute resolution wherein the information technology is used. However, there are certain issues like need for personnel with knowledge and expertise of all three namely Information Technology, ADR and law. There are certain technical concerns also apart from the confusion over the legal sanctity of proceedings.

References

1. Online Dispute Resolution As A Solution To Cross-Border E-Disputes, An Introduction To ODR by Esther van en Heuvel [email protected]

2. Online Dispute Resolution Using technology to provide dispute resolution services and facilitate business and trade Dr. Yufei Yuan and Dr. Norm Archer, McMaster e-Business Research Centre (MeRC), McMaster University, April 2004

A-9, Nizamuddin East, New Delhi-110013, IndiaPhone No: (+91) (11) 24359593 / 4 / 7; Fax: (+91) (11) 41825223Email- [email protected]

Contact details:

3. Online Dispute Resolution in India by Praveen Dalal www.odr.info/online%20dispute%20resolution%20in%20india. doc

4. Online Dispute Resolution In India by Prathamesh D. Popat Proceedings of the UNECE Forum on ODR 2003 http://www.odr.info/ unece2003

5. Online Dispute Resolution Using technology to provide dispute resolution services and facilitate business and trade Dr. Yufei Yuan and Dr. Norm Archer, McMaster e-Business Research Centre (MeRC), McMaster University, April 2004

6. Online dispute resolution: what future? Isabelle MANEVY [email protected]

7. Online Dispute Resolution and its Significance for International Commercial Arbitration Gabrielle Kaufmann-Kohler. published in November 2005 in: Global Reflections on International Law, Commerce and Dispute Resolution Liber Amicorum in honour of Robert Briner ICC Publishing, Publication 693, www.iccbooks.com

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