Further liberalisation of External Commercial Borrowing (ECB) regulations

Infrastructure and Hospitality sectors continue being regarded as very significant bedrocks of the Indian economy. For giving additional boost to these sectors, the RBI has further liberalised the External Commercial Borrowing (ECB) Regulations, effective from January 02, 2008.

(i) Integrated township

Under the new Regulations Indian corporates engaged in the development of integrated townships are permitted to avail of ECB under the Approval Route.

Integrated township includes housing, commercial premises, hotels, resorts, city & regional level urban infrastructure facilities such as roads and bridges, mass-rapid-transit-systems and manufacture of building materials. Land Development and provision of allied infrastructure also comes within the ambit of Integrated Township.

To avail of the benefits it is necessary that the minimum area sought to be developed is at least 100 acres; norms and standards are to be followed as per local bye-laws / rules. In the absence of such bye-laws/ rules, a minimum of 2000 dwelling units for about 10,000 population will need to be developed.

This position will be reviewed in June 2009.

(ii) Non-Banking Financial Companies (NBFCs) financing infrastructure projects

NBFCs involved exclusively in financing of infrastructure sector, can now avail of ECBs, under the Approval route, from multilateral / regional financial institutions and Government-owned development financial institutions for onward lending to the borrowers in the infrastructure sector. This move is expected to ease the financial crunch in the infrastructure sector.
This facility too will be reviewed in June 2009.

(iii) Services sector

Services sector entities i.e. Hotels, Hospitals and Software establishments are now allowed to avail of ECB to the tune of USD 100 million per financial year, under the Automatic Route. They can avail this benefit for foreign currency and / or Rupee capital expenditure for permissible end-use. However, there is a stipulation that the proceeds of the ECBs should not be used for acquisition of land. Earlier, ECB up to USD 100 million per financial year was permitted under the approval route only for import of capital goods.
.

Appointment and Qualifications of Secretary

The Central Government has amended the Companies (Appointment and Qualifications of Secretary) Rules, 1988. The amendments will be applicable from March 15, 2009. The amendment seeks to increase the threshold limit, for a company to compulsorily have a whole time secretary from the existing INR 20 million to INR 50 Million of paid-up capital. If a company having upto INR 50 million paid up capital has appointed a whole-time company secretary having membership of the Institute of Company Secretaries of India, it is not required to obtain a certificate from a secretary in whole-time practice

Infrastructure Lending

RBI proposes to classify lending by banks for purchase of land and development thereof (for setting up Special Economic Zones or SEZs) as Infrastructure Lending. Draft Guidelines on ‘Classification of Exposures as Commercial Real Estate Exposures’ were posted on the RBI’s website for public comments on January 7, 2009.

Coming to the rescue of the export-sector, badly hit by recession in the US and several European economies, the government has asked RBI to grant infrastructure status to SEZs. The rationale is that this special status will entail tax benifits and import duty reliefs. Hopefully, this long-standing demand of the export sector will afford the much needed relief in these particularly hard-times.

Power projects to share captive coal

The government has relaxed captive coal mining norms to allow power companies to divert surplus coal from one of their projects to another.

Permission will be given on a case-to-case basis to coal-surplus companies that approach the coal ministry, said a senior government official who asked not to be named.

The company’s claim will be verified by the coal ministry before the diversion plan is approved. Permission will be given to only those power projects that are awarded on the basis of tariff-based bidding.

However, the regulations bar power companies from selling surplus coal to other companies as only government-owned entities are allowed to trade in coal. Allowing private sector companies in trading will need an amendment to the Coal Mines (Nationalisation) Act, 1973.

The current norms require captive coal mines to hand over excess coal to the central government, which disburses it through Government held Coal India. In some special cases, the coal ministry permits sale of excess coal on a temporary basis.

Till now, 198 captive coal blocks have been allocated by the coal ministry. Only 21 of these blocks are operational so far. Captive mining was allowed to give a fillip to coal production in the country as the government expects a demand-supply mismatch. Planning Commission has estimated a shortfall of 60 million tonnes by 2012.

FDI in Print Media

Iconic Brands of print media e.g. The New York Times, Washington Post, Chicago Tribune, The Sun and others in the league of International biggies have, till now, been little more than formidable names for most Indians…only heard or read about…not actually read…except of course by the well-heeled select few…and that too on foreign soil!

Well that is about to become history…or more appropriately stale news! Because the Government of India vide its recent Press Note has permitted foreign investment in publication of facsimile edition of foreign newspapers as well as Indian edition of foreign magazines dealing with news and current affairs. Of course this enabling provision has some in-built checks and restrictions. For instance, publication of facsimile edition of foreign newspapers is permissible (under FDI up to 100%) only with prior Government approval and only by an entity incorporated/registered in India under the provisions of the Indian Companies Act, 1956.

Similarly publication of Indian editions of foreign magazines/periodicals which are brought out on ‘non-daily’ basis, and which deal with news and current affairs is covered under an FDI limit of 26%; of course with prior approval. Additionally the Press Note states that such publications need to adhere to certain guidelines issued by the Indian Ministry of Information & Broadcasting.

Seems like the doors which, till now, were tightly shut are actually ajar! And by the look of things it may not be long before you wake up to find …and feel… the rustle of an International Daily right at your doorstep every morning!

“It's only a show cause notice” says the Supreme Court

The Supreme Court of India (SC) refused to interfere with the Bombay High Court’s Judgment in Vodafone case. The challenge by Vodafone of the Constitutional validity of the show cause notice issued by the authorities under Income Tax Act, 1961 stumbled over the well settled principles of law.

Vodafone had acquired 50% of the shareholding in a major Indian mobile phone company, by acquiring 100% shares in a Cayman Islands Company, through an agreement with erstwhile shareholders. The revenue authorities issued show cause notice to Vodafone for failing to deduct tax at source before paying consideration for the purchase of shares, and asked Vodafone to show cause why it should not be treated as an assessee in default.

Vodafone challenged the show cause notice before the Bombay High Court on various grounds, including that the transaction being purchase of shares in a Cayman Island company between two non residents and that contended that since there was no transfer of any capital assets in India, therefore there could be no question of any tax liability under the Indian Income Tax Act on capital gains. The Bombay High Court through a very detailed order dismissed the writ petition, which the SC refused to upset in appeal.

Though the Supreme Court ended the 1st innings of the litigation, further innings will certainly continue pursuant to the show cause notice and Vodafone prima-facie seems to be on a weak wicket.

We understand that the revenue authorities have issued about 400 similar show cause notices to various entities involved in similar transactions involving approximately US$ 5 billion in taxes, penalties, interest etc.

Bypass the Arbitration Agreement and run to Court? Sorry you can’t!!

In a recent case a Shareholders Agreement stipulated that if a party’s shareholding falls below 15% the party would not have any rights left with it under the Agreement. Where the shareholding actually fell below the stipulated figure and the issue was whether the Arbitration Agreement could be invoked.

The Supreme Court held the Law is well-settled in the matter that even if the whole Agreement is terminated, the Arbitration Agreement would still remain since the Arbitration Agreement stands independent of the Shareholders Agreement.

Joint Venture-Not by words alone!

In a recent matter the Supreme Court pronounced that the mere use of expressions like 'joint venture' or 'collaboration' in the title of an agreement or even in the body of the agreement itself will not make the transaction a JV. A JV comes about only where there are clear provisions for shared control of interest or enterprise and shared liability for losses.

Part-time employee cannot be thrown out without complying with law

A part-time employee would be covered within the definition of “workman” in Section 2(s) of the Industrial Disputes Act, 1947 and he would be entitled to the benefit of continuous service under section 25B and the benefit of Section 25F. As such, the Supreme Court has held that a part-time employee cannot be retrenched without following the procedure and paying the compensation.

Adjudication or Arbitration

The Supreme Court has recently held that though the word ‘arbitration’ is not used specifically - an agreement to settle all disputes or differences through ‘adjudication’ - will nevertheless is an arbitration agreement.