Retail chains, investors chase law firms ahead of FDI deals
NIVEDITAMOOKERJI New Delhi, 7 October
Leading corporate lawyers and accounting firms have swung into action
to interpret the grey areas in the multi-brand retail FDI policy and
suggest follow-up action to clients before they start striking deals.
The political opposition to FDI (foreign direct investment) in retail
and states' free hand to say 'yes' or 'no' to foreign chains have made
predeal negotiations tougher, translating into an exciting business
opportunity for law firms and advisors.
Knowing the game is big — the Indian retail sector is roughly
estimated at over $500 billion (~27.5 lakh crore) and most of it is
unorganised —everybody wants to grab a piece of the pie at a time when
merger and acquisition deals have dried up.
"It's an interesting scenario where everyone is doing the maths," said
an industry executive. According to a top investment banker, "right
now, lawyers and accounting firms are more active as real deals are
still some time away". But, not very far. Rajeev Gupta, founder of
advisory firm Arpwood Capital and former head of Carlyle India, says,
"Indian-owned modern grocery retail has been losing money for several
years, competing with kiranas that are cost and service champions."
But, foreign-controlled grocery retailers (in the cash-and-carry
format) are growing rapidly. "This performance asymmetry is a massive
deal enabler," says Gupta.
Akash Gupt, executive director (retail), PwC, points out both
strategic and private equity players are in evaluation mode. "There
are enough conversations," is how Boston Consulting Group partner and
director Amitabh Mall describes the retail play, adding that
floodgates may not open overnight due to caveats in the retail policy
and political uncertainty.
Nitin Potdar, partner (M&A), J Sagar & Associates, argues investors
have already checked India's potential. They are just waiting and
watching, he says.
Every investormustbring in a Whatis the time frame forthis investment?
How minimum of $100-million FDI can a foreign chain tying up with an
existing Indian retailerworkaround the rules? Atleast50% of total FDI
mustbe Investors wantto knowhowthis can be invested in back-end infra
within executed three years of the firsttranche of FDI 30% of the
value of procurementof Alackof clarity on whatconstitutes manufactured
manufactured, processed products products. Also, concerns overthe
possibility of purchased shall be sourced from small units turning big
overthe years small Indian industries Retail sales outlets may be
setup only in These are the biggesthurdles forretail chains. cities
with a population of over1 million. Long-term investmentdecisions will
be taken State govts, UTs will be free to take afterweighing the
implications of these theirown decisions to implementpolicy conditions
WHAT THE POLICYSAYS THE GREYAREAS
Monthly return forthose who pay ~25 lakh in service tax
VRISHTI BENIWAL
New Delhi, 7 October
Those paying more than ~25 lakh in service tax will soon have to file
their returns every month instead of once in six months.
Besides facilitating better audit, this move will give the government
monthly data on service tax collections. This will also be a step
towards harmonisation of service tax and central excise as the
government looks at implementing the Goods and Services Tax (GST)
after reaching a consensus with states.
The breather for service tax payers is that it will be a one-page
form, awelcome relief from the 15-page format currently for both
excise duty and service tax, being planned with an eye on a rollout of
the proposed GST.
The Central Board of Excise & Customs (CBEC) is looking into the
matter and the new form might be notified this month itself, said
finance ministry officials.
The common return for central excise and service tax, EST-1, will be a
significant reduction from 15 pages of two separate returns at
present. The logic behind changing the periodicity of filing service
tax returns to monthly is to coincide the cycles for payment of the
tax and filing of returns. Assessees who paid tax of ~25 lakh or more
in the previous year and new assessees other than individuals and
firms will have to file the returns on a monthly basis, while the rest
will do it on a quarterly basis.
Filing of excise duty returns depend on whether the unit concerned is
located in export-oriented units and also on various thresholds for
the firms.
Earlier, the ministry was planning to obviate the need for mentioning
the taxable service in the form, as it announced moving to the
negative list for taxation of services from July 1, 2012. In the
negative list, all services barring a small list are taxable.
However, the CBEC is now planning to seek such details in the return
form to get sector-wise break-up of service tax collections.
No more will the most oftenasked question—which taxable service is
being provided?— be relevant; no more will an exporter be asked
whether an input service has been used in export to claim a Cenvat
refund; and no more will a host of questions confront a taxpayer
filing his new one page return, the CBEC had said earlier.
With introduction of the negative list from July 1, the finance
ministry prescribed a new accounting code for tax payment for all
services, replacing the earlier 119 codes. Instead of the earlier
system of a separate code for each service, all service taxpayers now
have to pay under a single code.
The revenue department later realised that because of a single code,
it was not getting information on the sector-wise break-up of what was
paid. The issue was raised by chief commissioners and
directors-general of service tax at a meeting with Finance Minister P
Chidambaram last month. They said it was impossible for them to track
service tax payments by sector, due to the single accounting code, and
wanted the earlier codes be restored in the negative list approach,
too, said an official.
Common form for service tax and excise duty to be notified soon
E-paymentsystem likely to curb blackmoney
SANTOSH TIWARI
New Delhi, 7 October
The government might be finding the Vijay Kelkar panel's
recommendations on subsidy reduction too hot to handle but it is eager
to implement the committee's suggestions on curbing the cash economy
to counter black money.
According to a senior finance ministry official, Finance Minister P
Chidambaram is in favour of launching a systematic plan to counter
black money through extension of electronic payment systems through
the country, especially covering all government transactions.
The official said officials had already started work on the minister's
views on the Kelkar panel's various recommendations, and a meeting
under Economic Affairs Secretary Arvind Mayaram in this regard took
place on Friday.
He added that besides concretisation and implementation of an
electronic payment system across the board in government transactions,
including tax collection and expenditure, important measures to
curtail use of unaccounted cash in the subsequent elections were in
the offing.
The Kelkar committee said: "The movement towards electronic payments
for all government transactions, and a general reduction in the usage
of cash in the economy will help transition from the informal economy
to the formal economy. This will help curb corruption, increase
transparency and accountability." It has pointed out an efficient and
ubiquitous large and small value electronic payment system throughout
the country would make it possible for the Centre to accurately
predict and collect revenues on the one hand, while managing
expenditure efficiently on the other.
The government is already working on a blueprint for setting up an
expenditure information network (EIN), designed to track government
expenditure in real-time from the finance ministry to the actual
beneficiary.
The committee has noted EIN will lead to efficient utilisation of
funds, since funds can be allocated just-in-time when the expenditure
is incurred, rather than well-in-advance of the actual spending.
The design of EIN makes it possible to operate across multiple levels
of the government, across various types of government bodies, and
provides real-time end-to-end visibility, transparency and full
accountability for all expenditure.
Though its implementation has been slow and the state governments and
other stakeholders sluggish in taking the required steps, the
Aadhaarbased electronic benefit transfer system for payment of
subsidies and entitlements to the actual beneficiaries is also being
seen as a major step towards curbing corruption.
FinMin working to ensure all govt transactions are done
electronically, says official THE MONEYTAB
Whatthe proposed system is expected to do
|Curtail use of unaccounted cash in elections and during other times
|Accurately predict and collect revenues |Manage expenditure
efficiently |Track government expenditure from finance ministry to
beneficiary |Allocate funds in time |Ensure transparency and full
accountability
NBFCs deferfund-raising plans overinterestrates' uncertainty
KRISHNAPOPHALE &NEELASRI BARMAN Mumbai, 7 October
Non-banking finance companies (NBFCs) are slowing their fund-raising
plans in the second half of the financial year, generally considered a
high-business season for these entities. Sluggish growth in business
and high interest rates are the key reasons for this.
"We raise funds in accordance with disbursals that we make. This year,
asset growth is abit slower than what it had been in the past. In the
first half, we raised about ~2,000 crore. In the same period last
year, we had raised more because asset growth was stronger," said N
Sivaraman, president and whole-time director of L&T Finance Holdings.
The company is eyeing growth of about 20 per cent in its book size
this financial year, which is almost half of what it recorded in the
first quarter this year. As on March 31, the total book size stood at
~25,671 crore, a growth of 40.7 per cent over the previous year.
Though it recorded 37 per cent growth in its lending business in the
first quarter, its loan book grew only ~513 crore in the first quarter
reflecting only two per cent sequential growth.
Similarly, Shriram Transport Finance Co had plans to come up with
another public issue of non-convertible debentures (NCDs) in the
second half of the financial year. But the plans have been kept on
hold, as of now. "We will take a call once Reserve Bank of India (RBI)
decides on interest rates. We have to see where the interest rates
move if RBI reduces the key policy rates," said Umesh Revankar,
managing director and chief executive officer of the company. Earlier
this financial year, the company had raised ~600 crore by way of
public issue of NCDs.
RBI had cut the repo rate, the rate at which banks borrow from RBI, by
50 basis points in April to eight per cent. This had helped bring down
the cost of borrowing for companies like Shriram . However, the timing
of a further cut in the repo rate is uncertain.
Another Kolkata-based NBFC, Magma Fincorp, mainly into automobile
lending, apart from SME lending, is seeing a slowdown in the auto
business. VLakshmi Narasimhan, chief financial officer, said, "We are
expecting a 40 per cent increase in disbursals but the growth of the
commercial vehicles (CV) and construction equipment segments is
expected to remain negative this fiscal." "Auto loans and tractor
loans are expected to have single-digit growth," he added.
Magma's loan book also grew only by ~690 crore in the first quarter,
showing about six per cent growth sequentially.
But there are few NBFCs which are bullish on growth and are raising
funds. "Our plans have not got impacted because our loan book grew by
35 per cent in the first quarter of the current fiscal to ~4,347 crore
and we have raised ~4,000 crore in that period," said Ramesh Iyer,
managing director, M&M Financial Services. According to Iyer, the
company is not seeing any slowdown, thanks to their presence in
semi-urban and rural areas. "The other reason is our increased branch
network and presence across multi-product categories," he said. IN THE
SLOW LANE
|NBFCs have shown sluggish loanbook growth in Q1 |Shriram Transport
was to come up with another retail NCD issue this year, but now will
take a call after RBI decides on rates |Construction equipment (CE)
and commercial vehicles might see negative growth this year |L&T
Finance saw negative growth sequentially in the CE loanbook in Q1
LEGAL DIGEST
SCoverrules decision on cheques
The Supreme Court has overruled its own judgment regarding the law on
bounced cheques. The Supreme Court as well as high courts have been
following the wrong judgment in several cases under the Negotiable
Instruments Act. Now it has turned the law around. In this case, the
payee did not issue notice to the drawer when the cheques bounced for
the first time. He presented them again, and they bounced again. Then
only he initiated proceedings under the Act. There were contrary views
on whether the proceedings were valid if the payee did not act for the
first time. Therefore the question was referred to a larger bench. The
issue was "whether the payee or holder of cheque can initiate
proceedings of prosecution for the second time if he has not initiated
any action on earlier cause of action?" Settling the law, the Supreme
Court, in the latest case titled MSR Leathers vs S Palaniappan, stated
that prosecution based on the second or successive dishonour of the
cheque is also permissible. It overruled the 1998 decision in
Sadanandan Bhadran's case and now ruled that prosecution based upon
second or successive dishonour of the cheque is also permissible.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Third parties in arbitration The Supreme Court has held that even nonsignatory parties to agreements can be referred to arbitration under the Arbitration and Conciliation Act. The expression 'person claiming through or under' in Section 45 would mean multiple and multi-party agreements, though in exceptional case. The judgment in the case, Chloro Control Ltd vs Severn Trent Water Purification Inc, explained that even nonsignatory parties to some of the agreements can demand and be referred to arbitration. The Bombay High Court ruling in this case was upheld and the disputes between various parties were referred to arbitration which will be conducted according to the rules of International Chamber of Commerce.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Award mustbe given to party
The Supreme Court has ruled that the service of acopy of an arbitral
award on the agent or a lawyer of a party did not amount to service on
the party itself, according to the provisions of the Arbitration and
Conciliation Act. In this case, Benarsi Krishna Committee vs Karmayogi
Shelters Ltd, the copy was available with the lawyer, but not the firm
itself. This caused some delay in challenging the award in the Delhi
High Court. A single-judge bench held that if the lawyer or agent got
the copy of the award, that would amount to the party itself getting
it. However the division bench negated this and insisted that the
award should be served on the party itself. On appeal, the Supreme
Court upheld this view and stated that the expression "party", as
defined in the Act, clearly indicated aperson who is a party to an
arbitration agreement. The definition is not qualified in any way so
as to include the agent of the party to such agreement.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> More liability on insurance firms
The Delhi High Court has ruled that a general insurance company must
pay the victim of a road accident even if the terms of the policy have
been broken. In this appeal case, Bajaj Allianz General Insurance
Company vs Savitri, the firm argued that since it had successfully
proved the breach of the terms of policy, it was entitled to be
exonerated of its liability and the motor vehicles accident tribunal
was wrong in fixing the liability on the insurer and then allowing it
to recover the amount from the owner of the vehicle and the driver.
The high court asserted that the insurer's liability to satisfy third
party liability has been decided by the Supreme Court in several
cases. "Even if a conscious breach on the part of the insured is
established, the insurer has a statutory liability to pay the
compensation to the third party and will simply have the right to
recover the same from the insured person," the judgment said.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Firm buying flats not'consumer'
The
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CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
http://www.csarengarajan.blogspot.com
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