MCA starts framing rules for new Companies Act
NSUNDARESHASUBRAMANIAN
Mumbai, 18 October
With the Cabinet clearing the modified Companies Bill, activity has
gathered pace in the Ministry of Corporate Affairs (MCA). The ministry
has appointed an advisory group to verify and oversee the rule-making
process of the new Companies Act.
"An expert group comprising seven to eight people has been formed.
This group will verify the various rules under the Act and give
suggestions," said an official familiar with the development.
Representatives of professional bodies such as the Institute of
Company Secretaries of India (ICSI) and Institute of Chartered
Accountants of India (ICAI), top securities lawyers and other company
law experts are part of this group. The rule-making process is
significant, as they will determine the manner in which the law is
implemented, say experts.
The Companies Bill, 2011, aimed to give a modern legislation for
growth and regulation of corporate sector was approved by the Union
cabinet earlier this month with certain modifications. The Bill which
is expected to be tabled in the Parliament during the Winter session,
redefines the role of auditor, makes companies answerable towards
corporate social responsibility. It also contains new provisions
governing inter-corporate loans and responsibility of directors and
private placements.
The Bill, which will become law after Parliament approval, provides
the broader policy direction on these issues. The rules will determine
the course through which these objectives are achieved. After
verification by experts, the draft rules are also expected to be put
up on the MCA website for public comments.
TCI converts legal case with Coal India akin to class action suit
SHINE JACOB & NSUNDERESHASUBRAMANIAN
Kolkata/Mumbai, 18 October
About 650,000 shareholders of state-owned miner Coal India will now
have a stake in The Childrens Investment Fund's legal battle against
the central government, Coal India's largest shareholder, and
directors of the company. The Calcutta High Court has approved a
request by the British hedge fund to make the case representative of
all shareholders. The court has also directed The Childrens Investment
Fund (TCI) to issue newspaper advertisements "explaining the nature
and details of the lawsuit" to the shareholders.
Institutional investors, including TCI, hold some 7.3 per cent in Coal
India (CIL), while companies and retail investors hold 2.7 per cent.
The Centre holds the 90 per cent.
TCI has claimed ~2,12,250 crore from the government of India on behalf
of CIL shareholders, as compensation for losses caused by its policy
to price coal substantially below market prices. According to TCI,
this is the cumulative loss to pre-tax profits since the IPO in
November 2010.
The loss is estimated for a period starting November 2010 to March
2013, for 861 million tonnes of coal sales under fuelsupply
agreements, at a price differential of ~2,500 a tonne. TCI is also
seeking interest on this sum at prevailing commercial rates of 18 per
cent an annum.
"The court has approved our request to make the case representative.
It may eventually become a class action suit. The outcome of the case
will benefit all shareholders," said a partner at Luthra and Luthra,
the lawyers for TCI. The case names 26 defendants, including Coal
India, government of India, all the firm's subsidiaries, except CMPDI
and the directors.
According to court documents reviewed by Business Standard ,the case
filed by TCI Cyprus Holding at Calcutta High Court is asking the
compensation, citing that there is abreach of duty by the government
of India and the board members of CIL which resulted in the loss. "The
plaintiff is entitled to and claims such decree on behalf of defendant
no.1 (CIL) at the rate of 18 per cent interest per annum," it said.
TCI has also argued that the loss in revenue resulted in loss on its
portfolio at different price earnings ratio (PE). If the coal was sold
at ~2,500 a tonne, post-tax profits for FY13 would be ~65,625 crore.
At a PE ratio of 13.3 times, Coal India would have been valued at
~8,72,813 crore. TCIs investment would have been worth ~8,815 crore.
If the PE was 15 times, the market cap would be ~9.84 lakh crore and
TCIs holding would be worth ~9,942 crore.
Current market prices of Coal India are roughly a fourth of this. Coal
India shares gained 1.65 per cent to close at ~359.35. At this price
CILs market cap stood at ~2.26 lakh crore.
A top CIL official confirmed the development and said, "Since this is
a representative suit on behalf of CIL shareholders, the court has
directed them to publish the details in newspapers to let the public
know about this. They have reached this inflated loss of revenue by
citing reason of price differential per tonne compared to market
prices and also the coal sale based on fuel supply agreement during
this period." While the date of hearing at the Calcutta High Court
will be on December 12, the pending case at Delhi High Court will be
heard on December 7. According to CIL, "the logic that TCI is giving
is that as the CIL management cannot go against the government for
losses suffered, TCI is doing it on behalf of all the shareholders."
Though TCI owns only 1.01 per cent of the shares in CIL, it is the
largest foreign investor in the Kolkata-based coal major. According to
CIL, while TCI had first filed a complaint to the board of arbitrators
based on bilateral investment treaty (BIT) between India and Cyprus in
May 2012, even before the gestation period of six months it approached
the court.
In August, TCI had filed a writ petition in the Delhi High Court over
the interference of the Centre in the functioning of CIL, instructing
the firm to revise the price hike based on gross calorific value made
in December 2011. The major difference that the fresh case filed at
Calcutta High Court last on October 12 was the compensation factor.
TCI had also raised the scrapping of the system of fuel supply
agreements claiming that it will hurt the coal major's profit.
The British hedge fund has claimed ~2,12,250 crore from the government
of India on behalf of Coal India shareholders
Coal India
DIPP seeks views of corporate affairs ministry on Sony Pictures deal
SOUNAKMITRA
New Delhi, 18 October
The department of industrial policy and promotion (DIPP) has asked the
Foreign Investment Promotion Board to seek the views of the Ministry
of Corporate Affairs on the deal between Sony Pictures and
Multi-Screen Media (MSM) as to whether its sealing undervalued the
shares and rights of the minority shareholders.
In June, MSM had sought approval from FIPB for transfer of 21.11 per
cent holding of Atlas Equifin Pvt Ltd in MSM India to SPE Mauritius
Investments Ltd, Mauritius. It also asked permission for transfer of
20.28 per cent stake of MSM India, held by Grandway Global Holdings
Ltd, Mauritius to SPE Mauritius Investments Ltd, Mauritius.
After the sale and transfer of shares to SPE Mauritius Entities, SPE
Mauritius will hold 94.39 per cent in MSM India, increased from 62 per
cent. Foreign holding in MSM India would increase from 87.99 per cent
to 100 per cent.
DIPP has also mentioned that an examination of fund flows revealed
that funds were routed through Mauritiusbased Conduit Company through
a multi-layered structure to avail the IndiaMauritius DTAA. "This is a
clear case of treaty shopping," according to DIPP documents, available
with Business Standard .
FIPB is likely to discuss the issue at its meeting on October 19,
according to an FIPB document.
MSM did not comment on the issue saying the concerned spokespersons
were travelling. The ministry of corporate affairs declined comments
on the issue.
There were seven promoters, including Singapore-based investment
banker Rakesh Agarwal, Shemaroo Films Managing Director Raman Maroo,
World Media Group's Sudesh Iyer, actor Jackie Shroff and businessman
Sadanand Sule, together owned 32 per cent in the broadcaster via their
consortium company Atlas Equifin (12.11 per cent) and Grandway Global
Holdings (20.28 per cent), as widely reported earlier.
Atlas Equifin was shown as the only resident shareholder, while
Grandway was shown as the non-resident shareholder. Shares held by
Grandway Global Holdings, Mauritius were transfer to SPE Mauritius
Investments Ltd, Mauritius.
DIPP also said that the "approval should be given once the company
pays the due taxes on the transaction based on the facts and valuation
of shares arrived at after examination." The Department of Revenue
(DoR) has also said that the taxation of dividend and future capital
gains on alienation of shares by the investor shall be governed by
India-Mauritius DTAA, on the principle of 'resident based taxation'.
During FY11, MSM's revenue stood at $395.1 million, while its revenue
stood at $592.5 million during FY12. The company's Ebidta has also
increased from 67 in FY11 to 139.9 in FY12, according to the company's
balance sheet.
MSM runs eight channels —Sony TV, SET Max, SAB TV, Sony Pix, AXN,
Animax and the recently launched music channel Mix and sports channel
Six.
In 2009, MSM failed to sell 32 per cent stake to the BK Modi Group due
to differences over management rights and a lack of clarity on exit
options. The deal was then valued at around $300 million.
In 2010, a battle erupted among various stakeholders, with the
minority shareholders filing a petition before the Company Law Board.
The board had issued an interim order restraining MSM from raising the
paid-up capital of the company. The shareholders had charged Sony
Pictures Entertainment with mismanagement and oppression of minority
shareholders.
Shareholders Holding (in %) SPEMauritius Holdings 50.7
GrandwayGlobal Holdings 20.3
SPEMauritius Investments 20.0
Atlas Equifin 12.1
Emerging Markets Growth 3.1
Fund, Inc American Funds Insurance 0.9
Series, International Fund The NewEconomyFund 0.9
Capital International 0.6
Emerging Markets Fund American Dunds Insurance 0.2
Series, Global Growth Fund
Source: FIPB/DIPP documents MSM SHAREHOLDING
No probe ordered into Walmart, say government officials
REUTERS
New Delhi/Mumbai, 18 October
The government has not ordered a probe into Walmart Stores over
accusations the US retailer violated foreign ownership rules,
officials said on Thursday in response to a media report.
Walmart, which is expected to open its first Indian store after a
change to ownership rules, said it had not been contacted on the
subject by Indian authorities.
The Financial Times said the commerce ministry last week asked the
Reserve Bank of India (RBI) to investigate allegations that the worlds
largest retailer had "clandestinely and illegally" invested in
supermarkets in the country.
The accusations were made by a Communist Party member of parliament in
a letter to the prime minister.
An ministry of commerce and industry official, who declined to be
identified, said the ministry had forwarded the complaint on October
10 to the RBI for examination, but said the ministry had not asked for
a formal probe into the matter.
Pankaj Pachauri, spokesman for the office of Prime Minister Manmohan
Singh, told Reuters :"Every letter that comes from an MP is routinely
forwarded to the department concerned for examination. We did not
order a probe. We got a letter from an MP and in due course we
forwarded it to the department concerned." A Walmart spokeswoman in
India, who declined to be named, said the company had not been
contacted by the ministry or the central bank and was in full
compliance with Indias foreign direct investment laws.
"All procedures and processes have been duly followed and details
filed with relevant Indian government authorities, including the
Reserve Bank of India," the US-based retailer said in a statement.
India recently allowed foreign retailers to own up to 51 percent in
supermarkets, a decision made in the face of fierce political
opposition. Previously, Walmart and other foreign players were only
allowed to own wholesale operations.
Walmart was the most vocal advocate for the rule change and is
expected to open its first retail store within 18 months.
First step to universal pension
BS REPORTER
New Delhi, 18 October
The government is set to take the first step towards the
universalisation of pension for the aged, widows and the physically
challenged, as it mulls removing the distinction between those above
and below the poverty line for selection of beneficiaries in the 12th
Five-Year Plan.
The proposal, with big financial implications, has been pushed by
activists Aruna Roy and Baba Adhav, besides many organisations.
Rural Development Minister Jairam Ramesh today said pensions would be
given on the basis of some exclusion criteria on the socio-economic
census that is on.
Activist Nikhil Dey welcomed the news and said this was a great step
forward. The schemes under the rural development ministry now provide
apension of just ~200 a month, while states complement this with more.
The 12th Plan would also for the first time give states some say in
spending the funds of centrally-sponsored rural development
programmes, according to their own priorities and needs. The Plan has
allowed a small window of ~40,000 crore for such flexibility to the
ministry, which overall is getting an allocation of ~490,000 crore.
The window, called a rural flexi fund, would have a central share of
70 per cent (~28,000 crore), while the rest would be from the state's
share. Ramesh and Montek Singh Ahluwalia, deputy chairman of the
Planning Commission, announced the fund today.
MCX-SXmantra: Less speculation
PALAKSHAH
Mumbai, 18 October
The soothing rooftop garden outside his corner office might have
played a role in this, but Jignesh Shah, the 45-year-old founder of FT
Group, is now in a mood to "collaborate", even with rival stock
exchanges with which he has fought many a battle in the past.
In fact, Shah, who has built an empire of nine exchanges and related
ventures in warehousing, information management and electronic
payments with combined revenues of ~834 crore and estimated profits of
~264 crore, and is planning to do a soft launch of equities and debt
trading on MCX-SX this Diwali, has set his sights higher: "My
competition is not domestic. We want to benchmark ourselves to Chinese
exchanges where retail participation is nearly two-thirds," Shah says,
in his first interview to media after getting clearance to start a
stock exchange.
The licence for MCX-SX came after nearly four years of fighting the
Securities and Exchange Board of India. Shah says the FT Group is
known to create new markets, which is what it will do through MCX-SX.
Fortunately, he says, regulatory policies are conducive for this.
Shah says he wants to "change the trading structure" to avoid the huge
concentration of volume in the derivative segment that is keeping
retail investors away from capital markets in India. The derivative
market has a 92 per cent market share and the rest of the trading
takes place in the cash equities segment. "There were more retail
investors in the Indian stock market before derivative trading became
big. Investors had clarity of downside risk, as they knew they can
hold on and sell Though Shah doesn't say this, the So, MCX-SX will
follow deliverybased settlement system in equities. Under the system,
a seller of stock futures or options will have to deliver shares to
the counter-party when the contract expires. The pattern is followed
by all leading derivative exchanges around the world and also BSE, but
the latter has not been able to capitilise on it due to lack of
marketing strategy. Market experts say physical settlement, as it is
known, will double delivery-based volumes.
In the commodities segment, MCX follows T+1 settlement and it plans to
implement the same in the equity segment as well where settlement is
done on a T+2 basis currently.
Stress would also be on developing an active bond, interest rate
futures and SME markets, which Shah says, will result in a 360 degree
development of the capital market. In the US and Europe, the market
share of equity market is around 30 per cent, whereas currency, bond
and interest rate futures markets dominate the scenario. Both the NSE
and the BSE have failed to develop the debt market in the past. In
bonds, Shah says there should not be a market only for AAA-rated
securities for which everyone wants to lend. The key will be to
develop a market for other lower-rated bonds. Turn to TSI, Page 2
>Jignesh Shah says retail investors get unnerved by complicated
derivative products MCX-SX: KEYSTRATEGY
|Delivery-based settlement system for equity derivatives to reduce
market volatility |Bring in T+1 settlement system in equities |Launch
indices based on growth sectors than just market-cap to attract ETFs
|Encourage investment culture by products based on fixed income and
increase understanding of give and take delivery |Develop bond,
interest rate futures and SME along with equities and currency
segments
Initial challenges
|NSE has indicated to brokers that it is willing to do more to bring
down cost |In such a scenario, attract higher membership.
|Catch-up on providing a high speed trading platform
Click: Article continued from…MCX-SXmantra: Less speculation
________________________________________
MCX-SX mantra...
On the SME segment, MCX-SX will not have an anonymous order matching
system and will bank on a hub-and-spoke model. NSE, on the other hand,
is looking to leverage partner London Stock Exchange's expertise. LSE
operates one of the largest platforms for the SME segment, known as
AIM.
Technology, of course, will play a key role. The FT group, which has
five operational exchanges globally, says its servers run a minimum of
16 hours a day without interruption compared to equity exchanges in
India where trading is conducted for six-and-ahalf hours. Shah says
the world should wait for more such surprises from MCX-SX. "Before we
came into the picture in the stock exchange space, sun-outage was an
excepted norm. When we launched operations in currency derivatives,
our technology ran smoothly during sun outage. Both the other
exchanges caught up later," he says, adding as a new entrant, MCX-SX
will bring in the latest technology with less legacy costs, the
benefit of which will be passed on to market participants. Though some
observers say much of what Shah says is only playing to the gallery,
the fact is he has walked the talk in the past. MCX has over 80 per
cent share in commodities trading volumes, which are more than ~65,000
crore on an average daily basis. FT's brokerage solutions software
ODIN, the major revenue earner for the company, also has 80 per cent
market share.
Also, take spot power trading, where the Indian Energy Exchange (IEX),
promoted by FT, enjoys 90 per cent market share. NSE- and
NCDEX-promoted Power Exchange of India is a distant second. For
example, IEXs initiatives had led to revival of many SME units in
Punjab, which were shut down due to high power tariffs. But the launch
of power trading on an exchange platform resulted in availability of
cheap merchant power.
Shah, however, knows it can't be roses all the way for his dream of
creating a market for the masses, which is why some of his experiments
faltered. For example, the Safal National Exchange, a joint venture
between the FT-MCX and National Dairy Development Board. The exchange
was supposed to offer an online platfiorm for fruit and vegetables,
but failed as traders and farmers just could not agree on the quality
and price. Similarly, the Singapore exchange couldn't live up to its
potential in the initial years, necessitating a management shake-up,
but has recovered since then.
But Shah says he has never shied away from risk when it come to
expanding the business and is willing to learn from some of his past
mistakes. The baby in the equity market clearly can bank on his
mentor.
--
.
-
CS A RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
http://www.csarengarajan.blogspot.com
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