Sunday, November 11, 2012

[aaykarbhavan] Business standard and legal digest 12-11-2012



WISH YOU AND YOUR FAMILY A VERY HAPPY AND PROSPEROUS DIWALI FESTIVAL
 
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Retail FDI policy safe despite storm overFema regulation changes'


NIVEDITAMOOKERJI & DILASHASETH

New Delhi, 11 November

Arecent public interest suit in the Supreme Court over foreign direct investment (FDI) in retail may have thrown the industry into a tizzy, but lawyers, constitutional experts and government officials indicate the multi-brand retail FDI policy is unlikely to get derailed, even as amendment to the Foreign Exchange Management Act (Fema) regulations will be tabled during the winter session of Parliament. There could be some trouble if objections are raised by members of Parliament (MPs) on the issue, but the government is eventually likely to cross the hurdle.

Department of Industrial Policy & Promotion (DIPP) Secretary Saurabh Chandra told Business Standard: "It is clear that procedures laid down by law have to be followed. It is clearly stated in the Section 48 of Fema that any amendment has to be cleared by both the Houses of Parliament." However, when asked whether the policy could be blocked if there was an opposition to the Fema regulation amendment in Parliament, Chandra said: "I do not comment on speculative matters." DIPP, the administrative ministry for retail FDI, is learnt to have already consulted top lawyers on the Fema issue after protests against the government policy, citing violation of the rule book.

Another government official argued there was no chance of the retail FDI policy getting grounded on a technical issue like amendment of Fema regulation, since it was an amendment of a regulation, and not law. "It does not materially alter Fema," the official stressed.

Constitutional expert Subhash Kashyap told Business Standard that amendment to any rule and regulation under an Act must be placed in Parliament for a period of 30 days, and that this clause was not specific to Fema or retail FDI.

Following the Supreme Court suit by lawyer Manohar Lal Sharma, members of the Opposition and traders' associations had pointed out that FDI in retail could not be implemented unless the Fema regulation dealing with the prohibition of foreign investment was amended by placing it in Parliament.

Explaining the procedure, Kashyap said rules and regulations were made by the government under any Act. It is an executive function. While an amendment of a law had to go to Parliament for discussion and voting, that of a rule or a regulation needed to be tabled in both the Houses for 30 days, he said. The amendment of the rule or regulation is automatically referred to the Committee on Subordinate Legislation. If the committee feels the government has over-stepped its function or if there's a violation of law, it raises objections and sends the report to the House. If the objection is technical and minor, the government usually sets it right.

"Fundamentally, the policy remains the same," said Kashyap. Although the amendment of a regulation — in this case relating to Fema and retail FDI — does not call for a debate in Parliament, a member can give notice for a debate. If the notice is admitted by the speaker of the House under Rule 193, there's a discussion but no voting. And, if the notice is accepted under Rule 184, there will be voting. According to Kashyap, only in an extremely rare case could there be anotice of motion for a regulation amendment. "Normally, no policy gets stuck over technical issues," he said.

According to Suhaan Mukerji, partner, Amarchand Mangaldas, a prominent law firm, the recommendations of the committee on subordinate legislation, if any, is not binding on the government in the case of a regulation amendment. However, the government needed to offer sound reasons for that, Mukerji said.

A Reserve Bank of India (RBI) spokesperson said the notification on amendment to Fema (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2012, had already been gazetted, and the Supreme Court was informed about it. In fact, Attorney General G Vahanvati had told the court recently that three amendments had been notified on October 30, enabling the government to allow FDI into the multi-brand sector. The apex court adjourned the hearing of the case until January 22, 2013.

The Union Cabinet had in September partially opened up the multi-brand retail sector, allowing up to 51 per cent FDI. International chains like Walmart, Tesco and Carrefour have been waiting for India's retail sector to open up, but none has made any proposal to the government to open stores in the country yet. Complex conditions attached to the policy and other hurdles such as states getting the power to say yes or no to retail FDI, have kept global players from making any announcement so far.

With the talk of Parliament vetting a FEMA regulation amendment linked to the retail FDI policy gaining prominence, the industry has started fearing arollback.

The proposal of Swedish furniture giant IKEA to invest Euro 1.5 billion in India for opening stores in the single-brand retail category will be discussed at the November 20 meeting of the Foreign Investment Promotion Board (FIPB). The application of Ingka Holding Overseas, a group company of IKEA, is part of the agenda for FIPB next meeting. IKEA had sent its proposal to DIPP on June 22, and has been engaged with the government for simplification of rules in singlebrand retail, where up to 100 per cent FDI has been permitted. In September, the Cabinet had made changes in the conditions related to FDI in single-brand retail, mainly linked to sourcing from the small-sector industries in India. For the India market, Inter IKEA System, the owner of the IKEA brand, had recently signed a franchisee agreement with group company Ingka Holding Overseas.

IKEA proposal reaches FIPB

File photo of an IKEA store in the Brooklyn borough, New York. PHOTO: BLOOMBERG

Govtmulls e-auction of surplus land held by ministries and PSUs


SANJEEB MUKHERJEE

New Delhi, 11 November

With graft charges flying thickly, the government is mulling whether to make e-auction mandatory for sale of land valued at over ~50 crore held by it or public sector undertakings (PSUs). For land whose market value is less than ~50 crore, an open bidding process would be adopted.

A note in this regard is being circulated to various ministries and departments, to elicit their views. The proposal is part of a broader policy in the making on transfer and alienation of land held by the government or PSUs. Besides plugging loopholes that breed corruption, the proposed policy is meant to maximise revenue realisation for the thousands of acres of state-held surplus land across the country, either directly with ministries or their affiliated PSUs.

In big cities, large tracts are owned by the government or PSUs. A recent paper by Deloitte said major ports had combined land assets of 258,000 acres. Up to 20 per cent is not in use and could be leased out, it said. Similarly, according to some estimates, the Airports Authority of India has around 20,000 hectares in various cities. The defence services have about 17,00,000 hectares of surplus land.

Officials said the note also seeks ministries' response on creating a transparent data bank of all government-held land.

Recently, the Vijay Kelkar committee report on fiscal consolidation had recommended monetising the land resources held by PSUs and others to fund infrastructure needs in urban areas. However, while the Kelkar report talked of land resources held by port trusts, the railways and PSUs, the current proposal exempts those held by the railways. Also, land cleared by the public-private partnership approval committee and transfer of land between ministries would not come under this proposal.

The railways hold around 10,000 acres of surplus land in urban centres. However, it has been kept out of the purview of the proposed policy because the railways already have their own land sale, lease and commercialisation policy in place.

Those in the know said the note had proposed that leasing of stateheld land ask for an upfront payment equal to the sale value of the land on the day of lease agreement. The sale and lease proceeds of all such government-owned land could be used to create capital assets or retire debt, as land itself is acapital asset.

The proposed policy also aims at creating a Public Sector Land Management Committee to oversee all sale, lease and transfer of all government or PSU-owned land. This is proposed to comprise the secretaries in charge of the departments of urban development, expenditure, space, land resources, legal affairs and public enterprises. "This committee will oversee all such sale, lease or transfer of government land and if need be, the Cabinet can also be asked to step in," an official said.

The official said ministries are also being urged to specify surplus land to which they have the title, as in many cases these lie with the state governments or the title is unclear, making meaningful sale or lease difficult. The group of ministers asked to suggests ways to address corruption had identified land as among the main natural resources which need study to understand the implications of deals in these on breeding graft. In recent times, the government has come under attack for not having transparent policies for natural resources — be it on earth (land), under earth (mining) and in the air (spectrum).

Note proposes more checks, transparent data bank in land sale or lease GROUND RULES

|Uniform policy on transfer or alienation of land held by government or government controlled authorities such as public sector undertakings on the anvil |All government land having market value more than ~50 crore to be mandatory e-auctioned |Land valued at less than ~50 cr to be sold, leased through a transparent bidding process |Inter-ministerial transfer of land, land transfers cleared by PPPAC and those held by railways kept out of the purview of the proposed policy |Land sale proceeds should be to either retire debt or create capital assets |All government and PSU land transfers should be overseen by the Public Sector Land Management Committee, headed by the urban development secretary |Government to create a transparent data bank of land held by it along with the likely market value |Note on the proposed policy currently being circulated for comments and views

 

LEGAL DIGEST


>Voltas wins land use case

The Supreme Court last week set aside the judgment of the Bombay high court on the appeal of Voltas Ltd and stated that the company had not violated any of the terms of change of use of surplus land allotted to it 25 years ago. The authorities had issued forfeiture show cause notice to the company for giving the land to developers. The judgment stated that the Maharashtra government had allowed the company to change the use of the land for housing. Such permission was in accordance with the relevant terms and conditions. The terms did not stipulate any charge on the unearned income of the company and therefore, the company was not required to pay 50 per cent of its unearned income. Further, no hearing was given to the company before passing orders against it by the collector. There is nothing on record to suggest the basis on which the authorities determined the unearned income. The authorities were therefore asked to consider the case afresh. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Half a century to getcompensation

In a 1964 case of land acquisition for an industrial development project in Maharashtra, the state government settled the issue of compensation in the Supreme Court last week by agreeing to pay land owners within four months. In the chequered history of land acquisition in the case, Tukaram Kana Joshi vs Maharashtra Industrial Development Corporation, the land was acquired from illiterate farmers who had no knowledge of their constitutional rights. Some were paid compensation, but some were not. The acquisition lapsed and a fresh notification was issued in 1981 and the land was transferred this time to the City Industrial Development Corporation of the state. Still these land owners were not able to get compensation. They moved the Bombay high court, but it dismissed their pleas only on the ground of long delay in filing the petition and non-availability of documents. Therefore an appeal was filed in the Supreme Court. It asked the authorities to be "sensitive, sympathetic" and put forward positive suggestions to solve the problem. Therefore, the state authorities agreed to expedite the acquisition process and pay compensation at the prevailing market price. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Delhi HCsnubs NBCC

The Delhi high court last week stated that the National Building Construction Corporation Ltd (NBCC) has forfeited its right to appoint an arbitrator in its dispute with M LDalmiya & Co and therefore the court itself appointed one of its retired judges as the arbitrator. The court pointed out that arbitral proceedings which commenced with Dalmiya invoking the arbitration clause way back in 2002 were yet to conclude. "There have been three arbitrators appointed by NBCC in this long period of over ten years with no significant progress being made in the arbitral proceedings," the judgment said. "The court is, therefore satisfied that permitting NBCC to further appoint another arbitrator would be a futile exercise as the arbitrators so far appointed have not been able to carry on with the arbitral proceedings without undue delay. This court, therefore, holds that NBCC should be held to have forfeited its right to appoint an arbitrator." >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Arbitral award upheld

The Delhi high court last week upheld the arbitral award in the dispute between Jagson Airlines Ltd and its unit, Indian Ports Warehousing Co Ltd (IPWC) on the one side and Bannari Amman Exports Ltd on the other. The arbitrator ruled that Bannari was entitled to ~88,16,500 together with 18 per cent interest. The dispute started over the lease agreement between Bannari Amman and IPWC for the lease of a tank at New Mangalore Port for storage of cane molasses and removal of cargo. The high court stated that the award has given adequate reasons for its conclusion and did not call for interference. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Conditions forwinding up

The Bombay high court has dismissed the winding up petition moved by Hindustan Dorr Oliver Ltd against Jet Airways on the contention that the latter had not cleared the service tax liability for the rented space. The judgment stated that the basic requirement for such an application under Section 433 of the Companies Act is that the amount should be due and payable and crystallized on the first date of the statutory demand raised and even on the date of filing of such a winding up proceedings. In this case, the amount due and payable was not crystallized on the relevant date and even today. Moreover, Jet Airways never admitted the liability of service tax and there was no specific written agreement with regard to the service tax. Since there is no agreement and no admitted liability and since basically the service tax is an indirect tax the court was not inclined to interfere in the matter especially since there were disputed facts.

MJ ANTONY

Are shareholders and directors insensitive to corruption?


Recently I had an opportunity to attend a workshop, which was discussing the unethical practices in the pharmaceutical and healthcare sectors. The workshop focused on many unethical practices starting from lack of transparency in private hospitals to inducing doctors to prescribe costly medicines for the benefit of pharmaceutical companies by giving them gifts and sponsoring their participation to conferences that combine sight seeing and professional education. There was a long list. Although I enjoyed the deliberations, those did not provide much insight. All of us have an idea about those practices and those who can afford to bear the health care cost have learned to live with it and weaker sections of the society suffer silently. Some civil societies are fighting to reform the system without any significant outcome so far.

Mr. Kejriwal has exposed some unethical practices by some companies and individuals. The modus operandi is well known and in some cases even the unethical practice perpetrated by a particular company named by Mr.Kejriwal was extensively discussed in the media earlier. Some argue that hammering the issue of corruption by Mr. Kejriwal will help the nation in reducing the corruption in the system. I am not so optimistic. In a recent survey by the Transparency International ,48 percent of the respondents (business people) from India indicated that the main barrier in stopping corruption in the private sector is that the corruption is taken as afact of life. Those who take corruption as afact of life cannot fight corruption.

Ioften wonder how shareholders of companies operating in the pharmaceutical and the health care sector feel about the unethical practices being pursued by the industry. Similarly, how shareholders in companies operating in the aviation sector felt when Mr. Ratan Tata had said that he did not enter the airline business as he was not comfortable with the idea of bribing ~15 crore to a minister, as had been suggested by an industrialist. Do shareholders of a company feel embarrassed when media exposes the corrupt practices of that company through investigative journalism? Perhaps shareholders do not care how the company is making money for them. Therefore, we may not see the long-term impact of such exposures in the capital market except one that might affect the valuation directly due to likely imposition of penalty on the company.

What about the board of directors? These matters (e.g. bribing a government servant or contribution to political parties) never come before the board of directors or the audit committee. CFO and CEO manage the accounting and related issues behind the board or the company generates black money for the purpose. It is also unlikely that the board deliberates the issues when corrupt practices of the company are exposed by a civil society or by a journalist. It is so because independent directors are appointed by the incumbent management and it choses those who are comfortable with the company's practices of managing the government, regulators and buyers.

Paragraphs on the need for ethical practices by business remains on paper (in corporate governance codes) because shareholders and directors are not sensitive to the issue of corruption.

The result of the survey conducted by the Transparency International shows that 71 per cent of the business people in India believes that their company has a responsibility to fight corruption. This is against the average of 79 per cent. How should we take these figures? Good news or bad news? We may interpret the result either way. The main issue is whether those who consider that fighting corruption is business responsibility will 'walk the talk'.Companies will fight against corruption only if that makes a business case. A global survey conducted by the World Economic Forum shows that most respondents feel the corruption is the second largest impediment in doing business in India. Therefore, unless the issue of corruption is addressed adequately, multinational companies will hesitate in doing business in India and this will hurt the Indian companies. Therefore, fighting corruption makes a business case for companies that aspire to become a large player in the domestic and international markets.

Many who do not support corruption fall prey to the corrupt system. The common argument is 'If I do not bribe, our competitor will bribe and will get an advantage over us'. However, there are a few companies that are determined to keep their head clean in any odd situation. Let us hope that many more will join the club and will fight corruption.

Email: asish.bhattacharyya@gmail.com Affiliation: Professor and Head of the School of Corporate Governance and Public Policy, Indian Institute of Corporate Affairs, Manesar, Gurgaon

ACCOUNTANCY

ASISH K BHATTACHARYYA

 

 



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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
Company Secretary, Chennai
email csarengarajan@gmail.com
mobile 093810 11200

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