| Vodafone conciliation gets Cabinet's green signal | |
BS REPORTER
New Delhi, 4 June The Union Cabinet today approved aproposal for conciliation with British telecom major Vodafone on their ₹ 14,000- crore tax dispute. It also cleared the Real Estate (Regulation and Development) Draft Bill, aimed at organising and monitoring the sector, and allowed central public sector enterprises ( CPSEs) to initiate wage negotiations for their employees. However, the food security Bill, also on the agenda, could not be cleared. "We accept Vodafone's offer to enter into a non- binding conciliation. The outcome of the conciliation will be brought back to the Cabinet. If both sides agree on the outcome, it will be taken to Parliament," Finance Minister P Chidambaram told a press conference after a meeting of the Cabinet today. He said it was in India's interest to resolve the dispute and the government was not doing it in an arbitrary manner. Officials said conciliation would pave the way for amendments to the I- T Act. This would be needed for a uniform law for all companies facing similar tax demands from the government. In 2007, Hutchison had sold its stake in Hutchison Essar to Vodafone. The tax department had sent a notice to Vodafone for failing to withhold tax while making payment to Hutchison. In January last year, the Supreme Court had ruled Vodafone was not liable to pay tax according to the prevalent law. The government then brought retrospective amendments in the I- T Act in 2012 to tackle Vodafone- like cases, following which the income- tax department sent a notice to the telco, asking it to pay ₹ 14,000 crore, including an interest of ₹ 6,000 crore. There is a provision of imposing a penalty of 100 per cent of the tax demand, which will be ₹ 7,900 crore in this case. Kapil Sibal, after taking charge as the law minister recently, overturned his predecessor Ashwani Kumar's decision that conciliation with the British firm was not possible under the current law. The Real Estate ( Regulation and Development) Draft Bill, which was also cleared today, is expected to protect buyers from erring developers and usher in an era of transparency through a regulatory process, once passed by Parliament. The draft Bill, in the works for about five years, makes it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities. Turn to Page 18 > ECONOMY 6 > >Cabinet clears realty regulation Bill >Govt extends health insurance cover to poorer sections >NDA divided on food and land Bills CPSEs allowed to initiate wage negotiations for their staff; real estate Bill also approved OTHER DECISIONS |Setting up a regulator for the real estate sector |Proposal for installation of mobile towers at2,199 locations in nine Naxalhitstates |Wage negotiations bythe managementofCPSEs for their employees DISPUTE DIARY A timeline of the Vodafone tax battle 2007Vodafone buys Hutchison's India assets Sep: Gets tax notice for not deducting tax at source Oct: Challenges notice in Bombay HC 2008 Dec: Bombay HC dismisses petition, allows tax dept to proceed on showcause notice 2010 May: Tax dept passes order claiming jurisdiction to tax the transaction June: Vodafone challenges the order through writ petition in Bombay HC ( dismissed in September). Sep: Vodafone moves SC against the HC decision Nov: Asked to deposit ~ 2,500 crwith SC and provide aguarantee for ~ 8,500 cr 2011 Mar: Vodafone receives a notice asking why it should not be liable for penalties of up to 100% Apr: SC stays tax dept from enforcing any penalty 2012 Jan: SC says I- T can't levy tax on the deal Mar: Retro amendments allow govt to tax such deals Apr 16: Vodafone issues notice to govt, initiating arbitration for not protecting investor rights 2013May: Sibal approves a settlement of the tax dispute through conciliation June 4: Cabinet approves non- binding conciliation VODAFONE COUNSEL ANURADHA DUTT: "Govthas rejected Vodafone's offerand the company is yetto receive an official offerfrom govt. We will have to waitand see whatitoffers. Vodafone's offerwas forconciliation under the United Nations Commission on International Trade Law rules. The approval forconciliation is definitely a positive step." Referring to the Shome panel report, Duttsaid govt could have accepted the report, converting the retrospective into prospective. " If govtcan acceptGAAR, itshould have accepted Shome panel reporton prospective amendments." | |
Click here to read more...Turn to Page 18 > | |
| Click: Article continued from…Vodafone conciliation gets
| | Vodafone conciliation gets Cabinet's.. | |
Supreme Court agrees to hear PIL for CBI probe into IPL scandal > FROM PAGE 1
Besides, it has certain tough provisions to deter builders from putting out misleading advertisements related to the projects carrying photographs of the actual sites. Failure to do so for the first time would attract a penalty of up to 10 per cent of the project cost; a repeat offence could land the developer in jail for up to three years. The Bill also aims to make it mandatory for developers to maintain separate bank accounts for every project to ensure the money raised for a particular task was not diverted elsewhere. It would provide for a clear definition of the ' carpet area' and would prohibit private developers from selling houses or flats on the basis of ambiguous 'super area'. Currently, the sector is not regulated. The Cabinet also approved a proposal for installation of mobile towers at 2,199 locations in nine Naxal- hit states — Andhra Pradesh, Bihar, Chhattisgarh, Jharkhand, Maharashtra, Madhya Pradesh, Odisha, Uttar Pradesh and West Bengal. The project, to be executed by BSNL, would be funded by the Universal Service Obligation fund to the tune of ₹ 3,046.12 crore. The Cabinet also gave its nod to the management of central public Sector enterprises ( CPSEs) to initiate wage negotiations for their employees. The move would benefit employees of those CPSEs that opted for five years of wage settlement from January 1, 2007. They could now go for another wage negotiation for five years with effect from January 1, 2012. LEGAL TAKEAWAYS FROM VODAFONE ISSUE |Govt and Vodafone can try for amicable settlement the sixyearold dispute |Conciliation to be carried out under Indian Arbitration and Conciliation Act |Qualified conciliators to be appointed by both govt and Vodafone |Conciliators will suggest options and won't take a final decision |Conciliation will not be binding on the parties |Once consensus is reached both sides will sign the final terms of settlement |Once accepted, this may need amendment in Income- tax Act by Parliament |A reprieve by way of interest and penalty waiver may be provided under law | | | Ranbaxy's directors did not hear the whistle | |
NSUNDARESHA SUBRAMANIAN
New Delhi, 4 June The board of directors is said to be the brain of a company; independent directors are said to be its conscience keepers. Business Standard assesses how the board, especially independent directors, of beleaguered drug major Ranbaxy Laboratories functioned during the period when its manufacturing practices came under a cloud in 2004. True to its stature as India's flag bearer in the international pharmaceutical scene, the company had eminent people from all walks of life on its board. During the period, the Ranbaxy board had eight independent directors, including then chairman Tejendra Khanna, now Delhi's lieutenant governor. The other independent directors were DCM family scion Vivek Bharat Ram, Gurcharan Das, senior cardiologist PS Joshi, ace investment banker Nimesh N Kampani, consultant Vivek Mehra, senior lawyer Surendra DauletSingh and foreign trade expert J W Balani. For Ranbaxy, 2004 was significant in more ways than one: It was the year when Davinder Singh Brar, chief executive officer and managing director, decided to hang up his boots, after completing his five- year tenure on July 4. Brar was succeeded by Brian W Tempest. The year also saw promoter and key shareholder Malvinder Mohan Singh, who had earlier held the post of director ( global licensing) and who had led India operations as regional director, succeeding Tempest as president ( pharmaceuticals). Weeks before Brar left, another significant change took place: In June 2004, Rashmi Barbhaiya, president ( research and development, or R& D) since April 15, 2002, left the company to pursue other professional options. This put Rajinder Kumar at the helm of R& D. In the few months he was there, Kumar triggered a $550- million time bomb that would go off about nine years later. Whistleblower Dinesh Thakur, Kumar's subordinate at Ranbaxy, would, years later, claim his boss had made a detailed presentation of the alleged widespread manufacturing lapses and fudging of data in the company first to " a closed door board of directors meeting in Thailand" in September 2004 and then to the science committee on December 21, 2004. While Kumar has been silent on the events, Ranbaxy has pleaded guilty to several charges by the US Food and Drugs Administration ( FDA), based on Thakur's testimony. While it is difficult to ascertain what happened during and after those two critical meetings, Ranbaxy's annual report for the year records Kumar left due to "unforeseen personal problems". This means Kumar quit within 10 days of the science committee meeting held on December 21. It is difficult to fathom such eminent board members did not find anything amiss. There is confusion over the board's September " closed door meeting", following Malvinder Singh's comment that no board meeting was held in Thailand and the fact that the annual report doesn't have records of a board meeting in September. However, the science committee meeting is duly recorded in the annual report; it was attended by P S Joshi and Tejendra Khanna, independent directors, as well as Malvinder Mohan Singh and Brian Tempest. The annual report adds, " In the resulting situation, Tempest, CEO & MD ( chief executive officer and managing director), took it upon himself to closely oversee the R& D activities directly, with separate heads for new drug discovery research on the one hand, and for novel drug delivery systems ( NDDS) and generic drugs development on the other, reporting to him." However, Ranbaxy did not announce the departure of its R& D head for months. On March 11, 2005, the company, in a statement, said it had " reluctantly agreed to his request due to personal circumstances. In due course, he will be invited to join Ranbaxy's R& D advisory council". Brian Tempest said, " We acknowledge the role the R& D regimen, and in particular, the clinical processes at Ranbaxy." According to a Business Line news report, that day the Ranbaxy stock fell 1.23 per cent on the BSE, closing at ₹ 1,069.5. The report quoted an analyst saying, "While the company has been talking about focusing on R& D, the frequent movement of scientists sends contrary signals." So, what happened between December 2004, when the annual report records Kumar's exit, and March 11, 2005? Did personal circumstances lead to Kumar's exit? shareholders. In the annual report for 2004, the directors' standard disclosure stated, " The directors have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of this Act, for safeguarding the assets of the company and preventing and detecting fraud and other irregularities." One of the directors said they were not aware of a fraud at that time, but declined to come on record, as his current organisation wanted to distance itself from the controversy. Another said even today, he didn't believe there was a fraud at Ranbaxy. "We knew there were ongoing dialogues with FDA. Such dialogues go on all the time. But this does not mean there was fraud. All the charges by FDA can be challenged in courts. Every company deals with these FDA cases differently. Acceptance of guilt is a necessary condition in a plea bargain. The decision to settle through a plea bargain was a business decision by the new owners. The media is making amountain out of a molehill," the former Ranbaxy independent director said. When asked what would happen to the people who used the medicines prepared through questionable practices, he said," Nothing happened to them." Business Standard emailed questionnaires to all the independent directors, asking whether they had knowledge about the problems related to drug research, research data and falsification of data and what action did they take on the subject. None of the directors responded to the questionnaires, sent a week in advance. Offices of Gurcharan Das and Surendra Daulet- Singh said they were abroad. A call to Kampani's mobile phone was answered by his secretary, who promised to revert. Attempts to reach the others on their phones didn't succeed. Though they were caught napping while the company's research and regulatory departments violated drug manufacturing norms and falsifying data, they might walk free-- India's companies law and its securities market regulations don't provide for any major penal clauses for such offences. In fact, Gurcharan Das, one of the independent directors on the board of Ranbaxy during the period in question, was inducted into the Air India board by the government even as India Inc was overwhelmed by the controversy over the failure of Ranbaxy's independent directors to act according to their mandate and raise an alarm over governance failure in the company. The Companies Act, 1956, doesn't provide for any action against erring independent directors, or any other guidelines. In fact, it doesn't recognise the concept of independent directors. However, there are relevant provisions in the new companies Act, yet to be passed by the Rajya Sabha. In 2009, after the Satyam scandal, the ministry of corporate affairs ( MCA) came out with a framework of corporate governance guidelines. This touches on the concept and prescribes guidelines for the appointment, qualifications, etc, of independent directors, but does not include any penal provision for breach of duties. Experts say in Ranbaxy's case, these, too, wouldn't apply, as the events predate the MCA framework by at least five years. Being a listed company, Ranbaxy is bound by Securities and Exchange Board of India ( Sebi) requirements, as stated in clause 49 of the listing agreement. However, these requirements came into force on January 1, 2006. According to the clause, the chief executive officer and the chief financial officer shall certify to the board nothing illegal or fraudulent is happening in the company. " There are, to the best of their knowledge and belief, no transactions entered into by the company which are fraudulent, illegal or violative of the company's code of conduct, during the year." Recently, there have been instances of Sebi taking a critical view of independent directors who failed to notice red flags in financial reporting. In an order against independent directors of Pyramid Saimira, Sebi had said, "While the extent of responsibility of an independent director may differ from that of an executive director, an independent director has the duty of care. This duty calls for exercise of independent judgment with reasonable care, diligence and skill, which should be reasonably exercised by aprudent person with the knowledge, skill and experience which may reasonably be expected of a director in his position, and any additional knowledge, skill and experience he has." The order added, " In either case, they facilitated the company to make false and misleading disclosures and thereby created artificial prices and volumes in the securities of PSTL ( Pyramid Saimira Theatre Limited) in the market, to the detriment of innocent investors. I, therefore, conclude the charge of disclosure of false and misleading statements, as alleged in the [ show cause notice] against the noticees, is established." Emails seeking comment from a Sebi spokesperson, as well as MCA, didn't elicit any response. Gurcharan Das, an independent director on Ranbaxy's board during the period in question, was inducted into the Air India board by the government Though independent directors acted in a manner less than desirable, they might not be held responsible | | Realty regulation Bill gets go- ahead
Misguidedly draconian, protests sector; | |
BS REPORTERS
New Delhi/ Mumbai, 4 June The Union Cabinet today cleared the Real Estate (Regulation and Development) Bill, aimed at organising and monitoring the sector. Once enacted, it is aimed to protect buyers from scheming developers and usher transparency in the sector, unregulated till now. Many in the sector oppose the Bill in its current form. It has proposed stringent penalties and even a jail term for a maximum of three years for developers convicted of malpractice. In the making for about five years, the Bill seeks to make it mandatory for developers to launch projects only after acquiring all the statutory clearances from the relevant authorities. Within a year of the Act coming into place, Real Estate Regulatory Authorities will have to be constituted by the government of each state and Union Territory. More than one authority in astate is permissible. At the central level, a Real Estate Appellate Tribunal has been proposed. There are provisions to deter builders from issuing misleading advertisements on projects. A first- time breach would attract a penalty which could be up to 10 per cent of the project cost. A repeat offence could land the developer in jail for up to three years. It also aims to make it mandatory for a developer to set aside half the money collected from buyers to a separate bank account for every project, to ensure money raised for a particular task is not diverted. It provides for a clear definition of carpet area and would prohibit private developers from selling houses or flats on the basis of the ambiguous super area. The draft has been revised several times since 2009. However, the sector disagrees with much in it even now. Says Kumar Sharma, president of the National Capital Region chapter of the Confederation of Real Estate Developers Associations in India, " We welcome the thought in bringing the Bill butare not willing to accept it in its current form. We are disappointed with the way the government is going ahead without addressing our concerns. According to us, the said Bill is neither benefiting consumers or other stake holders." Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia, said: "The Bill should have been more balanced, taking a view of challenges faced by developers and of consumer grievances. While consumers need protection, for real estate development to happen more efficiently, and in a transparent manner, administrative reforms are required urgently." Getamber Anand, chairman, ATS Infrastructure, said the realty industry is not against a regulator in principle but any such Bill should not be anti- development and retrograde in nature. "With unilateral provisions, it might be misused by people in power to unnecessarily further delay real estate projects," he said. The Bill will make housing units expensive, according to Vimal Shah, managing director of Hubtown and president, Maharashtra Chamber of Housing & Industry. " In its zeal to put curbs on a small section of developers, the government is punishing the whole industry. If industry does not prosper, how can customers benefit? If construction stops, it will make housing costly. How will it be made affordable?" he said. penalties proposed for misleading ads and mis- selling, checks on project delays NCABINET DECISIONS N THE BILL is aimed at protecting buyers from scheming developers and usher in transparency in the sector | | Wholesale trade cap might not hit marketplace e- retail | |
NIVEDITA MOOKERJI
New Delhi, 4 June E- commerce companies following the marketplace model are unlikely to be hit by the department of industrial policy and promotion's ( DIPP's) latest note on ' group companies'. Such companies were defined in the context of the 25 per cent cap on wholesale trade, where foreign investment was involved. Many big e- commerce players such as Snapdeal and eBay follow the marketplace model — they offer a platform to retailers to sell products, while retaining control over the billing and delivery. Recently, online retailer Flipkart, which was under a probe for violating foreign investment norms, switched to the marketplace model. Many medium and small- sized online retail chains still operated as regular ecommerce companies, said Saloni Nangia, president, Technopak Advisors, aretail sector consultancy. " Depending on how an e- commerce company is structured, the latest DIPP order would apply on them," said Nangia. The crucial question to ask is " who owns the inventory", she added. If an online retailer or a service provider owned the inventory, it was likely to be covered by the latest rulebook. Akash Gupt, executive director, PricewaterhouseCoopers, told Business Standard, " Anybody who has a marketplace model will not be subjected to the 'group companies' order. In case of the marketplace model, the company offering the platform is only a media, while the business of retail is conducted by the retailers operating in that space. At least half a dozen leading e- commerce companies did not reply to questionnaires sent by Business Standard for this story. Though foreign investment is prohibited in e- commerce companies, through the years, most companies have attracted international private equity funds. To circumvent the government policy of not allowing foreign direct investment, these e- commerce companies had two registered companies — one for back- end operations and wholesale, and the other for front- end retail. Foreign investment into these companies was routed through back- end companies, as there is no restriction on foreign investment in back- end and wholesale operations. But if online retailer owns inventory, it is likely to be covered by the latest rule Employees of Snapdeal. com REUTERS | | Suits wrapped in vengeance | |
Law is a many- edged weapon. Bad rulers can issue decrees to suppress civil rights.
Roman tyrant Caligula placed ordinances so high on marble columns that no one could read them and escape punishments. Citizens can snatch justice from the powerful by invoking a benevolent Constitution. Law can also be used to harass and ruin opponents. That has been going on for ages. An ancient Chinese curse says, " Let you be caught in a suit in which you are innocent!" Courts often come across such misuse of law. In the 1990s, two famous liquor barons fought nearly ahundred suits in various courts in the country and finally reached the Supreme Court ( SC). Some weeks ago, the Delhi High Court quashed aslew of criminal cases against 22 directors – several of them foreigners –of Sony India. Referring to such instances, the SC once remarked that the abuse of process of law could become a " ruthless destroyer of personal freedom". Last month, the SC discussed this phenomenon in a case where multiple suits and criminal cases were filed in several fora involving ajoint venture agreement (Ratnaswami vs Palaniswamy). The thick plot involved several companies (some based in Mauritius), non- resident Indians ( NRIs) and local firms. The Company Law Board, the Madras High Court and the SC itself have seen the case coming and going several times in the last decade. Each time the courts tried to close the case, fresh life was blown into it. Being NRIs, the criminal cases deprived their freedom of movement within and outside the country. Very often, civil disputes are turned into criminal cases to get quick results. It is generally believed that the latter takes less time to conclude and the torture is more severe. Civil law remedies are time- consuming and do not adequately protect the interests of lenders or creditors. There are no fast- track routes in civil cases, and they still suffer from maladies of the Dickensian era. Therefore, the SC cautioned in the case, Indian Oil vs NEPC India Ltd (2006), about " a growing tendency in business circles to convert purely civil disputes into criminal cases". The court stated that any effort to settle civil disputes and claims by applying pressure through criminal prosecution should be deprecated and discouraged by courts. In one leading case decided by the SC, a person accused another of agreeing to pay half of the insurance amount after a consumer forum decision, but later reneged from it. A criminal case of cheating was filed. The judgment clarified: "Every breach of contract would not give rise to an offence of cheating. Only in those cases... where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating... This is a purely civil dispute. Allowing police investigation to continue would amount to an abuse of process of the court." ( Uma Shankar vs State of Bihar, 2005). The persecutor often takes unfair advantage of legal technicalities that abound in procedural laws. Or delaying stratagems are adopted to make a fair trial impossible. In such cases, the courts are enjoined to exercise their inherent powers to quash the prosecution. The SC stated in the judgment, State of Karnataka vs Muniswamy (1977), that " a court proceeding ought not to be permitted to degenerate into a weapon of harassment or persecution. The ends of justice are higher than the ends of mere law, though justice has got to be administered according to laws made by the legislature". In the case of a famous politician standing trial, the SC stated that " where a criminal proceeding is manifestly attended with mala fide and/ or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused person and with a view to spite him due to private and personal grudge", such prosecution must be quashed by the courts (State of Haryana vs Bhajan Lal, 1992). However, the SC acknowledged that it may not be possible to lay down any " precise, clearly defined and sufficiently channelised and inflexible guidelines to give an exhaustive list to myriad kinds of case where such power should be exercised". That's the rub. The cases mentioned above travelled to the apex level because even at the high court level, judges had missed the wood for the trees. They could not discern the motivation of the accusers, which is mostly to wreak vengeance on rivals. Since the police are involved in investigation and setting the criminal prosecution rolling, the miasma of corruption also pervades such cases. For example, in the Ratnaswami case, the senior SP barely escaped censure for being liberal in registering FIRs and reopening dead files. The most effective antidote for abuse of process of law is to lift the veil of criminality and see whether it is a civil dispute. The next step is to use the court's discretion vigorously, to save the time and energy of judges and the businessmen involved. Neither judiciary nor commerce can afford luxury litigation. A look at the dirty tricks they don't teach you at law schools... OUT OF COURT MJ ANTONY | | | | | | | | | |
No comments:
Post a Comment