[aaykarbhavan] Business standard news updates and legal digest 29-7-2013

Don't delay EPF withdrawal

NEHA PANDEY DEORAS In 1999, Bangalore resident Meenakshi Harish ( name changed on request) left her job at a leading software firm to get married and settle in the US. Meenakshi returned to India in October 2010. Now that she was in India and had parents / in- laws to support her, she decided to start working. She partnered a friend to start a technology firm. Given that Meenakshi had not been working for nine years, she had very little savings. In addition, she did not want to take her husbands help beyond his second property that she used as office space. This was the time Meenakshi remembered her employee provident fund ( EPF) corpus that was untouched. All these years, she had forgotten about it like anyone else. The question was how to withdraw that corpus. A banker friend scared her by saying that claiming from the Employee Provident Fund Organisation ( EPFO) can take an entire life. As luck would have it, it came true. Meenakshi learnt she needed her provident fund ( PF) account number. She contacted her last employer. Though the human resource department of any firm should be able to hand over the PF account number with the help of the employee code/ number, Meenakshi was left helpless because it had been around 11 years since she had left the organisation and her details had to be searched for. She then approached the regional EPFO office. The officials denied any help without the PF number. It took two months before she could fill the withdrawal form with her former employer. "By the time the employer processed the form and submitted it to the EPFO, it was February 2011. In November 2011, EPFO misplaced my application/ records. I had to go through the entire process again. Since January 2012, my file is stuck with them," she says. Typically, it should take 30- 60 days to get the claim processed but many quote a longer timeline. This does not mean everyone has a hard time. According to certified financial planner Pankaj Mathpal, claiming unclaimed PF amount gets difficult only in certain situations. According to certified financial planner Malhar Majumder, " One can face endless problems when applying for unclaimed EPF. Hence, it is common advice to hire consultants for this job." So, what are the things you need to do here? Requirementofdocuments When you make an application to withdraw your EPF corpus, among other documents you also need to give a copy of the resignation acceptance letter from the last employer. " Some EPF offices may accept the relieving letter while some may not. There is no uniformity about which documents need to be submitted. It all depends on how each office interprets the requirement, says Majumder. According to an human resource ( HR) expert, sometimes EPFO executives wont trust your original documents and might ask you to furnish a separate letter from the last employer, stating the same things as in the experience letter (see box). ExemptedEPF Under the exempted provident fund scheme, an organisation forms its own PF trust for its employees. The employer executes the trust deed, prepares the PF rules and nominates the trustees from among its employees for managing the trust. " Apart from the fact that claiming any unclaimed money is difficult, with a trust system the problem is they have their own set of rules and you have no alternative to check the status of your application. With unexempted PF, a status check is possible," says the HR expert. Addresschange: If your past employer is not in the same city as yours, then you can face problems. Your claim application will be processed in the city your employer is in. Therefore, getting to know if the claim application has reached the EPFO office and following up thereafter, becomes an issue. Employmentterm& timesince resignation Like in Meenakshis case, if you quit many years earlier, finding your details can be an issue. Many times, your former employer may not cooperate. Your employer could also refuse to cooperate if you served for a very short term with it. May have to file multiple applications Another HR expert says many times, EPFO does not give the entire amount accrued. This is specially problematic for those withdrawing soon after quitting or retiring. " Say one retired in December 2012; he may be paid the money accrued till March 2012. It is said the EPFO keeps some amount, say last six months or one years' contribution and interest in an escrow or intermediary account. In that case, a second application needs to be filed to get the remaining money. For this, one needs to know how much corpus had accrued in the account, which most dont know," he says. That's why he advises people to wait for ayear before claiming the corpus because then, there is no need to apply twice and the account earns interest for 36 months even without contribution. Relationshipwithemployeratthetime quitting A Haryana- based college professor says his last employer refused to cooperate with his EPF withdrawal because he left the institute over uncordial terms. It took the professor almost two years to get his money. Or, when one does not serve notice period and does not pay for the same, employers could not release the EPF, says Mathpal. ApproachingPFCommissioner Experts unanimously opine that a PF commissioner can be of help in such cases. However, getting to him/ her can sometimes be more difficult than getting the claim. Meenakshi recalls having caught the commissioner only once till now but did not get enough time to explain her issue. Therefore, it is advised that you transfer your EPF corpus each time you switch jobs because if you need to claim from multiple employers, then you might need five- six years. Transferring the corpus can be equally tedious. If your account is idle for over five years, there could be issues with acquiring EPF details HOW TO CLAIM EPF |You can claim EPF after 60 days of your resignation, provided you have not been employed in the period |Next, applyforclaimonForm19forEPFand Form10Cforemployeepensionscheme; formsareavailableonEPFOsite |Be careful while filling bank details as EPF is submitted in your bank account |Send forms with a cancelled blank cheque & copy of your resignation/ relieving letter |Tobesafe, rememberyouremployeecode |Send forms to previous employer, who will process it and send it to EPFO |Companies with PF trusts may ask you to apply to the EPFO directly ILLUSTRATION: BINAY SINHA

 

New Sebi Act has one missing link The Securities and Exchange Board of India ( Sebi) Act, 1992, just got amended by a Presidential Ordinance. While most of the amendments are quite logical, rational, and are excellent in furthering the objective of making the regulatory system more effective, in one emotive area of law- making, the new law opens up scope for creating ambiguity in the future, with the fear that more questions may arise than get answered by the amendment. There are two critical amendments relating to collective investment schemes (CIS) — one that gives Sebi full freedom to decide what constitutes a CIS, and the other that creates a deeming fiction that any arrangement despite not fitting any description of a CIS would be regarded as aCIS if its size is of above ₹ 100 crore. Section 11AA( 2) of the Sebi Act lays down the conditions under which any scheme or arrangement would be regarded as a CIS. Essentially, if payments from various persons are pooled in a profit- oriented arrangement, and the property so collected is managed on behalf of the contributors without the contributors being involved in day- to- day management and control, the scheme would be a CIS. Now, under a new Section 11AA( 2A), Sebi may make regulations that could provide for schemes not entailing the features of this fundamental character too to be regarded as a collective investment scheme. For example, even if investors do have day- to- day control over management of the assets, Sebi could regard their coming together as constituting a CIS, regardless of the number of contributors involved. The other amendment to the Sebi Act is to provide a deeming legal fiction that could render any collective activity involving a bunch of persons coming together as a CIS, which would in turn, necessitate registration with Sebi as a CIS. The provision granting Sebi absolute discretion to effectively expand the Sebi Act without going back to Parliament is exposed to the risk of a constitutional challenge as excessive and arbitrary delegation. However, one should rightly assume that Sebi would not deviate from the essential common- sense meaning of a CIS when using its powers to widen the scope of CIS coverage. Besides, a court would look at the context in which the expansion was made, and would generally lean towards upholding constitutional validity rather than rush to outlaw a regulation. Only recently, before the recent Presidential Ordinance, the Calcutta High Court ruled that Section 11AA of the Sebi Act was constitutionally valid. However, it is the deeming fiction of rendering any collective activity of above ₹ 100 crore as a CIS that would cause enormous problems. The only safeguard from this provision is that arrangements and contracts ( listed in Section 11AA( 3) as falling within the jurisdiction of other specific regulators) would not constitute CIS. Not too long ago, Sebi passed an order adopting an interpretation of CIS that was so expansive that it could hold that all unit- linked insurance plans were not really contracts of insurance but were CIS. It was an interesting mixed question of fact and law. Sebi was confident of proving that despite being labelled as " insurance", the products were in fact CIS masquerading as insurance products, and therefore not excluded from Sebi's coverage. Another Ordinance had then been introduced to pre- empt that debate and the issue got buried. A constitutional challenge to that amendment could revive the issue and the new amendments could support such a challenge. Real- life examples will make this complexity easier to grasp. For instance, if a bunch of residents of an old building come together to get a redeveloper to breakdown and rebuild their property and a few more apartments to share profits with the redeveloper, they would be creating a CIS if the cumulative value of the property is ₹ 100 crore ( one can easily have just 10- 12 apartments in a building add up to this value in Mumbai). Likewise, individual projects and transactions that are privately syndicated to a small number of " big boys" would be exposed to illegality. Arguably, if a private limited company that is not covered by the regulated activity listed in Regulation 11AA( 3) were to make a private placement among just five private equity investors, so long as the collective investment size exceeds ₹ 100 crore, the arrangement would be a CIS in the eyes of law. Even if Sebi were to find a reason not to be bothered with such transactions, a court hearing a public interest litigation from someone who believes he is saving the nation from sleepy regulators colluding with private businesses, would not have much choice but to direct that such arrangements get registered as CIS with Sebi. Now, the issue is not just about being reluctant to register as a CIS. The CIS Regulations made pursuant to Section 11AA were never conceptualised taking such transactions into account — they were aimed, and rightly so, at regulating and preventing those accessing the general public to raise public funds from being able to mislead, or cheat the public. The CIS Regulations were therefore made with the objective of ensuring that there is no real registered CIS activity, which it has well achieved — there is no real CIS running effectively with a registration. Indeed, there is a crying need for regulatory intervention with those that cheat the public. Yet, it is important to remember that it is in trying circumstances that the policymaker's clarity of thought and commitment to a predictable rule of law is truly tested. Just throwing in a provision with asingle numerical value- based jurisdiction (₹ 100 crore) is fraught with risk — how to compute it, whether no other factor is relevant, when the number would run out of meaning quickly, are but some of the issues that needed careful consideration. The examples discussed above can never get registered as mutual funds, or alternate investment funds, or as CIS, and therefore, run the risk of being rendered illegal overnight, although not a penny of public money may get solicited or invested. (The author is a partner of JSA, Advocates & Solicitors. The views expressed herein are his own) somasekhar@ jsalaw. com The amendments on collective investment schemes open up scope for creating ambiguity   LEGAL DIGEST SC slams Excise department's delay The Supreme Court last week criticised the Commissioner of Central Excise, Madurai, for unnecessary litigation up to the apex level on a small amount of duty. It said in the judgment, CCE vs Ayyappan Textiles Ltd: " This is a typical case where at every stage of the litigation irrelevant legal principles were pressed into service resulting in colossal waste of time of adjudicators including time of the Supreme Court." The amount involved was ₹ 1.34 lakh and the dispute was over the quality of a batch of cotton yarn but the litigation travelled between different adjudicating authorities since 1993. The Supreme Court also criticised the Excise Appellate Tribunal for going into " questions of law unwarranted by the facts of the case." In view of the " paltry amount involved, the long and chequered history of the litigation and the resultant wastage of time of various forums," the court dismissed the appeal. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> MTNL appeal on land dismissed Curtains fell on a three- decade- old land acquisition for a telegraph office in Mumbai when the Supreme Court dismissed the appeal case, Mahanagar Telephone Nigam Ltd vs State of Maharashtra, last week. The court remarked that " after 37 years of initiation of the acquisition proceedings in ( 1973) and 28 years of the pronouncement of the award by the land acquisition officer, the Nigam filed the writ petition," the court observed. Moreover, MTNL did not come to the court with clean hands, as there was suppression of facts. M J ANTONY Jet- Etihad issue: Will the stake sale go through? The Jet Airways deal remains the hottest corporate business topic notwithstanding that it's been around since April 24, when Etihad agreed to buy a 24 per cent stake in Jet for about ₹ 2,060 crore. Given the fact that Jet Airways is a listed company having a dominant market share, the deal needed to be cleared by the Securities and Exchange Board of India ( Sebi) for takeover regulations, by the Competition Commission of India for fair trade norms, by the Foreign Investment Promotion Board ( FIPB) for foreign direct investment ( FDI) approvals. FIPB is currently scrutinising the commercial cooperation agreement between Jet Airways and Etihad Airways to ensure control under the Sebi Takeover Regulations has not been passed on to Etihad. There are certain provisions in the agreement which may amount to passing of ' control'. The agreement envisages shifting of Jet's revenue management office to Abu Dhabi, which is a different geographical and legal jurisdiction. It further allows Etihad to play an active role in the Indian airline's aircraft acquisition. The agreement gives the foreign carrier voting rights and other powers in excess of their shareholdings as provided under Sebi (Substantial Acquisitions of Shares and Takeovers) ( Amendment) Regulations, 2013, ( The Takeover Regulations). The issue of whether the deal amounts to transfer of control in the Indian carrier to foreign hands has arisen because the FDI policy lays down that permission would be given if the " substantial ownership and effective control is vested in Indian nationals". Naresh Goel is an Indian national. There are consultations underway among various government departments and regulatory agencies on what " control" would mean in the context of the Jet- Etihad deal. Sebi has a definition of " control" in the context of takeover regulations, while the Companies Bill also provides a definition. The Companies Bill, 2012, says: " Control shall include the right to appoint a majority of the directors or to control the management or policy decisions exercisable by aperson or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders' agreements or voting agreements or in any other manner". The Sebi Takeover Code adopts the same definition of control as that of the Companies Bill. Sebi is, therefore, scrutinising the deal and if it indicates a change of control, then Sebi would require Etihad to make an open offer. Although such an offer would run counter to the FDI policy that stipulates full control must remain in Indian hands, this is again a position which needs to be scrutinised. Sebi is reportedly looking into whether the deal will trigger the requirement for an open offer for public shareholders, under the takeover regulations. The Ministry of Company Affairs, the FIPB, and the Competition Commission have to clear the proposal. Jet Airways is a listed company, and there is a possibility in case it does not remain so, corporate governance norms would be breached. Sebi, therefore, has to determine whether control under the Sebi Act would pass to Etihad. FIPB has to consider clearing the proposal next week. The Department of Industrial Policy and Promotion DIPP has already voiced its concerns about effective control, but it has not been addressed in the revised Shareholder's Agreement. According to Sebi rules, an acquirer buying 25 percent or more stake in a listed company is required to make a mandatory open offer for purchase of further 26 per cent from public investors. However, the takeover regulations for making an open offer would also apply to an entity buying a stake less than 25 per cent, if it is getting control of the entity being acquired. So, Sebi would be deciding on whether " control" would pass to Etihad or not according to the agreement between the two airlines. The two airways are waiting for the regulatory approvals. FIPB deferred a decision last month and asked for more details on the effective control of Jet. It was due to lack of clarity on the level of control exercised by Etihad and the ownership structure of the company after the transaction, that the decision to grant approval by the FIPB was deferred. Once the deal is cleared by the capital markets regulator, it would still need a final approval from a Cabinet panel. Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at kumkum. sen@ bharucha. in LEGAL EYE KUMKUM SEN   coming session, too Parties, legislative officials doubtful of much progress in Expect friction in clearing what is a long legislative agenda ADITI PHADNIS New Delhi, 28 July The United Progressive Alliance ( UPA) government's confidence about getting legislative business done in the monsoon session of Parliament, beginning August 5, might be misplaced. Although 99 Bills are pending in the two Houses of Parliament, judging by the notices that presiding officers of the two Houses have got, the prognosis for a productive session looks bleak. This is significant as this session could be the final window of opportunity for legislative business before the tenure of this Lok Sabha ends. Leaders of political parties are privately unanimous that nothing much should be expected from the winter session, as all parties will be in an election mode, readying for the May 2014 polls. Officials say they are doubtful if the winter session will be held at all and Parliament might just convene for a vote on account. This is because the President might be chary of addressing the two Houses at the beginning of the year, delivering a speech prepared by the government of the day, and then having to deliver another one, possibly diametrically opposite to the previous one, just four months later when a new government takes charge. Half a dozen notices have already come to the presiding officers of the Rajya Sabha and the Lok Sabha that demand the normal work of Parliament be set aside to hold discussions. So, officers do not rule out heated discussions on why these issues should or should not be taken up ahead of scheduled business. MPs want immediate discussion on the working of the Central Bureau of Investigation (CBI), the disproportionate assets case of Samajwadi Party leader Mulayam Singh Yadav and his family ( based on reports that the Central Bureau of Investigation is going soft in return for his political support to the UPA government), the creation of Telangana, the perpetual favourites of droughts and floods among others. A dismayed government is viewing the session ahead as a tight time- juggling exercise. Its priority is to clear four ordinances: One on the qualifications for chairman of the Securities Appellate Tribunal; one on food security ( providing subsidised grain to 67 per cent of the population); one on the Indian Council of Medical Research's composition and one on Scheduled Castes and Tribes. There are 19 Bills related to the ministry of finance alone awaiting discussion and passage. These include the Pension Fund Regulatory and Development Authority Bill, 2011; the Companies Bill (which the Lok Sabha has passed but the Rajya Sabha still has to discuss; there are 300 amendments proposed); the Competition (Amendment) Bill; the Public Procurement Bill, 2012; the Multi State Cooperative Societies ( Amendment) Bill, 2010; the Consumer Protection ( Amendment) Bill, 2011. PARLIAMENT CONVENING [1]The National Food Security Ordinance, 2013 [1]The Indian Medical Council ( Amendment) Ordinance, 2013 [1]The Securities and Exchange Board of India (Amendment) Ordinance, 2013 [1]The Readjustment of Representation of Scheduled Castes and Scheduled Tribes in Parliamentary and Assembly Constituencies Ordinance, 2013 Ordinances that are to be passed in the monsoon session failing which they will have to be re- promulgated In the waiting room [1]The Pension Fund Regulatory and Development Authority Bill [1]The Marriage Laws (Amendment) Bill, 2010 [1]The Direct Taxes Code Bill, 2010 [1]The National Commission for Human Resources for Health Bill, 2011 [1]The Mines And Minerals ( Development And Regulation) Bill, 2011 Some pending Bills BUSINESS AS USUAL? 99 Total number of pending Bills in both Houses of Parliament 7Number of constitutional amendment Bills 18 Finance Bills ( including Companies Bill that Lok Sabha has passed but awaiting clearance from Rajya Sabha)

 

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CS A  RENGARAJAN,, B.Com ,FCS, LLB, PGDBM
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