| Arbitration comes of age: Nokia is next |
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Chennai/ New Delhi, 13 May Nokia is likely to seek mediation in its ₹ 21,000- crore tax dispute with India, swelling the ranks of companies that are choosing arbitration over protracted court battles with the government. The Finnish mobile handset company was expected to serve a notice to the Centre and move for international arbitration after three months, a person close to the development said. The income- tax claim has stopped Nokia from transferring its plant at Sriperumbudur near Chennai and 8,000 workers as part of a $ 7.2- billion deal to sell its mobile handset business to software giant Microsoft. Nokia decided to seek mediation after receiving unfavourable orders from Indian courts on its alleged tax liability since 2006- 07. " Nokia has sent a letter under the Finland India Bilateral Investment Treaty to the Prime Minister of India. The letter seeks an amicable resolution of the current tax dispute," a company spokesperson said in response to a query from Business Standard. Companies are increasingly seeking arbitration instead of moving court. Over the past three years, the number of disputes under conciliation in India has nearly tripled. Oil refiner Reliance Industries on Saturday sought arbitration against the government over the price of gas from its find in KrishnaGodavari basin. This was the company's second arbitration notice; earlier, it had served one over the government's move to disallow some of the expenditure incurred in KG- D6 in view of falling natural gas production from the field. Telecom company Vodafone said a few days ago that it had begun international mediation over a ₹ 23,000- crore tax claim on its purchase of a 67 per cent stake in the Indian operations of Hutchison Whampoa for $ 11.2 billion in 2007. Compared with long- winded court cases, arbitration is quick. Besides, overturning mediated decisions is difficult. " Once a conclusion has been reached, the scope of interference by courts is narrow. Another opinion is not a ground for interference," says advocate Aman Lekhi. There are other benefits. Parties get to choose where the hearings will take place. Proceedings are not as public as in courts. " All agreements now contain these clauses. There has been a steady rise in our corporate clients seeking arbitration," said a senior advocate with a law firm, asking not to be named. Turn to Page 9 > NOTICE BOARD The government has received more than 15 arbitration notices from foreign companies. A look at some of those: |Reliance Industries served an arbitration notice on the govt for its move to disallow some of the expenditure incurred in the company's KG- D6 gas field in view of falling natural gas output |Vodafone went for an international investment arbitration over its ₹ 23,800crore tax dispute with the government. The dispute relates to the company's purchase of a 67% stake in Hutchison Whampoa's Indian operations for $ 11.2 bn |RIL, BP and Niko served an arbitration notice over nonimplementation of a revised gas price from April 1 |
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The arbitration clause is present in almost 95 per cent of corporate agreements, according to tax and audit firm Ernst &Young. "As we interact with companies, we have observed the need for experts' reports before passing an arbitral award is gradually growing," says Yogen Vaidya, director of fraud investigation and dispute services at Ernst & Young. The growing scope for conciliation drew the London Court of International Arbitration to set up its first independent subsidiary in India in 2009, followed by the Singapore International Arbitration Centre. |
| Give up control in state banks: Nayak panel to govt | ||
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Mumbai, 13 May A Reserve Bank of India ( RBI)appointed panel, headed by former Axis Bank chairman PJ Nayak, has recommended radical reforms for Indian banks. It suggested the government transfer all its stake and powers in public sector banks ( PSBs) to a separate entity, to be known as bank investment company ( BIC). "It is a fundamental irony that currently, the government disadvantages the very banks it has invested in," said a report by the committee. The panel suggested the government either privatise or merge the banks it owned, or design a radically new governance structure to allow PSBs to compete successfully and avoid excessive dependence on government recapitalisation. It also recommended all existing laws governing the lenders — the Nationalisation Act, the State Bank of India Act, etc — be repealed and banks be governed by the Companies Act. The committee proposed the BIC be constituted as a core investment company under RBI regulations and the character of its business " make it resemble a passive sovereign wealth fund for government banks". It added the entity should be headed by a professional banker or a private equity investment professional, to be appointed after a search process. Investment returns should be the yardstick to evaluate the BIC chief's performance, the panel said. It has also recommended the government cut its stake in PSBs to less than 50 per cent so that there was a level playing field for these banks in matters of vigilance enforcement, employee compensation and applicability of the Right to Information. Stake dilution was also recommended keeping in mind the government's increasing fiscal burden. For private banks, a special category of investors, authorised bank investors ( ABIs), was recommended. This segment, it was proposed, would have diversified investors and be discretionally managed by ' fit and proper' fund managers. ABIs could hold up to 20 per cent stake in a bank, without prior approval, and 15 per cent with voting rights, it was said. Any entity should be allowed to own 10 per cent stake in private banks without RBI approval, compared with the current five per cent, the panel said. Promoters should be allowed to hold 25 per cent, compared with 15 per cent under the new bank licence norms, it added. "The principle of proportionate voting rights should constitute part of the regulatory bedrock that fosters good governance," the report said, adding for distressed banks, private equity funds, including sovereign wealth funds, should be allowed to take a controlling stake of up to 40 per cent. For PSBs, a three- phased approach was proposed for boardlevel appointments. In the first, a banks' board bureau, comprising former senior bankers and chairmen and executive directors, should be set up, it was mooted; this bureau would look after affairs till the BIC took shape. " The chairman and each member of the bureau should be given tenures of up to three years," the report said. In the second phase, the BBB would be undertaken by the BIC. Also, the BIC would strive to professionalise bank boards; in the third phase, the BIC would shift several of its powers to bank boards, the Nayak panel proposed. "The duration of this three- phase transition is expected to be between two and three years," it said. From the second phase, the longest term for any director other than whole- time directors in banks would be restricted to seven years. The panel also proposed a cooling- off period of five years for adirector to return to a bank board, and a two- year coolingoff period for a director to be appointed on the board of a different bank. Also, a director on a PSB board could be a director of only six other listed companies. Emphasising the need to upgrade the quality of board deliberation in PSBs, seven themes were identified to be discussed at board meetings — business strategy, financial reports and their integrity, risk, compliance, customer protection, financial Inclusion and human resources. "Among the seven themes identified for detailed board scrutiny, a predominant emphasis needs to be provided to business strategy and risk," the report said. While the government would initially hold the entire equity in BIC, the panel sought government stake of less than 50 per cent, adding the government should not issue any regulatory instruction that was only applicable to PSBs, as dual regulation was discriminatory. " RBI should be the sole regulator for banks, with regulations continuing to be uniformly applicable to all commercial banks," the report added. Recommending splitting the post of chairman and managing directors, the report sought a term of at least five years for bank chairmen and at least three years for executive directors. For private banks, committee suggests 25% promoter stake FOR BETTER GOVERNANCE Nayak panel recommendations on governance of banks boards |Remove external constraints on state- run banks |Upgrade quality of board deliberation of state- run banks |Create bank investment company to hold stakes in state- run banks |Constitute bank boards bureau for selection of top management |Uniform licensing regime desirable |Allow profit- based commissions for nonexecutive directors |Maximum age of whole- time directors should be 65 Recommending splitting the post of chairman and managing directors, the report sought a term of at least five years for bank chairman
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