| Sebi clears decks for REIT launch |
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The Securities and Exchange Board of India (Sebi) on Sunday set the stage for launch of Real Estate and Infrastructure Investment Trusts, commonly referred to as REITs and InvIT. In the final regulations, the market regulator has made some major changes to what it had proposed earlier. These include allowing foreign institutional investor ( FII) participation and reducing the minimum asset size for a REIT. Those in the sector said these two new instruments had the potential of attracting nearly ₹ 1 lakh crore to the cashstarved real estate and infrastructure sector. The proposals were cleared at a meeting of the Sebi board, which was addressed by Finance Minister Arun Jaitley. In Budget 2014- 15, the finance minister had announced giving a pass- through status to these trusts. In his first interaction with Sebi's board after assuming charge as finance minister, Jaitley asked the regulator to be vigilant about possible violations in the marketplace and to come up wit measures to attract retail investors and address their grievances. Sebi Chairman UK Sinha said after the meeting that these trusts would help in the progress of the real estate and infrastructure sectors. While the draft guidelines did not give a clarity on foreign investments in these trusts, the final norms have permitted foreign entities to invest in REITs. These investments, however, will be subject to certain guidelines, which will be issued by the Reserve Bank of India. Turn to Page 9 > Key relaxations in final regulations Sebis final REIT framework has more relaxations than those proposed in the draft norms. A comparison INVESTMENTS BY FOREIGN ENTITIES Draft: Lacked clarity Final: REITs allowed to raise funds from foreign investors, subject to guidelines to be issued by RBI Benefit: Boost in investor participation, especially of global pension funds and insurers MINIMUM SIZE OF REIT ASSETS Draft: ₹ 1,000 cr Final: Lowered to ₹ 500 cr Benefit: More assets will come under the REIT fold NUMBER OF SPONSORS Draft: A REIT could have only one Final: Up to three allowed, provided individual holding is at least 5% Benefit: Crucial as industry had expressed concern over sole sponsorship norm INVESTMENT IN UNDERCONSTRUCTION ASSET Draft: Up to 10% Final: Up to 20% in underconstruction assets, shares/ debt of real estate companies, mortgagebacked securities Benefit: Greater flexibility for investment AHEAD |
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| Sebi clears the decks... |
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The final guidelines have also liberalised norms related to sponsors of REITs. It has increased the number of sponsors to three ( from one), provided an individual owns at least five per cent of the fund. The final guidelines have also relaxed investment norms. Now, investment of up to 20 per cent is allowed under construction assets, shares, debts of real estate companies, mortgage- backed securities, against 10 per cent proposed in under- construction assets. "Reducing asset size to ₹ 500 crore is a significant move, as it will allow more players to access this platform. Allowing REITs to invest up to 20 per cent in real estate equity and debt, will give room to diversify investment portfolio," said Bhairav Dalal, associate director, PwC India. The regulator has, however, decided against reducing the requirement for the mandatory continuous holding by sponsors to ensure alignment of their interest with the trust's. The minimum initial offer size would be ₹ 250 crore, with a minimum public float of 25 per cent. The sponsors would need to have mandatory holding of 25 per cent in REIT units for three years and continuous holding of 15 per cent thereafter. Multiple sponsors would be allowed to own the mandatory holding together. However, small investors would have to wait for some time before they are allowed to invest in these new products, as minimum investment amount has been fixed at ₹ 2 lakh for REITs and at ₹ 10 lakh for InvITs, given the complex nature and potential risks associated with these. The minimum net worth of the manager would be increased to ₹ 10 crore from the ₹ 5 crore proposed in draft guidelines. For InvITs, too, trustees would need to be independent and not associates of sponsors or managers. For InvITs proposing to invest in public- private partnership ( PPP) projects, where the sponsor needs to hold a certain minimum proportion in the special purpose vehicle under a regulatory requirement or a concession agreement, the sponsor holding norms have been relaxed. The minimum net worth requirement of an InvIT sponsor has been set at ₹ 100 crore, against ₹ 10 crore proposed in draft guidelines. The net worth for investment manager has been raised from ₹ 5 crore to ₹ 10 crore. The requirement of at least two assets for publicly offered InvITs has been done away with. But industry's demand to allow such trusts to invest in holding companies of the SPVs has been rejected. The new guidelines are expected to enable a new investment avenue in India, on the lines of developed markets like the US, the UK, Japan, Hong Kong and Singapore. These would allow trading in units of REITs and InvITs like any other security on stock exchanges. In his Budget speech, Jaitley had announced tax incentives for these products; those have been incorporated in the new norms, expected to come into force in a couple of months after necessary notifications. Industry and experts have welcomed the guidelines and said it would help attract investments to the tune of ₹ 15- 20 billion ( over ₹ 1 lakh crore), from foreign as well as domestic investors, through such trusts. Neeraj Bansal, partner & head of real estate and construction, KPMG in India, said: " After the Sebi approval, expediting notification of REIT and InvIT norms will facilitate infusion of an estimated $ 15- 20 billion in the sector." The government feels these new investment avenues will reduce the pressure on the banking system and also make available fresh equity in the form of long- term finance from foreign and domestic sources, including non- resident Indians. "These initiatives have opened up an additional window of funding support to the infra and real estate sector, for their complete and revenuegenerated projects. This will also free exposure limits of publicsector banks in these sectors," said Nirmal Gangwal, founder & managing director, Brescon Corporate Advisors. Through InvITs, the government is aiming to create a new avenue for raising funds to meet infrastructure investment requirements to the tune of ₹ 65 lakh crore during the 12th Five- Year Plan ( 2012- 17). Despite significant tax benefits for the sponsors of these business trusts, these new regulations would also be " revenue accretive" for the government in the form of taxes. Among other exemptions, any capital gains tax on units of InvITs would be levied only at the time of ultimate disposal of the units of the sponsor under the new norms, sources said. However, the sponsor would not be entitled to the concessional securities transaction tax- based capital gains tax regime at the time of ultimate disposal of the units of the business trust. In another benefit, any dividend would be tax exempt in the hands of the business trust and the dividend component of the income distributed by the business trust would also be exempt in the hands of the unit holder. But the portfolio SPVs distributing dividend to business trusts will be subject to dividend distribution tax. >FROM PAGE 1 |
| Factories Bill seeks to overhaul labour laws |
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New Delhi, 10 August The Factories ( Amendment) Bill of 2014, tabled in the Lok Sabha, could be considered the first piece of an expected incremental overhaul of India's labour laws by the Bharatiya Janata Party ( BJP) government. The Bill acknowledges the reality of women at the workplace, increases worker safety and facilities, and reduces the days an employee must work to be eligible for annual leave. It also proposes to increase the permissible limits for overtime from 50 to 100 hours a quarter in normal circumstances and 125 hours of overtime a quarter "in public interest", with permission from the state government. The Bill grants state governments the freedom to raise the threshold of applicability of the law —from companies employing 10 employees working with the aid of electricity and 20 employees without, to 20 employees working with electricity and 40 without. Section 66 of the existing law prohibits women from working night shifts at factories. Under the proposed amendment, women can work night shifts on the condition that their employers guarantee their occupational safety, secure transport toandfrom their homes and protection from sexual harassment. Another amendment allows women to work on and repair heavy machinery under safe conditions. The Bill also includes a broader definition of protective equipment beyond protective eyewear. In the event of an accident, the Bill distinguishes between the liabilities of the party providing or manufacturing a particular piece of machinery and the party that instals it. Similarly, in case of a mishap where multiple factories are operating out of the same premises, the owner of the premises may be prosecuted under the same provisions as the factory manager or operator. Such a provision could apply in cases like the collapse of a building. Earlier, factories with more than 250 workers were required to provide canteens for their workers; that threshold has been reduced to 200 workers, while the threshold to provide restrooms, shelters and a lunch room has been reduced from factories with 150 workers to those with 75 workers. According to the Bill, all factories, irrespective of worker strength, would be required to supply cold drinking water in the summer unlike earlier when only factories employing more than 250 workers were required to. The eligibility criteria for annual paid leave shall be reduced from 240 days of work to 90 days. The Bill, as mentioned earlier, increases the permissible limit for overtime from 50 hours a quarter to amaximum of 125 hours. While increasing the fines for violating its provisions, it also introduces a schedule of compoundable offences — like failure to provide toilets, creches and annual leave without wages — under which factory owners may avoid imprisonment by paying a fine. The Bill acknowledges the reality of women at the workplace, increases worker safety and reduces the days an employee must work to be eligible for annual leave |
| BRIEF CASE |
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Before blacklisting of a firm by the government, it should be given notice of the intention and it should be clear from the notice, the Supreme Court stated last week. This is so because the "extreme nature of such a harsh penalty like blacklisting will cause severe consequences" and is like civil death, the court stated in the judgment, Gorkha Security Services vs Government of Delhi. In this case, the security firm was engaged in a government hospital. It was accused of not following labour welfare laws like minimum wages, provident fund and insurance. Therefore, its services were terminated and additionally, it was also blacklisted. It challenged the government action in the Delhi High Court. It dismissed the writ petition. However, on appeal, the Supreme Court examined the facts of the case and concluded that the firm was not given proper notice specific to the proposed blacklisting. " Had the action of blacklisting being specifically proposed in the show cause notice, the firm could have come out with extenuating circumstances defending its stand," but that opportunity was not given to the firm. Therefore, the court set aside the high court judgment. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Chit funds, turf club covered by ESI Turf clubs and chit fund firms are applicability of the law to horse racing clubs in different cities. The court gave a liberal interpretation of the word 'shop', not defined in the law. It rejected the argument of the clubs and the chit fund firm that the meaning of shop should be given the traditional meaning. In the chit fund case, it was argued that there was no buying or selling in its offices and it was a matter of contract. Therefore it was not running shops. The court rejected this contention and asserted that the activities of chit funds would fall within the meaning of shops. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Order on jewellery trademark quashed The Supreme Court last week set aside the order of the Delhi High Court in a trademark case involving the use of family name for a jewellery shop. The dispute was between family members who are in the same business in the capital. One party in the case used the name ' Neena and Ravi Rakyan' for its business while the other used the phrase, ' Rakyans Fine Jewellry'. Rakyan was the common family surname. The high court passed a restrain order against the first party, against which it moved the Supreme Court. It stated that since Neena and Ravi were partners of a firm using the family name, they could not be restrained from doing their business in their own names. According to the judgment, Precious Jewels vs Varun Gems, under Section 35 of the Trade Marks Act, anyone can do business in his own name in a bona fide manner. After vacating the order, the Supreme Court asked the high court to decide the issue finally on evidence led by the parties. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> PWD can't renege on consent decree The Supreme Court last week stated that once a consent decree was passed, the government cannot wriggle out of it on the ground that its counsel was not authorised to compromise its case. In this case, Y Sleebachen vs PWD, disputes arose between an engineering firm and the Public Works Department over modernisation of a reservoir system in Tamil Nadu. The matter was referred to arbitration. The award went in favour of the contracting firm. The government appealed under the Arbitration and Conciliation Act to the district judge. While the complicated proceedings were going on, the firm fell into financial difficulties and a compromise was reached. The government pleader accepted the firm's withdrawal of its earlier claims. The district judge passed a consent order. However, the government went on with litigation in an appeal before the Madras High Court against the district judge's order. The high court ruled that the government pleader was not authorised to compromise the PWD case and therefore it was not binding. The firm appealed to the Supreme Court. It set aside the high court order and restored that of the district judge. The judgment said that the consent was binding on the PWD and its " afterthought that its lawyer was not authorised to enter into a settlement" cannot be accepted. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Compensation notbased on ' guesstimate' the value of the land and structures at ₹ 1.43 lakh. The reference court, after accepting the report of commissioners, set the value at ₹ 4.45 lakh. The Kerala High Court felt it was on the high side and reduced the amount to ₹ 3.5 lakh. On appeal, the Supreme Court set aside the judgment in Rajesh Valel vs Inland Waterways Authority of India and hiked it to ₹ 4.45 lakh again and stated that the high court should not have reduced the compensation. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Cheque bounce prosecution upheld High courts should not quash cheque bounce cases at the preliminary stage itself when facts are yet to be ascertained by the magistrate's court. In this case, Ajeet Seeds Ltd vs KGopala, the question was whether the demand notice was received by the drawer of the cheque issued in payment of a debt. While the magistrate had issued process, the Bombay High Court quashed it on the ground that the notice did not appear to have been served or received by the accused person. The payee appealed to the Supreme Court, which allowed it stating that the issue of notice before filing complaint under the Negotiable Instruments Act is a matter of evidence and proof. Therefore it would be premature for the high court to quash prosecution assuming that notice was not received by the accused person. |
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