Securities and Exchange Board Of India (Alternative Investment Funds) Regulations, 2012

Scope of the Regulations and applicability to existing funds

All AIFs whether operating as Private Equity Funds, Real Estate Funds, Hedge Funds, etc. must register with SEBI under the AIF Regulations.

SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) have been repealed. However, existing VCFs shall continue to be regulated by the VCF Regulations till the existing fund or scheme managed by the fund is wound up. Existing VCFs, however, shall not increase the targeted corpus of the fund or scheme as it stands on the day of   Notification of these Regulations. Such VCFs may also seek reregistration under AIF regulations subject to approval of 66.67% of their investors by value.

Existing funds not registered under the VCF Regulations will not be allowed to float any new scheme without registration under AIF Regulations. However, schemes floated by such funds before coming into force of AIF Regulations, shall be allowed to continue to be governed till maturity by the contractual terms, except that no rollover/ extension or raising of any fresh funds shall be allowed.

Existing funds not registered under the VCF Regulations which seek registration but are not able to comply with all provisions of AIF Regulations may seek exemption from the Board from strict compliance with the AIF Regulations.

Categories of funds

 The Regulation seeks to cover all types of funds broadly under 3 categories. An application can be made to SEBI for registration as an AIF under one of the following 3 categories:-

i.                     Category I AIF – those AIFs with positive spillover effects on the economy,  for which certain incentives or concessions might be considered by SEBI or Government of India or other regulators in India; and which shall include Venture Capital Funds, SME Funds, Social Venture Funds, Infrastructure Funds and such other Alternative  Investment Funds as may be specified. These funds shall be close ended, shall not engage in leverage and shall follow investment restrictions as prescribed for each category. Investment restrictions for VCFs are similar to restrictions in the existing VCF Regulations.

ii.                   Category II AIF – those AIFs for which no specific incentives or concessions are given by the government or any other Regulator; which shall not undertake leverage other than to meet day-to-day operational requirements as permitted in these Regulations; and which shall include Private Equity Funds, Debt Funds, Fund of Funds and such other funds that are not classified as category I or III.  These funds shall be close ended, shall not engage in leverage and have no other investment restrictions.

iii.                  Category III AIF – those AIFs including hedge funds which trade with a view to make short term returns; which employs diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.     These funds can be open ended or close ended. Category III funds shall be regulated through issuance of directions regarding areas such as operational standards, conduct of business rules, prudential requirements, and restrictions on redemption, conflict of interest as may be specified by the Board.

Other salient features

(i)      The Alternative Investment Fund shall not accept from an investor an investment of value less than rupees one crore. Further, the AIF shall have a minimum corpus of Rs. 20 crore.

(ii)    The fund or any scheme of the fund shall not have more than 1000 investors.

(iii)   The manager or sponsor for a Category I and II AIF shall have a continuing interest in the AIF of not less than 2.5% of the initial corpus or Rs.5 crore whichever is lower and such interest shall not be through the waiver of management fees.

(iv)  For Category III Alternative Investment Fund, the continuing interest shall be not less that 5% of the corpus or rupees ten crore, whichever is lower.

(v)    Category I and II AIFs shall be close-ended and shall have a minimum tenure of 3 years. However, Category III AIF may either be close-ended or open-ended.

(vi)  Schemes may be launched under an AIF subject to filing of information memorandum with the Board along with applicable fees.

(vii) Units of AIF may be listed on stock exchange subject to a minimum tradable lot of rupees one crore. However, AIF shall not raise funds through Stock Exchange mechanism.

(viii)                       Category I and II AIFs shall not be permitted to invest more than 25% of the investible funds in one Investee Company. Category III AIFs shall invest not more than 10% of the corpus in one Investee Company

(ix)  AIF shall not invest in associates except with the approval of 75% of investors by value of their investment in the Alternative Investment Fund.

(x)    All AIFs shall have QIB status as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.

(xi)  The Regulations provide for transparency and disclosures and mechanism for avoidance of conflict of interest

Click here to view the Securities and Exchange Board Of India (Alternative Investment Funds) Regulations, 2012.

Amendments Proposed to The Dowry Prohibition Act, 1961

The National Commission for Women (NCW) has proposed recommendations to amend the Dowry Prohibition Act, 1961 in 2009. The major recommendations include:-

1.       Amendment to definition of dowry.

2.       Provision for registration of lists of gifts received at the time of marriage.

3.       Provision for separate penalties for giving and taking of dowry.

4.       Penalties for non-maintenance of lists of gifts received at the time of the marriage.

5.       Insertion of a new clause providing an opportunity to the woman to file a case at the place where the offence was committed or where she permanently/temporarily resides. 

6.       Protection officers appointed under the Protection of Women from Domestic Violence Act, 2005 to carry out the duties of the Dowry Prohibition Officers.

The Ministry is currently examining the proposed amendments as stated by the Minister for Women and Child Development, Smt. Krishna Tirath in a written reply to a question in the Rajya Sabha on 3rd May, 2012.

100 Percent FDI in Single Brand Retail

Department of Industrial Policy and Promotion Ministry of Commerce and Industry on 10^th January 2012, notified the decision to allow 100 per cent FDI in Single brand retail via Press Note No.1 (2012 Series).

Presently Foreign Direct Investment (FDI), in retail trade, is prohibited except in single brand product retail trading, in which FDI, up to 51% is permitted, subject to conditions specified under paragraph 6.2.16.4 of 'Circular 2 of 2011- Consolidated FDI Policy'. The Government of India has reviewed the extant policy on FDI and decided that FDI, up to 100%, under the government approval route, would be permitted in Single-Brand Product Retail Trading, subject to specified conditions.

The conditions are:

(a) Products to be sold should be of a 'Single Brand' only.

(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

(c) 'Single Brand' product-retail trading would cover only products which are branded during manufacturing.

(d) The foreign investor should be the owner of the brand.

(e) In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian 'small industries/ village and cottage industries, artisans and craftsmen'. 'Small industries' would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

Click here to view the Press Note

Consumer Protection (Amendment) Bill, 2011

A Press Release by the Ministry of Consumer Affairs, Food & Public Distribution on 4^th January 2012 elucidates the Amendments that are proposed to be made in the Consumer Protection Act, 1986.

The Consumer Protection Act, 1986, paved way for consumer disputes redressal agencies in 629 District, 35 State and National levels to render simple, inexpensive and speedy justice to consumers in respect of complaints against defective goods, deficient services and unfair or restrictive trade practices.

The Amendments proposed includes:  

• On line filing of consumer complaints

Making provision for registering complaint by electronic form (on line filing complaint)- Since the Consumer Forums are being computerized it is proposed to make provision in the law to permit consumers to file complaints as well as pay fee online, which would make the consumer for a move towards e-governance/ time bound redressal.

• Enforcement of orders as a Decree of Civil Court

Making provision that an order of the District Forum / State Commission/ National Commission will be enforced as a Decree of a Civil Court- This modification is considered essential in view of the experiences gained during implementation of the amended Act and is intended to deter willful offenders and also to ensure speedy and proper execution of the order of the consumer forums, so that justice to the aggrieved consumers is not frustrated.

• Payment to be made for non-compliance of the order

Making provision for payment by every person for not complying of the order of District Forum / State Commission / National Commission of an amount of not less than Rs.500 or 1½ per cent of the value of the amount awarded- whichever is higher, for each day of delay of such non-compliance of the order. This modification is considered essential in view of the experiences gained during implementation of the amended Act and is intended to deter willful offenders and also to ensure speedy and proper execution of the orders of the consumer forums, so that justice to the aggrieved consumers is not frustrated.

• Powers to District Forum

Empowering District Forum to function in any other place apart from District HQrs, in consultation with State Government / State Commission - This provision is considered necessary to allow State Governments the flexibility to club neighboring Districts Forum as also give additional charge to President/Members to hear cases in more than one District Forum so as to effectively deal with the non-functionality of Districts Forum caused due to vacancy of President/Member.

Conferring powers to District Forum to issue order to the opposite party to pay reasonable rate of interest on such price or charges as may be decided by the District Forum- This provision is considered necessary to empower the consumer forum to award interest where the consumer has suffered due to protracted litigation.

• Powers to State Government in selection process

Empowering State Government to refer back the recommendation of the Selection Committee for making fresh recommendation in order to avoid any delay in the Selection process- This is felt necessary to facilitate quicker filling up of the posts in the Consumer Forums and to avoid the consumer Forum remaining non-functional for long due to such vacancy thereby adversely affecting consumers’ interest.

• Increase of age in the appointment

Increasing the minimum age for appointment as Member in the case of State Commissions from 35 to 45 years, and in case of National Commission from 35 to 55 years- This is proposed to improve the quality of persons applying for these posts.

• Experience for members

Increasing the period of experience for appointment as Member in the case of State Commission from 10 years to 20 years and in the case of National Commission from 10 years to 30 years-This is proposed in order to improve the quality of persons applying for these posts.

• Powers to National Commission / State Commission to direct any one to assist the case

Conferring powers to National Commission / State Commission to direct any individual or organization or expert to assist National Commission / State Commission in the cases of large interest of the consumers- This provision would enable the National Commission or the State Commission, in cases involving the larger interests of the consumers, an opportunity to suo moto enlist the services of an expert or an outside party, in an ongoing case, in the interest of justice.

• Monitoring system of pending cases

Conferring powers to Central Government to call upon periodical reports of pending cases from National Commission and to State Government from State Commission or any District Forum- The provision is considered necessary to enable easy availability of data regarding filing and disposal of consumer complaints, which would help in monitoring the functioning of the consumer for a and effectiveness of the law. 

SECURITIES AND EXCHANGE BOARD OF INDIA {KYC (Know Your Client) REGISTRATION AGENCY} REGULATIONS, 2011

SEBI on December 2^nd , 2011 issued guidelines for KYC Registration Agencies and said wholly-owned subsidiaries of stock exchanges and depositories would be eligible able to act in such a role.

The Securities and Exchange Board of India (SEBI) has asked know your customer, or KYC, registration agencies (KRAs) to ensure interoperability amongst themselves. This is aimed to avoid duplication of KYC process with every intermediary, a mechanism for centralisation of KYC records in the securities market. An intermediary has to perform the initial KYC of its clients and upload the details on the system of the KRA (KYC Registration Agency). When the client approaches another intermediary, the intermediary can verify and download the client’s details from the system of the KRA.

Besides, wholly-owned subsidiaries of depositories, other market intermediaries and Self Regulatory Organisations would also be able to secure certificate for initial registration as KRA. The KRAs can, in co-ordination with each other, prepare operating instructions for implementing requirements under the guidelines and share data on KYC documents. KRA will be responsible for storing, safeguarding and retrieving the KYC documents and submit to the board or any other statutory authority as and when required. Such agencies will also have to a compliance officer who shall be responsible for monitoring the compliance of rules and regulations issued by SEBI and the central government for redressal of client’s grievances.

Market intermediaries have been directed to upload KYC information of clients on the KRA system and send the original data to them. An applicant for KRA status must also have a net worth of Rs 25 crore and have expertise for technology and systems and safeguards for maintaining data privacy and preventing unauthorised sharing of data.

KRAs would be eligible for applying for permanent registration three months before the expiry of the period of certificate of initial registration. SEBI has also made provisions for inspections of KRA regarding books of accounts, records, infrastructure, documents and procedures.

The Securities and Exchange Board of India (KYC (Know Your Customer) Registration Agency) Regulations, 2011, came into effect from 2 December 2011.

Click here to view the regulation

Draft Public Procurement Bill, 2011

Pursuant to the Prime Minister's Independence Day address regarding the introduction of a Public Procurement Bill, the Department of Expenditure has prepared a draft Bill called 'The Public Procurement Bill, 2011'.

The Bill is intended to regulate public procurement by all Ministries and Departments of the Central Government, Central Public Sector Enterprises (CPSEs), autonomous and statutory bodies controlled by the Central Government and other procuring entities. The objectives of the Bill are to ensure transparency, fair and equitable treatment of bidders, promote competition and enhance efficiency and economy in the procurement process. The Bill contains broad principles and will be supplemented by rules. The Bill also provides for a grievance redressal mechanism and for penalties for offences under the Bill.

Currently there is no overarching legislation governing public procurement by the Central Government and Central Public Sector Enterprises (CPSEs). The General Financial Rules, 2005 govern procurements made by the Central Government. Some Ministries/ Departments have specific procedures/ Manuals to supplement these Rules. Procurements by CPSEs are governed by their own Manuals/ Procedures.

The Highlights of the Bill as given by Department of Expenditure, Ministry of Finance are as follows:

Objectives

⊙  A legislation to regulate public procurement by all Ministries and Departments of the Central Government, Central Public Sector Enterprises, Autonomous and Statutory bodies controlled by the Central Government and other procuring entities;

⊙  Ensuring transparency, fair and equitable treatment of bidders, promoting competition and enhancing efficiency and economy in the procurement process;

⊙  Ensuring highest standards of transparency, accountability and probity in the public procurement process and enhancing public confidence in public procurement.

Basic Features

⊙  Contains broad principles and provides flexibility for the variety of procuring entities to be covered.

⊙  To be supplemented by Rules for procurement of Goods, Works and Services.  Separate sets of Rules for:

•        Procurements for the purpose of national security

•        Entering into Public Private Partnerships

•        Procurement by Central Public Sector Enterprises

⊙  Exemptions from the law in certain circumstances

⊙  Key transparency and accountability norms incorporated from international best practices

⊙  Expeditious and streamlined grievance redressal Procedure

Scope and Coverage

⊙  To apply to procurements made by:

•        Ministries and Departments of the Central Government, their attached and subordinate offices

•        Central Public Sector Enterprises controlled by the Central Government

•        Central Purchase Organisations of the Central Government

•        Constitutional bodies whose expenditure is met from the Consolidated Fund of India

•        Any body or Board or corporation or authority or society or autonomous body (by whatever name called) established or constituted under an Act of Parliament Statutory or controlled by the Central Government

•        Provision for covering other entities by notification

⊙  No entities excluded from the law; only certain circumstances deemed relevant for exclusion

⊙  Covers the procurement process from the stage of needs assessment up to the award of the procurement contract.

Transparency and Accountability

⊙  An accountable ‘needs assessment’ process with all decisions and documents to be duly maintained facilitating an audit trail

⊙  No restriction on participation of bidders other than on specified conditions

⊙  Documentary record of procurement proceedings mandated

⊙  Transparent methods of registration and pre-qualification of suppliers respecting the need for fair competition

⊙  Statutory backing for Integrity Pacts between the procuring entity and participating bidders

⊙  Description of subject matter of procurement to be objective, functional and generic with guidelines to be prescribed

⊙  Standard terms and conditions of contract to be prescribed

⊙  Criteria for evaluating bids to be mandatorily published in the complete bidding document along with relative weights attached; no changes permitted once published

⊙  No price negotiations except in circumstances to be prescribed for which reasons to be recorded.

⊙  Establishment of an online portal known as the Central Public Procurement Portal as a single information window for all matters relating to procurement. Statutory requirement to publish information regarding invitations to bid, names of competing bidders, excluded bidders, debarred bidders, and award details.

⊙  E-procurement and e-payment enabled

Procurement Process

⊙  Essential contents of bidding documents mandated

⊙  Sufficient time to be allowed to prepare and present bids. Same time for all bidders.

⊙  Time bound reply to bidders’ request for clarifications.  All clarifications to be published on portal.  Pre-bid conference enabled

⊙  Modifications to bid documents to be published in the same manner as original bidding document.

⊙  Accountable bid opening and bid evaluation mechanism with separate 3-member Bid Opening Committee and Bid Evaluation Committee, with provision for a Technical Evaluation Committee, in case technical bids have to be evaluated separately

⊙  Standstill period of 10 days after notification of successful bidder and before signing contract.

Diversity of Procurement Methods

⊙  Open Competitive Bidding as the preferred method of procurement

⊙  A wide range of alternative methods available depending on the needs of the procuring entity and subject to appropriate justifications being provided for their use

⊙  Competitive Negotiations, Electronic Reverse Auctions and Framework Agreements facilitated by the Bill in accordance with international best practices

⊙  For low-value procurements and standard commercial items, three existing methods of procurement as per GFRs — purchase through Rate Contracts, purchase without quotations and purchase by Purchase Committees—continued.

Grievance Redressal

⊙  A statutory de-centralised three-tier framework for redressal of grievances arising under this Bill established:

⊙  Reconsideration by procuring entity

⊙  Grievance Redressal Committee in the procuring entity, which shall act quasi-judicially

⊙  Judicial proceedings before the appropriate High Court

⊙  For disputes relating to award of contract in high-value procurements, in view of their relatively small number and high importance, second tier redressal directly in High Court

⊙  For all other disputes, in view of the large number of procuring entities and the need for de-centralised and expeditious dispute resolution, three tier framework to be followed

Offences and Penalties

⊙  Prevention of Corruption Act applicable to offences by Public Servants

⊙  Corruption, collusion and anti-competitive behaviour by bidders to attract appropriate penalties. Term of imprisonment equal to that prescribed in Prevention of Corruption Act.

⊙  Provisions for debarment of bidders:

•        Automatic debarment on conviction for certain offences

•        Discretionary debarment on conviction for less serious offences

•        Discretionary debarment in addition to forfeiture of bid/performance securities. (Does not require conviction)

⊙  All debarments to be notified on the Central Public Procurement Portal

⊙  Appropriate penalties for frivolous or vexatious applications for grievance redressal

Click here to view the Draft Bill

FDI – Reporting of Issue / Transfer of ‘Participating Interest/Right’ in Oil Fields to a Non-Resident as an FDI Transaction

RBI on November 16, 2011, had decided to treat the issue / transfer of ‘participating interest/ rights’ in oil fields to a non- resident as Foreign Direct Investment (FDI) transaction under the extant FDI policy and the FEMA regulations. Accordingly, these transactions have to be reported as FDI transactions in terms of the provisions of Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time read with A.P. (DIR Series) Circular No.63 dated April 22, 2009 as well as paragraph 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. Accordingly, transfer of ‘participating interest/ rights’ will be reported as ‘other’ category under Para 7 of revised Form FC-TRS as given in the Annex and issuance of ‘participating interest/ rights’ will be reported as ‘other’ category of instruments under Para 4 of Form FC-GPR.

Click here to view the Circular.

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