National Manufacturing Policy

The Cabinet has approved the revised National Manufacturing Policy proposed by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry on 25th October, 2011. The policy has been formulated after detailed consultations with the industry; subject matter experts; State Governments and the concerned Ministries/Departments of the Government of India. 

The key objectives of the policy are: 

• To increase the sectoral share of manufacturing in GDP to at least 25% by 2022; 
• To increase the rate of job creation so as to create 100 million additional jobs by 2022; 
• To enhance global competitiveness, domestic value addition, technological depth and environmental sustainability of growth. 

The policy also provides for creation of large integrated industrial townships called National Investment and Manufacturing Zones (NIMZs) with state-of-the-art infrastructure; land use on the basis of zoning; clean and energy efficient technologies; necessary social and institutional infrastructure in order to provide a productive environment to persons transitioning from the primary to the secondary and tertiary sectors. The land for these zones will preferably be waste infertile land not suitable for cultivation; not in the vicinity of any ecologically fragile area and with reasonable access to basic resources. 

It is envisaged to ensure compliance of labour and environmental laws while introducing procedural simplifications and rationalization so that the regulatory burden on industry is reduced. The interventions proposed are generally sector neutral, location neutral and technology neutral except the attempt to incentivize green technology for sustainable development No subsidies are proposed for individual units or areas. The basic thrust is to provide an enabling environment for tapping the potential of the private sector and the entrepreneurial skills of the younger population.

Click here to view the policy.

Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and the Information Technology (Intermediaries guidelines) Rules, 2011

Data protection and data privacy laws had been constantly evolving all around the world. India had been lacking a dedicated Data Privacy Law or Data Protection Law as many other foreign countries. With the constantly increasing dependence on cyberspace and also the advancements like the Cloud Computing, more Privacy Violations and Cyber Security issues are likely to arise in future. A dedicated privacy and data protection law in place will considerably reduce these apprehensions. Moreover there has been a strong opinion that if India strengthens its data protection law, it can attract multi-national corporations to India. The 2008 amendment of the IT Act and the subsequent rules instigated the strengthening of the data protection laws of the country.  Prior to the 2008 amendment there were no data privacy legislations in India. The implementation of those legislations initiated the pursuit towards effective data protection; however the measures prescribed in the 2008 legislations were limited in scope. To bolster these protections, the Government of India has notified the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011 and the Information Technology (Intermediaries guidelines) Rules, 2011.

Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules    (Click here to view)

The Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules have been notified under powers conferred under Section 87(2) read with Section 43A of the Information Technology Act 2000). It regulates the collection, disclosure, transfer and storage of sensitive personal data, and widens the scope of the regulation in Section 43A of the Act.

The sensitive personal data or information of a person dealt by the Rules consists of information relating to, passwords, financial information such as bank accounts or credit card details, his or her physiological and mental health condition, medical records and history, their sexual orientation, and biometric information. It is mandated by the rules that individuals should be informed when personal information about them is collected and also the purpose of that collection. The data thus collected cannot be retained for longer than is necessary and it cannot be used for any purpose other than for which it was collected. Individuals will have the right to access to their personal data and correct inaccuracies. They can also opt-out of providing personal data by sending a withdrawal of consent in writing. The body corporate dealing with the information is required to publish their privacy policy regarding the handling of such information.

Though the information is to be kept confidential from third parties, the Rules permit all sensitive personal details to be shared with government agencies for the purpose of verification of identity, or for prevention, detection, investigation including cyber incidents, prosecution, and punishment of offences. The government agencies mandated under the law to obtain such information can request the body corporate stating the purpose of seeking such information.

The Rules also provide for data transfer. The body corporate can transfer the information to any other body corporate or a person in India, or located in any other country if it is necessary for the performance of the lawful contract between the body corporate and the provider of the information. However, the transferee should be ensuring the same level of data protection that is adhered to by the body corporate as provided for under these Rules.

A body corporate has to comply with reasonable security practices and procedures as mentioned in the Rules including a comprehensive documented information security programme and information security policies. In case of any information security breach, the body corporate can be required by the agency mandated under the law to demonstrate, that they have implemented the security control measures.

Generally information requests made by government agencies have certain inbuilt checks, which are apparently absent in case of these Rules, except that the request for information has to be made in writing, and reasons for seeking the information has to be stated. However the Ministry of Communications & Information Technology vide press release dated May 10, 2011 stated that the Rules does not give any undue powers to Government agencies for free access of sensitive personal information. It was also pointed out that the Rules provide for inherent checks-and-balances as the Government agencies ought to have been mandated under the law to obtain such information and the information so obtained shall not be published or shared with any other person.

There exists an ambiguity when it comes to the applicability of the Rules. The Ministry of Communications & Information Technology came up with another press release to provide clarity in this regard. The press release states that the rules are regarding sensitive personal data or information and is applicable to the body corporate or any person located within India. In the light of clarification issued by the Ministry, the Rules does not apply to body corporate outside India. The clarification is silent about the situation which involves a foreign body corporate with their computer resource located in India. However such body corporate can be brought under the purview of the rules in the light of Section 75 of IT Act which speaks about offence or contravention committed outside India which involves a computer, computer system or computer network located in India.

The press release further states Rules 5 and 6 which deal with collection and disclosure of information respectively, is not binding on a body corporate providing services under contractual obligation with any legal entity. Hence the personal data sent to India by customers outsourcing work to companies in the country will not be covered under new rules.  However a body corporate, providing services to the provider of information under a contractual obligation directly with them, is subject to Rules 5 & 6.

It has also been clarified that Providers of information, as referred to in these Rules, are those natural persons who provide sensitive personal data or information to a body corporate, eliminating the uncertainty as to whether an entity which collects and provides information to another entity will be considered as a provider of information. It was also believed that the rules would make it difficult for Indian outsourcers to operate if they were required to take written consent from individuals in other countries whose data they collect and process through call centers and business process outsourcing operations. However it has been clarified that consent includes consent can be given by any mode of electronic communication.

Concerns have been raised that these rules are too restrictive and could deter foreign companies from doing business in India.  The question as to whether these Rules will turn to be advantageous or not has to be time tested.

Information Technology (Intermediaries guidelines) Rules, 2011 (Click here to view)

The Ministry of Communications and Information Technology on April 11, 2011 has notified the Information Technology (Intermediaries guidelines) Rules, 2011. These rules prescribe certain guidelines that are to be followed by intermediaries.

According to Section 2(1)(w) of the IT Act, post 2008 amendment, an Intermediary is one who receives, stores or transmits an electronic record or provides any service with respect to that record. The provision further states that Intermediaries include telecom service providers, network service providers, internet service providers, web hosting service providers, search engines, online payment sites, online-auction sites, online market places and cyber cafes.

The aforementioned rules prescribe the due diligence to be observed by intermediary in the course of its functioning. The intermediary has to publish the rules and regulations, privacy policy and user agreement for accessing the intermediary’s computer resource and it must inform the users not to host, display, upload, modify, publish, transmit, update or share any information unlawfully. The intermediary should also refrain from knowingly involving in any such activities. This does not however include temporary or transient storage of information automatically by the intermediary. If the intermediary comes to know about the existence of such information, access to such information or data has to be removed within thirty six hours. In the event of any such information and subsequent removal, the records regarding the same has to be preserved for at least ninety days for investigation purposes. The intermediary has the right to immediately terminate the access or usage rights of the users on the grounds of non-compliance with rules and regulations.

The intermediary is bound to provide assistance to Government Agencies who are lawfully authorised for investigative, protective, cyber security activity. Cyber security incidents have to be reported to the Indian Computer Emergency Response Team. The intermediary has to publish on its website the name and contact details of the Grievance Officer and also the procedure for filing a complaint against violation of Rule 3. The Grievance Officer will redress the complaints within one month from the date of receipt of complaint.

Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)(Second Amendment) Regulations, 2011

On September 23, 2011 The Securities and Exchange Board of India (“SEBI”) has issued the SEBI (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2011 (“Amendment”) vide a circular (No. LAD-NRO/GN/2011-12/25/30309), amending the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“Regulations”). The key changes to the Regulations are as follows:

Eligibility conditions for Public Issue

·        One of the conditions for an initial public offer, as laid down in 26(1)(a) of the Regulations is that, the issuer should have tangible assets of at least Rs.3 Crores during each of the three preceding years, of which only up to 50% can be held as monetary assets.  If more than 50% of the net tangible assets are held in monetary assets, the issuer should have made firm commitments to utilise such excess monetary assets in its business or project. The Amendment provides that this limit of 50% on monetary assets will not be applicable in case the public offer is made entirely through an offer for sale.

Though the offer document requires disclosure of both stand alone and consolidated financials, the Regulations were silent as to whether profitability criteria was to be applied on both stand alone and consolidated basis. The Amendment has clarified that it has to be applied on both stand-alone as well as consolidated basis for at least three out of the immediately preceding five years.

·       The Amendment also provides that an issuer who had subsidiaries for less than 5 years, should have net profits on a consolidated basis in at-least one year for which consolidated accounts are prepared.

Indian Depository Receipts

A new chapter relating to rights issue of Indian Depository Receipts (‘IDR’) has been introduced in the Regulations. Regulations 106A to 106L of Chapter XA which deals with Rights Issue of IDRs lays down the following key points:

• Regulation 106A says that an issuer has to prepare the offer document in accordance with the home country requirements.
• An issuer can make a rights issue of IDRs only if it satisfies the eligibility criteria laid down in Regulation 106B.
• Regulation 106C permits renunciation of the IDRs offered to the IDR holder.
• Regulation 106D has imposed certain obligations on the Depository, whereby the depository has to take necessary steps to enable the IDR holders to have entitlements under the rights offering and issue additional IDRs to such IDR holders. It also has to distribute the rights to the IDR Holders/renouncees or arrange for the IDR holders/renounces to subscribe for any additional rights which are available due to lack of take-up by other holders of underlying shares.
• Regulation 106E makes it necessary for an issuer to announce a record date for the purpose of determining the shareholders eligible to apply for IDRs in the proposed rights issue.
• Regulation 106F says that the offer document and the addendum attached must contain all material information in respect to rights issue.
• The issuer has to file the draft offer document and the addendum for rights offering as laid down in Regulation 106G and Regulation 106H.
• Regulation 106J says that a rights issue shall be open for subscription in India for a period as applicable under the laws of its home country; however it cannot be less than 10 days.
• The issuer has to issue an advertisement for the rights issue as laid down in Regulation 106K.
• Regulation 106L mandates that, only upon completion of the allotment process, can the issuer utilise funds raised in rights issue. 

Abridged Prospectus

·         Provisions relating to Disclosures in Abridged Prospectus in Part D of Schedule VIII have been amended with a view to restructure the Abridged Prospectus format. These essentially consist of provisions relating to the disclosures which ought to be made in Abridged Products.

Disclosures in the Addendum to the Offer Document and Disclosures in Abridged Letter of Offer

·         A new Schedule XXI has been introduced which primarily deals with disclosures in the addendum to the offer document and Disclosures in abridged letter of offer, for rights issue of Indian depository Receipts.

®     Disclosures in the Addendum to the Offer Document:

o   Schedule XXI, Part A, deals with disclosures to be made by the listed issuer making a rights issue of IDRs, in the addendum to the Offer Document for Rights Issue of Indian Depository Receipts.  

o   Part A of Schedule XXI has specified the contents that are to be incorporated in the addendum. This includes inter alia Instructions for Applicants, General Information regarding the issue, Information regarding management, Risk Factors and Proposals to address the risk, Financial Information of the Issuer, Information regarding the Capital Structure, Market price information and other information concerning the shares/IDRs, Exchange Rates, Material Litigations and Defaults and Other Regulatory and Statutory Disclosures.

o   The issuer should also make certain prescribed undertakings in connection with the issue and a declaration has to be made that none of the statements made in the addendum contravenes any of the provisions of the applicable corporate laws, as stated in Part A of Schedule XXI.

®     Disclosures in Abridged Letter of Offer:

o   Schedule XXI Part B deals with Disclosures required in the case of Abridged Letter of Offer.

o   The above mentioned disclosures include, General Information, Disclosure regarding capital structure of the issuing company, Terms and Particulars of the Issue, Details about the Company, Management and Project. The disclosures should also contain brief details of the Domestic Depository, Overseas Custodian Bank and Depository Agreement and also disclosure on Investor Grievances and Redressal System.

Provision vice changes

Provision	Changes made in the Provision
Under Regulation 8(1) (e) the lead merchant bankers is to submit to the Board along with the draft offer document, a certificate in the format specified in Part C of Schedule VII, confirming compliance of the conditions mentioned therein.	The wording of the regulation has been amended to provide that the certificate has to be in compliance of the conditions as specified in Part C of Schedule VIII.
Under Regulation 13 (2), where the issuer makes a public issue through the book building process, such issue has to be underwritten by book runners or syndicate members. It was laid down in the proviso that fifty percent [Sixty percent, if public issue is made with at least ten percent public offer under clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957] of the net offer to public proposed to be compulsorily allotted to qualified institutional buyers for the purpose of compliance of the eligibility conditions specified in sub-regulation (2) of regulation 26 and regulation 27 cannot be underwritten.	The proviso to Regulation 13 (2) post amendment says that atleast fifty percent of the net offer to the public proposed to be compulsorily allotted to qualified institutional buyers for the purpose of compliance of the eligibility conditions specified in sub-regulation (2) of regulation 26 and regulation 27 cannot be underwritten. The limit of Sixty percent, if public issue is made with at least ten percent public offer under clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1957 has been omitted.
Under Regulation 26(1)(a) an issuer can make an initial public offer, if it has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty percent are held in monetary assets: Provided that if more than fifty percent of the net tangible assets are held in monetary assets, the issuer must have made firm commitments to utilise such excess monetary assets in its business or project.	In Regulation 26(1)(a), a new proviso has  been inserted which says that the limit of fifty per cent on monetary assets is not be applicable in case the public offer is made entirely through an offer for sale.
An issuer can make an initial public offer, if it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years as laid down in Regulation 26(1) (b); however the extraordinary items will not be considered for calculating distributable profits.	Regulation 26(1) (b) post amendment makes it possible to make an initial public offer if the issuer has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, on both stand-alone as well as consolidated basis for at least three out of the immediately preceding five years. The extraordinary items will continue to be not considered for calculating distributable profits. The amendment has introduced a new proviso which says that an issuer who had subsidiary/ subsidiaries for a period lesser than five years, must have net profits on a consolidated basis in atleast one year for which consolidated accounts are prepared.
Regulation 82 (c) allowed  a listed issuer to make qualified institutions placement if it is in compliance with the requirement of minimum public shareholding specified in the listing agreement with the stock exchange.	Regulation 82, clause (c), has been amended such that a listed issuer can make qualified institutions placement if it is in compliance with the requirement of minimum public shareholding specified in the Securities Contracts (Regulation) Rules, 1957.
Chapter X A dealt with Issue of Specified Securities by Small and Medium Enterprises.	Chapter X A which dealt with Issue of Specified Securities by Small and Medium Enterprises is brought under Chapter X B after renumbering the provisions. The new Chapter X A deals with Rights Issue of Indian Depository Receipts
Schedule VIII dealt with disclosures in offer document, abridged prospectus and abridged Letter of offer and Part A laid down the disclosures to be made in red herring prospectus, shelf prospectus and Prospectus; Para 1 laid down the instructions on this regard.	In Schedule VIII Part A, para (1) a new instruction has been inserted as sub-clause (h), by which the issuer has to  ensure that in the document of the Red Herring Prospectus, the document is referred to as ‘Red Herring Prospectus’ or ‘RHP’
Schedule VIII, Part A, Para 2, specified the disclosures to be made in the offer document, Item (I), sub-item (A) laid down the specifications for front cover pages.	In sub-item (A), clause (2), a sub-clause (aa) has been inserted pursuant to which the front cover page of the offer document should incorporate the following clause- “Please read Section 60B of the Companies Act, 1956.”
Schedule VIII, Part A, Para (2), Item VII sub-item (K) deals with Basis for Issue Price. Clause (1), Sub-Clause (h) says that, the basis for issue price, floor price or price band, as the case may be, has to be disclosed and justified by the issuer on the basis of Comparison of all the accounting ratios of the issuer as mentioned in items (a) to (g) of Clause (1), with the industry average and with the accounting ratios of the peer group i.e., companies of comparable size in the same industry. The source from which industry average and accounting ratios of the peer group has been taken has to be indicated.	In relation to item (VII), sub-item (K), clause (1), sub-clause (h), the amendment has laid down that the following has to be ensured: ·         Consistency in comparison of financial ratios of issuer with companies in the peer group, i.e., ratios on standalone/ consolidated basis of issuer will be compared with ratios on standalone/consolidated basis of peer group, respectively. ·         Explicit statement as to whether the financial ratios (of issuer as well as its peer group) are either on standalone or consolidated basis.  ·         Financial information relating to companies in the peer group shall be extracted from regulatory filings made by such companies to compute corresponding financial ratios.
Schedule VIII, in Part A, in Para (2) Item (XII), sub-item (B), clause (3), specified certain details that has to be disclosed in the offer document and application form.	Item (XII), in sub-item (B), in clause (3), has been amended to the effect that the disclosure requirements specified in the provision is not applicable in the case of application form.
Schedule VIII, in Part A, in Para (2) Item (XII) clause (28) deals with ‘mode of making refunds’. Sub-item (B), sub-clause (b), section (ii) said that in case of applicants apart from those who are residing in any of the centres specified by the Board, the refund has to be by  despatch of refund orders by registered post, where the value is Rs 1500/- or more, or under certificate of posting in other cases, subject to postal rules.	Clause (28) of sub-item (B), sub-clause (b), section (ii), has been amended such that for applicants apart from those who are residing in any of the centres specified by the Board, the refund has to be by dispatch of refund orders by registered post, subject to postal rules.
Schedule VIII, Part D dealt with Disclosures in Abridged Prospectus.	Schedule VIII, Part D has been entirely replaced by new provisions dealing with Disclosures in Abridged Prospectus.
Schedule XI which deals with Book Building Process, in Part A, Item (9) prescribed certain conditions in relation to Application-cum-Bidding form.	Schedule XI, Part A, Item (9), has been amended such that the manner and contents of Application-cum-Bidding Form and Revision Application-cum-Bidding Form (accompanied with abridged prospectus) will be as specified by the Board through Circular.
	A new schedule, Schedule XXI, on Disclosures in the Addendum to the Offer Document for Rights Issue of Indian Depository Receipts has been introduced.

Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011

The Union Cabinet has approved the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 and it will be tabled in the next session of Parliament, says a press note issued today October 12, 2011, by the Ministry of Finance.

The banks and financial institutions had been facing numerous problems in recovery of defaulted loans on account of delays in disposal of recovery proceedings. The Government, therefore, enacted the Recovery of Debts due to Banks & Financial Institutions (RDBF) Act in 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002 for the purpose of expeditious recovery of non-performing assets (NPAs) of the banks and FIs.

According to Department of Financial Services Secretary D K Mittal, four sections of the RDBF Act, 1993, and six sections of the SARFAESI Act, 2002, will be amended - reports Firstpost.

The proposed amendments is aimed at enabling banks to improve their operational efficiency, deploying more funds for credit disbursement to retail investors, home loan borrowers, etc. without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information. 

The suggested amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of non-performing assets, says the  press note.

The Bill seeks to amend the SARFAESI Act and RDBF Act to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions.

Policy Guidelines for Uplinking/Downlinking of TV channels to be amended

Ministry of Information and Broadcasting has proposed to carry out various amendments in the existing "Policy Guidelines for Uplinking and Downlinking of TV channels" to reflect the fast evolving electronic media landscape in the country. These amendments were proposed based on an extensive consultation with Telecom Regulatory Authority of India (TRAI) and the Union Cabinet has approved the proposal on October 7, 2011.

In the press release issued subsequent to the amendments it is said that the amendments envisage, inter-alia, significant changes in the eligibility criteria of companies seeking to operate TV channels in India in order to ensure that only serious and credible operators are permitted to operate such channels and the electronic media landscape is not unnecessarily crowded by non-serious players.

Ministry of Information and Broadcasting has two sets of Policy Guidelines for permission/regulation of private satellite TV channels in India. While regulation of foreign TV channels uplinked from abroad and distributed in India for public viewing is governed by "Policy Guidelines for Downlinking of Television channels" notified on 11th November, 2005, private TV channels which are uplinked from India are governed by "Guidelines for Uplinking from India" notified on 2nd December 2005. Uplinking Guidelines also provide for permission and regulation of Teleports.

The key highlights of the changes approved, as stated in the press release are:

(i)  Net worth criteria for Uplinking of 'Non-News and Current Affairs' channels and Downlinking of foreign channels has been revised from Rs.1.5 crores to Rs. 5 crores for the first channel and Rs. 2.5 crores for each additional channel.

(ii) For uplinking of 'News and Current Affairs' channels the net worth / criteria has been increased from Rs. 3 crores to Rs. 20 crores for the first channel and Rs. 5 crores for each additional channel.

(iii) For Teleports the net worth criteria would be uniform irrespective of channel capacity. The net worth criteria would remain Rs. 3 crores for the first teleport and Rs.1 crore for every additional teleport.

(iv) All TV channels would be required to operationalize their TV channels within a time frame of one year from the date of permission, for which Non-News and current Affairs channels will have to sign a Performance Bank Guarantee (PBG) of Rs.1 crore whereas News and Current Affairs channels will have to give a Performance Bank Guarantee for Rs. 2 crores. In the event of non-operationalisation of the permitted channel within a period of one year, the PBG will be forfeited and permission cancelled.

(v)The period of permission/registration for uplinking/downlinking of channels will be uniform at 10 years.

(vi)  One of the persons occupying the top management position i.e., Chairperson or Managing Director or Chief Executive Officer or Chief Operating Officer or Chief Technical Officer or Chief Financial Office in the applicant company should have a minimum of 3 years of prior experience in a Media company, for both News and Non-News channels.

(vii) Proposals of merger, demerger and amalgamation will be allowed under the provisions of Companies Act, after obtaining the permissions of the Ministry of I&B as per procedure.

(viii) Renewal of the permissions of TV channels will be considered for a period of 10 years at a time subject to the condition that the channel should not have been found guilty of violating the terms and conditions of permission including violations of the Programme and Advertisement Code on 5 occasions or more.
   This allows the government to revoke licences after five violations of the programming code. Under the existing guidelines, three violations under the Programme and Advertising Codes can lead to the revocation of permission and prohibition of broadcast for the remaining period of the permission and disqualification to hold any fresh permission in future. Para 8.2.3 of the Uplinking guidelines and  Para 6.2.3 of the Downlinking guidelines say that in the event of third violation, there will be revocation of the permission of the company and prohibition of broadcast. However, instead of the earlier three, the amended guidelines have prescribed five violations. 

(ix)The channels operating in India and uplinked from India but meant only for foreign viewership should be required to ensure compliance of the rules and regulations of the target country for which content is being produced and uplinked.

(x)  Permission fee for uplinking/downlinking of TV channels and setting up of teleports would be Rs. 2 lakhs per channel/teleport per annum. Whereas permission fee for downlinking of TV channels uplinked from India would be Rs.5 lakhs per channel per annum. Permission fee for downlinking of TV channels uplinked from abroad would be Rs 15 lakhs per channel per annum.

Click here to view the Recommendations of TRAI and the Views of the Ministry on the same.

On-site Post Clearance Audit at the Premises of Importers and Exporters Regulations, 2011

The Budget had portrayed some dire moves of the Union Government for streamlining the taxation regime of the country. Pursuant to this the Central Board of Excise and Customs has notified the ‘On-site Post Clearance Audit at the Premises of Importers and Exporters Regulations, 2011’ on October 4, 2011.

The key points of the regulation are:

• Importers and exporters should make available the relevant documents as and when required by the proper officer.
• The relevant documents should be maintained by the importer/exporter for a period of five years from the date of import or export.
• The importer or exporter is bound to render assistance to the proper officer in the discharge of his official duty and shall in no case refuse or obstruct the proper officer in discharge of official duty.
• To conduct audit the officer should give atleast fifteen days advance notice to the importer or exporter.
• The officer can obtain prior information relating to imported or export goods, before conducting audit and can visit the premises to gather relevant information relating to imported or export goods.
• The audit will be conducted in the premises of the importer or exporter.
• The importer/exporter will be informed of the objections before preparing the draft audit report. He will be provided opportunity to offer clarifications with supporting documents.
• If he is in agreement with the audit findings, in part or in full, he can make payments of duty due and it will be recorded in the audit report.
• If necessary the officer can inspect the goods and take samples.
• Contravention of the regulation can invite a penalty up to 50,000 rupees. 

Introduction of the regulation is expected to result in higher accountability of the importer/exporter on customs assessment and increased transparency in this regard.

Click here to view the regulation.

FDI Policy (Contd.)

Besides the changes mentioned in my previous post, there are a couple of changes in the FDI Policy as follows: 

• The FDI policy has ruled out in-built options of any type on equity

DIPP states that instruments with in-built option of any type will not qualify as an eligible instrument of FDI. The pertinent clause in Circular No 2 of 2011 reads:

3.3.2.1 Only equity shares, fully, compulsorily and mandatorily convertible debentures and fully, compulsorily and mandatorily convertible preference shares, with no in-built options of any type, would qualify as eligible instruments for FDI.   Equity instruments issued/transferred to nonresidents having in-built options or supported by options sold by third parties would lose their equity character and such instruments would have to comply with the extant ECB guidelines.

However DIPP has not provided any specific definition or explanation for the term “options”. This provision may result in an adverse impact on foreign investors as put option is one of the most widely adopted mode of exit.

• FDI in Limited Liability Partnerships (LLPs)

The previous FDI Policy (Click here to view) had stated that allowing FDI in LLPs is under consideration of the Government as a foot note to Para. 3.3.5. Pursuant to this the DIPP vide press note No. 1 (2011) (Click here to view) introduced FDI in LLP. The current FDI policy has consolidated this. Presently FDI is permitted in LLPs, subject to the following conditions:

(a)    In sectors where 100% FDI is allowed in automatic route, LLPs can avail FDI through the through the Government approval route

(b)    LLPs with FDI cannot operate in agricultural/plantation activity, print media or real estate business.

(c)    For an Indian company having FDI to make downstream investment in an LLP, both the company and the LLP has to be operating in sectors where 100% FDI is allowed, through the automatic route.

(d)    LLPs with FDI cannot make any downstream investments.

(e) Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank.

(f)    Foreign Institutional Investors (FIIs) and Foreign Venture Capital Investors (FVCIs) are not permitted to invest in LLPs. LLPs cannot avail External Commercial Borrowings (ECBs).

(g)    If an LLP with FDI, has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the LLP Act, 2008, such a body corporate can only be a company registered in India under the Companies Act, 1956 and not any other body.

(h)    For such LLPs, the designated partner "resident in India", as defined under the’ Explanation' to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.

(i) The designated partners have to ensure the compliance with all the above conditions and they will also be liable for all penalties imposed on the LLP for their contravention.

(j)  All the conditions mentioned above have to be met for conversion of a company with FDI, into an LLP, and that too with the prior approval of FIPB/Government.

FDI Policy effective from October 1, 2011

The FDI Policy is a consolidation of the Foreign Direct Investment (FDI) norms issued by the Government in every six months. It essentially acts as a reference point for investors and regulators. The first FDI circular was issued on March, 2010 after which it has been updated every six months.

The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry issued the consolidated FDI policy vides Circular 2 of 2011, which is the fourth edition of the consolidated policy document. It comes into effect from October 1, 2011.

The sectoral section of the policy has been re-arranged, to provide for grouping of services under ‘financial services’, ‘other services’ and ‘information services’. The Circular has also been re-organised, with a view to grouping of similar subjects under common chapters.

The changes introduced in this edition of the FDI circular are:

•             Construction-development activities in the education sector and in old-age homes exempted from general conditionalities in the construction-development sector

  FDI into construction development activities in the education sector and in respect of old-age homes has been exempted from the conditionalities imposed on FDI in the construction development sector in general i.e. minimum area and built-up area requirement; minimum capitalization requirement; and lock-in period.

  These conditionalities perhaps posed a constraint to FDI coming into these areas since educational institutions like schools, colleges, universities etc. as well as old-age homes have their own special requirements which do not necessarily fit these conditionalities.

The reason cited by the government for bring up such a change is that it is expected to  augment the educational infrastructure in the country and bring it up to global standards.  Similarly, with growing urbanisation, there is an increasing demand for old-age homes to cater to the needs of senior citizens.  The physical infrastructure in this area also is short of the requirements.  Hence, it has also been decided to exempt old-age homes also from the general conditionalities applicable to the construction development sector.

•             100% FDI allowed for Apiculture under the agricultural activities

  Apiculture or Honey bee rearing has been allowed for FDI 100% under the automatic route. The apiculture has to under controlled conditions.

  This change was brought out as apiculture continues to be an important agro-based industry and has the potential of bringing in high economic returns with comparatively low levels of investment.  Being a decentralized activity, it does not bring pressure on land and can flourish as a household activity in villages.  The activity has the potential of large scale income generation with some infusion of capital and technology. This liberalization is expected to provide the desired thrust to the sector and also to bring in international best practices to upgrade the product and the methods of production.

•             ‘Basic and applied R&D on bio-technology pharmaceutical sciences/life sciences, has been brought under ‘industrial activity’ in under industrial parks, hence paving way for 100% FDI

  FDI, up to 100%, under the automatic route, is permitted in existing and new industrial parks. Under the existing regime, industrial parks cover specified sectors.The coverage has been expanded to specifically include research and development in bio-technology, pharmaceutical and life sciences, given the urgent need to augment research and development infrastructure in these areas as also expand the production facilities.

•             Limit of 20% for foreign investment in Terrestrial Broadcasting/ FM radio has been raised to 26%

  This change is to ensure conformity of the foreign investment limit in this sector with other similar activities in the Information & Broadcasting sector.

•             Changes in relation to conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments

  Conversion of imported capital goods/machinery and pre-operative/pre-incorporation expenses to equity instruments had been permitted in the last Circular on FDI policy, effective 1 April, 2011.  It was stipulated that such conversions must be made within a period of 180 days of the date of shipment of capital goods/machinery or retention of advance against equity and that payments made through third parties would not be allowed. This conveyed the sense that the onus of conversion is on the investor with no allowance for the FIPB process involved.  This has been clarified through the present amendment, under which the time limit for making applications for such conversions will be 180 days.

  Further, payments for pre-operative/incorporation expenses can now be made directly by the foreign investor to the company or through a bank account, opened by the foreign investor, as provided under the FEMA regulations.

•             ‘Pledging of Shares’ and opening of non-interest bearing escrow accounts, made possible subject to conditions

  The policy has been amended to provide for pledge of shares of an Indian company which has raised external commercial borrowings, or that of its associate resident companies for the purpose of securing the ECB raised by the borrowing company, subject to conditions.

  The policy also now provides for opening and maintaining AD Category – I banks without the prior approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India, on behalf of non-residents, towards payment of share purchase consideration and/or for keeping securities to facilitate FDI transactions, subject to the terms and conditions specified by RBI.  This will streamline the process for bringing in FDI and provide the investors with options.

         

 Click here to view the FDI Policy (Circular 2 of 2011)