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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Infrastructure Debt Funds

In order to accelerate and enhance the flow of long term funds to infrastructure projects for undertaking the Government’s ambitious programme of infrastructure development, Union Finance Minister in his budget speech for 2011-12 had announced setting up of Infrastructure Debt Funds (IDFs). Accordingly, the Government has since come out with the broad structure of the proposed IDFs vide their press release dated June 24, 2011.

By virtue of Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, a SEBI registered Foreign Institutional Investor (FII) and a Non-Resident Indian (NRI) may invest in securities other than shares or convertible debentures, subject to such terms and conditions mentioned therein and limits as prescribed for the same by the Reserve Bank and the Securities and Exchange Board of India (SEBI) from time to time.

AP (DIR Series) Circular No.8 dated August 9, 2011 and AP (DIR Series) Circular No.42 dated November 3, 2011 permits Qualified Foreign Investors (QFIs as defined therein to mean non-resident investors, other than SEBI registered FIIs and SEBI registered FVCIs, who meet the KYC requirements of SEBI) are allowed to invest in units of domestic Mutual Funds.

RBI vide a circular dated November 22, 2011 has permitted investment on repatriation basis by eligible non-resident investors in (i) Rupee and Foreign currency denominated bonds issued by the Infrastructure Debt Funds (IDFs) set up as an Indian company and registered as Non-Banking Financial Companies (NBFCs) with the Reserve Bank of India and in (ii) Rupee denominated units issued by IDFs set up as SEBI registered domestic Mutual Funds(MFs), in accordance with the terms and conditions stipulated by the SEBI and the Reserve Bank of India from time to time.

However these investments would be subject to certain terms and conditions as provided in the Circular.

Click here to view the Circular.

Banks as sponsors to Infrastructure Debt Funds

IDFs can be set up either as Mutual Funds (MFs) or as Non-Banking Finance Companies (NBFCs). While IDF-MFs will be regulated by SEBI (SEBI has amended the Mutual Funds Regulations to provide regulatory framework for IDF-MFs by inserting Chapter VI-B to the MF Regulations), IDF-NBFCs will be regulated by Reserve Bank of India (RBI). The Reserve Bank had also issued a press release on September 23, 2011 which contained the broad parameters for banks and NBFCs to set up IDFs. Click here to view the detailed regulations relating to IDF-NBFCs.

RBI has notified that scheduled commercial banks would be allowed to act as sponsors to IDF-MFs and IDF-NBFCs with prior approval from RBI subject to inter alia the following conditions:

·         Banks may act as sponsors to IDF–MFs subject to adherence to SEBI regulations in this regard.

·         A bank acting as sponsor of IDF–NBFC shall contribute a minimum equity of 30 per cent and maximum equity of 49 per cent of the IDF-NBFC.

·         Investment by a bank in the equity of a single IDF – MF and NBFC should not exceed 10 per cent of the bank’s paid up share capital and reserves.

·         Investment in the equity of a bank in subsidiary companies, financial services companies, financial institutions, stock and other exchanges put together should not exceed 20 per cent of bank’s paid up share capital and reserves and this limit will also cover bank’s investments in IDFs as sponsors.

·         Banks’ exposures to IDFs - (MFs and NBFCs) by way of contribution to paid up capital as sponsors will form part of their capital market exposure and should be within the regulatory limits specified in this regard.

·         Banks should have clear Board laid down policies and limits for their overall infrastructure exposure which should include their exposures as sponsors to IDFs - (MFs and NBFCs).

·         The IDFs - (MFs and NBFCs) should make a disclosure in the prospectus / offer document at the time of inviting investments that the sponsoring bank's liability is limited to the extent of its contribution to the paid up capital.

Click here to view the notification. 

Foreign Direct Investment – Reporting of issue / transfer of ‘participating interest/right’ in oil fields to a non resident as an Foreign Direct Investment transaction

Earlier the transfer of equity shares / fully and mandatorily convertible debentures/ fully and mandatorily convertible preference shares of an Indian company, from a person resident outside India (non-resident) to a person resident in India or vice versa, had to be reported to an Authorized Dealer bank within 60 days of transactions. Further, the receipt of consideration for issue of shares as well as the issue of shares of an Indian company, to a non-resident had to be reported to the Reserve Bank of India through an Authorized Dealer bank within 30 days of the transaction (receipt of consideration for issue of shares to a non resident or issue of shares to the non-resident) an accordance with the Regulations 9 and 10 and para 9 of Schedule I to the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 (Click here to view) and Circular on Foreign Direct Investment in India -Transfer of Shares / Preference Shares / Convertible Debentures by way of Sale - Modified Reporting Mechanism (Click here to view)

The Reserve Bank of India on 16^th November 2011, vide a notification, has decided that 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 notification.

Click here, here, here & here to know more about FDI Policy. 

Amendments to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010

The unprecedented growth in higher education in recent years, of which the growth of higher professional education, especially technical and medical education has been mainly through private participation. The current national policy supported by several judicial pronouncements is against commercialization of higher education, though the policy encourages private “note for profit” participation with surplus revenues to be ploughed back for growth and development of institutions has led to the amendment to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010.

The Union Cabinet on 16^th November 2011 has approved the official amendment to the Prohibition of Unfair Practices in Technical Educational Institutions, Medical Educational Institutions and Universities Bill, 2010 based on the recommendations of the Parliamentary Standing Committee on HRD for consideration of the Parliament.

The press release issued in relation to the amendment says that the Bill aims to provide an institutional mechanism for preventing, prohibiting and punishing unfair practices in technical and medical educational institutions and universities. The object is to curtail the element of profiteering in some institutions which are presently beyond the scope of any such regulation. The institutions are also expected to mandatorily disclose information related to admission process by publication of its prospectus. This is expected to bring about public accountability of such institutions and act as a check on use of unfair practices being adopted vis-a-vis students.

The provisions of mandatory disclosure of information related to the admission process and holding the institution accountable in respect of compliance with such information is an innovation over the inspection based regulatory processes normally adopted. The student or any other stakeholder can move the tribunal as well as the competent criminal court of law in case the institutions attempts to adopt unfair practices and the burden of proof would be upon the institution.

The students would stand to benefit by enactment of a legislation to curb unfair practices in admission and other areas of higher educational institutions, who are exposed to the prevalence of distortions in the admission process leading to harassment and extortion of students for admission.

Prompt and effective deterrent action is constrained in the absence of any Central law prohibiting capitation fee and other unfair practices. While the current policy in higher education is to promote autonomy of institutions, adoption of unfair practices by misusing autonomy would be detrimental for the credibility of the higher education sector. It would be in public interest to balance autonomy of higher education institutions with measures to protect the interests of students and others accessing higher education.

Foreign Direct Investment – Transfer of Shares

According to Regulations 9 and 10 of the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2000 (Click here to view) prior approval of the Reserve Bank of India was required in case of transfer of shares from a Resident to a Non Resident where:

1.     the transfer does not conform to the pricing guidelines as stipulated by the Reserve Bank from time to time; or

2.   the transfer of shares requires the prior approval of the FIPB as per the extant Foreign Direct Investment (FDI) policy; or

3.  the Indian company whose shares are being transferred is engaged in rendering any financial service; or

4.    the transfer falls under the purview of the provisions of SEBI (SAST) Regulations, require the prior approval of the Reserve Bank of India.

The transfer of shares from a Non Resident to a Resident which does not conform to the pricing guidelines as stipulated by the Reserve Bank of India from time to time also required the prior approval of the Reserve Bank of India.

As a measure to further liberalize and rationalize the procedures and policies governing FDI in India, the RBI vide a circular dated November 4^th 2011, has decided to allow the following without the prior approval of the Reserve Bank of India :

Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :-

(i) The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.;

(ii) The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and

(iii) Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

Transfer of shares from Resident to Non Resident :

(i)      where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that :

o   the requisite approval of the FIPB has been obtained; and

o the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the Reserve Bank of India from time to time.

(ii)    where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by Reserve Bank of India from time to time.

(iii)   where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met provided that:-

o   The resultant FDI is in compliance with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc.;

o   The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST); and

o   Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank.

(iv)  where the investee company is in the financial sector provided that :

o   NOCs are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and

o   The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with.

Click here to view the Circular.

Click here, here & here to know more about Foreign Direct Investment (FDI) norms