EXPORT OF GOODS AND SOFTWARE REALISATION AND REPATRIATION OF EXPORT PROCEEDS LIBERALISATION

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1 Corporate Law Alert J. Sagar Associates advocates and solicitors Vol.16 April 30, 2011 RBI EXPORT OF GOODS AND SOFTWARE REALISATION AND REPATRIATION OF EXPORT PROCEEDS LIBERALISATION The Reserve Bank of India (RBI) vide A.P. (DIR Series) Circular No.47 dated March 31, 2011 has extended the period for realisation and repatriation to India, of the amount representing the full export value of goods or software exported, from six months to twelve months from the date of export until September 30, The RBI had earlier vide A.P. (DIR Series) Circular No.57 dated June 29, 2010 extended the period for realisation and repatriation to India of the amount representing the full export value of goods or software exported from six months to twelve months from the date of export. This relaxation was upto March 31, On review, the RBI in consultation with the Government of India has decided to extend the above relaxation vide the circular of March 31, 2011 mentioned above. The provisions in regard to period of realisation and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to warehouses established outside India remains unchanged i.e. stipulation of period of realisation and repatriation to India of full export value of goods or software shall not apply. The period of realisation of amount for goods exported to a warehouse established outside India has to be within fifteen months from the date of shipment of goods. INCREASE IN THE LIMIT OF FOREIGN INVESTMENTS BY SEBI REGISTERED FIIS IN OTHER SECURITIES RBI vide A.P. (DIR Series) Circular No. 55 dated April 29, 2011 has increased the limit of foreign investments by Foreign Institutional Investors (FIIs) registered with Securities Exchange Board of India (SEBI) in listed non-convertible debentures / bonds, with a residual maturity of five years and above, and issued by Indian companies engaged in the infrastructure sector, where infrastructure is defined in terms of the extant External Commercial Borrowing guidelines, by an additional limit of USD 20 billion increasing the limit from USD 5 billion to USD 25 billion thereby increasing the total limit available to FIIs for investment in listed non convertible debentures / bonds would be USD 40 billion with a sub limit of USD 25 billion for investment in listed non-convertible debentures / bonds issued by corporates in the infrastructure sector. The investment by FIIs in listed non-convertible debentures / bonds would have a minimum lock-in period of three years. However, FIIs are allowed to trade amongst themselves during the lock-in period. For Private Circulation Only 1

2 Further, the SEBI registered FIIs can invest in unlisted non-convertible debentures / bonds issued by corporates engaged in the infrastructure sector, provided that such investment is as per the aforementioned terms and conditions. ADVANCE REMITTANCE FOR IMPORT OF GOODS LIBERALISATION RBI vide A.P. (DIR Series) Circular No. 56 dated April 29, 2011 has liberalised the policy for advance remittance for import of goods. In terms of the said circular, AD Category -I Banks are required to obtain an unconditional, irrevocable standby Letter of Credit (LC) or a guarantee from an international bank of repute situated outside India or a guarantee of an AD Category I Bank in India, if such a guarantee is issued against the counter guarantee of an international bank of repute situated outside India, for an advance remittance exceeding USD 200,000 or its equivalent. Prior the aforesaid amendment, AD Category -I Banks were required to obtain an unconditional, irrevocable standby LC or a guarantee from an international bank of repute situated outside India or a guarantee of an AD Category I Bank in India, if such a guarantee was issued against the counter guarantee of an international bank of repute situated outside India, for an advance remittance exceeding USD 100,000 or its equivalent. All the other instructions including the facility to waive the requirement of the standby LC/ bank guarantee for advance remittance up to USD 5,000,000 or its equivalent, where the AD Category I bank is satisfied about the track record and bonafides of the importer based on their internal Board approved policy, contained in A.P. (DIR Series) Circular No. 09 dated August 21, 2008, remain unchanged. COMPANY LAW FILING OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT IN XBRL MODE The Ministry of Corporate Affairs (MCA) vide General Circular No. 09/2011 dated March 31, 2011 has decided to mandate certain class of companies to file balance sheet and profit and loss account for the financial year onwards using extensible Business Reporting Language (XBRL) mode. The Financial Statements required to be filed in XBRL format would be based upon the Taxonomy of XBRL developed for the existing Schedule VI of the Companies Act, 1956 (Act) as per the existing, (non converged) Accounting Standards Rules, In the first phase of the implementation phase, the following classes of companies will have to file the Financial Statements in XBRL Form from the financial year :- All companies listed in India and their subsidiaries, including overseas subsidiaries; and All companies having a paid up capital of Rs. 50,000,000 and above or a turnover of Rs. 1,000,000,000 or above. DIRECTOR S RELATIVES (OFFICE OR PLACE OF PROFIT) RULES, 2003 AMENDED The MCA vide Notification G.S.R 303(E) dated April 06, 2011 has amended Rules 3 and 7 of the Director s Relatives (Office or Place of Profit) Rules, For Private Circulation Only 2

3 Pursuant to the said amendment, prior approval of the Central Government would be required in case of appointment of relatives of directors of all companies whose monthly remuneration exceeds Rs. 2,50,000. Prior to the amendment, the limit on the monthly remuneration was Rs. 50,000. Further, the selection and appointment of a relative of a director holding office or place of profit in the company needs to be approved by adopting the same procedure applicable to non-relatives. In the case of listed companies, the selection of director for holding place of office or profit in the company will have to be also approved by a Selection Committee. The Selection Committee for the purpose of this clause means a committee, the majority of which consist of independent directors and an expert in the respective field from outside the company. In the case of unlisted companies, the Selection Committee should have outside experts but it is not mandatory to have independent directors and in the case of private companies, independent directors and outside experts are not necessary. COMPANIES REGULATIONS, AMENDED The MCA vide Notification G.S.R 304(E) dated April 06, 2011 has amended the definition of Regional Director in the Companies Regulations, 1956, whereby it has divided the four regions for which a Regional Director is appointed into six regions. Pursuant to the said amendment, Regional Director will mean the person appointed by the Central Government in the Ministry of Corporate Affairs as a Regional Director for the respective regions as under: (i) Regional Director Region North Region Directorate Headquarter at Noida (Gautam Budh Nagar) Jurisdiction States of Jammu and Kashmir, Punjab, Himachal Pradesh, Haryana, National Capital Territory of Delhi, Uttar Pradesh Uttarakhand and Union Territory of Chandigarh. (ii) Regional Director Southern Region at Chennai (iii) Regional Director Eastern Region at Kolkata (iv)regional Director Western Region at Mumbai (v) Regional Director North Western Region at Ahmedabad (vi)regional Director North Eastern Region at Guwahati States of Andhra Pradesh, Karnataka, Tamil Nadu, Kerala and Union Territory of Lakshadweep, Union Territory of Andaman and Nicobar Islands and Puducherry States of Bihar, Jharkhand, Orissa, West Bengal States of Maharashtra, Goa and Union Territory of Daman and Diu States of Gujarat, Rajasthan, Madhya Pradesh, Chhattisgarh and Union Territory of Dadra and Nagar Haveli States of Meghalaya, Assam, Arunachal Pradesh, Nagaland, Mizoram, Manipur and Tripura For Private Circulation Only 3

4 OBTAINING DIRECTOR IDENTIFICATION NUMBER (DIN) - PROCESS SIMPLIFIED The MCA vide General Circular 11 of 2011 dated April 07, 2011 has further simplified the process for allotment of DIN. The MCA is considering to allot all DIN applications online and thus in order to examine DIN-1 e-form through the system, the MCA has decided that the following fields in DIN-1 e- form will be mandatory: - (c) (d) (e) Name of the Applicant; Father s name of the Applicant; Date of Birth; Income Tax Permanent Account Number (PAN) in case of all Indian Nationals Passport in case of all Foreign Nationals. At present, the PAN of the Applicant is not a mandatory field in DIN-1 e-form. In order to examine DIN-4 e-form through the system and to avoid duplicate DIN, the MCA has decided that all existing DIN holders who have not furnished their PAN earlier at the time of obtaining DIN, are required to furnish their PAN by filing DIN-4 e-form by May 31, APPOINTMENT OF COST AUDITOR BY COMPANIES PROCEDURE REVISED The MCA vide General Circular 15 of 2011 dated April 11, 2011 has revised the procedure followed by the companies for appointment of cost auditors under Section 233B (2) of the Act. The procedure for appointment of cost auditor is as follows: (c) (d) (e) (f) A company which is required to get its cost records audited under Section 233B (1) of the Act is required to appoint a cost auditor who is a cost accountant as defined in Section 2(1) of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under Section 6(1) of that Act and includes a firm of cost accountants. The Audit Committee of the Board of Directors of a company will be the first point of reference regarding the appointment of cost auditors. The Audit Committee is required to ensure that the cost auditor is free from any disqualifications as specified under Section 233B (5) read with Section 224 and Section 226(3) and (4) of the Act. While a cost auditor will have prime responsibility to ensure that he does not violate the limits specified under Section 224 (1-B) of the Act, the Audit Committee will also be responsible for such compliance by the cost auditor. The Audit Committee is required obtain a certificate from the cost auditor certifying his/its independence and arm's length relationship with the company. The company is required to e-file its application with the Central Government on the website of MCA, in the prescribed form 23C within ninety days from the date of commencement of each financial year, along with the prescribed fee as per the Companies (Fees on Applications) Rules, 1999 as amended from time-to-time and other documents as per existing practice i.e. (i) certified copy of the Board Resolution proposing appointment of the cost auditor; and (ii) For Private Circulation Only 4

5 copy of the certificate obtained from the cost auditor regarding compliance of Section 224 (1- B) of the Act. (g) (h) (i) (j) (k) (l) On filing the application, the same will be deemed to be approved by the Central Government, unless contrary is heard within thirty days from the date of filing such application. If within thirty days from the date of filing such application, the Central Government directs the company to re-submit the said application with such additional information or explanation, as may be specified in that direction, the period of thirty days for deemed approval of the Central Government will be counted from the date of re-submission by the company. After expiry of thirty days, as the case may be, the company is required to issue formal letter of appointment to the cost auditor, as approved by the Board of Directors. Within thirty days of receipt of formal letter of appointment from the company, the cost auditor is required to inform the Central Government in the prescribed form, along with a copy of such appointment. The company is required to disclose full particulars of the cost auditor, along with the due date and actual date of filing of the cost audit report by the cost auditor, in its Annual Report for each relevant financial year. In those companies where constitution of an Audit Committee of the Board is not required by law, the words "Audit Committee" shall stand substituted by the words "Board of Directors". The MCA has further clarified that if a company contravenes any provisions of this circular, the company and every officer thereof who is in default, including the persons referred to in Section 209(6) of the Act, will be punishable under Section 642(2) read with Section 209(5) and (7) and Section 233B(11) of the Act and if default is made by the cost auditor in complying with the aforesaid provisions, the cost auditor will be punishable with fine, which may extend to Rs. 5,000. The procedure mentioned hereinabove will be effective from the financial year commencing on or after the 1st day of April, AMALGAMATION OF GOVERNMENT COMPANIES The MCA vide General Circular No. 16 of 2011 dated April 20, 2011 has simplified the procedure for the amalgamation of Government Companies under Section 396 of the Act. SERVICE OF NOTICES/ DOCUMENTS THROUGH ELECTRONIC MODE INSTEAD OF UNDER POSTING CERTIFICATE BY COMPANIES The MCA vide General Circular 17 of 2011 dated April 21, 2011 has clarified that a company would have complied with Section 53 of the Act, if the service of document has been made through electronic mode provided the company has obtained the addresses of its members for sending the notice/documents through . A company is required to give an advance opportunity to every shareholder to register his address and changes therein from time to time with the company. For Private Circulation Only 5

6 In cases where a shareholder has not registered his address with the company, the service of document etc will be effected by other modes of service as provided under Section 53 of the Act. Pursuant the aforesaid circular, a company can send notices and documents through to its members provided the members have registered their e-address with a company. SERVICE OF FINANCIAL STATEMENTS THROUGH ELECTRONIC MODE BY COMPANIES The MCA vide General Circular 18 of 2011 dated April 29, 2011 has stated that companies can send copies of its Balance Sheet, Profit & Loss Account, Directors Report, Auditor s Report and such other documents required to be sent to the members of a company under Section 219 of the Act (Financial Statements) through electronic mail to its members subject to: (c) (d) A company obtaining the address of its members for sending the Financial Statements through , after giving an advance opportunity to the member to register his address and changes therein from time to time with the company or with the concerned depository. The company's website should display full text of the Financial Statements well in advance prior to mandatory period and issue advertisement in prominent newspapers in both vernacular and English stating that the copies of aforesaid documents are available on its website and for inspection at the Registered Office of the company during office hours. In cases where the member has not registered his address for receiving the Financial Statements through , the Financial Statements will be sent by other modes of services as provided under Section 53 of the Act. In case a member insists for physical copies of the Financial Statements, the same should be sent to him physically, by post free of cost. EMPLOYMENT LAW SOCIAL SECURITY AGREEMENT BETWEEN INDIA AND SWITZERLAND COMES INTO EFFECT The Employee s Provident Fund Organisation vide Notification No. IWU/7(5)2008/Switzerland/254 dated April 04, 2011 has notified that the Social Security Agreement signed between India and Switzerland on September 03, 2009 will be effective from 29 January LEGAL METROLOGY LEGAL METROLOGY ACT, 2009 COMES INTO EFFECT The Legal Metrology Act, 2009 and the Legal Metrology (National Standard) Rules, 2009 made there under have come into effect from April 01, For Private Circulation Only 6

7 This legal update is the copyright of J. Sagar Associates. The update is not intended to be a form of solicitation or advertising. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate thereafter. No person should act on such information without appropriate professional advice based on the circumstances of a particular situation. advocates & solicitors Corporate Law Practice Group DELHI MUMBAI GURGAON BANGALORE HYDERABAD For Private Circulation Only 7