May 19, Issue 136. Annual Return on Foreign liabilities and assets.

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1 May 19, Issue 136 RBI updates reporting under FEMA RBI ( Reserve Bank of India ) has vide notification dated May 15,2017 updated Master Direction Reporting under Foreign Exchange Management Act, 1999 ( FEMA ). RBI, therefore, has prescribed various reports and forms under FEMA to be submitted by/ through authorized Persons/ Authorized Dealer Category I Banks/ Authorized Banks. Accurate compilations and timely submission of these reports are of critical importance as they not only act as a supervisory tool but also help in fine-tuning the policies relating to foreign exchange transactions regulated under FEMA. This will effect foreign investment, External Commercial Borrowing (ECB) and Overseas Direct Investment (ODI) in addition to other areas. Some Highlights of the notification are: Foreign Investment: The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 as amended from time to time, prescribed the mode of investments i.e. issue or acquisition of shares/ convertible debentures and preference shares, manner of receipt of funds, pricing guidelines and reporting of the investments to the RBI. The formalities for reporting inflows will now include: 1. Reporting of FDI for Fresh Shares including information about inflows, Advance Remittance Form, KYC Form, issue of shares, Annual Return on Foreign liabilities and assets. 2. Reporting of FDI for transfer of shares including foreign collaborations-transfer of shares (Form FC-TRS), KYC Form; 3. Reporting on e-biz portal of the Government of India; 4. Reporting of conversion of ECB into equity; 5. Reporting of ESOPs for allotment of equity shares; 6. Reporting of ADR/GDR- Form DRR; 7. Reporting requirements of LLPs: Form FDI-LLP (I) and Form FDI- LLP (II); 8. Reporting of FII investments under Portfolio Investment Schemes: FII reporting Form LEC(FII) and Form FC-GPR; 9. Reporting of NRI investments under Portfolio Investment Scheme. External Commercial Borrowing: The reporting requirements for ECB include: 1. Application for raising ECB under the Approval Route - Form ECB; 2. Application for allotment of Loan Registration Number (LRN) for ECB - Form 83; 1

2 3. Reporting of actual transactions of ECB - ECB 2 Return; 4. Form for reporting of details of Trade Credit - Form TC; 5. Statement on Guarantee/ Letter of Undertaking/ Letter of Comfort issued by AD banks in respect of Trade Credit. Overseas Direct Investment: Overseas investments (or financial commitment) in Joint Ventures (JV) and Wholly Owned Subsidiaries (WOS) have been recognised as important avenues for promoting global business by Indian entrepreneurs. The reporting formalities are given below: 1. Form ODI: An Indian Party and a Resident Individual making an overseas investment is required to submit form ODI; 2. At present, application for ODI is required to be made in Form ODI Part I (comprising six sections) for direct investments in Joint Venture (JV) / Wholly Owned Subsidiary (WOS) under automatic route / approval route. Further, remittances and other forms of financial commitment undertaken by the Indian Party (IP) is reported in Form ODI Part II. Annual Performance Report (APR) on the functioning of overseas JV / WOS in Form ODI Part III and details of disinvestment in Form ODI Part IV is currently required to be submitted through the designated Authorized Dealer Bank (AD bank). While Form ODI Part I and Part III are required to be submitted by the applicant undertaking ODI, the Form ODI Part II and Part IV are to be submitted by the AD bank on behalf of the applicant. In order to capture all data pertaining to the IP undertaking ODI as well as the related transaction, it has been decided to subsume Form ODI Part II with Form ODI Part I. The Form ODI will now thus have five sections instead of six; 3. The structure of rationalized and revised FORM ODI will comprise of 3 parts listing details of application for allotment of Unique Identification Number(UIN), reporting of remittances/transactions, Annual Performance Report (APR) and Report of Disinvestment; 4. New reporting format has been introduced for Venture Capital Fund (VCF)/ Alternate Investment Fund, Portfolio Investment and overseas investment by mutual funds. Reserve Bank of India ( RBI ) updated guidelines for Partial Credit Enhancement ( PCE ) to Corporate Bonds RBI vide circular dated May 18, 2017 reviewed the requirements w.r.t. PCE. The key changes are: Corporate Bonds will be rated by a minimum of two external credit rating agencies at all times to be eligible for PCE; The rating reports (initial and subsequent) will disclose standalone 2

3 credit rating (i.e., rating without taking into account the effect of PCE) as well as the enhanced credit rating (taking into account the effect of PCE); For the purpose of capital computation in the books of PCE provider, lower of the two standalone credit ratings and the corresponding enhanced credit rating of the same rating agency will be considered; When the reassessed stand alone credit rating shows improvement over the corresponding rating at any time during the life of the bond, then the capital requirements can be recalculated on the basis of the reassessed standalone credit rating, without reference to the constraints of capital floor and difference in notches. RBI fixes minimum qualifications and experience for CFO and CTO RBI vide Circular dated May 18, 2017 has laid down guidelines for appointment of CFO and CTO in all Scheduled Commercial Banks (Excluding RRBs). The guidelines are in terms of minimum qualification and experience and are as follows: (i) Chief Financial Officer Minimum Qualification: He/she should be a qualified Chartered Accountant. Experience: Fifteen years in overseeing financial operations, preferably accounting and taxation matters, in banks/large corporates/psus/ FIs/financial services organizations, of which 10 years should be in Banks/FIs (of which five years should be at senior management level). (ii) Chief Technology Officer Minimum-Qualification: Engineering Graduate or MCA or equivalent qualification from a recognized University / Institution. Experience: Mandatory 15 years of experience in relevant areas and should have worked in Banking-IT related areas/projects involving IT Policy and Planning/ Financial Networks and Applications/ Financial Information Systems/ Cyber Security Technologies/ Payment Technologies, etc., of which five years should be at senior management level. MCA enforced certain provisions of Insolvency and Bankruptcy Code The Central Government vide notification dated May 15, 2017 appointed April 1, 2017 as the date for enforcement of Section 2 [Clause (a) - clause (d)] of the code relating to voluntary liquidation or bankruptcy. The section relates to the applicability of the code and the notification only extends the applicability to companies registered under the Companies Act, 2013, Limited Liability Partnerships incorporated under Limited Liability Partnership Act, 2008 or any other body incorporated under any law for the time being in force. In effect, the act has yet not been made applicable to partnership firms and individuals (Covered under Section-2(e) of the code. MCA issued Clarification on applicability of Section-16(1) (a) of Companies Act, 2016 The Central Government vide notification dated May 16, 2017 clarified the position regarding section 16 of the Companies Act, 2013 read with section 22 of the Companies Act, The question that can a regional 3

4 director entertain a fresh application under section 16 of the 2013 act in respect of applications which were earlier rejected by them under Companies Act, 1956 on the ground of being time-barred (prescribed period of 12 months having elapsed) as under section 22 of the 1956 Act, was answered through the notification. The Notification clarified that no fresh application can be filed under section 16 of the Companies Act,2013 in such matters. SEBI specifies position limits for crosscurrency futures and options contracts on exchanges in IFSCs Securities and Exchange Board of India ( SEBI ) vide notification dated May 17,2017 laid down the position limits for eligible market participants with respect to currency derivatives which were specified as permissible securities to be traded by IFSCs vide Securities and Exchange Board of India (International Financial Services Centre) Guidelines, 2015 were notified on March 27, 2015, which came into force on April 01, The position limits laid down by SEBI are as follows: Trading Members (positions on proprietary basis as well as clients' position) - Gross open position across all contracts not to exceed 15% of the total open interest or USD 1 billion equivalent, whichever is higher; Institutional Investors - Gross open position across all contracts not to exceed 15% of the total open interest or USD 1 billion equivalent, whichever is higher; Eligible Financial Investors- Gross open position across all contracts not to exceed 15% of the total open interest or USD 1 billion equivalent, whichever is higher; Other Clients- Gross open position across all contracts not to exceed 6% of the total open interest or USD 100 million equivalent, whichever is higher. Stock Exchanges have been directed to impose penalties in case of non-compliance with these limits. MCA withdraws circular on transfer of shares to IEPF authority Ministry of Corporate Affairs ( MCA ) vide notification dated May 16, 2017 has withdrawn the General Circular No. 03/2017 dated April 27,2017 regarding Transfer of shares to IEPF Authority with immediate effect vide General Circular No.05/2017 dated May 16,2017. The said circular is being reviewed by the MCA and the fresh instructions on the matter will be issued in due course of time. The 14th Goods and Services Tax (GST) Council approved GST rates for goods and GST compensation cess The 14th Goods and Services Tax (GST) Council Meeting, chaired by the Union Minister of Finance Mr. Arun Jaitley, was held at Srinagar, Jammu and Kashmir on May 18,2017 and the rates of goods were discussed at the meeting. The Council has broadly approved the GST rates for goods at NIL rate, 5%, 12%, 18% and 28% to be levied on certain goods. The Council has also broadly approved the rates of GST Compensation Cess to be levied on certain goods. 4

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