Attorneys and International Legal Consultants 2 — Article 4 SEBI ... of Juvenile Justice (Care and...

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not be treated as professional advice or legal opinion. Kanth and Associates also disclaim any responsibility and hereby accept no liability for consequences of any person acting or refraining to act on the basis of any information contained herein.

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NEWS ALERTS

TAX

GAAR to take effect from financial year 2017-2018 onwards

Tax treaty with Singapore amended to bring parity with Cyprus, Mauritius

The General Anti Avoidance Rule (GAAR) provisions shall be effective from the Assessment Year 2018-19 onwards, i.e. Financial Year 2017-18 onwards. The necessary procedures for application of GAAR and conditions under which it shall not apply, have been enumerated in Rules 10U to 10UC of the Income-tax Rules, 1962.The provisions of General Anti Avoidance Rule (GAAR) are contained in Chapter X-A of the Income Tax Act, 1961. The CBDT has issued clarifications on implementation of GAAR provisions.

It has been clarified that if the jurisdiction of FPI is finalized based on non-tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply. GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction. Further, grandfathering as per IT Rules will be available to compulsorily convertible instruments, bonus issuances or split / consolidation of holdings in respect of investments made prior to 1st April 2017 in the hands of same investor. It has also been clarified that adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. However, if a case of avoidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR. It has been clarified that if at the time of sanctioning an arrangement, the Court has explicitly and adequately considered the tax implications, GAAR will not apply to such an arrangement. It has also been clarified that GAAR will not apply if an arrangement is held as permissible by the Authority for Advance Rulings. Further, if an arrangement has been held to be permissible in one year by the PCIT/CIT/Approving Panel and the facts and circumstances remain the same, GAAR will not be invoked for that arrangement in a subsequent year.

India has amended its over two-decade old tax treaty with Singapore that will allow it to tax capital gains on investments from the South East Asian nation, a significant milestone in plugging round-tripping of

CONTENTS— News Alerts

Tax 1

Legislations/Notifications 2Judgments 2

— Article 4SEBI enhances supervision over the Schemes of Arrangements between Listed and Unlisted Companies

Employment/ Labour Laws 1

By Dhara Doshi, Associate, Kanth & Associates

funds after changes to treaties with Mauritius and Cyprus. The reworked treaty brings the treaty on par with that with Mauritius providing for taxation of investment in shares of Indian companies as per local rule from April 1, 2017. Short-term capital gains in India face tax at the rate of 15% while there is an exemption for long-term gains. For shares acquired on or after 1 April 2017, there will be a two-year transition period, during which the capital gains from such shares will be taxed at 50% of India's domestic tax rate if the capital gains arise during 1 April 2017 to 31 March 2019. A statement from Singapore government said the updated DTAA preserves the existing tax exemption on capital gains for shares acquired before 1 April 2017, while providing a transitional arrangement for shares acquired on or after 1 April 2017.

The Ministry of Labour and Employment vide notification dated 20.01.2017 amended the Employees' State Insurance (Central) Rules, 1950 in exercise of the powers conferred by Section 95 of the Employees' State Insurance Act, 1948, after consultation with the Employees' State Insurance Corporation. The amendment extended the scope of 'insured woman'. An 'insured woman' shall include a commissioning mother who as biological mother wishes to have a child and prefers to get embryo implanted in any other woman as well as a woman who legally adopts a child of up to three months of age. Further, in Rule 56(2), for the words “twelve weeks of which not more than six weeks”, the words “twenty-six weeks of which not more than eight weeks” have been substituted and after the first proviso, two fresh provisos have been

EMPLOYMENT/LABOUR LAWS

ESI benefits extended to surrogate and adopting mothers

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inserted holding that the insured woman shall be entitled to twelve weeks of maternity benefit from the date the child is handed over to the commissioning mother after birth or adopting mother, as the case may be and that the insured woman having two or more than two surviving children shall be entitled to receive maternity benefits during a period of twelve weeks of which not more than six weeks shall precede the expected date of confinement.

The Government has said that a consumer can now refuse to pay the service charge if he/she is not satisfied with their dining experience. The Consumer Protection Act, 1986 stipulates that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice and that a consumer can make a complaint to the appropriate consumer forum established under the Act against such unfair trade practices. The Department of Consumer Affairs called for clarification from the Hotel Association of India, which in response stated that the service charge is completely discretionary and, therefore, it is deemed to be accepted voluntarily. The Central government, in a press release, has also directed the state governments to “sensitize the companies, hotels and restaurants in the states regarding aforementioned provisions of the Consumer Protection Act, 1986.” In addition, it has asked state governments “to advise the Hotels/Restaurants to disseminate information through display at the appropriate place in the hotels/restaurants that the 'service charges” are discretionary/ voluntary and a consumer dissatisfied with the services can have it waived off.”

The New Adoption Regulations, 2017 will be effective from 16.01.2017. The Regulations were framed by 'Central Adoption Resource Authority' (CARA) as mandated under section 68 (c) of Juvenile Justice (Care and Protection of Children) Act, 2015. The salient features of the Adoption Regulations, 2017 are as follows: (a) Procedures related to adoption by relatives both within the country and abroad have been defined in the Regulations; (b) Validity of Home Study Report has been increased from two to three years; (c) The

LEGISLATIONS/NOTIFICATIONS

Service charge by hotels/restaurants not mandatory: Govt.

New Adoption Regulations, 2017

time period available to the domestic prospective adoptive parents' for matching and acceptance, after reserving the child referred, has been increased to twenty days from the existing fifteen days; (d) District Child protection Unit shall maintain a panel of professionally qualified or trained social workers; (e) There are 32 Schedules annexed to the Regulations including model adoption applications to be filed in the Court and this would considerably address delays prevalent in obtaining the Court order; and (f) CARA shall be facilitating all adoptions under the JJ Act, 2015 through Child Adoption Resource Information & Guidance System (CARINGS) and all kinds of adoptions, including adoptions by relatives shall be reported to CARA which would enable safeguards for all adopted children by maintaining their record and ensuring post adoption follow up.

The Law Commission of India has proposed increasing punishment for people responsible for food adulteration from six months to life imprisonment. The Commission has further decided to increase the fines for such offenders from the existing Rs 1,000 to Rs.10 Lakh. The Commission has prepared a detailed report on amending the Indian Penal Code (IPC) for the same. The proposed amendments include Section 272 (adulteration of food and drinks) and 273 (sale of noxious food or drinks) of the IPC. The report shall soon be submitted to the Centre by the Law Commission. The Government may also consider setting up special courts for speedy disposal of food adulteration cases. The Law Commission, while making the said proposal, has laid emphasis on the amendments to food adulteration laws by states like Uttar Pradesh, Odisha and West Bengal, who have already made food adulteration punishable with life imprisonment. The panel has also proposed that a certain amount of compensation should be provided to victims of food adulteration. The panel has categorised food adulteration into four categories, with different punishments for different categories.

The Supreme Court has held that a high court, while refusing to exercise inherent powers under Section 482 of the Code of Criminal Procedure to interfere in an application for quashing of investigation, cannot

Law Commission recommends life imprisonment for food adulterators

HC can't restrain police from arresting accused, while declining to quash case: SC

JUDGMENTS


not be treated as professional advice or legal opinion. Kanth and Associates also disclaim any responsibility and hereby accept no liability for consequences of any person acting or refraining to act on the basis of any information contained herein. 2


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restrain the investigating agencies from arresting the accused during the course of investigation. The Court observed that it has come to the notice of the Court that the high courts, while dismissing an application under Section 482 CrPC, issue directions that on surrendering before the trial judge/magistrate concerned, the accused shall be enlarged on bail. The Court held that such directions do not come within the sweep of Article 226 of the Constitution of India nor Section 482 CrPC nor Section 438 CrPC and are not acceptable. The high court in the instant case had directed the police not to arrest the accused during the pendency of the investigation, but refused to quash the case against them. The state assailed this order before the Supreme Court. The Court said this direction by the high court “amounts” to an order under Section 438 CrPC, albeit without satisfaction of the conditions of the said provision, which is legally unacceptable. The Court observed: “If it thinks fit, regard being had to the parameters of quashing and the self-restraint imposed by law, has the jurisdiction to quash the investigation and may pass appropriate interim orders as thought apposite in law, but it is absolutely inconceivable and unthinkable to pass an order of the present nature while declining to interfere or expressing opinion that it is not appropriate to stay the investigation.”

The Supreme Court held that any appeal for votes on the ground of “religion, race, caste, community or language” amounted to “corrupt practice” under the election law provision. Referring to the term 'his religion' used in section 123(3) of the Representation of the Peoples Act, which deals with 'corrupt practice', the Court said it meant the religion and caste of all including voters, candidates and their agents etc. The Court held that the provisions of the Representation of the Peoples Act, which say that seeking vote by a candidate in the name of “his” religion, caste, race, religion and language in the election law, included candidates, his agents and voters also. The Court further observed that “an appeal in the name of religion, race, caste, community or language is impermissible under the Representation of the Peoples Act, 1951 and would constitute a corrupt practice sufficient to annul the election in which such an appeal was made regardless whether the appeal was in the name of the candidate's religion or the religion of the election agent or that of the opponent or that of the voters.

Seeking votes in the name of religion is corrupt practice: SC

Caretaker can't claim right over property: SC

HC can interfere with departmental enquiry if it is flawed: SC

No reduction in maintenance on the ground of wife's capability to earn: SC

The Supreme Court has reiterated that a person holding the premises gratuitously or in the capacity as a caretaker or a servant would not acquire any right or interest on the property and even long possession in that capacity would be of no legal consequences. The Court said no one acquires title to the property if he or she was allowed to stay in the premises gratuitously. Even by long possession of years or decades, such person would not acquire any legal right in the said property. The bench said caretaker, watchman or servant can never acquire interest in the property irrespective of his long possession. The caretaker or servant has to give possession forthwith on demand. The courts are not justified in protecting the possession of a caretaker, servant or any person who was allowed to live in the premises for some time either as a friend, relative, caretaker or as a servant. The Court further said protection of the court can only be granted to the person who has valid, subsisting rent agreement, lease agreement or license agreement in his favour. The caretaker or agent holds property of the principal only on behalf of the principal. He acquires no right or interest whatsoever for himself in such property irrespective of his long stay or possession.

The Supreme Court has held that a High Court can interfere with disciplinary inquiry or orders passed by the competent authority if the probe itself is vitiated on account of violation of principles of natural justice. The Apex Court said that in a case where the disciplinary authority arrives at a finding that is unsupported by evidence or records a finding which no reasonable person could have arrived at, then the writ court is justified in examining the matter. In a case where the disciplinary authority records a finding that is unsupported by evidence whatsoever or a finding which no reasonable person could have arrived at, the writ court would be justified, if not duty bound, to examine the matter and grant relief in appropriate cases. The Court said, non-application of mind by the inquiry officer or authority, non-recording of reasons in support of the conclusion arrived at by them are also grounds on which the writ courts are justified in interfering with the orders of punishment.

The Supreme Court of India held that the maintenance awarded to a divorced wife shall not be reduced merely




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on the grounds that she is capable of earning. The Apex Court further stated that the High Court had erred in its order of reducing the maintenance awarded to the wife by the family court on the sole basis that she was 'capable of earning'. According to the court, whether the wife is capable of earning or whether she is actually earning are two different requirements.

The Madras High Court ruled that a certificate issued by the chief kazi on talaq is only an opinion and has no legal validity. The Court, referring to Section 4 of the Kazis Act, 1880, held that the office of the kazi does not confer on the person any judicial or administrative power. The All India Muslim Personal Law Board and Shariat Defence Forum submitted that the nature of certificates issued by the chief kazi was only an opinion having expertise of Shariat law. The Court pointed out that neither had the facts which prompted the kazi to opine so been set out nor had it been clarified that was only in the nature of an opinion. The Board said it was willing to examine the format in which a certificate may be issued purely as an opinion of the chief kazi having expertise on Shariat law so as to ensure no ambiguity before any legal forum or otherwise. It clarified that the certificate issued by the chief kazi is only an opinion and has no legal sanctity, more specifically in view of Section 4 of the Kazis Act.

The Securities and Exchange Board of India (SEBI) has since 2013, exercised supervision, in respect of schemes such as amalgamation, demerger, reduction of capital, etc. Such oversight has now found a place in regulations 11, 37 and 94 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Thus, SEBI and the stock exchanges now possess and exercise the authority of reviewing the schemes of arrangement in order to warrant that there is compliance with the appropriate securities and listing regulations.

In one of the most recent developments, a meeting was conducted in Jaipur on 14th January, 2017, wherein through important deliberations SEBI has approved the

No legal validity for talaq certificate issued by kazi: Madras HC

ARTICLE

SEBI ENHANCES SUPERVISION OVER THE SCHEMES OF ARRANGEMENTS BETWEEN LISTED AND UNLISTED COMPANIES

By Dhara Doshi, Associate, Kanth & Associates

proposals to revise and restructure the regulatory framework governing schemes of arrangement of an unlisted company with a listed company. This move has come from SEBI after it came across the widespread practice of big unlisted companies which were listing themselves on stock exchange, post getting merged with small listed companies, to hideaway from complying with the listing obligations and disclosures.

The main objective behind the move of SEBI is to prevent huge number of unlisted companies to get listed by the backdoor vide merging with a very small company for personal motive besides protecting the interest of the public shareholders in the listed companies and give them a greater say in the merger with unlisted subsidiaries. According to a statement issued by SEBI, “The objective is to have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company”. The decision is based on the instances where mergers were being used indirectly by unlisted companies to become listed by merging with small listed companies. In addition, some of the listed companies were issuing securities to only favored people.

In order to improve the disclosure requirements, it has been mandated by SEBI that in case of a merger, unlisted company would have to disclose material information as specified in the format for an abridged prospectus. However, schemes involving merger of a wholly owned subsidiary with the parent company shall be required to be filed with stock exchanges instead of SEBI for the limited purpose of disclosure. This is essentially to ensure that unlisted companies do not circumvent the disclosure requirements that accompany an initial public offering (IPO) of such a company.

To augment public shareholding, SEBI has proposed that the holding of pre-scheme shareholders of a listed company and qualified institutional buyers of the unlisted company shall not be less than 25 percent (25%) in the post scheme shareholding pattern of the “merged” company. This is to guarantee that the shareholding following the merger is extensive, and would accordingly prevent the merger of a very large unlisted company into a small listed company. Also for brokers, the regulator has reduced the fee payable by 25% which would be from Rs 20 per crore to Rs 15 per crore of turnover in a move to benefit investors and

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promote the development of securities market. According to the regulator, “SEBI has been following the practice of calibrating the fees either upwards or downwards as per SEBI's requirements from time to time so as to keep a balance between the financial resources required to ensure regulatory efficiency while maintaining reasonableness to avoid any undue burden on any particular class of intermediaries.”

Furthermore, public shareholders have been given additional rights whereby their approval through e-voting must be obtained in the cases as mentioned herein below:

a) Where an unlisted company is merged into a listed company, which results in a reduction of the shareholding percentage of the pre-scheme public shareholders to less than 5% of the merged entity;

b) Where the scheme involves the transfer of whole or substantially the whole of the undertaking of a listed company where the consideration is provided in a form other than listed equity shares;

c) Where the scheme involves the merger of an unlisted subsidiary with a listed holding company and the shares of the unlisted subsidiary have been acquired by the holding company from the promoters.

The above three scenarios involve transactions that might encroach upon the rights and interests of public shareholders, and hence this requirement for obtaining their specific approval has been stressed upon by SEBI.

With a view to strengthen norms, SEBI has prescribed that listed company should be listed on stock exchange having nationwide trading terminals in order to merge with an unlisted company. This would discourage small listed companies to get merged with large unlisted company. Additionally, SEBI has directed the companies to follow the pricing formula in case of a merger as specified under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. This is to avoid select groups of shareholders from receiving undue benefits under the scheme and to further confirm that every shareholder would get equal treatment.

SEBI further has said that a compliance report must be submitted by companies confirming compliance with the circular and accounting standards duly certified by a company secretary (CS), chief financial officer (CFO) and managing director (MD). So, it can be pursued from the proposals that the main aim of SEBI was to have wider public shareholding and to discourage the practice of very large unlisted companies getting merged with small listed company.

SEBI has also been careful to not over-regulate all types of mergers. Taking cognizance of the relaxation under Section 233 of the Companies Act, 2013 for a fast track merger of a WOS with its parent company, the SEBI board has agreed to modify the approval requirement to a mere disclosure norm. This dispensation would reduce any ambiguous interpretation of Sections 230 and 233 of the Companies Act, 2013.

For this affirmative step of SEBI, it is vividly clear that SEBI had tracked cases where the large unlisted company were merging with small listed company to avoid the compliance and listing obligation. Once the changes approved by SEBI are implemented, it will enhance the public participation in such deals by ensuring that the listing obligation is duly complied with. Further, it will also ensure that the public participation and scrutiny of the schemes of mergers, which in turn will reinforce the interest of shareholders. It is somewhat surprising that the situation continued to be unprotected in the Indian context till date, but at least now it has received specific treatment, both from the perspectives of securities regulation, generally, and minority shareholder protection specifically. This amendment would also take care of recent challenges in High Courts as in the recent past, at least two High Courts had frowned upon SEBI's jurisdiction over scheme of arrangements. Furthermore, Section 230(5) of Companies Act, 2013, which has recently come into force, would also lend support to SEBI's efforts in regulating such complicated schemes.

While SEBI's regulatory intent may be evident from the above, in absence of any official amendment to the relevant SEBI regulations, they will not have the force of law. The actual text of the amended regulations need to be further scrutinized and evaluated for a better understanding of the extent to which SEBI's intentions have been manifested.

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Contact details:

Footnote:

1. http://www.sebi.gov.in/sebiweb/home/new.jsp

2. http://www.livemint.com/Money/C3NvNVIOBPUvg36t CM9crJ/Sebi-lowers-broker-fees-by-25-goes-digital-on-all-payments.html

3. http://www.thehindubusinessline.com/markets/sebi-streamlines-norms-for-mergers-involving-listed-companies/article9481037.ece

4. http://indiacorplaw.blogspot.in/2017/01/sebi-enhances-oversight-on-schemes-of.html

5. http://taxpublishers.in/Show.aspx?15Jan04.htm

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