Missive Volume X – January 2012 T R A N S A C T I O N A D V I S O R S

Dear Patron At the outset, I would like to wish all our readers a very Happy New Year. Here we are with the Tenth successive issue of our monthly ‘Missive’. During 2011, private equity investments rose to US$ 7.7 billion through 347 deals. Real estate, automotive and power emerged as the most popular sectors for private equity funding. The year saw $50.9 billion invested through various forms of private investments like mergers & acquisitions, PE deals and qualified institutional placement. But with macro-economic and policy concerns both globally and in India, 2012 will redefine the players and the playing field going forward. And more so it will be a year that will decide whether the Indian risk capital industry can win back the confidence of and a bigger share of funds from Limited Partners (LPs). We trust you will enjoy reading this Missive, even while soaking in the contents. We would very much appreciate your feedback which consistently helps us in improving and upgrading the contents. Thanks and regards, Akhil Bansal Editor, Knowledge Management Team

Topics Page No Corporate law 1 FEMA 3 SEBI 6 International Taxation 7 Transfer Pricing 7 Other Regulatory 8 Recent Transactions that made headlines

8

When the world says ‘Give Up’, … Hope whispers ‘Try it one more

time’

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Corporate Law Unlisted Public Companies (Preferential Allotment) Amendment Rules, 2011 - Key Amendments Some of the important amendments made by the Rules to the Unlisted Companies (Preferential Allotment) Amendment Rules, 2003, include the following:

Ω The definition of 'preferential allotment' has been modified to

include issue of instruments convertible into shares on a preferential basis under Section 81(1A) of the Companies Act, 1956.

Ω Any offer of securities to more that forty-nine persons have been excluded from the definition of 'preferential allotment'.

Ω Any offer or invitation of securities not in compliance with Section 81(1A) read with Section 67(3) of the Companies Act, 1956 will be treated as a public offer and the provisions of Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall apply.

Ω All monies payable on subscription of securities will be paid through cheque, demand draft or other banking channels and not by cash.

Ω Any allotment of securities will be completed within sixty days from receipt of application money. If the company is unable to allot the securities within sixty days it shall repay the application money within 15 days thereafter, failing which the company will be required to re-pay the application money with interest chargeable at the rate of 12% per annum.

Ω No company offering securities shall release any public advertisement or utilise any media, marketing or distribution channels to inform the public about such an offer.

[Notification No. F. 2/21/2011-CL V dated 14th December, 2011]

Impact: While there are stringent rules that govern preferential issue by listed Public Companies, the rules are not as stringent for an unlisted public company. This move is considered as a step to introduce more transparency in preferential issue by unlisted public companies and warrant stringent compliance with section 67(3) of the Companies Act, 1956. Company Law Settlement Scheme (CLSS) extended up to 15th January, 2012 Ministry of Corporate Affairs has through its circular dated 15th December 2011 extended the date for various claims under Company Law Settlement Scheme, 2011 further up to 15th January, 2012. All terms and conditions in earlier circulars to remain same. [General Circular No. 71/2011, Dated the 15th Dec, 2011] Impact: The CLSS gives an opportunity for companies to make good their default in making annual filings (i.e. annual financial statements, annual returns and secretarial compliance certificates for the previous years) with the Registrar of Companies at a discounted fee. The CLSS scheme had earlier provided time for filing up to 31 October, 2011 which was extended to 15 December, 2011.

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MCA extends PAN updation date for DIN holders to 29th February, 2012 MCA has further extended the last date for filing DIN-4 by DIN holders for furnishing the PAN and to update PAN details up to 29.02.2012 for the Allotment of Director’s Identification Number (DIN) under Companies Act, 1956. [General Circular No: 70/2011] Impact: Non-provision of PAN details or any mismatch in DIN and PAN information will be treated as default and such DINs may be disabled for access of MCA21 System after February 29, 2012. Participation by shareholders or directors in Annual general meetings through electronic mode – Amendment to earlier circular In June 2011 vide Circular No. 35/2011, dated 6-6-2011, MCA had made video conferencing facility in respect of shareholders meetings mandatory for all listed companies from the year 2012-13. Now, the same has been made optional. Further, in case of e-voting in general meetings the Ministry of Corporate Affairs authorized only NSDL & CDSL as agencies for providing and supervising electronic platforms for electronic voting. Now any agency can provide electronic platform for e-voting subject to obtaining certificate from STQC. [General Circular No. 72/2011, dated 27-12-2011] Late Fees for XBRL returns filed after 31.12.2011 to be calculated from original due date of filing A select class of companies have to file their financial statements for financial year 2010-11 using XBRL. Owing to requests from

stakeholders, last date of XBRL filings by a company have been extended up to 31.12.2011 or within 60 days from its due date of filing, whichever is later, without any additional fees. Companies filing after expiry of this extended timeline would be charged additional fee as per their normal 23AC and 23ACA filings. i.e., late fee for such companies would be calculated with effect from original due date of filing.

Facility for Online Public Search of Trade Marks before incorporation of Company MCA in a joined up service with the Trademark department has provided a facility for searching the trademark database before applying for Name availability. This can be accessed using the link ‘Public Search of Trade Marks’ available on the MCA21 portal before applying for a company name to verify that the name is not subjected to any trademark or pending for trademark registration. Impact: This is viewed by many as one of the various measures of MCA to provide enhanced services to its stakeholders. Companies (Accounting Standards) Amendment Rules, 2011 – Amendment in date of Applicability of Accounting Standard (AS) 11 relating to ‘The Effects of Changes in Foreign Exchange Rates’ The sunset date for transitional provisions to AS 11, which allow deferment/capitalization of exchange differences arising on long-term monetary items has been extended till 31 March 2020. The other amendment deals with the manner in which a company may opt to defer/ capitalize these exchange difference on long-term monetary items. [Notification F. No. 17/133/2008-CL.V Date- 29th December, 2011]

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FEMA RBI delegates Compounding Powers under FEMA to its Regional Offices As a customer service measure and for operational convenience, RBI has decided to delegate powers to the Regional Offices of the Reserve Bank of India to compound certain contraventions of FEMA 1999. The contraventions include: (i) delay in reporting of inward remittance, (ii) delay in filing of form FC-GPR after allotment of shares and (iii) delay in issue of shares beyond 180 days. The powers delegated are:

Contraventions Regional Offices Amount of

Contravention

Delay in reporting of inward remittance and delay in filing of form FC-GPR after allotment of shares

Bhopal, Bhubaneshwar, Chandigarh, Guwahati, Jaipur, Jammu, Kanpur, Kochi, Patna and Panaji

Below Rupees One Crore only

Delay in reporting of inward remittance, delay in filing of form FC-GPR after allotment of shares and delay in issue of shares beyond 180 days

Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi

Without any limit

[A.P. (DIR Series) Circular No. 57 dated December 13, 2011] Impact: The subject liberalisation is likely to streamline and expedite the process for Compounding of Contraventions. The formats prescribed for the details and documents will help in uniformity and reducing subsequent correspondences. As clarified by the Circular, the cases falling outside the above liberalisation would continue to be submitted to the Reserve Bank, Central Office - CEFA, Mumbai.

FDI in India – Issue of equity shares under the FDI scheme allowed under the Government route Vide this circular the A.P. (DIR Series) Circular No. 74 dated June 30, 2011, RBI allowed issue of equity shares/ preference shares under the Government route by conversion of import of capital goods/ machineries/equipments (including second-hand machineries) and pre-operative/pre-incorporation expenses (including payments of rent, etc.), subject to terms and conditions stated therein, stands amended. Amendment in conditions are:

A.P.(DIR Series) Circular No. 74 dated June 30,

11

Earlier condition Revised condition

Para 3 (I) (d)

All such conversions of import payables for capital goods into FDI should be completed within 180 days from the date of shipment of goods.

Applications complete in all respects, for conversions of import payables for capital goods into FDI being made within 180 days from the date of shipment of goods.

Para 3 (II) (d)

The capitalization should be completed within the stipulated period of 180 days permitted for retention of advance against equity under the extant FDI policy.

The applications, complete in all respects, for capitalisation being made within the period of 180 days from the date of incorporation of the company.

[RBI/2011-12/295 A. P. (DIR Series) Circular No.55, Dated- December 09, 2011]

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Foreign investment in Pharmaceuticals sector – Amendment to the FDI Scheme The Reserve Bank of India notified new rules doing away with automatic approval for foreign direct investment (FDI) in existing pharmaceutical companies. Tightening the norms, the government had in November 2011 done away with automatic approval of FDI in the existing pharmaceutical companies. Now, FDI, up to 100 per cent, would be permitted for Brownfield investment (i.e. investments in existing companies), in the pharmaceutical sector, under the Government approval route. Under the new rules, for any merger or acquisition, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB). After six months, it will be the monopoly watchdog Competition Commission of India (CCI) which will vet such deals. For the new investment, 100 percent FDI will be allowed under the automatic route, under which investors only inform the Reserve Bank about the inflows and no specific government nod is required. Impact : The decision follows directions from Prime Minister Manmohan Singh, who along with his senior Cabinet colleagues had deliberated on 10th October over concerns arising out of several acquisitions of domestic pharmaceutical companies by overseas firms. Concerns have been raised over the impact of a spate of acquisitions of homegrown firms by multi-national companies. The recent acquisitions include Ranbaxy Laboratories buy out by Daiichi Sankyo of Japan, Shanta Biotech by Sanofi Aventis of France and Piramal Health Care by Abbott Laboratories of the US.

Micro Finance Institutions (MFIs) allowed to raise ECBs Considering the specific needs of the microfinance sector, the Reserve Bank of India has, subject to certain conditions, allowed microfinance institutions to raise External Commercial Borrowing (ECB) up to USD 10 million during a financial year. As eligibility criteria, MFIs should have a satisfactory borrowing relationship for at least 3 years with a scheduled commercial bank authorized to deal in foreign exchange. It has also been decided that Non-Government Organisations (NGOs) engaged in microfinance activities can avail of ECB up to USD 10 million or equivalent per financial year under the automatic route as against the present limit of USD 5 million or equivalent per financial year. Companies registered under Section 25 of the Companies Act and engaged in micro finance will be permitted to avail of ECBs even from individuals. Impact: Now, NBFC-MFIs will be permitted to avail of ECBs from multilateral institutions, regional financial institutions, international banks, foreign equity holders and overseas organizations. ECB funds should be routed through normal banking channels.

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External Commercial Borrowings (ECB) denominated in Indian Rupees (INR) – RBI allows hedging facilities for Non-resident entities Vide A.P. (Dir Series) Circular No. 27 dated September 23, 2011,

i. “eligible borrowers” have been permitted to avail of ECBs

designated in INR from foreign equity holders under the automatic/ approval route, as the case may be, as per the extant ECB guidelines.

ii. NGOs engaged in microfinance activities have been permitted to avail of ECBs designated in INR, under the automatic route, from overseas organisations and individuals as per the extant ECB guidelines.

In order to facilitate the same, it has been decided to allow non-residents to hedge their currency risk in respect of ECBs denominated in Indian Rupees, with AD Category I banks in India, as per the details given in the circular. [RBI/2011-12/326 A. P. (DIR Series) Circular No.63 December 29, 2011] Rates on non-resident deposits freed To improve inflow of foreign currency, the Reserve Bank of India (RBI) has recently deregulated the interest rates that banks would pay on non-resident external rupee (NRE) deposits and non-resident ordinary (NRO) accounts

Banks' stakes in non-financial entities capped at 10% The Reserve Bank of India (RBI) has capped commercial banks' investments in non-financial companies at 10 per cent to ensure they do not engage in activities barred by the Banking Regulation Act. Equity investment would be subject to a limit of 10 per cent of the company's capital, or 10 per cent of the bank's capital and reserves, whichever was less RBI removes cap on mobile banking transactions The Reserve Bank of India has removed the cap of Rs 50,000 (US$ 948.49) per day per transaction through mobile banking. The volume and value of mobile banking transactions are also showing an uptrend, according to RBI.

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SEBI Notification of the Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011 SEBI had earlier issued guidelines for a uniform KYC process to be followed by the intermediaries while opening accounts for investors in the securities market. Now, SEBI had notified the Securities and Exchange Board of India (KYC Registration Agency) Regulations, 2011 (the KRA Regulations) which provide for centralisation of the KYC records in the securities market. As per the KRA Regulations an intermediary shall perform the initial KYC check of its clients and upload the details on the system of a KYC Registration Agency (KRA). When the client approaches another intermediary, the intermediary can verify and download the client's details from the system of the KRA. The KRA Regulations also specify the nature of entities which are eligible to apply for registration as a KRA. Impact: SEBI has, by its circular dated 23 December 2011, provided further guidelines to be followed by the intermediaries and KRAs for effective implementation of the KRA Regulations. The KRA system shall be applicable for all new client accounts opened from 1 Jan 2012 SEBI to launch toll-free helpline Market regulator SEBI would launch a toll-free helpline as part of educating investors on the securities market. With the launch of helpline, an investor can ask any question regarding the securities market which will be answered.

Impact: The toll-free helpline facilitates self-help mechanism which could be more useful for investor. Public Issue of Debt Securities – SEBI prohibits payment of incentives SEBI had banned payment of incentives by a person connected with a public issue of debt securities to potential investors to bid in public sale of bonds as it considers the practice leads to an ‘unfair advantage’ to a select few and raises the cost to issuer. However, the regulator clarified that this won’t apply to fees or commission for services rendered in relation to the issue. [Circular No. IMD/DF/22/2011, Dated 26-12-2011] Impact: This circular has been issued to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market. Some brokers/ distributors were passing on part of their brokerage or commission to the final investors for subscription to such public issue of debt, giving an unfair advantage to some investors adding to the cost of issuance for the company.

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International Taxation

§ Gains arising on sale of shares of foreign company by Non Resident (NR) to NR taxable in India if the foreign co only held Indian assets – AAR [In Re Groupe Industrial Marcel Dassault]

§ Payments received by a non-resident for Value Added Services (VAS) is partly treated as ‘Royalty’ and partly as ‘Fees for Technical Services’ under India-UK tax treaty [De Beers UK Limited Vs. DCIT (ITAT Mumbai)]

§ Sale of Software without granting right to duplicate, amounts to sale of copyrighted article and not the transfer of copyright and therefore not taxable as ‘Royalty’ [Novel Inc. Vs. DDIT (Intl. taxation)]

§ Advance Ruling Application cannot be accepted if question raised in the application is already pending before any income-tax authority [In Re Nuclear Power Corporation of India Ltd. (AAR)]

§ Delhi HC upheld employee head count method for allocating cost towards STP unit for the purpose of computing benefit under Section 10A of the Income-tax Act,1961 [CIT v. EHPT India P. Ltd. (Delhi High Court)]

§ Non-Compete Fees paid for acquisition of business is Capital Expenditure – [Pitney Bowes India Pvt Ltd vs. CIT (Delhi High Court) ]

§ Profits From offshore Supply of Hardware and Software Not Taxable – [DIT vs. Ericsson AB (Delhi High Court)]

§ If borrowed amount not used to earn exempt Income, no disallowance can be made U/s. 14A [ACIT Vs. M/s Reliance Land Pvt. Ltd. (ITAT Mumbai)]

Transfer pricing

§ TPO cannot take cognisance suo moto of any international

transaction for adjustment in ALP [CIT Vs. Amadeus India Pvt Ltd (Delhi HC)]

§ In the absence of valid comparable data furnished by the assessee, the use of comparables comparable controlled transactions for the purposes of benchmarking controlled transactions is permissible [Bayer Material Science Private Limited v. ACIT (ITAT Mumbai)]

§ No functions, assets and risks analysis is required before AY 2002-03 for determination of profits attributable to dependent agent permanent establishment; no further attribution if dependent agent paid arm’s length commission [DIT Vs. BBC Worldwise Ltd. (Delhi HC)]

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Other Regulatory Life insurance companies with 10-year in business can go public: IRDA Insurance regulator IRDA came out with guidelines allowing life insurance companies, which have been in business for over 10 years, to raise funds from the public through IPOs. IRDA, however, will decide the size of the public issue, it said in a notification. As per the guidelines, promoters of the insurance companies will also be allowed to offload their stake in the company. IRDA would prescribe “the extent to which promoters shall dilute their respective holding, the maximum subscription which could be allotted to any foreign investors”, said the IRDA (Issuance of Capital by Life Insurance Companies) Regulations, 2011. IRDA added that it would prescribe a lock-in period for the promoters to prevent them from exiting the company. The regulations stipulate that no life insurance company should approach market regulator SEBI for IPO without seeking prior approval of the IRDA. Impact: The insurance companies, which will become eligible to come out with the initial public offerings (IPOs), include ICICI Prudential Life, HDFC Standard Life and SBI Life. After the insurance sector opened up in 2000, only 23 private companies have entered the life insurance business. While few companies would immediately become eligible for IPOs, the remaining would have to wait for completion of 10 years of operations.

Recent Transactions that made the Headlines

§ Balaji Tele to sell education, mobile content biz. § GE finance arm plans to acquire MetLife U.S. retail-deposit

business § Hero Eco acquires UK-based Ultra Motors § PE Fund hikes stake in Patni Computer: Reports § Cricket Companion acquires CrickZenga § BT Group puts plans to sell stake in Tech Mahindra on hold § Changi Airports plans to acquire 26% stake in GVK's airports

business: Reports § Mahindra Satyam plans to merge with Tech Mahindra § Apple acquires Israel's Anobit for US$500mn § Yahoo plans to reduce its 40% stake in Alibaba Group § Google, KKR to pick up stake in California solar projects § SAR Group acquires 51% stake in Meridian Mobiles § Oswal Group acquires 14.2% stake in NDTV § Coromandel Intl acquires 68% stake in Sabero Organics § 3i to acquire stake in Blue Interactive Group § Seagate completes acquisition of Samsung hard drive business § Saudi Prince Alwaleed bin Talal buys stake in Twitter § ABB to acquire Newave for CHF 170mn § DLF plans to sell hotel unit to Square Four Housing: Reports § Reliance Infra to sell stake in power transmission biz: Reports § Natixis Global acquires 25% stake in IDFC Asset Management § Redington arm to acquire 25.97% stake in Redington Intl

Holdings § JSW Energy acquires additional 31.53% stake in South African

Coal Mining: Reports § Electrotherm to sell its Ductile Iron Pipes business to Saint-

Gobain

This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared for the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in this publication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express or implied) is given as to the accuracy or completeness of the information contained in this publication

This publication is intended as a service to clients and associates and to provide them with details of the important Transaction updates. It has been prepared for the general guidance on matters of interest only, and does not constitute professional advise. No person shall act upon the information contained in this publication without obtaining specific professional advise. Due care has been taken while compiling the information , however, no representation (express or implied) is given as to the accuracy or completeness of the information contained in this publication

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