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In order to discourage indirect ways of investment, such as participatory notes (PNs), in the capital market, the Economic Survey 2008-09 has recommended that overseas high networth individuals (HNIs) be allowed to register and invest directly through authorised domestic intermediaries.

Sources said that capital market regulator Securities and Exchange Board of India (Sebi) could consider this recommendation.

According to legal experts, this recommendation, if implemented, would not only help increase transparency in the market, but also limit the flow of unaccounted money. "The move will curb ambiguity, bring in more accountability and limit the misuse of PNs," said Kedar Dige, senior lawyer and partner of Mumbai-based VKD Associates, which advises a lot of foreign funds.

Some even felt that allowing HNIs to register and invest directly could create a new class of investors. "Currently, it is highly difficult for non-residential Indians (NRIs) to register as sub-accounts of foreign institutional investors (FIIs). Such a move will not only bring transparency, but also encourage more investments in the country," said Akil Hirani, managing partner, Majumdar & Co.

Source: Business-standard 'Allow overseas HNIs to invest directly in stocks'

After the global economic crises heightened in the aftermath of the fall of banking giant Lehman Brothers in September 2008, global investors were pulling out their investments from developing markets like India. In 2008-09, foreign institutional investors (FIIs) pulled out $13.8 bn from India.

For the nine months ended December 2008, net flows under non-resident deposits were $2.1 bn as against $0.93 bn in the corresponding period in 2007. However deposits under Foreign Currency Non-Resident (Banks) - FCNR (B) - declined by $1.2 bn during April- December 2008. But the other two non-resident deposits - Non-Resident External rupee account (NRE) and Non-Resident Ordinary rupee account (NRO) - witnessed accretions.

Repatriation is allowed under both FCNR and NRE accounts. However, foreign exchange risk is borne by banks in the case of FCNR, while in NRERA, it is the individual depositor who bears the exchange risk.

Source: business-standard NRIs kept faith with India during the global plunge: Survey

Insurance regulator Insurance Regulatory and Development Authority (Irda) on Wednesday prohibited insurance companies from investing in Indian Depository Receipts (IDRs), the instruments through which foreign companies raise funds from the Indian equity market.

Insurers said the Irda move would not affect them much, but stock analysts said the decision would diminish the attractiveness of the IDR market.
"On examination of the features of IDR, it is observed that an investment in an IDR by any insurer would amount to an indirect investment made outside the country and would not be in compliance with section 27 C of Insurance Act," Irda said in a circular.

Section 27 C of the Act bars investment of insurance funds outside India.
"In view of the extent statutory restrictions on overseas investments, it would not be in order for insurers to invest in Indian depository receipts," the insurance regulator said.
Through IDR, foreign companies mobilize funds from the Indian markets by offering their equity shares, in the form of rupee denominated depository receipts.

The committee was "generally appreciative" on the need to extend trading hours, said a member, who attended the meeting. However, a consensus on the timings for the extended hours and how much should be the additional trading hours is yet to be reached. "After a further study, it will come back to the SMAC," said one of the members.

Another member, who attended the meeting, told Financial Chronicle that no consensus has been reached among market participants such as brokers, stock exchanges and investors' associations in the case of increasing the trading hours from the present 9:55 am to 3:30 pm. According to him, the matter has been referred to a sub-committee.

The domestic stock exchanges, especially the National Stock Exchange (NSE), is in favour of an increase in market hours to prevent flight of business from India to Singapore Stock Exchange (SGX) where Nifty futures are traded.

Another issue that was discussed relates to misuse of clients' id by brokers. "It was found that several brokers using investors ids for their own trading purposes. The committee discussed the issue and decided to suggest proper steps to stop this practise," the member said.

" They shall come into force on July 1, 2009," Securities and Exchange Board of India Chairman C B Bhave said in a notification.

To boost the confidence of brokers, FIIs, mutual funds and foreign venture capital funds in the Indian capital market, SEBI announced the reduction of fee by half on June 18.

SEBI has reduced the brokerage charges of all sale and purchase transactions in securities, other than debt securities, by 50 per cent from Rs 20 to Rs 10 for a turnover of Rs one crore.

Similarly, brokers&aposfee for all sale and purchase transactions in debt securities have been reduced to Rs 2.5 from Rs 5 for per Rs one crore turnover.

SEBI has also cut the three-year registration fee of foreign institutional investors (FIIs) to USD 5,000 from the existing USD 10,000.

Similarly, filing fee for offer document of mutual fund have been reduced to 0.0020 per cent from 0.005 per cent of the amount raised in the new fund offer, subjected to a minimum of Rs one lakh and a maximum of Rs 50 lakh.

Besides, SEBI reduced the foreign venture capital application and registration charges by half to USD 2,500 and USD 10,000 respectively.

Entry load refers to the charge levied by a mutual fund when an investor steps in, to meet their marketing costs and distribution commissions.

"There shall be no entry load for all mutual fund schemes," Market regulator SEBI said in a circular.

The SEBI board had given nod to this proposal on June 18. The decision will apply to additional purchases in existing mutual fund schemes and switch over to other schemes as well as new schemes from August one 2009.

This will also apply to systematic investment plans registered on or after August one.

SEBI also directed MF companies to carry a suitable disclosures in application forms that the upfront commission will be paid by investors directly to the distributors.

SEBI also said of the exit load paid by the investors, a maximum of 1 per cent will be maintained in a separate account to pay commission to the distributors by mutual fund companies.

The market regulator directed distributors to disclose all commissions payable to them for different competing schemes of various mutual funds.

Price Waterhouse is the Indian arm of global auditing firm PricewaterhouseCoopers.

Sebi's interim report says the auditors had "failed to be vigilant in the conduct of their professional duties", and had displayed "gross negligence" in the conduct of their audits of Satyam from March 2001 to September 2008.

This "led to accumulation of false balances in deposit accounts in the books of the company", the capital market regulator says in the report.

On Monday, the Andhra Pradesh high court dismissed bail petitions filed by Gopalakrishnan and Talluri, saying the investigation into the scam was at a critical stage, according to the counsel for the auditors, C Masthan Naidu. The auditors have been in custody since 23 January.

According to T Niranjan Reddy, counsel for the Central Bureau of Investigation (CBI), judge G V Seethapathy agreed with CBI that prima facie evidence existed on the diversion of funds and collusion of the auditors with Satyam's promoters in the country's largest accounting scam.

Sebi has found "grave professional lapses on the part of the auditors", which are "directly tied into and inseparably a part of the fraud perpetrated in the capital market", the Sebi report says.

Source: Realty Plus Sebi calls for ban on Price Waterhouse

The MCA-21 project planned to make it possible for every company to talk to the ministry of corporate affairs on an IT platform, within 2021. But under Khursheed, the ministry has decided to draw up a larger blueprint called the Next-Generation MCA-21. The new plan could also raise question marks over the role of TCS, which had won the bid for MCA-21 in 2006 to develop the system in six years by 2013.

A ministry source confirmed that there would be fresh bids for the Next Generation MCA-21 project. "The ministry can't rely on only one player for the Next Generation MCA-21 which would be more than Rs 500 crore. There will a proper bidding process for the Next Generation MCA-21, based on which the new private player would be roped in."

The new project is supposed to be an advanced information sharing system with regulators like Sebi, RBI and government ministries to replace the present MCA- 21 which is the e-governance platform for the 9-lakh odd companies in India.

Tanmoy Chakrabarty, vice-president and head of government industry solutions unit, at TCS told FE, "We have not been approached by the ministry for becoming the private player for the Next Generation MCA-21 as it is a large initiative for the ministry and is going to be through public-procurement process."

According to the ministry, the scope of the Rs 340-crore MCA-21 project is not good enough to integrate the information coming from the companies with that from other financial sector regulators. Under the Indian Companies Act, any company registered with the Registrar of Companies has to file its annual report with it. But there is often evasion by rogue companies, but because of the volume of paperwork involved, prosecution was difficult. MCA-21 aimed to make the process to improve the scale of compliance.

Such a reformulated tax agreement will help tighten the legal noose on tax evaders secreting their money abroad. Under present Swiss law, foreign-held accounts are protected unless there is evidence of proceeds from drugs or bribes.

Confirming that they have received the request to renegotiate the DTAA, Swiss Ambassador Philippe Welti, however, told that his government would share tax evasion data "on specific request by the government".

This means India will be able to seek details of bank accounts kept by citizens who are believed to have evaded taxes in India and deposited the money in overseas bank accounts. A "roving" or "fishing" enquiry is not possible.

Under the existing Indo-Swiss DTAA information on the Swiss bank deposits of Indian residents was not to be revealed under any circumstances.

Earlier this year, however, the Indian government filed an affidavit with the Supreme Court saying it had approached the Swiss government to renegotiate the 1995 DTAA. The affidavit was filed in response to a public interest litigation saying the Centre did not take adequate steps to get back illegal money kept abroad by Indian citizens.

The affidavit was filed after Switzerland agreed to comply with the Organisation for Economic Cooperation and Development's model tax convention in March 2009, which meant jettisoning its banking secrecy laws under certain circumstances. Switzerland currently has over 70 DTAAs in the pipeline to be renegotiated as a result of the tax convention.

In the past, Swiss authorities refused to share bank details under the DTAA, saying that such information concerned the enforcement of India's tax laws and not Switzerland's. For example, when the income tax department sought to verify the contents of bank documents seized from racehorse owner Hassan Ali Khan, who has been accused of depositing tax-evaded money in UBS, the Swiss authorities declined to provide the information.

Countries like Switzerland and other known tax havens finally agreed to comply with OECD's tax convention after a group of 20 nations which constitute more than 85 per cent of the world's output (G 20), threatened to take action against uncooperative nations.

"In Switzerland, tax evasion is also illegal but is normally only punishable as an offence, ie with a fine," Welti said, reiterating that Swiss laws remain tough on cases like criminal and terrorist money.

India has signed DTAAs with more than 70 nations. Twenty-nine of these are classified by OECD as jurisdictions that have substantially complied with international tax standards.

There should be atleast 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.

Following can become a partner in the LLP

   1. Company incorporated in and outside India
   2. LLP incorporated in & outside India
   3. Individuals resident in & outside India

Contribution

In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed.

In case the contribution is in intangible form, the value of the same hall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed.

The LLP Agreement must specify the contribution intended to be paid all the members and the form in which it will be paid.

Designated Partners

`Designated Partner' means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement.
Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Designated Partner shall be:

   1. Responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and
   2. Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Explanation.--for the purposes of this section, the term "resident in India" means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.

Designated Partners Identification Number (DPIN)

Every Designated Partner is required to obtain a DPIN from the Central Government.

DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees. However if an individual already holds a DIN (Director Identification Number), the same shall deemed to be the DPIN (Designated Partner Identification Number), and for the purpose, an intimation to be made in Form 25 with Central Government.

It is not necessary to apply Designated Partner Identification Number every time you are appointed partner in a LLP, once this number is allotted it would be used in all the LLP's in which you will be appointed as partner.

Digital Signature Certificate

All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet. Since all these forms are required to be signed by the partner of the proposed LLP and as all these forms are to be filed electronically, it is not possible to sign them manually. Therefore, for the purpose of signing these forms, at least one of the Designated Partner of the proposed LLP needs to have a Digital Signature Certificate (DSC).

The Digital Signature Certificate once obtained will be useful in filing various forms which are required to be filed during the course of existence of the LLP with the Registrar of Companies.

LLP Name Approval, Prohibited word, Words which require Approval

Selection of the name for the proposed LLP to be incorporated is one of the important processes of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria:

    * LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP, which is already registered in India.For example: Name of Company already registered: XYZ Consultants Pvt Ltd Name of Proposed LLP: XYZ Consultants LLP Whether Proposed Name would be available: No

    * Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950. Following is the List of Prohibitive words alongwith reasons:-

   1.
         1. National, Union, Central, Federal, Republic, President, Rasthrapathi, Small Scale Industries, Cottage Industries, Financial Corporations, Municipality, Panchayat or any other word imparting connection Union or State Government   : It signifies Government Patronage or Participation.
         2. State together with the name of Particular State for e.g. Delhi state corporations Ltd : It gives an impression that the state is also participating in the paid up share capital of the company.
         3. Ashoka Chakra, Dharma Chakra, Name of Parliament , State Legislature : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.
         4. Rama Krishna Math, Ramakrishna Sarada Mission, Bharat Scouts, Interpol : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.
         5. Chhatarpait Shivaji Maharaj, Mahatma Gandhi or the name of any Prime Minister/President  of India : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.

    * Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.Following is the List of Words which requires approval alongwith the Name of the Authority from whom approval is required:-
         1. Venture Capital/Venture Capital Company/Venture Capital Fund/Venture Capital Finance Company:- Department of Economic Affairs/ SEBI
         2. Stock Exchange/Mutual Funds:- Securities Exchange Board of India (SEBI)
         3. Name belongs to registered trade mark:- Owner of the registered trade mark
         4. Insurance:- Insurance Development Regularity Authority of India (IDRA)
         5. Bank, Banker, Banking:- Reserve Bank of India (RBI)
         6. Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, than that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company

LLP Agreement

For the purpose of forming a LLP, there should be agreement between the partners interested in forming the LLP to be known as LLP Agreement. The said Agreement forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners.

The basic contents of Agreement are:

    * Name of LLP
    * Name of Partners & Designated Partners
    * Form of contribution
    * Profit Sharing ratio
    * Rights & Duties of Partners

In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of Companies.

Registered Office

The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. . A registered office is required for following purposes:

   1. All the statutory records and books of accounts of the LLP will be maintained at this office.
   2. The Jurisdiction of Registrar of Companies is based on the registered office of the LLP

At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of Companies.

The needle of suspicion in the entire Satyam scam lay on the two auditors of Price Waterhouse, S Gopalakrishnan and S Talluri, who are now set to be banned for life from practicing.

ICAI, whose panel has found them guilty, will be taking the harsh decision.

The disciplinary committee, whose report will be submitted soon, is set to declare that both the individuals are guilty of gross lapses in the auditing of Satyam's day-to-day transactions and it wants them banned from practice for life.

Meanwhile, Price Waterhouse refused to comment on the decision. Initially, the firm had backed the auditors, but then later on suspended them. ICAI also declined to comment on the findings, but it is now clear that the lapses in auditing were serious.

What still remains unclear is--why is it only the individual and not the firm, which is held guilty?

There is good news for you. You will not be taxed at all.

A recent ruling by Income Tax Appellate Tribunal (ITAT) in the case of Chandrakant Shah stated that if you borrow interest-free money from friends and colleagues neither you nor the lender will have to pay tax.

This ruling was given by the tribunal on 12th January 2009. Let us take a look at how this ruling came into effect.

Prior to 1997, one of the taxes that existed was Gift Tax. As per the rules of the Gift Tax Act, the person lending the money to his acquaintances was taxed. And the tax rate here was exorbitantly high.

You ended up paying around 30 per cent of the value of the taxable gift. For e.g. if the value of the gift was Rs 1 lakh, you ended up paying Rs 30,000 to the income tax department.

This made many people wary of lending money to their friends and colleagues. Even the recipients of such gifts were not spared. As a result, many people did not use this good source of financing, even though their friends did not charge them any interest.

However in 1997, gift tax was abolished. So both the donor as well as the recipient did not have to pay any tax on the gifts received. Consequently, people started misusing the vacuum left behind by scrapping of gift tax. There was a widespread transfer of insincere gifts from the non-relatives. In order to fill up this void, Section 56 (2)(v) of Income Tax Act was passed in 2004.

As per Section 56 (2)(v) of the Income Tax Act , any amount exceeding Rs 25,000 obtained by a person or a Hindu Undivided Family (HUF) without any consideration from non-relative would be taxed. The only cases exempted were the gifts given during marriage, inheritance left behind in a will or if the payer has died.

In the case of Chandrakant Shah, the assessing officer of income tax, used this section and considered the interest-free loans given to Shah by his non-relatives as amount without consideration and taxed it.

This made Shah approach the Commissioner of I-T (Appeals) for relief, but failed. Subsequently he appealed the Mumbai [ Images ] ITAT, and his lawyer argued that the lower authorities made the wrong interpretation of this section.

Moreover, his lawyer argued that an interest-free loan does not fall within the purview of Section 56 (2)(v), since the loan repayment itself can be regarded as consideration between both the parties and not as an amount without consideration.

Also Shah's balance sheet showed the amount as unsecured loan liability and so cannot be regarded as an addendum to the capital, which is true in case of gifts.

He also referred to the judgment given by the Court of Appeal of State of California, which stated that loan was a contract between two parties. As per this contract, one party lent money to other party, who then agreed to repay the money in future, with or without interest. His argument was upheld by the ITAT bench and so gave the ruling favoring Shah.