Tuesday, October 21, 2014

Arbitration as a dispute resolution mechanism


Arbitration as a dispute resolution mechanism has always been the preferred option despite the challenges it has faced time and again as to how effective it really is. In some instances, the challenge has been due to the power vested with Indian courts to set aside arbitral awards citing wider issues of ‘public policy’. In certain other instances, it has been a debated interpretation of the provisions of the Arbitration and Conciliation Act, 1996 (Indian Arbitration Act) as to whether Indian courts can intervene in matters governed by foreign seated arbitrations.

A couple of recent decisions that are summarized below have set an encouraging path that courts should adopt while dealing with such issues. For a clearer understanding, it is relevant to examine the current legal framework and the law laid down by courts. 

The Indian Arbitration Act is divided into two parts – Part I applies to arbitrations that take place within India and Part II applies to international commercial arbitrations that are held outside India. The question that is often raised by contracting parties is whether Indian courts will have jurisdiction over arbitrations governed by Part II of the Indian Arbitration Act i.e. international commercial arbitrations. The decision in Bhatia International laid down that Part I of the Indian Arbitration Act would equally extend to arbitrations that are held outside India, unless it was expressly or impliedly excluded by the parties. This decision was widely debated in as much that the very essence of arbitration as an effective dispute resolution mechanism would stand to reason.

In the landmark Balco decision in 2012, the Hon’ble Supreme Court, in its wisdom and realizing the interpretational fallacy of the decision in the Bhatia International case, finally reversed the decision and confirmed the legal position that Part I of the Indian Arbitration Act would apply only to arbitrations seated in India. The Hon’ble Supreme Court upheld the principle of territoriality and settled the position that Part I of the Indian Arbitration Act would have no application to international commercial arbitrations held outside India. It was however specifically stated that the said position of law would be applicable only as regards arbitration agreements executed after the date of the Balco judgment i.e. 6 September 2012. The question therefore remained as to the position of the arbitration agreements executed prior to 6 September 2012.

Early this year in the matter between World Sport Group (WSG) and MSM Satellite, the question that arose was whether arbitration as a dispute resolution mechanism would be available should there be any determination required of matters alleging fraud, misrepresentation or the like. In this matter, although a division bench of the Hon’ble Bombay High Court initially granted relief to MSM, the Hon’ble Supreme Court overturned the decision in favour of WSG by applying the doctrine of severability since the contract containing the arbitration provision was itself being challenged. It was held by the Hon’ble Supreme Court that the agreement of the parties to resort to arbitration was not rendered inoperative merely for the reason that allegations of fraud have to be inquired into. This decision marked a shift from the approach traditionally followed by Indian courts that allegations like fraud or misrepresentation can only be inquired by courts and not arbitrators.

In a more recent decision involving Reliance Industries Limited and Union of India, the matter in question was whether an express choice of law to govern an arbitration agreement would ensure that Part I of the Indian Arbitration Act will not be applicable even where parties have not expressly excluded Part I. The Hon’ble Supreme Court made a distinction as between the substantive law governing the main contract and the law governing the arbitration agreement. With this decision of the Hon’ble Supreme Court, it now appears clear that even pre‐Balco arbitration agreements would have enough protection provided they have contractually and expressly agreed that foreign law would govern the arbitration agreement, which would then imply exclusion of Part I of the Indian Arbitration Act, and consequentially, exclusion of the jurisdiction of Indian courts.

It is also relevant to note that in the Reliance Industries matter, the Hon’ble Supreme Court while holding that Part I of the Indian Arbitration Act would not be applicable also held that in the event a final award is made against the Union of India pursuant to the arbitration held outside India, the enforceability of the same in India can be resisted on the ground of public policy. It was also specifically accepted that such principle of public policy will necessarily be applied by courts in England (which was the forum contractually agreed between the parties) should arbitrability be challenged, given that the substantive law governing the contract is Indian law.

On the one hand, this decision settles the law as to the inapplicability of Part I to arbitrations held outside India, where parties have expressly or impliedly excluded its applicability. It also clarified the position that even where issues of public policy are involved, foreign courts can be approached to seek appropriate remedy and the issue of public policy alone will not dilute the contractual understanding and agreement of the parties to subject all their disputes to arbitration outside India and seek all their remedies before courts outside India.

While the law on this has been emerging positively, it is necessary that while drafting contracts with an arbitration mechanism for dispute resolution, clear and precise provisions are incorporated to reflect the intention of the parties taking into account the law laid down in various decisions from time to time. These decisions clearly reflect a proarbitration stand of Indian courts and should provide the necessary confidence to the contracting parties involved in international commercial transactions.

Monday, October 20, 2014

New features/ Options of e-form ADT-1 introduced by Ministry today itself


New e-Form ADT-1

New features/ Options of e-form ADT-1 introduced by Ministry today itself

  1. Provide whether company is falling under any class of Companies as per Section 139(2).
  2. Whether Joint Auditors have been appointed - Provide Whether joint auditors have been appointed. If yes is selected then provide the value for Number of auditor(s) appointed shall be greater than 1. 
  3. Period of account for which appointed - Please mention the “From” and “To” date for the period for which auditor is appointed. 
  4. Number of financial year(s) to which appointment relates - Please provide the Number of financial year(s) to which appointment relates. 
  5. Whether the appointment of auditor is within the limits of twenty companies as specified in sub section 3(g) of section 141 - Please provide Whether the appointment of auditor is within the limits of twenty companies. 
  6. Specify the tenure of previous appointment(s) of the auditor or auditor’s firm or its member in the same company in which audit was conducted or is functioning (excluding previous years having break of five or more years as specified in Rule 6) - Please provide the tenure of previous appointment(s) of the auditor or auditor’s firm or its member in the same company in which audit was conducted or is functioning in number of financial year(s). Please provide details as Person appointed as auditor, financial start date and financial end date of his tenure 
  7. Mandatory Attachments: 
    1. Ø Copy of the intimation sent by company 
    2. Ø Copy of written consent given by auditor; 
    3. Ø Copy of resolution passed by the company; 
NOTE:

  • v The e-Form will be auto approved (STP).
  • v Now it’s mandatory for the companies to attach the above mentioned documents with e-form ADT-1
  • v Its mandatory to mention Number of financial year(s) to which appointment relate.

Saturday, October 18, 2014

Deregulation of Diesel Prices :Diesel Prices go down by 3.37 per litre wef 18.10.2014 midnight


The Union Cabinet Committee of Economic Affairs, chaired by the Prime Minister Shri Narendra Modi, today approved the issues relating to the under-recovery on sale of diesel and its present status. Instructions have been issued today i.e. on 18th October 2014 to make the price of Diesel market determined with effect from midnight of 18th-19th October 2014. The prices of Diesel will be market determined at both Retail and Refinery Gate level for all consumers thereafter. 

Based on an earlier decision of the Cabinet Committee on Political Affairs (CCPA) dated 17th January 2013, instructions were issued to the Public Sector Oil Marketing Companies (OMCs) allowing them to increase the retail selling price of Diesel in the range of 40 paisa to 50 paisa per litre per month (excluding VAT as applicable in different States/Union Territories) till further orders. 

Diesel prices will henceforth be market determined. This will facilitate greater competition in the Auto Fuels Retail segment and enhanced efficiency in service delivery of the oil companies. This is expected to benefit consumers due to greater competition among oil companies and more choices. The competition is also expected to foster greater efficiency in oil companies benefitting the consumers.

Productivity Linked Bonus for Railway Employees for Fy 20013-14 announced


The Union Cabinet chaired by the Prime Minister, Shri Narendra Modi, today gave its ex-post facto approval for the payment of Productivity Linked Bonus (PLB) equivalent to 78 days' wages for the financial year 2013-14 to all eligible non-gazetted Railway employees.

The financial implication of payment of 78 days' PLB to railway employees has been estimated to be Rs. 1063.38 crores. The wage calculation ceiling prescribed for payment of PLB to eligible non-gazetted Railway employees is Rs. 3500/- p.m. About 12.60 lakh non-gazetted Railway employees are likely to benefit from thedecision. The PLB on Railway covers all non-gazetted Railway employees (excluding RPF/RPSF personnel) throughout the country. This year also, PLB equivalent to 78 days' wages has been paid as a special case to motivate employees.

Background

The Railways were the first departmental undertaking of the Government of India where the concept of PLB was introduced. The main consideration at that time was the important role of the Railways as an infrastructural support in the performance of the economy as a whole. In the overall context of Railway working, it was considered desirable to introduce the concept of PLB as against the concept of Bonus on the lines of the Payment of Bonus Act -1965. Even though the Payment of Bonus Act does not apply to the Railways, yet the broad principles contained in that Act were kept in view for the purpose of determining the "Wage/Pay Ceiling", definition of 'Salary'/'Wage', etc. The PLB Scheme for the Railways came into force from the year 1979-80 onwards and was evolved in consultation with the two recognised federations, the All India Railwaymen's Federation and National Federation of Indian Railwaymen and with the approval of the Cabinet. The schemeenvisages a review every three years.

E TDS return Due Date Extended in 4 States


Last date of filing of the TDS/TCS Statements for the 2nd Quarter of Financial year 2014-15  for the deductors/collectors in the States of Andhra Pradesh, Jammu & Kashmir, Odisha & Telangana extended 

In view of the recent natural calamities in the States of Andhra Pradesh, Jammu & Kashmir, Odisha & Telangana, the Central Board of Direct Taxes has issued an order extending the due date for filing the TDS/TCS Statements for the 2nd Quarter of Financial year 2014-15 by the deductors/collectors in these States. In case of Government deductors/collectors that are mapped to a valid AIN, the due date is extended from 31st October, 2014 to 7th November, 2014. In case of all other deductors/collectors, the due date is extended from 15th October, 2014 to 31st October, 2014. 


Approval of long term bonds and rate of interest for the purpose of Section 194LC


Sub: Approval of long term bonds and rate of interest for the purpose of Section 194LC of the Income-tax Act, 1961- regarding.

Section 194LC of the Income-tax Act, 1961, introduced by the Finance Act 2102. provided for lower withholding tax at the rate of 5% on the interest payments by Indian companies on borrowings made in foreign currency by such companies from a source outside India. The benefit was available in respect of borrowings made either under an agreement or by way of issue of long term infrastructure bonds. The section further provided that such borrowing and the rate of interest should be approved by the Centre Government. Subsequently with a view to lower the compliance burden and reduce the time lag which would have arisen On account of case-by-case approval, the Central Government had decided to grant approval to all borrowings by way of loan agreement and long term infrastructure bonds provided they satisfy certain conditions . The approval and the conditions were detailed in the CBDT Circular No 7 of 2012 dated 21“ September. 2012.

2. The Finance (No. 2) Act. 2014 has amended section 194LC with effect from the 1st Day of October, 2014 Consequent to the amendment. the concessional rate of withholding tax has been extended to borrowing by way of any long term bonds, not limited to a long term infrastructure bond. if the borrowing is made on or after 1st day of October, 2014. Further, the concluding date of the period of borrowings eligible for concession Under Section 194LC which was earlier 01-07-2015 has been extended to borrowings made before the 15th day of July, 2017


3. Therefore" the approval of the Central Government is further required in respect of long term bond issue and the rate of interest to be paid on such borrowings


4‘ Considering the feel that there would be a large number of bond issues to be undertaken by Indian companies, providing a mechanism involving approval in each and every specific case would entail avoidable compliance burden on the borrower issuer of bond. in order to mitigate the compliance burden and hardship, the Central Board of Direct Taxes [with the approval of the Central Government] conveys The approval of the Central Government fer the purposes of section 194LC in respect of the issue of long term bond including long term  infrastructure bond by indian companies which satisfy the following conditions;


  • a. The bond issue is at any time on or after 1“ day of October, 2014 but before the 1“ day of July-2017,
  • b. The bond issue by the Indian Company should comply with clause (d) of sub section (3) of section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA312000-RB viz. Foreign Exchange Management (Borrowing or Lending in Foreign exchange) Regulations 2000, dated May 3, 2000, as amended from time to me (hereafter referred to as “ECB regulations“). either under the automatic route or under the approval mode.
  • c. The bond issue should have a loan Registration Number issued by the Reserve Bank of indie (R81).
  • d. The term "tong term" means that the bond to be issued should have original maturity term of three years or more. 

5. Further. the Central Government has also approved the interest rate for the purpose of section 194LC in respect of borrowing by way of issue of long term bond including long term infrastructure bond as any rate of interest which is within the Ali-in~cost ceilings specified by the RBI under ECB regulations as is applicable to the borrowing through a long term bond issue having regard to the tenure thereof.

6. In view of the above, any bond issue, which satisfies the above conditions. would be treated as approved by the Central Government for the purposes oi section 194LC.

7. it is also clarified that consequent to the amendment to Section 194 LC the approval of the Central Government contained in Circular No.07-2012, in so far as they apply to borrowings by way of a loan agreement, shall be valid for the borrowings made on or before 30/06/2017 instead of 30/06/2015 as mentioned in the said Circular.

(Ashish Kumar) Director (Tax Policy & Legislation)

WEBSITE COMPLIANCES UNDER THE COMPANIES ACT, 2013


The Companies Act, 2013 and the Companies Rules, 2014 does not mandate a company to maintain a website. However, upon happening of certain prescribed events, it provides for certain disclosures to be made mandatorily on the website of the company, if any website is maintained by the said company. In some cases, the “if any” option is not available to the company concerned under the Act. For companies whose equity is listed, SEBI has made it mandatory as per the equity listing agreement to maintain a functional and updated website with effect from April 2011.

The following are the disclosures prescribed under the said Act & Rules. 

Information Pertaining to Registered Office [Section 12(3)(c)]: Every Company must get its website address, if any, printed on its letterheads, business letters, billheads, letter papers and in all its notices and other official publications.

Change of Object for raising money through Prospectus [Section 13(8)(i)]: A company which has raised money by issuing prospectus and has still some unutilised amount of the money so raised,shall not change its objects for which it raised money through the prospectus unless a Special Resolution is passed by the company. The details of such a resolution as may be prescribed shall be published on the Website of the company, if any, indicating there in the justification for such change.

Unpaid Dividends [Section 124(2)]: A company after transferring the amount of unpaid dividends to a separate bank account of “Unpaid Dividend Account” will have to prepare a statement containing the shareholder’s names, their last known addresses, and the unpaid dividend to be paid to them on the company’s Website, if any.

Corporate Social Responsibility [Section 135(4)(a)]: The Board of every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year, shall after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed under the Rule 9 of the Companies (Corporate Social Responsibility Policy) Rules, 20I4

Placing of financial statements and other documents of a listed company on the website [Section 136(1)(a)] : A listed company shall also place its financial statements including consolidated financial statements, if any, auditor’s report and all other documents required by law to be attached thereto, on its website, which is maintained by or on behalf of the company. The third proviso to this section provides that every company having a subsidiary or subsidiaries shall publish separate audited accounts in respect of each of its subsidiary on its website, if any. 

Vigil Mechanism in Audit Committee for Listed Companies and other Prescribed Companies [Proviso to Section 177(10)]: The vigil mechanism under sub‐section (9) of Section 177 pertaining to setting up of an Audit Committee shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases. Provided that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.

Compromises, Arrangements and Amalgamation [Proviso to Section 230(3)]: A notice of meeting ordered by the Tribunal for the purpose of Compromise and Arrangements must be served upon the Creditors or class of Creditors, Shareholders or Debenture holders and other members.


Such notice should also be published on the Website of the Company, if any. [Rules not notified] Code for Independent Directors [Schedule IV(IV)(6)] : The terms and conditions of appointment of independent directors shall also be posted on the company’s website 

Notice of candidature of a person for directorship: Rule 13(2) of the companies (Appointment and Qualification of Directors) Rules, 2014 The company shall, at least seven days before the general meeting, inform its members of the candidature of a person for the office of a director or the intention of a member to propose such person as a candidate for that office ‐ by placing notice of such candidature or intention on the website of the company, if any

Notice of resignation of director: Rule 15 of the Companies (Appointment and Qualification of Directors) Rules, 2014 The Company shall within thirty days from the date of receipt of notice of resignation from a director, intimate the Registrar in Form DIR‐12 and post the information on its website, if any. 

Form and particulars of advertisement or circulars: Rule 4(3) of the Companies (Acceptance of Deposits) Rules, 2014 Every company inviting deposits from the public shall upload a copy of the circular on its website, if any.

Variation of terms of contracts referred to in the prospectus or objects for which prospectus was issued: Rule 7(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014 The notice shall also be placed on the web‐site of the company, if any. 

Other compliances for conversion of section 8 companies to any other kind: Rule 22(1)(b) of the Companies (Incorporation) Rules, 2014: The Company shall, within a week from the date of submitting the application to the Regional Director, publish a notice at its own expense, and a copy of the notice in Form No. INC. 19, shall be sent forthwith to the Regional Director and the said notice shall be published on the website of the company, if any, and as may be notified or directed by the Central Government.

Change of objects for which money is raised through prospectus:
Rule 32(3) of the Companies (Incorporation) Rules, 2014:

Where there is change of objects for which money is raised through prospectus, a notice shall also be placed on the website of the company, if any pertaining to the same.

Closure of register of members or debenture holders or other security holders:
Rule 10(1) of the Companies (Management and Administration) Rules, 2014 

A company closing the register of members or the register of debenture holders or the register of other security holders shall give at least seven days previous notice and in such manner, as may be specified by Securities and Exchange Board of India, if such company is a listed company or intends to get its securities listed, by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide circulation in the place where the registered office of the company is situated, and at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated and publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company.

Notice of meeting:
Rule 18(3)(ix) of the Companies (Management and Administration) Rules, 2014 

The notice of the general meeting of the company shall be placed on the website of the Company, if any.

Voting through electronic means:
Rule 20(3)(ii) of the Companies (Management and Administration) Rules, 2014 

The notice of voting through electronic means shall also be placed on the website of the company, if any and of the agency forthwith after it is sent to the members Rule 20(3)(xiv) of the Companies (Management and Administration) Rules, 2014 The results declared along with the scrutinizer’s report shall be placed on the website of the company and on the website of the agency within two days of passing of the resolution at the relevant general meeting of members;

Procedure to be followed for conducting business through postal ballot 
Rule 22(4) of the Companies (Management and Administration) Rules, 2014 
The notice of the postal ballot shall also be placed on the website of the company forthwith after the notice is sent to the members and such notice shall remain on such website till the last date for receipt of the postal ballots from the members.

Rule 22(13) of the Companies (Management and Administration) Rules, 2014 
The results shall be declared by placing it, along with the scrutinizer’s report, on the website of the company.

Special notice:
Rule 23(3) of the Companies (Management and Administration) Rules, 2014 

Where it is not practicable to give the notice in the same manner as it gives notice of any general meetings, the notice shall be published in English language in English newspaper and in vernacular language in a vernacular newspaper, both having wide circulation in the State where the registered office of the Company is situated and such notice shall also be posted on the website, if any, of the Company.

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Service Tax on activities related to Inward Remittance


Earlier, department has issued Circular No. 163/14/2012-ST dated 10th July, 2012 on the issue of levy of service tax on activities involved in the inward remittance. This clarification covers the scenario where the Indian bank/financial institution provides services on principal to principal basis to foreign bank/entity. Taxability of transaction where foreign Money Transfer Service Operator (MTSO) has appointed Indian Banks/financial entities as agent was left to be clarified.

Now, to clarify taxability of transactions under both scenario’s department has issued Circular No. 180/06/2014-ST dated 14th October, 2014 vide F. No. 354/105/2012-TRU (Pt.)in suppression of Circular No. 163/14/2012-ST dated 10th July, 2012.

Taxability of various transactions related to inward remittances is as under:

S. No.IssuesClarification
1Whether service tax is payable on remittance received in India from abroad?No service tax is payable per se on the amount of foreign currency remitted to India from overseas being transaction in money specifically excluded from the definition of service.
2Whether the service of an agent or the representation service provided by an Indian entity/ bank to a foreign money transfer service operator (MTSO) in relation to money transfer falls in the category of intermediary service?Yes. 
3Whether service tax is leviable on the service provided, as mentioned in point 2 above, by an intermediary/agent located in India (in taxable territory) to MTSOs located outside India?
Service provided by an intermediary is covered by rule 9 (c) of the Place of Provision of Service Rules, 2012. As per this rule, the place of provision of service is the location of service provider. Hence, service provided by an agent, located in India (in taxable territory), to MTSO is liable to service tax.
The value of intermediary service provided by the agent to MTSO is the commission or fee or any similar amount, by whatever name called, received by it from MTSO and service tax is payable on such commission or fee.
4.Whether service tax would apply on the amount charged separately, if any, by the Indian bank/entity/agent/sub-agent from the person who receives remittance in the taxable territory, for the service provided by such Indian bank/entity/agent/sub-agentYes. As the service is provided by Indian bank/entity/agent/sub-agent to a person located in taxable territory, the Place of Provision is in the taxable territory. Therefore, service tax is payable on amount charged separately, if any.
5.
Whether service tax would apply on the services provided by way of currency conversion by a bank /entity located in India (in the taxable territory) to the recipient of remittance in India?
 
Any activity of money changing comprises an independent taxable activity. Therefore, service tax applies on currency conversion in such cases in terms of the Service Tax (Determination of Value) Rules. Service provider has an option to pay service tax at prescribed rates in terms of Rule 6(7B) of the Service Tax Rules 1994.
6.
Whether services provided by sub-agents to such Indian Bank/entity located in the taxable territory in relation to money transfer is leviable to service tax?
Sub-agents also fall in the category of intermediary. Therefore, service tax is payable on commission received by sub-agents from Indian bank/entity.

Hope the information will assist you in your Professional endeavors.


Atul Kumar Gupta
B Com (Hons) FCA, FCMA, MIMA, CIQA, PGDEMM
Central Council Member of ICAI (2013-16)
Former Chairman NIRC of Institute of Chartered Accountants of India
Former Chairman NIRC of Institute of Cost Accountants of India
Author of “An Introduction to Service Tax” & “Comprehensive Guide to Service Tax”
M: 9810103611 E: atul@servicetax.net

No fees required under section 86(6) for filing appeal in refund/rebate cases before CESTAT


The Hon’ble High Court of Allahabad in the case of Commissioner of Central Excise Vs. M/s GLYPH International Ltd., clarified that if an assessee is filling appeal before Tribunal relating to refund/rebate of Service tax, no fees is required to be paid U/s 86(6) of The Finance Act, 1994 (“the Act”).

As, Section 86(6) of the Act refers to the fee which has to accompany an appeal at the time of filing. This fee is based on the amount of Service tax and interest demanded and penalty levied. The Hon’ble High Court held that 86(6) does not cover the cases where appeal has been filed for refund/rebate tax. Accordingly, the assessee-appellants are not required to deposit statutory filing fee of CESTAT in such cases.


Atul Kumar Gupta
B Com (Hons) FCA, FCMA, MIMA, CIQA, PGDEMM
Central Council Member of ICAI (2013-16)
Former Chairman NIRC of Institute of Chartered Accountants of India
Former Chairman NIRC of Institute of Cost Accountants of India
Author of “An Introduction to Service Tax” & “Comprehensive Guide to Service Tax”
M: 9810103611 E: atul@servicetax.net