2. TABLE OF CONTENTS PAGE
NO.
CORPORATE AFFAIRS
Green Initiatives in the Corporate Governance
Clarification on marking a company as having management dispute by RoCs
MCA not to take any form on record unless BS, P & L Account & Annual Returns are filed
Ministry makes it mandatory for CSs, CAs, CWAs to digitally sign DIN applications
Form 32 filed with ROC can be challenged in Court of Law
Clarification of applicability of XBRL
Certification of Financial Statements in the XBRL Mode by Practising Professionals
Modification in the instruction regarding payment of MCA fees in electronic mode
Provisions of section 108A to 108I of Companies Act, 1956 not in force now
Clarification in respect of General Circular No: 2/2011 dated 08th February, 2011
Depreciation for the purpose of declaration of Dividend under Section 205 in case of companies
referred to in Section 616 (C ) of the Companies Act, 1956
Clarification Loan to Public Limited Company under section 295 of Companies Act.
Clarification regarding effective date of Companies (Particulars of Employees) Amendment Rules,
2011
Limited Liability partnership of chartered accountants will not be treated as ‘Body Corporate’ for
the purpose of Section 226(3)(a) of the Companies Act, 1956
The Companies (Passing of the resolution by Postal Ballot) Rules, 2011 provides for voting by
electronic mode.
TAXATION
Clarification issued by Tax Research Unit, CBEC regarding Short Term Accommodation Service
and Restaurant Service
Instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same by
way of Digital Signature
IASB issues four new IFRS
RBI / FEMA
Pledge of shares for Business Purposes
Opening of Bank Account for FDI transactions
FDI in services come down by 22.5 pc to USD 3.4 bn in 2010-11
SEBI
Adjustment of Differential Pricing Amount
Option to hold units of MF schemes in Demat Form
OTHERS
SAT Judgement against AMC- Mutual funds [Subramanian R. Venkat vs. SEBI]
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3. Green Initiatives in the Corporate Governance
i. Issue of Certificate by Digital Signature
The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by
allowing paperless compliances by the Companies after considering sections 2, 4, 5, and 81 of
the Information Technology Act, 2000 for legal validity of compliances under Companies Act,
1956 through electronic mode.
The Registrar of Companies has to issue a number of certificates to the companies and other
stakeholders as required under the provisions of Companies Act, 1956 read with Companies
Regulation, 1956. At present these certificates are issued physically under the manual signature
of Registrar of Companies and issued by post.
In order to cut timelines and an another step towards “Green Initiative” it has been decided that
all certificates and standard letters issued by the Registrar of Companies will now be issued
electronically under the Digital Signature of the Registrar of Companies.
The Digital Certificates are being developed and will be available for issue by 30th June, 2011 in
phased manner.
ii. Ministry allows holding shareholders' meetings through video conferencing
The Ministry of Corporate Affairs on 20th May 2011 issued a circular allowing the Companies to
hold AGM’s online. It also stated that if a Company wants to hold such an AGM, it will have to
have send a notice informing shareholders about “the availability of participation through video
conference, and provide necessary information to enable shareholders to access the available
facility of videoconferencing.
The Ministry added that the Chairman and Secretary would have to safeguard the integrity of the
meeting via videoconferencing, ensure proper videoconference facilities, prepare the minutes of
the meeting, and ensure that no one other than the concerned shareholder or proxy to the
shareholder is attending the meeting through electronic mode.
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4. This announcement comes in as a response to representations being received by the Ministry
from various industry bodies to recognize participation by shareholders in meetings under the
Companies Act, 1956 through electronic mode.
This is a part of the MCA’s Green Initiative Campaign for Corporate Governance. Earlier last
month, the MCA had also allowed Companies to send Annual Reports by Email.
iii. Participation by Directors in Board / Committee Meetings through video conferencing
The Ministry of Corporate Affairs has vide Circular No. 28/2011 dated May 20, 2011 clarified that
that a Director of a company may participate in a Board/Committee meeting under the provisions
of Companies Act, 1956 through electronic mode.
Highlights:
Audio-visual electronic communication facility shall be employed which enables all persons
participating in that meeting to communicate concurrently.
Every director of the company must attend the meeting of Board/Committee of directors
personally at least one meeting a financial year of the company.
The notice of the meeting must inform directors regarding availability of participation through
video conference, and provide necessary information to enable directors to access the
available facility of videoconferencing.
The notice of the meeting shall also seek confirmation from the director as to whether he will
attend the meeting physically or through electronic mode and shall also contain the contact
number(s) / e-mail addresses of the Secretary / designated officer to whom the director shall
confirm in this regard.
In the absence of any confirmation from the Director, it will be presumed that he will physically
attend the Board meeting.
iv. Approval of appointment of agency for providing electronic platform for e-voting under
Companies Act, 1956
The MCA vide Circular No.21 /2011, Dated: 02.05.2011 has taken a “Green Initiative in the
Corporate Governance” by approving appointment of agency for providing electronic platform for
electronic voting under the Companies Act, 1956.
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5. In order to have secured electronic platform for capturing accurate electronic voting processes,
National Securities Depository Limited (NSDL) and Central Depository Services (India) Ltd
(CDSL) are being are being approved by the Ministry of Corporate Affairs subject to the condition
that they obtain a certificate from Standardization Testing and Quality Certification (STQC)
Directorate, Department of Information Technology, Ministry of Communications & IT, Govt. of
India.
Clarification on marking a company as having management dispute by RoCs.
In order to bring uniformity of practices by all Registrar of Companies it is clarified that the Registrar
of Companies shall mark a company as having management dispute under MCA-21 system only in
cases where:
a. the court or Company Law Board has directed to maintain the status quo with reference to any e-
forms including status of Directors in the company, or
b. the Court or Company Law Board has granted any injunction or stay in taking the document on
record and Registrar of Companies is a party in such court cases and/or the directions have
been issued to the Registrar of Companies.
c. the Registrar of Companies in not a party and such orders have been passed and has not been
served to the Registrar of Companies, it is for the parties to comply to such orders and in case of
non-compliances, the law shall take its own course.
MCA not to take any form on record unless BS, P & L Account & Annual Returns are filed
It has been observed that some companies are filing only their event based information with the
Registrar of Companies without filing their upto date Balance Sheet and Profit & Loss Account and
Annual Return. In order to ensure corporate governance and proper compliances of the provisions of
Companies Act, 1956, it has been decided that no request, whether oral, in writing or through e-
forms, for recording any event based information/ changes shall be accepted by the Registrar of
Companies from such defaulting companies, unless they file their updated Balance Sheet and Profit
& Loss Accounts and Annual Return with the Registrar of Companies.
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6. However, in the interest of other stakeholders Form 32, Form 20B, Form 21A, Form DIN-3, Form 21,
Form23AC & 23ACA, Form 1 INV, Form 23B, Form 66, Forms related to Cost Audit Branch, Investor
Complaint Form will continue to be accepted by the Registrar of Companies from such defaulting
companies.
It may be further noted that:
No e-filing shall be accepted by the Registrar of Companies from Directors of these defaulting
companies for any other company also.
Company Secretaries and Auditors of these companies will also not be allowed to sign and
certify the filing with MCA-21 system, in respect of these defaulting Companies, till the defect
is rectified.
Members of ICAI, ICSI and ICWAI must not issue any certificates to such defaulting
companies other than above mentioned e-forms.
Action will be taken against the defaulting companies and their Directors/ officers in default in
co-ordination with RBI and SEBI.
Ministry makes it mandatory for CSs, CAs, CWAs to digitally sign DIN applications
The Ministry of Corporate Affairs has vide General Circular No. 32/2011, dated 31st May, 2011
decided that with effect from 12th June, 2011, all DIN-1 & DIN-4 applications have to be digitally
signed by the practising Company Secretaries, Chartered Accountants or Cost Accountants who shall
also verify the particulars of the applicant given in the applications. All these applications will be
approved online.
Form 32 filed with ROC can be challenged in Court of Law
In order to cut timelines and bring more transparency in the working of office of Registrar of
Companies, the Form 32 will also be taken on records under Straight Through Process (STP) mode.
The information given in the e-form 32 is being taken on file maintained by the Registrar of
Companies through electronic mode on the basis of statement of correctness given by the filing
company and further verification by the practising professional i.e., Chartered Accountants, Cost
Accountants and Company Secretaries, without prejudice to the rights of the parties to settle the
dispute, if any, in a court of competent jurisdiction.
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7. Clarification of applicability of XBRL
The MCA had issued a Circular bearing No 09/2010 dated 31.03.2011 which directed certain class of
companies to file balance sheets and profit and loss account for the year 2010-11 onwards by using
XBRL taxonomy. MCA has issued a Corrigendum vide circular No. 25/2011 dated 12th May, 2011
excluding banking companies, insurance companies, power companies, Non Banking Financial
Companies and overseas subsidiaries of these companies from the mandated class of Companies.
Therefore in the circular No. 09/2010 for clause (i) and (ii) of Paragraph 2 under Heading Coverage in
Phase I the following shall be substituted and read as:
(i) All companies listed in India and their subsidiaries, having paid up capital of Rs. 5 Crores and
above or a turnover of Rs. 100 Crore or above, excluding banking companies, insurance
companies, power companies, Non Banking Financial Companies and overseas subsidiaries
of these companies.
Certification of Financial Statements in the XBRL mode by Practising Professionals
The MCA had as per its circular bearing No. 14/2011 dated 8th April, 2011 entrusted practising
professionals i.e. members of ICAI, ICSI & ICWAI with the responsibility of ensuring integrity of
documents filed by them with MCA in electronic mode and the system would accept these documents
online without the approval of the ROC. The Ministry of Corporate Affairs has vide its General circular
no. 26/2011 has now included certification of Financial Statements in the Extensible Business
Reporting Language (XBRL) Mode by Practising Professionals in addition to the other documents
from the year 2011-12.
Modification in the instruction regarding payment of MCA fees in electronic mode
In partial modification of circular even number dated March 09, 2011 regarding acceptance of
payment of value above Rs. 50,000/- for MCA services, only in electronic mode, the Ministry of
Corporate Affairs vide circular dated 27.05.2011 has instructed that w.e.f. May 29th, 2011 the
payment of less than Rs. 50,000/- can be made in challan mode in following cases:
a) Payment to Investor Education and Protection Fund” through “Pay Misc. Fee” functionality
b) Any payment made by user having category as “Official Liquidator (OL) office
c) Any payment made by user having category as “MCA employee”.
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8. Provisions of section 108A to 108I of Companies Act, 1956 not in force now
The sections 108A to 108I of Companies Act, 1956 were inserted through Monopolies Restrictive
Trade Practices (Amendment) Act, 1991. As MRTP Act, 1969 stands repealed, the legal validity of
these provisions i.e. sections 108A to 108H of Companies Act 1956 has been examined by Ministry in
consultation with Ministry of Law and Justice and clarified vide circular No. 30/2011 dated 23.05.2011
that the provision of section 108A to 108I of the Companies Act 1956 have become redundant and
will have no legal force.
Clarification in respect of General Circular No: 2/2011 dated 08th February, 2011
Companies are seeking clarification in respect of circular No. 2/11 dated 8.2.2011 issued by the
Ministry in respect of exemption u/s 212(8) of the Companies Act, 1956. The point raised is in respect
of applicability of condition No. (ii) of the circular, requesting the Ministry to delete the condition in
respect of unlisted companies as this condition is applicable to listed companies as per SEBI
guidelines.
As such, Ministry Vide Circular No.22/2011 dated 02nd May, 2011 clarified that companies which
desire to take the benefit of exemption allowed under this circular would have to fulfill the conditions
stipulated therein even if they are unlisted.
Depreciation for the purpose of declaration of Dividend under Section 205 in case of
companies referred to in Section 616 (C ) of the Companies Act, 1956
It has been noticed that despite having clear provisions in section 616(C) of the Companies Act,
1956, the companies engaged in the generation or supply of electricity are approaching MCA for
fixing rate of depreciation in individual cases. The Ministry has, considered the whole matter and it is
hereby clarified that Section 616 (C) the Companies Act, 1956 provides that the same shall apply to
companies engaged in the generation or supply of electricity, except in so far as the said provision is
inconsistent with the provisions of the Indian Electricity Act, 1910 or the Electricity Supply Act, 1948
as repealed by enactment of the Electricity Act, 2003.
Since the rates of depreciation and methodology notified under Electricity Act, 2003 are inconsistent
with the rates given in Schedule XIV of the Act and the former being special Act, the former shall
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9. prevail over rates notified under Schedule XIV of the Companies Act by virtue of section 616(c) of the
Companies Act. Accordingly, ministry vide circular No. 31/2011 dated 31st May, 2011 clarified that
companies referred to in Section 616(c) of the Companies Act can distribute dividend out of profit
arrived at after providing for depreciation following the rates as well as methodology notified by CERC
and the same shall be sufficient compliance of section 205 of the Companies Act, 1956.
Clarification Loan to Public Limited Company under section 295 of Companies Act.
Ministry of Corporate Affairs has noticed that some companies are making applications for getting
prior approval of Central Government when they propose to make any loan to, or give any guarantee
or provide any security in connection with a loan made by any other person to a Public Limited
Company of which any such Director is a Director or a member even when the proposal does not fall
under section 295 (d) and section 295 (e) of the Companies Act, 1956.
As such, Ministry vide Circular No. 24/2011 dated 11th May, 2011 requested to note that when the
beneficiary of the loan/guarantee/security is a public limited company, approval of central government
should only be sought if the provisions of sub-section (d) or (e) of section 295 of the Companies Act,
1956 are attracted, further the application should also clearly bring out the facts.
Clarification regarding effective date of Companies (Particulars of Employees) Amendment
Rules, 2011
The Ministry of Corporate Affairs has clarified that its notification of 31st March, 2011 regarding
Companies (Particulars of Employees) Amendment Rules, 2011 raising the limit of employee’s salary
to be disclosed in the Directors Reports shall be applicable to all Director’s Reports under Section
217 of the Companies Act, 1956 approved by the Board of Directors on or after April 1st, 2011. It will
be irrespective of the accounting year of the annual account, being approved by the Board.
Limited Liability partnership of chartered accountants will not be treated as ‘Body Corporate’
for the purpose of Section 226(3)(a) of the Companies Act, 1956
Ministry vide circular No. 30A/2011 dated 26.05.2011 issued a circular and clarified that Limited
Liability partnership of chartered accountants will not be treated as body corporate for the limited
purpose of section 226 (3) (a) of the Companies Act, 1956.
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10. This clarification follows a number of representations received in the Ministry from Institute of
Chartered accountants of India wherein they have stated that under Section 226(3)(a) of the
Companies Act, 1956 a Body Corporate is disqualified from the appointment as auditor by a
company.
The Companies (Passing of the resolution by Postal Ballot) Rules, 2011 provides for voting by
electronic mode.
The Ministry of Corporate Affairs, in supercession of Companies (Passing of the resolution by postal
ballot) Rules, 2001 introduced The Companies (Passing of the resolution by postal ballot) Rules,
2011. As per the new rules voting by shareholders may be carried on in electronic mode.
Highlights:
An agency approved by the Ministry shall be appointed for providing and supervising electronic
platform for voting by electronic platform. Recently, National Securities Depository Limited (NSDL)
and Central Depository Services (India) Ltd (CDSL) are being approved by the Ministry as
agencies.
The procedure for voting by electronic mode to be followed by companies shall be as
recommended by agency.
In this new methodology the entire voting gets registered and counted in a electronic registry in a
centralized server;
The company may issue notices through electronic mail provided the company has obtained
e-mail address of its member for sending the notices through e-mail, after giving an advance
opportunity to the member to register his e-mail address.
The notice shall clearly mention that whether the company is providing voting through postal ballot
or by electronic mode.
The scrutinizer shall maintain a register to record the consent or otherwise received, including
electronic media.
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11. Clarification issued by Tax Research Unit, CBEC regarding Short Term Accommodation
Service and Restaurant Service
Since the levy of service tax on the two new services relating to services provided by specified
restaurants and by way of short-term hotel accommodation came into force with effect from 1st May
2011, a number of queries have been raised by the potential tax payers.
These are addressed as follows:
Short Term Accommodation Service:
S. No Queries Clarification
1. What is the relevance of declared “Declared tariff” includes charges for all amenities provided
tariff? Is the tax required to be paid in the unit of accommodation like furniture, air-conditioner,
on declared tariff or actual amount refrigerators etc., but does not include any discount offered
charged? on the published charges for such unit. The relevance of
‘declared tariff’ is in determining the liability to pay service
tax as far as short term accommodation is concerned.
However, the actual tax will be liable to be paid on the
amount charged i.e. declared tariff minus any discount
offered. Thus if the declared tariff is Rs 1100/-, but actual
room rent charged is Rs 800/-, tax will be required to be
paid @ 5% on Rs 800/-.
2. Is it possible to levy separate tariff It is possible to levy separate tariff for the same
for the same accommodation in accommodation in respect of a class of customers which
respect of corporate/privileged can be recognized as a distinct class on an intelligible
customers and other normal criterion. However, it is not applicable for a single or few
customers? corporate entities.
3. Is the declared tariff supposed to Where the declared tariff includes the cost of food or
include cost of meals or beverages, Service Tax will be charged on the total value of
beverages? declared tariff. But where the bill is separately raised for
food or beverages, and the amount is charged in the bill,
such amount is not considered as part of declared tariff.
4. What is the position relating to off- When the declared tariff is revised as per the tourist
season prices? Will they be season, the liability to pay Service Tax shall be only on the
considered as declared tariff? declared tariff for the accommodation where the
published/printed tariff is above Rupees 1000/-. However,
the revision in tariff should be made uniformly applicable to
all customers and declared when such change takes place.
5. Is the luxury tax imposed by States For the purpose of service tax luxury tax has to be
required to be included for the excluded from the taxable value.
purpose of determining either the
declared tariff or the actual room
rent?
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12. Services Provided by Restaurants:
1. If there are more than one restaurants Service Tax is leviable on the service provide by
belonging to the same entity in a complex, a restaurant which satisfies two conditions: (i) it
out of which only one or more satisfy both should have the facility of air conditioning in any
the criteria relating to air-conditioning and part of the establishment and (ii) it
licence to serve liquor, will the other should have license to serve alcoholic beverages.
restaurant(s) be also liable to pay Service Within the same entity, if there are more than one
Tax? restaurant, which are clearly demarcated and
separately named, the ones which satisfy both
the criteria is only liable to service tax.
2. Will the services provided by taxable The taxable services provided by a restaurant in
restaurant in other parts of the hotel e.g. other parts of the hotel e.g. swimming pool, or an
swimming pool, or an open area attached to open area attached to the restaurant are also
a restaurant be also liable to Service Tax? liable to Service Tax as these areas become
extensions of the restaurant.
3. Is the serving of food and/or beverages by When the food is served in the room, service tax
way of room service liable to service tax? cannot be charged under the restaurant service
as the service is not provided in the premises of
the air-conditioned restaurant with a licence to
serve liquor. Also, the same cannot be charged
under the Short Term Accommodation head if the
bill for the food will be raised separately and it
does not form part of the declared tariff.
4. Is the value added tax imposed by States For the purpose of service tax, State Value
required to be included for the purpose of Added Tax (VAT) has to be excluded from the
service tax? taxable value.
Instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same
by way of Digital Signature
The Income Tax Department vide Circular No. 3/2011 dated 03.05.2011 issued a circular in regard to
instructions on issuance of TDS Certificates in Form No.16A and option to authenticate same by way
of Digital Signature.
Issue of TDS Certificates in Form No.16A
(i) For deduction of tax at source made on or after 01.04.2011:
(a) The deductor, being a company including a banking company to which the Banking
Regulation Act, 1949 applies and any bank or banking institutions, referred to in section 51 of
that Act or a cooperative society engaged in carrying the business of banking, shall issue TDS
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13. certificates in Form No.16A generated through TIN central system and which is downloaded
from the TIN website with a unique TDS certificate number in respect of all sums deducted on
or after the 01st day of April, 2011 under any of the provisions of chapter-XVII-B other than
section 192.
(b) The deductor, being a person other than the person referred to in item (a) above, may, at his
option, issue TDS certificate in Form No.16A generated through TIN central system and which
is downloaded from the TIN website with a unique TDS certificate number in respect of all
sums deducted on or after the 01st day of April, 2011 under any of the provisions of chapter-
XVII-B other than section 192.
(ii) For deduction of tax at source made during financial year 2010-11
(a) The deductor, may, at his option, issue TDS certificate in Form No.16A generated through TIN
central system and which is downloaded from the TIN website with a unique TDS certificate
number in respect of all sums deducted during the financial year 2010-11 under any of the
provisions of chapter-XVII-B other than section 192.
Authentication of TDS Certificates in Form No.16A
(i) The deductor, issuing the TDS certificates in Form No.16A by downloading from the TIN
website shall authenticate such TDS certificate by either using digital signature or manual
signature
(ii) The deductor, being a person other than the person referred above and who do not issue the
TDS certificate in Form No.16A by downloading from the TIN website shall continue to
authenticate TDS certificate in Form No.16A by manual signature only.
IASB issues four new IFRS
On 12th May 2011, the International Accounting Standards Board (IASB) issued following four new
standards:
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14. IFRS 10 Consolidated Financial Statements includes a new definition of control, which is
used to determine which entities are consolidated, and describes consolidation procedures.
IFRS 11 Joint Arrangements describes the accounting for joint arrangements with joint
control; proportionate consolidation is not permitted for joint ventures (as newly defined).
IFRS 12 Disclosures of Interests in Other Entities includes all of the disclosure
requirements for subsidiaries, joint ventures, associates, and “structured entities”.
IFRS 13 Fair Value Measurement provides guidance on how to measure fair value, but does
not change when fair value is required or permitted under IFRS.
These new standards are effective for annual periods beginning on or after 1 January 2013.
Pledge of shares for Business Purposes
The Reserve Bank of India vide circular No. 57 dated May 02, 2011 has been decided to delegate
powers to the AD Category - I banks to allow pledge of shares of an Indian company held by non-
resident investor/s in accordance with the FDI policy in the following cases subject to compliance with
the conditions indicated below:
(a) Shares of an Indian company held by the non-resident investor can be pledged in favour of an
Indian bank in India to secure the credit facilities being extended to the resident investee
company for bona fide business purposes subject to the following conditions :
in case of invocation of pledge, transfer of shares should be in accordance with the FDI
policy in vogue at the time of creation of pledge;
submission of a declaration/ annual certificate from the statutory auditor of the investee
company that the loan proceeds will be / have been utilized for the declared purpose;
the Indian company has to follow the relevant SEBI disclosure norms; and
pledge of shares in favour of the lender (bank) would be subject to compliance with the
Section 19 of the Banking Regulation Act, 1949.
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15. (b) Shares of the Indian company held by the non-resident investor can be pledged in favour of
an overseas bank to secure the credit facilities being extended to the non-resident investor /
non-resident promoter of the Indian company or its overseas group company, subject to the
following conditions :
loan is availed of only from an overseas bank;
loan is utilized for genuine business purposes overseas and not for any investments either
directly or indirectly in India;
overseas investment should not result in any capital inflow into India;
in case of invocation of pledge, transfer should be in accordance with the FDI policy in
vogue at the time of creation of pledge; and
submission of a declaration/ annual certificate from a Chartered Accountant/ Certified
Public Accountant of the non-resident borrower that the loan proceeds will be / have been
utilized for the declared purpose.
Opening of Bank Account for FDI transactions
To provide operational flexibility and ease the procedure for FDI related transactions, RBI vide
circular No. 58 dated May 02, 2011 has decided to permit AD to open and maintain, without prior
approval of RBI, non-interest bearing Escrow accounts in Indian Rupees in India on behalf of
residents and / or non-residents, towards payment of share purchase consideration and / or provide
Escrow facilities for keeping securities to facilitate FDI transactions subject to the terms and
conditions. RBI has also decided to permit SEBI authorized Depository Participants, to open and
maintain, without prior approval of RBI, Escrow accounts for securities subject to the terms and
conditions.
In both cases, the Escrow agent shall necessarily be an AD or SEBI authorized Depository
Participant (in case of securities’ accounts). These facilities will be applicable for both, issue of fresh
shares to the nonresidents as well as transfer of shares from / to the non- residents.
FDI in services come down by 22.5 pc to USD 3.4 bn in 2010-11
Foreign direct investment (FDI) in India’s services sector, which contribute over 50 per cent in the
country’s economic growth, declined by 22.5 per cent to USD 3.4 billion in 2010-11, according to the
industry ministry’s latest data. The services sector (financial and non-financial services) had attracted
FDI worth USD 4.39 billion during 2009-10.
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16. Overall FDI inflows into the country dropped by 25 per cent to USD 19.4 billion during 2010-11
against USD 25.8 billion in the year ago period. The services sector, despite the 22.5 per cent dip in
FDI, topped the chart in attracting maximum investment.
The government is taking steps like allowing FDI in Limited Liability Partnership (LLP) firms to attract
more and more foreign inflows into the country. The government is also considering to liberalize FDI
policy in multibrand retail sector.
Adjustment of Differential Pricing Amount
The Regulation 29 of SEBI ICDR Regulations allows an Issuer Company to issue specified securities
at different prices to eligible investors subject to the conditions mentioned therein.
However, it was being observed by SEBI that the effect of such differential pricing, in a public issue,
was being given to the eligible investors only at the stage of allotment of specified securities and not
at the time of filing an application for such allotment. This was taking away certain benefits from the
investors such as lower cash outflow at a price net of discount, the ability to apply for more shares
with the same cash outlay, etc.
Thus to address this issue, SEBI has vide its Circular No.CIR/CFD/DIL/2/2011 dated 16th May 2011
has clarified so as to allow investors eligible for differential pricing to make the payment of discounted
price at the time of bidding itself, subject to compliance of appropriate disclosure and other norms.
Option to hold units of MF schemes in Demat Form
Securities and Exchange Board of India vide circular CIR/IMD/DF/9/2011 dated May 19, 2011
advised AMCs to clarify by way of an addendum that units of all Mutual Fund schemes held in demat
form shall be fully transferable. It has been observed that in their close ended schemes, many
mutual funds provide an option to hold units either in physical or in demat form, but offer no such
option in case of open ended schemes. In order to facilitate investors, Mutual Funds should provide
an option to the investors to receive allotment of Mutual Fund units in their demat account while
subscribing to any scheme (open ended/close ended/Interval). Therefore Mutual Funds/AMCs are
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17. advised to invariably provide an option to the investors to mention demat account details in the
subscription form, in case they desire to hold units in demat form.
SAT Judgement against AMC- Mutual funds [Subramanian R. Venkat vs. SEBI]
It was held by the Securities Appelate Tribunal (SAT) that Asset Management Companies (AMCs)
cannot change the terms of the issued units / securities arbitrarily without taking consent from the
Unit-holders.
Brief Facts of case ‘Subramanian R. Venkat vs. SEBI’:
The Appellant are husband and wife who are regularly investing in shares and mutual fund scheme
through various market intermediaries. HSBC Mutual Fund i.e. Respondent No. 2 had issued a
scheme with two plans, viz. a long term plan and a short term plan. The Short term Plan is known as
HSBC Gilt Fund. In the offer document it was mentioned that the short term plan was suitable for
investors seeking to obtain returns from a plan investing in gilt across the yield curve with the average
maturity of portfolio normally not exceeding 7 years and modified normally not exceeding 5years. The
long term plan was intended to suit investors with surpluses for medium to long period and the plan
was to invest in gilts across the yield curve with the average maturity of the portfolio normally not
exceeding 20years and modified duration normally not exceeding 12 years. The appellants chose the
short term as against the long term plan and wanted to invest their personal saving in the short term
plan of the scheme. However, HSBC wound up the long-term plan, and changed the term of the
short-term plan by increasing the tenure from 5 to 7 years to not exceeding 15 years. This resulted in
a fall in the Net Asset Value (NAV) of the scheme and the grievance is that the respondent has
changed the scheme without informing the unit holders and without giving opportunity to the
unitholders to exit the scheme. The appellant filed the complaint with the board and asset
management company to direct the matter and to make good the losses suffered by the appellant.
The order of the board was against the appellant and the present appeal has been filed.
Page 17 of 18

18. Held:
The appeal is allowed in the favour of investors.
Reason:
1. Such a change in the term of the plan was found to be one that affects the fundamental attributes
of the scheme and modifies the interests of the unit holders. It was given effect to without notifying
the unit holders and providing an exit option as set out in Reg. 18(15A) of the SEBI (Mutual
Funds) Regulations, 1996; and
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The information in this document is as of May 31, 2011.
Page 18 of 18