The document is a newsletter from Transaction Advisors providing updates on mergers and acquisitions, private equity deals, and regulatory changes in India. It includes summaries of recent private equity investments and M&A transactions in Indian companies. It also summarizes new policies, regulations and significant legal decisions related to areas such as foreign direct investment, taxation, and securities law in India. The newsletter is intended to keep clients and associates informed of important transactional and regulatory changes in India.

1. TRANSACTION ADVISORS
Missive
Volume VIII – November 2011

2. Dear Patron Topics Page No
FEMA 1
Here we are with the Eighth successive issue of our monthly ‘Missive’.
Regulatory Update 2
Policy Watch 3
Global Competitiveness Report 2011–2012 released by the World Economic Forum
Regulatory – significant 5
recently, states that India possesses a number of remarkable strengths in the more
decisions
advanced and complex drivers of competitiveness. It says that the country has a vast
Direct Taxation 6
domestic market that allows for economies of scale and attracts investors.
Recent Transactions that 7
made headlines
Despite the above indicators, it is sad that industrial stalwarts like Mr Premji had to
come in open to air his views on the fact that the complete absence of decision
making in the government, coupled with corruption, is the biggest challenge facing
the country. We sincerely hope that a slew of policy releases by the government
shall correct the course of direction in which government is sailing.
“Don’t cry because it’s over…
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
Smile because it happened”
and upgrading the contents.
Thanks and regards,
Akhil Bansal
Editor, Knowledge Management Team

3. FEMA
NRIs can hold accounts in any currency now
Corrigendum to Circular 2 of 2011 – Consolidated FDI Policy
Indians who have non-resident accounts in the country can now hold
Government has withdrawn the controversial clause in the FDI policy them in any currency which is fully convertible.
that said that any instrument had an in-built option such as a buyback
provision would be considered as debt and regulated under the Impact: The move is likely to help NRIs/Persons of India Origin as it
external commercial borrowing rules. will give them more options in the holding of accounts, and lessen the
risk from fluctuations in major currencies.
Impact: With the removal of the clause, foreign investors' exit rights
have been restored to what they were before October 1. Placing all
instruments with inbuilt options outside the ambit of FDI would have
proved to be a big impediment to joint ventures as well as private
equity investment
Export of Goods and Software – Liberalisation on Realisation and
Repatriation of export proceeds
RBI had enhanced the period of repatriation of the export amount to
India from six months to twelve months from the date of export. This
relaxation was available up to September 30, 2011 which had now been
extended till September 30, 2012.
Clarification on Repatriation of income and sale proceeds of assets
held abroad by NRIs
As per the clarification issued by RBI, income and sale proceeds of
assets held abroad by NRIs who have returned to India for permanent
settlement and income and sale proceeds of assets held abroad through
remittances under LRS need not be repatriated
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4. Regulatory Update borrowers shift to another bank or Housing Finance Companies, the
penalty will be applicable.
MCA withdraws draft of Companies (Dematerialization of Certificates)
Rules, 2011 Impact: The Circular is in respect of Housing Loan from Housing
Finance Companies not in respect of Loan from Banks.
The proposal had wanted all companies mopping up resources from
public and their subsidiaries convert share certificates and bonds into
an electronic (demat) form. The decision to withdraw the draft Waiver of stamp duty for Form 5- for companies registered in New
Dematerialisation of Certificates Rules, 2011, was taken after it was Delhi
found a similar proposal had already been included in the Companies
Bill, 2011 Pursuant to the order of the Hon’ble High Court of New Delhi passed in
the matter of S E Investments Limited Vs Union of India and Others,
Impact: It will give a breather to small firms who had expressed MCA had amended the Companies (Central Government’s) General
reservations against the government move. Rules and Forms 1956 wherein the increase in authorized share capital
of any company which is registered in New Delhi would not attract any
payment of stamp duty.
Exporters can receive $3,000 through Overseas Online payment
gateways
In a bid to facilitate small value export transactions, RBI has enhanced
the amount that can be received as export related remittances through
online payment gateway service providers to $3,000 from $500.
No Pre-payment penalty on pre-closure of housing loans from Housing
Finance Companies
The housing finance regulator had issued a circular wherein Housing
Finance Companies will no longer levy any fee on floating rate loans. In
case of fixed rate loans, it has made a distinction and only those
borrowers who pay from their “own sources”, such as savings or even
loans from relatives, will be exempted from payment of penalty. In case
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5. Policy Watch Cabinet clears mining Bill calling for sharing of profit with the people
affected by their activity
CBDT Makes Discussion Paper on Tax Accounting Standards Public
The Cabinet gave its approval to a Bill which proposes to make it
Two drafts have been issued by the CBDT for comments / suggestions: mandatory for mining companies to compensate the local population
TAS for Construction Contracts & for Government Grants. The impacted by mining operations.
discussion paper states that the flexibility in the standards issued by the
Institute of Chartered Accountants of India (ICAI) makes it possible for a
taxpayer to avoid payment of correct taxes by following a particular Draft National Telecom policy released
system of accounting
Policy is silent on a key issue i.e. Mergers and acquisitions. Also,
Consumers will not have to pay roaming charges and mobile number
Draft Circular on Refunds in Service Tax portability will be available nationwide
Circular is proposed to be issued in order to streamline the process of
sanctioning of refund claims, mainly arising on account of service tax
borne on input services that have gone into exports of services. The
same is available for public comments
DIPP moves note on making patents office independent
In a discussion paper, DIPP has favoured several steps for strengthening
and restructuring the office of the Controller General of Patents Design
Trademarks and Geographical Indications
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6. Draft National Electronics policy unveiled SEBI issues Concept Paper on Regulation of Investment Advisors
The policy proposes creation of a “Electronic Development Fund” to As per the paper, Persons offering investment advice can do so only
promote innovation and R&D in the electronics systems design and after registering themselves with SEBI and must necessarily use the title
manufacturing space. It has also talked of setting up incubation centres “investment advisor” after obtaining the certificate of registration
and a specialised institute for chip design in the country
Worried SEBI wants Finance Ministry to plug holes in Global
Draft National Policy on Information Technology Depository Receipts guidelines
The policy will look into formulating fiscal and other incentives to SEBI is in talks with the finance ministry to tighten rules relating to
attract investment in this sector in Tier II and Tier III cities, besides issuance of Global Depository Receipts as the regulator has found that
promoting innovation and research and design in cutting-edge several local companies are skirting guidelines to raise funds overseas
technologies and in strategic sectors such as defence, space and atomic
energy.
SEBI announces uniform KYC norms for securities market
SEBI had announced introduction of uniform forms and documents for
the purpose of customer identification by different market
intermediaries like stock exchanges and mutual funds, a step intended
to bring uniformity to the process.
SEBI to crack down on illegal debentures
SEBI) is planning to crack down on companies, raising money from small
investors by issuing debentures against the rules. A number of small
companies that raise public funds promising huge returns have propped
up in Uttar Pradesh, West Bengal and Bihar. According to SEBI rules, any
entity raising money from 50 or more people will have to seek its
approval and list on the stock exchanges.
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7. Insurers get profitability clause waiver for IPOs Regulatory
While clearing IPO guidelines of life insurance companies, the regulator Significant Decisions
has removed the three-year profitability clause that is applicable for all
companies as a precondition for tapping the capital markets. § Directors not vicariously liable for crime of company [M/s.
Thermax Ltd. & Ors. Vs. K.M. Johny & Ors - Supreme Court]
SEBI concept paper to regulate investment advisors § Supply of goods to offshore installations i.e. Exclusive Economic
Zone (EEZ) will not be subject to sales tax, especially Central
With the objective of addressing conflicts of interest in distribution of Sales Tax, since EEZ does not form part of the territory of India
financial products, the Securities and Exchange Board of India (SEBI) has [Larsen & Toubro Ltd v. Union of India - Gujrat High Court]
issued a concept paper to regulate investment advisors.
§ Supreme Court had stayed Bombay High Court decision that
upheld service tax on the commercial rentals
National Manufacturing Policy notified
§ Supreme Court has held that Employers need not pay higher
The policy envisages a number of fiscal incentives like income tax provident fund contribution. The employers were earlier paying
concession on venture capital funds with a focus on small and medium the rate according to the PF Act. [Supreme Court]
enterprises (SME), rollover relief from long-term capital gains tax to
individuals on sale of a residential property wherever such sale § General power of attorney have no legal sanctity and
consideration is invested in the equity of a new start-up SME, viability immovable property can be sold or transferred only through
gap funding to polytechnics and special purpose vehicle in proposed registered deeds- [Suraj Lamp & Industries Pvt Ltd Vs State Of
National Manufacturing and Investment Zones (NMIZs) etc. There Haryana - Supreme Court]
would be other tax benefits for adopting green technology.
§ SC allows clubbing of two establishments as one for the
purposes of the PF as there was unity of ownership,
RBI asks NBFCs to take step to Implement Green Initiative management, control, finance, labour and functional integrity
[L.N. Gadodia & Sons & ANR. Vs. Regional Provident Fund
NBFCs have been asked to take proactive steps in this regard by Commissioner-Supreme Court]
increasing the use of electronic payment systems, elimination of post-
dated cheques and gradual phase-out of cheques in their day to day
business transactions
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8. Direct Taxation
Significant Decisions
§ Excess Earnings Method (EEM), is appropriate method to
determine arm’s length price of transaction of sale of Intangible
Property and the method construes Comparable Uncontrolled
Price (CUP) method [M/s Tally Solutions Private Limited -
Bangalore ITAT]
§ Mark-up on costs incurred is not an arm’s length remuneration
for sourcing support service and the taxpayer should be
compensated on the basis of value of the goods sourced
through it [Li & Fung (India) Pvt. Ltd. v. DCIT- Delhi ITAT]
§ No Penalty U/s. 271G for failure to respond to ‘omnibus’ notice
[DCIT vs. Leroy Somer & Controls (India) (P) Ltd - ITAT Delhi]
§ Corporate guarantee provided to associated enterprises is not
an international transaction [Four Soft Limited vs. DCIT - ITAT
Hyderabad]
§ Right to exercise an option is a capital asset and gains arising on
sale are ‘long term capital gains’ if such right is held for more
than three years [Abhiram Seth Vs. JCIT - Delhi ITAT]
§ Disallowance on the ground that the assesse has diverted
interest bearing funds into tax-free income can not be made
where the assesse owes ample interest free funds on the date
of investment [Weikfield Products Co.(I)Pvt. Ltd. v. DCIT - ITAT
Pune]
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9. Recent Transactions that made Headlines
ï Religare NBFC Arm To Raise Rs 300Cr; Avigo, Goldman Sachs In
Talks
ï Bessemer Buys Into Health Insurance TPA Medi Assist
ï Matrix Partners Invests Rs 60Cr In TCNS Clothing
ï Carlyle, General Atlantic In Talks To Invest In Flipkart
ï KKR Raising Up To $6B For Second Asia Buyout Fund
ï Naaptol Raises $25M From NEA, Canaan Partners & Silicon
Valley Bank
ï Webklipper Raises Seed Round From IAN
ï Lilliput Promoters Looking To Bring New Investor To Buy Out
TPG, Bain
ï Letsbuy.com Close To Raising Over $40M
ï SAP Ventures Invests $10M In One97 Communications
ï Realty Services Firm Investors Clinic Gets BCCL Backing
ï Fast Food Chain Faaso's Raises $5M From Sequoia Capital
ï Trivitron, Apollo In Dental JV; To Raise Rs 75Cr In PE Funding
ï Eye-Q Raises Series B Funding From Helion, Nexus Venture
Partners
ï Capricorn Gifting Gets Seed Funding From Seeders Venture
Capital
ï KKR's NBFC Invests In Coffee Day Group's Way2Wealth
ï Loylty Rewardz Raises $4.4M From Canaan Partners
ï MyDala Raises Rs 18Cr From Info Edge
ï Nazara Technologies Backs Social Gaming Start-up Playcaso
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Structuring, Financial Re-structuring, Regulatory, Private Equity
and other funding opportunities
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TRANSACTION ADVISORS
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