Untitled Document

MCA Update

Clarification on IEPF ( uploading of information regarding unpaid and unclaimed amount lying with companies ) Rules 2012
Ministry of Corporate Affairs vide its Circular No. 20/2012 dated August 01, 2012 has again issued clarification w.r.t filing of eform 5 INV and the supporting excel sheet. It has been observed by the Ministry that some of the companies have filed multiple forms 5INV w.r.t Financial Year ending March 2011, whereby only one such form was required to be filed. Therefore now, the companies, which had filed multiple forms, prior to the issue of this circular, shall file a single form and its supporting excel sheet on or before August 31, 2012.
Moreover, date of filing of the form, by companies which have failed to file the form till the due date of filing the form, i.e. July 31, 2012, may file the same upto August 31, 2012.
RBI Update

Permitting 100% balance in EEFC account in foreign Earnings
Most of the foreign exchange earners including exporters generally maintain an EEFC account to park part of their foreign earnings to minimize transaction cost and to get shield from exchange rate fluctuations.
As per the existing provisions the foreign exchange earners are allowed to credit 50% of their earnings in foreign currency in Exchange Earner’s Foreign Currency (EEFC) Account and the balance is required to be surrendered for conversion into rupees and to be credited in rupee account.
Keeping in view of the operational convenience, the Reserve Bank of India has reviewed the guidelines and has decided to allow the foreign exchange earners to credit 100% of their foreign exchange earnings into their EEFC Account subject to the following conditions.

  1. The sum total of the accruals in the account during a calendar month should be converted into rupees on or before the last day of the succeeding calendar month.
  2. Conversion into rupees shall be done adjustment for utilization of the EEFC account balances for approved purposes or forward commitments.

The guidelines issued by Reserve Bank of India are contained in their A.P.(DIR Series) Circular No. 12 dated 31th July, 2012.

The above provisions apply mutatis mutandis to Resident Foreign Currency (Domestic) Account and Diamond Dollar Account.

Clarification in respect to Compounding of Contravention under FEMA
As per FEMA provisions, if any person contravenes any provision of FEMA, 1999, or any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he is liable to pay penalty decided through compounding proceedings.
The nature of contravention is ascertained keeping in view, inter alia, the following indicative points:

  1. whether the contravention is technical and / or minor in nature and needs only an administrative cautionary advice;
  2. whether the contravention is serious in nature and warrants compounding of the contravention; and
  3. whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringement of the regulatory framework
It is for the Reserve Bank of India to decide as to whether contraventions under Foreign Exchange Management Act (FEMA) are to be treated as technical and/ or minor or serious. Reserve Bank of India had urged that persons who have contravened provisions of FEMA should not take upon themselves, suo moto or on the basis of external advice, to decide whether a particular contravention is of a technical or minor in nature and, hence, no compounding application need be submitted to the Reserve Bank.
Reserve Bank of India has once again clarified vide it’s A.P. (DIR Series) Circular No.11 dated July 31, 2012 that whenever a contravention is identified by Reserve Bank of India, or is brought to the notice of Reserve Bank of India by the person involved in the contravention in a manner other than by making a formal application of compounding of contravention, Reserve Bank of India will continue to decide the nature of contravention. In case the contravention is technical and /or minor, it may be dealt with administratively or by issue of a cautionary advice. Where the contravention is material, it is required to be compounded by following the compounding procedure. And where the issues involved are sensitive / serious in nature, the contravention need to be referred to the Enforcement Directorate. Reserve Bank of India has made it clear that where the any entity contravening the provisions of FEMA has admitted the contravention and has suo moto made an application for compounding, such a contravention will not be considered as technical or minor in nature and compounding process will be initiated as per FEMA provisions.

Permitting FDI from Pakistan
As per the consolidated FDI policy of the Government of India effective from April 10, 2012, a citizen of Pakistan or an entity incorporated in Pakistan was not eligible to invest in India The Union Minister of Commerce & Industry had indicated in April, 2012 that the Government of India may allow FDI from Pakistan. Now, in terms of the Press note No. 3 (2012 series) dated 1st August, 2012 issued by the Government of India, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion (FC-I Section), New Delhi, Government of India had decided to permit a citizen of Pakistan or an entity incorporated in Pakistan to make investments in India, under the Government route, in sectors / activities other than defense, space and atomic energy. Now the citizens of Pakistan and entities incorporated in Pakistan can invest in India in the sectors/activities specified in FDI policy after obtaining approval of the Government of India. They are however prohibited from investing in the sectors / activities relating to defense, space and atomic energy.

Downstream Investment by a Banking company
As per consolidated FDI Policy of the Government of India effective from April 10, 2012, the companies incorporated in India and owned and/or controlled by non-resident entity/ies are allowed to further invest in another Indian company. Such investment by the Indian company owned and/ or controlled by non-resident entities is called downstream investment. In term of the Consolidated FDI Policy, the downstream investment made by an investing company, which is owned and/or controlled by non-resident entity/ies, into another Indian company, would be considered as indirect foreign investment. The Government of India has reviewed the policy relating to calculation of downstream investments by a banking company incorporated in India, which is owned and/or controlled by non-residents / a non-resident entity / non-resident entities and amended the Consolidated FDI Policy by inserting a clarificatory Note vide Press Note No.2 (2012 Series ) issued on 31.07.2012. As per the new Note the downstream investment/s made by a banking company incorporated in India, which is owned and/or controlled by non-residents/a non-resident entity/non-resident entities, under Corporate Debt Restructuring (CDR) or other loan restructuring mechanism, or in trading books or for acquisition of shares due to defaults in loan, shall not count for towards indirect foreign investment. However, their strategic downstream investment would mean investment by these banking companies in their subsidiaries, joint ventures and associates.