SAHARA CASE: AN EYE OPENER

In March 2008, two Sahara Group firms - Sahara Housing Investment Corporation and Sahara India Real Estate Corporation passed a board resolution under the Companies Act to raise funds for acquisition of land, developing townships, residential apartment and shopping complexes etc, through unsecured optionally fully convertible debentures (OFCDs) by way of private placement.

The two companies of the Sahara Group had mobilised a large sum of money (more than 24,000 crore) from over 3 crore investors without complying with SEBI's regulatory framework for public issues. SEBI came to know about such fund raised through an IPO draft red herring prospectus filed by Sahara Prime City Limited with SEBI where it was disclosed that the two firms had issued OFCDs.

SEBI's contention had been that, firstly the entity should be profitable, should have an adequate net worth, and the funds to be raised should be limited to a multiple of the net worth, to ensure that the issuer has the financial strength for prudent use of public money. There have been many emotional pitches by Sahara Group, which claimed to have a net worth of Rs. 68,000 crore and assets worth over Rs. 1.5 lakh crore. One of the Sahara firms was making a loss and the net worth of the other was Rs. 11 lakh. Clearly, neither company had the requisite financial standing to raise thousands of crores of rupees from the public.

Secondly, it was not a private placement as the number of investors was above 50 and that the securities should have been listed. Also, the prospectus floated for the amounts mobilised were scrutinised by SEBI and found to be wanting in terms of adequacy and accuracy of disclosures.

Lastly, the securities market enables the promoters of businesses to raise capital from the public without directly involving them in the business, when the capital needed is spliced into securities of small denominations in which several investor protection in such cases rests on the safeguards created by regulators. SEBI's regulatory framework requires clear accounting of funds, its audit and supervision of end use. It also requires setting up a debenture trustee mechanism if the security represents a borrowing. The Saharas had none of these safeguards.

The Supreme Court ordered and asked the two firms to deposit the money in three instalments beginning with an immediate payment of Rs. 5,120 crore. While the group paid the first instalment, it failed to meet the deadline for other two payments. SEBI began an exercise for refund to genuine investors from the money deposited in the first instalment by the Saharas. However, not much headway appears to have been made in the process as SEBI has detected instances of multiple accounts, on which it has sought a clarity from the Supreme Court.

The high - profile saga saw the arrest of flamboyant Sahara Group Chief Subrata Roy, after the Supreme Court ordered his arrest over delays in repaying thousands of crores of rupees illegally collected from small investors. Roy's jailing is a landmark case, showing that even the most powerful fraudsters will eventually be brought to book.

THE CORPORATE SOCIAL RESPONSIBILITY (POLICY) RULES, 2014

Ministry of Corporate Affairs, Government of India on 27th February, 2014 announced the Corporate Social Responsibility (Policy) Rules 2014 under Section 135 of the new Companies Act 2013. Section 135 pertains to spending for the purpose of Corporate Social Responsibility by companies.

A FORMAL FRAMEWORK FOR SOCIAL SPENDING BY CORPORATES

Effective from - April 1, 2014

How Much?

2% of Average Profit of previous three years.

(Profits from overseas branches and dividends from other Companies not included in Net Profit for calculation).

Who?

• Companies with Net Worth of Rs. 500 crore or Turnover of over Rs. 1,000 crore or Net Profit of over Rs. 5 crore.
• Foreign Companies registered in India.

What all? 

There are many new additions when compared to the CSR Activities that enlists in the Schedule VI of the Act, which are as follows:

• Livelihood

• Enhancement and rural development projects

• Measures for benefit of armed forces, veterans, war-widows and their dependents.

• Working towards protection of National Heritage, Art & Culture.

• Reducing inequalities faced by socially & economically backwards.

• Protection of Flora & Fauna, animal welfare, agro-forestry, etc.

Where?

CSR Activities will have to be within India.

How?

Company's Board will decide in accordance with its CSR Policy and the decision of its CSR Committee.

Do's & Don'ts

• Surplus from CSR cannot be included in Profit.

• CSR work can be done through a registered Trust or Society or a separate Company.

• Companies can collaborate with other Companies but will have to report separately.

One major addition in Section 135 is provision of upto 5% of the CSR budget for training and capacity building of employees and implementing partners for CSR.

Composition of CSR Committee

Every Company including its Holding or Subsidiary, and a Foreign Company having its branch office or project office in India which fulfills the quoted applicability criteria.

Who shall not be required to constitute the CSR Committee?

Every Company which ceases to be a Company quoted under the applicability criteria for three consecutive financial years.

CSR Committees

(i) An unlisted Public Company or a Private Company covered which is not required to appoint an Independent Director - Shall have its CSR Committee without such Director.

(ii) A Private Company - Having only two directors on its Board  shall constitute its CSR Committee with two such Directors.

(iii) With respect to Foreign Company - Shall comprise of at least two Persons* of which one person shall be nominated by the Foreign Company.

*Person under section 380(1)(d) of the Companies Act, 2013 means - The name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company.

CSR Reporting

An emphasis is given to disclose the CSR expenditure. The Board will have to include an Annual Report on CSR from 2014-2015 on wards.

In case of Foreign Company - Balance Sheet shall contain an Annexure regarding report on CSR.

Display of CSR activities on its website

Following the Board's Approval, the CSR Policy will have to be disclosed on the Company's website.

SEBI CLEARS NEW CORPORATE GOVERNANCE NORMS

To exhort listed companies and their top executives to follow 'good business practices', market regulator Sebi cleared new corporate governance norms which shall be effective from October 1, 2014. These new norms will be incorporated in the listing agreement also. Following are the new rules disclosed:

• The new rules exclude Nominee Director from the definition of Independent Director. 
• Sebi has restricted the tenure of Independent Directors to 2 to 5-year terms. Directors nominated by the company's promoter cannot be classified as an independent director. An Independent Director has a maximum term of 5 years extendable by another 5 years subject to a special resolution.
• It is mandatory for the listed companies to disclose remuneration policies of CEO and Executive Directors, Related-Party Transactions (RPTs) and appointment and resignations of Independent Directors.
• Mandatory constitution of Nomination and Remuneration Committee. Chairman of the said committee should be independent. 
• Separate meetings of the Independent Directors should be held.
• A person cannot be an Independent Director in more than 7 companies and 3 in case the person is serving as a Whole Time Director and cannot accept stock option plans.
• It is mandatory for the companies to have an orderly succession plan for appointments to the board and senior management, a whistle blowing policy and to appoint at least 1 woman director on its board, besides empowering minority shareholders to approve related-party transactions.
• The minimum capital requirement of an asset management company has been increased from Rs. 10 crore to Rs. 50 crore.
• Get public shareholder's nod for RPTs and carry out performance evaluation of all directors. The constitution of a Stakeholders Relationship Committee has been made mandatory.
• The role of Audit Committee has been expanded to its prior approval for all RPTs by shareholders through special resolution with related parties abstaining from voting.
• The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards.

UNITED STATES DRAGS INDIA TO WTO ON SOLAR MISSION PROGRAMME

India in 2010 launched Jawaharlal Nehru National Solar Mission. It aims to have 20,000 MW of grid-connected solar power by 2022. The US already had consultations with India on solar domestic content for the phase-I of the programme. Dismissing the allegations, India said its National Solar Mission programme is WTO-compliant and it would defend its stand in the Geneva-based multilateral body. 

The US has challenged that the domestic content requirements discriminate against US exports by requiring solar power developers to use India-manufactured equipment instead of US equipment and that these requirements are against WTO rules.The US added that solar power developers receive certain benefits and advantages, such as long-term tariffs for electricity, contingent on their purchase and use of solar cells and solar modules of domestic origin.

Commerce Secretary Rajeev Kher pointed out that several US companies have won contracts in phase-II of India's National Solar Mission. He further added that US solar and renewable energy projects are protectionist in nature.

"The claim states that India provides less favorable treatment to imported solar cells and solar modules that accorded to like products originated in India and they are trade-related investment measures inconsistent with India's obligations under the GATT," according to the WTO.

A request for consultations is the first step in the WTO dispute settlement process and is intended to help parties find a solution. If the matter is not resolved through consultations within 60 days of the request, the US may ask WTO to establish a dispute settlement panel.

DONATE TO A POLITICAL PARTY TO SAVE TAX

It is the height of election season, and campaign spending is setting new records. Many political parties are going all out to avail donations to fill their pockets. But breaking the traditions, parties are also focusing on individuals to mop up finance. Some parties are promoting their online donation platforms in the run-up to the polls, highlighting the tax deduction for contributing to political parties.

Election funding can reap some smart tax saving with 100% tax deduction for donation to political parties. The entire amount donated by an individual to a recognized political party is allowed as deduction under Section 80GGC of the Income Tax Act, 1961 while computing his/her gross total income. 

Following parameters should be kept in mind for availing deduction under the said section:

• Donations made in cash are not eligible for tax deduction. In short, make the payments through banking channels - cheques, demand drafts, credit or debit cards and internet banking.
• Another condition is that donation should be made to a political party registered under Section 29A of the Representation of the People Act, 1951.

While there is no cap on the claim amount as a deduction for such donations, there is an overall limit on total deductions. This exemption is part of Chapter VI-A deductions. And under the law, the total deductions under the said Chapter cannot exceed the gross income. The employees will have to claim a refund at the time of filing their Income Tax Returns. 

DEALERS TAKE TYRE MAKERS TO CCI OVER CARTELISATION

The All India Tyre Dealers Federation (AITDF) had filed a case before the Ministry of Corporate Affairs in 2007 alleging cartelisation by manufacturers. The Ministry referred the case to the Monopolies and Restrictive Trade Practices Commission (MRTPC) and later to the Competition Commission of India (CCI). The tyre manufacturers specifically include five major domestic tyre makers - Apollo Tyres, MRF, Ceat Tyre, Birla Tyre and JK Tyre.

Cartelisation generally adversely impacts overall competition in the market and is prohibited under Section 3 of the Competition Act, 2002.

The AITDF wrote to the CCI complaining that the domestic tyre companies raised prices when the prices of natural rubber went up but had not reduced the prices when the rubber prices came down. Since the tyre companies have all stuck to this pricing strategy, it is oligopolistic and anti-competitive, the AITDF said in its letter to the CCI. It urged the CCI to take suo motu action on the matter as it is an anti-competitve practice.

Responding to the letter, the CCI asked AITDF to explain its case in front of it, and the AITDF has decided that its "representative will appear before the Commission on February 18, 2014," said a statement from the Federation.

Tyre majors decided to raise prices when the natural rubber price curve moved up sharply last year. However, rubber prices have been on a southward trend since then, down to Rs. 151/kg from the previous peak price of Rs. 240/kg. This forced the dealers demand a cut in tyre prices. 

FDI: ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH

SHARES AGAINST NON-CASH CONSIDERATION

The FDI policy allows issue of shares by Indian companies to foreign investors only against cash remittances received through normal banking channels. However, the only exceptions to this are External Commercial Borrowings outstanding as well as payment obligations towards lump sum fee or royalty for technical collaborations. Any other type of transaction involving an  issue of shares to foreign investors for consideration other than cash requires approval of the Government of India through the Foreign Investment Promotion Board (FIPB).

In this background, and in order to provide more investment options, the Government issued a discussion paper in September 2010 considering additional methods of issue of shares for consideration other than cash.

Below is a table depicting the cases which have been accepted, prohibited and granted approval on case to case basis.

SR. NO.	ACCEPTED	PROHIBITED	APPROVAL ON CASE TO CASE BASIS
1.	Import on capital goods / equipment (including second hand machinery)	Against Import of raw material / trade payable	Share swaps
2.	Pre-operative / pre-incorporation expenses (including payment of rent etc.)	In lieu of services	Against one-time extraordinary payments
3.		Against Intangible assets (including franchisee rights)	Sweat equity shares
4.		Advance receipt for export	Against outstanding loan
5.		Against dividend payable
6.		Other kinds of consideration / unclear source of money for issue of shares

Only the following additional methods have been accepted for issue of shares for non-cash consideration:

1. Import of Capital goods / machinery / equipment (including second-hand machinery)
Any import by a resident in India has to be in accordance with the Export / Import Policy issued by Government of India. Payment against the same also needs to be in compliance with the Foreign Exchange Management Act, 1999 (FEMA) provisions relating to imports. Further, import of such goods is fully documented by the customs authorities, who also make an assessment of the fair value of such imports. Since adequate checks on the fair value of such imports are available, allotment of shares against the latter can be permitted, with prior Government approval.

2. Pre-operative / Pre-incorporation expenses (including payment of rent etc.)
A significant amount of expenditure is incurred between the conceptualization of the company, its incorporation and commencement of commercial production. This expenditure is often capitalized. If the overseas promoter has incurred these expenses, it is often proposed that shares be issued against such expenditure. Considering that payments made against pre-incorporation are allowed to be remitted under the general permission route, it could be considered whether issue of shares against such expenses should also be permitted.

With regards to the following options, the FIPB has granted approval on case to case basis.

1. Share swaps
Share swap transactions are based on the mutual benefits accruing to both, the Indian entity as well as the foreign entity. They reduce the need for cash flows, while simultaneously meeting the end objectives of investment. This framework presumes swap of shares in an Indian company with shares in a foreign company. Such investments are governed by the Overseas Direct Investment (ODI) guidelines and procedures prescribed under FEMA/RBI. The FIPB considers share-swap proposals on a case to case basis. Values of shares to the entities involved should be comparable for obtaining FIPB approval.

2. Issue of shares against one-time extraordinary payments
Companies may need to issue shares in Joint Venture Company in consideration of business in the form of assets, liabilities and accumulated profits; issue of shares in lieu of an award sum payable in an arbitration case. The FIPB shall grant approval after considering applications on case to case basis and if the same is within the ambit of FEMA.
.
3. Issue of Sweat Equity Shares
Generally the sweat equity shares are issued to promoters to compensate them for their contribution in the formation of the company/execution of projects. Such issue to non-residents is permitted under the Companies Act and so the FIPB has been liberal in granting approval for the same.

4. Issue of shares against outstanding loan
There have been times when non-residents have cleared obligations or incurred expenses on behalf of companies thereby creating loans / amounts due to them. In order to repay such loans, companies can issue shares against the same. This would need approval of the FIPB.

The FIPB has prohibited the issue of shares against the following options.

1. Issue of shares against import of raw material / trade payable
It should be noted that such issue has not been granted approval by the FIPB. Issue of shares against raw material imports / trade payables is in the nature of recurring current account transaction which falls outside the scope of FDI.

2. Issue of shares in lieu of services
This option too is not permitted by FIPB as it is a current account transaction. Companies with commitments to avail services from non-residents may desire to issue shares in lieu of payments for such services availed. The main drawback would be the ambiguity in determining the value of services rendered and to fix a particular method to determine the same. The valuation of services imported is subjective and the authentication as whether such services were actually rendered/delivered makes it difficult to get permission for the same.

3. Issue of shares against intangible assets (including franchisee rights)
The need for issue of shares against intangible assets has often been expressed. There are, however, no widely accepted criteria for valuation of intangibles. There is a possibility that such cases may lead to situations of issue of excess shares, in the absence of detailed criteria. Since such cases may pose significant challenges in terms of valuation, and would require evolution of detailed guidelines, the balance of convenience may lie in not considering such cases for the present.

4. Advance receipt for export
The FIPB has not favoured the issue of shares against export advance received, as the same in not within the purview of FEMA and is in the nature of a current account transaction.

5. Issue of shares against dividend payable
The Companies Act, 1956 prohibits the issue of shares against dividend. The company cannot treat dividend declared as debt due to the non-resident investor and set it off by issuing shares against it. The dividend payable to a non-resident needs to be remitted through the banking channels to the non-resident investor.

6. Other kinds of consideration / unclear source of money for issue of shares
There may be very peculiar and one time situations when shares may be issued against expenses incurred. Purchase of land, issue of shares against amount received by invoking a bank guarantee, obligations under settlement schemes, payment of management service fee, payment of foreign branch office costs are some examples where shares can be allotted for consideration other than cash unless prior approval of FIPB has been obtained.

CONCLUSION

Such changes enable Indian companies to procure equipment and services from foreign enterprises (particularly collaborators) when they are either unable to pay cash, or when a cash transaction is not desirable from a financing standpoint.
It allows payment by Indian companies through issue of its own shares. Such a method also ensures that suppliers and collaborators have an interest in the success of the Indian company's business by taking a stake in it (and thereby assuming risk). 

JOINT VENTURE FOR FERRO ALLOY PLANT

A three way joint venture between SAIL, RINL and NOIL to produce ferro alloys is on the cards with earlier two separate proposed Joint Ventures SAIL-MOIL and MOIL-RINL being virtually scrapped. The total outlay shall be around Rs. 600 crores.

Meanwhile, a committee has been set up comprising members from all the three state-run firms under the Steel Ministry to work on the shareholding pattern, proposed capacity and likely investment for the three-way venture.          

The plant may come up at Nandini near Bhilai in Chattisgarh.

WTO MINISTERIAL CONFERENCE - BALI

The Ninth Ministerial Conference held in Bali tried to agree on three basic issues: trade facilitation, agricultural subsidies compatible with food security and trade facilities for LCDs.

As the Ninth Ministerial Conference of the WTO took place in Bali, India lead the G-33, a group of the developing nations, standing up for the developing countries to subsidize their crops to bolster food security without having to worry about legal challenges. There were some differences on simplification of international trade. In spite of such differences, the Bali conference ended with success.

The food security proposal has become important for India after it passed the Food Security law guaranteeing heavily subsidized food for nearly two-thirds of its population. The counter arguments were that the concern for food security and poverty alleviation was logical but that should not be detrimental to food security of others. The members also agreed to find a permanent solution to this problem breaching ceilings mandated in the WTO Agreement on Agriculture.

The positive outcome was possible only due to the firm and resolute stand taken by Commerce and Industry Minister, Anand Sharma. He described the decision as historic for India. “India has played a major role in the revival and re-energizing the Doha Round of talks. The Bali declaration is a positive step,” Sharma said.

The developing countries desirous of benefiting from this decision may be required to comply with certain anti-circumvention provisions and notification requirements.  Further, only existing public stock holding programs can be insulated from dispute challenges.  While India is likely to be the main beneficiary of this decision, many developing countries may be constrained by their inability to comply with various conditions accompanying the decision.

REVERSE MORTGAGE - A BOON TO SENIOR CITIZENS

Most of the Financial Institutes or Banks will reject the Loan Application if the borrower is retired or nearing retirement and has no income or for some reason haven’t been able to save enough for his retirement. Most of the senior citizens struggle to meet their both end after their retirement years. There are few options available for such people. They can either sell their house, buy a cheaper house and use the remaining funds as a retirement corpus or take a Reverse Mortgage on their house. But, which option works out better?

Now, Reverse Mortgage makes this possible. Any senior citizen can get loan against his property and is not required to repay the loan and can enjoy the regular Income after his/her retirement.

THE REVERSE MORTGAGE: A RETIREMENT TOOL

A Reverse Mortgage is a loan available to senior citizens to convert a part of their self-owned home equity into income without having to sell it. Under this scheme, the Bank determines the value of the property and fixes a percentage of its current value as Loan Amount.

FEATURES OF THIS LOAN

1. The maximum loan is up to 60-70 per cent of the value of the residential property.
2. The borrower can opt for a monthly, quarterly, annual or lump sum payments at any point, as per his discretion.
3. The amount received through reverse mortgage is considered as loan and not income; hence the same will not attract any tax liability.
4. The value of the property is periodically re-evaluated by both the parties, the owner and the bank.
5. After the death of the senior citizen, the surviving spouse can continue to occupy the property till his/her demise. In case of the death of the spouse, the bank will give their heirs two options -- settle the overall outstanding loan and retain the house, or the bank will sell the house, use the proceeds to settle the outstanding loan and give the surplus to the heirs.

CAN SUCH PROPERTIES BE SOLD OR RENTED OUT?

Renting or Leasing a house with Reverse Mortgage is legally not possible because the house that is being used is the Principal Residence of the Reverse Mortgage Holders. However, Selling a Reverse Mortgage property is legally permitted.

HOW DOES THIS WORK?

A Home owner with a Reverse Mortgage must consider following points before selling Reverse Mortgaged Property -

• To Estimate how much he owes the Bank which includes the money received from it, plus interest and other fees the Lender can charge.
• He should have an alternative accommodation before he plans to sell his house.
• He may have to bear the foreclosure charges and also pay Capital Gains Tax.
• His heir would first need to clear the outstanding loan before he plans to purchase it through a fresh loan.

One should opt for a sale only if proceeds are large enough to facilitate another accommodation after repaying the Loan to the Bank.

UNDERSTANDING TAX DEDUCTED AT SOURCE (TDS)

OVERVIEW OF TDS

TDS is one of the modes of collection of taxes, by which certain percentage of amounts are deducted by  a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account.

It is similar to "pay as you earn" scheme and also known as withholding tax in many other countries, one of the country is USA. It acts as a powerful Instrument to prevent tax evasion as well as expands the tax net.

WHO SHALL DEDUCT TAX AT SOURCE

Every person responsible for making payment of nature covered by TDS provision of Income Tax Act, 1961, shall be responsible to deduct tax.

HOW MUCH TAX IS DEDUCTED AT SOURCE

There is no uniform rate for TDS. It depends on the Source of Earnings. Here is a look at how much TDS is cut from the earnings.

• SALARY: This will include the maximum tax deduction allowed under section 80C, 80D & other tax saving instruments of the Income Tax Act, 1961. If despite of all these deductions, the salary is above the exemption limit, TDS will be cut from it every month.

• BANK ACCOUNT: TDS is cut only if the Interest earned from a Fixed Deposit or Saving Account is more than Rs. 10,000 annually. The Rate of TDS applicable is 10%.

• RENTAL INCOME: Any amount paid as Rent above Rs. 1,80,000 per year will attract TDS at 10% for Individual/HUF and 20% for others.

• PROPERTY: TDS at the rate of 1% is applicable on Properties sold for over Rs. 50 lakh in a town or city and over Rs. 20 lakh in a rural area.

• GOLD AND SILVER: Purchase of Bullion (Gold & Silver) in cash for an amount exceeding Rs. 2 Lakh, TDS at the Rate of 1% is applicable.

• NATIONAL SAVING SCHEME: TDS at the rate of 20% is applicable on Payment which is above Rs. 2500.

• DEBENTURES: Interest earned from an Investment in debentures will be exempt up to Rs. 5,000. The Rate of TDS applicable is 10%.

• LOTTERY, PUZZLE, COMPETITION OR HORSE RACE: Winnings up to Rs 10,000 in case of a Lottery and Rs. 5,000 for a Horse Race are exempt from TDS. The Rate of TDS applicable is 30%. 

HOW TO SAVE ON TDS

If the Income is below the taxable limit, but the Interest earned from the Deposit is above Rs. 10,000, an Assessee can request to bank not to deduct tax. For this purpose Form 15G and Form 15H are self-declaration Forms required to be furnished by the Assessee to his banker for Nil deduction/Lower deduction of TDS on Interest on Fixed Deposit at the beginning of the financial year.

CONSEQUENCES OF DEFAULTS

An Assessee cannot avoid paying taxes by not declaring Permanent Account Number (PAN). If he fails to do so or mention it incorrectly, the TDS rates will be applicable at the higher rate of 20% or in case of misuse of the Form 15G facility he shall be penalised.

IMPACT OF THE IMPLEMENTATION OF REGULATION BILL IN REAL ESTATE

We hear a lot of 'janhit mein jaari' advertisements nowadays that try to explain the latest reforms regarding land acquisiton. But its not in public interest, if not understandable. So here is a gist of the Land Acquisition, Rehabilitation and Resettlement Bill introduced by the Parliament in the monsoon session. 

NEED FOR REFORM 

The old Land Acquisition Act, 1894 had some of the following shortcomings and so it was time to abandon the same.

• Forced Acquisitions: No attention was paid to the effect of the acquisition on the land owners once the buyers decided to acquire the land.
• No safeguards: No real appeal mechanism existed to stop the process of acquisition.
• The Act remained silent on the resettlement and rehabilitation of the displaced.
• Urgency Clause: Every transaction constituted urgency on part of the buyer which at times resulted in the dispossession of land and dissatisfaction of token money.
• Low rates of compensation and scant regard for the welfare of the common man.

LAND ACQUISITION, REHABILITATION AND RESETTLEMENT BILL 

The previous Act as we saw was ignorant towards the landowners and so a need to compensate the land owners in lieu of their lands acquired for industrialisation and urbanisation arose. The new Bill includes 3 main parameters:

• Applicable to 50 acres of urban land and 100 acres of rural land.
• Consideration is twice the market value for urban land acquisition and 4 times for rural land transactions.
• Private acquirers need 80% consent of land owners whereas public-private partnerships need 70% for the same.

Considering the above points on part of the land owners, their side of the grass is surely green. The new Bill makes an effort to rule out the problems of unwarranted claims and issues of inadequate compensations. 

SHORTCOMINGS

• These new reforms, on the whole remain biased as the buyers and end users have a heavy cost to pay.
• All the above parameters increase the total project cost as the time to have the consent and to acquire the land too stretches. This results in a cascading effect on project costs being charged from buyers in large township projects.
• Most developers invest in smaller pieces of land due to the arbitrary unit used to fix the token i.e., twice the price for urban lands and 4 times for rural deals. 

BAN ON INTERNATIONAL INVESTMENT

In anticipation of tighter liquidity conditions globally, foreign institutional investors (FIIs) withdrew money from the Indian debt and equity markets. As a result, the rupee depreciated against the dollar. In order to stem its fall, the RBI in August framed rules designed to preserve the country's foreign exchange reserves. Besides reducing the amount that Indians could remit abroad annually from $2,00,000 to $75,000, the central bank also imposed a ban on investment in international real estate.

SEBI ALLOWS PREFERENTIAL CLAUSES IN SHARE PURCHASE PACTS

THE DECISION

SEBI has provided more flexibility to entities entering into Merger & Acquisition (M&A) deals, allowing them to include Preferential Clauses like "right of first refusal, tag-along and drag-along' in their Share Purchase Agreements.

The regulator rescinded a March 1, 2000, notification that did not allow put and call option arrangements or recognize the right of first refusal. The right of refusal gives one of the parties to a transaction the first option to buy out its partner when the latter wants to exit at a later stage. Similarly, tag-along and drag-along clauses allow a partner to join another party in cases like further acquisition or sell his holdings.

However, the regulator has allowed these facilities subject to various conditions which include the seller should hold the ownership of the securities for at least a one-year period from the date of the contract, the pricing of the securities should be as per all the extant laws, and finally, the contract can be settled only after actual delivery of the securities.

The Market Watchdog noted that the changes would not affect any contract which has been entered into prior to the date of this notification.

THE EFFECT

The decision will provide a fillip to M&A deals and give the partners easier exit options.

The changes will also protect the interests of foreign investors, particularly private equity players who generally insist on the inclusion such clauses in the deals.

UNDERSTANDING THE JARGON

Put Option: Under this option, an investor has the right to sell his/her shares back to the company or to its promoter at a price that has been fixed before.

Call Option: Under this option, an investor has the right to buy shares held by the company or promoter at a pre-determined price.

Right of first refusal: Right of first refusal, is the right of a Person (Investor) or Company to purchase something before the offering is made available to others. If an Investor plans to exit the Company, it is obliged to give the Promoters or existing Shareholders, an opportunity to buy the Shares before selling the same to a third party.

Tag-along rights: This gives a minority shareholder the right to sell his/her shares of a company on similar terms as those of the majority shareholders.

Drag-along rights: This gives the majority shareholders a right to force minority shareholders to come together to off-load their shares on similar terms during the sale of a company.