Digital Banking: A reality in India

1. Introduction:

India is a land of opportunities. Right from the ancient ages to the modern age, Indians have always strived hard to innovate new things and technology. We have taken great leaps in technology including space technology and information technology.

On February 15, 2017, ISRO launched 104 Satellites in a single flight. This is in addition to the fact that Aryabhat was probably the first astronaut of the world.

First Information Technology Company of India i.e. Tata Consultancy Services (TCS) was founded way back in 1968. Infosys was founded in the year of 1981. Bangalore is known as the Silicon Valley of India and also the IT Capital of India. Hyderabad, Chennai, Gurgaon are other cities where multinational companies are lined up to open their office.

Similarly today every company wants to use the advancement in the area of information technology. They want to use these technology to provide quicker and more effective services. Banks are also one of those industry which is relying heavily on new technology. We have moved from the era of “standing in queue for hours to transfer money” to “transfer of funds with few clicks on our mobile or laptop”.

2. Online Products

Banks were the early adapters of technology and now they are bearing fruits of the same. Now you can open bank accounts online with few clicks. You don’t even need to visit branches and fill up lengthy documents.
Further, online shopping on Amazon or Flipkart etc. have become possible because of online banking. You can sit at home, browse hundreds of products, select them and pay online for selected products.
Below is some of the online accounts being offered by various banks in India:

1. digiSavings (DBS India)
2. Abacus Digital Saving Account (RBL Bank)
3. Kotak 811 (Kotak Mahindra Bank)

In addition to the above, online wallets like Paytm and FreeCharge are very popular now a days.

RBI makes it mandatory for the banks to offer the facility of passbook or statement of account to all its customers. To comply with this requirement, almost all the banks have started offering statement of account. Further, to make it more convenient, banks send statement of account to their customers on the e-mail id registered with them. This e-statement of account has multiple advantage over the traditional passbook or statement of accounts, viz.-

(i) Customer does not need to go branches to update their passbook or wait for the statement of account to come through post. While in case of e-statement, customer receives it instantly.
(ii) Further, e-statement of account is more secure and its usually password protected and only the customer can open it.
(iii) You can easily refer it at anytime and anywhere in the world. You just need internet connectivity.

Some of the banks have also introduced the concept of e-passbook.
Almost all the banks have also started receiving Form 15 G / H and issuing form 16A to their customers. These digital forms have advantages similar to that of e-statement of accounts.

3. E- KYC

Every bank is required to follow certain customer identification procedure while undertaking a transaction either by establishing an account based relationship or otherwise and monitor their transactions.
Banks undertake Know Your Customer (KYC) process to identify their customers. KYC has been a very important task of a bank as any lapse in such process would expose the bank to legal and regulatory risk.

RBI has recently clarified that the e-KYC service of Unique Identification Authority of India (UIDAI) shall be accepted as a valid process for KYC verification under the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005. It clarifies that:
(a) the information containing demographic details and photographs made available from UIDAI as a result of e-KYC process is treated as an ‘Officially Valid Document’; and
(b) transfer of KYC data, electronically to the bank from UIDAI, is accepted as valid process for KYC verification.
In such e-KYC process, the banks obtains authorisation from the customers authorising UIDAI by way of explicit consent to release his/her identity/address through biometric authentication by way of finger print or iris scan.

Some of the banks have started with OTP-based e-KYC for on-boarding of customers. In this process, the customer does even need to do biometric authorisation for releasing his identity rather the customer receives OTP on his mobile number (mapped with his Aadhaar) available with UIDAI and the same is used to authorisation. This is a quicker option than the biometric authentication. By this method of OTP-based e-KYC, the customer can open his account anytime and anywhere. It is to be noted that although account open by means of OTP-based e-KYC has certain restrictions, for e.g. the aggregate balance of shall not exceed rupees one lakh and the aggregate of all credits in a financial year, in all the deposit taken together, shall not exceed rupees two lakh.

4. C-KYC

Another initiative taken by the government is establishment of Central KYC Records Registry (CKYCR) to receive, store, safeguard and retrieve the KYC records in digital form of a customer.

Government of India has authorised the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), to act as, and to perform the functions of the CKYCR.

The ‘live run’ of the CKYCR has started with effect from July 15, 2016 in phased manner beginning with new ‘individual accounts’.
Using this CKYC facility, the bank can verify the identity of the customer and perform the initial due diligence of the customer using the KYC identifier. KYC identifier is a unique identifier for the customer generated by CKYCR.
Using CKYC, the bank can perform below activities:
(i) Search;
(ii) Upload of customer’s KYC information;
(iii) Download of customer’s KYC information; and
(iv) Update of customer’s KYC information

CKYC has not yet implemented fully and once implemented fully, it will go a long way in revolutionise the KYC process in particular and banking in general.

5. Anti- Money Laundering (AML) Solution

Money is the key objective for most of the criminal activity. Banks and other financial institutions are used by criminals to launder the money received through criminal activity. The use of banks and other financial institutions is a great concern the management of such institutions, regulatory and legal authorities. Number of initiatives has been taken to contain the risk of money laundering.
Money laundering basically involves three steps:

(i) Placement;
(ii) Layering; and
(iii) Integration

Thus, it is imperative upon banks to safeguards their organisation from being used by criminals. Earlier banks used to receive information from the customer at the time of on-boarding and later screen them against list of prohibited individuals and entities. This used to take lot of time and there were lots of chances of mistake.

Some of the institutions have started providing AML solution, which is quick and easy to use. A customer can be screened against sanction list issued by various organisations with few click of computer. Further, such solutions also provide facilities of transaction monitoring and reporting of various forms / reports to the regulator very easy.

6. Payment Mode:

Cash deposit followed by cheque has been two most popular mode of payment in India. However, electronic means of payment i.e. NEFT (National Electronic Funds Transfer), RTGS (Real Time Gross Settlement) and IMPS (Immediate Payment Service) has gained popularity in recent years.

Further, after demonetisation, Unified Payment Interface (UPI) has become the most preferred mode of transfer. It is a quick and easy way to send and receive money using without entering additional bank information. For using UPI, the customers need to create a Virtual Payment Address (VPA) of their choice and link it to any bank account. The VPA acts as their financial address and users need not remember beneficiary account number, IFSC codes or net banking user id/password for sending or receiving money.

Such electronic transfers are instantaneously (except NEFT) and the customer does not even need to visit branches. This is secure also as there is no physical movement of cash. Even for NEFT, RBI has recently introduce 11 additional settlement batches during the day (at 8.30 am, 9.30 am, 10.30 am ……… 5.30 pm and 6.30 pm), taking the total number of half hourly settlement batches during the day to 23.

To promote electronic mode of payment, the Government has launched Bharat Interface for Money (BHIM) app. BHIM app uses Unified Payments Interface (UPI) and by using this customer can make instant bank-to-bank payments and pay and collect money using just Mobile number or VPA.

7. Archival of Documents:

Another important aspect of digital banking is to maintain a record of all transactions, the nature and value of which may be prescribed.

As per the PMLA, the account opening records including identification documents should be kept for 10 years from the date of cessation of the transaction/ relationship between the customer and the bank and transaction records including credit/ debit slips, cheque and other form of vouchers. The terms “cessation” generally means closure of account.

Aforesaid requirement of preservation of records is usually cost lots of money to the bank. However, digital banking where there is minimal requirement of physical documents has cleared this concern of banks to a large extent. Digital documents are easy to transfer, archive, search and involves less costly.

8. E-mail and Fax indemnity:

E-mail and Fax indemnity is an important tool in hands of banks to save themselves from the liability arising from use of online or digital mode of sending instructions. In this document, the bank make customer aware of risks involved in using e-mail or fax as mode of sending instructions to banks for transacting with bank and take confirmation from the customer that customer shall indemnify the bank if any liability arise out of use of such mode by the customer.

9. Robot:

Small-time private sector lender City Union Bank was the first among Indian banks to introduce robot in its branch last year. Since then many banks (HDFC, Canara Bank etc.) have started using humanoid robots to assist its customers for service ranging from guiding customers in relevant counter, account balance, interest rate on different products, charges, transaction history etc. By integrating such Robots with Core Banking System of the bank, banks can offer many more services to the customers.

10. Queue management system:

Banks can even manage customers at their branches by using app-based token. Instead of using paper challan, Digital Challan can be used to facilitate to digitally initiate request by customers for services like cash deposit, fund transfer and cheque clearing etc.
Digital Feedback System and grievance redressal mechanism can be another step in direction of a digital bank.

11. Conclusion

Thus, we have seen that digital banking is a reality in India. Every day new services are being added under this ambit. This has made the life of people much easier. However, there is reluctance on the part of customers to fully trust it. People have to adopt digital banking. Demonetisation has played an important to nudge people in this direction. But Banks have to demonstrate that digital banking is not only convenient but also secure. Further, if implemented properly and encouraged, digital banking will go a long way to achieve financial inclusion.

Disputes relating to property

Disputes relating to property, particularly immovable property like Flat and land is not uncommon these days. Main reasons for dispute relating to immovable property are poorly drafted documents relating to transfer of property, complication in property laws and ignorance of basic laws among general public. Sometimes a person, who has purchased the property even after conducting reasonable due diligence, finds himself in legal dispute. Usually this happens when the the title of a person, who has sold the property to buyer, gets questioned by a third party.

Transfer of Property Act, 1882 which primarily deals with transfer of immovable property provides protection to such bona fide buyers. In this Article I have tried to throw some light on right of such bona fide buyers and related aspects:


What is sale and how it can be effected?

As per Section 54 of Transfer of Property Act, 1882, sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Transfer on immovable property of the value of one hundred rupees and upwards, can be made only by a registered instrument.

What is contract for sale and how is it different from sale deed?

A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.

On the other hand, Sale Deed is present in nature and by virtue of its execution between the parties can creates right, title, interest in the property.

After terms and conditions of contract for sale are fulfilled and complied with, buyer should immediately insist for execution of sale deed by the owner.

Can a property be transferred pending a suit relating thereto?

Answer to this question lies in section 52 of Transfer of property Act, 1882, which says that during the pendency of any suit in relation to any immovable property, said property cannot be transferred or otherwise dealt with by any party to the suit or proceeding except under the authority of the Court and on such terms as it may impose. Section 52 is reproduced below for reference:

Section 52 - Transfer of property pending suit relating thereto

During the pendency in any Court having authority within the limits of India excluding the State of Jammu and Kashmir or established beyond such limits by the Central Government of any suit or proceeding which is not collusive and in which any right to immoveable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the Court and on such terms as it may impose.

Explanation. -For the purposes of this section, the pendency of a suit or proceeding shall be deemed to commence from the date of the presentation of the plaint or the institution of the proceeding in a Court of competent jurisdiction, and to continue until the suit or proceeding has been disposed of by a final decree or order and complete satisfaction or discharge of such decree or order has been obtained, or has become unobtainable by reason of the expiration of any period of limitation prescribed for the execution thereof by any law for the time being in force.

What are the rights available to bona fide purchaser of an immovable property, when title of seller of such property is questioned?

Section 41 of the Transfer of Property Act, 1882 protects the interest of bona fide purchaser. It is an exception to the rule of “nemo dat quod non habet” (no one gives what he doesn't have). As per this section if a person after being satisfied that seller is the owner of property and purchases the property for consideration, the transfer shall not be violable on the ground that the transferor was not authorised to make it. Section 41 is reproduced below for reference:

Section 41 - Transfer by ostensible owner

Where, with the consent, express or implied, of the persons interested in immoveable property, a person is the ostensible owner of such property and transfers the same for consideration, the transfer shall not be violable on the ground that the transferor was not authorised to make it:

Provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith.

What will happen when an unauthorised person sells the property and later acquires interest in the same property?

As per Section 43 of the Transfer of property Act, 1882, if an unauthorised person represents that he is the owner of the property and transfer the said property for consideration, the buyer shall, at his option, have interest in the property, if such unauthorised person later on acquire any interest in the said property.

For example, if Mr. A, claiming that he is the owner of the property which actually belong to Mr. B, sold that property to Mr. C for consideration. Mr. A later on buys the property from Mr. B. Mr. A cannot claim that sale of property to Mr. C is not valid as when he sold him the property he was not the real owner.

Section 43 is reproduced below for reference:

Section 43 - Transfer by unauthorized person who subsequently acquires interest in property transferred

Where a person fraudulently or erroneously represents that he is authorized to transfer certain immovable property and professes to transfer such property for consideration, such transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in such property at any time during which the contract of transfer subsists.

Nothing in this section shall impair the right of transferees in good faith for consideration without notice of the existence of the said option.


Why Documents involving sale or transfer or immovable property, gift, leave and license and lease should be registered?

Registration Act, 1908 deals with laws relating to registration of documents. The purpose of the Registration Act, 1908 is the conservation of evidence, assurance, title, publication of documents and prevention of fraud. Registration of some documents like sale deeds of immovable property, is compulsory.

Registered documents carry a certificate of registration which is endorsed by the registering officer and is signed, sealed and dated by him. Endorsement by sub-registrar on a registered document is prima facie proof of its valid execution or consideration. Registered documents are admissible as evidence in a court of law since they have evidentiary value in the eyes of the law.

Registered documents safeguard the interest of a buyer since it takes effect in respect of the said property as against every unregistered document relating to the same property.

Registration of a document is also a notice to the general public regarding the transaction in question.
Registration can normally be done only after payment of proper stamp duty. Registered documents serve as proof of payment of proper stamp duty. {However, the court has held that the sub-registrar cannot refuse acceptance of document for registration despite the fact that the proper stamp duty has not been paid. The reason being that a sub-registrar is not a collector who can impound the documents.}

Although the Transfer of Property Act provides protection to the buyer of property, the buyer cannot ignore his responsibility of undertaking due diligence before buying the property. After all, there is a golden rule "Caveat Emptor" i.e. buyer beware.

YOUR COMMENTS & SUGGESTIONS:
Comments and suggestions are read and very welcome. We really appreciate your time. You may also post your queries here, I will be happy assist.

DISCLAIMER:
The opinions expressed herein are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal advice or opinion. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.

How to get a succession certificate

A succession certificate is issued by a civil court to the legal heirs of a deceased person. If a person dies without leaving a will, a succession certificate can be granted by the court to realise the debts and securities of the deceased. It establishes the authenticity of the heirs and gives them the authority to have securities and other assets transferred in their names as well as inherit debts. It is issued as per the applicable laws of inheritance on an application made by a beneficiary to a court of competent jurisdiction.

A succession certificate is necessary, but not always sufficient, to release the assets of the deceased. For these, a death certificate, letter of administration and no-objection certificates will be needed.

Application: A petition needs to be filed with the district court or high court within whose jurisdiction the asset is located.

Details: The name and relationship of the petitioner, names of all heirs of the deceased, details about the time, date and place of death should be mentioned in the application. A copy of the death certificate has to be produced.

Process: The court typically issues a notice in the newspapers for a given period (generally 45 days). If no one contests the petition on the expiry of this period, the court passes an order for issuance of succession certificate.

Fees: The court levies a fixed percentage of the value of the estate as fee for issuance of the certificate.

Points to note
The court fee has to be paid in the form of judicial stamp papers of the required amount, after which the certificate is typed, duly signed and delivered.

In addition to the court fee, the lawyer's fee also needs to be taken into account.

If the petition is not contested, the court usually issues a succession certificate in five to seven months.


Please feel free to reach me for any clarification, I'll be happy to assist.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL).)

Companies (Amendment) Bill, 2014

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, today approved the introduction of the Companies (Amendment) Bill, 2014 in Parliament to make certain amendments in the Companies Act, 2013.

The Companies Act, 2013 (Act) was notified on 29.8.2013. Out of 470 sections in the Act, 283 sections and 22 sets of Rules corresponding to such sections have so far been brought into force. In order to address some issues raised by stakeholders such as Chartered Accountants and professionals, following amendments in the Act have been proposed:

1. Omitting requirement for minimum paid up share capital, and consequential changes. (For ease of doing business);

2. Making common seal optional, and consequential changes for authorization for execution of documents. (For ease of doing business);

3. Prescribing specific punishment for deposits accepted under the new Act. This was left out in the Act inadvertently. (To remove an omission);

4. Prohibiting public inspection of Board resolutions filed in the Registry. (To meet corporate demand);

5. Including provision for writing off past losses/depreciation before declaring dividend for the year. This was missed in the Act but included in the Rules;

6. Rectifying the requirement of transferring equity shares for which unclaimed/unpaid dividend has been transferred to the IEPF even though subsequent dividend(s) has been claimed. (To meet corporate demand);

7. Enabling provisions to prescribe thresholds beyond which fraud shall be reported to the Central Government (below the threshold, it will be reported to the Audit Committee). Disclosures for the latter category also to be made in the Board’s Report. (Demand of auditors);

8. Exemption u/s 185 (Loans to Directors) provided for loans to wholly owned subsidiaries and guarantees/securities on loans taken from banks by subsidiaries. (This was provided under the Rules but being included in the Act as a matter of abundant caution);

9. Empowering Audit Committee to give omnibus approvals for related party transactions on annual basis. (Align with SEBI policy and increase ease of doing business);

10. Replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related party transactions by non-related shareholders. (Meet problems faced by large stakeholders who are related parties);

11. Exempt related party transactions between holding companies and wholly owned subsidiaries from the requirement of approval of non-related shareholders. (corporate demand);

12. Bail restrictions to apply only for offence relating to fraud u/s 447. (Though earlier provision is mitigated, concession is made to Law Ministry & ED);

13. Winding Up cases to be heard by 2-member Bench instead of a 3-member Bench. (Removal of an inadvertent error);

14. Special Courts to try only offences carrying imprisonment of two years or more. (To let magistrate try minor violations).


Please feel free to reach me for any clarification. I'll be happy to assist.

One Person Company under Companies Act, 2013

Introduction

Companies Act, 2013 has recently introduced the concept of One Person Company (OPC). There is a growing inquisitiveness in the mind of many corporate professional, entrepreneurs and students as to what is this concept. In this Article, this concept has been explained, provisions relating to OPC in Companies Act, 2013, its comparison with various other types of entities, its benefits and limitation etc.

Although the concept of OPC has been recently introduced in India, similar concept already exists in many other counties including Australia, USA, and Pakistan etc.

Meaning & features of One Person Company (OPC)

OPC is a type of company wherein the company has only one person as a member this person contributes capital to the company. This person acts in different capacity of promoter, director and member. OPC structure is similar to that of a proprietorship concern without the problems generally faced by the proprietors. One most important feature of OPC is that the risks of business are limited to the extent of the value of shares held by such person in the OPC. This would enable a person to take the risks of doing business without getting the liabilities attached to his personal assets. OPC has a separate legal identity from its shareholders i.e., the company and the shareholders are two different entities for all purposes.

OPC is incorporated as a private limited company with one member and may also have at least one director. To ensure the continuity of business and safeguard the interest of different stakeholders, it is required to nominate the name of the person who shall, in the event of sole member’s death or his incapacity, manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member. A minor cannot become member or nominee of the OPC or hold share with beneficial interest. Letters ‘OPC’ to be suffixed with the name of One Person Companies to distinguish it from other companies.

Provisions relating to OPC under Companies Act, 2013

Sec.2(40) Proviso: Financial Statement of One person Company
Sec. 2 (62) Definition of One Person Company
Sec. 2 (68) Definition of Private Limited Company
Sec. 3 Formation of Company
Sec. 4 Memorandum
Sec. 12 (3) Second Proviso Registered office of Company
Sec. 92 (1) Proviso Annual return
Sec. 96 (1) Annual general meeting
Sec. 122 Applicability of Chapter VII to One Person Company
Sec. 134 (1) & (4) Financial Statement, Board’s report etc.
Sec.137 (1) Third Proviso Copy of Financial Statement to be filed with the Registrar
Sec.149 (1) Company to have Board of Directors
Sec. 152 Appointment of Directors
Sec. 173 (5) Meetings of Board
Sec.193 Contract by One Person Company

OPC vis-à-vis Sole Proprietorship

Sole Proprietorship is one of the most favoured business entities for budding entrepreneurs. The prime reasons for its popularity are – (a) absence of legal formalities for its creation; and (b) sole control over the business. Despite the above two important benefits of sole proprietorship, there are some lacunas in this form of business entity which is abhorred by many. Major lacuna of sole proprietorship is that it has no separate existence. It is devoid of the “limitation of liability” enjoyed by a private / public company or limited liability partnership.

OPC vis-à-vis Private Limited Company

Private Limited Company is another most popular business entity in India. Private Limited Company is also an incorporated entity. However, it differs from OPC on several aspects mentioned below:

1. Minimum No. of Board meeting: In case of OPC, only 2 meetings are required to be held in a year. However, in case of 1 director, no board meeting required. Only resolution needs to be recorded. While in case of Private/ Public Company, minimum 4 meetings are required to be held in a year.

2. Annual General Meeting : In case of OPC, there is no requirement of holding any general meeting.

3. Minimum No. of directors: In case of OPC, there is requirement of only 1 director.

4. Cash-flow statement: OPC need not prepare cash flow statement.

Conversion of OPC to other type of Company and vice- versa

When the paid-up share capital of OPC exceeds Rupees Fifty Lac or its average annual turnover during the relevant period exceeds Rupees Two Crore, such OPC need to mandatorily convert itself, within six months of the date of such increase into a private / public company.
Similarly, a private company having paid-up capital of Rupees Fifty Lac or less or average annual turnover during the relevant period is two Crore or less may convert itself into OPC by passing a special resolution in general meeting. No objection from its members and creditors shall precede such special resolution.

Registration of charge with Registrar of Companies (ROC) under Companies Act, 2013

I. CHARGES THAT REQUIRE REGISTRATION IN ROC FOR COMPANIES

Earlier Companies Act, 1956 (“1956 Act”) cast an obligation on the Company to register with ROC only specified charges (these charges were specified 1956 Act itself) and not all charges created on property / undertaking of the Company.

The Companies Act, 2013 (“2013 Act”) on the other hand requires the company to register the particulars of a charge created by it on its property or assets or any of its undertakings with Registrar of Companies (ROC).

The 2013 Act defines ‘charge’ as an interest or lien created on property/ assets/ undertaking of the company as security. In view of this definition of ‘charge’ it appears that even pledges/ lien of moveable property will have to be registered with ROC under the 2013 Act since there are no charges specified in the Act.

II. TIME LIMIT

Charges are required to be registered with the ROC having jurisdiction over Registered Office of the company, under Section 77 of the Companies Act, 2013, within 30 days from the date of its creation.

III. FORMS FOR CREATION OR MODIFICATION OF CHARGE

Charges must be registered with the ROC by filing the particulars in Form No.CHG-1 (earlier Form-8) along with duly verified and certified copies of the documents/records/creating such charges with the requisite fee thereon.

IV. CONDONATION OF DELAY BY ROC

ROC may, on being satisfied that the company had sufficient cause for not filing the particulars and instrument of charge, if any, within a period of thirty days of the date of creation of the charge, allow the registration of the same after thirty days but within a period of three hundred days of the date of such creation of charge or modification of charge on payment of additional fee. [Please check the section “Additional fees” on calculation of additional fees]

Two important aspects which may be noted here:

a.Power of ROC to condone the delay is discretionary and there must be sufficient reason to for not registering the charge with specified period of 30 days.

b. Three hundred days shall be calculated from the date of creation of charge. It means effectively the Act provides for additional 270 days.

The application for delay shall be made in Form No.CHG-1 and supported by a declaration from the company signed by its secretary or director that such belated filing shall not adversely affect rights of any other intervening creditors of the company.

V. CERTIFICATE OF REGISTRATION

Where a charge is registered with ROC, he shall issue a certificate of registration of such charge in Form No.CHG-2.

This certificate holds utmost importance. Please see the section relation to “Effect of non-registration of charge” for more information.

VI. MODIFICATION OF CHARGES

Process for modification of charge is similar to that of creation of charge described above.

VII. SATISFACTION OF CHARGES

A company shall within a period of thirty days from the date of the payment or satisfaction in full of any charge registered under Chapter VI, give intimation of the same to ROC in Form No.CHG-4 along with the fee. ROC shall then issue a certificate of registration of satisfaction of charge in Form No.CHG-5.

VIII. EFFECT OF REGISTRATION OF CHARGE WITH ROC

Where any charge on any property or assets of a company or any of its undertakings is registered under the provisions of Companies Act, 2013, any person acquiring such property, assets, undertakings or part thereof or any share or interest therein shall be deemed to have notice of the charge from the date of such registration.

IX. CONSEQUENCES OF A CHARGE NOT BEING REGISTERED

It specifies that every charge created by a company is required to be registered unless such a charge is registered the charge shall be void against a liquidator or any subsequent charge.

The 1956 Act provided that the no charge created by a company shall be taken into account by the liquidator or any other creditor unless particulars thereof with copy of instrument creating charge have been filed with ROC within 30 days of creation of charge.

The 2013 Act contains more stringent provisions in this regard, i.e. no charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly registered and a certificate of registration of such charge is given by ROC.

X. PERSONS AUTHORISED TO CREATE CHARGE

It shall be the duty of every company creating a charge to register the particulars of the charge signed by the company and the charge-holder.

If a company fails to register the charge within the period of 30 days, the Charge holder may apply to the ROC for registration of the charge along with the instrument created for the charge. ROC may, on such application, within a period of fourteen days after giving notice to the company, unless the company itself registers the charge or shows sufficient cause why such charge should not be registered, allow such registration of charge. The charge holder in such case shall be entitled to recover from the company the amount of any fees or additional fees paid by him to ROC for the purpose of registration of charge.

XI. Fees payable

As per 2013 Act, applicable fees on CHG-1 correspond to the nominal share capital of the Company in the below manner:

Nominal Share Capital::: Normal fee payable
Less than 1,00,000::: Rs.200/-
1,00,000 to 4,99,999::: Rs.300/-
5,00,000 to 24,99,999::: Rs.400/-
25,00,000 to 99,99,999::: Rs.500/-
1,00,00,000 or more::: Rs.600/-

Additional Fees

Period of delays::: Fee applicable
upto 30 days::: 2 times of normal fees
More than 30 days and upto 60 days::: 4 times of normal fees
More than 60 days and upto 90 days::: 6 times of normal fees
More than 90 days and upto 180 days:: 10 times of normal fees
More than 180 days::: 12 times of normal fees

YOUR COMMENTS & SUGGESTIONS:
Comments and suggestions are read and very welcome. We really appreciate your time. Thanks in advance.

DISCLAIMER:
The opinions expressed herein are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal advice or opinion. Discussions on, or arising out of this, blog between contributors and other persons shall not create any attorney-client relationship.

(I am thankful to my Seniors and friends for helping me to write this blog.)

Validity of Power of Attorney (POA): Death of Principal

One question which may validly arise in the mind of any person in relation to Power of Attorney (POA) is that what shall happen if the person executing POA has died? This is question of more importance for people working particularly in banking industry. There are many transactions in banking sector which is executed by the attorneys on behalf of the principal on the strength of POA on day-to-day basis. In this Article, we have tried to examine the legal aspect of validity of POA, after the death of its principal.

Power of Attorney as an Agency

A power of attorney is a delegation of authority in writing by which one person is empowered to do an act in the name of the other. The person who acts on behalf of another person (the principal) by his authority, express or implied, is called an agent and the relation between him and his principal is called agency.
A power of attorney holder is nothing but an agent as defined in S. 182 of the Indian Contract Act, 1872. The authority of an agent is his power to affect his principal’s position by doing acts on his behalf.

Termination of a Power of Attorney

Generally speaking, a power of attorney can be terminated or cancelled by the principal by revoking his authority or by the power of attorney holder renouncing his authority.

According to S. 201 of the Contract Act, an agency can be terminated by the principal by revoking his authority or by the agent renouncing his authority. S. 201 of the Contract Act also states that an agency terminates, inter alia, by death of principal or agent.

Judicial Pronouncements

Radhabai vs Mongia (AIR 1939 Nag. 274): If the power-of-attorney holder exceeds his limits as per the power granted to him, by the instrument, then the provision of 'indemnity' in case of an act done in good faith does not apply, even if he was unaware of the determination of his power in consequence of revocation of power by or death/insolvency of the principal.

A holder of a power-of-attorney or an agent cannot go beyond the principal [Mahendra Pratap Singh & Anr. v. Smt. Padam Kumari Devi, A.I.R. 1993 All. 143].

Conclusion

According to established case laws read with Section 3 of Power of Attorneys Act 1882 and S. 182, 201 of the Contract Act, due to the demise of the person executing power of attorney, the power of attorney becomes null and void.

Readers may post their query here in this regard. I will be happy to assist.

“Exclusive Jurisdiction” Clause and its application

A person involved in negotiation or drafting of any Agreement will definitely agree that jurisdiction clause is one of the most important clauses of any Agreement. Jurisdiction clause assumes more importance in cases where the scope of the Agreement expands to more than one area or jurisdiction. Generally, parties to the Agreement, while negotiating, try to restrict the jurisdiction to court which is more convenient for them to approach.

Before we delve further in the discussion, the first question which comes to our mind is that whether an agreement which purports to oust the jurisdiction of the Court is contrary to public policy and hence void? It is a settled principle of law and there is no ambiguity that an agreement which purports to oust the jurisdiction of the Court absolutely is contrary to public policy and hence void. Section 28 of Indian Contract Act, 1872 also contains statutory provision to the effect thereto and reproduced below:

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

However, it is also a settled principle of law of that where two Courts or more have under the Code of Civil Procedure jurisdiction to try the suit or proceeding, an agreement between the parties that the dispute between them shall be tried in one of such Courts was not contrary to public policy and such an agreement did not contravene Section 28 of the Contract Act. Such clauses are valid as it does not amount to an absolute ouster of jurisdiction.

Now, we come to second question that how can the jurisdiction to deal with the disputes arising out of an Agreement be restricted to the identified courts? Generally, Parties to the Agreement tend to include exclusive jurisdiction clause in the Agreement, which reads as below:

The parties hereto agree that any matter or issues arising hereunder or any dispute hereunder shall be subject to the exclusive jurisdiction of the courts of situated at XYZ.

People use the wordings “only”, “exclusively”, “alone” etc. to explicit their intention that only identified court in the clause has the jurisdiction to try the matters connected or arising out of the concerned Agreement. As stated above, such ouster of jurisdiction do not amount to violation of public policy and did not contravene Section 28 of the Contract Act.

Now, we come to third and tricky question that what will happen if the jurisdiction clause does not use the word “only”, “exclusively”, “alone” etc. in the jurisdiction clause and simply includes below jurisdiction clause in the Agreement:

“The Agreement shall be subject to jurisdiction of the courts at XYZ”

The answer to the above question has been decided recently by Supreme Court in Swastik Gases Private Limited vs. Indian Oil Corporation Limited (Please click here to read full judgment)

In the present case, disputes arose between the parties and the appellant approached Rajasthan High Court for appointment of arbitrator in respect of the disputes arising out of concerned agreement. . The Respondent defended the application on the ground of lack of territorial jurisdiction of the Rajasthan High Court as the relevant clause related to jurisdiction of courts as per the agreement states that this agreement shall be subject to jurisdiction of the courts ar Kolkata. Relevant clause is reproduced herein below:-

“The Agreement shall be subject to jurisdiction of the courts at Kolkata.”

Supreme Court while deciding this case categorized the jurisdiction clause into two sets- (i) where the intention of the parties can be culled out from use of the expressions “only”, “alone”, “exclusive” and (ii) the other where such words like “only”, “alone” or “exclusively” are not used.

The present case falls under the second category where the maxim “expressio unius est exclusio alterius (expression of one is the exclusion of another)” would be applicable. It was held that the absence of words “alone”, “only”, “exclusive” is neither decisive nor does it make any material difference in deciding the jurisdiction of the court. The very existence of the clause clarifies the intention of the parties which is of utmost relevance.

Conclusion:

1) Parties to an Agreement may oust the jurisdiction of the Court. However, such ouster of jurisdiction of the Court should not be absolute. Such clauses do not amount to violation of public policy and does not contravene Section 28 of the Contract Act.

2) Usage of words “alone”, “only”, “exclusive” are not mandatory to oust the jurisdiction to one court. However, it is advised to use to use such wordings to avoid any confusion/ litigation related to territorial jurisdiction of the courts resulting into delays in adjudication of claims on merits

3) Where two or more courts have jurisdiction, if the parties by agreement have chosen one court, only the Court chosen in the agreement will have jurisdiction.

Stamp duty: Execution of document outside state

In this Article, I have tried to clarify the confusion prevailing on applicable stamp duty, if the documents have been executed outside the state but brought back in the state for different purposes including for the purpose of storage. Since Stap Duty is a state subject and most of the states have either passed their own stamp Act or have introduced a seperate schedule on stamp duty applicable in thier state. For the purpose of this Article I have taken the state of Maharashtra and Bombay Stamp Act, 1958 (applicable stamp act in the state of Maharashtra) for the purpose of illustration. we understand that the fundamental principle behind payment of stamp duty on documents executed in the state other than maharshtra (as explained in this Article below) shall remain the same for other states also, however, it is advised to the reader to check the provisions of stamp act applicable in their state.

Section 3 of the Bombay Stamp Act, 1958 (“Said Act”) being the charging section provides that where an instrument chargeable under schedule I to the Act which has been executed outside state of Maharashtra, is brought into the state of Maharashtra and relates to any property situated or to any matter or thing done or to be done in this State.

If an instrument chargeable under the said Act is executed outside the State of Maharashtra to which Section 3(b) applies, section 19 of the said Act will apply. Such an instrument will have to be stamped with the differential amount i.e. the amount to which such an instrument would be chargeable under Schedule I of the Said Act less the amount of stamp duty, if any, already paid under any law in force in India, excluding the state of Jammu and Kashmir, when such instrument was executed.

If an instrument is executed outside the state of Maharashtra and does not relate either to any property situated or to any matter or things done or to be done in this State, such instrument will not be liable to stamp duty under the said Act. If it is merely received in the State for the purpose of storage only, it would not attract stamp duty because it does not fulfill the ingredients of Section 3(b).

Unless both the ingredients of satisfied i.e. (i) the instrument relating to any property situate or to any matter or thing doe or to be done in this State; and (ii) the instrument being received in this State, section 3 (b) of the said Act will not be attracted. Mere receipt of the instrument in the State for storage without the other requisite conditions being satisfied will not result in the instrument being liable to stamp duty under the said Act in the State of Maharashtra.

In the matter of Antifriction Bearing Corporation v. State 1999 (1) Bom C.R. 13, it was observed by Bombay High Court that if an instrument is executed outside State of Maharashtra but whose filing is required with the Registration of Companies situated at Maharashtra under Companies Act, 1956 the such instrument would fall within Sec. 3(b) and would liable for stamp duty. If some stamp duty has already been paid in the state in which the instrument has been executed, the differential stamp duty as specified in Sec.19 of the said Act would have to be paid.

Another important aspect which is relevant to discuss here is that what will be the stamp duty, if an instrument has been executed by parties in different states. An instrument is said to be executed if it is signed by all persons who are required by the character of the instrument to sign it, in order to give that instrument effect according to the law. If the instrument is of such a character that only one party is required to sign it to give effect to it according to law, the instrument is executed when that paty signs the same. If, however, the instrument is of such a character that more than one party to the document is required to sign it to make it a binding instrument, it would be signed by all of them for the instrument to fall within the definition of execution under Section 2(i) of the said Act. The instrument will be deemed to be executed for the purpose of attracting stamp duty only when it is signed by the last last of the persons who are required to sign the same. Therefore, if an instrument required to be signed by two parties is signed first by one party in Maharashtra and thereafter by the second party who is required to sign it, outside the State of Maharashtra and would not attract stamp duty in Maharashtra unless it is received in the State of Maharashtra and conditions of Section 3(b) of the said Act are satisfied.

RIGHTS OF CREDIT CARD HOLDERS

Credit cards have become important part of our life. We use credit card for various things like- booking train/ bus tickets, online shopping, electricity/ phone bill payment etc. You may also find people cursing credit card companies for not disclosing the charges, non-redressal of their grievances or of using other unfair practices. Reserve Bank of India (“RBI”) is the authority which operates the operation of credit cards in India. RBI issues various guidelines to the credit card issuer bank/ companies to inter alia uniform credit card operations in India and protection of the rights of the customers. In this Article, I have reproduced the important extract of RBI guidelines, which a credit cardholder must know:

Rejection of Credit Card application

Banks should convey in writing the main reason / reasons of rejection of the credit card application.

Interest and Charges

Banks should publish on their website the interest rate charged and circumstances under which higher interest rate may be charged should be transparent.

Methodology of calculation of finance charges should be indicated with illustrative example.

Annualized percentage rates should be quoted with examples.

Minimum payment disclaimer should be added in the statement.

MITC (Most Important Terms and Conditions) should explain that free credit period is lost if balance is pending.

No additional charge without express consent.

Change of charge (other than interest) can be made only after giving notice of one month.

In June 2012, District Consumer Forum, Mumbai levied fine of Rs.25,000/- on HSBC Bank for recovering inapplicable surcharge from a customer on the basis of vague or misleading information as it amounts to unfair trade practice according to provisions of the Consumer Protection Act, 1986. (Click here to read the entire article.)

Pitfall of paying only minimum payment

Cardholders should understand that if minimum amount has been paid, the interest will be charged on amount after the due date of payment. Thus, RBI instructs card issuers to prominently display in all monthly statements following statements so as to cuation customers about the pitfalls in paying only the minimumamount due:

"Making only the minimum payment every month would result in the repayment stretching over years with consequent interest payment on your outstanding balance"

Insurance

Insurance for liability arising out of lost card should be optional.

In case of insurance cover, bank should obtain details of nominee and should indicate details of insurance company.

Wrongful biling

I guess this is the major reason of dispute between card issuing bank/ NBFC and the cardholder. It is the duty of card issuing bank/ NBFC to ensure that wrong bills are not raised. In case, if a customer protests any bill, the card issuing bank / NBFC should provide explanation along with necessary documentary evidence, if required.

Recovery Agents or any other third party

The card issuing bank / NBFC would be responsible as principal for all acts of amission or commission of their agents (DSAs / DMAs and recovery agents)

Grievance redressal

Grievance redressal machinery should be constituted at Bank and the details of concerned officer should be given on the Bill.

60 days time should be given to customer for raising grievance.

Escalation of unresolved complaint should be given on the website of the bank.

There should be a system of acknowledging customer’s complaint.

Block of lost card should be done immediately and should be followed by FIR within reasonable period.

Dedicated PIN Code for Supreme Court of India

The Supreme Court of India got the dedicated PIN code 110201 by postal department to celebrate 41 years of introduction of the system. With such dedicated PIN Code, delivery of petition, notices etc. to Supreme Court will be easier and faster. Welcoming the allotment of dedicated PIN code for Supreme Court, Chief Justice of India (CJI), P Sathasivam asked postal Department to consider providing the same facility to all the High Courts across the country and the same can be initiated by extending it to the high courts situated in metro cities.

Postal Department further clarified in press note released by it that all mails addressed to the court carrying the pin code 110001 would also be delivered without a hitch.

Such customized dedicated pin codes can be extended to other bulk recipients (ex.- UPSC ) as it will reduce the transit time of mail delivery as well as cut effort and costs for India Post while improving the satisfaction level of the bulk recipients.

Now you may send your correspondence to Supreme Court at below address:

To,
The Supreme Court of India
PIN: 110201

Affixing of Common Seal

INTRODUCTION

Common seal is the signature of the company to any document on which it is affixed and binds the company for all obligations undertaken in the document. Companies Act, 1956 provides that, the company shall have a common seal from the date of its incorporation. However, Companies Act, 1956 does not describe the form, mode of affixing common seal or its custody etc. To remove the ambiguity and to prescribe best and uniform practices with respect to affairs pertaining to common seal, Council of the Institute of Company Secretaries of India has issued Secretarial Standard-8 (SS-8): “Affixing of Common Seal”.

In this Article we have thrown light on provisions pertaining to Common seal contained in Companies Act, 1956 and SS-8.

A company shall have only one common seal. The Articles of Association provides the procedure relating to affixing of common seal. Companies Act, 1956 requires affixation of the common seal on certain documents, share certificates and share warrants issued by the company.

APPROVAL

The common seal should be adopted by a resolution of the Board. The common seal is generally adopted at the first Board meeting. The impression of the common seal should be made part of the minutes of the meeting in which it is adopted.

FORM AND CONTENT

The common seal should be made of metal and capable of being manually operated. The common seal should have the name of the company and state in which the registered office is situated engraved in legible characters.

AUTHORITY AND MODE OF AFFIXATION

The common seal should be affixed to any instrument only by authority of a resolution of the Board or a committee authorized by the Board.

The common seal should be affixed in the presence of managing director or any two directors, and the company secretary or any other person as the Board may authorize for the purpose. The Articles of Association may provide for affixing of common seal in any other manner.

The persons in whose presence the seal is affixed should sign every instrument to which the seal of the company is so affixed.

REGISTER OF DOCUMENTS EXECUTED UNDER COMMON SEAL

Every company should maintain a register containing description of documents on which the common seal of the company has been affixed along with date and number of the resolution authorizing the affixation of common seal; date of affixing seal on the document; name(s) of person(s) who attested the affixation; and the place at which the document was so sealed. The register should be maintained at the registered office of the company.

The common seal should be kept at the registered office or at any other office of the company authorized by the Board. The common seal should be kept in the custody of a director of the company or the company secretary or any other official, as authorized by the Board.

CUSTODY OF COMMON SEAL

In the modern era, where the parties to an agreement are constantly travelling or if a company has operation in different parts of the country, below question arises

"whether Board Resolution needs to be passed or any other formality needs to be done, if common seal is proposed to be affixed outside the state/ city where the registered office is situated?”

Please note that there is no prohibition on moving the common seal out of registered office in Companies Act, 1956 or Secretarial Standard. However, to avoid any ambiguity and troubles at later stage, the companies normally pass the resolution for carrying the common seal outside registered office. However, it would be prudent if a clause may be inserted in the resolution authorizing the affixing of common seal itself. A sample Board Resolution has been given below for reference:

RESOLVED that the common seal be affixed on all the necessary documents executed/to be executed for availing the above mentioned credit facilities and Shri ……………….. and ………………. of the company be and hereby jointly and severally authorized to counter-sign wherever the common seal is affixed.

RESOLVED FURTHER that the common seal be kept in the custody of Shri ……………….. Secretary of the company and may be carried at such place outside registered office if required for execution of documents pertaining to the aforesaid activities.

SEAL OF COMPANY FOR USE OUTSIDE INDIA: OFFICE SEAL

A company whose objects require or comprise transactions of business outside India may have for use in any territory, district or place not situated in India an official seal.

The office seal shall be a facsimile of the common seal of the company. Official seal should have engraved in it the name of the territory, district or place where it is to be so used in addition to the name and state in which the registered office of the company is situated.

Use of official seal requires an enabling provision in the Articles. A company may have more than one official seal. However, each territory, district or place not situated in India should not have more than one official seal. A deed or other document to which an official seal is duly affixed shall bind the company as if it had been sealed with the common seal of the company.

JUDICIAL VIEW ON AFFIXING OF COMMON SEAL

In Panchanan Dhara & Others vs Monmatha Nath Maity (Decd.) thru L.RS. [2006] 131 Comp Cas 577 (SC), the Supreme Court observed that, “it is a relic of the days when mediaeval barons, who could not read or write, used their rings to make a characteristic impress. Even in absence of a seal, the company may still be held to be liable having regard to the nature of a transaction and the authority of those who had executed it. If the act of the directors is not ultra vires or no public policy is involved, the parties acting thereupon cannot be left at large.”

ALTERNATIVE OF AFFIXING COMMON SEAL

While executing any agreement, deed etc. below execution clause may be used in place of common seal:

For XYZ Limited


(Authorised Signatory)

Real Estate Regulator in India

The Real Estate (Regulation and Development) Bill, 2013, is a bill to protect home buyers from unscrupulous developers and builders by setting up real estate regulator. This shall cover up all projects coming up on more than 1000 Sq mtr of land or involving more than 12 apartments. It also contains provision for mandatory public disclosure of all project details. Tough penal provisions have been prescribed under the bill for putting out misleading advertisement. To monitor and regulate real estate agents, this bill provides for registering them the proposed real estate regulator. To curb the menace of money being diverted to other project and consequently delay in completion of project, this bill provides that the developer will have to deposit 70% of the funds received for particular project. Adjudication officer under this bill shall not be below the rank of joint secretary. Further, it is also proposed to appoint a real estate appellate authority.

Opening bank account of executor

When a person writes a “will”, he nominates a person to as the “executor” of the will. The responsibility of the executor is to divide the property and other assets (“estate”) of the deceased among legal heirs or successors of the deceased. On death of the person, the executor has to approach the court and get the will probated. A copy of the will certified by a court is called “probate”. After obtaining the probate, the executor will take necessary action to execute the will. For this purpose, he may need to open a bank account in to which the balance of the deceased will be transferred. Accounts may be opened in the name of executors in the following manner: “XXXXX, Executor to the estate of YYYYY deceased.” Caution: (i) If more than one executor is appointed, they have to do it jointly. They may jointly authorize one of them to operate bank accounts. (ii) An executor cannot borrow on behalf of the estate. Hence, care should be take not to allow any overdraft in the account of an executor. (iii) Bank should exercise caution allow transfer of money from such account to the personal account of the executor.

Withholding Tax in India

I. INTRODUCTION:

Withholding tax is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government.

II. WITHHOLDING TAX IN INDIA:

Chapter XVII-B of the Income-tax Act provides for deduction of tax at source on payments made by any assessee. These provisions are also applicable in case of payment made to non-residents.

Section 195 casts an obligation on the person responsible for payment to non-resident to deduct tax at source at the time of payment or at the time of credit of the sum to the account of the non-resident.

III. WITHHOLDING TAX FOR NRIS AND FOREIGN COMPANIES:
Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates are:

1. Interest - 20% of Gross Amount
2. Dividends - 10%
3.Royalties 20%
4.TechnicalServices20%
5. Any other Services - Individuals - 30% of net income

Companies/Corporates - 40% of net income

The above rates are general and in respect of the countries with which India does not have a Double Taxation Avoidance Agreement (DTAA).

IV. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)
Statutory functions in respect of taxation of foreign companies and non-residents and withholding tax on remittances abroad are performed by Director of Income Tax (International Taxation)
There are five DITs (International Taxation) located at Delhi, Mumbai, Kolkata, Chennai and Bangalore.

V. PAN & FILING OF RETURN

The amendment made applicable from 1st April 2010 relates to the requirement of a foreign company to obtain a Permanenet Account Number (PAN) i.e. to register with the Indian Tax authorities.

Now, the foreign company is required to furnish a Permanent Account Number (PAN) to the payer in India. If the recipient fails to provide the PAN, withholding tax rate would be the higher of the existing rate as per the ITA or treaty, or 20%. This would result in additional withholding taxes in India, for which there may not be any credit available in the foreign Country.

Also, in the absence of a PAN, the Indian tax authorities will not entertain an applicationfrom the recipient for a lower withholding tax rate.

Currently though, the Indian law requires all the foreign companies to file return of income, with respect to income being earned from India– even if the applicable taxes have been paid in India.

It would thus be advisable for foreign companies to initiate the process for obtaining PAN especially if they arereceiving certain royalties / fees / interest from their Indian group companies / collaborators.


VI. TAXABILITY OF TECHNICAL, MANAGERIAL OR CONSULTING SERVICES PROVIDED BY FOREIGN COMPANIES TO THE INDIAN CLIENTS PERFORMED OUTSIDE INDIA

Another important amendment relates to the taxability of technical, managerial or consulting services provided by foreign companies to the Indian clients; when such services are performed outside India. Foreign companies were taking a stand that such services should not be taxable in India, since they were not performed in India and had no territorial nexus with India. Their stand was vindicated by the Supreme Court (SC) in the case of Ishikawajima Harima Heavy Industries (288 ITR 408), where the apex court held that services should be rendered as well as used in India for being taxed in India. It therefore held that if both conditions were not fulfilled, the fees for technical services was not chargeable to tax in India.

VII. RECENT DEVELOPMENT

Samsung case:

In this Case the Karnatake High Court observed that every overseas payment would be liable to withholding tax, whether or not that payment was ultimately taxable as income in India.


Prasad Productions case

A special bench of the Chennai tribunal ruled that tax needs to be withheld only on those payments made overseas that are taxable in the hands of the non-resident. That goes against November's Karnataka High Court decision in the Samsung case, which said that every overseas remittance had to withhold tax unless it had a nil withholding order from the Revenue Department.

The Chennai Tribunal further observed that the taxpayer can decide whether a transaction is taxable and if not, there is no need for a nil withholding order.

Van Oord case

In this case, the Delhi High Court also ruled that withholding tax applies only to payments which are taxable in India

India Singapore tax Treaty

The Authority for Advance Ruling (AAR) has recently held that the fees paid by Indian Company for technical services of a foreign Company will not be taxed in India under the India-Singapore Treaty (“Treaty”). The rationale given behind this decision is that advisory services such as comments and suggestions do not fall within the purview of the term ‘Fee for Technical Services’ under Article 12 of the treaty.

This ruling of AAR came in the wake of the application filed by the Bharati AXA General Insurance Co. Ltd. (“BAGICL”) to know that if the foreign Company AXA ARC has any liability to pay tax in India in respect of the fee received from the BAGICL.

This ruling has come as a relief to those foreign companies who render support services so as to ensure uniformity and flawless quality in the business dealings of the group entities. Further, this ruling can provide some respite to the companies which do not have a permanent establishment in India as this ruling also state that the payment received by the companies having no permanent establishment in India cannot be taxed as business profits under the Treaty.

VIII. CONCLUSION

Tax Treaties: The non‐resident can yet take shelter under the tax treaty, especially India’s tax treaties with countries like Singapore, USA, UK, etc. that have a restricted/narrow definition of fees for technical services.

AAR: Although advance ruling authority (AAR) is binding to the parties appear before the authority and the transaction in relation to which the ruling was given because the ruling was rendered on a set of facts and cannot be of general application. However, it may have persuasive value.

Write us for more information on any assistance related to tax laws in India.

Project Visa for expats in Power & Steel Sectors

The Government of India has introduced a separate visa regime -- called `P' (Project) Visa -- within the employment visa regime for foreign nationals coming to India for execution of projects in the power and steel sectors. Initially the project Visa will cover only Power & Steel Sectors.

Project Specific Visa:

(i) Visa would be project Specific. A specific endorsement of Visa sticker would indicate the name & location of project.
(ii) The Project Visa would be issued only for skilled/highly skilled persons.
(iii) Only those the foreign nationals employed in the power and steel sector shall be allowed to take advantage of this Visa.

Multiple Entry facility:

(i) The guidelines for `P' Visa clearly say that its validity will initially be for the duration of the project/contract with multiple-entry facility. "It, however, cannot exceed one year.

Period of ‘P’ Visa:

(i) The period of Visa would be determined on case to case basis.
(ii) The period of visa would be initially for a period of one year or for the actual duration of the project / contract, whichever is less.
(iii) P Visa can be extended only with the prior approval of MHA.

Required documents and information:

(i) The Project visa would be issued based on submission of the relevant documents clearly establishing that the project/contract has been assigned to the particular foreign company by the Indian company/organization concerned.
(ii) A separate application form for Project Visa has been devised. The same may be obtained from the website of Ministry of Corporate affairs or alternatively our offices may be contacted in this regard.

Time:

(i) Project Visa will be issued only after approval from concerned authorities in India, the processing of which may take 45-50 days

Conditions for grant of ‘P’ Visa:

(i) A Project Visa holder cannot engage in another project either of the same company or of a different company and his or her work will be restricted to the location of the project.
(ii) In no circumstances would the person be allowed to be engaged in another project either of the same company or of a different company.
(iii) A person coming on Project Visa will not be allowed to take up employment in the same Indian company for a period of two years from the date of commissioning of the project.
(iv) The foreigner coming on Project Visa will have to register himself/herself with the FRRO/FRO concerned within 14 days of arrival if the validity of visa is for more than 180 days. If the validity of visa is for a period of 180 days or less, registration would not be required.
(v) The Indian Company engaging the foreign national for executing the project / contract would be responsible for the conduct of the foreign national during his/her stay in India and also for the departure of such foreign national upon expiry of visa.

Comparison between Liaison Office & Branch Office

It a comparison between Liaison office and Branch office in India on various aspect. Click on the picture for large view.

Write us for more information on setting up Liaison office or Branch office in India.

New Class of Visa: "E" category

The Government has decided to issue a special class of visa “E” category only for the power or Steel projects. It is to be remembered that visa norms for employing foreign personnel were tightened last year citing security concerns over the presence of large number of Chinese personnel in various projects.

Later, it was observed that power and steel projects using equipment from China had not been able to achieve their targets as visa restrictions forced Companies to hire local unskilled or semi-skilled workers to fill gaps.

The ministry of home affairs has now decided that under the sector-specific dispensation, new power and steel projects may have foreign skilled manpower up to 10% of the workforce employed per million tone or megawatt capacity, or 300 persons, whichever is lower. For expansion projects of existing plants, this number will be 5%, or 150 persons.

Power and cement projects will now also be allowed to employ two foreign chefs and translators/interpreters under the `E' category. Foreign experts or skilled workers will now also get business visa if they are coming for commissioning of a project. However, a person coming on project visa will not be allowed to take up employment in the same Indian company within two years of the commissioning of a plant.

India Briefing (October 2010): An Expatriate Manager’s Introduction to India

In this issue of India Briefing, we provide an expatriate manager’s introduction to India. From key country facts and figures to the country to cultural etiquette and communication issues, we take a look at one of the fasting growing destinations for foreign investment. India today represents a great investment opportunity. Knowledge of India business practices and an understanding of Indian culture are priorities to success in this market. We analyze the top reasons to invest in India, cover basic business etiquette and cultural issues such as making appointments and negotiating a deal, and discuss some of the communication challenges that expatriates experience when working in India.

In This Issue:
(i) An Introduction to India, Key Facts and Figures;
(ii) Top Reasons to Invest in India Now;
(iii) Indian Business Etiquette and Culture; and
(iv) Communication Challenges when Working in India

You may purchase the October 2010 issue of India Briefing, which can be found in the Asia Briefing Bookstore. Companies requiring assistance may contact any Dezan Shira & Associates' five national offices at india@dezshira.com for advice or visit www.dezshira.com.

REVISED CONSOLIDATED POLICY ON FDI

The Government of India has issued consolidated FDI Policy vide circular 2 of 2010 effective from October 1, 2010. The Consolidated FDI Policy makes all information on FDI policy available at one place and subsumes Government’s policy on FDI announced through earlier Press Notes/ Press Releases/ Clarifications issued by the DIPP, which were in force and effective as on date.

Earlier the Government of India has issued released the Circular 1 of 2010- Consolidated FDI Policy on March 31, 2010, effective from April 01,2010 and It was decided that the consolidated FDI Policy would be issued every six (6) months to update the FDI policy.

The Circular has been issued with the sunset clause of six months. A new Circular consolidating all amendments to the FDI Policy shall be issued on March 31, 2011 superseding the present Circular.

GIST OF NEW CONSOLIDATED POLICY:

(i) Wholesale cash-and-carry trading: It has been decided to remove the restriction on internal use.

(ii) Non-banking finance companies (NBFCs): NBFCs with 100 per cent foreign investment and a minimum capitalization of $50 million (around Rs 225 crore), can set up subsidiaries for specific NBFC activities, without bringing additional capital towards minimum capitalization.

(iii) Construction development projects: It has been clarified that the lock-in period of three (3) years will be applied from the date of receipt of each tranche of FDI or from the date of completion of minimum capitalization, whichever is later.

(iv) Downstream investments: Downstream investments through internal accruals are now permissible.

(v) Tobacco product manufacturers: Manufacturing of tobacco products has been formally included in the list of activities in which FDI is prohibited.

Please click here to read the revised consolidated Policy.