Banking & Finance Law Update: January-April 2016
1.Master Directions of RBI: The Reserve Bank of India has started issuing “Master Directions” on all regulatory matters beginning January 2016. The Master Directions are meant to consolidate instructions on rules and regulations framed by the Reserve Bank under various Acts including banking issues and foreign exchange transactions. The process of issuing Master Directions involves issuing one Master Direction for each subject matter covering all instructions on that subject. Any change in the rules, regulation or policy is communicated during the year by way of circulars/press releases. The Master Directions will be updated suitably and simultaneously whenever there is a change in the rules/regulations or there is a change in the policy. All the changes will get reflected in the Master Directions available on the RBI website along with the dates on which changes are made. Explanations of rules and regulations will be issued by way of Frequently Asked Questions (FAQs) after issue of the Master Directions in easy to understand language wherever necessary. The existing set of Master Circularsissued on various subjects will stand withdrawn with the issue of the Master Direction on the subject. The relevant Master Directions issued up to date are:
a. Compounding of contravention under FEMA 1999
b. Direct investment by residents in Joint Venture and Wholly owned subsidiary abroad.
c. Know Your Customer Directions 2016
2. Non-Interference of the Company Court or Official Liquidator in Sale of Secured assets by Secured Creditor (Pegasus Judgment): The Hon’ble Supreme Court in Pegasus Construction Private Limited vs. Ms. Haryana Concast Limited & Anr. [Civil Appeal of 3646 of 2011] heard the issue was whether a company court directly or through an official liquidator could wield any control of respect of sale of a secured asset by a secured creditor in exercise of power available to creditor under Securitization and Reconstruction of Financial Securities Act, 2002 (“SARFESI”). The issue arose in two matters arising out of Delhi High Court judgment wherein the court has refused to put fetters on power of Secured creditor while the Punjab High Court beg to differ in its interpretation. Supreme Court approving the view taken of the Delhi High Court held the following. There is a clear intention of the Parliament in section 13 of the SARFESI Act that the secured creditor has right to enforce the security interest without the intervention of the court or tribunal. The appellant in this matter had subjected to auction, the secured asset of land in association and in collaboration with Official Liquidator as per the order of the Company Judge. SARFESI Act enacted in 2002 to cloth the bank with power to take possession of securities and sell them. Useful judgment cited and relied Mardia Chemicals vs. Union of India [(2004) 4 SCC 311] wherein it was held that for enforcement of security issues, a secured investor is vested with powers to do so without intervention of the court or tribunal and detailed procedure has been vested with power to do so without the intervention of the court or tribunal and detailed procedure has been provided to take care of the eventualities such as when borrower is under liquidation for which section 13(9) proviso would apply keeping in view the provision of section 529 and 529A of the Companies Act, 1956. Only amendment added was permitting the association of official liquidator in proceeding before DRT to protect the dues of the workmen. SARFESI Act under section 13 provides for service of notice to borrowers which in case of company under liquidation would mean Official Liquidator. Security Interest Enforcement Rules 2002 asserts the same scenario. Therefore in view of the same and Delhi High Court judgment the apex court held that no additional proceedings is required before Company Judge for association of Official Liquidator. The provision for any appeal required too is provided under section 17 of the SARFESI Act and under section 18 before the appellate tribunal.The Hon’ble court held that there is nothing lacking in the SARFESI Act to warrant reading something more into it till. There is no plausible reason to take recourse to any provision of the Company’s Act either by the Company’s Act till the secured assets are soled by secured creditors. Section 13(9) proviso of the SARFESI Act takes care of the rights of the persons and parties having some stake in the sale. If the borrower were a company the sale proceeds would be distributed in accordance with the Companies Act even where the Company was being wound up after the coming of SARFESI Act. If the secured creditor of such company opts out of the winding up proceedings it would be entitled to retain the sale proceeds after depositing the workmen dues with the Official Liquidator. If the dues of the workmen cannot be ascertained the same would be assessed on the basis of communication of Official Liquidator. Since the SARFESI Act takes care of the concern under section 529A of the Companies Act, the same do not warrant any interference from company court or official liquidator. On the issue of sale requiring any confirmation the court observed that it is correct to rely on the judgment of Valji Khimji & Co. vs. Official Liquidator of Hindustan Nitro Product Ltd. [2008 (9) SCC 299] and Vedica Procon Pvt. Ltd. vs. Balleshwar Greens Pvt. Ltd. [2015 (8) SCALE 713] where the law was enunciated in para 28 of the former judgment that every confirmed sale can be set aside then no sale would become final. Further, when an auction sale is advertised in a widely circulated newspaper and those eligible can come forward and bid and if they do not bid, they are themselves to be blamed. However, the situation would be different if the auction sale is confirmed at Rs.1 crore and someone later comes up with bid of Rs. 10 Crore for the assets, this situation may indicate fraud. In Vedica Case (Supra) the Hon’ble Apex court approved the view taken in Navlakha & Sons vs. Shri Ramanya Das & Ors. [1963(3) SCC 537] that there is discretion with the company court to accept or reject the highest bid. However, once the court is satisfied that the bid is satisfactory, subsequent higher offer cannot be a ground for refusing the bid. Therefore its a landmark judgment on issue of interference of company court on proceedings under the SARFESI Act and on finality of bid in auction sale.
3. Agreements between India & Maldives on Tax: Government of India and Republic of Maldives have signed two agreement on April 11, 2016 for exchange of information with respect of taxes and avoidance of double taxation from income derived from international air transportation. The former agreement will allow exchange of information including banking information between the two countries for tax purposes, which will help curb tax evasion and tax liability. It includes taxes of all kinds imposed by the two governments. The object of the second agreement is profit from operation of aircraft in international traffic will be taxed in one country alone and accordingly taxing right is conferred upon the country to which the enterprise belongs and this would provide tax certainties to two countries for business of airlines.
4. E-filing of Returns: CBDT had already released about the e-filing of ITR-1 & ITR-4S. In pursuance to notification 93/2016 dated December 16, 2015 effective from April 1, 2016 the following forms have been substituted by new forms and are now available for E-filing:
(i) Form 15CA: Payments to a non-resident not being a company or to a foreign Company.
(ii) Form 15CB: Certificate of an Accountant
(iii) Form 15CC: Quarterly statement
Vide Notification 3/2016 of January 14, 2016, CBDT had substituted with effect from April 1, 2016:
(i) Form 9A: Application for exercise of option under Clause (2) of the Explanation to section 11 (1) of the Income Tax Act, 1961; and
(ii) Form 10 of the statement to be furnished to the assessing officer/prescribed authority under section 11(2) of the Income Tax Act. These forms can be filed online using digital signature certificate on the Income Tax Department e-filing website.
5. CBDT signs bilateral advance pricing agreements with UK: Central Board of Direct Taxes has entered into two bilateral advance-pricing agreements with United Kingdom on January 29, 2016. The two APAs address the issue of payment of management and services charges and payment of royalty. These transactions suffer multi-layered, prolonged transfer pricing disputes.
6. Protocol signing with Armenia: A protocol to amend the double taxation avoidance convention was signed by Government of India & Government of Armenia on January 27, 2016. The protocol amends the double taxation avoidance convention between India and Armenia in existence since 2004. The amendment brings it in line with the OECD model. The protocol will enable them to exchange information related to banking and finance transaction under Double Taxation Avoidance Convention and thereby facilitate in tax avoidance and strengthen efforts in curbing black money.