source Business standard
CS A Rengarajan
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New insolvency norms give creditors awider reach |
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New Delhi, 7 April To recover their dues, creditors of an insolvent company will have more options now. They might be able to tap into an asset size bigger than what prevails under the current mechanism. With the regulator, the Insolvency and Bankruptcy Board of India, notifying the rules recently, Indian creditors can lay claim to the foreign assets of an insolvent company in addition to its assets in India. And, foreign creditors will be able to claim all assets of the company. Customers who have made advance payments to the company can claim assets in proportion to their payments but they will not be given priority. In the absence of rules, foreign creditors could not be part of the insolvency process, while the foreign assets of the company were out of the reach of domestic creditors. First, the claims of financial creditors such as banks or any other entities that gave loans or cleared external commercial borrowings or foreign currency convertible bonds will be met and then the claims of operational creditors such as vendors and customers will be looked into. Consider an insolvent company that has foreign assets of ~200 crore and domestic assets of ~300 crore. Now, Indian creditors have outstanding loans of ~250 crore and foreign ones ~150 crore. In this case, the assets of the company will be added, making the total ~500 crore. Now from this ~500 crore, Indian creditors will be given ~250 crore and foreign ones ~150 crore. This would leave ~100 crore out of which the claims of operational creditors will be met in proportion to their lending or payments. However, Misha, partner at law firm Shardul Amarchand Mangaldas, is of the opinion that this provision will be useful only if the Indian government enters into appropriate agreements with those of other countries. “Just notifying the provisions regarding crossborder insolvency by itself is not enough. It is necessary for the central government to enter into reciprocal arrangements with other countries,” she said. Sectors that can benefit once such agreements are in place include aviation, shipping and infrastructure, according to Misha. “Reciprocal arrangements would be useful in cases where the creditors are pursuing remedies abroad or the company has overseas assets,” she said. In the absence of rules, foreign creditors could not be part of the insolvency process, while the foreign assets of the company were out of the reach of domestic creditors |
Practising Company Secretary
Chennai
Mobile 93810 11200
CS A Rengarajan
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Filing tax returns on time has many benefits |
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The time for filing income tax returns is once again upon us. Most people regard this task asaburden. But filing returns will in the future help you account for certain incomes that may not be subjected to tax –stocks investments of over one year, for example. Many are not even aware that those earning income aboveacertain threshold, compulsorily need to file returns, even though their taxes are paid via tax deduction at source or TDS. Every year, the income tax department takes steps to make the process of filing return simpler and to encourage more people to participate in this annual exercise. Some of the measures it has already taken include simplified tax return forms, allowing paperless filing of returns, providing prefilled tax return forms, and so on. Simplified forms The authorities have introducedaonepage ITR Form1 (Sahaj). It´s meant for individuals with income up to ~50 lakh and owningone house property. Assets and liabilities section has been eliminated from the ITR1 (Sahaj), as an individual with income over ~50 lakh cannot use it. ITR forms like ITR2, ITR2A and ITR3 have been merged intoasingle ITR2. ITR4 and ITR4S (Sugam) have been renumbered as ITR3 and ITR4 (Sugam), respectively. From this year onwards, it is mandatory to provide the 12digit Aadhaar number. If the assessee doesn´t have an Aadhaar card, then he needs to provide the enrolment ID. Also, an individual needs to disclose the cash deposited during demonetisation (between November 9 and December 30 last year) if the total amount was more than ~2 lakh. Mandatory for many According to income tax laws, filing return is mandatory for an individual who earns above the basic exemption limit. Also,aperson who qualifies as ordinarily resident in India under income tax laws and fulfils any of the following two conditions must file his income tax return. One, he holds an asset, either asabeneficial owner or otherwise, includingafinancial interest in any entity located outside India, or has signing authority in any account located outside India. Two, he isabeneficiary of an asset, including any financial interest, in any entity located outside India. Besides the above, an individual will also be required to file return of income if he or she fulfils any of these three conditions. One, he wishes to carry forwardaloss or wants to claimarefund. Two, he has longterm capital gains (which are exempt from taxation) from the sale of equity shares ofacompany, or sale of units of equityoriented mutual funds, or sale of units ofabusiness trust. Three, he has received income derived from property held under trust, wholly or partly for charitable or religious purposes. Multiple benefits Not only is filing your tax returnarequirement under the tax laws, you also stand to benefit in many ways from doing so. If you apply forahousing, education or vehicle loan or for the registration of an immovable property, your application is likely to be processed much more easily and speedily if you have been filing your tax returns. It is alsoamandatory prerequisite for the processing of your visa. Banks may not issueacredit card to you if you have not been filing your returns regularly. You can also use your tax returns as standard proof of income wherever required (say, when applying forahome loan). By filing your returns regularly, you also createatrack record with the income tax department. Finally, by filing your tax returns and paying taxes regularly, you contribute your bit to the national income. Consequences of not filing can be dire If you don´t comply with the requirement of filing your tax return, you could be penalised. Union Budget 2017 has even proposedafee for the late filing of tax return. Ifaperson filesatax return after the due date but on or before December 31 of the assessment year, the fee will be ~5,000. In any other case, the fee rises to ~10,000. For those whose total income does not exceed ~ 5 lakh, the fee has been limited to ~1,000. Hence, you should start collating all the necessary data required for filing tax return and fulfil this obligation by the due date, which is usually July 31 following the end of the tax year. Remember that with the advancement of digital technology, big data and automation, the income tax department´s ability to catch those who try to avoid paying tax has increased manifold. Different sources of information are linked to your identification number. Using them the IT department can track the myriad transactions you carry out during the year. It can also keepatab on different sources of income that an individual has and check whether he reports all of them correctly while filing his tax return. If it notices dicrepancies, it has the authority to issueashow cause notice. Keeping all this in mind, do file your income tax return before the due date. Not only will you sleep better at night, you will also contribute toacleaner and more transparent economy. To encourage more people to pay their taxes, thank them for their contribution, and to acquireamore peoplefriendly image, the income tax department has started to award certificates to tax filers. You could receiveaplatinum, gold, silver or bronze certificate depending on the amount of tax paid and whether your return was filed on time. Chadha is tax partner and India mobility leader and Prasad isasenior tax professional at EY Jayant Pai TAX If you are past the deadline, you cannot revise returns if there´samistake. Also, you need to payapenalty of ~5,00010,000 depending on the delay |
CS A Rengarajan
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Link Aadhaar with PAN via ID proof scan, password |
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New Delhi, 9 April Individuals struggling to link their permanent account number (PAN) with Aadhaar because of differently spelt names can now simply uploadascanned copy of PAN to get the work done. Besides, the tax department is planning to introduce an option on the efiling portal through which taxpayers can choose to link the Aadhaar without changing the name by opting foraonetime password (OTP), provided that the year of birth of the person matches in both the documents. With the linking of PAN with Aadhaar being made mandatory, people can log on to efiling website of the income tax department or NSDL but the seeding cannot happen if the name is differently spelt in the two cards —like the use of the full name in PAN and initials in Aadhaar. In such cases, the government has allowedasimple uploading ofascanned copy of PAN on the Aadhaar website. The tax department will start educating taxpayers from this week through media outreach on ways to link the PAN with Aadhaar, an official said. Finance Minister Arun Jaitley had through amendment to the tax proposals in the Finance Bill of the Budget for 201718, had made Aadhaar mandatory for filing income tax returns and provided for linking of PAN with Aadhaar to curb tax evasion through use of multiple PAN cards. The efiling portal has already activatedafunctionality of linking PAN with Aadhaar. Around 1.08 crore assessees have already Aadhaarlinked PAN but the number is abysmally low as there are over 25 crore PAN card holders in the country, while Aadhaar has been issued to 111 crore people. According to statistics with the tax department, only six crore people file income tax returns at present. The official said that linking of PAN with Aadhaar should not be cumbersome for people whose registered mobile number with the Unique Identification Authority of India (UIDAI) is active. “In case the taxpayer is unable to link PAN with Aadhaar because of discrepancy in name, we are advising them to log in to the Aadhaar website, request foraname change and uploadascanned copy of PAN card as supported proof. This is the simplest way to update name in Aadhaar and only the registered mobile number has to be functional,” the official said. This option will hold good for people who have given short forms of their name or in some cases there are some spelling errors in the name provided in Aadhaar card |
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Integrated reporting and shareholder value |
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IIRC isaglobal coalition of regulators, investors, companies, standard setters, the accounting profession and nongovernment organisations (NGOs). An integrated report is directed at investors, but is useful to other stakeholders as well. It tells the complete story of value creation holistically inaconcise manner. It provides investors with information that is relevant for assessing the sustainability of the business model of the company. The Integrated Reporting Framework identifies six types of capital (resources): financial capital, manufactured capital, intellectual capital (including organisational capital), human capital, social and relationship capital and natural capital (e.g., air, water, mineral, forests, biodiversity and ecosystem health). All the resourcesacompany uses to create value are not owned by it. For example, government or some third party might own infrastructure (e.g., ports and bridges) that is used by the company. Some natural resources (e.g. air) are not owned by anyone. In the process of creating value, the company transforms one form of capital into another form of capital and increases value of some capital while reducing that of others. Acompany creates value only if the net outcome is positive. The term value as used in integrated reporting may be perceived as “social value”, which is the total of value created for shareholders and value created for other stakeholders. Abusiness model that destroys social value is not sustainable. It is true that in most situations it is difficult to quantify the outcome, butaqualitative assessment is possible. Therefore, an integrated report providesablend of quantitative and qualitative information. An integrated report focuses on the future and describes how well the company is managing environmental, social and governance (ESG) issues. For example, an integrated report provides insight into how the company is managing its relationships with its key stakeholders, including how and to what extent the company understands, takes into account and responds to their legitimate needs and interests. Similarly, it provides insight into how the business model affects natural capital. Integrated reports also provide information on how the firm integrates different components of the organisation and how it integrates shortterm, mediumterm and longterm strategies. The Integrated Reporting Framework requires that the report should includeastatement from the board of directors (hereafter board) that includes: An acknowledgement of its responsibility to ensure the integrity of the integrated report; an acknowledgement that it has applied its collective mind to the preparation and presentation of the integrated report; and its opinion or conclusion about whether the integrated report is presented in accordance with the Integrated Reporting Framework. The board´s involvement with the preparation of the integrated report adds value to the board´s performance as it compels the board to understand the complete process of value creation and ESG issues and inculcates the culture of “integrated thinking”. This culture percolates down to the lower levels in the organisation. The construct of “social value” is not in conflict with the construct of “shareholder value”. The fundamental value (also called intrinsic value) ofabusiness does not depend on its ability to generate shortterm profits. It depends on the perceived ability of the business to generate free cash flows (FCF) overalong period. FCF refers to the cash flow that is available to owners for spending on purposes other than the business purposes. If forces (e. g., government, pressure groups, regulators, courts of law) that relate to ESG issues are going to be material to the business, the board, management and investors have to worry about those and the board and the management have to decide what to do about those issues. Eventually, those things will affect FCF. Therefore,acompany that fails to address ESG issues and does not create “social value” would not be able to create shareholder value. Integrated reports are an excellent tool to communicate to investors clearly how the company is managing ESG issues. In absence of that clear communication, the value of the equity in the capital market lags the fundamental value of the company, as investors perceive higher risks arising from poor management of ESG issues. Integrated reporting is evolving globally. The Sebi move will accelerate the evolution. Over time, the integrated report should replace the Management Discussion and Analysis and BRR, both of which, at present, form part of the annual report. (The writer is adjunct professor, Institute of Management Technology (IMT) Ghaziabad; and chairman, Riverside Management Academy) Email: asish. bhattacharyya@gmail. com Integrated reports tell the complete story of value creation holistically inaconcise manner. It provides investors with information that is relevant for assessing the sustainability of the business model of the company EXPERT EYE ASISHKBHATTACHARYYA |
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BRIEF CASEN |
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The Supreme Court has ruled that even if an arbitrator has been specified in the contract, the court can appoint another in certain circumstances. If there is a reasonable apprehension in the mind ofaparty that he would not act independently or impartially or if he is not available, the aggrieved party can approach the chief justice of the high court and ask him/her to nominateaperson different from the one named in the agreement, the Supreme Court said in the judgment, Union of India vs Besco Ltd. The judge must give reasons for departure from the agreement. This was an exceptional case in which the government did not nominate its arbitrator within the prescribed time. Therefore, the aggrieved company approached the Delhi chief justice for appointment of an arbitrator. It did so. The government challenged it in the Supreme Court. The appeal was dismissed. The agreement had specified that it will be governed by the General Conditions and Special Conditions of Contracts. According to these, there is no insistence thatarailway officer should act as arbitrator; any qualified person can be named. The government forfeited its right to appoint arbitrator within the time limit and, therefore, the chief justice rightly named an arbitrator, the judgment said. Case ofasluggish arbitrator The Allahabad High Court appointed an arbitrator in place of the Central Public Works Department (CPWD) officer named in the contract because “nearly three years have expired and the officerarbitrator has not even issuedaletter acknowledging the claims raised before him. During the last nearly three years while this petition remained pending, the CPWD or the arbitrator named never showed any inclination to adjudicate claim of nonpayment,” the court stated in its judgment, Argee Engineers Co vs Era Engineering Ltd. The court concluded that the arbitrator named by designation has failed to perform his function. This was especially so because after the amendment to the Arbitration and Conciliation Act, the proceedings should be completed within 12 months and the officer must be able to devote sufficient time to it.
SAIL pardoned for foul up The Calcutta High Court observed thatapublic corporation could be given some latitude in litigation, “otherwise, considering the state of affairs, the state machinery will break down.” In this case, SAIL vs Amiya Steel Ltd, the public sector company moved the wrong court against an arbitration award. The suit lay there for two years before the PSU realised its mistake. It withdrew the suit there and moved the high court. The opposite firm objected to delayed petition, alleging that SAIL had not acted with due diligence and lacked good faith. But the high court pardoned it, stating that if the SAIL´s petition was dismissed on those grounds, the rival firm would get ~4 crore without contest from the PSU.
Man, wife not liable for other´s cheque The Gujarat high court last week stated that only the person who signed the cheque which bounced is liable to be prosecuted under the Negotiable Instruments Act.Aspouse cannot be prosecuted for issuing a bad cheque deeming him to be an associate; the law does not permit it. The high court was dealing with the appeal of the husband who was being prosecuted for the bounced cheque signed by his wife. The court quashed the prosecution in the case, Harshad vs State of Gujarat, stating that even if the couple had a joint bank account, the signatory alone would be responsible. The law regarding vicarious liability ofacompany, which is a juristic person, and the officials of the corporate entity would not be applicable in this case. The high court citedafew cases from Delhi and Haryana in which wives were prosecuted for bad cheque signed by their husbands, as they had joint accounts. Those high courts had stressed that only the signatory to the cheque is responsible, except in the case of directors and officials of companies who were in charge of the issuing cheques.
Fincorp can choose speedy remedy Afinancial institution can withdrawa suit for recovery of loans and then invoke the faster remedies available under special laws, the Supreme Court stated in the judgment, Himachal Pradesh Financial Corporation vs Anil Garg. In this case, two loans were taken from the state corporation, but the borrower repaid only small amount. Therefore, the corporation filed a regular suit before a civil judge. Later, it was withdrawn unilaterally because the Himachal Pradesh Public Moneys (Recovery of Dues) Act provided a speedier remedy to recover loans. The borrower challenged this move in the high court, arguing that once the suit was withdrawn, the corporation can be presumed to have abandoned its claim. The high court allowed the petition and stopped the auction of the mortgaged vehicles. The financial corporation appealed to the Supreme Court contending that it had not abandoned the claim but the withdrawal was made to initiate fresh proceedings under the Act, as it provided for a more speedy and effective remedy, under a special law. The Supreme Court allowed the auction stating that the withdrawal of suit did not bar afresh petition under the Act. “The loan was disbursed from public funds of the taxpayers´ money. The borrower was a trustee for the loan amount. It could not become a windfall for him,” the judgment said. Design row sent to commercial court The Bombay High Court has passed an order of injunction under the Designs Act in a dispute between two plastic water bottle manufacturers. Cello Household Products alleged that a rival, Modware India, is selling a product, Kudoz, with the same design as Cello´s Puro, which is an infringement of its design and additionally, passing off. Cello argued that its design has both novelty and originality. Agreeing with Cello and comparing the two products, the court stated that “everything points but in one direction that Modware was attempting to deceive consumers into believing that its products came from the house of Cello. This is, therefore, prima facie, an attempt calculated to deceive and the deception and misrepresentation is as to source or origin.” The court made two notable observations: The suit must now go to the commercial division according to the new Commercial Courts, Commercial Division &Commercial Appellate Division of High Courts Act 2015. The judgment also noted that now the losing party must pay costs to the winner. If the court deviates from the new rule, it must provide reasons. In this case, Modware was spared the fine because its counsel was “fair and argued the case with admirable economy of time”. MJANTONY orders |