Revised pricing guidelines on issue/ transfer of securities to non residents

RBI has vide its circular no. 4 dated 15th July 2014 revised the pricing guidelines in respect of issue/ transfer of shares to non residents.

While the pricing guidelines in respect of listed companies will remain the same i.e. SEBI guidelines, the changes have been made in respect of unlisted companies.

In such unlisted companies, the fair valuation of shares shall be done as per any internationally accepted pricing methodology for valuation of shares on arm's length basis duly certified by a chartered accountant or a SEBI registered merchant banker. The guiding principle is that the non resident is not guaranteed any assured exit price at the time of making such investment/ subscription and shall exit at fair price subject to lock in period requirement, if any.

The Indian company recording the sale of its shares or convertible debentures from resident to non resident or vice versa shall record in its balance sheet for the financial year in which the transaction takes place the details of the valuation of shares or debentures, the pricing methodology adopted for the same and the agency which gave the certificate/ valuation.

The RBI circular is available here

ST on services provided by director

Ministry of Finance has vide notification no. 9/2014 dated 11th July 2014 amended Service Tax Rules, 1994 to provide that in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or body corporate, the service tax is payable by the recipient of such service. Here the amendment has been that "body corporate" has been added to the clause which hitherto included only company The definition of "body corporate" is the same as is given in the Companies Act, 1956 which is now the Companies Act, 2013. As per the Companies Act, 2013, the definition of "body corporate" includes company incorporated outside India but does not include co-operative society or any other body as may be specified by the Central Government.

online payment of service tax

The Ministry of Finance has vide notification no. 9/2014 dated 11th July 2014 stipulated that with effect from 1st October, 2014, every assessee shall pay the service tax through internet banking. Only the Assistant Commissioner or Deputy Commissioner, shall have the power to allow payment through any other means for reasons to be recorded in writing.

Previously the service tax was payable only where the total service tax paid by the assessee in a financial year exceeded Rs.1 lakh. In such cases payment of service tax was required to be done by online transfer.

Now with effect from 1st October, 2014 all assessees have to make the payment of service tax by internet banking

Interest payable on delayed payment of service tax

The Ministry of Finance has notified vide notification no. 12/2014 dated 11th July 2014 the rates of interest payable on delayed payment of service tax to the government. Accordingly,


1. Delay Up to six months                                              

18 per cent. per annum

2. Delay More than six months and upto one year

18 % for the first 6 months of delay and 24 % for the delay beyond six months and up to one year

3. Delay More than one year                                      

     18 per cent. for the first six months of delay; 24 per cent. for the period beyond six months up to                  one year and 30 per cent. for any delay beyond one year.

This revised penal interest will be applicable from 1st October, 2014. 

Change in definition of Related Party

The Ministry of Corporate Affairs has vide its gazetted order dated 9th July 2014 amended the definition of related party as it appears in the Companies Act, 2013.

Section 2(76)(v) hitherto stated as follows;

(v) a public company in which a director or manager is a director OR holds along with his relatives, more than two per cent. of its paid-up share capital;

this has been changed to

(v) a public company in which a director or manager is a director AND holds along with his relatives, more than two per cent. of its paid-up share capital;

so what it implies is that the director or manager should fulfill both conditions i.e. directorship as well as shareholding in a public company to be considered as a related party.

Checklist for SBRT FDI applicants

The department of industrial policy & promotion, government of India has created a checklist of documents/ data required by investors flocking into the Single Brand Retail Trade (SBRT) in India. There are about 21 sets of documents/ information / data required and each in turn require multiple documentation to be processed. For eg. main application should be in 18 copies enclosing memorandum & articles of association and certificate of incorporation of the foreign investor, the Indian party and Indian JV partners. Copies of shareholders agreement/ technology transfer agreement/ trademark/ brand assignment agreement. Pre and post shareholding structure. There are some compliance documents in respect of FDI into NBFC sector,

The same set of documents can be used in NRI/ EOU/ Multi brand retail trade also.

The details of the requirements are given in this link, here

ODI limit restored for Indian companies

RBI has vide its notification dated 3rd July 2014 here restored the limits upto which Indian companies can make investments via Overseas Direct Investment or Wholly owned subsidiaries abroad. The limit which was 400% of the networth as on the last audited balance sheet date was brought down to 100% of the net worth vide RBI circular dated 14th August, 2013 here.

However RBI has decided that any financial commitment by the Indian party exceeding USD 1 billion in any financial year shall require the prior approval of the RBI even though the total financial commitment is within the aforesaid limits of 400% of net worth.

The operative part of the July 2014 circular reads as follows:

2. On a review, it has been decided to restore the limit of Overseas Direct Investments (ODI)/ Financial Commitment (FC) to be undertaken by an Indian Party under the automatic route to the limit prevailing, as per the extant FEMA provisions, prior to August 14, 2013. It has, however, been decided that any financial commitment exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC of the Indian Party is within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet).