Thursday 21 June 2012

KNOW YOUR CLIENT (KYC) NORMS




Client Information as well as due diligence on clients has become a necessity for professionals in today’s complex business scenario. Such an exercise can be made possible in a structured way. Many professional bodies today advise their members to have KYC about their clients so that professionals can freely exercise and deliver their professional services in the best suited way.

However, these norms are recommendatory in nature and every Company Secretary in Practice carrying out attestation function is encouraged to follow them.
1
Client Information

(a)   
Name of Entity

(b)   
CIN / Registration No.

(c)    
Date of Incorporation / Registration No.

(d)   
Type of Entity

(e)   
Business Description

(f)     
Address of Registered Office

(g)   
Address of Corporate Office

(h)  
Address(es) of Branch Office(s)

(i)     
PAN No. and Name & Address of Income Tax Circle

(j)     
Email id

(k)   
Telephone No (s)

(l)     
Fax No (s)

(m)                        
Banker(s) of the Entity

(n)
Major Client customers information




2
Corporate Structure

(a) 
Shareholding pattern (with details of holding of more than 25%)

(b)   
Name of parent company

(c)  
Name of subsidiaries

(d)   
Details of Chain holding , if any

(e) 
Details of associate / JVs




3.
Permissible Business information as per Memorandum of Association

4.

Board Structure/ Organization Structure

5.
Transaction with Business entities in which Directors are interested

6.
Details of Loans and Guarantees

Details of Loans and Guarantees in which director(s) are interested

7.
Creation, modification and satisfaction of charges

8.
FOREX Exposure and overseas borrowings

9.
Payment status of statutory dues and arrears

10.
Name of the CEO ,CFO & Company Secretary


11.
Engagement Information

(a)
Details of assignment proposed by the Entity




12.
Proceedings against the company or any of its director

(a)   
Details of proceedings pending or commenced, etc.

(b)   
Details of prosecution, if any, pending or commenced or resulting in conviction in the past against the director and /or the company or its parent company or any of its subsidiaries

(c)    
Details of criminal prosecution, if any, pending or commenced or resulting in conviction in the past against the director

(d)   
Whether any of the director(s) of the company attracts any of the disqualifications envisaged under Section 274 of the Companies Act, 1956?

(e)   
Has any director and /or the company or its parent company or any of its subsidiaries at any time been found guilty of violation of rules / regulations / legislative requirements by customs / excise / income tax / foreign exchange / other revenue authorities, if so give particulars

(f)
Whether any director at any time has come to adverse notice of a regulator such as SEBI, RBI, IRDA, MCA

( g)
Default in repayment of Public Deposits and unsecured loans debentures, loans from banks , financial institution




6
Other Information

(a)   
Details of last IPO/FPO/Rights Issue 

(b)   
Name, address and CoP No. of Statutory Auditor

(c)    
Name, address and CoP No. of Secretarial Auditor




7
Undertaking to be obtained from the client

I confirm that the above information is to the best of our knowledge and belief true and complete. I undertake to keep the PCS informed, as soon as possible, of all event which take place subsequent to his engagement which are relevant to the information provided above.


Place:


Date:

For…………

Signature of client
8
Remarks (if any)





Min. Annexure to be given:
(a)Annual Report
(b)AoA and MoA
(c) Details of any major tie-up arrangements

***********

FM releases Guidance Paper on service tax

 FM releases Guidance Paper on service tax: new approach intended to take country and economy a step closer to GST

 Union Finance Minister, ShriPranabMukherjee released the Guidance Paper on the new approach to service tax, here today. The release of the Guidance Paper marks the culmination of the year long efforts made by the Government to introduce a negative list based comprehensive approach to taxation of services as a part of the Budget exercise. The new approach to taxation of services is intended to take the country and the economy a step closer towards the introduction of Goods and Service Tax (GST).

Speaking on the occasion, Union Finance Minister ShriPranab Mukherjee said that the journey of service tax has been a step-by-step progress that began in 1994 and will complete 18 years at the end of this month. The revenue has also increased from nearly Rs.400 crore in the first year to more than Rs.97,000crore in the last financial year, an increase of nearly 37% over 2010-11,he said. The current year is also witnessing growth in excess of 40% in the first two months.

The Finance Minister said that we are now about to move towards an entirely new system of taxation, popularly called the Negative List. Henceforth, all services will be liable to taxation except those indicated in the Negative List or otherwise exempted.More than as a revenue garnering measure, Negative List is expected to make the administration of the tax simple, both for the Department as well as the taxpayers, reduce litigation and usher a regime much closer to our eventual goal of Goods and Services Tax ,he said .

Shri Mukherjee stated that we have made some further changes to the list of exemptions. The new exemptions relate to certain support services in the field of formal education, exemption to firms of advocates on the same lines as to individual advocates, construction works under the JNNURM and Rajiv AwasYojna, construction of monorail and metro and transportation by cable car. He stated that there are also exemptions relating to the repairs and maintenance of aircrafts to Government, services provided by sub-contractors to the main contractors who are exempt, services by public libraries and Employees State Insurance Corporation (ESIC), services by way of public conveniences and sale of going concerns.

The Finance Minister said that we have also taken note of the concerns of many States that some of the autonomous bodies set up under a special law may not be able to enjoy the benefits that are available to Government or local authorities. Accordingly, services provided by Government authorities in relation to functions entrusted to municipalities and a number of other services provided to such authorities have also been brought within the purview of exemption, he said.The Finance Minister said that as a result of these exemptions and some other minor changes, the total number of exemptions has gone up from 34 to 38.

Shri Mukherjee stated that we have already released the final version of Place of Provision Rules, 2012. He stated that as he had said earlier, these rules will also provide a framework for discussion for the Inter-State taxation of services under the GST.

The Finance Minister complimented and commended the officers of Tax Research Unit who have painstakingly come out with the Guidance Paper on taxation of services by way of Negative List. He said that he had been informed that this Guidance paper is an extremely bold initiative to address some of the most intricate issues relating to service tax which even experts find difficult to grapple with. He hoped this will help in keeping the possible areas of conflict and litigation to the minimum. He said that he was aware that that transition towards negative list was not easy. The Finance Minister said that he was particularly impressed by the participation of all sections of our stakeholders in contributing to the process of making the new law. To that extent, it has been a true collaborative effort, he said.

In his concluding remarks the Finance Minister stated that while we have set a target of Rs.1,24,000 crore from service tax for the current year, he was hopeful that the new reform will act as a catalyst to help us exceed the target significantly. He once again commended the CBEC, its Chairman, the concerned Members and Team TRU, ably guided by the Finance Secretary in this bold experiment.

The release of the Guidance Paper on the new approach marks the end of the positive list based selective approach to taxation of services, which is in vogue since 1994. The Guidance Paper has become necessary to explain the changes which have been brought about as a result of the new approach. The Guidance Paper brings out in a lucid language, the magnitude and depth of the changes arising on account of the introduction of the new approach. Comprehensive in coverage, the Guidance Paper attempts to anticipate and answer almost all the questions that may arise in the minds of an ordinary taxpayer in the wake of implementation of the new approach.

Saturday 16 June 2012

DELISTING OF SECURITIES (VOLUNTARY) OF A LISTED COMPANY


              
5.1              A company may delist from stock exchange where its securities are listed.
Provided that the securities of the company have been listed for a minimum period of 3 years on any stock exchange.
Provided further that an exit opportunity has been given to the investors for the purpose of which an exit price shall be determined in accordance with the “book building process” described in clauses 7-10 and 13 and 14 of these guidelines.
5.2              An exit opportunity need not be given in cases where securities continue to be listed in a stock exchange having nation wide trading terminals.
Explanation: For the purposes of these guidelines, stock exchange having nationwide trading terminals means the Stock Exchange, Mumbai, the National Stock Exchange and any other stock exchange, which may be specified by the Board.
6.                  PROCEDURE FOR VOLUNTARY DELISTING
6.1              Any promoter or acquirer desirous of delisting securities of the company under the provisions of these guidelines shall : -
(a)                obtain the prior approval of shareholders of the company by a special resolution passed at its general meeting;
(b)               make a public announcement in the manner provided in these Guidelines.
(c)                make an application to the delisting exchange in the form specified by the exchange, annexing therewith a copy of the special resolution passed under sub-clause (a); and;
(d)               comply with such other additional conditions as may be specified by the concerned stock exchanges from where securities are to be delisted.
7.1              Before making application for delisting, the promoters or the acquirers of the ompany shall make a public announcement.
7.2              The public announcement shall contain inter-alia information specified in Schedule I.
7.3              Before making the public announcement, the promoter shall appoint a merchant banker registered with the Board, who is not an associate of the promoter.
8.1              Any promoter of a company which desires to delist from the stock exchange shall determine an exit price for delisting of securities in accordance with the book building process described in Schedule II of these guidelines.
8.2              The offer price shall have a floor price, which will be the average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 week from the date of the public announcement and without any ceiling of maximum price.
8.3              In the case of infrequently traded securities the offer price shall be as per regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations, and the infrequently traded securities shall be determined in the manner explained under regulation 20(5) of the SEBI (Substantial Acquisition and Takeover) Regulations.
8.4              The stock exchange(s) shall provide the infrastructure facility for display of the price at the terminals of the trading members to enable the investors to access the price on the screen to bring transparency to the delisting process.
8.5              In the event of securities being delisted, the acquirer shall allow a further period of 6 months for any of the remaining shareholders to tender securities at the same price;
8.6              The stock exchanges shall monitor the possibility of price manipulation and keep under special watch the securities for which announcement for delisting has been made.
8.7              To ascertain the genuineness of physical securities if tendered and to avoid the bad delivery, Registrar and Transfer Agent shall co-operate with the Clearing House / Clearing Corporation to determine the quality of the papers upfront.
8.8              If the quantity eligible for acquiring securities at the final price offered does not result in public shareholding falling below required level of public holding for continuous listing, the company shall remain listed.
8.9              The paid up share capital shall not be extinguished as in the case of buyback of securities;
8.10          In case of partly paid-up securities, the price determined by the book building process shall be applicable to the extent the call has been made and paid.
8.11          The amount of consideration for the tendered and acceped securities shall be settled in cash;
9.1              The promoter may not accept the securities at the offer price determined by the book building process.
9.2              Where the promoter decides not to accept the offer price so determined:
(a)                he shall not make an application to the exchange for delisting of the securities; and
(b)               the promoter shall ensure that the public shareholding is brought up to the minimum limits specified under the listing conditions within a period of 6 months from the date of such decision, by any of the modes specified in sub-clause 9.3.
9.3              For the purposes of sub-clause 9.2(b), the public shareholding may be increased by any of the following means:
(a)               by issue of new shares by the company in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000;
(b)               by the promoter making an offer for sale of his holdings in compliance with the provisions of the Companies Act, 1956 and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000;
(c ) by the promoter making sale of his holdings through the secondary market in a transparent manner;
9.4              In the event of the promoter not being able to raise the public shareholding in accordance with sub-clause 9.3 within six months, he shall offer for sale to the public such portion of his holdings as would bring up the public shareholding to the minimum limits specified in the listing agreement or the listing conditions at the price determined by the Central Listing Authority.
10.1          On determination of the final price pursuant to the book building, the promoter or the acquirer shall within a period of two working days from such determination:
(a)                make a public announcement in the newspapers of the final price as discovered by the book building process and whether or not the promoter or the acquirer has accepted the price; and,
(b)               communicate to, exchange or exchanges from which delisting is sought to be made, the final price discovered and whether the promoter has accepted the price.
11.1         When a company which is listed on any stock exchange or stock exchanges other than the stock exchanges having nationwide trading terminals, seeks delisting, an exit offer shall be made to the shareholders in accordance with these guidelines.
11.2          There shall not be any compulsion for the existing company to remain listed on any stock exchange merely because it is a regional stock exchange.
12.1         Where the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and as a consequence the public shareholding does not fall below the minimum limit specified by the listing conditions or the listing agreement, the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer.
13.1          The payment of consideration for delisting of securities shall be paid in cash by the promoter or acquirer.
14.1         A company may delist one or all of its class of securities subject to the provisions of this clause.
14.2         If the equity shares of a company are delisted, the fixed income securities may continue to remain listed on the stock exchange.
14.3         A company which has a convertible instrument outstanding, it shall not be permitted to delist its equity shares till the exercise of the conversion options.

15.1      The Stock Exchanges may delist companies which have been suspended for a minimum period of six months for non-compliance with the Listing Agreement.
15.2      The Stock Exchanges may also delist companies as per the norms provided in
15.3    The Stock Exchange shall give adequate and wide public notice through news papers ( including one English national daily of wide circulation) and through display of the notice on the notice board/ website/ trading systems of the Exchange.
15.4      The stock exchange shall give a show cause notice to a company or adopt procedure provided under Part B of Schedule III for delisting under sub-clause
15.1      and 15.2.
15.5      The exchange shall provide a time period of 15 days within which representation may be made to the exchange by any person who may be aggrieved by the proposed delisting.
115.6         The stock exchange may, after consideration of the representations received from aggrieved persons, delist the securities of such companies.
15.6      A Where the stock exchange delists the securities of a company, it shall ensure that adequate and wide public notice of the fact of delisting is given through newspapers and on the notice boards/trading systems of the stock exchange and shall ensure disclosure in all such notices of the fair value of such securities determined in accordance with the Explanation to clause 16.1
15.7     The stock exchange shall display the name of such company on its website.
16.1   Where the securities of the company are delisted by an exchange, the promoter of the company shall be liable to compensate the security-holders of the company by
1
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as -
15.6      The stock exchange shall ensure that adequate and wide public notice is given through newspapers and on the notice boards/trading systems of the stock exchanges after the period of show cause is over.
paying them the fair value of the securities held by them and acquiring their securities, subject to their option to remain security-holders with the company.
^Explanation: For the purposes of this sub-clause, fair value of securities shall be determined by persons appointed by the stock exchange out of a panel of experts, which shall also be selected by the stock exchange, having regard to the factors mentioned in regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
316.2       - deleted
17.1         In case of rights issue, allotment to the promoters or the persons in control of the management shall be allowed even if they subscribe to unsubscribed portion which may result in public shareholding falling below the permissible minimum level.
Provided that the adequate disclosures have been made in the offer document to that effect.
Provided further that they agree to buy out the remaining holders at the price of rights issue or make an offer for sale to bring the public shareholding at the level specified in the listing conditions or listing agreement to remain listed.
17.2         In case the rights issue is not fully subscribed, which may result in the public shareholding falling below the permissible minimum level as specified in the listing condition or listing agreement, the promoter(s) of the company shall be required to delist by providing an exit opportunity in the manner specified in clause 17.1 of these guidelines or may be required to make offer for sale of their holdings so that the public shareholding is raised to the minimum level specified in the listing agreement or in the listing conditions within a period of 3 months.
2
Substituted by amendment vide circular dated January 31, 2006. The earlier clause read as - Explanation: For the purposes of this sub-clause fair value shall be determined by the arbitrator having regard to the factors mentioned in Regulation 20 of the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers) Regulations, 1997 .
Deleted by amendment vide circular dated January 31, 2006. The deleted clause read as -
16.2    The security holders may enforce their claim to compensation/fair value under this clause through the arbitration mechanism of the exchange in the manner laid down in its byelaws.
18.1         Reinstatement of delisted securities should be permitted by the stock exchanges with a cooling period of 2 years. In other words, relisting of securities should be allowed only after 2 years of delisting of the securities. It would be based on the respective norms/criteria for listing at the time of making the application for listing and the application will be initially scrutinized by the Central Listing Authority.

SCHEDULE I
[See Guideline 7.2]
CONTENTS OF THE PUBLIC ANNOUNCEMENT
1.                  The floor price and how it was reached
2.                  The dates of opening and closing of the bidding
3.                  The name of the exchange or exchanges from which the securities are sought to be delisted.
4.                  The names and addresses of the trading members as well as the bidding terminals and centres through which bids can be placed.
5.                  Description of the methodology to be adopted for determination of acceptable price
6.                  Period for which the offer shall be valid
7.                  The necessity and the object of the delisting
8.                  A full and complete disclosure of all material facts.
9.                  The proposed time table from opening of the offer till the settlement of the transfers.
10.             Details of the escrow account and the amount deposited therein.
11.             Listing details and stock market data:
(a)               high, low and average market prices of the securities of the company during the preceding three years;
(b)               monthly high and low prices for the six months preceding the date of the public announcement; and,
(c)               the volume of securities traded in each month during the six months preceding the date of public announcement.
12.             Present capital structure and shareholding pattern.
13.              The likely post-delisting capital structure.
14.              The aggregate shareholding of the promoter group and of the directors of the promoters, where the promoter is a company and of persons who are in control of the company.
15.             Name of compliance officer of the company.
16.              It should be signed and dated by the promoter.
SCHEDULE II
[See Guideline 8.1]
THE BOOK BUILDING PROCESS
1.      The book building process shall be made through an electronically linked transparent facility.
2.      The number of bidding centres shall not be less than thirty, including all stock exchange centres and there shall be at least one electronically linked computer terminal at all bidding centres.
3.      The promoter shall deposit in an escrow account, 100 per cent of the estimated amount of consideration calculated on the basis of the floor price indicated and the number of securities required to be acquired. The provisions of clause 10 of the Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 shall be applicable mutatis mutandis to such escrow account.
4.      The offer to buy shall remain open to the security holders for a minimum period of three days. The security holders shall have a right to revise their bids before the closing of the bidding.
5.      The promoter or acquirer shall appoint ‘trading members’ for placing bids on the on­line electronic system.
6.      Investors may approach trading members for placing offers on the on-line electronic system. The format of the offer form and the details that it must contain shall be specified.
7.      The security holders desirous of availing the exit opportunity shall deposit the shares offered with the trading members prior to placement of orders. Alternately they may mark a pledge for the same to the trading member. The trading members in turn may place these securities as margin with the exchanges/clearing corporations.
8.      The offers placed in the system shall have an audit trail in the form of confirmations which gives broker ID details with time stamp and unique order number
9.      The final offer price shall be determined as the price at which the maximum number of shares has been offered. The acquirer shall have the choice to accept the price. If the price is accepted then the acquirer shall be required to accept all offers upto and including the final price but may not have to accept higher priced offers, subject to clause 15. An illustration is given below:
Offer Quantity
Offer Price
Remarks
50
120
Floor price
82
125

108
130
Final price (as qty offered is max)
27
135

5
140


10  If final price is accepted the acquirer shall have to accept offers up to and including the final price i.e. 240 shares at the final price of Rs. 130/-.
11  At the end of the book build period the merchant banker to the book building exercise shall announce in the press and to the concerned exchanges the final price and the acceptance (or not) of the price by the acquirer.
12  The acquirer shall make the requisite funds available with the exchange/clearing corporation on the final settlement day (which shall be three days from the end of the book build period). The trading members shall correspondingly make the shares available. On the settlement day the funds and securities shall be paid out in a process akin to secondary market settlements.
13  The entire exercise shall only be available for demat shares. For holders of physical certificates the acquirer shall keep the offer open for a period of 15 days from the final settlement day for the shareholders to lodge the certificates with custodian(s) specified by the merchant banker.

SCHEDULE III (GUIDELINE 17.1]
NORMS AND PROCEDURE FOR DELISTING OF SECURITIES BY THE STOCK EXCHANGES
A NORMS
1.      The percentage of equity capital (floating stock) in the hands of public investors.
This may be seen with reference to ---
          Existing paid-up equity capital
          Market lot
      . Share price - very high, medium, low
      , Market Capitalisation
      . SEBIs Takeover Regulations-Regulation 21(3)
      . Clause 40A of the Listing Agreement
2.      The minimum trading level of shares of a company on the exchanges. There should be some liquidity in every trading cycle. There should be some volume of trading for price discovery on the market. The Company should appoint market makers. Criteria of no-trading may be considered.
3.      Financial aspect/Business aspects
a)      The company should generate reasonable revenue/income/profits. It should be operational/working. It must demonstrate earning power through its financial results, profits, reserves, dividend payout for last 2/3 years.
b)      If there is hardly any public interest in the securities the company then it is for consideration whether its “listed company” label needs to be retained any more.
c)      The company should have some tangible asset. It is for consideration as to what value of assets the company should own in order to be listed continuously listed.
4.      Track records of compliance of the Listing Agreement requirements for the past three years.
       Submission of audited/unaudited results, annual report, other documents required to be furnished to the Exchange,
       Book closure Record date with due notice
       Payment of listing fee
       Service to investors especially with regard to timely return of shares duly transferred, timely payment of dividend, communication of price sensitive information, etc.
       Failure to observe good accounting practises in reporting earnings and financial position
       Publishing half yearly unaudited/audited results
    . Frequent changes in - Accounting year, Share transfer agent,
Registered office, Name.
5.      Promoters’ Directors’ track record especially with regard to insider trading, manipulation of share prices, unfair market practises (e.g. returning of share transfer documents under objection on frivolous grounds with a view to creating scarcity of floating stock, in the market causing unjust aberrations in the share prices, auctions, close-out, etc. (Depending upon the trading position of directors or the firms).
6.      If whereabouts of the company, its promoters directors are not available and even the letters sent by the Exchange return undelivered and the company fails top remain in touch with the Exchange.
7.      The company has become sick and unable to meet current debt obligations or to adequately finance operations, or has not paid interest on debentures for the last 2- 3 years, or has become defunct,or there are no employees, or liquidator appointed, etc.
8.      On the basis of the above norms and other relevant information available about the company, its promoters/directors, project, litigations, etc., a profile of the company should be prepared and then a decision on delisting should be taken by an Exchange.
1.      The decision on delisting should be taken by a panel to be constituted by the Exchange comprising the following :
a.       Two directors/officers of the Exchange (one director to be a public representative)
b.      One representative of the investors
c.       One representative from the Central Government (Department of Company Affairs)/ Regional Director / Registrar of Companies
d.      Executive Director / Secretary of the Exchange
2.      Due notice of delisting and intimation to the company as well as other Stock Exchanges where the company’s securities are listed to be given.
3.  Notice of termination of the Listing Agreement to be given.
4.  An appeal against the order of compulsory delisting may be made to the SEBI.