Todays topics: 8th May 2014

MF, Hedge Fund, P Vodafone

Notes, ETF
Transfer pricing
Corporate governance
Netherland BIPA
Companies Act 2013
GAAR, DTC
SEBI norms
Nokia Royalty tax,
Finland DTAA
RPT: Suzuki Mehsana
All PowerPoint Slides available
at Mrunal.org/ECONOMY

Mutual fund

Portfolio
(AMC)

EXIT
LOAD

Mutual funds types:

Portfolio Nature: equity, debt, gilt edged
fund, real estate
Income vs risk
Growth Fund: 80 (Equity): 20 (Debt)
Balance: 50: 50
Income = 20 : 80

ETF: Exchange Traded Fund

ONGC, CIL, GAIL
10 CPSE
Rs.3000 crore

Portfolio
Goldman Sach

NFO

BSE-NSE

ETF different from MF?

15 ETF: 1 free
Redeem
MF Unit: CASH
ETF: Shares=> secondary market
sell=>CASH
EXIT loadno; commission less
ETF: USA 1993; India 2002

Hedge Fund = pvt MF for HNI

Portfolio
(Hedge Fund)

Hedge Fund
HNI=> private MF
Karvy Capital, Motilal Oswald etc.
SEBI regulationnot strict like MF
Alternative investment fund Cat.III
High risk, high reward
100 Cr. Pooled=> bet upto Rs.200 crore
(T+2)

P-Notes: Participatory Notes

Hedge Fund
manager

P-Note: Offshore Derivative Instrument

Hedge Fund
manager

FII
(India)

P-notes : SEBI
Anonymous
CGT evade
terrorist money
hot money
March 2014: 2 lakh Crore (13% of FII)

SEBI on P-Notes
FPI new classification
Risk profile + KYC compliance
CAT I: Foreign government, government's fin.
Institutions (UTI, EPFO, LIC)
CAT II: Mutual Fund, Pension Fund, Univ.Fund,
CAT III: not in CAT I and CAT II
Who can't issue P-notes?
CAT III
CAT II: certain high risk

Corporate Governance
1.Definition
2.Companies Act 2013
3.SEBI norms 2014

Corporate governance: Meaning?

Way of directing the company
To protect stakeholders interest
To comply with legal-regulatory req.

Corporate governance: Meaning?

Not mere technical compliance
Moral-ethical compliance
Absence: fraud, mismanagement

Corporate governance in India

SEBI Norms:
Sep 2012: Adi Godrej
April 2014: Published
Effective 1st Oct. 2014

Companies Act
Original 1956
Aug 2013 (470 section)

Feb 2014: rules

notified

Types of companies
Capital: 50 L
One person
Turnover 2 cr.
Companies
Act
2013

Private ltd.
2-200
Public Ltd.
7-unlimited

Total ~9 lakh companies

>90% private ltd.

Listed
Vodafone
India.
Unlisted
Nokia India
16

CEO
Executives
Staff

Board of Directors
Chairman-MD

SHARE-HOLDERS

IPO

Chairman

BoD

Executive Director/Fulltime
Nominated (Bank/CG)
Independent Director
18

Companies Act 2013: Directors

Minimum: OPC-1; Private-2; Public-3
Maximum: 15
Even more by AGM resolution
One person: maximum 20 companies.
One director Indian resident (182 days)
One director Woman
12 months absent = vacate.

Companies Act 2013: Independent director

Not a Promoter
Pecuniary interestX (except salary)
MD nominatedX
EmployeeX
rd
Public (listed) company: minimum 1/3 ID
Term: 5 years x 2 (performance review
AGM)
Re-appointment: cooling 3 years

SEBI norms: ID
ID: Separate meetings
One person max. 7 companies ID
Full-time director in 1 company => 3
companies' ID
Term: 2 x 5 years (Retrospective)
Performance report on ID
Atleast 1 woman director in the board

Independ Directors
Board Meetings

CEO
Executives
Staff

Board of Directors
Chairman-MD

SHARE-HOLDERS

IPO

Companies Act 2013 : Board meetings

Minimum 4 meetings per year
Not > 120 days gap
Video conferencingyes
Quorum: 1/3rd strength OR 2 directors
whichever max. (one person company..X)
7 days prior notice

Companies Act -BoD: Committee

1.
2.
3.
4.

Audit committee
Stakeholder relationship committee (SRC)
CSR committee (CSRC)
Nomination and Remuneration committee
(NRC):
1. MD/Director: 11% of profit
2. CEO vs Median salary
3. Pay rise vs Company performance

Corporate Social responsibility (CSR)

Last 3 years' avg. profit=> 2% CSR spend
Applies to?
1. net profit of 50 million (excluding tax)
2. net worth of 5 billion (Asset-liability)
3. turnover of 10 billion (sales excluding
costs)
Foreign branchX

Independ Directors
Board Meetings
AGM

CEO
Executives
Staff

Board of Directors
Chairman-MD

SHARE-HOLDERS

IPO

Annual General Meeting (AGM)

One person company: no need
Public & pvt LTD. companiesyes
General notice by letter / email
Quorum (physically present): depending on
# shareholders: 5 to 30
Proxy voting.Yes
Electronic VotingYes (SEBI C.G. Norms
also)

Auditing related
1.Independent directors
2.Board meetings
3.AGM

Companies Act 2013

BoD => Audit Committee (ID)
External Auditors
Fraud report to Central government +
shareholders' meeting
One auditor=> maximum of 20 companies

Companies Act 2013: Auditors term

Individual auditor: 5 years
Audit firm: 5 year x 2
Cooling off: 5 years
Internal audit: CA/Accountant/others
Whistleblower mechanism
Full time Company Secretary: capital
>Rs.10 cr (7500)

Companies Act 2013: misc.

Company cannot give loan to director /
related persons
Min. loan interest rate >G-Sec
Credit rating before accepting public
deposit (CIS)
Chief Finance Officer=> audit account

New bodies
Companies Act 2013
1.National Company Law Tribunal
(NCLT)
2.National Financial Reporting Authority
(NFRA)
3.Investor and Education Protection Fund
4.SFIO Fraud

National Company Law Tribunal (NCLT)

Judicial + technical members
Finish case in three months
Appeal: NCLAT
Present case by Self, Lawyer, CA, CS
Cases:
1. arbitration, compromise, M&A
2. Converting Public ltd. To private ltd.
3. Filing Class action suits (Satyam)

#2: National Financial Reporting Authority (NFRA)

1 Chairman + 15 members
Accounting standards
Powers of civil court
Profession misconduct of CA/accountant=>
debar
Appeal: NFRAA
ICAI unhappy (Chartered Accountants Act,
1949)

New bodies
Companies Act 2013
1.National Company Law Tribunal
(NCLT)
2.National Financial Reporting Authority
(NFRA)
3.Investor and Education Protection Fund
4.SFIO Fraud

Investor and Education Protection Fund

Since 1956s company act

Unclaimed Dividend, interest, principle
Under Corporate Affairs Ministry
Awareness, seminar, financial literacy
Participation from RBI, SEBI, experts

Investor and Education Protection Fund Authority

2013s Act: Statutory authority

@Delhi HQ, Regional offices
Corp. Affairs Secretary = Chairman
Members:
RBI Executive directors
SEBI Executive directors
Legal experts etc.

New bodies
Companies Act 2013
1.National Company Law Tribunal
(NCLT)
2.National Financial Reporting Authority
(NFRA)
3.Investor and Education Protection Fund
4.SFIO Fraud

Serious Fraud Investigation Office (SFIO)

Naresh Chandra report on Corp.
governance
2003: under Corp. Ministry
Cases
1. Satyam
2. Reebok fraud
3. Sesa Goa invoice
4. Saradha Chitfund

Companies Act 2013: SFIO

Statutory body
Not just document examination
Search seize arrest
CrPC power- investigator
Once SFIO gets case, other agencies cant
proceed.
State police, CBI -cooperate, provide
documents, witnesses.

Companies Act: Memorize

3 companies: OPC, pvt, public
4 new bodies: tribunal, financial reporting,
edu. Fund, SFIO
Directors: ID, women
Meeting: Board, AGM
Audit: fixed term, whistleblower, report to
central Govt.

Conclusion: Companies Act 2013

business-friendly regulations
Better corporate governance
Protecting small investors
Self-regulation
Less government approval

1st October 2014

SEBI Norms
Minority
shareholders
Independent
Directors

E-Voting
RPT

Transparenc
y
Salary

Audit Committee
Whistleblower mechanism

Maruti Suzuki
Gujarat plant Controversy

HARYANA

MANESAR UNREST, 2012

1 Manager dead
2 Japanese Executive
injures
Rs. >3000 crore

Suzuki
Motors
Gujarat

Cost price
Profit margin

Mehsana

Why controversy?
HDFC, Reliance Cap,
ICICI, SBI

Less profit for

MS=>less dividend
MS. Will become
mere distributor/
marketing company.

Suzuki (56%)

Why controversy?
HDFC, Reliance Cap,
ICICI, SBI

Maruti-Suzuki has
surplus of Rs.7500 cr.
Why not upgrade
Haryana?

Suzuki (56%)
100% subsidiary in
Gujarat
15 years lease
If not renewed, itll be
merged with MarutiSuzuki.
(2017) 25-30k Cr.

Why controversy?
HDFC, Reliance Cap,
ICICI, SBI

Why not upgrade

Haryana?

Suzuki (56%)
Profit re-invested in
Gujarat
@Haryana 1.5 million
cars / PA
@Gujarat 2.5 million
(2017)
No Risk for Maruti

Positive Points for Gujarat

Mehana ~1200 Acre.
640 acres in Becharaji ; 550 acres in Vithalapur
Investment of Rs. 25-30k Cr.
Full Capacity in 2017
2.5 million cars /PA
Autohub- replacing Tamilnadu +Haryana
Suzuki Motors Gujarat ltd=>Ahmedabad (HQ)
EMPLOYMENT

Negative for Suzuki

Companies Act 2013 =>1/4/2014.
Related party Transaction RPT
Require vote from majority of minority
shareholders.
Minority shareholders=> SEBI complaint
Suzuki has two choices
1. Get voting done
2. Re-work on strategy (MS Gujarat plant, SPV)