Liberalisation of opening/holding/maintaining Foreign Currency Accounts

The RBI vide A. P. (DIR Series) Circular No.101 dated 02.04.2012 liberalised the regulations pertaining to opening / holding /maintaining the Foreign Currency Account by Indian party outside India.

As per the extant provisions of FEMA, an Indian party (as defined under Notification No. FEMA 120/RB-2004 dated July 07, 2004, as amended from time to time) is required to obtain prior permission of the Reserve Bank to open, hold and maintain Foreign Currency Account in a foreign country for the purpose of overseas direct investments in that country, in case the regulation of the host country requires that the investment in the country is to be made through a particular account to be opened with the commercial bank of the country.

An Indian party will now be allowed to open, hold and maintain Foreign Currency Account (FCA) abroad for the purpose of overseas direct investments subject to the following terms and conditions:

1.  An Indian party shall be eligible for overseas Direct Investment as per the regulations of FEMA.

2.  The host country Regulations stipulate that the investments into the country is required to be routed through a designated account.

3.  FCA shall be opened, held and maintained as per the regulation of the host country.

4.  The remittances sent to the FCA by the Indian party should be utilized only for making overseas direct investment into the JV / WOS abroad.

5.  Any amount received in the account by way of dividend and / or other entitlements from the subsidiary shall be repatriated to India within 30 days from the date of credit.

6.  The Indian party should submit the details of debits and credits in the FCA on yearly basis to the designated AD  bank with a certificate from the Statutory Auditors of the Indian  party certifying that the FCA was maintained as per the host country laws and the extant FEMA regulations / provisions as applicable.

7.  The FCA so opened shall be closed immediately or within 30 days from the date of disinvestment from JV / WOS or cessation thereof

Overtime wages payable only on basis & DA – Ruling of Kerala High Court.

Section 59 of the Factories Act lays down that where a worker works in a factory for more than 9 hours in any day or more than 48 hours in any week, he shall, in respect of the overtime work, be entitled to wages at the rate of twice his ordinary rate of wages. Section 59(2) stipulates that ordinary rate of wages means the basic wages + such allowances, including cash equivalent of the advantage approving through the concessional sale to workers of food grains and other articles, as the worker is for the t ime being entitled to, but does not include bonus and wages for overtime work.

The division bench of Hon’ble High Court of Kerala has considered what constitutes ordinary rate of wages as defined under Section 59(2) of the Factories Act in the case of V.E.Jossie and others Vs. Flag Officers, Commanding in Chief, Novel Base and another, 2011 (3) CLR 2011.

The Respondent was paying overtime Wages including HRA, Travelling Allowances, Small family Norms allowance and CCA. The Respondent by an order dated 23.07.2009 informed that the employees are not entitled to overtime on the above four items. The decision of the respondents was challenged before the Central Administrative Tribunal (CAT) and the Tribunal upheld the action of the Respondent. The workmen challenged the orders of the CAT before the Hon’ble High Court of Kerala. The Division Bench of the High Court also upheld the orders of the CAT. The Hon’ble High Court observed as under:

·               We are therefore of the view that the ordinary rate of wages referred to in Sub-section (2) does not take in compensatory and Incentive Allowances. In fact unless the standard rate of wages is understood as not including the above incentives, the rate of overtime wages will also keep on varying for different employees of the same grade in different stations. Section 59(2) doesnot visualise such discrimination among employees. In order to have uniform rate of overtime wages payable to the same category of employees, the original rate of wages also should be the same, which includes only salary and allowances for the for the work. Obviously, compensatory allowances and allowances in the nature of incentives are not covered under Section 59(2) of the Act. We donot find any ground to deviate from the view taken by the Tribunal.

·               Senior Counsel contended that the action of the respondents in recalling the benefits through the impugned orders is a violation of Section 9A of the Industrial Disputes Act, 1947. What is stated in Section 9A is that employers should not recover the benefits covered by Schedule 4 of the Act without notice to the employees. However, what was find in this case is that the respondents were only making a correction of the mistake they have committed by giving overtime wages on inadmissible allowances which is a violation of Section 59(2) of the Act. Section 9A of the Act refers to the steps that an officer should take before withdrawal of eligible benefits otherwise enjoyed by the employees which includes allowances. Notice u/s 9A need be issued only if the overtime allowance withdrawn was on eligible rate of wages. A mistake can always be corrected at any time and in this case, what is done is correction with future effect. The inadmissible benefits granted to the employees after July, 2009 only is proposed to be recovered. So much so, we donot find any violation of Section 9A of the ID Act because respondents have not taken any decision adverse to the terms of employment including eligibility for Overtime Allowance. We therefore, donot find any merit in this contention also.

Revised minimum wages for Security Agencies in Karnataka

The Government of Karnataka has revised the minimum rate of wages for employment in Security Agencies (Industries where office staff appointed by which agency including security guards) vide its notification no. LD -11/LMW/2009 dated 14.09.2011 w.e.f. 01.04.2011. The details of the revised rate of minimum wages as per government notification are as under:

Sl.No	Working Category	Minimum wages rate every month (in Rs.)
		Zone 1	Zone 2
1.	Security Supervisor	5231.46	4949.81
2.	Security Officer
3.	Field Officer
4.	Manager
5.	Security Inspector	4828.00	4736.55
6.	Assistant Security Officer
7.	Head Guard	4649.31	4348.57
8.	Intelligence & Fire Fighting	4459.91	4376.75
9.	Security Guard
10	Assistant
11	Lady Guard / Lady Nurse
12	Supervisor	4646.46	4601.41
13	Accountant
14	Cashier
15	Stenographer
16	Clerk	4553.11	4508.76
17	Typist
18	Receptionist
19	Computer Operator
20	Driver
21	Attender	4343.46	4359.28
22	Office Boy
23	Peon

The revised rate of minimum wages under this notification included cost of living allowance payable on 3944 points. Over and above 3944 points of CPI (1960=100), cost of living allowance has to be paid @ 0.04 paise per point per day as D.A. for all the category of employees.

All conditions of providing other amenities remain the same except the washing allowance which has been revised to Rs. 250/- per month.

Non-applicability of provisions of Companies Act to Government Companies

NOTIFICATIONS EXEMPTING THE GOVERNMENT COMPANIES FROM THE APPLICABILITY OF CERTAIN SECTIONS

1.   Notification No. GSR 232, dated 31.01.1978 – Regarding Section 187C

The CG hereby directs that Section 187C shall not apply to Government Company.

2.   Notification No. GSR 233 dated 31.01.1978 – Regarding Section 297 (1)

The provisions of Section 297(1) shall not apply to a Government Company in respect of contracts entered into by it with any other Government Company.

3.   Notification No. GSR 234 dated 31.01.1978 – Regarding Section 255, 256 and 257.

Section 255, 256 & 257 shall not apply to a Government Company in which entire paid up capital is held by Central / State Government.

4.   Notification No. GSR 235 dated 31.01.1978 – Regarding Section 198, 259 268, 269. 309, 310, 311, 387 and 388

Section 198, 259 268, 269. 309, 310, 311, 387 and 388 shall not apply to a Government Company.

5.   Notification No. GSR 577(E) dated 16.07.1985 – Regarding sections 149(2A), 205B, 263, 264, 265, 266, 307, 308, 316, 317 and 386.

sections 149(2A), 205B, 263, 264, 265, 266, 307, 308, 316, 317 and 386 shall not apply to a Government Company in which entire paid up capital is held by Central / State Government.

6.   Notification No. GSR 579 (E), dated 16.07.1985 – Regarding Sections 165, 187D, 294 and 294AA(2) & (3)

Sections 165, 187D, 294 and 294AA(2) & (3) shall not apply to a Government Company.

7.   Notification No. GSR 579(E) dated 16.07.1985 – Regarding Section 108

Section 108 shall not apply to a Government Company in respect of shares held by nominees of Government.

8.   Notification No. GSR 580(E) dated 16.07.1985 – Regarding Section 205A

Section 205A shall not apply to a Government Company in which entire paid up capital is held by Central / State Government.

9.   Notification No. GSR 581(E) dated 16.07.1985 – Regarding Section 295

Section 295 shall not apply to a Government Company provided that such company shall obtain the approval of the Ministry or Department of the Central Government which is administratively in charge of the Company, or as the case may be, the State Government.

10. Notification No. GSR 1294(E) dated 17.12.1986 – Regarding Section 108(1)

     The Central Government hereby directs that the provisions of section 108(1), insofar as it requires a proper instrument of transfer to be duly stamped and executed by or on behalf of the transformer and by and on behalf of the transferee, shall not apply with respect to bonds issued by a Government Company, provided that an intimation by the transferee specifying his name, address and occupation, if any, has been delivered to the Company along with the certificate relating to the Bond, and if no such certificate is in existence, along with the letter of allotment of the Bond.

11. Notification No. GSR 829(E) dated 21.09.2003 – Regarding Section 274(1)(g)

     Section 274(1)(g) shall not apply to a Government Company.

NOTIFICATIONS MODIFYING SECTIONS FOR APPLICABILITY TO GOVERNMENT COMPANIES.

I.     Notification No 1649 dated 13.11.1956 – Regarding Section 21 & 23

The Central Government hereby directs that the provisions of section 21 & 23 shall apply to a Government Company with the modifications set out below,

Modifications

1.    To Section 21, the following proviso shall be added, namely:

“Provided that nothing in this section shall apply to a Government Company where the change in its name consists only in the deletion of the word “Private” therefrom.

2.    In Section 23, after sub-section (1), the following sub-section shall be inserted, namely:

“(1A) where the change in the name of a Government Company consists only in the deletion of the word “Private” therefrom, that Government Company shall, not late than three months from the date thereof, inform the Registrar of the aforesaid change and thereupon the Registrar shall delete the word “Private” before the word “Limited” in the name of the Company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the Company.”

II. Notification No. 355 dated 07.01.1957 – Regarding Section 166 & 621

     The CG directs that section 166 & 621 shall apply to a Government Company with the modifications set out below:

     In Section 166

(i)   In proviso to clause (e) of sub-section (1) for the “Registrar”. The words “Central Government” shall be substituted;

(ii)  In sub-section (2) for the words “some other place within the city, town or village in which the registered officeof the Company is situate”, the words “Such other place as the Central Government may approve in this behalf” shall be substituted, and

In section 621, sub-section (1), the words “The Registrar or of a shareholder of the Company, of” shall be omitted.

III. Notification No. 1234 dated 30.12.1958 – Regarding Section 13(1)(a)

Modification

In clause (a) of sub-section (1) of Section 13, the words “in the case of a public limited company, and with ‘Private Limited’ as the last words of the name in case of a “Private Limited Company” shall be omitted.

IV. Notification No. 238 dated 02.02.1978 – Regarding sections 100, 101, 102, 103, 391, 392 and 394.

     Modification

1.    In sections 100, 101, 102, 103, 391 and 394 for the word “Court”, wherever it occurs, the words “Central Government” shall be substituted;

2.    In section 391, sub-section (7) shall be omitted;

3.    In sub-section (1) of section 392, for the words “High Court”, the words “the Central Government”  shall be substituted.

SECTOR / COMPANY SPECIFIC NOTIFICATIONS:

I.     Notification No. 769(E) dated 10.09.1990

The CG directs that the provisions of clause (e) of sub-section (1) of section 217 read with Companies (Disclosure of particulars in the report of Board of Directors) Rules, 1988, framed thereunder, shall not apply to Hindustan Aeronautics Limited, Bangalore, which is a Government Company.

II. Notification No. 770(E) dated 10.09.1990

The CG hereby directs that the provisions of clause (b) of sub-section (3) of section 209 shall not apply to any Government Company engaged in the promotion and Development of industries, to the extent it relates to income from –

a.    Interest on seed money loans or bridge loans;

b.    Interest on installments due on the cost of industrial plots or sheds allotted to entrepreneurs;

c.    Claims from the Central Government or State Governments in relation to special rebate on the sale of handloom clothes as declared by the Ministry of Textiles (Office of the Development Commissioner for Handlooms) from time to time as a special measures for boosting the sale of handloom clothes produced in different parts of the Country;

Provided that such accrued income, which is not accounted for in the books of account, is disclosed by way of a note in the Company’s Annual Accounts.

An analysis of Section 295 of the Companies Act, 1956

According Section 295(1) of the Companies Act, 1956, previous approval of the Central Government will be required, if a company directly or indirectly, to:

i)         Make any loan to any of the persons mentioned in Section 295 (1); or

ii)       Give any guarantee in connection with a loan made by any person to any of the persons mentioned in Section 295 (1); or

iii)      Give any guarantee in connection with the loan made to any person by any of the persons mentioned in Section 295 (1); or

iv)      Provide any security in connection with a loan made by any person to any of the persons mentioned in Section 295 (1); or

v)        Provide any security in connection with a loan made to any person by any of the persons mentioned in Section 295 (1).

Following persons mentioned in Section 295 (1);

i)         Any director of the lending company;

ii)       Any director of the lending company’s holding company;

iii)      Any partner of a director of the lending company;

iv)      Any partner of a director of the lending company’s holding company;

v)        Any relative of a director of the lending company;

vi)      Any relative of a director of the lending company’s holding company;

vii)     Any firm in which a director of the lending company is partner;

viii)   Any firm in which any relative of a director of the lending company is a partner;

ix)      Any private company of which a director of the lending company is a Director or member;

x)        Any body corporate at a general meeting of which not less than 25% or more of the total voting power is exercised or controlled by one or more directors of the lending company;

xi)      Any body corporate, the Board of Directors, managing director or manager whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Meaning of Loan:

The word ‘Loan’ is not defined in the Act. Hence we can take the general meaning. According to Black’s Law Dictionary ‘loan’ means a lending; delivery by one party to and receipt by another party of a sum of money upon agreement, express or implied, to repay it with or without interest. Hence essential requirements of a loan is the advance of money upon the understanding that it shall be returned, and it may or may not carry interest.

This section also applies to any transactions represented by Book debt which was from its inception in the nature of a loan or an advance vide section 296.

Applicability of Section 295 under certain situations:

1.       Applicability of Section 292

Any loan falling within the purview of section 295 would attract the provisions of section 292 i.e. exercise of the powers only by means of resolutions passed at the Board meeting. Hence this power is to be exercised ny means of Board resolution not otherwise. However Board can delegate the power to any committee of directors, managing director, manager or any other principal officer of the company, in accordance with the provisions of the Act.

2.       Applicability of Section 372A

Following provisions of Section 295 will also apply to section 372A. Hence compliance of both sections besides section 292 is required for any loan made to, or any guarantee given or security provided in connection with a loan made by any other person to, or to any other person by, -

i)         Any private company of which director of lending company is a director or member;

ii)       Any body corporate at a general meeting of which not less than 25% or more of the total voting power is exercised or controlled by one or more directors of the lending company;

iii)      Any body corporate, the Board of Directors, managing director or manager whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

3.       Applicability on Debt

A loan contracted creates a debt, but there may be a debt contracted without contracting a loan. Therefore every debt is not a loan. In order to attract section 295 there has to be the making of loan. For example: In case of sale/supply of goods on credit, the outstanding amount on such sale on credit is debt but it was not of the nature created by Loan.  The Bombay high court held that the deferred amount payable  by a director a consideration for sale of flat by the Company to the Director is a Debt but not in the nature of loan.

4.       Applicability on Advances

Section 295 is not applicable for all types of advances. Section 295 would not be attracted if the person taking advance against his salary is an employee. Suppose an advance against salary given to the wife of director who was employed by the company on a monthly salary, the provisions of section 295 would not applicable provided such advance facility should be available to all employees of the Company. However if advance is given on the her capacity as Wife of Director, then Section 295 will be applicable.

5.        Housing loans to managing and whole-time directors

The Central Government has permitted the Companies granting of loans to their managing and whole-time directors for the purpose of housing without the approval of the Central Government subject to certain conditions i.e. the provisions of section 295 is not applicable if housing loan was given the managing/ whole-time directors under the housing loan scheme of the Company for its employees and for the purpose said loan, the managing director shall be  treated in all respects like other employee in a particular grade and loan is granted on the terms and conditions as applicable to the other employees in the identical category.

6.       Loans to directors of Government Companies

The Government Companies have been exempted by notification no. SO 729 dated 27.05.1978, provided that such company shall obtain the approval of the Ministry or Department of the Central Government which is administratively in-charge of the Company, or as the case may be, the State Government.

7.       No retrospective effect

On the question whether the approval of the Central Government under sub-section (1) will be required to be obtained after any exempted loans (under sub-section (2)) ceases to be such or after the exempted company ceases to be eligible to enjoy the exemption, such as conversion of private company to public. The Department has advised that the provisions of section 295 would not be applicable to loans already made by the exempted companies even though they ceased to be so and compliance of section 295 would not be required.

Criteria followed by the Government in considering the applications under Section 295

In considering the applications under section 295, the following important aspects will scrutinized by the Central Government –

i)         Purpose of loan;

ii)       Financial position of lender and borrower;

iii)      Whether lending company possesses surplus fund to lend;

iv)      Whether loan is secured, if yes whether security is adequate;

v)        Whether the rate of interest offered is reasonable;

vi)      Whether loan is for a definite period;

vii)     Whether the borrower is fully solvent;

viii)   If the borrower is a company, whether it has a good profit record etc.

Exempted loans, guarantees and securities

According Sub-section (2), following transactions are exempted from the restrictions of sub-section (1)

i)         Any loan made, guarantee given or security provided – by a private company which is not a subsidiary of a public company,

ii)       Any loan made – by a holding company to its subsidiary,

iii)      Any guarantee given or security provided – by a holding company in respect of a loan made to its subsidiary.

Penalty for contravention of provisions of Section 295

Section 295 (4) provides that every person who is knowingly a party to any contravention of sub-section (1), including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may extend to Rs. 5000/- or with a simple imprisonment for a term which may extend to 6 months; provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under sub-section (4); and where the loan has been repaid in part, the maximum punishment which may be imposed by way of imprisonment shall be proportionately reduced.

Further, according to sub-section (5), all persons who are knowingly parties to any contravention of this section shall be liable, jointly or severally, to the lending company for the repayment of the loan or for making good  the sum which the lending company may have been called upon to pay in virtue of the guarantee given or the security provided by such company.