In this blogpost,  Kavinesh RM, Student of Lloyd Law College, Greater Noida and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the history of Delhi Public School.

“The DPS Society is a non-profit, non-proprietary, private, educational organization. This Global Network of over 200 English medium, co-educational, secular schools provides education from Pre-Nursery/Nursery to Class XII. The DPS Family – with its transcontinental identity, is not merely a list of institutions, persons or facts; it is a network of values, systems and relationships”[2]

Introduction

To build this paper, the author has worked with the sites and students of  Delhi Public School to express the clear frame of the structure of this school as it is the base of this article. India has the biggest educational system in the world which approximately operates 740,000 Schools. The rates of Literacy raised from last decades, around 65% in 2001. There are big differences in quality of education in India, as it is being controlled by local boards. Primary, Middle, and Secondary are the three stages which are gone through by every student in India.

History of Delhi Public School

The Delhi Public School Society was founded in 1949 to enable Rev. J.D. Tytler to secure a new land for the school. Before 1947, it was known as New Delhi Church High School .The school was founded by Rev. James Douglas Tytler, whose adopted son is Congress leader Jagdish Tytler. Delhi Public School is the largest school network in India which has 183 branches within India and growing and also it has 19 branches outside India, most in Gulf countries. Mathura road was the location where DPS started its first Branch. But among all the branches of  DPS, RK Puram branch is considered as the special one.

Delhi Public School Society versus D.P.S. Trust

Another school, which had the similar name ‘Delhi Public School’ and the same logo was sued by the DPS Society against them as  some innocent and gullible parents may admit their wards in the schools being run under their name by a mistaken belief that their child is studying in one of the schools being run by DPS. Even after it was blocked by the Delhi High Court from using their name and logo, they were running its whole 27 branches successfully without any guilty feeling. So in 2012, Justice Kailash Gambhir warned it of Contempt of Court if the trust did not stop.

In the December 2012, judgment, Justice HR Malhotra observed that “despite being registered in 2003, the Trust claimed its foundation for 54 years and had been fraudulently using the logo which is ‘exactly similar’ to DPS Society.”[3] In its subsequent judgment, Justice V K Jain of Delhi high court on 16 December 2012 barred the ‘DPS Trust’ from using the name ‘DPS’ or its registered logo as well as the name Delhi Public School for running a school or education-related services. He also has asked the Trust to pay Rs 10 lakh as damages.[4]

Normally when the value of  any brand matures, its demand rises, likewise talking about DPS, sure the demand for its brand will be totally high. So accommodating more numbers of students in class is quite reasonable, but it has both advantages and disadvantages.

Advantages and Disadvantages of Overcrowding classes

                 “A classroom is a complex place where students need individual attention and hence number matters,” says C.A.Francis, principal, Salsabeel Central School, Mundur, Thrissur. “Individual attention in both academic performance and the child’s natural curiosity and comfort level in the classroom are more important. As a teacher for the last 35 years, I feel that student strength in a class should be between 30-35”, he said.[5]

Though seeing the other side, Students get a chance to interact and grow up with a very diverse group of people from a variety of backgrounds, which gives you perspective. You’re exposed to a lot of things, both positive and negative at a younger age. It can be quite overwhelming especially to people who haven’t been in the community from the beginning. But if you attend the school with the right mindset, there’s a lot it has to offer.

” The school’s policy of admitting 500 odd students in grade 11 is quite messed up. For those of us who had been in the school from 6th to 10th, our batch in 11th suddenly was full of new faces and somewhat lost a personal feeling. But many of my peers (both existing ones and new ones) inspired me to do better in academics and also in extra-curricular activities” – said by a student of DPS.

And come on, it’s high school! You’re going to see all the elements that characterize students of that age: rowdy kids, cliques, short skirts etc. In these large urban agglomerations, you will have every kind of person; this one is an advantage of having great exposure.

Education as Business

Though education is morally known only as an organization to help kids in their upliftment of life, nowadays education became a fine business. Educational Services is one of the rewarding careers for entrepreneurs who want to make money. Delhi Public School Educational Society is very sensitive towards their franchise system. In this way, it became a business and have being spread throughout the world. Their scheme has been traced out from their website where it is mentioned as follows,” There are three types of DPS franchise depending on the investment and land available, preschool, primary school and high school. As mentioned above for high school 2 acres land is required and for preschool 2500 sq ft and for Primary school 4000 to 5000 sq ft land is required, Apart from that about Rs. 8-10 lakhs is the initial investment besides the construction cost of the school. So if we calculate total investment including land, construction and other charges about Rs. 35- 40 lakhs will be the minimum investment to start the franchise of Delhi Public School Royalty charged from the franchise of Delhi Public School is 20% of the tuition fees of students studying in that branch. Other fees charged are for training, inspection etc which is bare minimum”.[6]

Achievements

If we take a note on achievements of a student. Yes ! he must be appreciated for that but also the school in which he studies is also partially responsible for that feather he got to his cap because I believe that without encouragement and upliftment at the time nothing is possible. Here is the list of alumni of Delhi Public School, RK Puram branch from various fields they are shining.

Conclusion

So, according to the content so far explained, it clearly tells that Delhi Public School is one of the greatest educational network in India running successfully with its brilliant performance towards academic as well as extracurricular activities and works hard for the development of physical, intellectual and social aspects of our children personality. A number of parents have their dream to admit their wards into DPS network as they have more faith on their brand name Delhi Public School.

Bibliography

• The New Indian Express
• The Times of India
• Indian Kanoon
• Delhi Public School Society

[1] Student of Lloyd Law College, Greater Noida

[2] http://www.dpsrkp.net/dps_society.asp

[3] “DPS Sambalpur asked not to use logo”. The New Indian Express. 12 July 2012. Retrieved 2014-09-06.

[4]  “HC asks fake DPS trust to pay Rs 10L damages”. The Times of India. Retrieved 2014-09-06.

[5] http://www.deccanchronicle.com/141016/education/article/class-strength-where-are-we

[6] http://www.startingfranchise.in/2013/05/Delhi-Public-School-DPS-franchise-India.html#sthash.9sN6xkst.dpuf

In this blogpost, Pranav Rudresh, Student of Lloyd Law College, Greater Noida and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about what are group companies, salient features of group companies and the accounting system of group companies 

Introduction

Group companies or popularly known as the corporate groups is a collection of parent and subsidiary corporations that function as a single economic entity through a common source of control. The concept of a group is frequently used in tax law, accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole. The companies in corporations can be engaged in entirely different businesses, this kind of group  is called a conglomerate. The forming of corporate groups usually involves consolidation via mergers, although the group concept focuses on the instances in which the merged and acquired corporate entities remain in existence rather than the instances in which they are dissolved by the parent. The group may be owned by a holding company which may have no actual operations.

A corporate group or group company is composed of many companies. The general rule is that a company is a separate legal entity from its shareholders that is the shareholder’s liability for the subsidiary’s debts is limited to the value of the shares, and the shareholders cannot be required to perform the company’s obligations.

However, some of the jurisdictions are an exception to this rule. For example see Germany; it has created affiliated enterprise law which provides situations in which one company is liable for the debts of another company.

Salient features of Group Companies 

• It consists of more than one company.
• The forming of corporate groups usually involvesconsolidation via
• It’s not necessary that the companies work for the same purpose.
• The general rule is that a company is a separate legal entity from its shareholders that is the shareholder’s liability for the subsidiary’s debts is limited to the value of the shares.

Accounting of Group Companies

All group companies are required to maintain proper books of account of affairs. The important things required to be entered while keeping the accounts records are :

• All sums of money received and expended by the company, and matters in respect of which receiving and expenditure took place.
• All sales and purchases f goods by the company.
• The assets and liabilities of the companies.

The books of accounting of the group companies must contain :

• It must reflect the true and clear statements of the state of affairs of the company or the group of companies, and also explain the transactions.
• The books must be kept on the accurate basis and according to the double entry system of accounting.

The following person is responsible for keeping the records and timely maintenance of it :

• The group of managing directors or the managers, in the general case of group companies there is a board of directors to handle such matters.
• If the companies don’t have managing directors or the managers, then it’s the duty of the directors.
• Every officer and other employee who has been authorised and to whom responsibility to maintain the books have been given by the board of directors.

The legal requirements applicable to group companies for accounting

The preparations of balance sheets and profit/loss accounts:

Part 1 to schedule VI of the companies act, 1956 gives a format in which the balance sheet has to be prepared. The group company has to prepare its balance sheet and profit and loss account from the books of account that has to be maintained by it. Every balance sheet of every group company must give a true and fair view of the state of affairs of the company at the end of a financial year. If the responsible fails to take all reasonable steps with the requirement of law relating to the form and contents of the balance sheets, he is liable to imprisonment up to six months or fine or both.

The main heads in this form are arranged as follows:

• Share capital (fixed assets)
• Reserves and surplus (investments)
• Loans/ miscellaneous expenditures
• Current liabilities
• Profit and loss

Financial statements of business are useful for making decisions by Investors as well as decision makers in business. Inaccurate, no standardized, false or misleading accounting impacts managerial decision making and also prevents investors and other stakeholders from relying on financial statements, which can make raising investment, or exiting from a business (by selling one’s stake) more difficult.

To summarise, legal provisions may govern the following:

1. Maintenance of accounts and preparation of financial statements such as profit and loss account, balance sheet, etc., any disclosures in financial statements.
2. Filing of financial statements and reports before various authorities.

Accounting according to Indian Law (The Companies Act)

India follows two sets of accounting standards which are applicable to different categories of companies as per the applicable law

1. Accounting standards under Companies Accounting Standards Rules, 2006: Companies which are not required to mandatorily follow Indian Accounting standard or those who have not adopted the Ind As standards voluntarily are required to follow the accounting standards laid down under Companies (Accounting Standards) Rules, 2006. The Institute of Chartered Accountants of India (ICAI), which is the body that governs Chartered Accountants, has issued thirty-five Accounting Standards under Companies (Accounting Standards) Rules, 2006, which contain the guidelines for recording or accounting treatment of different types of transactions.
2. Indian Accounting Standards : Under the Companies Act, 2013, new accounting standards are known as Indian Accounting Standards will be applicable on different categories of companies in a staggered manner. The new accounting standards are similar to the International Financial Reporting Standards, making the new accounting system at par with the global norms.

As per Section 129 of the Companies Act, 2013 every profit and loss account and balance-sheet of a company must comply with these accounting standards, and any deviations from them must be specifically disclosed, along with reasons for the deviation and the financial effect of such a deviation. A list of accounting standards is attached in the Annexure A to this note.

The Companies Act, 2013 also specifies the format of the balance sheet and profit and loss account. The balance sheet must be prepared as per Schedule III (Part I) and the profit and loss account as per Schedule II (Part II) respectively (the formats are provided in Annexure B and C of this note).

It is to be noted that financial statements, auditor’s report and Board’s report of companies whose financial years commenced before 1 April 2014, need to file the report according to the rules and provisions of the Companies Act, 1956.

Under the Companies (Auditor’s Report) Order, 2003, under the old Companies Act, certain categories of companies which meet a prescribed threshold, were required to mention 21 matters in the auditor’s report till the financial year 2013-14. Under the new Companies Act, the auditors are required to state on only 13 different matters and will be applicable from the financial year 2014-15.

However, in the absence of a expressed repeal provision there is no clarity whether the existing rules under the Companies (Auditor’s Report) Order, 2015 will be applicable to the companies meeting the thresholds under the 2015 Order. The Companies (Auditor’s Report) Order, 2003 (see the list of exemptions below to find out which companies the order does not apply to) specifies a list of 21 items on which the auditor of a company must make his observations while preparing his report. Some of the items are listed below, to give an indication:

• whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;
• If a substantial part of fixed assets have been disposed of off during the year, whether it has affected the going concern;
• whether physical verification of inventory has been conducted at reasonable intervals by the management;
• If there is an adequate internal control procedure commensurate with the size of the company and the nature of its business, for the purchase of inventory and fixed assets and for the sale of goods and
• Whether there is a continuing failure to correct major weaknesses in internal control,

Conclusion

Hence, the concept of a group is frequently used in tax law, accounting and (less frequently) company law to attribute the rights and duties of one member of the group to another or the whole.

This gives us a fair idea as to what and how group companies are accountable, and what are the legal requirements pertaining to accounting to group companies.

In this blogpost, Aditi Sampat, Advocate, Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, the procedure to wind up a company and a LLP and compares the same.

Winding up of a Company under Companies Act 2013:

Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors.

In the words of Prof. L.C.B. Gower, “Winding-up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator called liquidator is appointed, and he takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights.”

Thus in the words of Pennington, “Winding up or liquidation is the process by which the management of a company’s affairs is taken out of its director’s hand, its assets are realized by a liquidator, and its debts and liabilities are discharged out of the proceeds of realization, and any surplus of assets remaining is returned to its members or shareholders. At the end of winding up the company will have no assets or liabilities, and will therefore be simply a formal step for it to be dissolved, that is its legal personality as a corporation to be brought to an end.”

Section 270 of the Companies Act 2013 mentions the modes of Winding up of a Company:

1. Winding up by Tribunal.
2. Voluntary Winding up of the Company.

Section 271 of the Companies Act 2013 mentions the circumstances wherein a Company may be wound up by the Tribunal:

1. If the company is unable to pay its debts.
2. If under a special resolution, the company has resolved to be wound up by Tribunal.

• If the company has acted against the interests of India.

1. If the company has been declared as a Sick Company.
2. If the company has made default in filing its financial statements for preceding five consecutive years.
3. If an application is made by the Registrar or any other person that the company’s affairs have been fraudulent or for an unlawful

• Tribunal is of the opinion that it is just and equitable that the company should be wound up.

A petition for Winding up of a Company by the Tribunal can be given by:

1. The company
2. The creditors

• Any contributory or contributories

1. By the central or state govt.
2. By the registrar of any person authorized by central govt. for that purpose

Section 304 of the Companies Act 2013 mentions the circumstances wherein a Company may be wound up voluntarily:

(a) if the company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company should be dissolved; or

(b) if the company passes a special resolution that the company be wound up voluntarily.

Winding up of Limited Liability Partnership:

Limited Liability Partnership or LLP is a new form of business entity introduced in India through with the passing of the Limited Liability Partnership Act 2008. As a company, an LLP enjoys the feature of Limited Liability and is also a Body Corporate. However, there may be a number of reasons which may lead to “Winding up of an LLP”.

“Winding up of an LLP” means to bring to an end the affairs and the operations of an LLP. In this process, a Liquidator is appointed who takes charge of the LLP, that is, its assets and debts. Completion of the process of winding up entails removal of the name of the LLP from the records of the Register of LLP.

Section 63 of the Limited Liability Partnership Act prescribes 2 modes for winding up of LLP

1. Winding up by the Tribunal.
2. Voluntary Winding up.

Section 64 of the Limited Liability Partnership Act mentions the circumstances wherein an LLP may be wound up by the Tribunal:

1. if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal;
2. if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two;

• if the limited liability partnership is unable to pay its debts;

1. if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order;
2. if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or
3. if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.

Voluntary Winding Up of LLP

The process of Voluntary Winding up of LLP commences with the passing of a resolution to initiate the winding up of the LLP having the approval of at least three-fourths of the total number of Partners. If the LLP has creditors – both secured and unsecured, then the approval of the creditors is mandatory for winding up of the LLP.

Comparison – Which is Easier

The circumstances responsible for winding up of Limited Liability Partnership and Company are remarkably similar.

As distinguished from a Public Limited Company, typically the process is almost the same when it comes to winding up a Private Limited Company and Limited Liability Partnership. In both of the aforementioned cases:

1. Voluntary Winding up – In the case of Private Limited Company, the winding up of a Company would require resolution to be passed by the Shareholders and in the case of LLP, the approval of at least three-fourths of the total number of Partners would be a requirement as per the agreement between the partners.
2. Winding up by the Tribunal – In the case of Private Limited Company as well as LLP, the Tribunal could pass an order for winding up of the Private Limited Company or the LLP as the case may be.

The procedure for winding up in case of Public Limited Companies is rather complex and time-consuming, since apart from the resolution to be passed by the Shareholders in accordance with the Articles of Association in the case of Voluntary Winding up or Winding up of a Public Limited Company by a Tribunal:

1. Regulatory approvals such as approvals from Stock Exchange, SEBI, RBI and Registrar of Companies would be required to wind up the Public Limited Company.
2. Approval from the Ministry of Corporate Affairs – Government of India in addition to the above approvals.

As distinguished from the above, the Limited Liability Partnership performs all the business functions on the basis of a Partnership deed which is an agreement between the partners. The Deed contains the specifications regarding the procedure to be followed on winding up of the LLP.

Hence, it can be safely concluded that the Winding up of a Limited Liability Partnership is easier and less time consuming than a Public Limited Company.

Sources

1. Companies Act 2013 – Bare Act.
2. Limited Liability Partnership Act 2008 – Bare Act.
3. Business Law – Avatar Singh – 10^th
4. Definition of Winding up in ‘Modern Company Law’, 4^th
5. Definition of Winding up in ‘Pennington’s Company Law’, 5th Edn.
6. http://www.indiafilings.com/learn/how-to-close-a-llp-winding-up-of-llp/

In this blogpost, Sristy Ghosh, Student of University of Calcutta and  the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the four types of legal structures, important elements for choosing the business structure,  Some requirements from the Foreign Company as per the Indian Companies Act and the procedure for Winding up of a Foreign Company.

One of the most pivotal choices of an Entrepreneur, in a Business, is to choose the legal structure of his business, and not just choose the business structure, but choose correctly. While a wise decision might adorn an entrepreneur’s fate, a wrong one might nip the business, right in the bud.

There are four types of legal structures that one can choose from before starting up their business, namely;

• Self Proprietorships and One Person Companies (OPCs): It is the simplest structure and involves an individual who owns and operates his enterprise. It is best one intends to work alone and suitable for small start-ups.
• Partnerships: It is when two or more persons agree to share the profits of a business carried on by all or any of them, acting for all. It is best suited for two or more friends trying to open their start up.
• Limited Liability Partnerships ( LLPs ) : It is a standard structure recognized internationally which seeks to incorporate the operational flexibility of a partnership with the benefits of limited liability and separate legal identity of a company.
• Companies: Depending upon the minimum prescribed share capital, a company may be Public, Private or a One person Company. A company may also be Limited, Unlimited or Limited by Guarantee in terms of their Liability.

The selection of a correct or an incorrect structure of business will be affected by these five main elements:-

• Registration of the Business : The procedure of registering the business is the first step towards the formation of the business, and every structure has a different approach towards the registration. While in a sole proprietorship the terms and conditions are easy, it a bit more complicated in the other structures.
• Liability of the Business : How much liable or to what extent the entrepreneur wants to liable to the shares of his business will be determined by this tenet after selecting the structure of business wisely.
• The expense of the Entrepreneur : With how much budget the entrepreneur has come to start off his business has to be kept in mind before selecting the structure of business, as financing and funding from other sources are possible only in Public Companies.
• Taxation System : Every business structure has its own taxation system, the sole proprietors and partnership firms has to pay lesser tax than the Private and Public Companies. That is however because of our Tax system of the country. The richer one is, the more tax he has to pay.
• Time taken : A sole proprietorship, being a small project will emerge as a successful identity in a short while a Company will need time and patience to reach the epitomes of success.

However, there are other things as well that would be synonymously dynamic with the change in the business structure such as the legal entity status, perpetual succession, audit reports and finance.

These are some of the basics; one need to keep in mind before initiating any kind of entrepreneurship. As for a European entrepreneur who wishes to expand his business in India, certain other things are to be kept in mind. Before setting up the business in India, he should be asking himself the following questions:

• Am I expanding my business to India or setting up a different branch of business altogether?
• How shall I conduct the business of India from Europe?

Another thing to be kept in mind certainly would be that the European already has an established business in a foreign country.

Considering everything regarding these matters and all possible situations, the legal structure that would be best suited for the European, who wants to expand his business in India would be a Foreign Company vide section 2(42) of the Companies Act, 2013.

As per Section 2(42) of the Companies Act, 2013, a “foreign company” means a company or a body corporate incorporated outside India which,

• Has a place of business in India whether by itself or through an agent, physically or through electronic mode, and
• Conducts any business in India in any other manner.

We must keep in mind that the European, who wishes to expand,  has a structured entrepreneurial set up in Europe, he is just expanding it further to India, and that is why we are not considering the other structures of entrepreneurship which would require a start up from the very beginning.

Section 380 of the Companies Act, 2013 lays down that every foreign company which establishes a place of business in India must, within 30 days of the establishment of such place of business, file with the Registrar of Companies for Registration some of the following documents mentioned later.

Documents to be filed with the Registrar of Companies within 30 days of the establishment of business:

• A certified copy of the charter, statutes or memorandum and articles, of the company or other instrument, constituting or defining the constitution of the company and if the instrument is not in the English language, a certified translation thereof in the English language.
• The full address of the registered or the principal office of the company
• A list of the directors and the secretary of the company containing such particulars as may be prescribed.
• The name and the address or the names and the addresses of one or more person resident in India authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company.
• The full address of the office in India which is deemed to be its principal place of business in India.
• Particulars of opening and closing of a place of business in India on earlier occasion or occasions.
• Declaration that none of the directors of the company or the authorized representative in India has ever been convicted or debarred from formation of company and management in India or abroad
• Any other information as may be prescribed.

It is the duty of the foreign company to ensure that the name of the company, the country of incorporation, the fact of limited liability of members is exhibited in the specified places or documents as required under section 382.

Some requirements from the Foreign Company as per the Indian Companies Act

As per Section 381, a Foreign Company needs to maintain books of Account and a file a copy of balance sheet and profit and loss account in prescribed form every year. These accounts should also be accompanied by a list of place of business established by the foreign company in India.

Winding up of a Foreign Company

Vide section 376 of the Companies Act, 2013, it is provided that when a Foreign Company, which has been carrying on business in India, ceases to carry on such business in India, it may be wound up as unregistered company, even though the company has been dissolved or ceased to exist under the laws of country in which it was incorporated.

Another provision suggests where not less than 50% of the paid-up share capital of a foreign company is held by one or more citizens of India or by one or more bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this act as may be prescribed by the Central Government with regard to the business carried on by it in India, as if it were a company incorporated in India.

“ Carrying of business” or “Business carried”

Having a share transfer office or share registration office will constitute a place of business. In a decided case of Tovarishestvo Manufacture Liudvig Rabenek , it was held that where representatives of a company incorporated outside the country frequently sojourned in a hotel in England from where they looked after their business. As it was a continuous process and important decisions were regularly being taken from that same place, it was held that the company had a place of business in England.

In another case, it was held that having a mere property will not amount to a place from where business is carried on.

The following activities do not constitute “carrying on of business”

• Carrying small transactions
• Conducting meetings of shareholders or even directors
• Operating bank accounts
• Transferring of shares or other securities
• Operating through independent contractors
• Procuring orders
• Creating or financing of debts, charges on property
• Securing or collecting debts or enforcing claims to property of any kind.

At last, but not at the least, I would like to wish the European entrepreneur All the very Best in his endeavour to expand his business in India!

In this blogpost, Sayan Mukherjee, Student of University of Calcutta and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, Stamp duty on investment transactions (share issuance, share transfer) in Maharashtra.

Introduction

For a Mumbai based legal consultant, the first thing that he needs to know is about compliance requirements in a business transaction. Often clients step into the doors and put forward situations of investment transactions, demanding wide knowledge of local legislation. One such arena is payment of stamp duty.

Precisely, stamp duty is an indirect tax levied upon documents. In India, it is payable to the state government when an ‘instrument’ is executed. It is expressly stated under Maharashtra’s stamp duty law that “stamp duty is not levied on a transaction, but is leviable on an instrument”.

Basically, investment transactions deal with two concepts- transfer of shares and issuance of shares. Stamp duty on each has to be separately understood.

For transfer of share

According to S. 2(1) of the Bombay Stamp Act, 1958-

“‘Instrument’ includes every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded, but does not include a bill of exchange, cheque, promissory note, bill of lading, letter of credit, policy of insurance, transfer of share, debenture, proxy and receipt.”

However, vide 91 of Union List, State governments do not have any power to legislate for the payment of stamp duty on certain instruments (viz., bills of exchange, letters of credit and receipts, promissory notes, proxies, transfer forms for transfer of shares, debentures, bills of lading) where the Central government is solely empowered to collect stamp duty.

Stamp duty on transfer of share is borne by the person executing the document, i.e., transferor or the seller in case of a company’s share.But in practice, we see that it is always the transferee who affixes the share transfer stamps on the instrument at the time of registration of transfer in his favour.

The stamp must be affixed before or at the time of execution. According to section 108 of the Companies Act, 1956, a company shall not register transfer of shares unless a proper instrument of transfer is duly stamped and executed by the transferor and the transferee has been delivered to the company.

At the time of execution, cancellation of the adhesive stamp is mandatory so that they are not used again. Generally, this is done by writing name or initial across the stamps. The instrument is deemed to be unstamped if such cancellation is not made. (Muniamma Vs Arathi Cine enterprises (P) Ltd.).

Stamp duty on share transfer is an ad valorem duty in respect of the value of such stock or security according to the average price of the marketable security, on the date of the instrument.

The rate of such stamp duty in an incorporated company or other body corporate is- “25 paise for every Rs. 100 or part thereof of the value of the share” (vide art 62 of schedule 1- Indian Stamp Act)

After the Depositories Act was enacted, Indian stamp act inserted Section 8A. According to this new section, securities issued in electronic form need not be stamped provided the issuer pays consolidated stamp duty on the total amount of securities issued.

For issue of shares

According to section 3 of Indian Stamp Act, 1899, the company shall pay the stamp duty within thirty days after the Issue of Share Certificate as per the stamp act of respective State. Stamp duty in Maharashtra is governed by Bombay Stamp Act, 1958.

Stamp duty payable on share certificate is lower in some states than other. It is ‘higher in Maharashtra’ and probably ‘Lowest in Delhi’. In Maharashtra is governed by schedule 1 of the Act.

In this case, stamp duty is paid on the issue price and not on the value of the security.

Other norms similar to that of transfer of shares, stamp duty if not duly paid has serious consequences. According to the Bombay Stamp Act, Consequences of undervaluation or short payment:

1. Any officer registering any instrument of conveyance, exchange, gift, certificate of sale, deed of partition or power of attorney to sell immovable property, deed of settlement or transfer of lease or any person with authority to receive evidence or any person in charge of public office before whom such instrument is presented, may-

give notice for payment of adequate stamp duty by making up the deficit and penalty at 2% p.m. of the deficit (not exceeding 200% of                                                    the deficit) or

refer a true copy of such instrument to the Collector, if he has reason to believe that it is undervalued.

2.On receipt of the instrument by the Collector, he can call for the difference between the amounts of duty payable and actually paid.

3.In addition, he has to levy penalty of 2% p.m. (not exceeding 200% of the deficit) of differential amount of duty or part thereof, where the persons mentioned in as have not levied any penalty.

4. Such instrument will not be admitted in evidence by any person having the authority to receive evidence, and/or registered unless penalty of 2% p.m. of the deficient stamp duty (not exceeding 200% of the deficit) is paid along with unpaid duty.

5. Every person with authority to receive evidence and every person in charge of public office can impound such an instrument when produced before such person.

6. On receipt of impounded document, the Collector can collect deficiency in stamp duty along with penalty of an amount equal to 2% p.m. (not exceeding 200% of the deficit) of the deficit portion of stamp duty or part thereof subject to a minimum penalty of Rs. 100.

7.A person can be punished with rigorous imprisonment for up to 6 months (not less than 1 month) and with fine up to Rs. 5,000, if it is proved that the instrument was undervalued or short payment of duty was made with intention to evade duty.

The true rate of stamp duty in Maharashtra on the certificate or other document of shares, scrip, stock, etc., including the amount of premium is Re. 1 for every Rs. 1,000 or part thereof.

Conclusion

By introduction of franking machines and electronic investment transaction benefits, tax bearers have been relieved of much complexity of stamp duty process. Moreover, several amendments like 2015 amendment of Bombay Stamp Act and landmark judgements like Hindustan Lever &Anr vs State Of Maharashtra &Anr has added tremendous dynamics to the subject of stamp duty in India.

In this blogpost, Subhalagna Choudhury, Student of University of Calcutta and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about, When Foreign Companies Are Required To File Compliances Under The Indian Companies Act

Understanding the meaning

A ‘Foreign Company’  is a company or a Body Corporate, incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conduct any business activity in India in any other manner {section 2(42) of The Companies Act, 2013}. This new act refers to a Company or a Body Corporate incorporated outside India. This, therefore, extends to other foreign entities as well. The new act has been constituted at a time of technological prominence. That is why electronic modes of business have achieved tremendous popularity, and thus, the Act puts an emphasis on electronic mode of communication. Thus, a foreign company , that carries out business from an established place in India is needed to follow certain guidelines or rather abide by certain compliances that are exhaustively dealt in The Companies Act, 2013. However, not all foreign companies are required to follow the compliance under the Companies Act, 2013. Compliance essentially is for those companies, where more 51% of the shares, are held by Indian shareholder/s. This is because, in such cases, the company is treated like any other Indian company. There are a number of compliances that a foreign company needs to follow in India. It includes compliances under Foreign Exchange and Management Act (FEMA), procedural filings and even certain tax laws, in the case of their products or services being sold in the Indian markets. In calculating the respective stakes of the foreign companies, it is important to understand that total foreign investment is the summation of direct foreign investment and indirect foreign investment. Thus, a foreign company in India needs to follow the compliances when it operates in any of the below forms:

• Branch Office
• Liaison Office
• Project Office
• Corporate Entity
• Joint Venture/ Partnerships etc

According to section 379 of The Companies Act, 2013 where not less than fifty percent of the paid up share capital, whether it is equity share or preference share of a foreign company is held by one or more citizens in India, or by one or more Companies or Body Corporate incorporated in India, whether singly or in aggregate, such company is required to comply with the provisions of chapter XXII of the , 2013

Compliance required by foreign companies in India is exclusively dealt in chapter XXII of The Companies Act, 2013 and the Companies (Registration of Foreign Companies ) Rules, 2013. When a foreign company is operating in India as any of the above entities, it has to adhere to certain compliance guidelines.

Under The Companies Act 1956, there was no compliance procedure to be followed by the foreign companies. This was because at that time, the economic scenario of the Indian economy was staggering and Indian entities did not own much shares of a foreign company. Foreign companies then did not have to comply with the sections 592 to 602 of the old act. The rights and liabilities of such companies were similar to that of Indian companies. Because of this leniency, there were tax evasion and other financial corruptions. But with the rising economic development , Indian shareholding in foreign companies saw an upward swing. Thus, the new law was more strict with the compliance procedures, that limited the privilege of  foreign companies and required them to follow the compliance procedures as given in chapter XXII of the companies act 3013.

Section 379 has created a considerable dilution of meaning and created doubt as to whether the provisions would be applicable to only those companies falling under the section or whether it is to apply to all foreign companies. We might as well assume that the act applies to only those foreign companies where more than half the paid up capital is held by the Indian citizens. Does that mean, that a foreign company not having such ownership can as well not comply with the provisions of the said chapter?

The following elaboration may clarify the doubt.

Explanation

Instance 1: Suppose A is a foreign company which has its place of operation in India. The shares are held by a foreign entity, X ( 50% of the paid up capital), and Y  is an Indian company holding the rest 50% of the paid-up share capital. This is a case, where under the revised company law, such a company has to abide by the compliances laid down in chapter XXII of the Indian companies act, 2013. Thus, there is no exemption of the particular foreign company.

Instance 2: consider four companies—-Company A, COMPANY B , Company B, Company D. In case of Company A the Indians hold 50% of the paid-up share capital, and the company operates in India. In Company B, Indian shareholding is 40%  and the company has its operations in India. In Company C, Indian shareholding is 75% of the paid-up share capital but there is no offices or business of the company in India, and in Company D, the total Indian paid up share capital nil, where the company operates in India. In other words, in the case of Company D there is no ownership of share capital by Indian entities.

Now if one considers Company A, it is to be noted that it complies with the provisions of section 379 of the Indian Companies Act, 2013 whereby holding fifty percent of the paid-up share capital. Thus, it has to comply with the compliances laid down under chapter XXII of the companies act 2013. Like any other Indian companies, it shall not stand exempted from any tax laws or RBI regulations.

In the case of Company B, where the shareholding by Indian entities is less than fifty percent, but business operations are conducted in India, it is to be noted that this company shall be complying with the compliances laid down in chapter XXII. However, it is exempted from the other compliances that may be applicable to Indian companies.

In the case of Company C, it may have a large percentage of the paid up share capital, namely 75% . However because it does not carry out its business operations in India, it shall remain exempted from the provisions of compliances under this chapter.

Company D is a company where there are no Indian stakes. Thus, it fails to fulfil the criteria of section 379, and hence it shall remain exempted from all forms of compliances under this chapter.

Raising of capital

The foreign companies, carrying out their respective businesses in India usually do not access the Indian capital markets. They approach the private investors, banks or other financial institutions for raising capital. If capital, is to be accessed publicly, they are required to issue a prospectus. There are specific documents laid down under rule 11 of the Companies ( Registration Of Foreign Companies) Rules, 2014 which are to be annexed with the prospectus such as :

• Consent from any person who is an expert.
• A copy of contracts for appointment of managing director or manager
• A copy of any other material contracts not entered in the ordinary course of business but entered within preceding two years etc

A foreign company must comply with section 34 to 36 that elaborates on the fact that a prospectus issued by a foreign company shall be treated as s it has been issued by an Indian company

Winding up

A foreign company may be wound up as an unregistered company if it ceases to carry out its operations in India whether the body corporate has been dissolved or ceased to exist as per the law, under which it was incorporated ( section 376)

Contravention Or Non-Compliance

As per the provisions of section 391, any foreign company  that contravenes the provisions as laid down in chapter XXII of the Companies Act 2013, shall be punished with a fine of one lakh rupees which may be extended to 3 lakh rupees, and if such contravention continues there can be a charge of fifty thousand rupees every day, and the officers in default shall be punished with imprisonment that may be six months with a fine between twenty five thousand and 5 lakh rupees. The company shall also be barred from instituting any legal proceedings in connection with any of its contract. This in no case shall, however, affect the validity of the contract.

Conclusion

Compliances, in general, are required by every corporate house to ensure the fulfilment of its objectives and long term goals. Compliances help a company to remain free of legal charges which in turn aids in its smooth functioning. A relatively modern concept is the ‘Corporate Social Responsibility’ or the CSR. This too is significant in the growth of an economy, as it helps to evaluate the development at the cost of social disturbances. It thus checks an entrepreneur from over-exploitation of resources and thereby promotes responsible entrepreneurship.

Acknowledgements and Idea

 1)  www.indiacorplaw.blogspot.in

   2)   www.icai.org

In this blogpost, Sayan Mukherjee, Student of University of Calcutta and the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about the top 5 transfer pricing ruling of 2015-2016.

Introduction

Hertope we are setting up to discuss the most debated concern for the Indian Tax Authorities in relatively recent times. Development of multinational trade and commerce has triggered the growth of Transfer Pricing in India. The concept of Transfer Pricing although being at the growing stage, yet its early reference is immemorial. Before going into the rulings under Transfer Pricing provisions, we need to understand the various insights of the concept.

The insights of transfer pricing rulings

Basically, the word Transfer Pricing (TP) may be interpreted as the method of ascertaining the price of goods and services transacted between controlled or related legal entities within a company. It relates to the price at which the subsidiaries of a business sell to each other.

The related legal entities referred to in this context are termed as Associated Enterprises (AEs) defined u/s 92A of the Income Tax Act, 1961. It means direct / indirect participation in the management, control or capital of an enterprise by another enterprise.

The supposed price which is to be used in this regard is called Arm’s Length Price. According to section 92F(ii) of the Income Tax Act, 1961- “arm’s length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises, in uncontrolled conditions.” The methods prescribed u/s 92C for determination of the arm’s length price required in every transaction between AE are mentioned below:

1. Comparable uncontrolled price (CUP) method
2. Resale price method (RPM)
3. Cost plus method (CPM)
4. Profit split method (PSM)
5. Transactional net margin method (TNMM)
6. Other method (applicable from FY 2011-12 onwards)

From the above definitions, we find that the concept is logical and simple. Multinational Corporations (MNCs) and big concerns tend to manipulate their profit margins intentionally as per the varying tax rates in different countries. They reduce their profits in countries where tax rates are high and vice versa. This global level manipulation for better net earnings is of great concern to the tax authorities as the governmental revenues tend to reduce in such scenarios. Keeping this in mind, the Ministry of Finance- Central Board of Direct Tax (CBDT) develops several weapons from time to time so that the manipulation can be curtailed and tax is properly ascertained on transactions between units of associated enterprises. These are called Transfer Pricing Rulings. The CBDT has also set up a Transfer Pricing Cell for conducting transfer pricing audits. The guidelines have been enclosed in the following legal vehicles:

• The Income Tax Act, 1961, sections 92 to 92F;
• Rules 10A to 10G of the Income Tax Rules, 1962;
• Circular No. 12 of August 23, 2001;
• Circular No. 14 of December 24, 2001;
• Circular No. 06/2013 dated June 29, 2013;
• Administrative Guidelines of May 20, 2003.

The Union Budget every year introduces certain changes in the TP provisions with the aim to align the Indian TP regime with the global standards.

The countdown

The most significant 5 transfer pricing rulings applicable in Indian context in the FY 2015-16 may be counted down as below:

Five

Taxpayers are required to maintain on an annual basis, detailed documentation relating to international transactions undertaken with AEs or specified domestic transactions (vide Rule 10D of the Income Tax Rules 1962). Mainly, there are two parts of such requirements-

Firstly, the mandatory documents that a taxpayer must maintain the ownership structure of the taxpayer, group profile, business overview and AEs, prescribed international transaction or specified domestic transaction details and financial forecasts. It further demands documentation of extensive TP study.

The second part of the Rules need adequate documentation which substantiates the information documented in the first part. It also contains a recommended list of supporting documents including government publication, reports, studies, etc.

International transaction below INR 10 million and specified domestic transaction below 50 million (revised vide Finance Act 2015)are relieved from such requirements.

Companies to which TP regulations are applicable are required to file their documents and tax returns on or before 30 November. Such documents must be maintained for a period of 9 years from the end of the relevant tax year.

Four

In respect of all international transactions or specified domestic transactions, it is mandatory for all taxpayers to obtain an independent accountant’s report. This must be furnished on or before 30 November. The form (Form no. 3CEB) of the report was revised with effect from FY 2012-13 and includes new matters like corporate guarantees, the issue of shares, deemed international transactions, etc. The report requires the accountant to give an opinion on documentation compliance by the taxpayer. Moreover, it certifies the correctness of an extensive list of prescribed information.

Three

The CBDT was empowered to formulate the safe harbour rules with a view to reduce the quantity of TP audits and lengthy disputes regarding comparability analysis under TP. The rules governing safe harbour points out the circumstances in which the authorities would accept the arm’s length price as declared by the taxpayer, without detailed analysis, if certain criteria are satisfied. The ‘eligible assesse’ along with different thresholds has been defined for transactions like- knowledge process outsourcing services, software development services, contract manufacturing of core and non-core auto components and transactions, etc. Moreover, the CBDT also notified that the rule would apply in the case of government electricity companies for specified domestic transactions. The most significant aspect being its publication in recent times which is expected to lift its low rate of response.

Two

A remarkable step in TP rulings taken by Indian government is regarding thin capitalisation. In the corporate world, a company is said to be thinly capitalised when it has more debt than equity. There were no rules that specifically set permissible debt-to-equity ratios in any TP code. But, the Indian government intends to introduce within 2 years, the general anti-avoidance rules (GAAR) which incorporate then the concept of thin capitalisation.

The proposed regulation does not include any capital gearing ratio, unlike typical thin capitalisation regulations. Instead, it characterises debt as equity and vice versa where the arrangement among parties is:

1. Not at arm’s length,
2. Has less commercial substance,
3. Means adopted which are not ordinarily for bona fide purposes.

The lack of capital gearing ratio allows discretion of the Revenues while it ascertains whether a given capital structure is an impermissible avoidance arrangement.

One

Advance pricing agreements (APAs) has to be ranked at the top of all transfer pricing rulings in 2015-16. Right from its introduction on 1^st July 2012 by the Indian authorities, APA has had an overwhelming response. Approximately, 550 unilateral applications have been filed in the past three years. As of 31 March 2015, the taxpayers and the government have signed 8 unilateral APAs and 1 bilateral APA while several more upcoming signings on its verge.

It is to be noted that APA rules don’t prescribe any threshold for the application. Again, this mechanism is unavailable for specified domestic transaction.  APA shall be compulsorily binding on the taxpayers and its validity shall not exceed 5 consecutive years. Based on the value of the international transaction, APA fee ranges between INR1 million to 2 million. The four phases of APA as per global standards are listed below:

1. Pre-filing phase: Deals with pre-filing consultation meeting and involves no payment of fees.
2. Formal submission phase: Application for APA stating the critical assumptions is made in required Filing fees are payable at this phase.
3. Negotiation phase: Draft report prepared & provided to the competent authorities.
4. Finalisation phase: Comments on draft APA, finalisation and effect giving to APA terms are dealt with in this phase.

As a part of APA, the taxpayer needs to prepare an annual compliance report (ACR) for every year. The ACR is to be furnished by 30 days of Income Tax Return filing or within 90 days of APA (once entered into), whichever is later.

Conclusion

India has thus witnessed some interesting transfer pricing developments in the FY 2015-16. Significantly, India has concluded its first bilateral APA with the Japanese within a record period of one and a half years. The rollback provision introduced in APAs has been a welcome step towards the reduction of litigation. Another major controversy regarding ‘Issue of Shares’ (whether an international transaction was covered under Indian transfer pricing rulings) was finally settled. The government decided to accept the Mumbai HC decision in favour of the taxpayers. Again, the introduction of the use of multiple-year data and the range concept (in line with global leading practices) increased the scope of transfer pricing in India. The government also announced a risk-based approach, negating the transaction-value-based methodology, for selecting the relevant cases for audit.

Hence, it will be interesting to see how the legislation acts to modify the Indian transfer pricing regulations as committed under the G20 Summit in line with the Base Erosion and Profit Shifting (BEPS) initiatives.