The Banning of Unregulated Deposit Schemes Act, 2019 6.147 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication fine ranging from ` 3 lakh to ` 10 lakh. Defaulting in repayment of unregulated deposits will be punishable with imprisonment between 3 to 10 years, and a fine ranging from ` 5 lakh to twice the amount collected from depositors. Repeated offenders under the Act will be punishable with imprisonment between 5 to 10 years, along with a fine ranging from ` 10 lakh to ` 5 crore. Impact of the Act: With enactment of this law, forming and running any UDS and accepting any deposits thereunder is prohibited. It also prohibits and punishes a person who is inducing another person to participate in UDS by falsifying the facts. Simultaneously, it also punishes a person for non-repayment of deposits. Section 10 of the Act requires every person carrying on business or profession of receiving loans, advances or deposits to report to the Authority in the prescribed form. Such Form, solemnly affirmed by the deposit taker has to specify Name, PAN, Registered address of Deposit taker, details of Branch, Unique Identification no., Authority to carry on Deposit taking, Name and Address of the management of deposit taker. Such Form shall be submitted within a period of 30 days from the commencement of the business. In case of any change in any particulars submitted to the said authority, such change shall be intimated within a period of thirty days from the date of the change. Almost a year after the Banning of Unregulated Deposits Schemes Act, 2019 came into force, the Ministry of Finance has notified The Banning of Unregulated Deposits Schemes Rules, 2020 vide notification dated 12th February, 2020. The same provide inter-alia for the following: • Information and other particulars to be taken into consideration by Competent Authority before issuing an order of provisional attachment of the properties of deposit takers who contravene the Act, the manner of making such provisional attachment, and the manner of seeking confirmation of such provisional attachment. • Procedure to be followed by the designated Courts while determining whether the order of provisional attachment should be made absolute or not • Information regarding deposit takers operating in India to be maintained by the central online repository (i.e., an authority appointed by the Central Government) (Repository Authority) in an online database.. • Intimation to be made by every deposit taker to the Repository Authority regarding its business. • Retraction of newspaper advertisements by Newspaper or Publication that relate to Unregulated Deposit Schemes Subsequently, to examine the effectiveness and implementation of the rules, a High Level Committee was formed which submitted its report in March 2021. The committee recommended inter alia, for • creation of central database of deposit takers and making it available through website • creation of a central mechanism/agency, to oversee the implementation of the Act by the State/UT Governments • laying down clear guidelines on what constitutes a deceptive scheme without any ambiguity • provision of Rules that may clearly provide for deposits that constitute legitimate business transactions and thus fall within deposits taken in “normal course of business” • provision in law for heavy penalty for Celebrity endorsements to ensure that the claims made in their endorsements are not false, half-truth, misleading or unsubstantiated. It is expected that with the Rules and other mechanisms now being in force, the implementation of the Act will see the light of day. 2
Allied Laws 6.148 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication XVI. The Benami Transactions (Prohibition) Amendment Act, 2016 (1) What is Benami Property? As per section 4 (8) of the Benami Transaction (Prohibition)Amendment Act, 2016 (‘PBT Act’) means any property which is the subject matter of a benami transaction and also includes the proceeds from such property. (2) Who is a Benamidar and Beneficial Owner? As per section 4 (10) of the PBT Act, “benamidar” means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name. As per section 4(12) of the PBT Act, “beneficial owner” means a person, whether his identity is known or not, for whose benefit the benami property is held by a benamidar. (3) What is a Benami transaction? “benami transaction” means,— • a transaction or an arrangement— — where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and — the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration, except when the property is held by— a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family; a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose; any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual; any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as jointowners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or • a transaction or an arrangement in respect of a property carried out or made in a fictitious name; or • a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; • a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious; Explanation.—For the removal of doubts, it is hereby declared that benami transaction shall
The Banning of Unregulated Deposit Schemes Act, 2019 6.149 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication not include any transaction involving the allowing of possession of any property to be taken or retained in part performance of a contract referred to in section 53A of the Transfer of Property Act, 1882, if, under any law for the time being in force,— • consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property; • stamp duty on such transaction or arrangement has been paid; and • the contract has been registered. (4) Punishment for Benami transaction • Confiscation of benami property • Where a benami transaction has been entered into to defeat the provisions of any law, avoid payment of statutory dues or avoid payment to creditors, any person who enters or abets/induces another person to enter into such a transaction would be punishable with: — Imprisonment between 1 to 7 years and — Fine up to 25% of the fair market value of the property Where a person who is required to provide information under this Act provides false information, he shall be punishable with: — Imprisonment between 6 months to 5 years and — Fine up to 10% of the fair market value of the property 2
Allied Laws 6.150 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication XVII. Valuation Reports – Requirements under various Laws The valuation profession in India is not simple anymore. It is right now at the cusp of continuous change. The last 10 years have seen more changes to the valuation profession than the last 25 years before that. With every change comes challenges and with frequent changes comes confusion. As practicing finance and valuation professionals, we regularly get asked by clients, “Do I require a valuation report here?” and more frequently “Who can issue this valuation report?” Take an example of a regular transaction where there is an issue of shares by a company to a non-resident and a resident. Here, we will require three different valuation reports for the same transaction from three different professionals. Since it is a fresh issue of shares, a valuation report would be required under the Companies Act, again because the issue of shares is to a non-resident, a valuation report would be required under the pricing guidelines of FEMA and lastly because the shares are also being issued to a resident, a valuation report would also be required under the Income Tax Rules. Can the same valuation professional issue it? The answer is no. The Companies Act report has to be issued only by a registered valuer, the FEMA report by a chartered accountant or a merchant banker and the income tax report only by a merchant banker. More such examples can be given but the questions remain the same and the confusion continues to remain. The regulatory authorities are well aware and the wheels are already in motion to streamline the requirements and the professional who can issue such a report. For eg. the recently issued Foreign Exchange Management (Overseas Investment) Rules, 2022 talk about a registered valuer, instead of the earlier requirement of a chartered accountant or a merchant banker, though the same has yet to be notified. Similarly, the income tax authorities are looking to adopt valuation norms similar to the FEMA guidelines. The general consensus and the trend seen seems to be that all stake holders would gradually gravitate towards The Companies (Registered Valuers And Valuation) Rules, 2017 and by implication towards a regime where all valuations would be required to be carried out by a registered valuer. There is also a draft valuers bill in the pipeline and plans to establish a national institute for regulation and development of valuation professionals. As it stands today, a valuation report can be issued by respective professionals as mentioned under each regulation. The below table should help both clients and professionals to understand when would they require a valuation report and from whom, based on the current regulations in place. Under the Companies Act and SEBI Regulations No. Regulation Section Valuation Requirement Report to be issued by 1 The Companies Act 2013 62(1)(c) read with Rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014 Further issue of share capital Registered Valuer 2 The Companies Act 2013 Section 177(4)(vi) Terms of reference of Audit Committee Registered Valuer
Valuation Reports – Requirements under various Laws 6.151 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication No. Regulation Section Valuation Requirement Report to be issued by 3 The Companies Act 2013 Section 192(1) and 192(2) Restriction on non-cash transactions involving directors Registered Valuer 4 The Companies Act 2013 Section 230(2)(c)(v) and Section 230(3) Power to compromise or make arrangements with creditors and members Registered Valuer 5 The Companies Act 2013 Section 232 (2)(d) and Section 232 (3) (h)(B) Merger and amalgamation of companies Registered Valuer 6 The Companies Act 2013 Section 236(2) Purchase of minority shareholding Registered Valuer 7 The Companies Act 2013 Section 247(1) Valuation by Registered Valuers Registered Valuer 8 The Companies Act 2013 Section 281(1)(a) Submission of report by Company Liquidator Registered Valuer 9 The Companies (Acceptance of Deposit) Rules, 2014 Rule 2(c)(ix) Exclusions from deposits. Registered Valuer 10 The Companies (Acceptance of Deposit) Rules, 2014 Rule 6(1) Creation of security Registered Valuer 11 The Companies (Share Capital and Debentures) Rules, 2014 Rule 8(6), (7), (9) and (12) Issue of sweat equity shares Registered Valuer 12 The Companies (Share Capital and Debentures) Rules, 2014 Rule 16(1)(c) Provision of money by company for purchase of its own shares by employees or by trustees, for the benefit of employees Registered Valuer 13 The Companies (Prospectus and Allotment of Securities) Rules, 2014 Rule 12(5) Return of allotment Registered Valuer Under the Insolvency and Bankruptcy Code 2016 and IBC Regulations No. Regulation Section Valuation Requirement Report to be issued by 1 Insolvency and Bankruptcy Code 2016 59(3)(b)(ii) Voluntary liquidation of corporate persons Registered Valuer 2 Insolvency and Bankruptcy Code 2016 46(2) Relevant period for avoidable transactions Independent Expert
Allied Laws 6.152 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication No. Regulation Section Valuation Requirement Report to be issued by 3 IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 R e g u l a t i o n 27 read with regulation 35 1) Appointment of registered valuers; 2) Fair value and liquidation value Registered Valuer 4 IBBI (Liquidation Process) Regulations, 2016 Regulation 35 Valuation of assets intended to be sold Registered Valuer 5 IBBI (Voluntary Liquidation Process) Regulations, 2017 Regulation 3(1) (b)(ii) Initiation of liquidation Registered Valuer 6 IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 Regulation 26 Appointment of registered valuer Registered Valuer 7 IBBI (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 Regulation 26 Liquidation value Registered Valuer Under the Income Tax Act and Income Tax Rules No. Regulation Section Valuation Requirement Report to be issued by 1 The Income Tax Act, 1961 9 Valuation of an asset being an unquoted share of an Indian company Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker 2 The Income Tax Act, 1961 9 Valuation of an asset being an interest in a partnership firm or an association of persons in India Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker 3 The Income Tax Act, 1961 9 Valuation of an asset other than a quoted share of an Indian company, unquoted share and interest in a partnership firm or an association of persons in India Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker 4 The Income Tax Act, 1961 9 Valuation of an asset being a quoted share of an Indian company Not Specified 5 The Income Tax Act, 1961 9 Valuation of all the assets of a foreign company or an entity Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker
Valuation Reports – Requirements under various Laws 6.153 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication No. Regulation Section Valuation Requirement Report to be issued by 6 The Income Tax Act, 1961 9 Valuation of unquoted share of a foreign company or entity Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker 7 The Income Tax Act, 1961 9 Valuation of a quoted share of a foreign company or entity Not Specified 8 The Income Tax Act, 1961 50CA Valuation of unquoted equity shares using prescribed formula Not Specified 9 The Income Tax Act, 1961 56(2) (viib) Valuation of unquoted equity shares using prescribed formula Not Specified 10 The Income Tax Act, 1961 56(2) (viib) Valuation of unquoted equity shares using DCF method Merchant Banker 11 The Income Tax Act, 1961 56(2) (viib) Valuation of unquoted shares and securities other than equity Accountant as referred to in the Explanation to subsection (2) of section 288 or Merchant Banker 12 The Income Tax Act, 1961 56(2) (viib) Valuation of quoted shares and securities Not Specified Under the Foreign Exchange Management Act and Pricing Guidelines No. Regulation Section Valuation Requirement Report to be issued by 1 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of an unlisted Indian company issued by it to a person resident outside India Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant 2 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of a listed Indian company issued by it to a person resident outside India Not Specified 3 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of an unlisted Indian company transferred by a person resident in India to a person resident outside India Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant 4 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of a listed Indian company transferred by a person resident in India to a person resident outside India Not Specified
Allied Laws 6.154 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication No. Regulation Section Valuation Requirement Report to be issued by 5 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of an unlisted Indian company transferred by a person resident outside India to a person resident in India Chartered Accountant or a SEBI registered Merchant Banker or a practicing Cost Accountant 6 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines The price of equity instruments of a listed Indian company transferred by a person resident outside India to a person resident in India Not Specified 7 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines Swap of equity instruments Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country 8 The Foreign Exchange Management (NonDebt Instruments) Rules, 2019 Pricing Guidelines Investment in an LLP Chartered Accountant or a practicing Cost Accountant or an approved valuer from the panel maintained by the Central Government. 9 Foreign Exchange Management (Overseas Investment) Rules, 2022 Pricing Guidelines Valuation of shares of an existing company outside India for the purpose of investment by way of remittance from India where the investment is more than USD 5 million Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country 10 Foreign Exchange Management (Overseas Investment) Rules, 2022 Pricing Guidelines Valuation of shares of an existing company outside India for the purpose of investment by way of remittance from India where the investment is equal to or less than USD 5 million Chartered Accountant or a Certified Public Accountant 11 Foreign Exchange Management (Overseas Investment) Rules, 2022 Pricing Guidelines Valuation of shares of an existing company outside India where the consideration is to be paid fully or partly by issue of the Indian party’s shares Category I Merchant Banker registered with SEBI or an Investment Banker outside India registered with the appropriate regulatory authority in the host country 2
Leave and Licences 6.155 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication XVIII. Leave and Licences I. Introduction Leave and Licence Agreements are a popular mode of occupying immovable property (both offices and residences) especially in the city of Mumbai. Leave and Licence agreement is different from leases as leases create an interest in property whereas the former does not. Also, leases are transferable which is not the case in a Leave and Licence agreement. Licensor is the person who grants the Licence and a Licensee is the person who pays for the Licence and enjoys the rights. Licences must not be confused with leases or rental agreements as they are each different in their own aspects. Characteristics of Leave and License Agreement A popular choice among landlords, the Leave and Licence agreement has the following properties. • No transfer of interest is created from owner to tenant. • No property rights is created • The amount due as Licence fee, deposit and other charges can be contractually determined by participating individuals • Typical duration of contract is eleven (11) months. But Commercial leases are often of long duration, sometimes running into 5-6 years as well. In case of factories, cinema halls or such other properties leases can be multi-decades or even multi-century long. • Owner maintains higher freedom and rights when it comes to cancellation and eviction of tenant. II. Indian Easements Act, 1882 2.1 There is no statutory definition for the term “leave and licence”. The first statute which is relevant for a leave and licence is the Indian Easements Act, 1882. S. 52 of the Act, defines a ‘licence’ as a right granted by one person to another to do something in or upon the grantor’s immovable property, which act would in the absence of such a right be unlawful. It further states that a licence must not amount to an easement or an interest in the property. Thus, a licence is only a permission or a right to do something upon an immovable property. It is solely a personal right or privilege granted to the licensee by the licensor. A licence does not confer any interest in the immovable property. 2.2 S.56 of the Act provides that a licence cannot be transferred by a licensee or his agent unless the terms of the licence so provide. A licence cannot be assigned by the licensee. 2.3 A leave and licence of an immovable property is different from a lease of the same as the lease creates an interest in the property which the licence does not. Over a period of time the Supreme Court and various High Courts have laid down several tests for determining a licence from a lease but none of them are conclusive. The most famous being that of Associated Hotels of India Ltd. v. R.N. Kapoor, AIR 1959 SC 1262 and the latest decision on this issue is of ICICI, (1999) 5 SCC 708 (SC). 2.4 A wide scale misconception among many people is that a leave and licence can only be for 11 months. How To Make A Leave And Licence Agreement Legally Valid? • Prepare Contents of Deed • print it on stamp paper of required value. • The licensor and the licensee must then place their signatures in the designated places along with the signatures of two (2) witnesses
Allied Laws 6.156 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication Differences Between Lease And Leave And Licence Agreement Basis Lease agreement Leave and License Agreement Interest in Property Creates interest in Property Does Not create interest in property Possession Grants exclusive possession of immovable property Only provides permission to occupy certain property Transferability Leases are transferable Licenses are untransferable Revocability Unrevocable Revocable Governance Rent Control Act Indian Contract Act The Advantages Of The Leave And Licence Agreement Let’s take a look at some of the advantages- • makes eviction and in general, getting the tenant to vacate the house easier. • No property rights are created in the favour of the lessee. • No transfer of interest occurs. • Keeps the Rent Control Acts away as this cannot be considered as tenancy. It falls under the Indian Contract Act. III. Rent Act 3.1 The Maharashtra Rent Control Act, 1999 now covers within its ambit all leave and licence arrangements. 3.2 The landlord is responsible for getting the leave and licence agreement registered under the Registration Act. Any landlord who contravenes these provisions shall on conviction be punished with imprisonment up to 3 months and/or fine up to ₹ 5,000. IV. Stamp Duty 4.1 According to Art.36A of the Bombay Stamp Act, the stamp duty on a leave and licence agreement varies according to the location of the property and the tenure of the agreement. 4.2 Please refer to the Topic on Stamp Duties – Schedule 1, Art.36A for the levy of stamp duty. The Leave and Licence agreement sets up a more relaxed owner-tenant relationship as compared to the regular rental deed. In places like Mumbai they are widely used as an alternative to leases and similar documents. 2
Leave and Licences 6.157 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication
Allied Laws 6.158 R7ima5ine Celebrating 1949 - 2023 BCAS REFERENCER 2023-24 61 Years of Continuous Publication