Electronic filing of service tax return made mandatory for all

Ministry of Finance vide its notification no. 43/2011 dated 25th of August, 2011 has mandated compulsory filings of service tax returns for all the assessee electronically. 

Earlier the filing of return was mandatory for the assesses who have paid a total service tax of Rupees Ten Lakhs or more, including the amount paid by utilization of CENVAT Credit in the preceding financial year. Now, with effect from 01st October, 2011 every assessee needs to file their half yearly returns through online only.

Click here to download a copy of the Notification

NEW STOCKEXCHANGE AN UNKNOWN ENTITY

The stage is set for the launch of the SME Exchange by the Bombay Stock Exchange (BSE) in September, but most of the potential beneficiaries do not seem to know about it. The growing cost of funds due to the tightening of liquidity by the Reserve Bank of India has forced SMEs to look for alternative sources of long-term funds, and public money can be a viable option. However, it looks like an uphill task for promoters of the BSE SME Exchange to disseminate information about it to the target audience. When approached by Business Standard ,even prominent industry associations such as SIMA (South India Millers’ Association), Roller Flour Millers Federation of India, Chandigarh, Industrial Fasteners Association, Haryana Chamber of Commerce and Industry and chartered accountants across India had little inkling of the details of the initiative undertaken by the BSE for SMEs. KSelveraj, the secretary general of SIMA, said it would have been “wonderful” to raise funds from the equity market, since the cost of borrowing from banks has gone through the roof. But there had been no communication from the BSE SME Exchange to the association on this initiative, he remarked. SIMA has over 450 members in the four states of Andhra Pradesh, Karnataka, Tamil Nadu and Kerala and the Union Territory of Puducherry running spinning mills, and their working capital requirements are substantial. Acknowledging the need for a dedicated SME exchange and its utility for small IT companies, Omkar Rai, senior director of the STPI (Software Technology Parks of India), said small businesses need funds in small quantities at a reasonable cost. The SME exchange could certainly help them. There are about 7,000 IT companies working under the umbrella of the STPI and over 70 per cent of them are small enterprises. But STPI had not been approached by any agency to collaborate with the BSE to help make the SME Exchange work, he said. The Roller Flour Millers Federation of India has over 1,150 members across India, engaged in wheat processing. The senior vice-president of the federation, Adi Narayan Gupta, said from Ghaziabad that so far no communication has been received from any BSE official. According to A L Aggarwal, the general secretary of the Haryana Chamber of Commerce and Industry, information should be disseminated at the grassroots level, because a large number of SMEs belong to the category of micro industry. “If given an opportunity we can apprise policy makers at the BSE about operational glitches, ground realities, hurdles, and pros and cons of the situation. But there has been no initiative on their part,” he said. The BSE SME Exchange proposes to drop quite a few pre-requisites to enable small companies to raise money from the public. The threeyear profit making criteria, approval from Sebi and 100 per cent underwriting of issues have been dropped. The merchant banker can directly file the red herring prospectus with a due diligence certificate and the exchange’s approval, and this will save almost six months. Instead of quarterly results, SMEs need publish only half-yearly results, while soft copies of the annual results can be e-mailed to shareholders. This is expected to substantially cut the cost of compliance for SMEs. Talking to Business Standard ,the CEO of the BSE SME Exchange, Lakshaman Gugulothu, said that the exchange was faced with an uphill task. There are over one million SMEs and even if 100 come forward in the first year, it would be a rewarding exercise, he said. “We have adopted a multipronged strategy to reach out to SMEs and chartered accountants. We are sending brochures and tying up with media houses to disseminate information. If need be, we will further concentrate on outreach initiatives to address larger sections of the small entrepreneurs,” he said. Potential beneficiaries ignorant of BSE’s proposed exchange for SMEs The growing cost of funds due to RBI’s liquidity tightening has forced SMEs to look for alternative sources of long-term funds, and public money can be a viable option.

Some thoughts on the Companies Bill, 2011

What was Companies Bill, 2008, became Companies Bill, 2009. Now, Companies Bill, 2009, seems to become Companies Bill, 2011. Is it just chronology or pathology? The truth lies in between. What went wrong was a mindless obsession with smaller company legislation and a lack of honest big ideas. What with a number of big national scams inexorably winding its way to the corporate sector, it would be highly irresponsible, if the new company legislation does not keep pace with this sordid development. Experience has shown that it is not a change of law alone which matters, it is the effective administration of law which matters more. It is but natural to expect the new company legislation to be better than the existing one in all respects. If this is to happen, let us engage in a constructive and introspective discourse how the new company legislation should address the challenges of a rising India.

Measures to address corporate frauds and corruption: The biggest challenge before us is to tackle corporate corruption and frauds without hurting the legendary Indian enterprise. This can be ensured only if there is a level-playing field in almost all business sectors. This can be achieved by enshrining in the law a prohibition against corrupt practices as they exist in developed countries and providing stringent punishment for violation. In addition to a statute-backed Serious Fraud Office (SFO), the SFO should also be empowered to investigate into serious corrupt practices by companies on a fast track basis and prosecute effectively. In the investigation by SFO, reputational agents such as forensic accountants and corporate lawyers should be involved for necessary value addition.

Judicial system for company law: The Companies Bill, 2009, provides for National Company Law Tribunal(s) (NCLTs) and an Appellate Company Law Tribunal. While this may seem to be a pragmatic approach in the context of the docket explosion in the judiciary, given the track record of tribunals in this country, such a measure would not be desirable. It would be wise to constitute permanent Company Benches in High Courts on the lines of the Chancery Division of English Courts with judges specialised in corporate laws manning them. The existing Company Law Board could be expanded to take up all quasi judicial matters, including company liquidation, with the assistance of private liquidators. Since the growth of the country would be mainly driven by the corporate sector, an independent and credible judicial system like the one suggested above should alone be sustainable in the long-term.

In case, the above is not possible, NCLTs may be established strictly according to the spirit of the decision of the Supreme Court in the NCLT matter on an experimental basis.

Derivative action: While the Companies Bill, 2009, provides for some level of class action to provide for a vibrant and effective corporate governance model in Indian companies, an effective mechanism for derivative action by shareholder groups should be provided in the law. Effective checks and balances could be provided in the law so as to prevent frivolous cases of derivative action. This would also empower shareholders against wrong doing by companies at the expense of such companies. Class action suits are a poor substitute for derivative action and would not be effective in such a large country like ours.

Reinforcing the audit function: For effective corporate governance, a strong audit function is necessary. In the Indian context, to prevent corporate frauds and corruption, the importance of the audit function need not be over-emphasised. In order to bring about greater objectivity and independence to the audit function, statutory auditors should be rotated every three years and only on the recommendation of the Audit Committee new statutory auditors should be appointed by the shareholders at the end of every three years.

Additionally, it should be made mandatory in law to appoint independent internal auditors for all companies of a certain size. Such internal auditors should also be appointed by the shareholders on the recommendation of the Audit Committee and should be rotated every three years.

The Audit Committee of the Board should consist of only independent directors and the chairman of the Audit Committee should be an eminent chartered accountant. The Audit Committee should specifically approve the statutory directors' responsibility statement in the context of company before the same is approved by the Board.

Strengthening the institution of independent directors: The clause contained in the Companies Bill, 2009, regarding the definition of an independent director, is extremely flawed. The independent director in law should not have any pecuniary interests with the company or its associates other than his entitlement for remuneration in law. The independent director should not be a relative of the promoter. The appointment of an independent director should be through a transparent process under the guidance of the remuneration and nomination committee of the board of directors of the company. The promoters of the company should give in writing their relationship with the independent director to be appointed to the Remuneration and Nomination Committee. On the recommendation of the Remuneration and Nomination Committee, an independent director should be appointed by the shareholders only through a postal ballot.

An independent director should not have a tenure of more than two terms of three years each in the company. The qualifications of an independent director should be prescribed by law. An independent director should not be an independent director for more than five listed companies. A limited immunity should be by law made available to an independent director against arrests and prosecution unless the same is authorised in writing by a magistrate not below the rank of a district judge. It should be made obligatory in law that any dissenting note of an independent director on any matter in a board meeting or a committee meeting should be recorded correctly in the record of the proceedings of such a meeting.

Whistle blower mechanism: By law it should be made obligatory for all companies of a certain size to have a contemporary whistle blower mechanism. Legal protection in a sustainable manner should be provided to the whistle blowers. Even informal whistle blowing with the chairman of the audit committee should be provided by law. To avoid frivolous whistle blowing appropriate checks and balances should be provided in law.

Corporate social responsibility (CSR): While corporate social responsibility should be encouraged by law, it should not be made mandatory so as not to deprive it of its legitimacy. It should be provided in law that CSR initiatives of the company should be stated in the directors' report of the company.

Poor drafting has been a recurring feature in most of the earlier Companies Bills. Such pitfalls should be avoided. The Companies Bill, 2009, provides for excessive rule making powers to the executive. This is not at all desirable in the context of the deplorable levels of national governance. This should be corrected. It would be wise to refer the Companies Bill, 2011, to a select committee of experts with a mandate to vet and clear the same within a definitive timeframe of four to six months. Thereafter, Parliament may enact the law in the budget session next year.

Companies may have to disclose more on CSR in annual reports

In a bid to turn companies’ management decisions more transparent, the corporate affairs ministry may mandate more disclosures in their annual financial statements and the reports of boards of directors. The manner in which companies carried out their Corporate Social Responsibility (CSR) activities during the year will become part of the annual mandatory disclosure. The details of the policy adopted by the company, the way it was implemented and the result achieved will all be reflected in the report. The proposals are expected to be part of the new Companies Bill, 2011. A debate is still on over whether CSR will be made mandatory in the Bill or not. Recently, Corporate Affairs Minister Veerappa Moily had said India Inc needed to develop a culture of voluntary CSR. “CSR cannot be considered only as a charity, it is more of a social business,” he had said. A proposal in the earlier Companies Bill, 2009 to make it mandatory had evoked a heated response from corporations. Companies may escape mandatory expenditure on CSR, but will not be able to escape disclosure. That may serve as an indirect inducement to them to go for CSR, officials said. Similarly, companies may be asked to develop a risk-management policy reflecting its preparedness to face unforeseen business setbacks. It would list potential risks and possible solutions, an official said. In the case of public companies, the boards will be asked to explain the rationale behind conclusions made in their annual reports to shareholders. According to a Delhibased corporate lawyer, many such suggestions are not new to the corporate world. “There are several disclosure requirements mandated by market regulator Sebi for listed companies. By bringing some of these under the Companies Act, the ministry is trying to make the managements more responsible,” he said.

Give reasons for dismissing appeals, SC tells courts

A court should give reasons for its decision and should not dismiss an appeal with a cryptic order, the Supreme Court stated in the case, Chandna Impex Ltd vs Commissioner of Customs. The Delhi high court had dismissed the appeal of the importer against the customs tribunal’s order with a cryptic order, though seven substantial questions were raised. One of the issues was the power of the additional director general in the directorate of revenue intelligence. However, the high court did not deal with any. The Supreme Court stated that “every litigant who approaches the court for relief is entitled to know for the reason for acceptance or rejection of his prayer, particularly when either of the party has a right to appeal. Otherwise the right of appeal will not be meaningful.” The tribunal was asked to reconsider the case.

Excise tribunal cannot change the final order

The Supreme Court stated last week that the Excise Appellate Tribunal cannot revise its final order on an application for rectification of errors in its order. It can only remove errors apparent on the record, the court stated in the case, Commissioner of Excise, Mumbai vs RDC Concrete (India) Ltd . In this case, the tribunal had upheld the demand for a hefty duty and imposed penalty on the company and its directors. However, when the company sought ‘rectification’ of the order, the tribunal took a different view and withdrew the demand and penalty. The authorities moved the Supreme Court, and it set aside the latter order exonerating the company and its directors. 

Packaging charges for vehicles included in excise

The Supreme Court last week dismissed the appeal of Royal Enfield Ltd, rejecting its argument that the cost of packaging charges incurred by it should not be taken into account for computing excise duty on the motorcycles manufactured by it. The company filed price declaration for vehicles sold from their depots in Chennai and claimed abatement of Rs 190 per vehicle towards packing charges. The revenue authorities disallowed the abatement claim and insisted that the cost of packing should be included in the assessable value of the motorcycles. The company moved the Customs, Excise and Service Tax Appellate Tribunal, which also dismissed its petition.

Governance: nine steps to good decision making

Organisations that avoid discussing governance end up spending a lot of time on it. They define it afresh for each decision. They argue endlessly about decision rights.

They end up with little time to actually make the decisions.

So they make poor decisions.

Organisations manage information poorly for a variety of reasons, such as fuzzy objectives, insufficient resources, inconsistent processes, etc. However, one root cause underpins many of these reasons: conflict.  

People make conflicting decisions about what to prioritise, which standards to apply, how to deploy their resources, and so on. Resolving these conflicts diverts attention from more important issues. And, in the meantime, they create confusion, duplication and rework.

Resolving such conflicts is the realm of governance.

Good governance defines the decision-making process upfront. It defines clear roles and responsibilities. With these defined, people can focus on understanding the issues and identifying good solutions.  

Without such focus, they waste time arguing about decision rights and suchlike. At worst, decision-making degenerates into politicking and indecision.

When establishing governance structures, consider these nine factors:

Governance is political

It addresses concerns such as who is empowered to make which decision, what process they must follow, and who they must consult.  

These are political questions: they influence how power is exercised within your organisation. Some people have power through their rank in the hierarchy. Some have it because they control key resources. Some have it through expertise and charisma.  

You need to ensure that the right mix is brought to bear on key decisions, both to make them and to make them stick.

Governance is not management

Governance sets the boundaries within which people operate. It identifies who is responsible for making which decision, and defines the process they use to make legitimate decisions.

Management is then about making those decisions – gathering information, identifying options, making trade-offs, etc. When governance encroaches on management, people either lose sight of overall priorities or they make decisions without understanding operational context.  

If governance tries to replace people’s skills and judgement, it will fail.

Engage stakeholders at all levels

Good decisions often need to balance the interests of multiple stakeholders. You need to apply the right mix of expertise to them. They must align to overall strategy while still making sense to people at the coalface.  

Budget and resource owners must buy in. To define effective governance structures you need to identify the relevant stakeholders, understand their perspectives, and win their commitment.

Establish clear roles and responsibilities 

Once you understand the stakeholders, you can map out their decision rights. RACI models are a useful way to do this. They define:

• Who is responsible for a decision (gathering data, identifying options, making recommendations, etc).
• Who is accountable for the decision (approving and paying for it).
• Who must be consulted in the course of making the decision.
• Who must be informed about the decision.

Establish oversight bodies

Many decisions can be made through organisational standards and policies. Someone needs to define, approve, enforce and implement these standards.  

There are many ways to do this: factors such as culture, regulatory environment and market dynamics will determine what works best for your organisation.  

Some situations favour enterprise-wide consistency and efficient use of scarce or specialised skills. Centralised oversight works best here.  

In other situations, local knowledge, short command chains and fast decisions are more important, so devolved oversight makes more sense.

Focus on what’s important

People make countless decisions every day, so let them. Governance that focuses on minutiae loses sight of the big picture and becomes bureaucracy.  

Focus your attention on the small set of decisions that has most influence on overall performance.

Attend to details

Although the big picture is crucial, you also need to ensure that someone is looking after the details. The details often drive people’s perception of your organisation. They also have a habit of blowing up into big issues if they’re not thought about.

Address conflict

Conflict is a natural state. People have different goals, and there are never enough resources to do everything we want to do.  

Different perspectives lead naturally to different opinions, and such conflict can become toxic if it’s not addressed. Think about potential stress points upfront and map out mechanisms to deal with them.  

Then you can channel conflict into more helpful directions.

Build in feedback

You’re not going to get everything right. Even if you do, your organisation and its environment will change. Create feedback loops so you can learn from experience.  

Ideally, these loops will operate at two levels. First, how will you monitor and adjust the outcomes of individual decisions?  Second, how will you monitor and refine the decision-making processes?

At the end of all this, your governance framework should ensure that people know:

• Which decisions have most influence on your objectives.
• Who should be involved in these decisions.
• What decision-making process they will use.
• How outcomes will be tracked.

This maximises the likelihood that they’ll make good decisions.

Organisations that avoid discussing governance end up spending a lot of time on it. They define it afresh for each decision. They argue endlessly about decision rights. They end up with little time to actually make the decisions.

So they make poor decisions.

Non-Availability of Income-tax PAN w.r.t DIN

Please note that as per General Circular No: 32/2011 dated 31/05/2011, Ministry of Corporate Affairs has made Income-tax Permanent Account Number (Income-tax PAN) mandatory for obtaining Director Identification Number (DIN) in case of Indian nationals. Accordingly, in order to examine DIN eForms through the system and to avoid duplicate DINs, it has been decided that all existing  DIN holders who have not furnished their Income-tax PAN earlier at the time of obtaining DIN or whose income tax PAN needs to be updated with the Ministry, are required to furnish their Income-tax PAN to the Ministry by 30th September, 2011.

It has been found that your Income tax PAN details are not available with the Ministry, therefore, you are required to file Form DIN4 on the MCA21 portal for updating your Income tax PAN by 30th September, 2011 failing which your DIN shall be disabled.

Arbitral tribunals must confine itself to terms of reference

The Supreme Court has reiterated that arbitral tribunals should not travel beyond the issues referred to them. They should not decide issues which are not in the terms of reference and should not enlarge the scope of the reference. If the tribunal goes beyond the reference a court can intervene to correct it, the Supreme Court stated in the case, MSK Projects (JV) Ltd vs State of Rajashtan. In this case, the PWD undertook a construction on the Bharatpur-Mathura road and the offer of MSK was accepted and the work was completed. When the company started collecting toll, there was an agitation which led to prohibition of entry of vehicles to Bharatpur, affecting the income of the company. It invoked arbitration and won the award against the government. The district judge set it aside. The Rajasthan also ruled against the company. The Supreme Court asked the tribunal to reconsider the specific issues formulated by it. 

International airlines cannot claim immunity from domestic laws

A foreign airline owned by its government cannot claim sovereign immunity from suits in India, the Supreme Court stated while rejecting the defence of Ethiopian Airlines in a consumer case. The carrier is “accountable for the contractual and commercial activities and obligations that it undertakes in India,” the judgment said while asking the consumer commission to deal with the complaint of a consumer. The latter sent a consignment of chemicals to Tanzania which deteriorated due to delay caused by the airline. The consigner filed a consumer complaint. The airline argued that it was immune from suits as it was state-owned. The court rejected the contention and said that in the modern era, where there is close interconnection between different countries as far as trade, commerce and business are concerned, the normal rules of the market should prevail. If state-owned entities are exempted, “the rule of law would be degraded and international business will grind to a halt.” 

EATING FRUIT...

We all think eating fruits means just buying fruits, cutting it and just popping it into our mouths.
It's not as easy as you think. It's important to know how and when to eat.

What is the correct way of eating fruits?

IT MEANS NOT EATING FRUITS AFTER YOUR MEALS!
FRUITS SHOULD BE EATEN ON AN EMPTY STOMACH.
If you eat fruit like that, it will play a major role to detoxify your system,
supplying you with a great deal of energy for weight loss and other life activities.

FRUIT IS THE MOST IMPORTANT FOOD.
Let's say you eat two slices of bread and then a slice of fruit.
The slice of fruit is ready to go straight through the stomach into the intestines,
but it is prevented from doing so.
In the meantime the whole meal rots and ferments and turns to acid.
The minute the fruit comes into contact with the food in the stomach and digestive juices,
the entire mass of food begins to spoil....
So please eat your fruits on an empty stomach or before your meals!
You have heard people complaining — every time I eat watermelon I burp,
when I eat durian my stomach bloats up,
when I eat a banana I feel like running to the toilet, etc —
actually all this will not arise if you eat the fruit on an empty stomach.
The fruit mixes with the putrefying other food and produces gas and hence you will bloat!
Greying hair, balding, nervous outburst and dark circles under the eyes
all these will NOT happen if you take fruits on an empty stomach.
There is no such thing as some fruits, like orange and lemon are acidic, because all fruits become alkaline in our body, according to Dr. Herbert Shelton who did research on this matter. If you have mastered the correct way of eating fruits, you have the Secret of beauty, longevity, health, energy, happiness and normal weight.

When you need to drink fruit juice - drink only fresh fruit juice, NOT from the cans.
Don't even drink juice that has been heated up.
Don't eat cooked fruits because you don't get the nutrients at all.
You only get to taste. Cooking destroys all the vitamins.

But eating a whole fruit is better than drinking the juice.
If you should drink the juice, drink it mouthful by mouthful slowly,
because you must let it mix with your saliva before swallowing it.
You can go on a 3-day fruit fast to cleanse your body.
Just eat fruits and drink fruit juice throughout the 3 days
and you will be surprised when your friends tell you how radiant you look!

KIWI:

Tiny but mighty.
This is a good source of potassium, magnesium, vitamin E & fiber.
Its vitamin C content is twice that of an orange.

APPLE:

An apple a day keeps the doctor away?
Although an apple has a low vitamin C content,
it has antioxidants & flavonoids which enhances the activity of vitamin C
thereby helping to lower the risks of colon cancer, heart attack & stroke.

STRAWBERRY:

Protective Fruit.
Strawberries have the highest total antioxidant power
among major fruits & protect the body from
cancer-causing, blood vessel-clogging free radicals.

ORANGE :

Sweetest medicine.
Taking 2-4 oranges a day may help keep colds away, lower cholesterol,
prevent & dissolve kidney stones as well as lessens the risk of colon cancer.

WATERMELON:

Coolest thirst quencher.
Composed of 92% water, it is also packed with a giant dose of glutathione,
which helps boost our immune system.
They are also a key source of lycopene — the cancer fighting oxidant.
Other nutrients found in watermelon are vitamin C & Potassium.

GUAVA & PAPAYA:

Top awards for vitamin C.
They are the clear winners for their high vitamin C content.
Guava is also rich in fiber, which helps prevent constipation.
Papaya is rich in carotene; this is good for your eyes.
*

Drinking Cold water after a meal = Cancer!
Can u believe this??
For those who like to drink cold water, this article is applicable to you.
It is nice to have a cup of cold drink after a meal.
However, the cold water will solidify the oily stuff that you have just consumed.
It will slow down the digestion.
Once this 'sludge' reacts with the acid,
it will break down and be absorbed by the intestine faster than the solid food.
It will line the intestine. Very soon, this will turn into fats and lead to cancer.
It is best to drink hot soup or warm water after a meal.

A serious note about heart attacks
HEART ATTACK PROCEDURE': (THIS IS NOT A JOKE!)
Women should know that not every heart attack symptom is going to be the left arm hurting.
Be aware of intense pain in the jaw line.
You may never have the first chest pain during the course of a heart attack.
Nausea and intense sweating are also common symptoms.
Sixty percent of people who have a heart attack while they are asleep do not wake up.
Pain in the jaw can wake you from a sound sleep.
Let's be careful and be aware.
The more we know the better chance we could survive.

A cardiologist says if everyone who gets this mail sends it to 10 people,
you can be sure that we'll save at least one life

MASTER CIRCULAR ON USE OF HINDI IN BANKS

Use of Hindi in Public Sector Banks is governed by the Official Languages Act (OLA), 1963 (as amended in 1967) and the Official Language Rules (OLR), 1976 (framed under the Act by the Ministry of Home Affairs, Department of Official Language (DOL), Government of India (GOI). As provided under the Act and Rules, GOI, Ministry of Home Affairs, DOL prepares the broad guidelines and also the annual programme for progressive use of Hindi. Monitoring the progress in use of Hindi in Public Sector Banks is done by the Department of Banking Operations and Development (DBOD), Central Office, Reserve Bank of India. At the instance of GOI, Ministry of Finance (Banking Division), an Official Language Implementation Committee (OLIC) of Public Sector Banks, with the Chief General Manager of DBOD as its ex-officio Chairman and Senior Executives of the rank of General Managers of Public Sector Banks as members, has been constituted in 1976; it reviews the progress in implementation of the Official Language Policy (OLP) through the quarterly meetings.

Based on the guidelines/instructions received from GOI, as also the decisions taken at the quarterly meetings of OLIC, DBOD issues guidelines/instructions to Public Sector Banks to fulfil the requirements and achieve the targets set by GOI. The instructions/guidelines issued by DBOD in this regard are furnished in the following paragraphs. (Incidentally, the Official Language Policy is not applicable to banks other than Public Sector Banks though some instructions had been issued to private sector banks also to render customer service in Hindi. As such, in the following paragraphs, Public Sector Banks have been referred to as "banks" only).

read more..

FOREIGN INVESTORS MUST HEED INDIAN LAWS, SAYS SC

“WHENEVER a foreign investor operates within the territory of a host country, the investor and its properties are subject to the legislative control of the host country along with the international treaties or agreements,” a five-judge Constitution bench of the Supreme Court declared last week. Deprivation of property may cause serious concern in the area of foreign investment, especially in the context of international law and investment agreements. “Even if the foreign investor has no fundamental right, let them know that the rule of law prevails in this country. Let the message be loud and clear,” the bench presided over by Chief Justice S H Kapadia said in the judgment, K T Plantation Ltd vs State of Karnataka. The court was considering the constitutional validity of the Roerich and Devika Rani Roerich Estate (Acquisition and Transfer) Act. The validity of the law taking over the property was upheld.

The Top Scams in India

1) 2G Spectrum Scam

We have had a number of scams in India; but none bigger than the scam involving the process of allocating unified access service licenses. At the heart of this Rs.1.76-lakh crore worth of scam is the former Telecom minister A Raja – who according to the CAG, has evaded norms at every level as he carried out the dubious 2G license awards in 2008 at a throw-away price which were pegged at 2001 prices.
2) Commonwealth Games Scam

Another feather in the cap of Indian scandal list is Commonwealth Games loot. Yes, literally a loot! Even before the long awaited sporting bonanza could see the day of light, the grand event was soaked in the allegations of corruption. It is estimated that out of Rs. 70000 crore spent on the Games, only half the said amount was spent on Indian sportspersons.

The Central Vigilance Commission, involved in probing the alleged corruption in various Commonwealth Games-related projects, has found discrepancies in tenders – like payment to non-existent parties, will-ful delays in execution of contracts, over-inflated price and bungling in purchase of equipment through tendering – and misappropriation of funds.

3) Telgi Scam
As they say, every scam must have something unique in it to make money out of it in an unscrupulous manner- and Telgi scam had all the suspense and drama that the scandal needed to thrive and be busted.

Abdul Karim Telgi had mastered the art of forgery in printing duplicate stamp papers and sold them to banks and other institutions. The tentacles of the fake stamp and stamp paper case had penetrated 12 states and was estimated at a whooping Rs. 20000 crore plus. The Telgi clearly had a lot of support from government departments that were responsible for the production and sale of high security stamps.

4) Satyam Scam
The scam at Satyam Computer Services is something that will shatter the peace and tranquillity of Indian investors and shareholder community beyond repair. Satyam is the biggest fraud in the corporate history to the tune of Rs. 14000 crore.
The company’s disgraced former chairman Ramalinga Raju kept everyone in the dark for a decade by fudging the books of accounts for several years and inflating revenues and profit figures of Satyam. Finally, the company was taken over by the Tech Mahindra which has done wonderfully well to revive the brand Satyam.
5) Bofors Scam
The Bofors scandal is known as the hallmark of Indian corruption. The Bofors scam was a major corruption scandal in India in the 1980s; when the then PM Rajiv Gandhi and several others including a powerful NRI family named the Hindujas, were accused of receiving kickbacks from Bofors AB for winning a bid to supply India’s 155 mm field howitzer.
The Swedish State Radio had broadcast a startling report about an undercover operation carried out by Bofors, Sweden’s biggest arms manufacturer, whereby $16 million were allegedly paid to members of PM Rajiv Gandhi’s Congress.
Most of all, the Bofors scam had a strong emotional appeal because it was a scam related to the defense services and India’s security interests.
6) The Fodder Scam
If you haven’t heard of Bihar’s fodder scam of 1996, you might still be able to recognize it by the name of “Chara Ghotala ,” as it is popularly known in the vernacular language.
In this corruption scandal worth Rs.900 crore, an unholy nexus was traced involved in fabrication of “vast herds of fictitious livestock” for which fodder, medicine and animal husbandry equipment was supposedly procured.
7) The Hawala Scandal
The Hawala case to the tune of $18 million bribery scandal, which came in the open in 1996, involved payments allegedly received by country’s leading politicians through hawala brokers.
Thus, for the first time in Indian politics, it gave a feeling of open loot all around the public, involving all the major political players being accused of having accepted bribes and also alleged connections about payments being channelled to Hizbul Mujahideen militants in Kashmir.
8) IPL Scam
Well, I am running out of time and space over here. The list of scandals in India is just not ending and becoming grave by every decade. Most of us are aware about the recent scam in IPL and embezzlement with respect to bidding for various franchisees. The scandal already claimed the portfolios of two big-wigs in the form of Shashi Tharoor and former IPL chief Lalit Modi.
9,10) Harshad Mehta & Ketan Parekh Stock Market Scam
Although not corruption scams, these have affected many people. There is no way that the investor community could forget the unfortunate Rs. 4000 crore Harshad Mehta scam and over Rs. 1000 crore Ketan Parekh scam which eroded the shareholders wealth in form of big market jolt.
So, can we live a scam-free life in India for a while now?

THE BUSINESS OF BANKING

Adiscussion paper put out by the Reserve Bank of India (RBI) in August 2010 examines the pros and cons of the “Entry of New Banks in the Private Sector”. The central issue in the paper is whether large industrial houses should be allowed to sponsor new private sector banks. This article reviews the discussion paper and comments on the six topics listed in it for further debate. The RBI paper starts with a discussion on widening financial inclusion as one of the objectives in granting licences to new private sector banks. A separate July 2011 RBI paper titled “Financial Inclusion in India: A Case Study of West Bengal” rates Indian states on the extent of financial inclusion achieved. Kerala, Maharashtra and Karnataka are ranked one, two and three and Uttar Pradesh, Madhya Pradesh and Bihar are at positions 13, 20 and 21. Clearly, there is a positive correlation between social development levels and financial inclusion. New private sector banks could be required to help promote financial inclusion by using profits from their branches in urban clusters. However, such cross-subsidies will not be sustainable since banks can only complement development efforts, not substitute for them. The first and second questions posed in the discussion paper are: (a) what should be the minimum capital requirements for new banks; and (b) what should be promoters’ contribution? My sense is that these two capital requirements may be `1,000 crore and 40 per cent, respectively, with the latter number to be brought down to, say, 20 per cent over 10 years. The guiding principle for required minimum capital and ceiling on promoters’ contribution should be consistency with a risk management framework that includes existing banks. The third question is the extent to which foreign shareholding is to be allowed in new banks. The licensing norms for new banks should not be complicated by simultaneously reopening the issue of caps on foreign ownership of banks in India. If anything needs to be changed on norms for foreign holdings in the financial sector, it is the often misused distinction between non-resident Indians and non-Indians. Everyone permanently residing outside India should be in one category for investment and taxation purposes. The fourth, and most important, question posed in the paper is “whether large industrial and business houses could be allowed to promote banks”. The Indian licensing guidelines of 2001 do not allow “large” industrial houses to sponsor new banks. The reasons go back to the dubious practices of such banks directing credit to preferred borrowers prior to bank nationalisation in 1969. All the disadvantages of allowing industrial houses to sponsor banks are as valid today as before. Among major economies, Canada, UK, Germany and France do not bar industrial companies from promoting banks. In contrast, the US does not allow industrial houses to own banks. It is evident from the dispersed nature of past banking sector breakdowns that permitting industrial houses to own banks or disallowing them was not a good indicator of whether banks would need government backstop funding assistance. As the RBI paper has suggested, the probability of industrial houses interfering in banks promoted by them could be reduced by restricting banking licences to companies with diversified ownership. On balance, continuing indefinitely with policies that restrict the entry of new private banks and, thus, inhibit competition would not be efficient. There could be ways through which large industrial houses can provide equity capital without the egregious wrongdoing of the past. The downside risk is that it may be practically impossible for RBI to prevent crony lending practices. Consequently, it is for RBI to assess whether, at our current stage of development, it can consistently monitor bank lending and stand up to pressures from corporate oligopolies. The fifth question is whether nonbanking financial companies (NBFCs) should be allowed to convert into banks or promote banks. A large number of Indian NBFCs are engaged in tax and other forms of financial arbitrage. Hence, while in principle NBFCs can be allowed to sponsor new banks, their antecedents and possible ownership links with corporate houses through non-transparent cross-holding structures should be investigated and taken into account. The last question is what the business model for new banks should be. The short answer is that there is no need for a separate business model for new banks. Taking a step back, the RBI discussion paper needs to be broader in its outlook and should analyse the causal reasons for banks having to periodically depend on funding support from taxpayers. The section in the paper titled “lessons from the recent global financial crisis” is too short and perfunctory. Indian household and private sector debt, as a proportion of GDP, is lower than comparable numbers in several developed countries. As for smaller Indian companies, they often pledge shares as collateral to borrow. Indian banks have recently had to take over equity stakes in some companies that were not in a position to service their debt. Further, dark clouds are again gathering on the European and US economic horizons. Consequently, we need to assess if periodic banking sector crises are inevitably linked to business cycles or whether they are more influenced by unconstrained and under-regulated growth of the banking sector as compared to the rest of the economy. For example, the banking sectors in the US, the UK, Iceland, Ireland, Cyprus and regional savings banks in Spain are significantly oversized and/or over-leveraged. It is high time to reflect on the received wisdom that more is good in banking since this promotes growth. A related issue is the extent to which deposit taking and investment banking should be segregated in new private banks in India. In this context, it has been reported that the UK Independent Commission on Banking headed by John Vickers is likely to recommend strict segregation of deposit taking from investment banking (the report is expected in October 2011). According to press reports, RBI would soon issue draft guidelines for large industrial houses to sponsor new private banks. RBI should take its time to reassess outstanding levels of household, corporate and public internal and external debt, sectoral growth of credit and preferred size of the banking sector versus that of the economy before issuing licences for the entry of new private banks. The author is India’s Ambassador to the European Union, Belgium and Luxembourg j.bhagwati@gmail.com Views expressed are strictly personal

Property rights riddles

In the past few months, the Land Acquisition Act and its state variations were under heavy fire from the courts. Last week, the Constitution Bench delivered two lengthy judgments discussing property rights in the context of acquisitions. In both appeals, the reward for persevering litigants was the right to compensation for their property. The acquisition laws in the states were not clear on this subject and the high courts had denied compensation to the owners. Though the owners’ right to compensation sounds like common sense, the five judges had to tread alabyrinthine path to arrive at their conclusion. After the 44th Amendment to the Constitution in 1978, a citizen has no constitutionally guaranteed right to acquire, hold or dispose of property. It is no longer a fundamental right. Therefore, an aggrieved citizen cannot move the Supreme Court or a high court alleging infringement of his fundamental right. All that is left is an ordinary right under Article 300A that says “no person shall be deprived of his property save by authority of law.” There is no indication of the right to compensation, let alone a fair and just amount. Therefore, the assertion of the Constitution Bench on the right to compensation is significant. State laws have to recognise this right. In the unanimous judgment in the case, KT Planation vs State of Karnataka ,the court declared that “the right to claim compensation is inbuilt in Article 300A.” When a person is deprived of his property, the state has to satisfy this claim. In addition, the law taking away the property should specify the public purpose and it is subject to judicial review. Thus, what was lost by downgrading the fundamental right to property to an ordinary right was partly salved. The same Constitution Bench reiterated this right in another case last week, Rajiv Sarin vs State of Uttarakhand .It said, under Article 300A, “a person can be deprived of his property, but in a just, fair and reasonable manner.” The court set guidelines for computing compensation and asked the authorities “to determine and award compensation following a reasonable and intelligible criterion enunciated above.” But the issues related to property rights are far from solved. For instance, the right of the property owner vis-à-vis that of the state, which is enjoined to advance the Directive Principles of State Policy in Chapter IV of the Constitution, is yet to be sorted out by a larger Bench. Article 31C, inserted by the 25th Constitution amendment in 1971, protected laws that purported to advance the directive principles from challenge in a court of law. One amorphous provision that has deep implication is Article 39(b) that says the state shall secure that “the ownership and control of the material resources of the community are so distributed as best to subserve the common good.” In the celebrated Kesavananda Bharti case, a 13-judge Bench struck down part of Article 31C that granted excessive power on the state to take over property. Laws dealing with land and property have led to a maximum number of constitutional amendments and litigation in the Supreme Court over the decades. Even after these, the law and its interpretation are hazy. Some of the Supreme Court’s judgments are awaiting reconsideration by larger Benches — one was in the files for nearly 15 years and another for six years. Successive chief justices have avoided opening the chamber of legal riddles.

Tax dept to expedite systems for quick processing of returns

The Centralised Processing Centre (CPC) at Bengaluru, set up for processing of e-filed returns from across the country and manually filed returns of Karnataka and Goa region, has ensured a substantial jump in the number of returns filed this year through the electronic mode. The department is now in the process of setting up two more CPCs — one upcountry (Manesar in Haryana) and the other in the country’s west (Pune) to process all the manually-filed returns. These two CPCs are expected to start functioning during the ongoing fiscal. One more CPC — at Kolkata in the east — is also on the anvil. About 5.3 million returns were filed electronically for the 2011-12 assessment year till July 31 as compared to 2.2 million returns filed during this period last year. A senior income tax department official told Business Standard that electronic filing of returns and quick processing ensured speedy clearance of refunds and by the end of the current financial year. The department is expected to complete a major portion of the systems requirements for shifting all the I-T related work to the electronic platform. He added that the work of creating the systems infrastructure for shifting to the Direct Taxes Code platform was also on. Said an official: “Speedy work on creation and stabilisation of the I-T platform is going to be one of the priority areas for the department in the coming months.” Refund is issued through real-time gross settlement or national electronic clearing system in the electronic mode. This allows credit of refunds directly to the taxpayer’s bank account. In the paper mode, refund cheques are issued with the assessee’s bank account particulars to the taxpayer. To simplify electronic filing, the department has already introduced simple and technology enabled ‘Sahaj’ and Sugam’ form this year. The idea is to facilitate error-free and faster scanning of the returns enabling faster processing. The taxpayers have also been provided the online facility for viewing the refund status. The number of pending returns claiming refunds as on May 31, 2011, stood at 6.74 lakh as against 38.26 lakh on March 31 due to the efforts to clear refunds quickly with the help of electronic mode. ENCOURAGINGresults of the income tax department’s efforts to promote electronic filing of returns have prompted the Central Board of Direct Taxes (CBDT) to accelerate the procedure and stabilise systems infrastructure so as to ensure quick processing of all I-T returns.