Apex court suggests fine in cheque bounce cases

New Delhi, Oct 15 (IANS) The Supreme Court has suggested that the Negotiable Instruments Act, 1881, could be amended so that a convict in a cheque bounce case is made to pay a fine from which the complainant can be paid a compensation.

'One other solution is a further amendment to the act so that in all cases where there is a conviction, there should be a consequential levy of fine of an amount sufficient to cover the cheque amount and interest thereon, at a fixed rate of 9 percent per annum, followed by award of such sum as compensation from the fine amount,' said the apex court bench of Justice R.V. Raveendran (since retired) and Justice R.M. Lodha in a recent judgment.

Speaking for the bench Justice Raveendran said: 'This would lead to uniformity in decisions, avoid multiplicity of proceedings (one for enforcing civil liability and another for enforcing criminal liability) and achieve the object of Chapter XVII of the act, which is to increase the credibility of the instrument.'

'This is, however, a matter for the Law Commission of India to consider,' the judgment said.

The judges said that the act 'strongly leant towards grant of reimbursement of the loss by way of compensation'.

'The courts should, unless there are special circumstances, in all cases of conviction, uniformly exercise the power to levy fine up to twice the cheque amount (keeping in view the cheque amount and the simple interest thereon at 9 percent per annum as the reasonable quantum of loss) and direct payment of such amount as compensation'.

The apex court said that the compensation by way of restitution on account of dishonour of the cheque should be 'practical and realistic'.

'Uniformity and consistency in deciding similar cases by different courts not only increase the credibility of cheque as a negotiable instrument, but also the credibility of courts of justice,' the judgment said.

'In same type of cheque dishonour cases, after convicting the accused, if some courts grant compensation and if some other courts do not grant compensation, the inconsistency, though perfectly acceptable in the eye of law, will give rise to certain amount of uncertainty in the minds of litigants about the functioning of courts,' the judgment said.

Citizens will not be able to arrange or regulate their affairs in a proper manner, as they will not know whether they should simultaneously file a civil suit or not.

The problem is aggravated since in spite of provisions for concluding such cases within six months from the date of the filing of the complaint, these seldom reach finality before three-four years, the judgment said.

These cases give rise to complications where civil suits have not been filed within three years on account of the pendency of the criminal cases.

'While it is not the duty of criminal courts to ensure that successful complainants get the cheque amount also, it is their duty to have uniformity and consistency, with other courts dealing with similar cases,' the judgment underlined.

The court said this while dismissing an appeal challenging the Kerala High Court's verdict that the trial court verdict of imposing fine and awarding compensation could not co-exist.

CHANGES IN SARFAESI AND DEBT RECOVERY ACTS GOVT PAVES WAY FOR EASY LOAN RECOVERY BY BANKS

BS REPORTER New Delhi, 13 October

The Cabinet today cleared two amendment Bills paving the way for banks to recover loans from errant borrowers. The move would also help the financial institutions to reduce their non-performing assets and release funds for home, retail or corporate credit needs.

The Bills to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act and Recovery of Debts due to Banks and Financial Institutions (RDBF) Act were listed in the Budget for 2011-12 as one of the financial sector reforms that the government would carry out this fiscal.

The Sarfaesi Act, 2002, allows banks and financial institutions to auction properties of borrowers if they fail to repay their loans. It also envisaged to securitise and reconstruct the financial assets through two special purpose vehicles — Securitisation Company (SCO) and Reconstruction Company (RCO).

The RDBF Act, 1993 envisaged summary procedure for ascertainment of dues.

Although the two acts helped banks bring down bad debts, there were certain procedural issues faced by banks. These amendments proposed to simplify these procedures.

For instance, if a borrower had objection to a foreclosure, then the bank had to respond within seven days. If the banks did not respond within seven days, borrowers could go to court and get a stay order. The time limit, now, has been extended to 15 days.

There were also certain powers of chief metropolitan magistrates and district magistrates relating to issuing orders on recovery, but they were not non-delegable. These powers were sought to be delegated to the additional metropolitan magistrate and additional district magistrate as well.

“The proposed amendments would enable banks to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, without fearing for recovery, thus bringing about equity,” said Information and Broadcasting Minister Ambika Soni.

According to RBI data, net NPAs of scheduled banks (excluding regional rural banks) declined to 1.1 per cent of advances in 2009-10, from 7.6 per cent in 1998-99.

The proposed amendments would enable banks to improve their operational efficiency

AMBIKA SONI

I&B Minister

2% interest subsidy for export credit

To cover rupee-denominated credit for SMEs, others.

To cushion the global slowdown’s impact on exporters, the Reserve Bank on Tuesday announced a two per cent interest subsidy on rupee export credit for handicrafts, handlooms, carpets and small and medium enterprises (SMEs).

Exporters in these segments would be eligible for the interest subvention to be available up to March 31, 2012, the RBI said.

Banks may reduce the interest rate for export credit according to the base rate system by the amount of subvention available, subject to a minimum rate of seven per cent. Banks must ensure the the scheme’s benefits are passed on completely to the eligible exporters. The subvention will provide some relief to exporters suffering from a demand slowdown. They are also facing the adverse effects of an interest rate rise of 200-250 basis points in the past 14 months. Rising input costs due to rupee depreciation and high commodity prices have also hurt.

An Allahabad Bank executive said to begin with, the RBI had extended the subsidy benefit to only four sectors. But, looking at the widespread effects of weak demand, industry bodies may seek coverage of more sectors.

In 2010-11, the interest subsidy benefit on rupee export credit was extended to leather, jute, engineering goods and textiles. The decision to help exporters was announced on a day when the high-level Board of Trade (BoT) met in New Delhi to review the situation arising out of renewed worries over the US economy and the debt crisis in Europe.

The BoT, headed by commerce and industry minister Anand Sharma and comprised of well-known industrialists, discussed issues such as currency volatility, availability of dollar credit and high credit cost.

Although India’s exports grew 54 per cent in he April-August, the time ahead is seen full of challenges.

“I am apprehensive about the rollout of the next seven months. I hope we should be able to achieve $280 billion exports this fiscal,” minister of state for commerce and industry Jyotiraditya Scindia said.

Exporters’ body FIEO welcomed the interest subsidy but sought more. “We were expecting three per cent and also for sectors like textiles, gems and jewellery and engineering," it said in a statement.

PM accepts Maira report, no FDI cap

Prime Minister Manmohan Singh on Monday accepted the Maira committee’s recommendations and decided the Competition Commission of India (CCI) would scrutinise all mergers and acquisitions (M&As) in the domestic pharmaceutical sector. The ministries of commerce & industry and health had expressed reservations over the recommendations.

Committee head and Planning Commission member Arun Maira, finance minister Pranab Mukherjee, health minister Ghulam Nabi Azad, commerce and industry minister Anand Sharma and Planning Commission deputy chairman Montek Singh Ahluwalia met the Prime Minister to discuss the matter on Monday. “The PM has accepted our recommendations and the new system will be in place within six months,” Maira told Business Standard.

The relaxation of the threshold limits that invite CCI scrutiny in pharma M&As was one of the key recommendations. Under the existing law, only M&As that involve target companies with a turnover of above Rs 750 crore and assets worth more than Rs 250 crore need to be vetted by the CCI.

According to Maira, CCI will be asked to set up a standing advisory committee to look into pharma M&As. The CCI would be strengthened to look at pharma mergers to ensure the concerns of all stakeholders are addressed, he said.

As an interim measure, Foreign Direct Investment Promotion Board (FIPB) will be asked to clear all brownfield pharma M&A proposals for six months as the CCI will take time to equip itself to handle the job. Currently, FDI in the sector happens through the automatic route. Under the current system, 100 per cent FDI is allowed in the sector.

“India will continue to allow FDI without any limits (100 per cent) under the automatic route for greenfield investments in the pharma sector. This will facilitate the addition of manufacturing capacities, technology acquisition and development,” a press note from the commerce & industry ministry said.

The note said in the case of brownfield investments in the sector, FDI would be allowed through FIPB for six months. “Thereafter, the requisite oversight will be done by the CCI entirely, in accordance with the competition laws of the country,” the note said.

The PM’s nod came despite strong opposition by several members in the committee to continuing 100 per cent FDI under the automatic route.

Members representing the ministries of commerce and health wanted a distinction between greenfield and brownfield M&As in the pharma space. While they were not against 100 per cent FDI in new greenfield projects, they wanted it limited to strict FIPB scrutiny in the case of takeovers of existing Indian drug companies and facilities.

PM says sees economy growing at near 8 pct in 2011/12

NEW DELHI (Reuters) - The Indian economy will achieve near 8 percent growth in the current financial year despite the global slowdown, while lowering inflation remains a challenge in the short term, Prime Minister Manmohan Singh said in a statement on Tuesday.

"Despite the global slowdown, we will still achieve a growth rate of close to 8 percent this year," the statement said.

India's headline inflation accelerated in August to 9.78 percent, its highest in over a year, and is a major concern for the central government and Reserve Bank of India (RBI).

Economists expect the central bank, which has raised rates 12 times since March 2010, to increase interest rates one more time in 2011 to fight persistently high inflation.

That move could come as early as Oct. 25, when the RBI meets to review its monetary policy.

India's September headline inflation data is due on Friday.

(Reporting by Manoj Kumar; editing by Malini Menon)

Irda asks insurers to follow uniform pricing

Market-linked policy holders set to gain more units.

Amid the ongoing controversy surrounding net asset value (NAV)-guaranteed products, the Insurance Regulatory and Development Authority (Irda) is standardising the method of calculating NAV under the unit-linked plans of life insurance companies.

According to one circular issued by Irda, the life insurers will have to follow a single uniform pricing methodology for calculating NAV and update it every day. Insurers followed different pricing methodologies, based on appropriation (units purchased) and expropriation (units sold), where they charged an additional amount that inflated NAV. The current guidelines mandate insurers to remove the appropriation and expropriation.

GUIDELINES

Changes applicable from October 1

Single-unit pricing method for all NAVs

Have to create a separate fund for every new Ulip filing

Outline detailed investment policy under each funds

New funds should not be a minor modification of an existing fund

Ideally, if a person invests Rs 1,100 at NAV of Rs 10, he should get 110 units of Rs 10 each. However, in some cases NAV was inflated to, say, Rs 11.

To balance this, the insurers reduced the number of units to 100. Under the new system, a policyholder will get 110 units and there will be no change in NAV.

“It’s a simpler method of calculation and removes the additional load on policy holders, which means they will get higher number of units,” an actuary with a private life insurance company said.

The life insurance companies have started implementing the new process from October 1. The guidelines assume importance given Irda’s ongoing scrutiny of the highest NAV-guaranteed products, which currently account 20 per cent of Ulip sales. Controversy surfaced last month, when Irda informally sounded out its discomfort about the highest NAV-guaranteed products, on the grounds of perceived “systemic risk” associated with the way the funds were managed. Such products are said to give more emphasis on debt instruments and run the risk of heavy sell-off in equities in case of a stock market fall.

The insurance regulator has also introduced more stringent guidelines for the fund approval process under the unit-linked plans, which is aimed at ensuring higher disclosure and transparency from insurance companies. Insurers will now have to create a separate fund, segregated fund, and outline a detailed investment policy under each fund, subject to which the products will be approved by Irda.

In other words, they will have to maintain a separate fund for each Ulip and the fund will be exclusively used to invest according to the requirement of the product. Also, insurers will have to assign a separate bank account for each segregated fund, along with a unique code associated with it, so that each fund can be identified.

Earlier, insurers were allowed to have two-three generic funds like Life Fund, Ulip Fund and Equity Fund. Investments pertaining to all policies and schemes were channelised from these set of funds only.

“The appointed actuary shall, as a part of the product filing, confirm that the investment policy fully complies with Irda regulations. Every purchase, sale of investment, income of investment shall be identified with reference to the particular segregated fund and accounted for,” Irda said in the circular.

“This will also allow the regulator to keep a close vigil on the nature of investment under particular schemes,” an Irda official said.

Similarly, the chief actuary and the chief investment officer will have to certify that the proposed “new scheme or fund” offered by the insurer is “not a minor modification” of an existing fund.

“There are a number of instances where insurers have launched relatively same schemes with slight modifications under new names. This confuses the customer and, hence, should not be encouraged,” the Irda official said.

Thought Of the day

Love is the most important factor in life. If you pray to God 

with intense love and devotion, your prayers will certainly be answered. Such is the power of love. Devoid of love, nothing 

can be achieved even in this mundane world. Love is God, live

in love! The whole world becomes a vacuum without love. 

That Love alone assumes a form. Realise this truth. There is no power greater than humanness in this world. In God’s creation, everything is reaction, reflection and resound. Divinity is omnipresent. Cultivate Divine Love so that you can realize the omnipresent divinity within your own self.