India: Corporate Law Alert - March 2, 2012

External Commercial Borrowing

The Reserve Bank of India (RBI) has vide A.P. (DIR Series) Circular No. 75 dated February 7, 2012 simplified certain processes relating to External Commercial Borrowing (ECB) which are as follows:

(a) Reduction in the Amount of ECB

Designated AD Category – I Banks (AD Category – I Banks) can now approve the requests for reduction in the amount of the ECB availed under the automatic route subject to the satisfaction of the following conditions:

1. The consent of the lender for reduction in loan amount has been obtained;
2. The average maturity period of the ECB is maintained;
3. The monthly ECB-2 returns in respect of the Loan Registration Number (LRN) have been submitted to the Department of Statistics and Information Management (DSIM); and
4. There is no other change in the other terms and conditions of the ECB.

(b) Changes in the drawdown schedule when original maturity period is not maintained:

AD Category – I Banks had been delegated the powers to approve the changes/modifications in the drawdown/repayment schedule of already availed ECBs (under the automatic and the approval routes) provided that the average maturity period, as declared at the time of obtaining the LRN, was maintained.

The scope of the powers of AD Category – I Banks have now been further widened wherein AD Category – I Banks can approve the changes/modifications in the drawdown/repayment schedule of already availed ECBs (under the automatic and the approval routes) which results in a change in the original average maturity period subject to the satisfaction of the following conditions:

1. There are no changes/modifications in the repayment schedule of the ECB;
2. The average maturity period of the ECB is reduced as against the original average maturity period stated in Form 83 at the time of obtaining the LRN;
3. Such reduced average maturity period complies with the stipulated minimum average maturity period as per the extant guidelines;
4. The change in all-in-cost is only due to the change in the average maturity period and the ECB complies with the extant guidelines; and
5. The monthly ECB-2 returns in respect of the LRN have been submitted to DSIM.

(c) Reduction in the all-in-cost of ECB

AD Category – I Banks may approve the requests from ECB borrowers for reduction in all-in-cost, in respect of ECBs availed both under the automatic and approval routes, subject to the satisfaction of the following conditions:

1. The consent of the lender has been obtained and there are no other changes in the terms and conditions of the ECB; and
2. The monthly ECB-2 returns in respect of the LRN have been submitted to DSIM.

Export of Goods and Services – Simplification and Revision of Softex Procedure

RBI has vide A.P. (DIR Series) Circular No. 80 dated February 15, 2012 revised the filing process of Form Softex for software exporters whose annual turnover is at least Rs. 1000 crores or who file at least 600 Softex forms annually.

In terms of the revised process, a software exporter which fulfils the aforementioned criteria will be eligible to submit a statement in excel format in accordance with Annexure A (as annexed to the said circular), giving all particulars along with a quadruplicate set of Softex form to the nearest Software Technology Parks of India (STPI).

Software companies will need to submit all the documents on demand to the STPI within 30 days of their advice or any reasonable/extended time at the discretion of the Director, STPI, at the request from the exporter.

On receipt of Form Softex in quadruplicate and the statement, the same will be certified by STPI and thereafter forwarded to RBI, Authorised Dealer and the Exporter in accordance with the process laid down in the said circular.

The new procedure will be effective initially in STPI Bangalore, Hyderabad, Chennai, Pune and Mumbai from April 1, 2012. Based on the success in the aforementioned centers, the new process will be adopted by all the STPIs and Special Economic Zones (SEZ)/ Export Processing Zone (EPZ) / 100% Export Oriented Units (EOU)/ Domestic Tariff Area (DTA) units by June 2012.

Receipt of Advance Payment for Export of Goods Involving Shipment extended

RBI has vide A.P. (DIR Series) Circular No. 81 dated February 21, 2012 permitted AD Category – I Banks to allow exporters to receive advance payment for export of goods which would take more than one year to manufacture and ship and where the export agreement provides for the shipment of goods extending beyond the period of one year from the date of receipt of advance payment subject to the satisfaction of the following conditions:

1. The KYC and the due diligence exercise has been done by the AD Category – I Bank for the overseas buyer;
2. Compliance with the Anti Money Laundering Standards has been ensured;
3. The AD Category – I Bank should ensure that the export advance received by the exporter should be utilized to execute export and not any other purpose i.e. the transaction is a bona fide transaction;
4. Progress payment, if any, should be received directly from the overseas buyer in terms of the contract;
5. The rate of interest, if any, payable on the advance payment should not exceed London Inter-Bank Offered Rate (LIBOR) + 100 basis points;
6. There should be no instance of refund exceeding 10% of the advance payment received in the last three years;
7. The documents covering the shipment should be routed through the same AD Category – I Bank; and
8. In the event of the exporter's inability to make the shipment, partly or fully, no remittance towards refund of unutilized portion of advance payment or towards payment of interest should be made without the prior approval of RBI.

Prior to the aforementioned circular, RBI's approval was required by an exporter for receipt of advance where the export agreement provided for the shipment of goods extending beyond the period of one year from the date of receipt of advance payment.

Amount for Remittance towards Imports without Form A-1 - Liberalised

RBI has vide A.P. (DIR Series) Circular No. 82 dated February 21, 2012 raised the limit for foreign exchange remittance towards imports without any documentation, from USD 500 or its equivalent to USD 5000 or its equivalent.

Pursuant to the above circular, AD Category – I Banks will only need a simple letter from the applicant containing the basic information i.e. the name and address of the applicant, name and address of the beneficiary, amount to be remitted and the purpose of remittance. In addition to the above, the foreign exchange to be procured should be for a current account transaction and should not be included in Schedules I and II of the Foreign Exchange Management (Current Account Transactions) Rules, 2000; the amount should not exceed USD 5000 or its equivalent and the payment should be made by a cheque drawn on an applicant's bank account or a demand draft.

This circular has come into force with immediate effect.

Transfer of Assets from Liaison Office/Branch Office

RBI has vide A.P. (DIR Series) Circular No. 88 dated March 1, 2012 clarified that prior approval of the Central Office of the Foreign Exchange Department, RBI needs to be obtained for the transfer of assets of a Liaison Office/Branch Office to subsidiaries or other Liaison Office/Branch Office or any other entity.

Employment And Probation

A Division Bench of the High Court of Delhi (DHC) in the case of Union of India & Anr. vs. Pravesh Malik, Pradeep Kumar, Sandeep Malik and Sandeep Kumar Malik (186 (2012) Delhi Law Times 174(DB)) has held that an employee, during the probationary period of his employment, does not have any right to the designation. Further, during the probationary period, the services of an employee may be terminated; and the mere fact that the employer, in a performance appraisal finds the employee's performance unsatisfactory, the order of termination of probation, and as a result the termination of the underlying employment, cannot be interpreted as stigmatic or punitive.

Wrongful Termination of Employees

A Division Bench of the DHC in Chander Pal vs. CMD, Delhi Transport Corporation (186 (2012) Delhi Law Times 36 (DB)) has held that if a Government employee complains that his dismissal was wrongful and that reasonable opportunity was not given to him as required by statute, it is for the department to satisfy the Court that in fact, reasonable opportunity (as required by statute) was given to said employee and his termination was in accordance with the relevant statute. The Court further held that the provision of a reasonable opportunity to the employee does not depend upon the employee asking for such opportunity, but is a statutory and recognized protection offered to him.

The Court also considered what would be the relief, if any, granted to an employee in such a case, if the employee had attained the age of superannuation. In this regard the Court held that the employee would be entitled to back wages from the date of such wrongful dismissal till the age of superannuation and, thereafter, all the consequential relief of pension etc.

Madras High Court Judgment Regarding Foreign Law Firms in India

A division bench of the High Court of Madras in A.K. Balaji vs. The Government of India and Ors. (W.P. No. 5614 of 2010 and M.P. Nos 1, 3 to 5 of 2010) on February 21, 2012 in the writ petition filed against foreign law firms alleging the illegal practice of the legal profession in India by these firms concluded the following (as provided in paragraph 63 of the judgment):

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