ArchiveApril 2010

The ULIPs controversy and a Delhi High Court decision

The ULIPs SEBI/IRDA tussle takes new turns practically every week and would not warrant further posts to my last one, (which was also followed by another post by a learned contributor) till either the Court decides the issue or the law is amended. However, I stumbled across a recent decision of the Delhi High Court (Chanchal Jain vs. SEBI (95 SCL 31 (2009)) dated July 24, 2009) on a related...

Changes to Minimum Pricing Norms for FDI in Unlisted Companies

(The following post is from Tanmay Amar, senior associate at Luthra & Luthra. Tanmay discusses a significant change to the minimum pricing norms for issue of shares by Indian companies to foreign investors. This change is bound to affect the manner in which valuations are to be arrived at, especially for investments by financial investors such as private equity funds. It is not clear as to...

Porrits & Spencer: Form over Substance Reaffirmed

We have extensively discussed issues around tax avoidance previously; and one of the questions in this regard is the exact relationship between the 5-Judge Bench decision in McDowell and the subsequent 2-Judge Bench decision Azadi. To briefly recapitulate, in McDowell, Justice Chinappa Reddy took a strong stance against tax avoidance and effectively equated avoidance with evasion. Under Justice...

Meaning of ‘work’ under section 194C

In a decision last delivered last month, the Bombay High Court once again visited the debate over the meaning of ‘sale’, in the process of clarifying the scope of the obligation to deduct tax at source under section 194C of the Income Tax Act. The factual matrix before the Court involved a unique business model adopted by pharmaceutical companies. Pharmaceutical companies adopt three methods for...

Substance over Form in Taxation: The Recent English Approach

We have at several times on this blog discussed issues around the legality of tax avoidance. In debates around avoidance/evasion distinction, reference is often made to the classic English cases – Duke of Westminster, Ramsay, Furniss, Macniven and others. In this background, it might be useful to consider the latest approach of the English Courts to tax planning activities. The latest...

SEBI’s “Advisory Instructions” to BSE

In a somewhat unconventional order, SEBI has on April 20, 2010 issued “advisory instructions” in a matter involving the Bombay Stock Exchange Limited (“BSE”). It arises out of a letter by the BSE to SEBI dated July 2, 2004 containing a proposal to introduce a market making scheme in the derivatives segment of the exchange. A unique feature of the scheme proposed by BSE was that it would reimburse...

SEBI PLUGS LOOPHOLE IN BROAD-BASED CRITERIA FOR FIIs

The Securities and Exchange Board of India (“SEBI”) has issued a circular dated April 15, 2010 clarifying its stand on broad-based criteria for registration as foreign institutional investors (“FIIs”). See: SEBI has clarified that if an entity has a feature of its structure, multiple classes of investors and multiple pools of investments within the same entity, each such pool ought to comply with...

Characterising a Joint Venture

A joint venture, perhaps one of the most widely used vehicles of commerce, is principally of two types – an incorporated joint venture [“IJV”] and an unincorporated joint venture [“UJV”]. The shares of the IJV are held by the members of the joint venture, in proportions that typically reflect their respective contributions to the enterprise. As a matter of law, therefore, an IJV is treated as any...

More Controversy over Forex Derivatives

Over the past two years, forex derivatives have generated substantial legal controversy in India, perhaps because of the relatively recent rise in the use of these instruments in India. We have discussed the challenge to the legality of derivatives as wagering agreements, their regulation, taxability and other related issues. The latest addition to this chapter of uncertainty is a report that the...

SEBI’s Order on ULIPs: A Misfired Shot? – Part II

(This is in continuation of Abhishek Tripathi’s previous post, and it examines the regulation of ULIPs in the backdrop of the reasoning adopted by courts in the Commonwealth)Insurance Act regulates companies engaged in any class of insurance business, and requires such companies to register themselves with the IRDA prior to commencing any insurance business. ‘Life insurance business’ has been...

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