The Government of India is actively enhancing the dispute resolution framework to improve the Ease of Doing Business and the enforcement of contracts. To this end, the Department of Legal Affairs is reviewing potential amendments to the Arbitration and Conciliation Act of 1996. The primary goals are to promote institutional arbitration, minimize court involvement in arbitration processes, and ensure that arbitration proceedings conclude in a timely manner.
In line with this initiative, the Arbitration and Conciliation (Amendment) Bill, 2024, has been drafted, along with a tabular comparison of existing provisions and proposed changes. The Department is now seeking public feedback on these draft amendments as part of its consultation process. The draft Bill and the accompanying tabular statement can be accessed through the Department’s official website.
Updated Tax Regulations: Understanding Arm’s Length Pricing for Business Compliance
The Ministry of Finance’s Department of Revenue has issued a notification (No. 116/2024) providing clarity on Arm’s Length Pricing (ALP) for related-party transactions. This move aims to simplify compliance, reduce disputes, and promote transparency in transfer pricing.
Arm’s Length Pricing refers to the price at which two related parties, typically within the same company or organization, conduct transactions as if they were unrelated, ensuring no conflict of interest. This pricing method prevents tax evasion and ensures fair market value in transactions between associated enterprises.
Key Highlights of the Notification:
- Tolerance Range: The notification sets a tolerance range of 1% for wholesale trading and 3% for all other cases, effective for the assessment year 2024-2025.
- Wholesale Trading Definition: Wholesale trading refers to international or domestic transactions involving goods, where:
- Purchase costs exceed 80% of total costs.
- Average monthly closing inventory is 10% or less of sales.
- Retrospective Effect: The notification will not adversely affect anyone due to its retrospective effect.
- ALP Calculation: The notification provides clarity on ALP calculations, reducing disputes and litigation.
Taxpayers engaged in international transactions, companies with related-party transactions, and wholesale traders are affected. To ensure compliance, review related-party transactions, consult tax experts, and stay informed about the latest tax regulations. The notification aligns with global transfer pricing norms, promoting fair business practices and preventing tax avoidance.
SEBI Circular on Monitoring Shareholding of Market Infrastructure Institutions (MIIs)
The recent SEBI guidelines outline a comprehensive framework for Market Infrastructure Institutions (MIIs), including Stock Exchanges, Clearing Corporations, and Depositories, to ensure compliance with shareholding norms as per the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC Regulations) and the SEBI (Depositories and Participants) Regulations, 2018 (D&P Regulations).
Shareholding Disclosure:
- All MIIs shall disclose their shareholding with category-wise breakup as per the requirements and formats specified for listed companies under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations, 2015) on a quarterly basis on their respective websites.
Designated Depository (DD):
- Every MII shall appoint a depository as “Designated Depository (DD)” for the purpose of monitoring their shareholding limits as per SECC Regulations, 2018 and D&P Regulations, 2018, as applicable. The DD of an MII shall not be an associate (as defined under SECC Regulations, 2018) of the MII.
Monitoring and Breach Reporting:
- The DD shall monitor and inform the MII and stock exchange on which its shares are listed (in case of listed MII), as and when the threshold limit of 5% or 15%, as applicable under SECC Regulations, 2018 and D&P Regulations, 2018, is breached and take appropriate consequential actions.
Fit and Proper Criteria
- The circular emphasizes the importance of the fit and proper criteria for shareholders. MIIs are mandated to ensure that any shareholder holding 2% or more of their equity shares or voting rights complies with these criteria. The circular also requires MIIs to make all shareholders aware of the fit and proper requirements and to submit quarterly reports to SEBI regarding any shareholders who do not meet these standards.
Freezing of Voting Rights and Corporate Benefits
- If there is a breach of the shareholding or fit and proper criteria, SEBI’s circular mandates the freezing of voting rights and corporate benefits for excess shareholdings. The DD is tasked with applying an ISIN-level freeze on the demat account of the relevant shareholder and disabling e-voting for shares exceeding the regulatory limit. Any dividends from excess shares will be transferred to the Investor Protection Fund (IPF) or Settlement Guarantee Fund (SGF), depending on the type of MII.
Disclaimer: The information published in the above newsletter is collected from various sources in electronic medium and analyzed by the firm. The reader is advised to consult the attorney qualified in their jurisdiction, before acting on any information contained in this newsletter. India Juris excepts no liability what so ever in this regard.
