CS Executive Guidelines Answers

CS Executive Guidelines answers have been put together to facilitate the learning.

Please note that the guidelines answers are the most recommended thing that one can take into account while studying CS. You must go through all the guidelines answers which can add some value in learning and clearing exams.

In case you need any clarifications, please feel free to get in touch with me at mukul.singh@csfuturz.com

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Public Provident Fund Scheme, 1968 (PPF, 1968) and Senior Citizens Savings Scheme, 2004 (SCSS, 2004) – Revision of interest rates

Referring to the circular RBI/2011-12/359 dated January 20, 2012 regarding interest rates on small savings schemes, the Government of India have vide their Office Memorandum (OM) No. 6-1/2011-NS.II (Pt.) dated March 26, 2012, advised the rate of interest on various small savings schemes for the financial year 2012-13. 

Accordingly, the rates of interest on PPF, 1968 and SCSS, 2004 for the financial year 2012-13 effective from April 01, 2012, on the basis of the interest compounding/payment built-in in the schemes, will be as under:

Scheme	Rate of interest w.e.f. 01.12.2011	Rate of interest w.e.f. 01.04.2012
5 year SCSS, 2004	9.0% p.a	9.3% p.a
PPF, 1968	8.6% p.a	8.8% p.a

This will result in good amount of saving in PPFs and SCSS.

SEBI (Debenture Trustee) IInd Amendment Regulation 2011

The SEBI (Debenture Trustee) IInd Amendment Regulation 2011 states that the net-worth of Debenture Trustee shall now be Rs. 2 Crore. Go to the Official Copy of Order.

Basic Concepts of Income tax

The Income Tax Act - Basic Concepts have been explained lucidly and can be read under Google Docs.

In the case of Vodafone

The Supreme Court on Friday, gave a remarkable decision, by directing  the government to return Rs 2500 crore to Vodafone International  Holding with interest over a $ 2.2 billion tax bill for its purchase of Hutchison Whampoa’s Indian mobile business  in 2007.

 This decision is indeed a welcoming note for all the Foreign Investors to make more and more investments in our country together with an increase confidence on the Indian judiciary.

 Vodafone had started off its operation in year 2007 by acquiring 67% stake in the Hutchison- Essar Ltd from Hong Kong based Hutchison Group through companies based in Netherlands and Cayman Island.

 The case took off with, The Income Tax Department raising query that since the capital gains were made in India through the deal, the company was liable to pay the tax and issued a show cause notice to it asking as to why it should not be treated as representative assessee of the Vodafone International Holding.

Vodafone, challenged the show cause notice before the Bombay High Court saying it was share transfer carried outside India. The appeal was rejected by the high court in December 2008 which was again challenged by Vodafone before the Supreme court.

The Supreme Court also dismissed the appeal in January 2009 and directed Income Tax Department to decide whether it had jurisdiction to tax the transaction. The Supreme Court, still, observed Vodafone would be at liberty to challenge the Income Tax department’s decision if it went against Vodafone and the question of law would also be open.

The Income Tax Department replied to this order in May 2010 saying, that the department has competent jurisdiction over the Vodafone, to be treated as an ‘assessee in default’ for failure to deduct tax at source. This decision of IT department was challenged by Vodafone before the Bombay High Court.

The High court passed its judgment on September 8, 2010, dismissing Vodafone’s petition and held that “the essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India”. It said the “the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction”.

 Vodafone again moved to the Supreme Court challenging the High Court decision which had held ‘that the Indian Income Tax department had jurisdiction over the deal.’ On January 20, 2012, Supreme Court  dismissed the judgment of Bombay High Court asking Vodafone International Holding to pay income tax of Rs 11000 crore on a deal abroad and directed the Income Tax department to return Rs 2500 crore to the company which was deposited by the company earlier within 2 months along with 4% interest.

Source: corporatelawreporter

Bond vs Debenture

Financial Crisis can come in any form and the person who is prepared in advance can fight with this crisis. To avoid these unforeseen financial crises everyone invests in different instrument that can generate returns on the income. There are many options available in the market that can be classified as risky and non risky. It is very well understood that risky instruments fetch high instruments and the non risky ones can give low returns.

Here, Debentures and bonds are two such options that can give good returns on the investment. Debenture is an instrument issued by a company that is generally in the form of convertible or non convertible into equities. Bonds are either issued by companies or by governmentand can be seen as a loan taken by them to meet their financial needs. These two instruments are basically loan taken from the investor but the repayment scenarios are generally different.

Debentures

Debentures come from a latin word called ‘debre’ meaning ‘to borrow’. Debentures are loans to the company. The companies issue debentures which are coveting expansion and can build sustenance in the business in the medium to long term. Just like equities these can be transferred to anyone, but does not have voting rights in the company’s general meetings. Debentures are simply loans taken by the companies and do not provide the ownership in the company. Debentures are of two types convertible and nonconvertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate.

Debenture holders may be secured or unsecured, the holder of an unsecured debenture is an unsecured creditor. Like any other unsecured creditor, he has two remedies:

• He may sue for the principal and interest and execute the decree against the property of the company.
• He may present a petition for the winding up of the company under section 433 of the act, on the ground that the company is not able pay its debts.

If the company is already in the course of winding up, he may prove in such winding up the amount due to him like any other unsecured creditor. Whereas, a secured debenture holder stands in a stronger position as compared to unsecured debenture holder . In addition to the above two remedies available to the unsecured debenture holder, he can exercise the following remedies.

• Sale : he will have an express or implied power of sale.
• Debenture holders action : when a company commits a default in payment of debts, a debenture holder may bring a suit against the company to obtain payment and to enforce the security.
• Appointment of receiver: the debenture holders may appoint a receiver here termed as ‘Debenture Trustee’ to take charge of the assets
• Valuation of security and proof of balance : if the company is being wound up and his security is insufficient, the debenture holder may value his security and prove for the balance of his debt or give up his security and prove for the whole debt.

Bonds

Bonds are actual contract notes issued by the borrower (here company or government) to pay interest at regular intervals and return the principal on the maturity of the bond. These bonds are issued by the companies for future expansions. The bonds are also issued by the government for its expenses. A bond is seen as loan taken by a borrower from the investor so unlike equity share it does not give stake in the company but he is seen as a lender. These bonds are redeemed at a definite time. These are secured loans and can yield low to medium interest rate.

Debenture holders get periodical interest on their money and upon completion of the term they get their principal amount back.Bond holders do not receive periodical payments. Rather, they get principal plus interest accrued upon the completion of the term. They are much more secure than debentures and are issued mostly by government firms.

In Brief:

• Debentures have a charge on the assets of the company which is not envitable in the case of Bonds as held in the case of Laxman Bharamji v. Emperor.

• Unsecured Debentures are like unsecured loans which carries a higher rate of interest.

• Debenture holders get periodical interest whereas bond holders receive accrued payment upon completion of the term.

• Bonds are more secure as they are mostly issued by government firms in comparison to Debentures since the latter is issued by a company.

Disclosure of Track Record of the public issues managed by Merchant Bankers

SEBI in its circular CIR/MIRSD/1/2012 dated 10th Jan'2012 stated that:

1. The offer document shall contain necessary disclosures so as to enable investors to take informed decision when  it comes to Investments.Further, a merchant banker is required to exercise due diligence and satisfy himself about all the aspects of the issue with adequate of disclosures of the information that may be necessary for the Investors.

2. Therefore, it is necessary for investors to evaluate the post-issue performance of the issuer in terms of disclosures made in the offer documents. This will also enable them to understand the level of due diligence exercised by the merchant bankers. 

3. In view of the above, it has now been decided in consultation with the merchant bankers that they shall disclose the track record of the performance of the public issues managed by them. The track record shall be disclosed for a period of three financial years from the date of listing for each public issue managed by the merchant banker. In case, there are more than one merchant banker, all of them are supposed to sign the Due Diligence Certificate as disclosed in the offer document, that shall disclose the track record.

4. The circular shall be applicable for the public issues listed from the date of this circular, with immediate effect. However, in case of past public issues managed during the last three years, the track record as specified in Clause 3 above shall be disclosed latest by March 31, 2012.

Sebi to reform IPO norms

Capital markets regulator Sebi on Thursday said it is in the process of reforming the initial public offer (IPO) norms to ensure minimum price volatility on the day of listing. "We are in the process of reforming IPO process which will ensure that much safer process and volatility in the initial days of listing is much less ... We are looking into every aspect," Securities and Exchange Board of India (Sebi) whole-time member Rajeev Agarwal said. - www.business-standard.com

Lack of funds no excuse for dishonouring bonds: Delhi High court

NEW DELHI: A government cannot be allowed to dishonour its sovereign guarantee on grounds of lack of funds, the Delhi High Court has said, while ordering the Jammu-and-Kashmir-government to redeem its bonds bought from its financial institution by Airport Authority of India (AAI).

"The state cannot say that it does not have the fund to honour its sovereign guarantee. The court would enforce the sovereign guarantee, because a sovereign guarantee cannot be allowed to fail, if rule of law is to be upheld," Justice Vipin Sanghi said.

The court's direction came on the plea of AAI against default in payment of redemption of bonds as well as the half yearly interest payable by Jammu and Kashmir State Financial Corporation.

The AAI had bought the JKSFC bonds to finance its own employee's provident fund.

The court also directed the state government to pay Rs 10.4 crore to the AAI for redemption of the bonds bought by it from JKSFC.

The court also disallowed the plea that the matter did not fall under its territorial jurisdiction saying that the financial transactions between the parties took place here.

The bench directed the Jammu and Kashmir government to "honour its sovereign guarantee" and "to make payments of the amount due comprising of the face value of the bonds which is Rs 10.4 crore along with interest up to the date of redemption at the rates prescribed in the said bonds".

It further asked the state to pay overdue interest to AAI on the amount due and payable on the date of redemption at the rate of 8 per cent.

The AAI had subscribed to the bonds to "prudently manage and invest the Contributory Provident Fund (CPF) of its employees." 
Source: economictimes

Framework of SEBI

The framework of SEBi can be well understood by clicking above

What are Exchange Traded Funds

ETFs and Gold ETFs

An Exchange Traded Fund (ETF) is a security that trades on a stock exchange and generally tracks the performance of an index. It is a single stock representing a basket of securities underlying the index which can be comprised of stocks, bonds, or other assets such as commodities. However, ETFs have evolved over recent years to allow for exposure to alternative asset classes, the implementation of more sophisticated investment strategies, and even active management.

Gold Exchange Traded Funds (ETFs) are open ended mutual funds that are passively managed and most of them seek to mirror the return of an index, a commodity or a basket of assets. ETFs are listed and traded on stock exchanges like stocks. They enable investors to gain broad exposure to indices or defined underlying asset (commodity) with relative case, on a real-time basis, and at a lower cost than many other forms of investing.

Gold ETFs provided investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that participation through the trading of a security on stock exchange. Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value.

Gold ETF tracks the performance of Gold Bullion. Gold ETFs provide returns that, before expenses, closely correspond to the returns provided by physical Gold. Each unit is approximately equal to the price of 1 gram of Gold. But, there are Gold ETFs which also provide a unit which is approximately equal to the price of ½ gram of Gold.

Source:equitybulls