Month: December 2015

FCCB vs FCEB

Happy Christmas

Christmas is a spirit of giving rather than a thought of getting. Zappy Consults wishes you and your family a very happy Christmas and prosperous New Year. In our December Edition, we will be seeing about the Foreign Currency Convertible Bonds (FCCBs), Foreign Currency Exchangeable Bonds (FCEBs) and the recent amendments made to it by the RBI. Also as usual Legal terms and News Bites related to notifications by MCA, SEBI, RBI and IT Department in the previous month would follow the article.

CEO Saranya Deivasigamani,
CEO

FCCB Vs FCEB

FCCB
A Foreign Currency Convertible Bond is nothing but a convertible bond issued in a currency other than the home currency (i.e. any currency other than Indian Rupees). As like any convertible instrument, the term convertible bond includes two types of instruments – debt and equity. While purchasing the bond it will be a debt instrument by making a regular coupon and principal payments in the issued currency. On maturity of the bond, the bond holder will have an option to convert it into equity shares / stock. The Foreign Exchange Management Act (FEMA), 1999 defines “’Foreign Currency Convertible Bond’ (FCCB) means a bond issued by an Indian company expressed in foreign currency, and the principal and interest in respect of which is payable in foreign currency”
Regulatory Framework
The issue and compliance of FCCB is governed as per the provisions of clause (a) of sub-section (3) of section 6 and section 47 of the Foreign Exchange Management Act 1999, (42 of 1999) and in supersession of Notification No. FEMA19/ RB 2000 dated 3rd May 2000, as amended from time to time the Reserve Bank of India.
Recent Amendments
Let us discuss in detail about Regulation 21 that prohibits issue of foreign security by a person resident in India under Part III of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2004restricts Investments in Foreign Securities other than by way of Direct Investment Sub-regulation (1) says – save as otherwise provided in the Act or in sub-regulation (2), no person resident in India shall issue or transfer a foreign security. Sub-regulation (2) allowed a person resident in India, being an Indian Company or a Body Corporate created by an Act of Parliament. i) May issue FCCBs not exceeding USD 500 million to a person resident outside India in accordance with and subject to the conditions stipulated in Schedule I. ii) May issue FCCBs beyond USD 500 million with the specific approval of the Reserve Bank. Notification No.FEMA.359/2015-RB Dated December 02, 2015 inserted the following provisions to the sub-regulation (2): iii) Provided that under these Regulations, the Reserve Bank may, in consultation with the Government of India, change / prescribe for the automatic as well as the approval route of FCCBs, any provision or proviso for issuance of FCCBs. iv) Provided that under these Regulations, the Reserve Bank may, in consultation with the Government of India, change / prescribe any provision or proviso for issuance of FCEBs. The Amendment was made to insert the provisions for FCEBs that was introduced in February 15, 2008 through the Issue of Foreign Currency Exchangeable Bonds Scheme, 2008.
FCEB
The Issue of Foreign Currency Exchangeable Bonds Scheme, 2008 defines “Foreign Currency Exchangeable Bond” means a bond expressed in foreign currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or on the basis of any equity related warrants attached to debt instruments.
FCCB Vs FCEB
There are fundamental differences between FCCBs and FCEBs. In the case of FCCBs, the bonds convert into shares of the company that issued the bonds, while in the case of FCEBs, the bonds are exchangeable for shares in another company – i.e. the offered company. Further, in the case of FCCBs, when the holder exercises the option to convert, the issuer company issues fresh shares to the holder upon conversion of the FCCB. However, in the case of FCEBs, when the exchange option is exercised, there is no issuance of fresh shares by the offered company. Instead, it is a requirement that the shares of the offered company, into which the FCEBs are exchanged, be held by the issuing company at the time of issuance of the FCEBs and until redemption or exchange. Thus, on exchange, there is merely a transfer of the shares (of the offered company) held by the issuing company to the holder of the FCEB. As such, the issuance of FCEBs will have only a limited effect on the price of shares of the offered company, since there is no threat of future dilution, unlike in the case of FCCBs.

Legal Term

Debile fundamentum fallit opus
Where there is a weak foundation the work fails. L. Debile – weak, infirm 1. Fundamentum – foundation, basis 2. Fallit – makes slip, disappoints, betrays 3. Opus – work, structure 4. A weak foundation makes slip the structure Law: A weak foundation puts the entire structure in jeopardy.

NewsBites

MCA Updates

  • In exercise of the powers conferred by sub-sections (l) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government made rules further to amend the Companies (Share Capital and Debentures) Rules,20l4,
  • The Companies (Management and Administration) Third Amendment Rules, 2015 shall come into force on the date of their publication in the Official Gazette. In the Companies (Management and Administration) Rules, 2014, for Form No: MGT-7, the following form shall be substituted, namely:- Share Capital, Debentures And Other Securities of the Company, Share Holding Pattern – Promoters, Share Holding Pattern – Public/Other than Promoters.
  • The Ministry’s General Circular dated 28.10.2015, keeping in view requests received from various stakeholders, it has been decided to relax the additional fees payable on e-forms AOC4, AOC (CFS) AOC-4 XBRL and e- Form MGT-7 up to 30.12.2015, wherever additional fee is applicable.

SEBI Updates

  • SEBI, is in receipt of representations requesting for relaxation of the requirements of Regulation 33(1) (c) of SEBI (Listing obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) for the quarter ending December 31, 2015 and quarter and financial year ending March 31, 2016 for all such listed entity which had exercised the option of preparing consolidated financial statements under IFRS for the first quarter of FY 2015-16..

RBI Updates

  • In exercise of the powers conferred by sub-section (2) of Section 6, sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India makes, in consultation with the Central Government, the following amendments in the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000.
  • Foreign Exchange Management (Manner of Receipt and Payment) (Amendment) Regulations, 2015 – (First Amendment) FEMA.14/2000-RB dated May 3, 2000 was amended vide Notification no. FEMA 357/2015-RB Dated December 6, 2015.
  • Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) (Amendment) Regulations, 2015 – First Amendment) FEMA.3/2000-RB dated May 3, 2000 was amended vide Notification no. FEMA 358/2015-RB Dated December 2, 2015.
  • Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations, 2015 – (First Amendment) FEMA.120/2004-RB dated 07.07.2004 was amended vide Notification no. FEMA 359/2015-RB Dated December 2, 2015.
  • Foreign Exchange Management (Permissible Capital Account Transactions) (Fourth Amendment) Regulations, 2015 – Fourth Amendment) FEMA.1/2000-RB dated May 3, 2000 was amended vide Notification no. FEMA 345/2015-RB Dated November 16, 2015.
  • Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eleventh Amendment) Regulations, 2015 – (Eleventh Amendment) FEMA.20/2000-RB dated 03.05.2000 was amended vide Notification no. FEMA 355/2015-RB Dated November 16, 2015

Income Tax Updates

  • It has been brought to the notice of the Board that in the case of Banks, field officers are taking a view that, “expenses relatable to investment in non-SLR securities need to be disallowed u/s 57(i) of the Act as interest on non-SLR securities is Income from Other Sources”.
  • Clause (id) of sub-section (1) of Section 56 of the Act provides that income by way of interest on securities shall be chargeable to income-tax under the head “Income from Other Sources”, if, the income is not chargeable to income-tax under the head “Profits and Gains of Business and Profession”.
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