31 January, 2010

Draconian bankruptcy laws ruin only small investors

Most ordinary mortals wonder why in our country businesses go bankrupt but the promoters are never broke?
Why is it that the small shareholders suffer for business errors of top management?
When business entities go bankrupt, they sink with the common man’s entire kitty of hard earned money. It is the small investor or shareholder who goes bankrupt, the management comes out unscathed from the financial disaster.
If we take the dictionary meaning, then bankruptcy may be defined as a legal procedure when the debtor is unable to make his payments. But in effect, it is the procedure to extract maximum value from a failed venture.
In our country, the failed venture has been used as a business opportunity and there have been instances where people have used weak insolvency laws as a path to brighter future. In fact, bankruptcy has been used as a business tool to conceal assets, destroy documents, make false claims and declarations and tilt the law in the unsuccessful entity’s favour.
The most commonly used route for bankruptcy frauds is done by floating Initial Public Offerings (IPOs), not investing much themselves, collecting money from the small investors and then showing huge losses in the name of cost overrun, fierce competition or order cancellations etc.
In many cases the same group starts afresh using a new name with different promoters and move to different cities to escape the law and thereby manage to avail finances for the new venture.
Taking a closer look one realises that it takes somewhere around 10 years to wind up a business in India.
Add to this, the revelation from an IFC report that states that out of each dollar invested in business in India, only 10 cents are recovered after waiting for all those years.
Therefore, one must understand that bankruptcy or insolvency laws are critical to the smooth working of an economy.
Whether it is a boom or a bust, the lenders should have the satisfaction that they can get their money back and how well an economy is able to achieve this decides the investor confidence in the system.
It is surprising that as one of the largest recipients of FDI in the world, we do not have very clear-cut bankruptcy law which acts as a roadblock to inflow of FDI. The JJ Irani Committee has clearly noted that “the Indian system provides neither an opportunity for speedy and effective rehabilitation nor an efficient exit.”
Even as the Companies Bill 2009 was introduced in Lok Sabha on August 3, 2009 with revised framework for insolvency, experts are sceptical that the law may not be passed for another couple of years. Of course, the small investors are not the important corporates who keep the wheel of business moving and the policymakers can always take their own sweet time to form significant bankruptcy law.

30 January, 2010

No upper ceiling for payment of Gratuity

Employees within the coverage of Payment of Gratuity Act, 1972 (the Act) or otherwise if being provided by their organization for the same are entitled to receive gratuity after rendering 5 years of continuous service. Generally, the payment is made on retirement or death of an employee (to legal heirs) but it can also be encashed in case of resignation or termination or during service. At present, the maximum ceiling for the purpose as per the Act is Rs. 3.5 lakhs.
Even then employees may receive gratuity at a higher rate than prescribed under the Act. This is supported by Sec. 4(5) of the Act which protects gratuity if it is at a rate better than that provided under the Act. Such higher payment of gratuity may be affected through any award or agreement or contract with the employer. Delhi High Court’s through its judgement in the case of SAIL Ex-Employee’s Association vs. Steel Authority of India & Another (LLR, Delhi HC 1312) has also granted legal sanction to agreements to this effect.
Any death cum retirement gratuity is exempt from tax to the extent of the least of the following:- 15 days salary, based on salary last drawn for every completed year of service or part thereof in excess of 6 months
- Rs.3,50,000
- Gratuity actually received Thus, gratuity in excess of the above limits is taxable in the hands of the assessee. Also any gratuity paid to an employee while in service is not exempt from tax. However, the assessee can claim relief under section 89.

Transferring PF while job hopping

Provident Fund (PF) deductions are made from salary/wages of any person employed in an establishment covered under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. Such deductions are to be made in respect of employee whose basic salary/wages does not exceed Rs. 6,500.
While changing jobs, employees can either withdraw the PF amount or transfer existing PF account with the new employer. For transfer, the new employer needs to be furnished with EPF Form 13 along with the EPF account number of employee. Such number needs to be collected from the HR department of previous employer. The new employer will submit this form to the regional EPF office after adding the new EPF account number.
Any withdrawal from PF account made before completing 5 years of service is taxable. But if it is transferred it does not attract any taxability.

Indian nationals outside India on short assignments can claim exemption from contributing towards foreign social security

Recently there has been an increase in the transition of skilled workers from India to other countries on short term assignments. During such transition the employees continue contributing towards the social security in their home country. Also, they need to contribute towards the same in the country of deputation. But they hardly benefit from the same as most of the countries either do not permit export of such benefits or they have contribution period criterion which is not satisfied due to shorter stay period.
Social Security Agreements (SSAs) can be helpful here. Adhering to them, employees working in a foreign country with which India has SSA can avoid contributing towards social security of that country*. Such employees may rather continue contributing towards social security in India and it is mandatory for them to contribute towards Provident Fund in India irrespective of their salary.
*India has entered into SSAs with many like Germany, Netherlands, Oman and Bahrain, Belgium, etc. and negotiations are on with other countries.

EPFO objects the direct tax code draft

Employees’ Provident Fund Organization (EPFO) has raised strong objections against the draft Direct Tax Code (the draft) as the draft proposes to introduce a new Exempt-Exempt-Taxation (EET) system. Under EET system, the contributions and earnings thereon are exempt from tax but all the withdrawals at the time of retirement would be taxable at prevailing personal tax rate.
The new system is to replace the prevailing EEE (Exempt-Exempt-Exempt) system. Under the prevailing system, EPFO members draw benefit of fully tax-free treatment on their contributions, interest income and withdrawal of accumulated savings at the time of retirement.
EPFO authorities ruled out the move tagging it as violative of the principles of natural justice and equity for the workers under the coverage of EPFO. They explained that such shift to EET regime would make the EPFO an unattractive option for a major portion of the workforce voluntarily contributing towards PF in excess then the mandatorily fixed norms.
Source:http://www.financialexpress.com/news/Plan-to-tax-pension-savings-to-hurt-social-security-says-EPFO/552098/

12 January, 2010

Logo not correctly placed and allegation of misbranding is not tenable

Logo not correctly placed and allegation of misbranding after finding some elements of non vegetarian in milk biscuits, the ingredient of the offence under Section 16(1)(a) (i) of Food Adulteration Act, 1954 are not made out against the petitioner.
The petitioner is the Managing Director of Britannia Industries Ltd. Having its head office at Kolkata. The Milk Bikis Biscuits were seized from M/s Rashmi Enterprises who is authorized wholesale dealer and the sample of the Biscuits was sent to the Public Analyst, Patna. The report of public analyst simply states that “Logo is not fixed on the proper site of the label”.
The F.I.R. under Food Adulteration Act,1954 was lodged. According to F.I.R. it is alleged that Milk Biscuits which were sold did not conform to the rule of labelling andwere therefore misbranded. The rules regarding labelling are provided in Part-II of the Prevention of Food Adulteration Rules,1955. The rules envisage that the trade name, description of the food ingredients, the Logo with respect to the article being vegetarian or non-vegetarian should be clearly stated. In essence the rules require that the manufacturer describes the food item so that the purchaser is aware of the contents etc. of the food article.
It has been contended by the opposite party that the Logo declaring the food article to be vegetarian was not placed at the proper place. It is a hyper technical objection which is not justified in view of the fact that there is no violation of other provisions of Act & Rules since it is not the prosecution case that the Logo place showed the food article to be vegetarian and it turned out on examination to contain articles which were non vegetarian. The objection is not tenable as the violation or the so-called “site” where the Logo was placed has not been described by the report of the analyst.
Source:- Patna High Court in Vinita Bali vs The State of Bihar
For any query Please contact Advocate Dinesh Miglani at 9215514436 or at dineshmiglani@hotmail.com