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Supreme Court Upholds Creditors Committee Sovereignty Under The IBC

The Supreme Court in its recent judgment has categorically held that the commercial know how of the Committee of Creditors (CoC) is unimpeachable and not subject to judicial review.

The bench consisting of Justices AM Khanwilkar and Ajay Rastogi, while hearing appeals in two cases wherein liquidation orders were passed under the Insolvency and Bankruptcy Code, 2016 (“IBC”) against  Kamineni Steel & Power India and Innoventive Industries, observed –

Besides, the commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I&B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan”.

The facts of case are that while Innoventive Industries went straight into liquidation for their inability to get the requisite 75% of voting share of financial creditors constituting the CoC, Kamineni’s resolution plan, despite having only 66% of voting share, was approved by the Hyderabad Bench of NCLT. In case of Kamineni, NCLAT, overturned the and remanded the case back to NCLT for liquidation. In the case of Innoventive, appeals were filed by the worker’s union as well as promoter contending that the dissenting financial creditors did not specify ‘reasons’ for opting out of the resolution plan.

The Apex Court, while strictly interpreting the law, found that the 75% threshold is compulsory and that “any other interpretation would result in rewriting of the provision and doing violence to the legislative intent”.

The Apex Court further held that both NCLT and NCLAT can only consider factors enumerated in Section 30(2) and 61(3) respectively at the time of admitting a resolution plan. Section 30(2) requires the Resolution Professional (“RP”) to confirm whether the resolution plan is in compliance with certain enumerated matters and NCLT  is entrusted to ensure that the same has been done by the RP.  Section 61(3) provides the limited grounds on which NCLAT may hear appeals from NCLT orders.

However, in both the instant cases, the applications were filed under Section 33, which provides for initiation of liquidation. In such a situation, the NCLT  is bound to initiate liquidation process under Section 33(1) of the IBC. As stated earlier, under section 61(3), the Code limits the grounds under which the NCLAT may hear an appeal from orders passed by NCLT.  The Court found that  upon receiving a “rejected” resolution plan, NCLT is not expected to do anything except fulfilling its obligation to initiate liquidation process under Section 33(1) of IBC.

In light of the aforementioned, the Court held the following –

  • The legislature has not endowed the NCLT with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors
  • The legislature, consciously, has not provided any ground to challenge the ‘commercial wisdom’ of the individual financial creditors or their collective decision before the adjudicating authority. That is made non justiciable.

Angel Tax fiasco: Government To Soften The Blow On Startup Businesses

New Delhi, February 12: In terms of the number of businesses, India is the second biggest ecosystem for the start-up. Even though the incumbent government has time and again promoted the entrepreneurship in the country, from the past two weeks it is receiving constant flak from the startup ecosystem, as it is facing a new hurdle, that is, Angel Tax. This was prompted by the Income Tax Department seizing the accounts of two Indian start-ups- TravelKhana and Babygogo. Start-ups alleged that the government’s most-vaunted Startup initiative is affecting their financial health.

A large number of startups have received notices to pay angel tax. According to a survey conducted by LocalCircles and Indian Venture Capital Association, around 73% of startups said they have received at least one angel tax notice, while 30% have received three or more such notices most recently.

What is Angel Tax and why is it problematic? 

Angel investors are HNI or High-net-worth individuals who invest their personal money into the startup in the early stages when such entrepreneurial ventures find it difficult to access traditional sources of funds. They provide mentorship to startups. Here is how SEBI defines an angel investors, under the Alternative Investment Fund Regulations.  Any person who proposes to invest in an angel fund and satisfies one of the following conditions, namely,
(a) an individual investor who has net tangible assets of at least two crore rupees excluding the value of his principal residence, and who:

(i) has early stage investment experience; or
(ii) has experience as a serial entrepreneur; or
(iii) is a senior management professional with at least ten years of
experience

(b) a body corporate with a net worth of at least ten crore rupees; or
(c) an AIF registered under these regulations or a VCF registered under the SEBI (Venture Capital Funds) regulations, 1996.

Introduced by the UPA government in 2012, angel tax refers to a section of Income Tax Act that deals with taxing any capital raised by a closely-held company or startup which is above or excess of its Fair Market Value. This amount is deemed as income from other sources and is taxed at 30.9%. There, however, is no clear objective way to determine the Fair Market Value of the startup. Angel investors at the funding stage pay for the potential of an idea and the valuation is tied to the assessment of that potential. As per the Section, Fair Market Value is defined as the value-

a) as may be determined in accordance with such method as may be prescribed; or
b) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature;
whichever is higher;

According to a report by iSpirit, a think-tank of the Indian software industry, ideally a taxman or the Assessing Officer should not have the discretionary power to disregard a valuation acceptable to the startup and a group of sophisticated investors and arrived at by a professional in the form of a qualified Charted Accountant or a Category 1 Merchant Banker. Many startups have faced a challenge, whereby, the assessing officer takes the lower value as the Fair Market Value and taxes the entire premium as income in the hands of the companies. Additionally, the law states that the companies need to satisfy the assessing officer based on the value of the company, as on the date of the fundraising, whereas the valuation methodologies allow for you to discount future cash flows as of today. These contradict each other as the value as of today will always be less than the value in the future. This leads to taxation on the basis of the present Net Asset Value instead of the probable future value.

A big relief:

To soften the blow, according to a news report by the Economic Times, DIPP is believed to have accepted some of the demands by the startups, which it will notify by the end of this week. It is also planning to hike the investment limited for availing the income tax concessions by the startups. Adding to it, the government might increase investment limited for tax exemption from ten crores to twenty-five and forty crores. It is also likely to recognize all companies that are operational for up to ten years as startups.

U.S All Set To Withdraw Zero Tariff Program On Indian Exports

New Delhi, February 11: U.S is all set to take disciplinary action against India and is planning to withdraw the Generalized System of Preferences (GPS), amid an ongoing dispute over India’s trade and investment policies. The move is being feared, as India will lose a crucial U.S trade concession, under which it enjoys zero tariffs on over $5.6 billion of exports to the United States.

Vowing to reduce the U.S deficit with large economies, this will be the strongest punitive action against India since President Donald Trump took office in 2017.

This came after India rolled out new rules on e-commerce that restricted major international e-commerce companies, like Amazon and Flipkart-backed Walmart, from carrying out business in a rapidly growing online marketplace.  This was done to make sure that a level playing field is maintained and the services are provided in a fair and non-discriminatory manner. This, however, triggered the latest downturn of events.  According to a report by Reuters, Amazon, and Walmart, as well as the U.S. government, had lobbied against the sudden policy change.

Moreover, in a bid to improve and fast-track legal investigation, the Reserve Bank of India (RBI) in 2018, mandated that all data generated by the payment systems in India is to be stored in India. This forced global card payment companies such as Mastercard and Visa to move their data to India. U.S. lobby groups had voiced concerns about those proposals too, saying they made it difficult for companies to do business in the country.

Trump has repeatedly called out India for its high tariffs and unfavorable policies, and the imposition of higher tariffs on electronic products and smartphones added to the feud.

In order to counter this, Trump has courted U.S manufacturing companies operating in India to return home as a part of his ‘Make America Great Again’ campaign.

If the United States eliminates duty-free access for about 2,000 Indian products, it will mostly hurt Micro, Small & Medium Enterprises (MSMEs).  It has been speculated that the number of goods qualifying for preferential treatment could be reduced, or the whole program could be withdrawn. India also fears that Trump may demand a free trade agreement if both sides fail to reach a compromise on the trade package.

“The US Trade Representative was completing a review of India’s status as a GSP beneficiary and an announcement was expected over the next two weeks,” said one of the sources in an interview to Reuters.

The events, however, will demystify only after U.S Commerce Secretary Wilbur Ross’s visit next week.

 

 

SC Issues Contempt Notice To Central Government On HSRP Amendment

 

 

AJAY SHARMA v BRIJESH MEHROTRA

Contempt Petition 1787/2017

Hearing on 01.02.2019

 PRESS NOTE

The Hon’ble Supreme Court of India on 01.02.2019 issued a notice to the Central Government in an Application alleging contempt of the Orders passed by the Hon’ble Supreme Court in issuing Notifications dated 04.12.2018 and 06.12.2018 bearing Nos. GSR 1162 (E) and SO 6052 (E) respectively.

The said Notifications, as alleged by the Petitioner, are contrary to and therefore contemptuous of the Orders/Directions passed by the Hon’ble Supreme Court of India in various cases over a period of more than 10 years.

The Hon’ble Supreme Court, from time to time, passed detailed directions to enable the statutory authorities to keep centralized control on the implementation of the HSRP scheme for affixation of Security Number Plates on motor vehicles.  Three orders (i.e. (i) order dated 08.12.2011 reported in (2012) 1 SCC 707; (ii) order dated 07.02.2012 reported in (2012) 4 SCC 568 and (iii) order dated 13.07.2016 reported in (2016) 14 SCC 72 all passed by this Hon’ble Court in Writ Petition (Civil) No. 510 of 2005, titled as “Maninderjit Singh Bitta v Union of India & Ors.”)  passed by the Hon’ble Supreme Court, essentially contained directions and guidelines to ensure that the “security” aspects of the policy on High Security Number Plates are preserved and to this end passed directions requiring that all activities relating to manufacturing, supplying and affixing of High Security Registration Plates ought to be carried out in a State by a single technically and financially competent manufacturer whose manufacturing facilities, embossing stations, books and documents are to be subject to strict and periodical scrutiny and inspection by the State Government, the Central Government, and the expert body/testing agencies.

The Notifications that have now been passed by the Central Government amend Rule 50 of the Central Motor Vehicle Rules, 1989 and introduce the Motor Vehicles Order, 2018 replacing the old Motor Vehicles Order, 2001.

What is essentially conceived under the Amendment is that the Number Plates would be supplied through Auto-mobile manufacturers like Maruti, Hyundai etc. and affixed through their dealers; effectively doing away with the scope for single-point responsibility and accountability. While the Motor Vehicle manufacturers are ostensibly being made responsible for the entire process, in reality, such manufacturers are only formally responsible while the activities relating the manufacture, supply and affixation of High Security number plates would be carried out by different agencies. Under the system which is being replaced, the HSRP manufacturer selected by the State Government is not merely formally responsible but undertakes actual and de-facto responsibility by carrying out all activities relating to manufacturing, supply, and affixation of High Security Number Plates by itself.  

The present scheme turns the old scheme on its head, removing all important aspects of security and control of the government authorities over the manufacturers and suppliers of HSRP’s, as also control over security features of the High Security Registration Plates.

Further, the present scheme does not clearly lay down a process for implementation of the HSRP Scheme on existing vehicles. The affixation of HSRPs on such old/existing vehicles is the biggest challenge as there are Crores of Vehicles on the roads that are not affixed with the High Security Number Plates. The replacement of plates on such a large number of vehicles spread across the country can be carried out only in a planned and phased manner, which was possible under the earlier system. The amendment does not impose any agency with the responsibility of ensuring that High Security Number Plates are affixed on old/already sold motor vehicles. While the new scheme does make passing reference to old vehicles, it has been framed without keeping in view the enormity of the task involved.  

Furthermore, the present Scheme paves the way for supply through multiple manufacturers thereby scattering the steps involved in the manufacturing, supply, embossment, and affixation of High Security Number Plates and involving multiple entities in the process. Consequently, the feature of Issuance control, which was the very essence of the scheme when High Security Number Plates were introduced in 2001, stands dissolved.

Mr. Vikas Singh, Senior Advocate assisted by Mr. Naman Joshi, Advocate appeared on behalf of the Petitioner and alleged that the enforcement of the said Notifications will upset the entire HSRP Scheme as solidified by the Hon’ble Supreme Court.

The Petitioner averred that since the said Notifications are in direct violation of the orders of the Hon’ble Supreme Court, the Union should be held in contempt for willfully disobeying the orders of the Hon’ble Supreme Court.

Supreme Court bench comprising of Justice R. Bhanumati and Justice R. Subhash Reddy was pleased to take cognizance of the issue raised and issued a notice to the Union Government. The next date of hearing is fixed for 08.03.2019.

Companies (Amendment) Ordinance, 2019: An Overview

The Companies (Amendment) Ordinance, 2019 was promulgated to replace the Companies (Amendment) Ordinance, 2018 which brought about amendments to 31 provisions of the Act. The need for re-promulgation of an ordinance arose due to the fact that the Companies Amendment Bill, 2019 which was to replace the 2018 Ordinance was passed by the Lok Sabha on 4.01.2019 and was pending before the Lok Ssabha for its approval. The Bill had not yet been taken up for consideration despite the fact that the 2018 Ordinance was to cease to operate on 21.01.2019. Hence, the 2019 Ordinance was promulgated by the President for giving continuing effect to the 2018 Ordinance.

The 2018 Ordinance was a result of the recommendations of the Committee formed by the Ministry of Corporate Affairs under the chairmanship of Mr. Injeti Srinivas to review the offences from under the Act.

The ordinance has been promulgated with two main objectives. i.e, promote ease of doing business in India as well as to ensure better compliance of laws by the corporate giants. The Ordinance seeks to achieve these goals through the following amendments to the Companies Amendment Act, 2013:

  • Declaration by the Director  under Section 10A

The Ordinance seeks to introduce Section 10-A which mandates the director of any company incorporated after the commencement of the Ordinance to make a declaration that every subscriber to the memorandum has paid the value of shares agreed to be taken by hi. The declaration is to be made  within 180 days, before commencing any business and shall be verified by the registrar. In case of default, the Company will be penalized with a fine of INR 50000.

  • Removal of Company’s name from the register

The Ordinance empowers the Registrar to remove a company’s name from the register of companies if he has sufficient reason to believe that a company is not carrying on business, after a physical verification of the registered office under Section 12 of the Act. Failure to comply with provision will result in striking off the name of the company from the Register.   This has been done with the objective to tackle the increasing menace of ‘shell’ companies.

  • Penalty for issuing shares at a discount

The Ordinance imposes penalty for issuing shares at a discount under Section 53 of the Act. The Company will have to pay a penalty equivalent to the amount raised by the issue of such shares or five lakh rupees, whichever is less. The Company will also have to refund the amount with 12% shares.

  • Duty to register charges

The Ordinance seeks to reduce the time period provided for registration of charges under Section 77. Section 77 of the Act has been amended to the effect that charges created before the commencement of the Ordinance are to be registered within 300 days.  In case the charge is not registered within the time, the Ordinance provides an additional time of six months from the date of commencement within which the charge ought to be registered after payment of additional fees. In case the charges are created after the commencement of the Ordinance, the Charges are to be registered within 60 days of their creating. If the charge is not registered within the given time period, the Registrar can allow the registration of the charge within a period of further 60 days on payment of ad valorem fees.

Furthermore, Section 86 has been amended to the effect that any willful furnishing of false information or suppressing any material information pertaining to registration of charges will attract Section 447 of the Act, dealing with fraud.

  • Filing of resolutions and agreement

In order to improve transparency, the Ordinance  amended S. 117 (2) to impose a penalty of INR 1,00,000 as penalty on companies that fail to file resolutions and agreements before the specified time. In case of continuing failures, the penalty will be INR 500 per day subject to a maximum amount of 25 Lakh.

  • Enhancement of penalties

The Ordinance seeks to enhance the penalties levied under several sections. This has been done with a view to impose stringency in terms of companies complying with the Act.

  • Shifting of jurisdiction of certain Corporate Offences

The Ordinance seeks to institute an in-house system for adjudication of certain offences.  The Ordinance seeks to shift jurisdiction of 16 corporate offences from Special Courts to In-house. For this purpose, the offences which were earlier considered to be compoundable offences have been re-categorized as technical defaults, carrying civil liability. This has been done with an objective to reduce the case load of special courts, so as to enable them to deal with serious offences.

  • Reduction in penalty imposed on small companies and OPCs

In order to encourage the business activities of small companies, the Ordinance has also reduced the penalty imposed on small companies and OPCs to half of what is applicable to normal companies.

  • Efforts to reduce the load on NCLT

The Ordinance seeks to reduce the increasing load on NCLT in the following manner:

  1. The pecuniary jurisdiction of Regional Director for compounding of offences under Section 441 has been enhanced to INR 25 Lakh as opposed to the earlier limit of INR 5 Lakh so as to reduce the load on the Tribunal.
  2. The Ordinance amended Section 12 of the Act to mandate the approval of the Central Government vide an Order as a pre-requisite for conversion of a Public Company to a Private Company. Prior to the promulgation of the Order, the power to issue such Orders was with the Tribunal.
  3. The Ordinance vests power on the Central Government to change the financial year of a company incorporated outside India, if it requires to follow a different financial year for consolidation of its accounts outside India (Section 2(41) of the Act). Prior to the Ordinance, the same rested with the Tribunal and continues to do so in cases pending before the Tribunal

  • Substitution of the term, ‘Punishment’ with ‘Penalty’

The Ordinance has substituted the term, ‘Punishment’ with ‘Penalty’ in Ss. 105, 117 121 137, 140 so as to convert the criminal offences to civil penalties.

  • Disqualification of directors

The Ordinance also added an additional ground for disqualification of director under S. 164. After the promulgation of the Ordinance, directors who contravene the maximum number of directorship mandated under the law (20 for private companies and 1 for public companies) shall be liable for disqualification.

  • Penalty for repeated defaults

The Ordinance inserted a new Section 454A, wherein a company, its officer or any person already having subjected to penalty for default commits such default again, within a period of 3 years of date of order of imposing the penalty shall be liable to pay a penalty that is twice the amount of penalty provided under the Act.

Conclusion

The Ordinance is the need of the hour as it  seeks to streamline the procedures so as to ensure  the enhancement of ease of doing business in India. It also introduces stringent penalties so as to take strict action against companies that do not take compliance seriously. If implemented rigorously, the Ordinance has the potential to strengthen corporate governance and enforcement framework by increasing transparency in compliance and disclosures.

Financing Of International Trade: Need, Method & Practical Implications

International Trade in today’s world has become extremely intrinsic, and has led to rise in the living standards, generating more employment and has also brought in a market wherein the consumers have the option to choose from a vast variety of goods.

The fact of International Trade taking place is not something exclusive to this era,  since, the practice has been in place since the earliest civilization where trade used to happen, the key difference being that now the nature of International Trade has become more complex and import and export have also become a key contributor in the GDP of the countries.

Often, questions are posed as to why we need international Trade, why does any sovereign nation want to import or export goods from another sovereign nation. It would be worthwhile to mention here, that, not all nations are blessed with naturally available abundant raw materials, for instance Oil in Qatar, Congo has diamonds, Butter in New Zealand etc. Therefore, what has become a general practice is that, the nations tend to export more goods which are produced by the abundant use of local factor endowments; and import the goods where resources within the nation are scarce.

Nowadays, International Trade is no more restricted to Government to Government end trade, but has expanded with even the Multi National Corporations and other private entities disrupting into the trade process now.

Trade cannot take place without money, and most of the entities indulging into trade place heavy reliance on external capital for the purposes of financing costs for numerous business activities like advertising, intermediate input purchases, inventories, payment to the workers and other such costs.

Export activities require incurring of additional upfront expenditures which more or less constrain the companies to look for external finance due to the various stages involved in the export process that require incurring of expenses on duties, freight cost, insurance, trade costs. Moreover, International Trade involves  cross border delivery which not only would take longer time but would also lead to an increase in the requirements of the working capital.

Thus, trade finance is an important aspect when it comes to international Trade and considering the role played by capital in it the governments and various financial institutions have come up with different kinds of instruments to provide trade finance.

For instance, if we look at HSBC Bank, it provides with export finance facilities. These facilities primarily aid the exporter in informing him and also protecting him against the emerging market risks, the assessment thereof. The Bank since has global presence all around the globe, and have trade specialists who help in improving the cash-flow, managing risks associated with international trade even more effectively. These kind of instruments thus, are tailor-made for the needs and in a manner best suited to the exporters.

Trade Finance primarily has two purposes to serve; firstly, it acts as a source for providing working capital which is of utmost need for traders and other companies involved therein that require liquid assets; secondly, it also provides protection in the form of credit insurance against various prevalent risks like political risks, currency fluctuations and other trade risks.

When it comes to trade finance, the financial managers involved therein responsible for providing measures of financing trade have to make sure to use such instruments/methods, the deployment of which would in effect maximize the value of an MNC.

Mostly, banks of the nations or the destinations where trade is taking place are involved in the trade financing activities. Generally, as the practice is, the banks towards both the sides of the trade transaction, i.e., the exporter and the importer’s side play a major role in the financing of trade taking place therein. There are various methods through which the trade specialists help in financing trade. The most popular ones being;

Accounts Receivable Financing; this is a kind of an asset financing arrangement wherein the company (or exporter in the present case) uses it’s outstanding money or invoices owed by the customer to them for the purpose of securing loan from the bank.

Thus, there may be times, when the customer of the exporter pay the invoices in 30 to 60 days, however, in order to continue with their export and to incur expenses therein the exporter requires capital, thus, it is in these kinds of situations that the exporter can seek loan from the bank by the assignment of the amounts receivables. In this situation, the bank makes a loan to the exporter based on the exporter’s creditworthiness in the eyes of the bank. However, this method although fosters the exporter in carrying out his trade activities uninterruptedly, but at the same time since there is absence of any assurance regarding the payment from the customer’s end, the exporter is always at risk of not receiving any payment from the exporter. The exporter, even though is not assured of payments, is still bound to repay the loan to the bank.

There is presence of further additional risks like the government imposing restrictions and exchange restraints which may further hinder completion of payment from the customer’s side to the exporter. As a consequence thereof, the rate at which the bank provides the loan is often higher than the domestic rates prevalent in the account receivable financing. Further, since there are risks pertaining to currency fluctuations, government restrictions, which are generally beyond the control of the parties, there is an additional requirement to obtain credit insurance as a safety measure prior to financing foreign receivables.

Another method is that of Factoring, under this method the exporter (or business as used in this context in common parlance) sells its receivables, invoices to a third party, who is called a “factor”. This selling/assignment to the factor enables him to collect the payments on behalf of the exporter from the business’s customers. Factoring is beneficial to the exporter in several ways. As first, this act of selling/assignment relieves the exporter of the administrative duties involved therein for maintaining and monitoring the account receivables for the purposes of accounting ledger. Secondly, by such assignment the entire credit exposure is given to the factor and the exporter therefore, is relieved from taking efforts to assess the creditworthiness of the foreign buyer as the task is assigned to the factor. Thirdly, this sale to the factor, enables and improves the cash flow of the exporter as he obtained immediate payment from the factor upon such selling/assignment.

The factor here, since pays money to the exporter, is therefore dependent on the import buyer for repayment to the factor which places the responsibility of assessment of credit risk on the factor. Thus, in order for the factor to ensure that the importer is creditworthy, cross border factoring is often put to use. The factor of the exporter contacts a corresponding factor in the buyer/importer’s country to assess the creditworthiness of the importer and also the consequent handling of receivables.

These factoring services are generally provided by commercial banks or commercial finance companies set up for these purposes having factoring subsidiaries. Export credit insurance is usually obtained by these factors in order to mitigate the risks arising due to foreign receivables.

The next method used is that of Letters of Credit. These Letter of Credit (L/C) is generally found to be beneficial and affords protection to both the buyer as well as the exporter, which is primary for international trade transactions. The Letter of Credit basically is an undertaking from a bank, wherein the bank undertakes to make payments on behalf of one party (involved in the trade transaction)  to another party being the beneficiary, under the specified conditions, generally upon fulfillment of specified conditions. The process of making payment by way of a Letter of Credit , generally works in a manner that the beneficiary therein (exporter) gets paid after presenting the specified documents in accordance with and as required in the terms of the Letter of Credit. The payment method by way of Letter of Credit involves two banks generally, one bank each in each party’s country, i.e., the exporter’s bank and the bank of the importer. The issuing bank substitutes its credit for the importer. The reason for wide usage of the Letter of Credit lies in the fact that it more or less provides a guarantee of payment to the exporter, provided there is proper compliance  with the terms and conditions of the Letter of Credit.

One problem that generally arises in this process is the lack of ability to trust. Now, there might be a case that the exporter is skeptical in trusting the importer’s bank, and this is very genuine also, since, the importer’s bank is situated in a foreign country and the exporter getting apprehensive in trusting this bank located in a foreign country is very normal. Even in cases, where the issuing bank is a well known bank all over the world, there still remain chances that by virtue of being in different country, that particular government may impose certain restrictions which may hamper the payment process in favor of the exporter, thereby causing loss to the exporter. Thus, the exporter due to these apprehensions may even request a local bank to confirm the Letter of Credit, thereby assuring the exporter that all the responsibilities/obligations of the issuing bank would be duly met. In such a situation, the confirming bank gets obligated to honor the drawings therein made by the beneficiary in accordance/ compliance with the terms of the Letter of Credit irrespective of the ability of the issuing bank to be able to make the payment or not.

Generally, the Trade related Letters of credit are also termed as Commercial letter of credit or export/import letters of credit. Basically, there are two types of letters of credit, one being revocable and the other one being irrevocable. The revocable letter of credit may be cancelled or be revoked at anytime without any prior notice to the beneficiary. On the other hand, an irrevocable letter of credit cannot be so amended or cancelled without the consent of the beneficiary. The bank which issues the Letter of Credit is known as the issuing bank. The corresponding bank located in the country of the beneficiary to which this issuing bank send the letter of credit so issued is referred to as the advising bank. An irrevocable letter of credit creates an obligation on the issuing bank to honor all the drawings drawn thereto in accordance with the terms of the letter of credit. The International Chamber of Commerce issues the “Uniform Customs and Practice for Documentary Credits” which contain provisions governing the issuance of the letter of credit, and the letters of credit are usually issued in compliance with these provisions also.

The bank that issues the letter of credit makes the payment after the requisite documentation is presented to it with full compliance with the terms and conditions of the letter of credit. The importer is required to make payment to the issuing bank of the amount mentioned in the letter of credit with the addition of the fee so accrued in obtaining the letter of credit. The general practice followed is that the importer usually has an account opened with the issuing bank which is to be drawn upon for payment, in order to prevent the issuing bank from tieing its own funds. Surprisingly, even if the importer does not have enough/sufficient funds in the account, still, the issuing bank is under an obligation to honor the drawings so made against the letter of credit. This, is the reason that the importer’s creditworthiness is ascertained and analysed before the bank issues a letter of credit in order to protect itself from such situations. The importer in such circumstances is obligated to repay to the bank both the principal amount and also the amount of interest at the time of maturity. All these measures have been devised and put to use for the purposes of providing an extended payment term to the buyer when their is an insistence from the exporter’s side to make the payment at sight.

The bank which issued the letter of credit has to make payment to the beneficiary once, all the documents as required by the terms of the Letter of credit have been presented before the bank. There is an option for payment by way of letters of credit. It can either be made at sight or on a specified future date. The documents that comprise a Letter of Credit  generally are a collation of a draft, a bill of lading and a commercial invoice. Rest, depending on the terms of the agreement, country or the product or other documents (like the inspection certificate, packing list, certificate of origin or even the insurance certificate) may also be required.

How The Resignation Of NSC Member Exposed The Incumbent Government’s Unwillingness To Put Forth Data

New Delhi: Few months into the most-awaited Lok Sabha elections, a report by The Business Standard has sparked a major controversy. Even though the data on unemployment has not been officially released, the business standard claimed to have procured the copy of the National Sample Survey Office’s (NSSO) periodic labour force survey (PLFS).

If figures from National Sample Survey Office’s (NSSO) Periodic Labour Force Survey (PLFS) are to be believed, in 2017-18, unemployment was at an unprecedented high of 6.1%. PLFS is based on the field-work done between July 2017 and June 2018.

Even before the scheduled release of Annual Employment Survey 2017-18, two of the National statistic commission (NSC) members, including the acting chairman, resigned, agitated over the fact that they had already approved the report, but the government withheld it for unknown reasons. This move by the members of NSC sparked a major controversy.

According to the report, from 2011-12 to 2017-18, the rates of joblessness among rural men between the age of 15-29 years increased by three times, from 5% to 17.4%. In rural areas, the unemployment rate for women rose from 4.8% in 2011-12 to 13.5% in 2017-18. The picture is not rosy in the urban areas as well. Unemployment for men in cities has risen from 8.1% in 2011-12 to 18.7% in 2017-18. For women, the rise in unemployment is nearly double, with 13.1% in 2011-12 to 27.2% in 2017-18. The Labour Force Participation Rate (LFPR) has declined from 39.5% in 2011-12 to 36.9% in 2017-18.

The figures show that the unemployment crisis in the country right now are alarming and brings forth the failure of the incumbent government to formulate policies, as it is the first survey brought out post demonetisation.

The major issue that arose out of this is not the shocking figures but the fact that the government chose to withheld it like other reports that have either gone missing from the website or have not been ever released in the public domain.

Scrapping down the allegations of withholding the data, the government came out with a statement on January 30th, 2019, stating,

“NSSO is processing the quarterly data for the period of July 2017 to December 2018and the report will be released thereafter.”

 In an interview to the quint, NITI Aayog Vice Chairperson Rajiv said that the data in the reported NSSO survey was not verified, and that it was not correct to use this data to talk about joblessness.

According to a research conducted by Indiaspend.com, a whole gamut of other government statistics have not been updated or even made public. This includes data on crime, employment, farmer suicide, caste and agricultural wages.

Apart from the job front, data on crime which is annually released by the National Crime Records Bureau (NCRB), has not been released from the past two years.

Similarly, the data on accidents and suicides has not been put forth from the past four years.

Shockingly, even after constant reminders by the Reserve Bank of India, data on foreign Direct Investment, which is released by Department of Industrial Policy and Production (DIPP) quarterly, has not been released since June 2018.

These relavations are shocking as the lack of data creates economic opacity which prevents businesses and investors from making a right decision. Moreover, lack or absense of data further prevents the Central and State government from making informed decisions regarding policies and governance.