Section 117C of the Companies Act, 1956 requires companies issuing debentures to create a debenture redemption reserve (DRR), to which “adequate” amounts shall be credited out of profits every year. The DRR affords protection to debenture holders by enabling timely repayment on redemption and interest. The Ministry of Corporate Affairs issued a circular in April 2002 setting out the “adequacy” of the reserves; this was clarified through a recent circular. Accordingly, the DRR adequacy for NBFCs is 25 per cent of the value of debentures issued through public issue, and no DRR for privately placed debentures. For other companies, the DRR adequacy is 25 per cent of the value of debentures issued. Every company required to create/ maintain DRR shall deposit or invest, before April 30 each year, 15 per cent of the value of its maturing debentures during the year ending the following March 31.

FAQs for international workers

The Employees’ Provident Fund Organisation had issued updated FAQs on November 19, 2012 on the special provisions for international workers. They address questions such as who is an international worker, whether an Indian worker holding certificate of coverage is an international worker, who is an excluded employee, who shall become members of the Fund, and so on. They also clarify that PF contributions are liable to be paid on wages, dearness allowance and retaining allowance, if any, payable to the employee by the establishment in India. In the case of split payroll, the contribution shall be paid on the total salary earned by the employee in the establishment covered in India. There is no cap, either on the salary on which contributions are payable by the employer as well as employee, and the salary up to which the employer’s share of contribution has to be diverted to the Employees’ Pension Scheme, 1995.

Accounting for joint arrangements

Accounting and reporting for joint ventures are undergoing a big change. From the financial year commencing on or after January 1, 2013, many of the companies reporting under International Financial Reporting Standards should comply with ‘IFRS11 — Joint Arrangements’. A venture can only record its proportionate share of profit in such joint ventures (equity method of accounting) as compared to the current method of proportionately consolidating the revenue, costs, assets and liabilities of such jointly controlled entities (proportionate consolidation method). Thus, the consolidated revenue and balance sheet size of these joint ventures are likely to drop significantly. It is important to note that the consolidated profit remains unaffected and, in fact, certain ratios such as net profit to sales would improve. The key is clear and appropriate communication. If India were to adopt this standard early then it could affect reporting by many companies in the insurance, banking, retail, telecommunication and infrastructure space that are structured as jointly controlled entities or joint ventures.

Mutual funds set to become colourful

In another step towards investor protection, the Securities and Exchange Board of India has directed mutual funds to label their schemes on parameters such as nature of scheme, level of risk and so on. The risk level should be depicted through colour code boxes — brown, yellow and blue for high, medium and low risks, respectively, for the principal investment. Product label shall be disclosed in the front page of the initial offering application forms, Key Information Memorandum, Scheme Information Document, common application form and scheme advertisements. The label should also carry a disclaimer that investors should consult their financial advisers if they are unclear about the suitability of the product. This directive is applicable from July 1, 2013, for all existing schemes and those launched thereafter. However, mutual funds have the option to adopt the new provisions before the effective date.

— PwC India

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