Corporate governance of banks

The corporate governance of banks is different and unique from that of the other organizations. This is because the activities of the bank are less transparent than other organizations. Thus, it becomes difficult for shareholders and creditors to monitor the activities of the bank. The situation becomes even more difficult when a major part of the share capital is with government. Additionally, banks also differ from most other companies in terms of the complexity and range of their business risks, and the consequences if these risks are poorly managed.

The Banking Sector in India has definitely not remained unaffected to the developments taking place worldwide. Enhancing the level of corporate governance structure of Indian banks is imperative. The regulatory bodies in India are the Reserve Bank of India and the Securities Exchange Board India. The RBI prescribes prudential principles and norms. The RBI performs the corporate governance function under the Board for Financial Supervision (BFS).

The Basel Accord was first established in 1988 by the Basel Committee on Banking Supervision under the Bank for International Settlements. The BIS was established on 17 May 1930 and is the world's oldest international financial organization. The Basel Committee was established by the central-bank Governors of the Group of Ten countries in 1974. It meets regularly four times a year. It has four main working groups. The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.

The Basel Accord was established to provide a set of minimum capital requirements to banks. According to this accord, the banks would be required to maintain a minimum capital requirement a propos the loans given out by them. The 1988 Basel Accord also known as Basel I primarily focused on credit risk. The Central Banks of several countries that have agreed to become signatories have been given the responsibility of enforcing the provisions. In India, the Reserve Bank of India shoulders this responsibility.

The second of the Basel Accords, Basel II was first published in June 2004 and established in 2005. This accord widened the scope of Basel I by establishing capital requirements for market risk and operational risk, in addition to credit risk. Basel II also included provisions which allowed banks to use advanced statistical methods to compute possible losses for which they were required to hold capital. Therefore, international banks had an advantage as they could lower their capital requirements through the use of advanced models.

The third of the Basel Accords, Basel III was created in response to the flaws in financial regulation which led to the crisis and also due to appeals for the reform of capital adequacy and liquidity standards for banks.

According to the Basel Committee Report of 1999, Banks have to maintain a certain level of transparency and disclosures in their statements. The annual report should disclose a number of factors relating to the operations of the banks such as accounting ratios, business per employee, related party disclosures and information.

Recent Steps Taken by Banks in India for CG

•                   Induction of non-executive members on the boards

•                   Constitution of various Committees like Management committee, Investor’s Grievances committee, ALM committee, etc.

•                   Role of Independent auditor

•                   Gradual implementation of prudential norms as prescribed by the RBI,

•                   Introduction of Citizens Charter in banks

•                   Implementation of “Know Your Customer” concept

•                   The Board of Directors and top management of the Bank are chiefly responsible for good CG.

Frauds by others

•                   Forgery and altered cheques -This type of fraud involves altering the amount on the face of a cheque for nefarious purposes

•                   Stolen cheques -This type of fraud is initiated by the theft of a few cheques. Then accounts are opened using fake identities, and the suitably altered stolen cheques are deposited, followed by convenient withdrawal of the amount. In a similar way, stolen blank cheque books are misused by fraudsters.

•                   Accounting fraud -Overstating sales and income, dishonest accounting and inflating the worth of the company’s assets to hide that the company is actually functioning in loss constitute Accounting Fraud. E.g., Satyam.

•                   Credit card fraud - Credit cards lend themselves to several opportunities for fraud. Made of three PVC sheets, of which the central sheet is known as the core stock, credit cards carry substantial data. Credit card frauds can be carried out in several ways.

•                   Frauds committed by auditors

•                   Power of Attorney fraud- A “Power of Attorney” (“POA”) is a legal document through which the donor grants the power to his attorney to ‘step into the donor’s shoes’ and conduct legal and financial matters on the donor’s behalf.

•                   Phishing- In this type of fraud, sensitive data such as account numbers, login Independent Directors (IDs), passwords, and other verifiable information are extracted from gullible individuals either through fraudulent telephone calls or emails. These data are then misused for dishonest purposes, including identity theft. Phishing is most often perpetrated through mass emails and spoofed websites.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service requirements.

Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

Contact at parascs@gmail.com or refer website www.pnjlegal.com

THE REAL ESTATE (REGULATION AND DEVELOPMENT) ACT, 2016

The Real Estate (Regulation and Development) Act, 2016 which seeks to protect home-buyers as well as help boost investments in the real estate industry.

Coverage of this act:-

Ø The Real Estate Act makes it mandatory for all commercial and residential real estate projects where the land is over 500 square meters, or eight apartments, to register with the Real Estate Regulatory Authority (RERA) for launching a project, in order to provide greater transparency in project-marketing and execution

Ø For on-going projects which have not received completion certificate on the date of commencement of the Act, will have to seek registration within 3 months. Application for registration must be either approved or rejected within a period of 30 days from the date of application by the RERA. On successful registration, the promoter of the project will be provided with a registration number, a login id and password for the applicants to fill up essential details on the website of the RERA. For failure to register, a penalty of up to 10 percent of the project cost or three years' imprisonment may be imposed.

PROTECTION OF BUYERS

Ø The Act prohibits unaccounted money from being pumped into the sector and as of now 70 per cent of the money has to be deposited in bank accounts through cheques.

Real Estate Regulatory Authority and Appellate Tribunal

It will help to establish state-level Real Estate Regulatory Authorities (RERAs) to regulate transactions related to both residential and commercial projects and ensure their timely completion and handover. Appellate Tribunals will now be required to adjudicate cases in 60 days as against the earlier provision of 90 days and Regulatory Authorities to dispose of complaints in 60 days while no time frame was indicated in earlier Bill.

Certain areas to be exempted from the RERA

Ø The Real Estate Act makes it mandatory for all commercial and residential real estate projects where the land is over 500 square meters, or eight apartments, to register with the Real Estate Regulatory Authority (RERA) for launching a project, in order to provide greater transparency in project-marketing and execution. Where the area of land does not exceed to 500 square meters or the no. of apartments does exceed to be developed.

Ø Provided that: If the appropriate government considers it necessary, it may, reduce the threshold below five hundred square meters or eight apartments, as the case may be.

Ø Promoter has received the completion certificate for real estate project prior to commencement act.

REAL ESTATE REGULATORY AUTHORITY

Ø  Authority is established and incorporated under section 20. According to section u/s 35 Authority has power to take sue motto complaints and inquire against information and conduct the enquiry or invest on that matter. Authority can take cognizance on the sue motto if they necessary to so.

Ø According to section 36 interim order cabs are passed by the authority. 

Ø  Authority can be issue direction u/s 37.

Ø Authority has power u/s 38 to impose the penalty or interest.

Ø Authority has power to rectify its order any time within a period of 2years from the date of order made u/s 39.

If somebody does not agree to the direction or order of Authority then that person can file an appeal under REAL ESTATE APPELATE TRIBUNAL.

REAL ESTATE APPELATE TRIBUNAL

Ø REAL ESTATE APPELATE TRIBUNAL is established under section 43. As per s.43 (5) appeal of promoter would be entertained only on depositing at least 30% of the penalty on higher percentage determined by the appellate tribunal.

Ø As per section 44(5) appellate authority should be endeavor to dispose off the appeal within a period of 60days from the date of receipt.

Ø As per section 58 appeals can be filled against Appellate Tribunal within 60 days of communication of the order of the Appellate tribunal. In case of delay adequate reasoning is required.

OFFENSES AND PENALITIES

Ø As per section 59(1) punishment for non registeration u/s 3 for promoter would be penalty which may extend up to 10% of the estimated cost of the Real Estate Project as determined by the Authority.

Ø As per s.59(2) if the order passed u/s 59(1) is not complicated then promoter shall be punishable with imprisonment for a term which may extended up to 3yrs or with fine which extend to further 10% of the estimated cost of the project.

Ø As per s.60 the penalty for contravention of s4. of promoter would be penalty which may extend up to 5% the estimated cost of the Real Estate Project as determined by the Authority.

Ø As per the s.61 penalty for the contravention of provision of this act and rules other than s.3 and s.4 for the promoter shall be a penalty which may extend to 5% of the estimated cost of the real estate project as determined by the authority

Ø As per s.62 non registration and contravention u/s 9 and 10 done by Real estate agent, in such case he shall be liable to a penalty of rs10000 for everyday during such default continues, which may cumulatively extend up to 5%of the cost of the plot, apppartment or building, as the case may be, of the Real estate project, for which the sale or purchase has been facilitated as determined by the authority.

Ø As per s.63 penalty for failure to comply with the order of Authority would be penalty for everyday during which such default continues, which may cumulatively extend up to 5% of the real estate project as determined by the authority

Ø As per s.64 punishment for contravention of order of Appellate Tribunal by promoter shall be imprisonment for term which may extend up to 3yrs or fine for everyday during which such default continues, which may cumulatively extend up to 10% of the estimated cost of the real estate project or with both.

Ø As per s.65 penalty for failure to comply with order of the Authority by the real estate agent shall be a penalty for everyday during which default continues, which may cumulatively extend up to 5% of the estimated cost of plot, apartment or building or the case may be.

Ø As per s.68 punishment for the failure to comply with order of Authority by allottee shall be imprisonment for a term which may extend up to one year or with fine for everyday during which default continues, which may cumulatively extend up to 10% of the plot or with both

Ø As per the compounding of offences can be done either before or after institution of prosecution before court and any payments of sum shall not in any case, exceeded the maximum amount of the fine which may be imposed for the offense so compounded.

Ø As per section s.80 cognizance of offence can be taken by court on a complaint in writing made by the authority or by any officer of the authority duly authorized by it for this purpose.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service Mentality.

Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

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WHAT IS MLM OR MULTI LEVEL MARKETING

MLM or Multi level Marketing is an alternate form of distributing products and services. Instead of using the traditional distribution channel (distributors – retailers- consumers), MLM companies sell their products and services directly to consumers. That’s why it’s also called Direct Selling. When these consumers or customers like these products and services naturally they start sharing it with others.

MLM companies pay you when people buy their products and services from your recommendation. But the awesomeness doesn’t stop there, you are given an option to build a team of distributors (generally consisting of happy consumers recommended by you and those you recommend and those they recommend and so on.) contrary to common misconception< you are not paid to recruit people, you are paid depending on the total sales volume generate from your entire team. Instead of spending money on advertisement, MLM companies reward their consumers and distributors for their word- of- mouth advertisement efforts.

To regulate the sale of goods and services outside of retail establishments otherwise known as "Direct Selling (Multi Level Marketing)" and to provide for protection of consumers who purchase goods and services from direct sellers, following guidelines are issued with the approval of the Competent Authority. These guidelines will come into force from the date of publication in official Gazette and will remain in force till an appropriate legislation is enacted for the said purpose:

1. Definitions:-

1.    Direct Selling : Means marketing or sales of goods directly to the end user consumer using word of mouth publicity, display and/or demonstrations of the goods/products, and/or distribution of pamphlets. Explanation: Companies can open pick up points and delivery points for maintaining effective delivery system.

2.    Direct Selling Entity: Means a business entity as recognized by law for the time being in force including but not limited to a Company duly incorporated under the Indian Companies Act, a registered Partnership Firm constituted under the Indian Partnership Act.

3.    Direct Seller: Means a person who is authorized by the Direct Selling Entity to engage into the business of Direct Selling.

4.    Consumer: An individual who buys goods or services for personal use and not for manufacture or resale and shall have the same meaning as provided under the Consumer Protection Act. 1986.

5.    Goods/products: Goods/Products shall have the same meaning as defined in the Sale of Goods Act and section 3(26) of the General Clauses Act, 1897, that is, it shall include every kind of movable property other than actionable claims and money.

6.    Sales Incentive: Sale incentive means share of profit payable to the Direct Seller for effecting sale of goods/products as stipulated in the contract between the Direct Seller and the Direct Selling Entity.

Ø What is the law for setting up Multi Level Marketing Company India?

There is no separate law for setting up a Multi Level Network Marketing (MLM) in India by now it was proposed in Indian Parliament in 2005 but not yet passed as a law, however there are certain acts of Indian constitutions which we need to consider before setting up Multi Level Marketing Company:

• It should not be a only head count commission Model which falls in Pyramid Scheme which is banned in India, covers MRTP Act alias Money Rotation Trade Practice Banning ACT 1969.

• It should not be only money involved investment return format which falls in PCMC Act alias Prize Chit and Money Circulation banning Act 1978. It should be feasible Product selling Business Model.

What is the best practice to setup a Multi Level Marketing Company?

Essentials of setting up a MLM ENTITY Private Limited or Limited Company are to be setup. In India Multi Level Marketing Company involves limited risk for directors who are setting up a Multi Level Marketing Company Business.

Pertain IDSA (Indian Direct Selling Association) Membership. It’s not a government body but it’s a private setup by Amway India and other big network marketing companies which is trying to govern the whole Direct Selling Companies in India which prevents unethical and illegal MLM companies and Multi Level Network marketing Business practices to operate and destroy the MLM Business route.

Apply for Vat/Service Tax/ Tan No and all necessary license and registration required for manufacturer and product seller. Last but not the least Appoint a Legal Advisor, Consultant and a Chartered Accountant to create rules and regulation forms, manage paper works and other company related legal documents and stationary materials.

Please does not cut copy paste other company’s print materials as it may not be applicable on your product or MLM Business Model? It is also desirable to develop exclusive website content and information related to company written by legal advisor of the company to counter legal laws of the Land.

2. Conditions for Permissible Direct Selling:-

1.    Should be a Direct Selling Entity, having sales tax/Vat, Income Tax, TDS and other license as may be required as per the law/regulations of its principle place of business.

2.    Should have bank account with at least one nationalized bank.

3.    Partnership Deed or Memorandum of Association should clearly state their nature of business. (Those who do not have such specific clauses should get their memorandum of Association or Partnership Deed, as the case may be, amended within 2 months from the date of publication of these Guidelines).

4.    Pay sales incentive at the agreed rate within the agreed period.

5.    Shall display names and Identification numbers of their authorized Direct Sellers in the official websites.

6.    Should have a consumer grievance cell that should ensure redressal of consumer grievances within 7 days from the date of making such complaints.

7.    Website should provide space for registering consumer complaints hassle free.

3. Appointments/Authorisations:-

1.    Direct Selling Entity shall appoint/authorise Direct Sellers upon receipt and scrutiny of application in a prescribed format.

2.    An agreement recording terms of such appointment should be executed between the Direct Selling Entity and Direct Seller.

3.    No application should be considered unless such applicant is eligible to enter into a contract under the Indian Contract Act.

4.    Each Direct Seller shall be allotted Unique Identification Numbers before granting license/permission to start direct selling.

5.    Direct Selling Entity should not give incentive to any persons for joining of Direct Sellers.

4. Prohibition:-

1.    Payment of incentive by whatever name it is called unrelated to their respective sales volume.

2.    Supply/Distribution of goods with the knowledge that such goods/products are inferior or exceeded its validity period as per the manufacturer.

3.    Direct Selling Entity/Direct Seller will not indulge in money circulation scheme or any act barred by the Prize Chits and Money Circulation Scheme (Banning) Act, I978.

5. General Conditions:-

1.    MRP of the goods should be visibly displayed on the package.

2.    Accounts of individual Direct Sellers shall be maintained properly and should be made available through World Wide Web.

3.    Sales incentive should be distributed to the respective Seller on or before the agreed due dates.

4.    Goods sold by the Direct Selling entity should carry guarantee/warranty of the manufacturer. However consumer should be given opportunity to exchange/return the goods if he finds any manufacturing defect or the product purchased is not useful for the purpose it was meant, within 30 days from the date of purchase, provided any seal/protection on the product is kept unbroken.

6. Information Readiness (Ready Information file):-

1.    Every Direct Selling Company should maintain a file with all relevant documents that include:

2.    Certificate issued by Registrar of Companies, MOA and MOM.

3.    Xerox copies of TIN, DIN of Directors, TAN, PAN.

4.    Certificate of Sales Tax, Service Tax, CST Registrations.

5.    Copies of all Sales Tax Returns filed with the authorities.

6.    Copies of Service Tax Returns filed with the authorities.

7.    Copies of IT Returns of company filed with the authorities.

8.    TDS Statements of Distributors and respective challans paid.

9.    Every Direct Selling Company should maintain KYC/KYDS (Know Your Customer/Know Your Direct Sellers) as a mandatory process. Specific formats are to be provided on their websites to be available for all at any time.

7. Grievance Redressal Mechanism:-

1.    Every Direct Selling Company must have a complaint redressal mechanism to address any problem of their customers/Direct Sellers.

8. Breach of Guidelines:-

1.    The sale activities not following the above guidelines shall not be considered as Direct Selling and would be dealt appropriately under relevant provisions of existing laws.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service Mentality.

We have a team of highly qualified professionals and time to time training is provided by us as per the requirements. Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

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Importance of a Project feasibility study

The majority of the businesses often under look Project feasibility study during a brand-new project and jump straight into delegations and timelines.  But a well-planned feasibility study can not only save precious time, money and resources but also ease the project management.

Businesses do not succeed by brilliant and world-changing ideas, but rather succeed by hundreds of hours of hard work and careful planning. That is why out of 50 ideas only 1 makes into a real business. This is where the importance of due diligence and Project feasibility study comes in. 

Here are few advantages of Project feasibility study.

1.      Starting a New Business: Launching a brand new business isn’t only about short-term gains and profits, but about making business sustainable to generate long-term growth. In the case of launching a business, two types of feasibility studies can be performed. How many resources are necessary to start the business and long-term viability of the business.

Many businesses have ignored the importance of feasibility study, and have failed horribly. One such example would be during late 90’s .com bubble- companies who had great ideas but unsustainable methods became examples of high profile failures. All because they ignored the importance of feasibility study.

2.      Changing an existing product or service: Change is the law of nature. And businesses who don’t change with time often end up remaining just a brand (Nokia, Blackberry), innovation is the key to success. Just look at apple and google for example. At times when making changes in the existing products or services become necessary, a feasibility study proves to be extremely useful. Based on the study companies can strategically decide to experiment with their existing products and meet customer demands.

3.      Launching a new Product or Service: Just like changing existing products or services, launching new products or services without risking the entire company can only be done through the help of routine feasibility study. Based on their studies companies decide whether a change in consumer demand is worth making a new product or not.

4.      Starting a partnership:  Investors, employees and shareholders need assurance that merger of companies will indeed lead to a better future. Feasibility studies help them understand whether the partnership or merger is going to bring any long-term benefits or not.

The simplest way of doing a Project feasibility study for your business:

·        Conduct a pre-feasibility study and decide whether you actually need the study or not.

·        Check all your options before you finalise your idea.

·        Assess the Demand in you desired market.

·        Assess the competition and marketing possibilities.

·        Determine the challenges, both short –term and long-term.

·        Make a routine for your feasibility study.

·        Hire expert consultants for a pure objective Project feasibility study.

Conducting a project feasibility study can be time and resource consuming, that is why it is always a good idea to hire professionals to help you get a completely objective feasibility analysis.  We at pnjlegal.com provide professional project feasibility analysis and other services.

We, "PNJ Legal Consultants" are one of the well known organizations engaged in providing Consultancy Services keeping in mind the Client Service Mentality.

We have a team of highly qualified professionals and time to time training is provided by us as per the requirements. Our team members deliver excellent performance in providing these services and our clients can avail the services at affordable prices.

Our sophisticated team has complete knowledge of various exercises and technicalities that are used in our services. Our services includes Strategy Consulting, GST Consulting, Asset Management, Feasibility Study, International Arbitration, Due Dilligence, Franchisee Consulting, Financial Audits, Operational Audits, Tax Heaven Registrations, Shareholder Agreements, Start up Consulting, IP Consulting, Taxation Services, Accounting system design and Mergers Acquisitions.

Contact at parascs@gmail.com or refer website www.pnjlegal.com