Disclosure norms for alternative investment funds eased by SEBI

SEBI said disclosure with regard to 'disciplinary history' for AIFs would be applicable in those cases, where monetary penalty of more than Rs5 lakh is being levied


Market regulator Securities and Exchange Board of India (SEBI) on Friday revised certain guidelines with regard to 'disciplinary history' of the alternative investment funds (AIFs).


AIFs are basically funds established, or incorporated in India, for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy.


SEBI said all AIF have to disclose the 'disciplinary history' of the fund, its sponsor, manager, directors, partners, promoters and associates for the last five years.


These funds are required to provide details of pending and past cases (where the person has been found guilty) of litigations, criminal or civil prosecution, disputes and non-payment of statutory dues, among others.


Besides, SEBI said that such disclosure would be applicable in those cases, where monetary penalty of more than Rs5 lakh is being levied.


"With respect to disputed tax liabilities, the same shall not apply to liabilities in personal capacity of an individual. Contingent liabilities shall be as disclosed in books of accounts of the entity," SEBI said in a circular.


Currently, there is no specific time-frame mentioned for disclosing 'disciplinary history' of the fund.


Besides, SEBI has extended the deadline for sending the AIF's placement memorandum, which consists of details of disciplinary actions of the funds till 31st August from 19th July.


Further, the market regulator had said any change in placement memorandum to all would be intimated to investors and to SEBI once every six months on a consolidated basis, as against the current practice of seven days.


Under SEBI guidelines, AIFs can operate broadly in three categories. The SEBI rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds, among others.


The Category-I AIFs are those funds that get incentives from the government, SEBI or other regulators and include Social Venture Funds, Infrastructure Funds, Venture Capital Funds and SME Funds.


The Category-III AIFs are those trading with a view to making short-term returns and these AIFs include hedge funds, among others.


The Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements. These AIFs include private equity funds, debt funds or fund of funds, as also all others falling outside the ambit of two other categories.


Deposit Rules 2014 and real estate deposit schemes
Property developers suffer from a perennial cash crunch and launch alluring schemes everyday. The Deposit Rules 2014 will help investors in this regard
The recent hype regarding the termination of jewellery instalment schemes and the newspaper advertisements put out in this regard, have made people realise that the concept of ‘deposit’ which was not taken seriously under Companies Act, 1956, can no longer be applied loosely. This is particularly for companies which offer instalment schemes and in turn promise ‘returns’ whether in cash or kind at a later date. You may read a detailed article on this subject here.
Companies offering jewellery instalment schemes usually accepted instalments in cash from individuals and promised returns in the form of contribution towards the last instalment. It is in fact this promise of paying the last instalment of the scheme that spelt doom for jewellery instalment schemes, as explanation to rule 2 of Companies (Acceptance of Deposit) Rules, 2014, read as follows:
“(a) received by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever XXX.” (emphasis supplied)
By ‘returns’ of course we mean the promise to pay more than what was contributed initially. Take the case of bank deposit, the return that you and I earn, is the rate of interest offered by the bank, which is on the money deposited. Thus, offering trade discount is not a ‘return’, however, offering something in addition to the amount contributed is a return, like the last instalment being paid by the company in case of jewellery scheme. The very basis of ‘deposit’ is a monetary transaction. Thus, return against anything, be it an advance towards purchase of property or jewellery will be a deposit.
How do the Deposit Rules, 2014 affect real estate developers?
As per the provisions of Deposit Rules, 2014, ‘deposit’ means funding a liability. This may either be typical money to money transactions, like a loan or issue of debentures or purchase of any goods or service, which is identified at the time of entering into an agreement itself. Looking at the provisions of Deposit Rules 2014, the following provisions are pertinent for real estate developers:
1. Advance for supply of goods or providing of services, wherein the advance is appropriated within a period of 365 days from the date of acceptance of such advance (rule 2(xii)(a)). Reading this rule, the requirement to appropriate may immediately prompt one to say that real estate projects are subject to procedural delays and hence, appropriation within 365 days may not be possible at all. For this, one needs to understand the meaning of ‘appropriation’. In general parlance ‘appropriation’ means allocation or pre-identification. Physical delivery of goods may happen at a later date. 
In real estate transactions, the purchaser and the promoter enter into an agreement, whereby the property to be purchased is pre-identified and the amount of consideration is also pre-decided. The agreement referred to is of course an agreement for sale of the pre-identified property. 
One may argue that this rule covers jewellery purchase schemes as well, but looking at the meaning of the word ‘appropriated’ that generally means pre-identification of the goods or service, one may conclude that in case of jewellery schemes, the question of pre-identification never arose as the jewellery would be purchased only after paying all instalments, which is not within 365 days of acceptance of the advance.
2. Advance received in connection with a property under an agreement or arrangement,  provided that such advance is adjusted against the property in accordance with the terms of agreement or arrangement (rule 2(xii)(b)). The author draws your attention to the fact that mere entering into an agreement will not suffice for the purpose of this Rule. 
This Rule clearly makes a reference to section 4 of the Sale of Goods Act, 1930 wherein mere entering into an agreement for sale of goods cannot be construed as a sale. For an agreement for sale of goods there must be a complete and binding agreement to transfer the property in the goods to the buyer at a price. There should be no uncertainty or indefiniteness or option to effect the sale, but a clear obligation to perform the contract within a definite time (Taken from A Ramaiya’s commentary on Sale of Goods Act, page 243, 4th edition). The underlying requirement of course is, that the property proposed to be purchased should be pre-identified. Where a transaction does not create a right in personam to enforce a sale, then it is not an agreement for sale at all, a case in point being the case of Hirji Govindji, in ref 1951 NLJ 516 (Rev.). 
In any agreement, the actual possession or delivery happens only when the risk and reward attached with the property are also transferred. If the agreement for sale is a mere eyewash, where there is a possibility of withdrawal from the project, such that only the amount contributed is refunded without any penalty, then the contribution is nothing but a pseudo loan. Note that in real estate transactions, the advance is usually received from individuals and the Deposit Rules, 2014, do not have any exemption for advances received from individuals unless they fall under the provisions discussed herein.
If one were to do an internet search about various real estate schemes in India, three schemes will stand out. One being the ‘real estate buyback scheme’ wherein the developer promises to buyback the property at existing rates and also offer returns at a certain percentage over a period of time. Second is the '80:20 real estate scheme’ wherein the builder asks for only 20% of the total cost of the apartment at the time of booking and the balance 80% is payable on possession of the apartment whenever it is ready. Another scheme, which is used by a lot of real estate developers is to offer gifts in the form of car, club membership etc. when the possession is handed over. In all the cases above and as is with any real estate agreement, the property is pre-identified and by pre-identification does not only mean mere knowledge about the situation of the property, but also the dimensions and the consideration for the same. Newspapers also carry numerous advertisements about returns on purchase of property. 
What do real estate investors need to be careful about?
The very reason for introducing stringent provisions in relation to deposits, including penal provisions, is to only make them cautious. In the context of the perennial cash crunch that the real estate sector usually suffers and the innovative investment schemes which come up everyday, the Deposit Rules, 2014, should act as an added caution for investors when it comes to buying property. This is because, the reason for delays in completing real estate projects is not just the rising cost of raw materials, but also procedural delays like departmental approvals. Even if the specific provisions of Deposit Rules, 2014, are taken care of, the proviso to rule (2)(xii) still holds out a beacon for real estate developers, and that is the possibility of refund if necessary approvals are not obtained in time. Where a company does not have all necessary sanctions and approval and by virtue of which, the money advanced becomes refundable, then the amount will be taken to be ‘deposit’ on the expiry of fifteen days from the date they become due for refund. For investors the recourse to enforce the refund of such deposits is to approach the Company Law Board (CLB) or National Company Law Tribunal (NCLT).
(Nivedita Shankar is working as a Senior Associate with Vinod Kothari & Company, Practising Company Secretaries which has offices in Kolkata and Mumbai.)
Spiralling cost of vegetables: What happened to the action plan?
Vendors claim that scanty rainfall and crop loss have resulted in lower supplies to the market, hence the increase in price. However, buyers feel that this is far from the truth and vendors are actually taking advantage of the situation to make a fast buck
The common man's vegetables are no longer within his reach. In the early part of June, according to the Agricultural Produce Marketing Committee (APMC), the price of onions was Rs1,050 per quintal (100 kg) on 2nd June. The prices shot up to Rs1,850 by 2nd July, and currently the retail price is hovering around Rs45 to 50 per kilogram. Right now, it is Ramzan and after breaking of the fast, one of the items enjoyed is a Samosa, the main ingredient of which is onion.
Take the price structure, as found in the press, for the following main items:
The prices and quality of items in supermarket chains like Reliance, Big Brother, Auchan, Spencers and Hopcoms vary. More often than not, the price of essential items are made attractive but offset by an increase in prices of all other items.
Prices of other items are, cabbage- Rs19.50, bitter gourd- Rs58, okra- Rs50, green chilly- Rs65, chayote- Rs69, brinjal- Rs26, papaya- Rs24 and yelaki banana- Rs60. Different varieties of brinjals are available at varying prices. These prices have been taken from a leading supermarket chain. Prices on the day of purchase were slightly lower at Hopcoms, which is a government controlled retailer.
According to the Wholesale Vegetable Merchants Association, vendors claim that scanty rainfall and crop loss have resulted in lower supplies to the market, hence the increase in price. However, buyers feel that this is far from the truth and that vendors are actually taking advantage of the situation to make a fast buck.
Unseasonal rains in Maharashtra during March appear to have affected the onion crop and it is being reported in the press that CB Holkar, member of the National Agricultural Cooperative Marketing Federation, himself a grower, denies any speculation or cartel activities behind the price surge.
As for the aam aadmi, the government's move of fixing the Minimum Export Price for Onions and Potatoes have no meaning because of the uncontrolled price increase in the market.
It is true that the government monitors the daily price movement of some 22 selected food commodities, ranging from cereals to salt, including staple items like potato, tomato and onions. Public welcomes the government unveiling of a six month action plan to control price rise, and bringing in the Essential Commodities Act for a year, placing a limit on stock-holding.
The action plan was expected to be finalised and circulated within a week, which has passed. It may be remembered that currently hoarding is a punishable offense, with a fine or imprisonment upto seven years, or both. A price stabilisation Fund has been proposed to be set up to buy essential commodities and sell them at lower prices. Details of these are expected shortly.
From what has happened so far, it would appear that we have no hoarders in the country, since state governments have not been able to get a single dealer with these essential commodities.
In a lighter vein, one may wonder if along with the price war, some of the airlines may now plan to offer a bag of goodies consisting of these essential vegetables, to their travellers as they exit the airports on arrival?
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.) 



Dr Anantha K Ramdas

3 years ago

It is gratifying to note the response to our common problems. As a retired householder, I take the responsibility and trouble to visit various supermarkets, kirana stores and check with vendor prices of vegetables that I buy.

Once in a while I go to the Mandi also to check the prices. Most kirana stores, close to our homes sell just potatoes, onions and occasionally chilly/coriander leaves. Even the MRP priced items like milk, they like to charge 50 paise more because they know you can't get these anywhere else!

The most important point in this whole exercise is that we are not able to support the actual farmer in PAYING him a fair price. It is usurped by the intermediaries in between.

Just as I mentioned in the article, can you truly imagine that NO state government or anybody, for that matter, has been able to pin-point and catch hold of ONE single hoarder of these essential items? You can draw your own conclusions why this is not happening.

Also, if you take the next drastic step, that of buyers going on a strike NOT to purchase the vegetables for a couple of days, what would happen then? When these rot, it is the poor farmer who may suffer, because, the wholesaler/intermediary will do his best to pass the buck to him.

Sorry, our laws are too lenient and we do not have the will power to enforce strictly and take punitive action against the hoarders.

Simple as that. We need the
authorities to enforce the rules.

shadi katyal

3 years ago

The problem with us is that ever since partition we have depended upon Govt instead of changing it into market economy. I recognise that being fed on such policies we can blame it on any administration.
Ask the question what does a farmer gets?
Ass for greed that is our born right and we donot wish to acknowledge and lived in denial.
As a customer I am greedy as I want at lowest price any product.
We should calculate other factors as transportation, storage and profit at every end.We don't buy from farmer but from a vendor and who knows how many middle men's families
are living on these deals.
GOI cannot control prices and has misled the voters to be elected.

Gopalakrishnan T V

3 years ago

The price increases in India are phenomenal and exploitation of the masses is beyond anybod's imagination. Greed and aggressive pricing have overtaken all the standard norms of market practices. Corruption at all levels right from procurement of products to the final destination of retail place is something to be experienced to be factored into the reasons for price increses. Besides loss of production, wastage due to lack of adequate and well equipped storage and transportation facilities add to the woes. Hoarding with the support of black money, money lenders and banks add to the miseries. Further the affordability of a section of people does not care for any price and does not offer any resistance. The large section who cannot afford resist purchases at the cost of their health and other adversaries. The Government comes out with lot of encouraging messages and statements but to what extent the bureaucracy is serious and administration implements measures to improve supplies by removing the bottlencks and irritants in the supply chain are not known. The fact of the matter is that Consumer suffers and is always at the receiving end.

Veeresh Malik

3 years ago

Please look at mandi prices available online or visit the mandis to see the arrival prices of fresh produce. Tomato in Delhi, for example, is from 600 to 2500 rupees per quintal today at Azadpur. At Badarpur border, NCR, "overnight unsold tomato" is sold to small traders at 9-12 rupees per kilo as per inputs from my driver. These are the tomatos, to give an example, that go to the restaurants and the roadside vendors.

The mark-up in prices comes from the mandi to your hawker, which is now 10x to 50x thanks to uncontrolled powers of the assortment of "authorities" and "committees" and 4-layer government in a place like Delhi.

The MSM plays its part by spreading rumours like this - but then that is what the MSM has been doing for years.

Please check real arrival figures (quantities and prices) here.


sivaraman anant narayan

In Reply to Veeresh Malik 3 years ago

In Nerul-Seawoods area of Navi Mumbai all small retailers sell tomatoes at the same price of 80/-kg which sometimes goes up uniformly to 90/- or 75/-. The point is they all rise or fall togather . Clearly there is a cartel of retailers and I understand that there are informal dadas who dictate to retailers the day's price. Anybody found undercutting is penalised in some way. When prices go up phenomenally, many retailers sprout overnight to rake in the moolah of high prices. When prices drop, many of them wind up.

Firdaus Khan

3 years ago

No, its not about demand-supply of vegetables per se. Its about the price elasticity of consumers. Many are fine with buying vegs at hiked prices from supermarkets or bandiwallas that come to their colonies. I'd say its essentially about the consumers' lethargy, not just to go to Mandis for purchasing vegetables but more so to find out the real rates. Actually rates had fallen a couple of months ago but consumers outside mandis kept paying higher prices. So naturally sellers saw an opportunity to make higher margins. Vegetable & fruit markets in India are becoming Oligopolies.

shadi katyal

3 years ago

The article does not explain the inflation factor.
We must learn Laws of supply and Demand and not just hope the Govt to jump in and look after the prices.
It is easy to blame the vendors but what about increase in freight and fuel prices. Does that not effect the cost??

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