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Today's Hot Stories - January 22, 2013

10 Headlines for Today

(1) Chautala, son get 10 years in jail; supporters clash with cops
(2) Shutdown in Hyderabad to protest Asaduddin Owaisi's arrest
(3) Strong earthquake hits western Indonesia, 1 killed
(4) Car customers inching towards petrol variants
(5) Kingfisher exit spurs price hawks
(6) Filipino cities gain in outsourcing ranking
(7) Li Na floors Radwanska to reach semis
(8) Mahesh-Nadia in mixed doubles quarters
(9) New record as Maria storms into semis
(10) Filmfare awards: Stars show off their emotional side

5 Stories for Today

(1) Gujarat assembly now a crorepati club
(2) Japanese PM holds out olive branch to China
(3) Cos Bill eases select related-party deals
(4) European banks optimistic on outlook, study shows
(5) FDI policy: SC seeks government assurance over future of small traders

(1) Gujarat assembly now a crorepati club

The 13th Gujarat assembly, which is meeting for the first time on Tuesday, is the No. 1 crorepati club. While the present Lok Sabha has 58 per cent crorepati MPs and the Rajya Sabha 65 per cent, the state assembly has 74 per cent, or 134 of the 182 MLAs have assets of Rs 1 crore or more. The last state assembly constituted in 2007, had only 31 per cent crorepatis.

Data compiled by the Association for Democratic Reforms (ADR) shows a sharply increasing trend across the country in terms of the wealth of legislators.

Out of 182 elected members, 46 are businessmen and 16 builders and real estate dealers. Unofficially, it is believed that almost 2/3rd of the MLAs are involved in the realty business though only a few ministers like Babubhai Bokhiria and Parshottam Solanki have admitted it on record.

The higher the assets, the more were the chances of a candidate winning the recent elections. As many as 51 per cent of the candidates who declared assets of more than Rs 5 crore and above have won. Almost 31 per cent candidates who declared assets of between Rs 1-5 crore were elected. Only 10 per cent candidates who declared assets of less than Rs 20 lakh could win.

This obviously means that the election results seemed to be highly influenced by the money power of candidates. Of the 99 legislators who were re-elected to the Gujarat assembly, 42 crorepati MLAs have declared Rs 2 crore-plus increase in assets since 2007.

The average increase in the assets of 65 re-elected BJP MLAs in the last five years was around 177 per cent. The party MLAs' average assets increased by over Rs 4.66 crore — from over Rs 2.62 crore in 2007 to over Rs 7.28 crore in 2012.

In the case of 33 re-elected Congress MLAs, average increase in the assets was 412 per cent. Overall, Congress MLAs' average assets increased by around Rs 5.94 crore — from over Rs 1.44 crore in 2007 to over Rs 7.39 crore in 2012.

Out of the 115 BJP MLAs, 86 (75 per cent) are crorepatis. Of the 60 Congress MLAs, 43 (73 per cent) are crorepatis.

(2) Japanese PM holds out olive branch to China

Hawkish Japanese premier Shinzo Abe held out an olive branch to China on Tuesday, sending a letter to Beijing's leader-in-waiting to be hand delivered by a coalition ally.

The move comes after months of diplomatic tussles between China and Japan over the sovereignty of a disputed island chain in the East China Sea that have seen repeated maritime encounters.

Natsuo Yamaguchi, head of the New Komeito party, was expected to stay in Beijing for four days, during which time he would meet China's incoming president, Xi Jinping, and hand over a letter from Abe, local media reported.

"Japan-China relations have been faced with various kinds of friction, and political dialogue has not been held for a long time," Yamaguchi told reporters ahead of his departure.

"I would like to make a step toward opening the door to normalising our relations," he said.

But Yamaguchi, who has no official government role, said Tokyo has no plan to compromise over the island row.

"Our stance is that no territorial problem exists. That's a shared recognition among the government and coalition."

China has repeatedly sent ships to waters near the disputed islands since Japan nationalised some of the chain in September, a move that triggered a diplomatic dispute and huge anti-Japan demonstrations across China.

Beijing has also sent air patrols near the Tokyo-controlled islands, known as the Senkakus in Japan, but claimed by Beijing as the Diaoyus.

On Sunday, Beijing rebuked the United States after secretary of state Hillary Clinton issued a veiled warning to China not to challenge Tokyo's control over the chain, which is believed to sit atop vast mineral reserves.

(3) Cos Bill eases select related-party deals

The Companies Bill, 2012 has tightened the norms for related party transactions, such as introducing the requirement of a special resolution to be passed in favour of the transaction by shareholders. If the resolution pertains to a transaction with a shareholder, such interested shareholder has to abstain from voting.

While this proposal empowers shareholders, an exception has been carved out. If the transaction is in the ordinary course of the business and is at an arm's length, no such resolution is required. The term arm's length has been defined in the bill to mean a transaction between two related parties, which is conducted as if they were unrelated so that there is no conflict of interest.

Related party transactions include transactions entered into by a company with the following: a director or key managerial person or his relative; firms or companies in which a director, manager or his relative is a partner or director; public companies in which a director or manager of the company is a director, or holds together with his relatives more than 2% of the share capital in such company; holding, subsidiary or fellow subsidiary company, to name a few instances.

To give a few examples, the transactions that can come within the ambit of related party transactions are wide and include sale, purchase or supply of goods, services, property; leasing of property; underwriting the subscription of any securities or derivates of the company.

Under the existing Companies Act, related party transactions meeting certain criteria were to be approved by the board. Further, if the company entering into such a transaction had a paid-up share capital of more than Rs 1 crore, approval of the central government was also required.

The Companies Bill, 2012 continues with the requirement of obtaining a board approval but has done away with the need for central government approval. Instead, for select cases, based on the paid-up share capital of the company or the transaction value (which is yet to be prescribed), the bill introduces the need to obtain approval of related party transactions via a special resolution of the shareholders.

A special resolution requires that votes cast in favour are at least three times the number of votes against a particular resolution. "Introduction of the requirement for a special shareholders' resolution and introducing the concept of arm's length transaction is aimed at strengthening the mechanism to curb related party transactions that may be detrimental to the interests of the company," says Rajendra Nayak, partner, Ernst and Young. While the bill does not prohibit a company from entering into a related party transaction that is not at an arm's length, the board of directors has to justify all related party transactions in their annual report to shareholders.

"Once the Companies Bill, 2012 is enacted, India Inc would need to analyze whether the arm's length principle has been met. The bill is silent on the manner in which this standard will need to be applied. But companies could refer to the manner in which this principle is applied under tax laws," adds Nayak. In tax parlance, transfer price denotes the price charged by one party to a related party. Keeping in view the functions and risks performed by the supplier in respect of such a transaction as compared to a third party transaction, it is determined whether the transaction is at an arm's length. However, the scope of related party transactions under the Companies Bill, 2012 could be much wider.

(4) European banks optimistic on outlook, study shows

European banks are optimistic about their business outlook for the next six months, even though the economy is set to deteriorate further in a number of countries, a study found on Monday.

Consultants Ernst & Young found in a survey that 37 per cent of European banks are expecting an improvement in their operational activities in the period, while 24 per cent were forecasting a deterioration.

About 39 per cent expected stagnation, the study found.

Optimism varied from country to country, with up to 59 per cent of British banks counting on an improvement, 51 per cent of Italian banks, 45 per cent of Scandinavian banks and 37 per cent of Spanish banks.

"Italian and Spanish credit institutions believe their countries are over the worst of the debt crisis and their business is set to improve," said one of the study's co-authors, Dirk Mueller-Tronnier.

Emergency measures by the European Central Bank, such as the unprecedented amount of liquidity it had made available to banks and its bond-purchase programmes, had helped reassure banks in crisis countries, said the other co-author, Claus-Peter Wagner.

In France, the sector was divided, with 30 per cent of banks forecasting an improvement and 30 per cent a deterioration.

In Germany, where the economy contracted by around 0.5 per cent in the fourth quarter of last year, banks are more pessimistic, with only 25 per cent predicting an improvement and 39 per cent a deterioration.

Overall, 41 per cent of banks said they were projecting a further drop in economic growth over the next six months, while only 19 per cent were hopeful for an improvement.

Thus, 45 per cent of banks said they planned to downsize their workforce and cut jobs, particularly in their back-office operations.

For its survey, Ernst & Young questioned a total 269 European banks in November and December.

(5) FDI policy: SC seeks government assurance over future of small traders

The Supreme Court has asked the government to file an affidavit assuring that FDI in retail would not push small traders out of business.

The apex court said on Tuesday that FDI in retail should not kill competition.

The experience is that big firms enter a sector, artificially lower the prices of products to force small traders shut shop and once they achieve monopoly they jack up the prices, the SC bench observed.

The court has given 3 weeks' time to the government to file its response.

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