Union Budget and its impact on Foreign Exchange Laws of India

Following are some of the highlights of the Union Budget of India, 2012-13 which will have an impact on the foreign exchange laws of India.

1. Efforts to arrive at a broad-based consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail up to 51 per cent.
2. External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
3. ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.
4. ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
5. Proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking under active consideration of the government.
6. Various proposals to address the shortage of housing for low income groups in major cities and towns including allowing ECB for low cost housing projects and setting up of a credit guarantee trust fund etc.
7. To provide low cost funds to stressed infrastructure sectors, rate of withholding tax on interest payment on ECBs proposed to be reduced from 20 per cent to 5 per cent for 3 years for certain sectors.
8. Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15 per cent up to 31.3.2013.

CCI Takes Suo-Motu Action: Fines LPG Manufacturers for Cartel

The Competition Commission of India(CCI), on 24th February 2012, by its order, has imposed a penalty of INR 165,58,60,749 crore on 48 Liquid Petroleum Gas (LPG) cylinder manufacturers for forming a cartel to rig the bid. The order of the CCI can be found here.

To give brief facts of the case, the Director General (DG) of CCI during his investigation in the case of M/s Pankaj Gas Cylinder Ltd V Indian Oil Corporation Ltd (Case No. 10 of 2012) had observed that in a tender floated by the Indian Oil Corporation Ltd (IOCL) for the year 2010-11 for the supply of LPG cylinders, the manufacturers of LPG cylinders had manipulated the bids and quoted identical rates in groups through an understanding and collusive action. The DG had alleged that there was a cartel for the bidding. The CCI took serious note of it and by exercising its suo-motu power, referred the matter to the DG for investigation.

The DG Report said that bids of IOCL have been manipulated by 50 participating bidders. The Report said that LPG cylinder manufacturers have procured orders by quoting identical rates in groups, through an understanding and collusive action in violation of Section 3(3)(3)(d) of the Competition Act which has deprived the IOCL from getting competitive prices and resulted in to raising its cost of procurement.

The manufacturers filed a common reply, individual submissions and also the Commission heard the oral argument. Some of the contention of the manufacturers can be summarized as below:

1. Only few manufacturers are the members of the Indian LPG cylinder manufacturer’s association. Hence the conclusion that all the 50 manufacturers were in collusion is erroneouw;
2. Only 19 bidding companies attended the pre-bidding meeting and therefore it cannot be all the 50 were part of the alleged agreement
3. Allocation is made by IOCL on the basis of isstalled capacity and negotiated rates. Hence, there cannot be any possibility or incentive to collude;
4. IOCL was never investigated which was a mandate of the order under Section 26(1) of the Act;
5. It was also argued that price parallelism is a common phenomenon in oligopolistic market;

However, the CCI, after analyzing the facts and evidences, came to the conclusion that the identity of rates was due to an agreement between the bidders (except two companies), who formed a cartel to rig the bid and the bidders have violated Section 3(3) read with Section 3(1) of the Competition Act. It imposed a penalty on each violating company at the rate 7% of its annual turnover.