QUESTION

XYZ Limited is a company engaged in real estate and construction business. In

order to build a land bank in various parts of India that were likely to see
commercial development and anticipating a future upward trend in land prices
in various parts India.

Read the case study given below and answer the questions that follow

Central banks (like RBI in India) follow up in the interest of their separate
governments. Their essential job is to guarantee the solidness of the public
money. A central bank incidentally applies its impact in the foreign exchange
market by either expanding or decreasing its country’s cash supply.

This will lower or raise the worth of the public money. National banks
utilize this strategy to settle quick changes in the worth of the country’s cash
that can result from both inward factors, like swelling, or outer elements.
Varieties in organic market can likewise cause changes in the worth of specific
cash.

At the point when interest for a money goes up (that is, when more
purchasers need to buy it), so does the cost of that cash on the lookout. This is
known as enthusiasm for the money.

On the other hand, when there is lower interest for a specific cash, the
cost of that money frequently goes down; this is called deterioration of the
money. On account of the gigantic measures of money being exchanged every
day, even a negligible part of a percent increment or lessening in worth can
altogether affect how a lot (or how little) a cash is exchanged.

1. What role does the Central Bank play in Foreign Exchange Market?

a) Provides financial assistance

b) Stabilizes the value of domestic currency
c) Increases the value of domestic currency
d) None of these

Answer: (b) Stabilizes the value of domestic currency

2. Under which foreign exchange rate system does the central bank intervene
in the foreign exchange market to stop fluctuations in the domestic currency?

a) Fixed Exchange rate system

b) Flexible exchange rate system
c) Managed Floating Rate system
d) All of these

Answer: (c) Managed Floating Rate system

3. Central bank may _____ the value of domestic currency.

a) Raise
b) Lower
c) Both A and B
d) None of these

Answer: (c) Both A and B

4. Appreciation of domestic currency leads to ________ in Exports of

domestic currency
 a) Increase
b) Decrease
c) No change
d) None of the above

Answer: (b) Decrease

5. Depreciation of domestic currency leads to______in imports of domestic

currency

a) Inflow
b) Increase
c) Decrease
d) No change

Answer: (c) Decrease

6. Both appreciation and depreciation occurs under (choose the correct

alternative)

a) Managed floating exchange rate

b) Fixed exchange rate
c) Flexible exchange rate
d) None of the above

Answer: (c) Flexible exchange rate

CASE STUDY- 1

Read the following hypothetical text and answer the given questions: -

Exchange rate between Indian Rupee and US Dollar has changed from 71. 49
(November, 2020) to 72.82 (January 2021) through changes to market forces
of demand and supply. Therefore, it is believed that India's balance of
payments this year going to be ‘’very very strong’’ Commerce and Industry
Minister Piyush Goyal said on Monday.

1. Change from 1$ = 71.49 INR to 72.82 is called as……………….

a) Appreciation

b) Depreciation

c) Revaluation

d) Devaluation

2. This kind of determination is applicable in ………. system of exchange rate

a) Flexible exchange rate system

b) Fixed exchange rate system

c) Managed floating

d) None of above 1 2 b a

CASE STUDY- 2

Read the following hypothetical text and answer the given questions: -

India's foreign exchange reserves have jumped by $100 billion in 10 months to

a record high of $534.5 billion. The rise has been led by strong foreign fund
inflows recently and decline in import bill due to dip in crude oil prices and
trade impact following COVID-19 pandemic. Reduced imports of gold also cut
down India's import bill. 29 KVS RO RAIPUR

1. Import of Petroleum from Iran will be mentioned:

a) Credit side of Capital Account

b) Debit side of Capital Account

c) Credit side of Current Account

d) Debit side of Current Account

2. Increase in import duty of gold will lead to:

a) Reduction in import of gold

b) Import of gold will increase

c) No effect on import of gold

d) Outflow of Foreign Exchange

3. India's foreign exchange reserves has jumped high. The reason may be:

a) Inflow foreign exchange

b) Outflow of foreign exchange

c) Autonomous payments over Autonomous Receipts

d) All the above 1 2 3 d a a

CASE STUDY- 3

Read the following hypothetical text and answer the given questions: -
Each nation has its own currency when monetary transactions are conducted
within the national borders, payments are made in the currency of that
country for example Indian currency is called rupee. To be more exact it is
called Indian rupee payments within the national borders Of India are made in
Indian rupees. Similarly, each other nation has its own currency for example
Pakistan currency is called Pakistani rupee USA currency US dollar Kuwait
currency Kuwaiti Dinar UAE currency dirham and so on payments within the
nation borders of Pakistan are made in Pakistani rupees payment within the
national border of USA is USA dollars, etc. When transactions are conducted
across National borders one currency must be converted into another.
Conversion rate between two currencies is decided by two ways first fixed
exchange rate second floating or flexible exchange rate.

1. Exchange rate refer to the rate at which the following is exchanged:

(a) Goods

(c) Services

(b) Currencies

(d) All the above

2. Who fixed the flexible exchange rate:

(a) Market force

(b) Government

(c) Both a and b

(d) None of these

3. ___________refers to a system in which exchange rate for a currency is
fixed by the government.

a) Fixed exchange rate 30 KVS RO RAIPUR

b) flexible exchanged rate

c) floating exchange rate

d) none of above 1 2 3 b a A

Exchange Rates and Global Markets

By: Mihir A. Desai, Kathleen Luchs

BusBoard Prototype Systems Ltd.: Making Sense of Foreign Exchange
By: Brian Lane, Craig Wilson
Interest-Rate Swap Offered by Sumitomo-Mitsui
Bank: Was This for Hedging or Speculation?

By: Mitsuru Misawa

Real Options Exercises

By: Timothy A. Luehrman

M/s Jooly Private Limited (Corporate Debtor) is a company incorporated on

01.01.2005 under the provisions of Companies Act, 1956, having its registered
office at Mumbai. The Authorized Share Capital of the company is Rs. 100, 00,
00,000/- and Paid-up Share Capital of the company is Rs. Rs. 99, 00, 00,000/-.
M/s Jemmy Private Limited(Operational Creditor) is a company incorporated
on 01.01.2006 under the provisions of Companies Act, 1956 having its
registered office at Kolkata.
M/s Jooly Private Limited approached M/s Jemmy Private Limited for purchase
of inputs for his production. It was specifically agreed that upon procuring the
inputs by M/s Jooly Private Limited and raising of invoices by M/s Jemmy
Private Limited , the entire payment for such 5 invoices shall be made in a
timely manner. As per the arrangement, the M/s Jooly Private Limited placed
various purchase orders for supply of inputs . M/s Jemmy Private Limited
supplied the goods as per the orders placed by M/s Jooly Private Limited and
raised invoices against the said supply. The invoices were duly acknowledged
by M/s Jooly Private Limited and an amount as part payments were also made.
But thereafter, inspite of various requests made and reminders sent by M/s
Jemmy Private Limited, the M/s Jooly Private Limited had neither responded
nor repaid the remaining claim. On failure to pay the outstanding dues by the
M/s Jooly Private Limited, the M/s Jemmy Private Limited sent a demand
notice dated 01.012019

under Section 8 of the Insolvency and Bankruptcy Code, 2016 to the

respondent asking them to make the entire outstanding payments of Rs.
10,00,000/- (Rupees Ten Lakhs) inclusive of interest within 15 days from
receipt of the notice, failing which the M/s Jemmy Private Limited shall initiate
the Corporate Insolvency Resolution process against the M/s Jooly Private
Limited. Despite the demand notice, the M/s Jooly Private Limited did not pay
the amount demanded, neither raised any notice of dispute nor replied to the
said notice. As a next action M/s Jemmy Private Limited filed an application
before National Company Law Tribunal (NCLT), seeking to unfold the process
of Corporate Insolvency Resolution Process (CIRP). Based on the above fact,
answer the following
(a) Who can make application before the Adjudicating Authority on behalf of
Operational Creditor and where to file such application to initiate the
Corporate Insolvency process in the given case and also state the documents
needs to be attached with such application under Insolvency and Bankruptcy
Code, 2016.

(b) Who can appoint Interim Resolution Professional in case Resolution

Professional is not appointed by the Operational Creditor? State the
moratorium as envisaged under the provisions of Section 14(1) to (4) of the
Insolvency and Bankruptcy Code, 2016 in relation to the Corporate Debtor.

(c) Enumerate the duties of interim resolution professional during the

Corporate Insolvency Resolution Process (CIRP) specified under Section 18 of
the Insolvency and Bankruptcy Code, 2016.

SOLUTIONS

LET'S FIRST DISCUSS APPLICABLE PROVISIONS OF THE IBC, 2016 AS PER

SECTION 6 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016: where any
corporate debtor commits a default, a financial creditor, an operational
creditor or the corporate debtor itself may initiate corporate insolvency
resolution process in respect of such corporate debtor in the manner as
provided under Chapter II of the Part II of the Insolvency and Bankruptcy Code,
2016.

OPERATIONAL CREDITOR An Operational creditor refers to a person to whom

an operational debt is owed and includes any person to whom such amount
has been legally assigned or transferred for goods or services done by them.
Vendors and suppliers, employees, government etc. are examples of
operational creditors.

OPERATIONAL DEBT It means debt incurred in exchange for the provision of

goods or services (including employment) or debt in respect of the payment of
dues arising under any law for the time being in force payable to the Central
Govt., any State Govt. or any regulator. An operational creditor is defined
under Section 5(20) of the Insolvency and Bankruptcy Code(hereinafter the
IBC) to mean 'any person to whom an operational debt is owed and includes
any person to whom such debt has been legally assigned or transferred, and is
owed an operational debt which is defined under section 5(21) of the IBC to
mean: 'a claim in respect of the provisions of goods or services including
employment or a debt in respect of the repayment of dues arising under any
law for the time being in force and payable to the Central Government, any
State Government or any local authority'.

APPLICATION UNDER SECTION 8 & 9 Under Section 8(1) IBC, an operational

creditor may, on the occurrence of a default, deliver a demand notice of
unpaid operational debt copy of an invoice demanding payment of the amount
involved in the default to the corporate debtor in such form and manner as
may be prescribed. Further, the Act states under Section 9(1), after the expiry
of the period of ten days from the date of delivery of the notice or invoice
demanding payment under sub-section

(1) of section 8, if the operational creditor does not receive payment from the
corporate debtor or notice of the dispute under subsection

(2) of section 8, the operational creditor may file an application before the
Adjudicating Authority for initiating a corporate insolvency resolution process.
Upon acceptance of an application, the adjudicating authority shall initiate a
corporate insolvency resolution process (CIRP), under Section 10 and shall thus
proceed to appoint an Interim Resolution Professional under section 16 of the
said Act.

SOLUTION (A) Application to initiate the Corporate Insolvency process may be

filed before the Adjudicating Authority. In terms of Section 5(1) of the
Insolvency and Bankruptcy Code, 2016, Adjudicating Authority means National
Company Law Tribunal constituted under section 408 of the Companies Act,
2013. According to Section 9 of the Insolvency and Bankruptcy Code, 2016, an
Application for initiation of corporate insolvency resolution process by the
operational creditor shall be filed in such form and manner and accompanied
with such fee as may be prescribed. The operational creditor shall, along with
the application furnish the following documents-

i) A copy of the invoice demanding payment or demand notice

delivered by the operational creditor to the corporate debtor;
ii) An affidavit to the effect that there is no notice given by the
corporate debtor relating to a dispute of the unpaid operational debt;
iii) A copy of the certificate from the financial institutions maintaining
accounts of the operational creditor confirming that there is no
payment of an unpaid operational debt by the corporate debtor, if
available;
iv) A copy of any record with information utility confirming that there is
no payment of an unpaid operational debt by the corporate debtor, if
available; and
v) Any other proof confirming that there is no payment of any unpaid
operational debt by the corporate debtor or such other information,
as may be prescribed.

SOLUTION (B) Adjudicating Authority(National Company Law

Tribunal) appoint Interim Resolution Professional in case Resolution
Professional is not appointed by the Operational Creditor. SECTION
14 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 deals with
Moratorium. Section 14(1) provides that subject to provisions of sub-
sections (2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely: -

(a) the institution of suits or continuation of pending suits or

proceedings against the corporate debtor including execution of any
judgement, decree or order in any court of law, tribunal, arbitration
panel or other authority;

(b) transferring, encumbering, alienating or disposing off by the

corporate debtor any of its assets or any legal right or beneficial
interest therein;

(c) any action to foreclose, recover or enforce any security interest

created by the corporate debtor in respect of its property including
any action under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.

(d) the recovery of any property by an owner or lessor where such

property is occupied by or in the possession of the corporate debtor.
Section 14(2) states that the supply of essential goods or services to
the corporate debtor as may be specified shall not be terminated or
suspended or interrupted during moratorium period. As per Section
14(3) the provisions of sub-section (1) shall not apply to —

(a) such transaction as may be notified by the Central Government in

consultation with any financial regulator;

(b) a surety in a contract of guarantee to a corporate debtor. Section

14(4) provides that the order of moratorium shall have effect from
the date of such order till the completion of the corporate insolvency
resolution process. It may be noted that where at any time during the
corporate insolvency resolution process period, if the Adjudicating
Authority approves the resolution plan under sub-section (1) of
section 31 or passes an order for liquidation of corporate debtor
under section 33, the moratorium shall cease to have effect from the
date of such approval or liquidation order, as the case may be.

SOLUTION (C) Section 18 of the Insolvency and Bankruptcy Code,

2016 deals with the duties of interim resolution professional. The
interim resolution professional shall perform the following duties,
namely: -

(a) Collect all information relating to the assets, finances and

operations of the corporate debtor for determining the financial
position of the corporate debtor, including information relating
to – (i) business operations for the previous two years;
 (ii) financial and operational payments for the previous two
years;

(iii) list of assets and liabilities as on the initiation date; and

(iv) such other matters as may be specified;

(b) Receive and collate all the claims submitted by creditors to him, pursuant to
the public announcement made under sections 13 and 15;

(c) Constitute committee of creditors;

(d) Monitor the assets of the corporate debtor and manage its operations until
a resolution professional is appointed by the committee of creditors;

(e) File information collected with the information utility, if necessary; and

(f) Take control and custody of any asset over which the corporate debtor has
ownership rights as recorded in the balance sheet of the corporate debtor, or
with information utility or the depository of securities or any other registry
that records the ownership of assets including –

(i) assets over which the corporate debtor has ownership rights which may be
located in a foreign country;

(ii) assets that may or may not be in possession of the corporate debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the corporate debtor,
financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or authority;

(g) To perform such other duties as may be specified by the Board. It may be
noted that the term 'assets' shall not include the following, namely: - (a) assets
owned by a third party in possession of the corporate debtor held under trust
or under contractual arrangements including bailment; (b) assets of any Indian
or foreign subsidiary of the corporate debtor; and (c) such other assets as may
be notified by the Central Government in consultation with any financial sector
regulator. CONCLUSION Please note that, upon acceptance of an application,
the adjudicating authority shall initiate a corporate insolvency resolution
process (CIRP), under Section 10 and shall thus proceed to appoint an Interim
Resolution Professional under section 16 of the said Act. The CIRP must be
completed within 180 days of from date of admission of application and the
Adjudicating Authority, if it finds reasons may extend this time, to not more
than 90 days (upper limit is 330 days). An operational creditor, who is also not
a financial creditor is not entitled to have a voting share in the Committee of
Creditors (COC), however the IBC does provide the operational creditor with a
certain amount of rights to representation and rights to appeal of this
Corporate Insolvency Resolution Process. Under Section 24 IBC, If the
operational creditor's aggregate dues are more than 10% of total debt, he or
his representative may sit in the COC proceedings. Unlike financial creditors,
however, he is vested with no voting rights, irrespective of how much his share
in the debts maybe. Under Section 25(h) IBC, the operational creditor may
approach the Resolution Professional Appointed by the COC as a Resolution
Applicant and submit a resolution plan, provided he is not barred to be a
Resolution Applicant under section 29A of the IBC. If the COC is satisfied with
this resolution plan it may pass the same. If the Operational Creditor is not
satisfied with the resolution plan passed by the COC, he may appeal the order
in the NCLT within 30 days of passing of such order. An Operational Creditors if
not satisfied with the Resolution Plan may oppose the same under provisions
of Section 61(3) of IBC,2016

Read more at: https://www.caclubindia.com/articles/case-study-1-ibc-2016-

47412.asp
Case Study on FEMA: RBI slapped Rs.125 crore on Reliance Infrastructure

The Reserve Bank of India (RBI) has asked the Anil Dhirubhai Ambani Group
firm, Reliance Infrastructure (earlier, Reliance Energy), to pay just under Rs
125 crore as compounding fees for parking its foreign loan proceeds worth
$300 million with its mutual fund in India for 315 days, and then repatriating
the money abroad to a joint venture company. These actions, according to an
RBI order, violated various provisions of the Foreign Exchange Management
Act (FEMA).

In its order, RBI said Reliance Energy raised a $360-million ECB on July 25,
2006, for investment in infrastructure projects in India. The ECB proceeds
were drawn down on November 15, 2006, and temporarily parked overseas
in liquid assets. On April 26, 2007, Reliance Energy repatriated the ECB
proceeds worth $300 million to India while the balance remained abroad in
liquid assets.
It then invested these funds in Reliance Mutual Fund Growth Option and
Reliance Floating Rate Fund Growth Option on April 26, 2007. On the
following day, i.e., on April 27 2007, the entire money was withdrawn and
invested in Reliance Fixed Horizon Fund III Annual Plan series V. On March 5,
2008, Reliance Energy repatriated $500 million (which included the ECB
proceeds repatriated on April 26, 2007, and invested in capital market
instruments) for investment in capital of an overseas joint venture called
Gourock Ventures based in British Virgin Islands.

RBI said, under FEMA guidelines issued in 2000, a borrower is required to

keep ECB funds parked abroad till the actual requirement in India. Further,
the central bank said a borrower cannot utilise the funds for any other
purpose.

“The conduct of the applicant was in contravention of the ECB guidelines and
the same are sought to be compounded,” the RBI order signed by its chief
general manager Salim Gangadharan said.

During the personal hearing on June 16, 2008, Reliance Energy, represented
by group managing director Gautam Doshi and Price waterhouse Coopers
executive director Sanjay Kapadia, admitted the contravention and sough
compounding. The company said due to unforeseen circumstances, its Dadri
power project was delayed. Therefore, the ECB proceeds of $300 million
were bought to India and was parked in liquid debt mutual fund schemes, it
added.

Rejecting Reliance Energy’s contention, RBI said it took the company 315
days to realise that the ECB proceeds are not required for its intended
purpose and to repatriate the same for alternate use of investment in an
overseas joint venture on March 5, 2008.

Reliance also contended that they invested the ECB proceeds in debt mutual
fund schemes to ensure immediate availability of funds for utilisation in
India.

“I do not find any merit in this contention also as the applicant has not
approached RBI either for utilising the proceeds not provided for in the ECB
guidelines, or its repatriation abroad for investment in the capital of the JV,”
the RBI official said in the order.

In its defence, the company said the exchange rate gain on account of
remittance on March 5 2008, would be a notional interim rate gain as such
exchange rate gain is not crystallised.
But RBI does not think so. “They have also stated that in terms of accounting
standard 11 (AS 11), all foreign exchange loans have to be restated and the
difference between current exchange rate and the rate at which the same
were remitted to India, has to be shown as foreign exchange loss/gain in
profit and loss accounts.

However, in a scenario where the proceeds of the ECB are parked overseas,
the exchange rate gains or losses are neutralized as the gains or losses
restating of the liability side are offset with corresponding exchange losses or
gains in the asset. In this case, the exchange gain had indeed been realised
and that too the additional exchange gain had accrued to the company
through an unlawful act under FEMA,” the order said.

It said as the company has made additional income of Rs 124 crore, it is liable
to pay a fine of Rs 124.68 crore. On August this year, the company submitted
another fresh application for compounding and requested for withdrawal of
the present application dated April 17, 2008, to include contravention
committed in respect of an another transaction of ECB worth $150 million.
But RBI said the company will have to make separate application for every
transaction and two transactions are different and independent and cannot
be clubbed together.
Mr. G., an Indian national desires to obtain Foreign Exchange on current
account transactions for the following purposes:

(i) Payment of commission on exports made towards equity investment in

wholly ownedsubsidiary abroad of an Indian Company.

(ii) Remittance of hiring charges of transponder.

(iii) Remittance for use of trade mark in India.

Advise G whether he can obtain Foreign Exchange and, if so, under what
conditions?

Answer

Under Section 5 of FEMA, 1999, certain rules have been framed for drawal of
foreignexchange on current account. According to the said rules, drawal of
foreign exchangefor certain transactions is prohibited. In respect of certain
transactions drawal of foreignexchange is permissible with the prior approval
of Central Government. In respect of some of the transaction, prior
permission of RBI is sufficient for drawal of foreignexchange.

(i) In respect of item No.1 i.e. Payment of Commission on exports made

towards equityinvestment in wholly owned subsidiary abroad of an Indian
company is prohibited.

(ii) Drawal of foreign exchange for remittance of hiring charges of

transponder, can bemade with the prior approval of the Central Government.

(iii) So far as remittance for use of Trade Mark in India is concerned, the
necessary foreign exchange can be obtained with the prior permission of the
RBI.
•In the case of (ii) & (iii) above, approval of concerned authority is not
required if the payment is made out of funds held in RFC Account EEFC
Account of the remitter. Further foreign Exchange can be drawn only from an
authorised person.