August 1, 2012

Put option- Enforceability in terms of law


Put option- Enforceability in terms of law

A “Put Option” is an Investor’s exit/liquidity option by way of which an Investor can, on the happening of a “Put Trigger” event, compel the promoter/ shareholder of Company to buy its shares either wholly or partly, at a valuation, agreed between the parties. A “Put Option” has become a popular exit option in business practice and has found expression by way was a “Put Option” Clause in Share Holders Agreement (SSA) or Share Subscription Agreements (SHA). But such seemingly standard exit rights may not always be enforceable under Indian law.

After a notification issued in 1969 under the Securities Contracts Regulation Act (SCRA), 1956, all transactions in securities other than on a “spot delivery” basis or unless settled through the stock exchange are illegal. Though this notification was repealed in 2000, another notification was issued on the same day, which was for the most part similar to the 1969 notification.

Question: Is a put option a spot delivery contract as is permissible under SCRA, or is it a forward contract and thus illegal?

Earlier view: A put option may not even be treated as a completed contract as it is more in the nature of a contingent contract. It would result in a contract for sale or purchase of securities only upon the exercise of the option and not merely upon the grant of such option. Further, once the option is exercised, the contract is typically performed immediately, that is, on a spot delivery basis and should thus be enforceable. This line of reasoning was accepted by the Bombay high court in the case of Jethalal C. Thakkar vs R.N. Kapur on 12 August, 1955 decided under the erstwhile Bombay Securities Contracts Control Act (BSCCA), 1925, an enactment that is broadly similar to SCRA.

Present view: In the recent decision of the Bombay high court in the Niskalp Investments and Trading Co. Ltd v. Hinduja TMT Ltd case in 2008 (Hinduja case) counters the above principle. In the Hinduja case, in accordance with the agreement executed between the parties for the purchase of securities, the purchaser was to be provided an exit by way of an IPO of the company, failing which the seller was to buy back the purchaser’s stake at a 20% internal rate of return. The seller did not honor its obligations under the agreement and consequently, the purchaser approached the courts. However, the court held in favor of the seller, stating that the arrangement to buy back shares is hit by SCRA and is thus void.

The court reached such a conclusion by relying on a summons for judgment passed F.I. Rebello, J. in Summons for Judgment No. 511 of 1997 in Summary Suit No. 4556 of 1996 being dated 6-4-1999, which, in turn, had relied on a ruling passed by the Supreme Court in the case of BOI Finance Ltd. v. Custodian [1997] 10 SCC 488 : 12 SCL 99.

Analysis: As long as put options are settled on a spot delivery basis, they should be enforceable, necessary amendments to SCRA or a clarificatory circular by the Securities and Exchange Board of India to this effect would be useful, especially in the prevailing market conditions. Until such time, rights such as put option rights and rights to cause the company to buy back shares, even if settled on a spot delivery basis, may be regarded as being unenforceable, more so in light of the ruling in the Hinduja case.




July 25, 2012

Annual general Meeting by a company (AGM Compliance by a Company)


Compliance to be made by a Company:

      Annual General Meeting held in accordance with section 166 can be adjourned by filing Form 61 Extension of period of annual general meeting by three months under section166(1) or for Extending the period of annual accounts up to eighteen months under section 210(4).

Section 166(1) of Companies Act:

Under this section every company should hold Annual general Meeting not more than fifteen months lapse of one annual meeting. Provided Registrar may for any special reason extend the time shall be held not exceeding three months. The application should be accompanied by a resolution of the Board of directors giving full information as to why the company is unable to comply with the statutory requirements. 

Special Reason: It has not able to prepare the accounts for the period as mentioned in 210(3).
In case of Non Compliance:
       In case of non compliance by a company under section 165, every director or other officer to company who is in default shall be punishable with fine extended up to Five thousand rupees.
       Compounding of offences under sec. 621 A of Companies Act.

Section 210(4) of Companies Act:

Sub-section 3 (b) of section 210 specifies that the company is required to hold its annual general meeting within six months from the end of the financial year.
Under this section time may extend upto eighteen months where a special permission has been granted by Registrar.
In case of Non Compliance:
      In case of non compliance by a company under section 210, any person, being director of a company shall be punishable  with imprisonment for a term which may extend upto six months or fine which may extend upto ten thousand rupees or with both.
      Non compoundable.

Contradiction between the provision of section 166 and 210:

Section 166 allows holding of an annual general meeting within fifteen months of the last annual general meeting of the company. While this does not need approval of the Registrar of Companies (ROC),  this may at times result in a company not being able to hold the annual general meeting within six months from the end of the financial year as envisaged in section 210(3)(b). 

Registrar's powers to grant extension of time under the second proviso to section 166(1) does not become exercisable if the extension sought by the company is for holding the meeting falling within the time-limits mentioned in the said section 166 and is asked solely on the ground that it has not been able to prepare the accounts for the period mentioned in section 210(3).

Filing should be done: (reading 166 & 210 together):
15 months from the date of the last annual general meeting.
The last day of the calendar year.
6 months from the close of the financial year. 

July 24, 2012



Validity of Transfer of Shares of a company without stamping


Section 108 of Companies Act, 1956 states that (1) A company shall not register a transfer of shares in, or debentures of, the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with the certificate relating to the shares or debentures or if no such certificate is in existence, along with the letter of allotment of the shares or debentures.

Transfer of share is possible only if proper transfer deed in the form 7B duly stamped and executed under section 108 of Companies Act, 1956


Section 108 provides that adequate stamp should be there on transfer deed so as to make it a valid transfer. In case of default it shall be deemed as null and void. As words "shall not register" employed in Section 108, are indicative of the legislative intent that the provisions contained in the section are mandatory.

According to section 12 of Indian Stamp Act, if the stamp is not cancelled at or time of execution, the instrument shall be deemed to be unstamped.


The Honorable Supreme Court held that the registration of transfers contrary to mandatory provisions of section 108 and pending attachment of the shares was illegal. When the receiver held the scripts and blank transfers, it was not open to the persons in whose names the share originally stood to exercise the right of ownership in respect of such shares or transfers that ownership to anyone else.


Analysis: Shares which are not stamped and cancelled, transferring it would be considered illegal or void. For a valid transfer share transfer form must be adequately stamped and cancelled to provide legal validity to the transfer.  Even in case, where registrar have registered it but overlooking it, it would be considered as void. 


In such situations, application to the concerned authority should be made within time frame prescribed, so as to validate the transfer. 

July 21, 2012

Registers to be maintained under The Companies Act,1956


Registers to be maintained under The Companies Act,1956

Section      Registers to be maintained
49(7)           Register of investments in shares or securities not held in company’s name
77A(9)        Register of buy-back of securities
111A           Register of transfers
136              Copy of every instrument creating any charge requiring registration to be kept by company at registered office
143(1)         Register of charges to be kept by company at registered office
150(1)         Register of members to be kept at the registered office or at any other place within the city, town or village in which the registered office is situate subject to Section 163(1)
151(1)         Index of members in the case of a company having more than 50 members unless register itself is in index form
152(1)         Register of debenture-holders to be kept at the registered office or at any other place within the city, town or village in which the registered office is situate subject to Section 163(1)
152(2)         Index of debenture-holders in the case of a company having more than 50 debenture-holders unless register itself is in an index form
152A           Register and Index of Beneficial Owners
157(7)         Foreign register of members and of debenture –holders, if any
158              Duplicate of such foreign register of members and debenture holders
163(1)         Copies of annual returns prepared under sections 159 and 160   together with copies of certificates and documents required to be annexed thereto under secs.160 and 161 to be kept at the registered office or at any other place within the city, town or village in which the registered office is situate
193(1)         Minutes of board of directors and committees of the board and of proceedings of general meetings
209(1)         Book of account and other cost records
209(2)         Proper books of account relating to transactions effected at branch office
301(1)         Register of contracts, companies and firms in which the directors of the company are interested
303(1)         Register of directors, managing director, manager and secretary
307(1)         Register of director’s shareholdings
370(1C)      Register of loans made to the companies under the same management shall be kept at the registered office of the lending company
372(6)         Register of investment in shares and debentures of other bodies corporate shall be kept at the registered office of the investing company
372A(5)      Register of investment or loan made, guarantee given or security provided by it in relation to any body corporate shall be kept at the registered office of the company concerned

July 19, 2012


Reasonableness of Non- Compete Clause under Section 27

Contracts which impose an unreasonable restraint upon the exercise of a business, trade or profession are void, but contracts in reasonable restraint are therefore valid. Whether the limits prescribed in the contracts are reasonable or not, depends upon the kind of business to protect which the contract is made, and the reasonableness of the restraint imposed must be ascertained in every case by reference to the nature of the business in question and to the situation of the parties.

Certain tests may be noted here:
(a) The generality of the covenant, whether as to time and space may render it unreasonable, i.e., a covenant is not necessarily valid because restricted as to time, but may be void because it is not so restricted:

(b) Different degrees of protection are reasonable in different cases;

(c) The reasonableness of the restriction must be judged by the character and nature of the business or of its customers. That is to say, the question is whether the restraint is such only as to afford a fair protection to the interest of party in favour of whom it is given and not so large as to interfere with the interests of the public; whatever restraint is larger than the necessary protection of the party can be of no benefit to either; it can only be oppressive, and if oppressive, it is in eye of law, unreasonable.[1]



[1] Shaikh Kalu v. Ram Saran, 13 CWN 388; citing Honter v. Graves, 7 Bing 735.



Notes on Procedures involved in Obtaining a Share Certificate

Under Part IV SHARE CAPITAL AND DEBUNTURES, Nature, numbering and certificate of shares, Section 84 of the Indian Companies Act, 1956, it is provided that a certificate under the common seal of the company specifying any shares held by any member, shall be prima facie evidence of the title of the member to such shares.

The certificate shall be issued withstanding to the procedures laid therein, notwithstanding to anything contrary provided in the articles of association of the company. By virtue of this section, Companies (Issue of Share Certificates) Rules, 1960 was made.

Interpretation Part:
Here, "Board" means that the Board of Directors of a company or a Committee thereof consisting of at least 3directors, if the number of directors are more than 6 and at least 2directors if the number of directors is less than 4.
If the Board of Directors permits, at least half of the number of members of the Committee shall consist of directors other than (I) a managing or whole time director.

S.No
                                             Steps
         1
A resolution must be passed by the board for issuing a share certificate.
         2
The Letter of allotment/ Fractional coupons of requisite value must be surrendered back to the company. (if it is lost, the Board may carry out an investigation and incur the amount spent, if any, from the concerned person who has lost it)
         3
The certificate must be issued under the common seal of the company, in the presence of 2directors or their representatives acting with the duly registered Power of Attorneys.
         4
The Secretary or any other person appointed for this purpose by the board must also be present
         5
It has to be signed by the directors as well as the Secretary or their representatives, as the case may be.
         6
The Directors can sign by means of any machine, equipment or other mechanical means such as engraving in metal or lithography.
But they cannot use Rubber stamps.
(Note: There is no prescribed mode of signature for the secretaries)

Buy Back of Shares

Buy Back of Shares

Under Private Listed Company and Unlisted Public Limited Company (Buy back of Securities) Rules, 1999:

Eligibility requirements:

1.         AoA should permit buy back.
2.         Buy back is permitted only out of:
   (i)   Its free reserves; or
   (ii)  The Securities Premium Account; or
   (iii) The proceeds of any shares or other specified securities [Section 77A(1)] Money borrowed from Banks/Financial Institutions should not be utilized for the purpose of buying back [Rule 8(1)(e)].
3.         Amount of buy back proposed to be made should be less than 25% of the total paid-up capital and free reserves [Section 77A(2)(c)]; and
buy back of equity shares in any financial year does not exceed 25% of your company’s total paid-up equity capital in that financial year. [Section 77A(2)(c) Proviso]
4.         (i) The ratio of debt including all amounts of unsecured and secured debts owed by the company should not be more than twice the capital and the free reserves after such buy back [Section 77A(2)(d)],
except otherwise a higher ratio is prescribed by the Central Government for a class or classes of companies [Section 77A(2)(d) proviso].
(ii) All shares or other specified securities which are to be bought back are all fully paid up [Section 77A(20(e)].

Procedure:

1.      Board Meeting should be convened after issuing notices to the directors of the company as per Section 286 to decide about details of the proposed buy back and to fix up the date time place and agenda for convening a General Meeting and to pass a Special Resolution by three forth majority for the same [Section 77A(2)(b), Section 189].
2.      The draft of the notice of the General Meeting and also the draft of the Explanatory Statement to accompany the notice should be prepared.
The Explanatory Statement should contain:
   (i)   a full and complete disclosure of all material facts;
   (ii)  the necessity for the buy back;
   (iii) the class of security intended to be purchased under the buy back;
   (iv) the amount to be invested under the buy back; and
   (v)  the time limit for completion of buy back [not exceeding 12 months from the date of passing of the special resolution] [Section 77A(3) and (4)].
3.      Notices should be issued in writing at least twenty one days before the date of the General Meeting with the Explanatory Statement [Section 171(1), Sections 173(2) read with 77A(3)].
4.      Special Resolution and Explanatory Statement (contents in Schedule I) should be filed with the concerned ROC in e-Form No. 23  within thirty years [Section 192(4)(a)] after paying the requisite fee prescribed under Schedule X to the Companies Act, 1956 [Rule 22].

A draft letter of offer [contents in Schedule II, Rule 8(1)] should be filed with ROC subsequent to the passing of the special resolution but before the buy back [Rule 5(1)] along with a declaration of solvency in Form No. 4A [Rule 5(2)]. The same letter is to be dispatched to the shareholders whose shares are being bought back immediately after filing it with ROC but not later than 21 days of such filing.
The offer should not be withdrawn once the draft letter of offer has been filed with the ROC [Rule 8(1)(d)].
5.      Do not make further issue of the same kind of shares including allotment of further shares under Section 81(1)(a) or other specified securities within a period of 6 months from the completion of buy back of shares or other specified securities, except by way of bonus issue or in the discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion of preference shares or debentures into equity shares [Section 77A(8)].
6.      If company purchases its own shares out of free reserves, then a sum equal to the nominal value of shares so purchased should be transferred to the capital redemption reserve account referred to in Section 80(1)(d) and the balance sheet should disclose the details of such transfer.
7.      If company’s paid up share capital is in the range Rs 10 lakhs – Rs 2 crores, it is required to obtain a compliance certificate from a secretary in whole-time practice which is to be filed with the ROC in respect of each financial year within 30 days from the date on which the company’s annual general meeting was held [Rules 2(2)]. Mentioning therein inter alia that the company has bought back its shares during the financial year after complying with the provisions of the Act as per paragraph 20 of the Form & Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001 [Section 383A(1) proviso]. It is to be filed as an attachment to e-Form No. 66.
8.      Offer for buy back should remain open to the members for a period not less than 15 days and not exceeding 30 days from the date of dispatch of the letter of offer [Rule 6(2)].
9.      In case the number of shares offered by the shareholders is more than the total number of shares to be brought back by the company, the acceptance per share holder should be made on proportionate basis.
10.  Verifications of the offers received should be completed within 15 days from the date of closure of the offer [Rule 6(4)].
11.  Shares including bonus shares should not be issued till the date of the closure of the offer of buy back [Rule 8(1)(b)].

POST BUY BACK REQUIREMENTS:
1.              A register is to be maintained of securities bought back, the consideration paid, the date of cancellation of securities, the date of extinguishing and physically destroying of securities and such other particulars in Form no. 4B [Section 77A(9)].
2.      A Return containing particulars relating to buy back is to be filed with the ROC within 30 days of completion of the buy back as given in e-Form No. 4C [Section 77A(10), Rule 9 read with Section 77A(10) proviso] along with the following attachments:

   (i)   Description of securities bought back by the company;
   (ii)  Particulars relating to holders of securities before buy back;
   (iii) Copy of the special resolution passed at the general meeting;
   (iv) Copy of board resolution.
3.      Filing of e-Form No. 23 should precede filing of e-Form No. 4C.
4.      A special bank account should be opened immediately after the date of closure of the offer and such sum as would make up the entire sum due and payable as consideration for the buy back should be deposited therein [Rule 7(1)].
5.      Payment for consideration should be made in cash or bank draft / pay order should be made to those shareholders whose offer has been accepted or the share certificates should be returned to the shareholders forthwith within 7 days from 15 days from the date of closure of the offer [Rule 7(2)].
6.      The share certificates so bought back should be extinguished and physically destroyed within 7 days from the date of acceptance of the shares in the presence of the Company Secretary in whole-time practice [Section 77A(7) read with Rule 10(1)].
Certificate regarding the same is to be filed with the ROC within 7 days of extinguishment [Rule 10(2)]. Certificate is to be verified by two whole-time directors including the managing director and company secretary in whole time practice certifying compliance [Rule 10(2)].
7.      A record of share certificates which have been cancelled and destroyed within 7 days of buy back of shares is to be maintained [Rule 10(3)].
8.      A Register of shares bought back by the company in the Form specified in Annexure B of Rules is to be maintained [Rule 11].

July 13, 2012



Carbon Credit in India

Meaning:

The concept of carbon credits evolved from the Kyoto Protocol Treaty under the UNFCCC (United Nations Framework Convention on Climate Change). The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapor) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s. The treaty requires the industrialized countries to reduce their collective emissions of greenhouse gases by 5.2 percent (compared to the year 1990) by 2012. The treaty was negotiated in Kyoto, Japan, in December 1997, and the agreement came into force on February 16, 2005. Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories. India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the ‘standard’ level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit. A carbon credit is a tradable certificate or permit representing the right to emit one ton of carbon dioxide or carbon dioxide equivalent (CO2-e).

Three Flexibility Mechanisms:

 As part of the agreement, three flexibility mechanisms were developed to help developed countries meet their emission reduction targets namely, Clean Development Mechanism (CDM), Joint Implementation (JI) and International Emission Trading (IET). Of these, JI and IET are executable amongst developed countries while CDM is between developed and developing countries. It is a mechanism allowing industrialized countries with a greenhouse gas reduction commitment to invest in emission-reducing projects in developing countries.[1]

Clean Development Mechanism Explained:


The Clean Development Mechanism (CDM), defined in Article 12 of the Protocol, allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries.


Carbon Trading in India:

Indian industries were able to cash in on the sudden boom in the carbon market making it a preferred location for carbon credit buyers. It is expected that India will gain at least $5 billion to $10 billion from carbon trading (Rs 22,500 crore to Rs 45,000 crore) over a period of time. Also India is one of the largest beneficiaries of the total world carbon trade through the Clean Development Mechanism claiming about 31 per cent (CDM).

India’s carbon market is one of the fastest growing markets in the world and has already generated approximately 30 million carbon credits, the second highest transacted volumes in the world. The carbon trading market in India is growing faster than even information technology, bio technology and BPO sectors. Nearly 850 projects with an investment of Rs 650,000 million are in the pipeline. Carbon is also now being traded on India’s Multi Commodity Exchange. It is the first exchange in Asia to trade carbon credits. India being a developing country has no emission targets to be followed. However, she can enter into CDM projects.[2] The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy from Indians are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the carbon will increase and then they may make more money.[3]


Legal aspect of Carbon Trading in India:

The Multi Commodity exchange started future trading on January 2008 after Government of India recognized carbon credit as commodities on 4th January. The National Commodity and Derivative Exchange by a notification and with due approval from Forward Market Commission (FMC) launched Carbon Credit future contact whose aim was to provide transparency to markets and help the producers to earn remuneration out of the environment projects.

Carbon credit in India is traded on NCDEX only as a future contract. Futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed today (the futures price). The contracts are traded on a future exchange. These types of contracts are only applicable to goods which are in the form of movable property other than actionable claims, money and securities. . Forward contracts in India are governed by the Indian Contract Act, 1872.

Under the present provision of the Forward Contracts Regulation Act, the trading of forward contracts will be considered as void as no physical delivery is issued against these contracts. To rectify this The Forward Contracts (Regulation) Amendment Bill 2006 was introduced in the Indian Parliament. The Union Cabinet on January 25, 2008 approved the ordinance for amending the Forward Contracts (Regulation) Act, 1952. This ordinance has to be passed by the Parliament and is expected to come up for consideration this year. This Bill also amends the definition of ‘forward contract’ to include ‘commodity derivatives’. Currently the definition only covers ‘goods’ that are physically deliverable. However a government notification on January 4th paved the way for future trading in CER by bringing carbon credit under the tradable commodities.

Value Added Tax:
The government of Delhi in a recent notification has declared that the Certified Emission Reductions (or 'Carbon Credits' as we know) are to be considered as goods and thus their sale is liable to value added tax in the State. The Commissioner of Trade and Taxes has declared that the nature and aspects of Carbon credits have to be examined and tested against the definition of goods to arrive at the conclusion that carbon credit are no different from ordinary commodities bought and sold in the market and thus a sale transaction of carbon credit would attract value added tax on sale.

Trading of CERS:
 As a welcome scenario, India now has two Commodity exchanges trading in Carbon Credits. This means that Indian Companies can now get a better trading platform and price for CERs generated.

 Multi Commodity Exchange (MCX), India’s largest commodity exchange, has launched futures trading in carbon credits. The initiative makes it Asia's first-ever commodity exchange and among the select few along with the Chicago Climate Exchange (CCE) and the European Climate Exchange to offer trades in carbon credits. The Indian exchange also expects its tie-up with CCX which will enable Indian firms to get better prices for their carbon credits and better integrate the Indian market with the global markets to foster best practices in emissions trading. 
• On 11th April 2008, National Commodity and Derivatives Exchange (NCDEX) also has started futures contract in Carbon Trading for delivery in December 2008.
• MCX is the futures exchange. People here are getting price signals for the carbon for the delivery in next five years. The exchange is only for Indians and Indian companies. Every year, in the month of December, the contract expires and at that time people who have bought or sold carbon will have to give or take delivery. They can fulfill the deal prior to December too, but most people will wait until December because that is the time to meet the norms in Europe. If the Indian buyer thinks that the current price is low for him he will wait before selling his credits. The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy from Indians who are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009, 2010 or 2012, then the demand for the carbon will increase and then they may make more money. So investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits. There are parameters set and detailed audit is done before you get the entitlement to sell the credit. 

How does MCX trade carbon credits?[4]

Many companies did not apply to get credit even though they had new technologies. Some companies used management consultancies to make their plan greener to emit less GHG. These management consultancies then scouted for buyers to sell carbon credits. It was a bilateral deal.

However, the price to sell carbon credits at was not available on a public platform. The price range people were getting used to was about Euro 15 or maybe less per tonne of carbon. Today, one tonne of carbon credit fetches around Euro 22. It is traded on the European Climate Exchange. Therefore, you emit one tonne less and you get Euro 22. Emit less and increase/add to your profit.

We at the MCX decided to trade carbon credits because we are in to futures trading. Let people judge if they want to hold on to their accumulated carbon credits or sell them now.MCX is the futures exchange. People here are getting price signals for the carbon for the delivery in next five years. Our exchange is only for Indians and Indian companies. Every year, in the month of December, the contract expires and at that time people who have bought or sold carbon will have to give or take delivery. They can fulfill the deal prior to December too, but most people will wait until December because that is the time to meet the norms in Europe. Say, if the Indian buyer thinks that the current price is low for him he will wait before selling his credits. The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy from Indians are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the carbon will increase and then they may make more money. So investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits. There are parameters set and detailed audit is done before you get the entitlement to sell the credit. In India, already 300 to 400 companies have carbon credits after meeting UNFCCC norms. Till MCX came along, these companies were not getting best-suited price. Some were getting Euro 15 and some were getting Euro 18 through bilateral agreements. When the contract expires in December, it is expected that prices will be firm up then.

On MCX we already have power, energy and metal companies who are trading. These companies are high-energy consuming companies. They need better technology to emit less carbon.


Financing Support in India:

• Carbon Credits projects requires huge capital investment. Realizing the importance of carbon credits in India,
• The World Bank has entered into an agreement with Infrastructure Development Finance Company (IDFC), wherein IDFC will handle carbon finance operations in the country for various carbon finance facilities.
• The agreement initially earmarks a $10-million aid in World Bank-managed carbon finance to IDFC-financed projects that meet all the required eligibility and due diligence standards.
• IDBI has set up a dedicated Carbon Credit desk, which provides all the services in the area of Clean Development Mechanism/Carbon Credit (CDM).
• In order to achieve this objective, IDBI has entered into formal arrangements with multi-lateral agencies and buyers of carbon credits like IFC, Washington, KfW, Germany and Sumitomo Corporation, Japan and reputed domestic technical experts like MITCON.
• HDFC Bank has signed an agreement with Cantor CO2E India Pvt Ltd and MITCON Consultancy Services Limited (MITCON) for providing carbon credit services. As part of the agreement, HDFC Bank will work with the two companies on awareness building, identifying and registering Clean Development Mechanism (CDM) and facilitating the buy or sell of carbon credits in the global market.


Conclusion
Even though India is the largest beneficiary of carbon trading and carbon credits are traded on the MCX, it still does not have a proper policy for trading of carbons in the market. As a result the Centre has been asked by The National Commodity and Derivatives Exchange Limited (NCDEX) to put in place a proper policy framework for allowing trading of certified emission reductions (CERs), carbon credit, in the market. Also, India has huge number of carbon credits sellers but under the present Indian law, the buyers based in European market are not permitted to enter the market. To increase the market for carbon trading Forward Contracts (Regulation) Amendment Bill has been introduced in the Parliament. This amendment would also help the traders and farmers to utilize NCDEX as a platform for trading of carbon credits. However, to unleash the true potential of carbon trading in India, it is important that a special statue be created for this purpose as the Indian Contracts Act is not enough to govern the contractual issues relating to carbon credits. The carbon credits market will grow to as much as $5 trillion if major countries such as the United States sign up for binding cap emissions. India should be ready to take advantage of this growing global market.
Post-2012 policies are expected to open many new gates for India to leverage the growing carbon market. The government bodies are also planning for a domestic energy efficiency cap-and-trade scheme.

The Indian economy strictly needs a regulator for the carbon market. The forward Contracts (Regulation) Amendment Bill, which would define the regulation on carbon credits trading and introduce options based on them, is the need of the hour. This will build confidence in the market, and trade volumes will be back on track for the Indian commodity exchanges.

Examples of Carbon trading in India:


Jindal Vijaynagar Steel:

The Jindal Vijaynagar Steel has recently declared that by the next ten years it will be ready to sell $225 million worth of saved carbon. This was made possible since their steel plant uses the Corex furnace technology which prevents 15 million tonnes of carbon from being discharged into the atmosphere.

Powerguda in Andhra Pradesh:

The village in Andhra Pradesh was selling 147 tonnes equivalent of saved carbon dioxide credits. The company has made a claim of having saved 147 MT of CO2. This was done by extracting bio-diesel from 4500 Pongamia trees in their village.

Handia Forest in Madhya Pradesh:

In Madhya Pradesh, it is estimated that 95 very poor rural villages would jointly earn at least US$300,000 every year from carbon payments by restoring 10,000 hectares of degraded community forests.


Delhi Metro Rail Corporation (Dmrc):

A must mention project is The Delhi Metro Rail Corporation (DMRC): It has become the first rail project in the world to earn carbon credits because of using regenerative braking system in its rolling stock. DMRC has earned the carbon credits by using regenerative braking system in its trains that reduces 30% electricity consumption. 
Whenever a train applies regenerative braking system, the released kinetic energy starts a machine known as converter-inverter that acts as an electricity generator, which supplies electrical energy back to the Over Head Electricity (OHE) lines. This regenerated electrical energy that is supplied back to the OHE that is used by other accelerating trains in the same service line. DMRC can now claim 400,000 CERs for a 10-year crediting period beginning December 2007 when the project was registered by the UNFCCC. This translates to Rs 1.2 crore per year for 10 years. India has the highest number of CDM projects registered and supplies the second highest number of Certified Emission Reduction units. Hence, India is already a strong supplier of Carbon Credits and can improve on it. 


The Union government has approved 550 projects complying the Kyoto Protocol to earn carbon credits, and 330 more are awaiting the government's approval, according to Det Norske Veritas (DNV) AS sources. The Designated National Authority (DNA) has registered the approved projects with the United Nations Framework Convention on Climate Change (UNFCC). The other 330 projects are at the design document stage. DNV is an Oslo-based consultancy firm, accredited to the UNFCCC for conducting the third party verification of projects, which have adopted the clean development mechanism (CDM) to comply with the Kyoto Protocol.[5]