tag:blogger.com,1999:blog-53163481086437683952024-03-12T19:20:55.319-07:00Corporate LawyerGeneral Corporate Lawyerluv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comBlogger659125tag:blogger.com,1999:blog-5316348108643768395.post-59729025814816978102013-01-26T23:47:00.000-08:002013-01-29T11:25:11.951-08:00Inter Se Promoter Exemption for Takeovers: Computation of Holding Period<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> 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<w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">A few days ago, SEBI made public its <a href="http://www.sebi.gov.in/cms/sebi_data/commondocs/Weizmannforex%20-reply_p.pdf">informal guidance</a> issued to Weizmann Forex Ltd. on October 25, 2012. In this case, the target company became listed only in 2011 due to a corporate restructuring process. The question was whether certain shareholders can avail of the exemption for <i>inter se </i>promoter transfer by taking into account the promoter holdings in the previous company from which the business was restructured into the target. Qualifying for the exemption requires that both the transferor and transferee should have been disclosed as promoters of the target company for at least 3 years. SEBI adopted a purposive interpretation to answer in the affirmative thereby making the exemption available in that case even though the parties did not technically satisfy the condition.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><b><i><span style="font-family: Arial, Helvetica, sans-serif;">Facts<o:p></o:p></span></i></b></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The relevant facts can be gathered from the company’s <a href="http://www.sebi.gov.in/cms/sebi_data/commondocs/Weizmannforex%20_p.pdf">request</a>to SEBI. Weizmann Forex Ltd., the target company was previously an unlisted company with the name Chanakya Holdings Ltd. As part of an overall restructuring of the Weizmann group, which involved many other legs that are not directly relevant for our present purposes, the forex business of Weizmann Ltd. (the demerged company), being a listed company, was demerged into Weizmann Forex Ltd. (the resulting company). As part of this restructuring process, Weizmann Forex’s shares were listed on the stock exchanges. The promoters of Weizmann Forex intend to transfer certain shares of Weizmann Forex among themselves and hence approached SEBI for informal guidance.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Under Reg. 10(1)(a)(ii) of the SEBI Takeover Regulations, there is an exemption from a mandatory open offer for transfer of shares <i>inter se</i> among qualifying persons being “persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or [the takeover] regulations for not less than three years prior to the proposed acquisition.” <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">In the present case, none of the proposed transferors of shares were able to satisfy the requirement of being named as promoters in Weizmann Forex as they acquired shares in that company only under the restructuring process. However, if their shareholding in the demerged company (Weizmann Limited) were taken into account for the purpose of computation of the 3-year period, they would satisfy the requirement. Similarly, the transferees too were unable to satisfy the 3-year period of being named as promoters in Weizmann Forex. While one of the transferees held shares for a 3-year period across the two companies (similar to the transferors), the other transferee did not satisfy the 3-year period across two companies (on a combined basis) either.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The issue for SEBI’s consideration was whether, given these facts, the proposed transfer of shares among promoter was exempt from the mandatory open offer requirements under Reg. 10(1)(a)(ii).<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>SEBI’s Informal Guidance</i></b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">In interpreting the Takeover Regulations, SEBI considered the 3-year holding period of the transferors and transferees by looking at their holdings on a combined basis in Weizmann Ltd. and Weizmann Forex Ltd. even though they may not have satisfied the requirement strictly with reference to Weizmann Forex Ltd., which is the target company. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Moreover, as far as the transferees are concerned, SEBI’s guidance goes one step further. Even though one of the transferees has not satisfied the 3-year holding period requirement, the exemption has been made available to it. SEBI reasons as follows: “The condition of 3 years shareholding by the transferees prior to the proposed acquisition would be deemed to be fulfilled in case all the transferees collectively hold shares for a period of 3 years prior to the proposed acquisition provided the other conditions for availing the exemption are fulfilled.”<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b><i>Analysis</i></b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">In interpreting the Takeover Regulations, SEBI had adopted a purposive approach in making the exemption available to the parties, as opposed to a literal or technical approach that may have denied this facility to the parties. By taking into accounting the shareholding of the parties in the demerged company, necessary consideration has been placed on the demerger transaction, which is essentially a restructuring of businesses and shareholdings as opposed to a complete transfer or sell-out of the business. In other words, it is considered a purely internal group restructuring. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Such an approach is not unusual. For instance, the Income Tax Act, 1961 considers such demerger transactions (provided certain other conditions are satisfied) as a restructuring (rather than a pure sale) and confers certain benefits in terms of exemptions from capital gains tax. More specifically, for the purpose of computing the holding period, the period of shareholding by a shareholder in the demerged company will be considered at the time of sale of shares in the resulting company. The present interpretation of SEBI brings the holding period under the Takeover Regulations on par with such a regime, which is understandable in the context of restructuring transactions and the purpose of the holding period for purpose of exemption under the Takeover Regulations. The only difference is that the Income Tax Act expressly provides for such treatment, while under Takeover Regulations it is only by virtue of the interpretation adopted by SEBI in this case.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: small;">However, in the case of the transferee, to the extent that SEBI finds that all the transferees may collectively satisfy the holding period requirement, it is perhaps providing a fairly liberal reading. This seems to suggest that where there is a group of transferees, it might be sufficient if one or more of the transferees satisfy the holding period requirement, and it is not necessary for each one of them to satisfy it. This might provide greater options to structure transfers that may avail of the </span><i>inter se</i> promoter exemption. At the same time, it may be argued that this is too much of a stretch of the Regulations, and could be subject to potential misuse.</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-70451094948463247052013-01-24T06:57:00.000-08:002013-01-29T11:25:11.959-08:00Developments on the GAAR<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">The Shome Committee recently released its final report, which can be downloaded <a href="http://www.itatonline.org/info/index.php/download-final-report-on-general-anti-avoidance-rules-gaar/">from this link</a>. (We had discussed the recommendations of the earlier report on this blog, <a href="http://indiacorplaw.blogspot.in/2012/07/gaar-guidelines.html">here</a>.) Following this, the <a href="http://www.itatonline.org/info/index.php/press-release-regarding-application-of-and-amendments-to-gaar/">Ministry of Finance</a> has clarified that some of the recommendations of the Committee will be implemented by means of suitable amendments to the provisions as presently enacted. It appears that the Government has decided that the implementation of the GAAR will be delayed, so that the provisions come into force from April 1, 2016. Among the other key decisions taken by the Government are the following:</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">The definition of an impermissible avoidance arrangement will be amended, such that only those arrangements will fall within the scope of the provision which have “the main purpose” (as opposed to “the main purpose or one of the main purposes”) of obtaining a tax benefit.</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">The Constitution of the Approving Panel has been modified, and the Panel shall consist of one retired High Court Judge, one IRS officer not below the rank of Chief Commissioner, and one expert academician or scholar having expertise in direct taxes, accounts or international trade.</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">Directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities (as opposed to the current provision that the directions shall be binding only on the Income-tax authorities).</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">The Approving Panel will be permitted to consider, amongst other factors, “<i>the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement</i>.” These factors may be relevant but will not be sufficient to determine whether the arrangement is an impermissible avoidance arrangement.</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;">Investments made before August 30, 2010 will be grandfathered, and protection is provided to FIIs and non-resident investors in FIIs</div><div class="MsoNormal" style="line-height: 150%; text-align: justify; text-justify: inter-ideograph;"><br /></div><span style="font-size: 12pt;">The implications of the Finance Ministry’s decisions have been discussed in several articles, including those in the <a href="http://www.business-standard.com/india/news/mukesh-butani-fm-blesses-taxpayer-friendly-gaar/499434/">Business Standard</a>, and the <a href="http://www.thehindubusinessline.com/opinion/govt-makes-the-right-move-on-gaar/article4316524.ece">HinduBusiness Line</a>.</span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-17131786162768783752013-01-23T10:07:00.000-08:002013-01-29T11:25:11.965-08:00Legal advice privilege for tax advice given by non-lawyers<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">One of the striking changes in professional advice over the last two or more decades is the gradual erosion of the monopoly which members of the legal profession once had in giving legal advice. This, with the increasing importance of specialisation, has seen businessmen turn to members of other professions who are experts in particular fields that call for legal advice: for example, a chartered accountant advising a company about tax planning. In Indian law, section 126 of the Evidence Act recognises that legal advice given by a “<i>barrister, attorney, pleader or vakil</i>” is protected and it has been generally assumed (more below) that this privilege is not available to the same advice given by other professionals. Section 126, like many other Indian statutory provisions, is based on the common law in England.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In 2004, PricewaterhouseCoopers [“PwC”] developed a tax avoidance scheme in England and disclosed this to the Revenue (as it was required to do under the Finance Act, 2004). It advised one of its clients, Prudential plc, that it would benefit from using this scheme. HMRC ordered Prudential and PwC to disclose certain documents in connection with the scheme and the question was whether this could be resisted on the ground that the documents were protected by legal advice privilege [“LAP”]. On 23 January, 2013, the UK Supreme Court has <a href="http://supremecourt.gov.uk/decided-cases/docs/UKSC_2010_0215_Judgment.pdf">declined an invitation</a> (Lords Sumption and Clarke dissenting) to hold that the rationale for LAP makes it impossible to confine it to members of the legal profession. The lead judgment, given by Lord Neuberger (with whom Lords Hope, Mance and Reed agreed) recognises that there is a powerful case to be made in favour of extending LAP to members of other professions and indeed, that not doing so is difficult to defend in principle, but ultimately holds that this is a matter of policy that requires legislative intervention. The judgments of Lords Neuberger and Sumption repay careful study and this post does no more than summarise their reasoning, before describing the position of law in India. The issue is of considerable importance to companies, since it is not by any means uncommon, especially in areas like tax advice, to turn to eminent experts who are not members of the legal profession.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">It is convenient to begin with the dissenting view. Lord Sumption makes a characteristically powerful case for jettisoning the widely held view that LAP is confined to members of the legal profession. In summary, he gives three reasons: <b>(1)</b> the rationale for LAP is not the <u>status</u> of the adviser, but his function. The classic judgments on the subject (notably that of Lord Brougham LC in <b>Greenough v Gaskell</b>) demonstrate that the privilege is recognised because a person should be able to obtain legal advice with absolute confidence that his disclosures to his adviser remain private. That the privilege has traditionally only protected advice given by a lawyer is a result of history, not concept: legal advice was rarely given by professionals who were not members of the legal profession; <b>(2)</b> the supposed justification for the contrary view—that lawyers are subject to stricter professional obligations and are more closely regulated by the courts—is unpersuasive, because the source of LAP is neither professional rules nor court supervision but <i>candour</i> in communication and <b>(3)</b>LAP has already been extended to salaried lawyers and foreign lawyers, which can be justified only on a functional approach to LAP. The obvious question is: does this mean that legal advice received from any person whatsoever is privileged? The answer is that it does not. Lord Sumption demonstrates that LAP is confined to advice received from a professional “<i>whose profession ordinarily includes the giving of legal advice</i>”: in other words, was the legal advice incidental to something else (for example, planning advice given by a builder) or was the legal advice <i>itself </i>the subject of the professional relationship? Thus, tax advice from a chartered accountant is privileged but legal advice received from a surveyor about planning rules may not be. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The majority of the Court differed less for reasons of principle than for the fundamental change Lord Sumption’s proposal would introduce into the law of privilege. Lord Neuberger held that the change involves a policy decision that is best left to Parliament, particularly because Parliament has already enacted legislation on the assumption that LAP is confined to lawyers. To Lord Sumption, Parliament’s assumptions about the common law are irrelevant unless the legislation is unworkable in the absence of the assumptions: which arguably it was not. Lord Neuberger also pointed out that the proposed qualification “<i>profession which ordinarily includes the giving of legal advice</i>” replaces a hitherto clear (if not entirely logical) rule with considerable uncertainty, because a court would have to establish what constitutes a profession, and whether to ascertain its ordinary activities at the level of the profession or the particular member of the profession. It is possible that these criticisms are somewhat overstated, especially if one accepts Lord Sumption’s answer that the difference lies in the <i>purpose </i>for which legal advice is given.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The position in India is not different. The courts have generally held that section 126 of the Evidence Act, 1872 and the provisions that follow are limited to members of the legal profession. In <b>Vijay Metal Works </b>AIR 1982 Bom 6, the Bombay High Court held that salaried employees are also covered, although they cannot be described as solicitors, barristers, vakils etc. In <b>UK Mahapatra </b>(2008) 2 OLR 970, the Orissa High Court held that client documents deposited with a chartered accountant are not privileged for the slightly odd reason that there is no “communication” by the adviser. However, the Law Commission recognised the problem in the 69<sup>th</sup> Report and recommended the insertion of a clause extending the provision to “legal practitioners” which could potentially include other advisers. Unfortunately, the Law Commission proposed to define this expression as those who are entitled to appear before the courts (thus, with respect, confusing the “candour” rationale for legal advice privilege with the forensic process of litigation) and the proposal was in any event never implemented. Even if the Indian courts are inclined to accept Lord Sumption’s analysis of the rationale for LAP, it is likely that any change would require legislation, especially since the Indian rule, unlike the English rule, is codified.</span></div></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-13308014521606667002013-01-23T02:38:00.000-08:002013-01-29T11:25:11.971-08:00SEBI Investment Advisers Regulations – an overkill?<div dir="ltr" style="text-align: left;" trbidi="on"><div style="text-align: left;"><!--[if gte mso 9]><xml> <o:DocumentProperties> <o:Revision>0</o:Revision> <o:TotalTime>0</o:TotalTime> <o:Pages>1</o:Pages> <o:Words>938</o:Words> <o:Characters>5352</o:Characters> <o:Company>Jayant M. 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mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Book Antiqua";} </style><![endif]--> <!--StartFragment--> </div><div class="MsoNormal" style="text-align: justify;"><span style="font-family: Arial, Helvetica, sans-serif;">In continuation with earlier <a href="http://indiacorplaw.blogspot.in/2013/01/sebi-has-released-today-sebi-investment.html">post</a> on the recently notified <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358779330956.pdf">SEBI(Investment Advisers) Regulations, 2013 </a>(“the Regulations”), the following further points are worth noting.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">1) <!--[endif]-->The Regulations apply to all Investment Advisers giving investment advice. They are required to register themselves with SEBI.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">2) <!--[endif]-->The term investment advice has been defined to cover advice relating to securities and investment products. This covers a very wide range of products. Investment products may also cover even real estate, gold, etc., i.e., non-financial products. It appears from the Scheme of the Regulations though that the intention may not be to cover such non-financial products. However, every form of securities/investment products, including even bank deposits, national savings certificates, company deposits, etc. would be covered, apart from shares, derivatives, insurance products, mutual fund units, etc.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">3) <!--[endif]-->The investment advice needs to be rendered for consideration in cash or in kind. It is not clear whether the intention is to cover only those Investment Advisers who accept consideration from their clients. From the wording of the Regulations, it appears that the consideration may flow from any person. If this is not the intention, then it will need clarification since otherwise many persons would inadvertently get covered by the definition of Investment Advisers.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">4) <!--[endif]-->A person rendering such investment advice for consideration (in cash or in kind) is an Investment Adviser. However, there are several exclusions.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">a) <!--[endif]-->Insurance brokers/agents registered with IRDA are excluded, provided they offer advice <i>solely</i>in investment products. Same for pension advisers. It is common to see advisers offering advise on a range of products and insurance, pension, etc. are part of such products. <o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">b) <!--[endif]-->Distributors of mutual funds, stock brokers, sub-brokers, etc. are excluded provided that they give investment advice incidental to their respective primary activity. <o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">c) <!--[endif]-->Similarly, professionals like CAs, CSs, ICWAs and lawyers are excluded if they given investment advice incidental to their respective professional service/practice. However, considering the wide definition of investment advice, professionals who specialise in financial advice generally may have to consider whether they are covered.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">5) <!--[endif]-->Since the exclusions are specific, any other person who acts as investment adviser, whether full time or part time and whether gives advice generally even incidental to the financial products that he is distributing would be covered. Concern thus arises for persons who act as agents for small savings, company deposits, etc.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">6) <!--[endif]-->Considering the fairly broad definition of Investment Advisers and the limited exclusions, it would appear that perhaps lakhs of persons operating in the financial markets as agents and the like may also get covered. However, it appears, from the history of these Regulations that the intention does not seem to cover persons already regulated by other authorities such as IRDA, etc. In particular, the intention may be to cover only those Investment Advisers whose primary or sole business to render investment advice for consideration. This, however, has not been brought out and a clarification is needed.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">7) <!--[endif]-->Small investment advisers may face the elaborate requirements of registration and compliance of various requirements particularly cumbersome and costly. The Investment Advisers are required to obtain annual a certificate of compliance of Regulations. There are numerous other requirements/procedures some of which are similar to codes of conducts and some involve heavy documentation.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">a) <!--[endif]-->The requirements of disclosure and documentation are so elaborate so as to be unrealistic, even if well intended. KYC documents of each client have to be obtained and kept. Risk profiling and risk assessment of every client has to be maintained in writing. The investment advice provided and rationale for it has to be documented. And so on. These requirements are quite unrealistic and even extraordinary. Even professionals like CAs, lawyers, etc. give various types of professional advice for consideration but they are not required to maintain such records in writing. It may be different if there are a few large clients for whom certain infrequent large transactions are advised on. For small and medium sized clients, this may be meaningless and they may end up implementing in a cursory/summary way.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">8) <!--[endif]-->If, as expected, a very large number of Investment Advisers are covered and have to apply for registration, it will be a mammoth job for SEBI to register them, to keep track of them and to ensure that they comply with the elaborate requirements. And, as it is quite likely, there will be numerous non-compliances, small and big, and SEBI will have to spend time and energy in taking action. The question will whether such effort will be worth it and effective.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 36pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">a) <!--[endif]-->There is a strong case for exempting Investment Advisers earning income below a certain limit. Else, assuming that the definitions are broadly applied, thousands of Investment Advisers may simply have to close down shop.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">9) <!--[endif]-->There are valid complaints against many Investment Advisers. That they give biased advice to favor products where they get larger commission/fees directly or indirectly, that they take positions conflicting to their advice, that they act negligently without carefully considering what the client needs/risks. And so on. Thus, some sort of regulation was quite overdue. However, it appears that placing such elaborate but often vague requirements/formalities creates disproportionate costs and efforts on one hand but not being able to control such mal practices on the other hand.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">10) <!--[endif]-->The requirements of basic qualification and specialized training/qualification are fair and it is obviously a must that only qualified, knowledgeable and trained people enter this field. Though not wholly clear, it appears that apart from the basic qualification, an additional certificate in the finance field is also required. A two year period is given for those who do not have such certification.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><div class="MsoNormal" style="margin-left: 18pt; text-align: justify; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;">11) <!--[endif]-->Body corporates and firms who act as Investment Advisers need to appoint a compliance officer who would be responsible for compliance of the Act, these Regulations, etc. <o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify;"><br /></div><span style="line-height: 115%;"><span style="font-family: Arial, Helvetica, sans-serif;">It seems that SEBI will need to interact much more with Investment Advisers in the field and make a realistic assessment of the field, before bringing these Regulations into effect. </span></span><br /><!--EndFragment--></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-57708721567526460852013-01-21T10:08:00.000-08:002013-01-29T11:25:11.978-08:00Widely framed Investment Advisers Regulations releasedSEBI has released today the <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358779330956.pdf">SEBI (Investment Advisers) Regulations, 2013</a>, to come into effect from the ninetieth day of their publication. While a more detailed post will follow, here are some first impressions.<br /><br /><div style="text-align: justify;">SEBI has cast a very wide net, almost amounting to an overkill. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Every Investment Adviser, as defined, will be required to register with SEBI to carry on business of providing investment advice. What constitutes investment advice has been widely defined to mean, "advice relating to investing in, purchasing, selling or otherwise dealing in securities or investment products, and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client and shall include financial planning". </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">There are several exceptions to the term Investment Advisers. Insurance Agents/brokers who offer investment advice solely in insurance products and registered with IRDA are not covered. Similar exemption for Pension Advisers is granted. Mutual Fund distributors are also given exemption subject to certain conditions. Professionals CAs, CSs, ICWAs and Advocates providing investment advice incidental to their professional services are also not covered. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Still, even considering these exemptions, the number of investment advisers is likely to be huge. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Each of such advisers will have to apply and obtain registration. Existing Investment Advisers have 6 months from the Regulation coming into effect to apply and if they do not, they will have to discontinue their activity. New Investment Advisers will have to apply for and obtain registration as a pre-condition of carrying on such activity.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">There is no minimum threshold limit of advisory fees or similar for applying for registration. Every such Investment Adviser will have to apply. SEBI thus has taken upon itself this massive job of scrutinising every such application and granting (or rejecting) registration. And this is only the starting. After granting registration, it will have to monitor each of such Advisers as to whether they follow the Regulations/Code of Conduct (again very widely framed) or not. There will expectedly be a large number of allegations of non-compliances - some arising out of SEBI's own inspections, investigation and information and many arising out of investor complaints. SEBI will have to process each of these and take action. This would perhaps have scared any regulator already burdened otherwise. </div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">Each such Investment Adviser will need to have prescribed qualifications/training and also the minimum net worth.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">One-time application fees and recurring registration fees will also have to be paid.</div><div style="text-align: justify;"><br /></div><div style="text-align: justify;">A follow up article will discuss some more aspects of these Regulations. </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-37524022006845024392013-01-21T02:32:00.000-08:002013-01-29T11:25:11.983-08:00SEBI’s Recent Securities Markets Announcements<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Last week, SEBI took certain <a href="http://www.sebi.gov.in/sebiweb/home/detail/25197/yes/PR-SEBI-Board-Meeting">decisions</a>in the form of minor reforms to the securities markets, both primary and secondary.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">As part of a process that began nearly 3 years ago, SEBI has further liberalized the process for dilution of promoter shareholding in listed companies, since a deadline of June 2013 has been set to ensure minimum level of public shareholding in listed companies. This time, some measures have been adopted to make the “offer for sale through stock exchange mechanism” more efficient. While such measures may make such options more attractive, it is not clear if SEBI’s objective can be achieved within the timeframe given that several companies are yet to comply with the minimum public shareholding norms. It looks likely that SEBI’s enforcement mechanism and its determination in ensuring compliance will be put to rigorous test in a few months.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Some changes have also been suggested to SEBI’s Takeover Regulations that were promulgated in 2011. Several of them are clarificatory in nature or intended to address discrepancies or the lack of clarity that was experienced ever since the new regulations came into effect. However, one of the long standing critiques of the Takeover Regulations pertaining to their lack of appropriate fit with the delisting process has not been addressed in this round despite assurances from SEBI to relook at this issue.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: small;">Another </span><a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1358405632526.pdf">announcement</a><span style="font-size: small;">that came last week relates to the implementation of the curbs imposed on acquisition of shares by employee trusts in the secondary markets. SEBI’s decision and rationale were analyzed previously (</span><a href="http://indiacorplaw.blogspot.sg/2012/08/prohibition-on-acquisition-of-shares-by.html">here</a>). Therefore, now any form of employee stock option or share purchase scheme must necessarily involve the issue of new shares from the company.</span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-7363898332190552032013-01-17T02:55:00.000-08:002013-01-29T11:25:11.987-08:00Service of Notice on Parties to an Indian Arbitration<div dir="ltr" style="text-align: left;" trbidi="on"><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In <i><a href="http://www.indiankanoon.org/doc/168625492/">Benarsi Krishna v Karmayogi Shelters</a></i>, the Supreme Court has decided that the word “party” in section 34 of the Arbitration and Conciliation Act, 1996, does not include a party’s agent. This, it is respectfully submitted, is incorrect or, at best, too widely stated. The important practical consequence of this proposition is that the period of limitation does not begin to run from the date of service on counsel. Since it is well-known that a Court has no power to condone a delay beyond the limit imposed by section 34 and its proviso, the exact date on which the period of limitation begins to run is of immense significance in arbitration law.<o:p></o:p></span><br /><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">First, the facts: the claimant in the arbitration instituted proceedings for the breach of a collaboration agreement and obtained a successful award from a single arbitrator. This award was served on <u>counsel</u> for the respondent on 13 May, 2004. An application was filed to set aside this award on 3 February, 2005—plainly time-barred, if the date of receipt of the award was the 13<sup>th</sup> of May. Accordingly, a single judge of the Delhi High Court dismissed the petition. The Division Bench set aside this order, relying on the judgment of the Supreme Court in <i><a href="http://indiankanoon.org/doc/790630/">Union of India v Tecco Trichy Engineers</a></i>, on the basis that service of the award had not been properly effected. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In considering this problem, it is important to carefully distinguish between two arguments: first, that the word “party” in section 34 excludes agents; and second, <i>counsel </i>has neither actual nor apparent authority to accept service. The first is a point of statutory construction, but the second calls for the application of well-known (if contentious) principles of the law of agency. The Supreme Court has, with respect unfortunately, accepted the first submission. In other words, it has held that the word “party” is defined as one who is party to an arbitration agreement and, <u>as a matter of construction</u>, does not include counsel. The following observations of the Court should be studied closely:<o:p></o:p></span></div><div class="MsoNormal" style="margin: 0cm 26.05pt 10pt 1cm; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">The expression "party" has been amply dealt with in Tecco Trechy Engineer's case (supra) and also in ARK Builders Pvt. Ltd.'s case (supra), referred to hereinabove. It is one thing for an Advocate to act and plead on behalf of a party in a proceeding and it <u>is another for an Advocate to act as the party himself</u>. The expression "party", as defined in Section 2(h) of the 1996 Act, clearly indicates a person who is a party to an arbitration agreement. <u>The said definition is not qualified in any way so as to include the agent of the party to such agreement</u>. Any reference, therefore, made in Section 31(5) and Section 34(2) of the 1996 Act can only mean the party himself and not his or her agent, or Advocate empowered to act on the basis of a Vakalatnama.<o:p></o:p></span></div><div align="right" class="MsoNormal" style="margin: 0cm 26.05pt 10pt 1cm; text-align: right;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">[emphasis mine]<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">With respect, it is submitted that this conclusion contains two errors. The first is the contrast between an Advocate acting “for” the party and an Advocate acting “as” the party. This is a distinction without a difference unless one concludes that the word “party” in section 34 contemplates personal service—which was the issue before the Court. In other words, the first reason cannot be a reason for the conclusion that the word “party” excludes agents: it begs the question. The second reason given is that the word “party” is not qualified by Parliament to exclude agents. This, with respect, is a questionable proposition of law: the general rule of law is that a principal is bound by the acts of an agent and, with in relation to notice requirements, has been codified in the Companies Act and the Code of Civil Procedure. It is difficult to imagine that the Court intended every use of the word “party” in the Arbitration Act to refer to the party excluding its agents and yet the language in which its conclusion is expressed makes it difficult to resist this inference. Nor is this a surprising rule: when banks, for example, pay our electricity bill in accordance with a standing instruction, our debt to the Electricity Department is discharged because the law of agency treats the bank as our agent in relation to third parties, although it is our debtor with respect to the money it holds. For the same reason, a payment to our bank discharges a debt owed by any third party to us: the bank is our collecting agent. If a statute used the word “party” or “person” and defined certain legal consequences, it is therefore difficult to suppose that the word was intended to exclude agents. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In addition, one is bound to ask: what of legal entities? It is well-established law that a company acts through the deeds of human beings some of which are treated, by primary or secondary or other rules of attribution, as the acts of the company. In an outstanding judgment in <i><a href="http://www.bailii.org/uk/cases/UKPC/1995/5.html">Meridian Global</a></i>,<i> </i>Lord Hoffmann explained that it is therefore misleading to talk of the company in anthropomorphic terms: the correct analysis is that the acts of certain persons are treated as the acts of the company by virtue of rules of law. These rules of law include rules of attribution and rules of agency. It is, in other words, impossible for a company to act (in the eyes of law) except through the acts of human beings whose acts are, by virtue of applicable rules of law, treated as its acts. It is difficult to reconcile this with the Supreme Court’s conclusion that service on the “party” excludes service on its agents. No doubt it will be suggested that there is a difference between “external agents” (like lawyers) and the <i>company’s own agents </i>(like the legal manager or CEO). That suggestion would be incorrect, because there is no difference at all in the eye of the law between external agents and internal agents: both are agents, albeit constituted differently and with different levels of authority. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The question, ultimately, is <i>not </i>whether the word “party” can include agents, for it plainly does, but whether the agent had <i>authority </i>to accept service. The authority of solicitors and counsel has always proved troublesome, generally in the context of settlement: in <b>Waugh v HB Clifford and Sons </b>[1982] 1 Ch 374, the defendant builder, who had instructed solicitors to settle a dispute with his customers by purchasing their houses, withdrew those instructions and told them not to settle. Unfortunately, this information did not reach the solicitor handling the case until after he had (subject to the question of authority) concluded a binding contract of settlement. Brightman LJ held that a solicitor have apparent authority to settle a dispute provided the terms of the settlement do not involve anything “collateral” to the dispute for which he was instructed. This, with one exception, echoes the analysis of a leading Indian decision: <b>Surendra Nath v Tarubala Basi </b>AIR 1930 PC 158, where the Privy Council held that a counsel has implied and apparent authority (arising from knowledge of implied authority) to compromise suits, but expressly declined to rule on whether this is the case where the agency is created by a written instrument, such as a vakalatnama. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The important question in this case—which was unfortunately not decided—was the scope of a counsel’s authority to accept service of an award. The question falls to be decided by asking the two usual questions: was there actual express/implied authority? If so, the matter ends there. If not, was there apparent authority? This would ordinarily arise from the existence of implied authority but would exist even if the implied authority did not exist in the particular case (for example, because of a prohibition not communicated to a third party). The added complication is the question of whether the claimant in the arbitration is entitled to ostensible authority with respect to an award sent to the defendant’s counsel by the arbitral tribunal, and whether authority, if any, exists after the arbitration is concluded. The Court records that one of these contentions was raised, but did not, in the result, have to rule on any because of the view it took on the meaning of the language of section 34(4).<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The final point that should be made is about the reliance on <i>Tecco Trichy</i>: that was a case in which Lahoti CJ held that service on an unknown clerk in a large Government office does not constitute effective service. This conclusion can be ascribed to the traditional authority-based reasoning: such an employee is unlikely to have actual or ostensible authority to accept service. It should not be treated as authority for the general proposition that service excludes all agents, whatever their authority.</span></div></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-11728154247646760012013-01-07T22:49:00.000-08:002013-01-29T11:25:11.994-08:00Dismissal of Suit Against Satyam Directors<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Last week, there was coverage in the financial press about the dismissal of a securities law suit by a New York court against the independent directors of Satyam. Now, a copy of the order dated January 2, 2013 issued by Judge Barbara Jones of the Southern District of New York is available through <a href="http://www.dandodiary.com/2013/01/articles/securities-litigation/former-satyam-directors-win-dismissal-of-securities-claims/">D&O Diary</a>, which also carries a detailed analysis of the opinion.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The shareholder suits failed on two counts, one procedural and the other substantive. On the procedural count, it was found that on an analysis of the principle laid down by the US Supreme Court in <i>Morrison</i>, the plaintiff shareholders’ claim is to fail because they either bought shares on an Indian stock exchange or exercised employee stock options which was said to have taken place in India. In other words, the New York court was unable to exercise jurisdiction. On the substantive count, it was found that the shareholders’ claim against the independent directors of Satyam was not sustainable because the claims concern an “intricate and well-concealed fraud perpetrated by a very small group of insiders and only reinforce the inference that the [independent directors] were themselves victims of the fraud.”<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">Although the evidence of successful personal actions against independent directors even in the US is limited, this court ruling would provide some source of comfort to independent directors who are usually concerned about personal liability for actions that are beyond their control. </span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-13411704061453655922013-01-06T21:11:00.000-08:002013-01-29T11:25:11.998-08:00SEBI’s Proposal to Overhaul 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mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">SEBI has issued a <a href="http://www.sebi.gov.in/sebiweb/home/detail/25107/yes/PR-SEBI-issues-a-Consultative-Paper-on-review-of-Corporate-Governance-norms-in-India">consultative paper</a> that reviews corporate governance norms in India with a view to overhauling them considering developments in the Indian corporate sector over the last few years. The paper is quite detailed and is expected to generate a great amount of discussion, which would be considered by is SEBI before implementing any revised norms. Suggestions are due on the consultative paper by January 31, 2013. The purpose of this post is not to consider the detailed recommendations in-depth, but to simply provide some broad observations that would set out the context for a more detailed analysis.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Clause 49 of the listing agreement has been the mainstay of corporate governance in India for more than a decade. Although such norms are expected to be dynamic in nature and consistent with the ever-changing corporate scenario, clause 49 was previously subject to detailed review way back in 2004, even though the revised norms came into effect only in January 2006. Since then, despite significant developments such as the Satyam corporate governance scandal, there was no review of clause 49, and no concentrated efforts were undertaken by SEBI. However, most of the changes or proposals came from the Central Government. Notable among them are the Ministry of Corporate Affairs’ voluntary guidelines of 2009, and substantial insertions on corporate governance issues in the <a href="http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdf">Companies Bill, 2011</a>, which has been approved by the Lok Sabha and is awaiting consideration by the Rajya Sabha. There has been a fear that such a multiplicity in the regulatory process would cause considerable inconsistency between the various regulations regarding corporate governance that have been issued by different regulators.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Given this background, SEBI’s proposals seek to achieve two broad objectives: (i) to bring the provisions of clause 49 on par with the proposals made in the Companies Bill, 2011; and (ii) to make additional recommendations that impose a more stringent regime for listed companies.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">On the first count, the consultative paper sets out a detailed comparative analysis of clause 49 and the Companies Bill, 2011, and makes proposals for ensuring parity in the two regimes. It also contains a detailed comparative table, which provides a useful tool to understand the various corporate governance norms in India. Of course, on certain matters the proposed changes go beyond the Companies Bill in the case of listed companies, which is understandable given the large shareholder population in such companies. The proposals, however, proceed on the assumption that the Companies Bill will become operational soon. In case there is any delay on the passage of the Bill, it is necessary to ensure that SEBI’s proposals will be given effect to nevertheless.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">On the second count, the consultative paper makes some additional recommendations, which are welcome. As some of us have argued in the past, the current governance norms in India have been borrowed from Western jurisdictions where the corporate structure consists of diffused shareholders with no concentration of shareholding. However, the corporate structure that is predominant in India consists of controlling shareholders. Given the mismatch of corporate structures, it was argued that the current governance norms do little to protect the interests of the minority shareholders. This critique has been given the required attention in the current round of reforms, with proposals specifically being made to address the corporate structure that is replete in Indian companies. Examples of these proposals include minority shareholder participation in the election of independent directors, detailed treatment of related party transactions, and the like. The proposals on this account are fairly radical, and it remains to be seen how much of it will actually be accepted given that there is likely to be tremendous resistance to greater power to minority shareholders to the diminution of power of the controlling shareholders. The novelty of these proposals lies in the fact that this issue has now emerged to the forefront for discussion and deliberation.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">There is certainly a lot in the consultative paper, and if accepted, many of these proposals could result in significant change in the manner in which companies are governed. At the same time, it is important to note that such norms would become effective only if they are properly implemented and enforced by the regulatory authorities. </span><!--EndFragment--></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-90213389421354935212013-01-03T18:37:00.000-08:002013-01-29T11:25:12.005-08:00CSR in Public Sector Enterprises<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The provisions relating to corporate social responsibility (CSR) in the Companies Bill, 2011 have garnered sufficient attention on the topic. Those provisions are largely in the nature of CSR spending. While the Bill is pending in Parliament, the <a href="http://dpe.nic.in/">Department of Public Enterprises</a>has proceeded to issue a <a href="http://dpe.nic.in/sites/upload_files/dpe/files/Revised_CSR_Guidelines2_31122012.pdf">revised set</a> of “Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises” that would become effective from April 1, 2013.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Unlike the Companies Bill and also the previous version of the guidelines applicable to central public sector enterprises (CPSEs) which focused largely on external stakeholders and CSR spending, the new version of the guidelines emphasizes CSR as a way of life and as an integral part of the operations and business of the company. While the current debate in India equates CSR with corporate philanthropy, the new guidelines for CPSEs does more than that and requires companies to follow ethical systems and sustainable management practices.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The guidelines contain detailed provisions on the manner in which CPSEs can carry out their CSR practices, which also mandate every CPSE to carry out a minimum number of external projects “for development of a backward district” that “has the potential of contributing significantly in the long run to socio-economic growth in all the backward regions of the country”.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">It is not clear whether there is adequate data to determine the success of implementation of these efforts by CPSEs in the past, but by imposing higher standards of social responsibility and sustainability on public enterprises, the Government is sending a strong signal to the private sector regarding the importance of CSR in India.</span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-22622138161311914212013-01-02T12:27:00.000-08:002013-01-29T11:25:12.057-08:00Proposed modifications to buyback provisions<div dir="ltr" style="text-align: left;" trbidi="on">SEBI has just placed a <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357124740967.pdf" target="_blank">discussion paper </a>on its website entitled “Proposed modifications to the existing framework for buy back through open market purchase” for public comments. Comments on the discussion paper have been solicited on or before January 31, 2013.<br /><br />Upon a review of the current regulations and studying the market dynamics, the key recommendations of the discussion paper are set out below: <br /><ol style="text-align: left;"><li>The merchant bankers should be advised to ensure that a minimum of 50% of the maximum buy-back proposed/disclosed to be bought back.</li><li>It is proposed that companies complete the buy back in 3 months. To ensure that only serious companies launch the buyback program, it is further proposed that these companies be mandated to put 25% of the maximum amount proposed for buyback in an escrow account. </li><li>It is proposed that listed companies coming out with buyback programs may not be allowed to raise further capital for a period of two years.</li><li>In order to ensure that the companies do not launch buyback programs for stabilizing the share price, it is proposed that companies who are not able to buy back 100% of the proposed amount (or the proposed maximum number of shares) may not be allowed to come with another buyback for a period of at least one year irrespective of the mode of approval for buy back.</li><li>It is also proposed that buy-back of 15% or more of (paid up capital + free reserves) must be only by way of a tender offer method.</li><li>It is proposed that the issuance of shares pursuant to obligations arising out of Employee Stock Option schemes may be allowed during the buy-back period subject to the following: (a) the shares are not allotted to directors and key managerial personnel of the company; (b) there is no acceleration in the vesting period.</li><li>It is proposed that the companies shall extinguish/ destroy shares bought back during the month, on or before fifteenth day of the succeeding month subject to the companies destroying the bought back shares in the last month within seven days of the completion of the offer.</li><li>The current regulations prohibit the promoters of the company in dealing in the securities of the company during the period when buy back is open. It is proposed to extend this restriction to dealing in the securities of the company off–market as well.</li></ol></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-25729134815012522832013-01-02T01:35:00.000-08:002013-01-29T11:25:12.109-08:00Mandatory Offers and Creeping Acquisitions<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>JA</w:LidThemeAsian> 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QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Securities and Exchange Board of India (SEBI) passed an <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357036277865.pdf">order</a>under the SEBI Takeover Regulations of 1997 (that existed prior to October 2011) in relation to the shares of Khaitan Electricals Limited (the Target Company). In this order, the SEBI whole time member directed the promoters of the company to make an open offer to the other shareholders on account of certain acquisitions of shares by them in 2006-2007. Along with the open offer consideration, the promoters have been directed to pay interest at the rate of 10% per annum from June 16, 2007 to the date of payment of the consideration.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The key facts of the case are summarized in the gist of the show cause notices issued by SEBI to the relevant promoters of the Target Company:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">... consequent to the acquisition of shares [by the promoters] on March 12, 2007, there was increase in their pre-acquisition shareholding (as on March 11, 2007) of - <o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: 1.0in;"><span style="font-family: Arial, Helvetica, sans-serif;">(a) [Khaitan Lefin Limited (KLL), one of the promoters], individually, from 10,73,415 shares (10.52%) to 19,73,415 shares (17.16%) in the Target Company and KLL failed to make a public announcement to acquire shares in accordance with provisions of regulation 10 read with regulation 14(1) of the Takeover Regulations, 1997 within 4 working days from March 12, 2007; <o:p></o:p></span></div><div class="MsoNormal" style="margin-left: 1.0in;"><br /></div><div class="MsoNormal" style="margin-left: 1.0in;"><span style="font-family: Arial, Helvetica, sans-serif;">(b) The promoter group, collectively, from 26,34,639 shares (25.83%) to 39,34,639 shares (34.21%) and the acquirers collectively failed to make a public announcement in accordance with the provisions of regulation 11(1) read with regulation 14(1) of the Takeover Regulations, 1997 within 4 working days from March 12, 2007. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Given these facts, two primary legal issues arose for consideration. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><i>First</i>, whether an acquisition by a single promoter of more than 15% shares will trigger an open offer requirement under Reg. 10 although the promoter group as a whole already held more than 15%. In other words, whether can be independent obligations under Reg. 10 (for individually crossing the 15% threshold) and under Reg. 11(1) (for collectively activating the creeping acquisition trigger of 5% additional shares) in respect of the same set of acquisitions.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><i>Second</i>, in the case of a creeping acquisition, what is the precise timing to be considered for the acquisition of 5% additional shares? Specifically, whether a dilution of shares during the period ought to be taken into account or netted off while considering the 5% limit.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The SEBI order holds against the promoters on both the issues, thereby mandating them to make an open offer. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">On the first issue, the SEBI order reasons as follows:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">11. Thus, the obligation to make public announcement under regulation 10 gets triggered when the acquisition of the acquirer, individually or collectively alongwith persons acting in concert with him, would cross the threshold limit of 15%. Thus, if individual acquisition of any person in a group (acting in concert) breaches the threshold limit of 15%, such acquirer is under obligation to make public announcement under regulation 10. In my view, there is no ambiguity in the language of regulation 10 with regard to the obligation of an acquirer whose acquisition increases his individual shareholding beyond threshold limit of 15% and no other interpretation can be given to it. …<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">…<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">14. … The intent and object behind the obligation with regard to public announcement under regulation 10, 11 and 12 is common. Regulation 10 does not exempt an acquirer from this obligation when he individually breaches the threshold of regulation 10 but his shareholding collectively with persons acting in concert with him is beyond the threshold prior to his individual acquisition as sought to be contended by the noticees. In my view, therefore, no interpretation can be taken in violation of the language of the regulations or to defeat the intent and object thereof.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">On the second issue, the promoters argued that the amount of increase in the shareholding due to creeping acquisition must be computed as of the last date of the financial year, i.e. March 31, and that intermediate divestments and dilution must be netted off. This argument was not accepted by SEBI, which adopted the following reasoning:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">21. … If the argument of the noticees is accepted, an acquirer may acquire any percentage of shares in a financial year and by the end of that financial year he may reduce it to 5% by sale of holding or otherwise. This is not the intention of the regulation which, since inception, had put a limit on percentage of creeping acquisition and did not allow netting of acquisition and disinvestment for determining the percentage of increase. …<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">22. I, therefore, am of the view that for the purpose of availing creeping benefit under regulation 11(1), the gross acquisition of the acquirer should not be more 5% in a financial year that starts on April 1st and ends on March 31st. Further, if at any point of time, in that financial year, the acquisition breaches the threshold of 5% creeping acquisition, the obligation to make public announcement is triggered at that time itself. Regulation 11(1) does not allow an acquirer to wait till end of the financial year after such breach. <o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">…<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">24. In my view, from the definition of the word 'acquirer' under regulation 2(1)(b) and the provisions of regulation 11 of the Takeover Regulations, 1997 it is clear that the obligation to make public announcement is triggered on the date of agreement to acquire or acquisition of shares or voting rights, as the case may be. Thus, the shareholding shall be calculated and reckoned taking into account the shareholding of the acquirer immediately prior to the acquisition. I, therefore, hold that the shareholding of the acquirers as on the date of the acquisition of additional shares should be taken into account to determine whether the acquisition entitles the acquirer to exercise more than 5% voting rights in the Target Company in a financial year ending on March 31st. Further, the 5% increase in the financial year has to be calculated on gross basis without netting the dilution and/or divestment and acquisition. Accordingly, the arguments of the noticees in this regard also cannot hold good.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">SEBI’s order is consistent with the text and intent of the 1997 Regulations. Although the facts of the present case gave rise to some issues that required a detailed consideration, the order merely buttresses the position adopted by the Regulations. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">The legal difficulties emanating from the above discussion have been partially addressed in the 2011 version of the Takeover Regulations. The first issue regarding the mutual exclusivity of the initial trigger by individual acquirers (now standing at 25%) and the creeping acquisition trigger by the promoters collectively would continue to operate even under the 2011 Regulations, and to that extent SEBI’s order in the present case would continue to be relevant. As far as the second issue on computation of creeping acquisition limits is concerned, the position has been expressly clarified in the 2011 Regulations in Reg. 3(2) Explanation whereby the limit would be computed on a gross basis (without netting off dilutions). In that sense, SEBI’s order seems to suggest that the introduction of this explanation does not change the legal position, but rather clarifies something that was even previously the intention of the Takeover Regulations.</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-19233841485669458082012-12-31T02:59:00.000-08:002013-01-29T11:25:12.163-08:00Blog Anniversary; Season’s Greetings<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> 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Name="Bibliography"/> <w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin:0cm; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="color: #343434;"><span style="font-family: Arial, Helvetica, sans-serif;">The end of the year marks the fifth anniversary of this Blog. Its first post appeared on December 26, 2007. I would like to take this opportunity to thank all the contributors and guests for their thoughtful posts on various areas of corporate and business laws and for fostering a healthy debate and discussion in a manner that is widely disseminated and easily accessible to the interested reader. I would like to express our gratitude to our readers for their wonderful support on an ongoing basis and for their comments and feedback.<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="color: #343434;"><span style="font-family: Arial, Helvetica, sans-serif;">Wishing all of you a New Year filled with success, happiness and prosperity.</span></span><span style="font-family: "Times New Roman";"><o:p></o:p></span></div><div class="MsoNormal"><span style="color: #343434;"><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></span></div><!--EndFragment--><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7JMLHE-7NiuzhYWn-vCmG4kRQsyJwfSRMc9pazphlOi5OBgt311K2z3h192S9A7ASXcgOovxc22xunEPdozHZQwJghVrR4diPU0fnyFh49yMJXxZEX10cmeDZRWyf4m8AkuwWvzQl1lY/s1600/Anything.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg7JMLHE-7NiuzhYWn-vCmG4kRQsyJwfSRMc9pazphlOi5OBgt311K2z3h192S9A7ASXcgOovxc22xunEPdozHZQwJghVrR4diPU0fnyFh49yMJXxZEX10cmeDZRWyf4m8AkuwWvzQl1lY/s320/Anything.png" width="320" /></a></div></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-44359133221447804982012-12-30T19:59:00.000-08:002013-01-29T11:25:12.216-08:00Royalty Payments and Corporate Governance<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> 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UnhideWhenUsed="false" QFormat="true" Name="Book Title"/> <w:LsdException Locked="false" Priority="37" Name="Bibliography"/> <w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">In the past, the corporate governance discourse pertaining to Indian companies has revolved substantially around family owned businesses and government-owned (public sector) companies. Another type of companies that is quite prevalent in the corporate scenario, but usually does not receive specific attention, is Indian listed subsidiaries of multinational companies (MNCs). A significant governance issue in respect of such MNC subsidiaries has now been highlighted due to the unintended consequences of a change in regulation pertaining to foreign investment and foreign exchange.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Earlier, the Government had imposed restrictions (including limits) on the amount of royalties and trademark fees that Indian companies could pay under foreign collaboration agreements. However, in December 2009, these <a href="http://indiacorplaw.blogspot.sg/2009/12/foreign-collaboration-and-royalty.html">restrictions were removed</a>, and Indian companies were free to make these payments to foreign collaborators without any restrictions or limits. The purpose of this change was to ease such payments from a foreign exchange perspective. The matters that transpired since have sparked off major concerns from the point of view of corporate governance and minority shareholder protection in Indian listed companies that are subsidiaries of MNCs.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Institutional Investor Advisory Services (IIAS), a proxy advisory firm, has issued a <a href="http://www.iias.in/downloads/Royaltypaymentsandminorityshareholders.pdf">recent report</a> that indicates a spurt in royalty payments by Indian listed MNCs to their parent companies. This has also attracted follow-up discussion and commentary (see <a href="http://www.business-standard.com/india/news/showing-loyaltyroyalty/496293/">Business Standard</a> and <a href="http://spicyipindia.blogspot.sg/2012/12/royalty-payment-by-subsidiaries-bane-of.html">Spicy IP</a>). What emerges is that since the liberalization in December 2009, royalty payments have increased substantially despite the lack of commensurate increase in revenues and the faster increase in revenue and margins of local competitors. The net result of these efforts is that what would have otherwise been paid out as dividend pro rata to all shareholders is now being paid out as royalty only to the parent company (controlling shareholder). This operates to the detriment of minority shareholders in such listed companies. The discussion also indicates a lack of transparency in the manner in which such payments are made, which also does not require any specific shareholder approval under current law.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Such royalty payments are a classic case of related party transactions (RPTs) between the company and a controlling shareholder. As we have <a href="http://indiacorplaw.blogspot.sg/2012/04/oecd-report-on-related-party.html">previously lamented</a>, the regulation of RPTs in India is far from the desirable. Current corporate governance norms only require appropriate disclosure in the financial statements, a responsibility imposed on the auditors and the audit committee. One way of approaching the issue is to consider disclosure as fulfilling an important function because investors can then decide their further course of action depending on the nature of disclosures. However, there are problems with disclosure as the sole option. First, disclosures can sometimes lack meaning if they are not appropriately and accurately made. Second, disclosures tend to acquire an element of standardization over a period of time thereby leaving investors with little information to distinguish among companies that make the royalty payments.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Due to the failure of disclosure as an adequate option, it is necessary to consider other possibilities through amendment to corporate governance norms. Essential among them is the need for a committee of independent directors to specifically consider and approve such royalty payments (or any other material RPTs for that matter) after specifically expressing their views on the impact of such transaction on the interest of minority shareholders. Another option would be to mandate shareholder approval for such royalty payments (or other RPTs), wherein the recipient of the royalty payment (i.e. the parent company) must be required to abstain from voting in view of the conflict of interest. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">Unless such checks and balances are introduced, the minority shareholders in such MNC subsidiaries will be exposed to considerable risk that the parent companies will likely treat the Indian listed companies as if they are merely arms of themselves.</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-61408472462933542032012-12-30T19:04:00.000-08:002013-01-29T11:25:12.308-08:00Companies Bill: From the Rule of Law to the Law of Rules<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <w:WordDocument> 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mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin; mso-ansi-language:EN-IN; mso-fareast-language:EN-IN;} </style><![endif]--> <!--StartFragment--> <br /><h2 style="margin-bottom: 12pt; margin-left: 0.5in; text-align: justify;"><span lang="EN-IN" style="color: windowtext; font-weight: normal;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">[The following guest post is contributed by Vinod Kothari and Vrinda Bagaria of Vinod Kothari & Company. These can be reached at <a href="mailto:vinod@vinodkothari.com"><span style="color: windowtext;">vinod@vinodkothari.com</span></a> and <a href="mailto:vrinda@vinodkothari.com"><span style="color: windowtext;">vrinda@vinodkothari.com</span></a>respectively.<o:p></o:p></span></span></h2><div class="MsoNormal" style="margin-bottom: 12pt; margin-left: 0.5in;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">In this post, the authors critically analyze the extensive nature of rule making powers conferred upon the Central Government under the Companies Bill, 2011]<o:p></o:p></span></span></div><h2 style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN" style="color: windowtext;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">Introduction <o:p></o:p></span></span></h2><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">Parliament makes legislation, and the executive, that is, the Central government or any other statutory authority, is primarily concerned with the implementation of the law, but is quite often given powers to make rules. The power of rule-making commonly comes by words such as “as may be prescribed” in the law. <o:p></o:p></span></span></div><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">The Companies Bill 2012 goes a little overboard in liberally setting aside matters which may be prescribed by the Central Government. The word “prescribed” occurs 416 times in the Bill. Though at lots of instances where the said word is used, the idea may be the prescription of the form/e-form whereby filing is to be done, there is an enormous extent of law that is reserved for prescription by the executive in form of rules. This would mean, besides the law with 470 sections and 5 schedules, subjects will have to keep in mind the massive body of rules to be framed under the law. <o:p></o:p></span></span></div><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">Rule-making has its own advantage – rules are flexible, and may be amended from time to time without going to the Parliament. Rules may contain matters of details, for example, the procedural rules, which may be parked into rules to keep the body of the law light. <o:p></o:p></span></span></div><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">However, there is a curious balance between what needs to be in the law and what may be parked into the rules. There are certain matters which relate to the very core, the vey policy of the regulation. For instance, whether a particular regulation will apply to a private limited company or not cannot be left for the executive to decide. Given the nature of the curb being imposed, it may be wholly inappropriate for the Parliament to apply the law in general, and then give a scope for the executive to relax it for a class of companies. <o:p></o:p></span></span></div><h2 style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN" style="color: windowtext;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">Liberties of Private companies, small companies and one person companies <o:p></o:p></span></span></h2><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">One may notice that exemptions in case of private companies, unlike the existing Act, are not a part of the law in the Bill – these are to be notified by the Central Government. However, the liberties enjoyed by private companies are not a matter of magnanimity on the part of the executive. Given the nature of a private company, it is a closed group of persons with strictly private fund raising, and hence, there is no question of certain regulatory concerns for such companies. It is not sufficient in such cases to say, the executive may exempt such companies from certain provisions. One good example is the provisions applicable to private placements. Every issue of securities, in case of a private company, is a private placement. If the placement is a private affair, there is no reason for the intervention of the law. There is large restrictive set of rules applying to private placements under the Bill<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[1]</span></span><!--[endif]--></span></a>. There is no good reason for such rules to be applicable to private companies. This is something which is an integrated part of the philosophy of the law, and cannot be left for the rules to lay down.<o:p></o:p></span></span></div><h2 style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN" style="color: windowtext;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">Principles of excessive delegation: Balancing between subordinate law and Parliamentary law:<o:p></o:p></span></span></h2><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">The balance between Parliamentary law and subordinate law has been one of the key features of our Constitution and our legislative set up. Unlike England, the principle of subordinate legislation in India is inspired by the US constitution. <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">A leading US case on the point is <i>Panama Refining Co v. Ryans<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b><span lang="EN-IN" style="line-height: 115%;">[2]</span></b></span><!--[endif]--></span></a></i>wherein it was held that the Congress can delegate legislative powers to the Executive subject to the condition that it lays down the policies and establishes standards while leaving to the administrative authorities the making of subordinate rules within the prescribed limits. <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">In India, courts have taken a more liberal attitude on the principle of excessive delegation. The Constitution of India does not contain specific provisions for delegated legislations. It imposes restrictions based on general theories and principles of constitutional law and judicial precedents. The purpose for introducing the principle for delegated legislation is that <span style="background: white;">the legislature being over burdened and the needs of the modern day society being complex it cannot possibly foresee every administrative difficulty that may arise after the Statute has begun to operate<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="background-color: white; background-position: initial initial; background-repeat: initial initial; line-height: 115%;">[3]</span></span><!--[endif]--></span></a>. Delegated legislation fills those needs and comes to aid during situations of emergency.<span class="apple-converted-space"> </span></span>However, this does not imply that the doctrine of delegated legislation can be used arbitrarily or unreasonably. The Parliament can only delegate to the executive the power to make ancillary or sub-ordinate legislations to the principal legislation and not the principal legislation itself. <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Where the vires of section 6(2) of the Bombay Tenancy and Agricultural Lands Act, 1948 was challenged on the ground of excessive delegation<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="background-color: white; background-position: initial initial; background-repeat: initial initial; line-height: 115%;">[4]</span></span><!--[endif]--></span></a>, the Hon’ble Supreme Court held that a statute challenged on the ground of excessive delegation should be subjected to two tests i.e.: <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN">a. </span><!--[endif]--><span lang="EN-IN" style="background: white;">whether it delegates essential legislative function or power; and<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN">b. </span><!--[endif]--><span lang="EN-IN" style="background: white;">whether the legislature has enunciated its policy and principle for the guidance of the delegate.<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">In the same case<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="background-color: white; background-position: initial initial; background-repeat: initial initial; line-height: 115%;">[5]</span></span><!--[endif]--></span></a>, Subba Rao J. observing that there is a danger inherent in the process of delegation, also opined that: <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: 28.35pt; margin-right: 0in; margin-top: 5.0pt; text-align: justify; text-justify: inter-ideograph;"><i><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN" style="background: white;">“</span><span lang="EN-IN">It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive, it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the legislature exceeded such limits. But the said liberal construction should not be carried by the courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities.”<o:p></o:p></span></span></i></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">The proposed Companies Bill, 2012 confers wide powers to the Central Government to prescribe the applicability or non-applicability of some provisions to a certain class of companies’ which might in the long run lead to arbitrary exercise of powers and hence excessive. Earlier also, there have been many statutes where the provisions were made applicable to a certain class or certain area and simultaneously, the government was authorized to make those provisions applicable to the excluded classes or areas as well, as the case may be.<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">In the landmark case of <i>In re Delhi Laws Act<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn6" name="_ftnref6" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b><span lang="EN-IN" style="line-height: 115%;">[6]</span></b></span><!--[endif]--></span></a></i>(<b>“Delhi Laws Act case”</b>), Fazl Ali J. rightly quoted what was laid down by the American Judges as an exception to the general rule of delegated legislation, that<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: 28.35pt; margin-right: 0in; margin-top: 5.0pt; text-align: justify; text-justify: inter-ideograph;"><i><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">“<span style="background: white;">The legislature cannot delegate its power to make a law; but it can make a law to delegate a power to determine some fact or state of things upon which the law makes, or intends to make, its own action depend - To deny this would be to stop the wheels of government.”<o:p></o:p></span></span></span></i></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">In the same case, Justice Fazl Ali, also observed that:<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: 28.35pt; margin-right: 0in; margin-top: 5.0pt; text-align: justify; text-justify: inter-ideograph;"><i><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">“No legislative body can delegate to another department of the government, or to any other authority, the power, either generally or specially, to enact laws. The reason is found in the very existence of its own powers. This high prerogative has been entrusted to its own wisdom, judgment, and patriotism, and not to those of other persons, and it will act ultra vires if it undertakes to delegate the trust, instead of executing it.”<o:p></o:p></span></span></i></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Despite the above observations, the Hon’ble Supreme Court admitted the necessity of a delegated legislation and formulated the general limit of delegation on the broad formula that <i>“what cannot be delegated is its essential functions.”<o:p></o:p></i></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Further, the case of <i>Raj Narain v. Chairman, Patna Administration<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn7" name="_ftnref7" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><b><span lang="EN-IN" style="background-color: white; background-position: initial initial; background-repeat: initial initial; line-height: 115%;">[7]</span></b></span><!--[endif]--></span></a></i> subtly summed up the limitations laid down in Delhi Laws Act case as: <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN">a. </span><!--[endif]--><span lang="EN-IN" style="background: white;">Parliament may not destroy its legislative power by delegation;</span><span lang="EN-IN"><o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN">b. </span><!--[endif]--><span lang="EN-IN" style="background: white;">It may not abandon its control over the delegate; and</span><span lang="EN-IN"><o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; margin-left: .5in; margin-right: 0in; margin-top: 5.0pt; mso-list: l1 level1 lfo2; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;"><!--[if !supportLists]--><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN">c. </span><!--[endif]--><span lang="EN-IN" style="background: white;">It may not create a new legislative power not contemplated in the Constitution.<i> </i></span><span lang="EN-IN"><o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">It is noteworthy, that along with the power of delegated legislation, also comes hand to hand the power of discretion conferred on the administration. ‘Rule-making power’ and ‘discretionary power’ can be said to constitute two sides of the same coin i.e. delegated legislation. It implies that subordinate legislation is a medium for administrative authorities to further confer discretionary powers upon themselves by formulating rules to that effect. In spite conferral of such arbitrary powers of rule-making and exercise of discretion by the administrative authorities, the courts have taken a backseat and hardly rendered any statute or legislation invalid on grounds of excessive delegation unless the same appears widely to be so, on the face of the provision. Even when the courts have found the delegated legislation to confer wide powers on the administration, availability of safeguards have been held to be sufficient against the abuse of power. This only shows that the standard accepted as sufficient has been so general and vague that it raises a doubt on whether it solves the purpose of controlling administrative discretion<a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftn8" name="_ftnref8" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="background-color: white; background-position: initial initial; background-repeat: initial initial; line-height: 115%;">[8]</span></span><!--[endif]--></span></a>. <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">Nevertheless, in the present epoch, both the legislative as well as the judicial authorities have very conveniently overlooked the restrictions applicable in case of delegated legislation and adopted a more lenient approach towards the doctrine of delegated legislation such that the legislature lays down the general provisions of law leaving the specification to be filled in by the executives. Sometimes, the executive authority is also conferred with the power of modifying the existing statute before its application which is in essence a drastic power resulting in an amendment to the statute itself, essentially the same being a function of the legislature. <o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN" style="background: white;"><span style="font-family: Arial, Helvetica, sans-serif;">The Companies Bill, 2012, is also an example of excessive delegation as major arenas have been left open for the government to make rules on the same, as is evident from a bare reading of the provisions. Moreover essential provisions required to be incorporated in the Bill, for instance, in the case of a private company, small company or a one person company, the legislature has completely failed to provide that the law will be applicable to companies involving public interest.<o:p></o:p></span></span></div><div style="background: white; margin-bottom: 12.0pt; text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">The doctrine of delegated legislation has become an integral part in the legislative process. Nevertheless, it should not be used excessively so as to defeat the purpose which legislation seeks to achieve and to render it ineffective. It is the primary and most essential duty of the legislature to frame the laws of a country and it should not try to escape from its duty under the garb of subordinate legislation. Proper checks and balances should be imposed to ensure that the doctrine of delegated legislation is adopted reasonably. The legislature alone cannot be held responsible for the arbitrary exercise of authority under delegated legislation and the judiciary has an equally important role to play in ensuring the same. <o:p></o:p></span></span></div><h2 style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN" style="color: windowtext;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">Conclusion<o:p></o:p></span></span></h2><div class="MsoNormal" style="margin-bottom: 12pt; text-align: justify;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">The Companies Bill, 2012 is a significant step taken by the legislature to effectively regulate corporate affairs in India and to improvise the present Companies Act, 1956 according to the current requisitions of the corporate world. However, leaving such major areas in the Bill open to the discretion of the administration shall prove to be a hindrance in meeting the true intent and purpose of the statute in the future. It is necessary to bear in mind that the statute should not be drafted to fulfil the short-term goals of the society but be sufficient to meet the requirements of the present as well as the future. The true intention to a statute can be accorded only by the law-makers of the society i.e. the legislature and not the executive. The executive can only be delegated enough powers to ‘fill in the gaps’ where necessary and nothing in excess of the same. In the backdrop of such considerations, there is a need to review the statute and eliminate any possibility of excessive delegation.<o:p></o:p></span></span></div><span style="font-family: Arial, Helvetica, sans-serif;"><span lang="EN-IN" style="line-height: 115%;">- Vinod Kothari & Vrinda Bagaria</span> </span><div><!--[if !supportFootnotes]--><span style="font-family: Arial, Helvetica, sans-serif;"><br clear="all" /> </span><hr align="left" size="1" width="33%" /> <!--[endif]--> <div id="ftn1"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[1]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> See Vinod Kothari and Nidhi Ladha: http://www.moneylife.in/article/fallout-of-the-sahara-case-companies-bill-2012-too-strict-on-private-placement-provisions/30344.html<o:p></o:p></span></span></div></div><div id="ftn2"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[2]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> (1935) 79 L. Ed- 446. 438</span><o:p></o:p></span></div></div><div id="ftn3"> <div class="MsoFootnoteText" style="margin-left: 7.1pt; text-indent: -7.1pt;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[3]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> <i><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">St. Johns Teachers Training Institute v. Regional Director, National Council for Teacher Education & Anr., </span></i></span><span lang="EN-IN"><a href="http://indiankanoon.org/doc/633712/"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">http://indiankanoon.org/doc/633712/</span></a></span><span lang="EN-IN" style="background-color: white;"> </span><o:p></o:p></span></div></div><div id="ftn4"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[4]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> </span><i>Vasantlal Maganbhai Sanjanwala v. The State of Bombay & Ors</i>. <o:p></o:p></span></div><div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><span lang="EN-IN"><a href="https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDEQFjAA&url=http://indiankanoon.org/doc/1340429/&ei=AiXcUJjyA8bjrAf_xYGYBA&usg=AFQjCNH4WytvCzrXSOJcm3sG6p_-YdULGA&bvm=bv.1355534169,d.bmk"><span lang="EN-US">https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDEQFjAA&url=http://indiankanoon.org/doc/1340429/&ei=AiXcUJjyA8bjrAf_xYGYBA&usg=AFQjCNH4WytvCzrXSOJcm3sG6p_-YdULGA&bvm=bv.1355534169,d.bmk</span></a></span><o:p></o:p></span></div></div><div id="ftn5"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[5]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> </span>Ibid.<o:p></o:p></span></div></div><div id="ftn6"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[6]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> </span><span lang="EN-IN"><a href="http://www.indiankanoon.org/doc/306099/">http://www.indiankanoon.org/doc/306099/</a></span><span lang="EN-IN"> </span><o:p></o:p></span></div></div><div id="ftn7"> <div class="MsoFootnoteText"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref7" name="_ftn7" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[7]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> </span>AIR 1954 SC 569<o:p></o:p></span></div></div><div id="ftn8"> <div class="MsoFootnoteText" style="margin-left: 7.1pt; text-indent: -7.1pt;"><span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><a href="http://www.blogger.com/blogger.g?blogID=3202774368551476669#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><span lang="EN-IN"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span lang="EN-IN" style="line-height: 115%;">[8]</span></span><!--[endif]--></span></span></a><span lang="EN-IN"> </span><span lang="EN-IN"><a href="http://upendrabaxi.net/documents%5CDevelopments%20in%20indian%20administrative%20law.pdf">http://upendrabaxi.net/documents%5CDevelopments%20in%20indian%20administrative%20law.pdf</a></span><span lang="EN-IN">, Public Law in India, Developments in Indian Administrative Law, Page 141-142.</span><o:p></o:p></span></div><div class="MsoFootnoteText"><br /></div></div></div><!--EndFragment--></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-23686651471508405102012-12-30T00:11:00.000-08:002013-01-29T11:25:12.364-08:00Supreme Court on Sukanya Holdings and section 45<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">It is well-known that the Supreme Court in <i>Sukanya Holdings </i>held that a cause of action cannot be “bifurcated”. Applying this rule, the courts held in several cases that a dispute involving several parties, some of whom are not parties to the agreement containing the arbitration clause, is not arbitrable. Although attempts were made to limit <i>Sukanya</i>, there was considerable doubt as to its scope, particularly in foreign arbitrations in which an attempt is made by a party to invoke the jurisdiction of the Indian court. In <i><a href="http://indiankanoon.org/doc/106898238/">Chloro Controls v Severn Trent</a></i>, a three-judge Bench of the Supreme Court was invited to overrule <i>Sukanya</i>. Although it declined to decide this issue, it made several important observations about its applicability to foreign arbitrations.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><i><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Chloro Controls </span></i><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">was a dispute between an Indian company and an American joint venture partner. The facts are of some importance. Chloro Controls, a company run by the “Kocha Group”, was engaged in the business of manufacturing and selling gas and electrical chlorination equipment. Severn Trent agreed to appoint Chloro Controls as its exclusive distributor in India and a joint venture company [<b>“the JVC</b>”] was incorporated in India for this purpose. As is not uncommon in such transactions, there was a network of several interlinked agreements, each dealing with a different aspect of the commercial relationship between the parties. In all, there were seven agreements, of which the Shareholders Agreement was the principal agreement, to which Mr Kocha, Severn Trent and Chloro Controls were parties. Clause 4 of the SHA provided that Chloro Controls could not, during the subsistence of the agreement, deal with similar products manufactured by any other entity. Clause 30 provided that disputes would be resolved by English law arbitration in London. The SHA made reference to the other agreements to be executed between these and other parties. The difficulty arose because not all parties had signed all the ancillary agreements, and some of the ancillary agreements did not contain an identical dispute resolution clause. For example, the International Distributor Agreement, by which the JVC was appointed as the exclusive distributor, was signed by Severn Trent and the JVC: neither Mr Kocha nor Chloro Controls was party, and it contained a dispute resolution clause in favour of the courts of Pennsylvania, USA. Similarly, Chloro was not a party to the Export Sales Agreement, which contained an arbitration clause, but seated in the USA, not London. <o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Eventually, a dispute arose as to whether the JVA covered electrical chlorination equipments as well, and Severn purported to terminate it. Chloro instituted a derivative suit in the Bombay High Court impleading <i>inter alia </i>Severn, the JVC, the Kocha group and the directors of the JVC as parties. It also impleaded two respondents who were not parties to any of the agreements. Severn sought a reference under section 45 of the Arbitration Act to arbitration, pleading that the dispute was essentially about the scope of the JVC and the validity of its termination, matters eminently within the arbitration clause. A Division Bench of the Bombay High Court agreed.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">In the Supreme Court, Chloro’s case was that a litigant has a right to approach the civil courts, displaced only by express or clear language; that <i>Sukanya </i>was correctly decided, and that it is impermissible to refer these multi-party disputes to arbitration when some agreements contain no arbitration clause or an arbitration clause on materially different terms. Severn’s case was that <i>Sukanya </i>has become a charter for the disgruntled litigant to avoid the arbitration clause and subject the other party to lengthy proceedings in the Indian courts, notwithstanding the express selection of arbitration as the preferred means of dispute resolution; and that <i>Sukanya </i>was wrongly decided and in any event a complete irrelevance to section 45.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;"><br /></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">The Supreme Court held that section 45 leaves no room for discretion: if the conditions in sections 44 and 45 are satisfied, the civil court is <i>required </i>to refer the parties to arbitration. With respect to whether it is appropriate to do so in multi-party arbitrations, the Court examined many theories on the basis of which such references have been made: group companies, claiming “through or under” a party to the arbitration clause etc. It accepted that a reference is permissible if the agreements are “<i>intrinsically interlinked</i>” and the ancillary agreements serve no purpose except in connection with the principal agreement which contains the arbitration clause. In other words, a composite transaction can be referred to arbitration even if some of the parties named as respondents are not parties to the arbitration clause. It also observed that <i>Sukanya Holdings </i>is of no relevance to an application made under section 45 for a reference to arbitration because that case was decided under section 8. The following observations of the Court illustrate the point:<o:p></o:p></span></div><div class="MsoNormal" style="margin: 0cm 26.05pt 10pt 1cm; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;"><br /></span></div><div class="MsoNormal" style="margin: 0cm 26.05pt 10pt 1cm; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">…</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">In a case like the present one, where origin and end of all is with the Mother or the Principal Agreement, the fact that a party was non-signatory to one or other agreement may not be of much significance…</span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"> </span><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt;">In cases involving execution of such multiple agreements, two essential features exist; firstly, all ancillary agreements are relatable to the mother agreement and secondly, performance of one is so intrinsically inter-linked with the other agreements that they are incapable of being beneficially performed without performance of the others or severed from the rest. The intention of the parties to refer all the disputes between all the parties to the arbitral tribunal is one of the determinative factor.<o:p></o:p></span></div><div class="MsoNormal" style="line-height: 150%; text-align: justify;"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; line-height: 150%;">Although the Court has stopped short of overruling <i>Sukanya Holdings</i>, its judgment enhances the prospect of resolving multi-party disputes through arbitration and ensuring that the jurisdiction of the civil courts remains excluded.</span></div></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-53966771666770164682012-12-28T20:30:00.000-08:002013-01-29T11:25:12.416-08:001st NLS-TIOL Taxation Law Conference <div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> 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mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Moot Court Society of National Law School of India University, Bangalore, in association with Tax India Online, is organising the <b>1<sup>st</sup>NLS-TIOL Taxation Law Conference on 6<sup>th</sup> January, 2013 along with the NLS TIOL Moot Court Competition.</b> The Conference seeks to trace out the developments since the proposed introduction of General Anti-Avoidance Rule in the Finance Act, 2012. While the Shome Committee has made certain recommendations that provide clarity with respect to the application of GAAR, some recommendations are a cause for concern. Further, the manner in which the GAAR is to be applied in India under the Income Tax Act and under the proposed Direct Taxes Code remain controversial and must be debated. <o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Conference will witness a congregation of persons of eminence from the legal and accounting fields – <b>Mr. Mohan Parasaran, </b>Additional Solicitor General, India, <b>Mr. Nishith Desai</b>, Founder, Nishith Desai & Associates<b>, Mr. Nageswar Rao</b>, Partner, PDS Legal, <b>Mr. Parmanand Kincha</b>, Partner, M/s H C Khincha & Co, Bangalore, <b>Mr. Rupesh Jain</b>, Partner, Vaish Associates, <b>Mr. P.K. Prasad</b>, Director of Income Tax, Bangalore. The session will be moderated by <b>Mr. Mihir Naniwadekar</b>, Advocate, Bombay High Court.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Conference will be organised on <b>Sunday, 6<sup>th</sup>January, 2013 at Vivanta by Taj, Bangalore. </b>Registration Fee for the Conference is Rs. 1500 for Professionals and Rs. 200 for Students. Details will be put up on <a href="http://www.nls.ac.in/">www.nls.ac.in</a> and <a href="http://www.taxindiaonline.com/RC2/adpage/NLS_TIOL_MOOT.htm">http://www.taxindiaonline.com/RC2/adpage/NLS_TIOL_MOOT.htm</a> shortly. For any queries, kindly mail <a href="mailto:nlstaxmoot@gmail.com">nlstaxmoot@gmail.com</a> or contact the following for details:<o:p></o:p></span></div><div class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">Mr. Dheer Bhatnagar: +91 9986538654<o:p></o:p></span></span></div><div class="MsoNoSpacing" style="text-align: justify; text-justify: inter-ideograph;"><span lang="EN-IN"><span style="font-family: Arial, Helvetica, sans-serif;">Ms. Jahnavi Sindhu: +91 9538960420<o:p></o:p></span></span></div><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: small;">Ms. Deekshitha Ganesan: </span>+91 8050055308</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-14231807286045853752012-12-25T20:16:00.000-08:002013-01-29T11:25:12.423-08:00New York Courts’ Long-Arm Jurisdiction<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>JA</w:LidThemeAsian> <w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript> <w:Compatibility> <w:BreakWrappedTables/> <w:SnapToGridInCell/> <w:WrapTextWithPunct/> 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table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Harvard Corporate Governance Blog has a <a href="http://blogs.law.harvard.edu/corpgov/2012/12/24/personal-jurisdiction-over-non-u-s-financial-institutions/">post</a>discussing a recent judgment that confers significant long-arm jurisdiction to the New York Courts. Here is the summary:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">On November 20, 2012, the New York Court of Appeals issued an opinion that is of substantial importance to international banks and financial institutions that maintain and use correspondent banking accounts in New York. In Licci v. Lebanese Canadian Bank, SAL (N.Y. Nov. 20, 2012), the Court of Appeals held that a non-U.S. bank’s maintenance and use of such an account to effect “dozens” of wire transfers, worth millions of dollars, on behalf of a non-U.S. client was sufficient to form the basis for personal jurisdiction under the New York State long-arm statute, N.Y. C.P.L.R. § 302(a)(1). Due to the prevalence of U.S. dollar-denominated financial transactions, many non-U.S. banks maintain and use correspondent accounts in New York. As a result, the Licci decision has the potential to increase plaintiffs’ ability to establish personal jurisdiction over non-U.S. financial intuitions in state and federal courts in New York.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">This development may be of particular interest to Indian banks without any direct presence in New York, but who may be dealing through correspondent banks within that state. They could potentially be exposed to actions before a New York court.</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-21621298901790137672012-12-24T20:37:00.000-08:002013-01-29T11:25:12.477-08:00A Round Up of a Rollercoaster Year<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:RelyOnVML/> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>JA</w:LidThemeAsian> 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QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">As 2012 began, several BRICS economies that showed immense promise began to face slower growth. This was also influenced by developments elsewhere (including the crisis in Europe). India was affected by the same phenomenon. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Indian situation was also marred by several policy-related issues that continued to remain for nearly two-thirds of the year. This includes the “policy paralysis” that afflicted Government decision-making for most of the year. More so, the Government’s harsh reaction to Supreme Court’s Vodafone judgment and the introduction of the general anti-avoidance rules (GAAR) as also the fallout of the 2G scam lowered the buoyancy of the economy and the capital markets.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">However, towards the last quarter of 2012, the Government stepped in to take some corrective measures. Its bold moves to reintroduce foreign direct investment (FDI) in the multi brand retail sector, to postpone the introduction of GAAR, and to introduce reforms in company law and banking legislation have spurred some interest in the economy. While these measures have introduced some element of optimism as we usher in 2013, it would be too much to expect big bang reforms in that year. Given that the next general elections are due in 2014, one can expect next generation reforms to occur only after that. The hope is that a steady course is maintained until then with no adverse policy decisions.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">In this post, we recapitulate some of the key developments of the year in the business law sphere, and ponder over what lies in store for the year ahead.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Corporate Law and Governance</b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Clearly, one of the significant events of the year is the <a href="http://indiacorplaw.blogspot.sg/2012/12/companies-bill-as-approved-by-lok-sabha.html">approval</a>of the Companies Bill, 2011 by the Lok Sabha. This brings company law reforms, which have been pending for over a decade now, closer to reality. The Bill requires the approval of the Rajya Sabha and the assent of the President before it can become law, and these are expected to occur early next year. Surprisingly, the sticking point on the Bill for most of this year was the provision on corporate social responsibility (CSR). While the Parliamentary Standing Committee on Finance kept <a href="http://indiacorplaw.blogspot.sg/2012/07/standing-committee-report-on-companies.html">insisting</a>on mandatory CSR spending, the <a href="http://indiacorplaw.blogspot.sg/2012/10/companies-bill-back-on-anvil.html">final compromise</a> reflects a “comply or explain” approach. When the company law reforms are implemented (next year), it will represent a sea change in the way companies operate, and both companies and their advisors will have to come to terms with a new regime and adapt themselves towards that.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">From a corporate governance perspective, the year has not seen wide ranging reforms. However, one aspect that stands out is the move towards greater participation on the part of the shareholders. SEBI has made <a href="http://indiacorplaw.blogspot.sg/2012/07/e-voting-in-top-listed-companies.html">e-voting mandatory</a> for top listed companies. Apart from governmental effort, the market has adapted itself towards greater shareholder activism through involvement of proxy advisory firms and even activist hedge funds adopting a combative approach towards some Indian companies, all of which are sought to be documented in this <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2165162">working paper</a>.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><b><span style="font-family: Arial, Helvetica, sans-serif;">Foreign Direct Investment<o:p></o:p></span></b></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Given that the Government had proposed FDI in the multi brand retail sector in 2011 and had to immediately withdraw it, the sentiment for foreign investment was not so positive going into 2012. The initial months also witnessed policy paralysis that resulted in substantial outflow of foreign investment in the country. However, the big bang reforms witnessed towards the end of the year brings some economic cheer. The Government <a href="http://indiacorplaw.blogspot.sg/2012/09/a-comment-on-new-fdi-reforms.html">reintroduced changes</a> that allow FDI in the multi brand sector, and also eased the conditions for FDI in the single brand retail sector. The FDI reforms were made <a href="http://indiacorplaw.blogspot.sg/2012/09/fdi-reforms-take-effect.html">immediately effective</a> through executive action and also put to vote in Parliament where assent was received.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Among other changes, the introduction of a <a href="http://indiacorplaw.blogspot.sg/2012/01/qfi-investments-in-indian-stock-markets.html">new route</a> for foreign investment in the form of the qualified foreign investor (QFI) scheme is noteworthy. This permits foreign individuals and corporations to invest in a portfolio of Indian stocks without specific registration. Despite the fanfare with which this scheme was introduced, it is yet to make any significant impact and fund flows are still very thin.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Securities Regulation</b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">This area has witnessed enormous activity in 2012, most of which has come in the form of enforcement initiatives by the Securities and Exchange Board of India (SEBI) and somewhat less so in the form of legislative/regulatory initiatives. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Capital markets in India have had a lackluster year, with very few primary offerings to speak of. Globally, however, the Facebook IPO stirred the markets but with some different outcomes in the end. Not only has it been difficult since for the company’s stock price to be sustained at IPO levels, but it also resulted in regulatory actions against some of Facebook’s investment bankers for selective release of information during the IPO process.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Back in India, SEBI’s legislative initiatives that are noteworthy include its norms on <a href="http://indiacorplaw.blogspot.sg/2012/05/sebi-notifies-regulations-on.html">alternative investment funds</a> and those on <a href="http://indiacorplaw.blogspot.sg/2012/05/sebi-tightens-consent-order-norms.html">consent order norms</a> (which have substantially tightened the scope and <a href="http://indiacorplaw.blogspot.sg/2012/07/sebis-complex-formula-for-settlement-by.html">process</a>). SEBI has also been insistent on ensuring that listed companies comply with the minimum public float norms by 2013, and has prescribed additional methods for achieving the same, including <a href="http://indiacorplaw.blogspot.sg/2012/03/offer-for-sale-by-promoters-through.html">offer for sale through the stock exchange</a>, and the <a href="http://indiacorplaw.blogspot.sg/2012/04/institutional-placement-program.html">institutional placement programme</a>.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">It is on the enforcement side, however, that SEBI has had an extremely busy year. It returned from the Supreme Court with resounding success in the <a href="http://indiacorplaw.blogspot.sg/2012/09/some-highlights-of-supreme-courts.html">Sahara case</a>. Disappointingly, however, the saga continues with disputes between SEBI and the Sahara group regarding the submission of documents and return of monies to investors going back and forth between various fora including the Supreme Court and the Securities Appellate Tribunal (SAT). Any meaningful conclusion can be expected only next year.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">SEBI’s push on securities frauds has been met with mixed success. Several appeals on matters such as insider trading and front running have been decided by SAT during the year, with a few of them in favour of SEBI and many against it. Noteworthy among them include the insider trading cases involving the <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1349252240438.pdf">Jaypee Group</a>, a <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1349843808090.pdf">director of Ranbaxy Laboratories</a> and <a href="http://indiacorplaw.blogspot.sg/2012/02/sat-on-scope-of-insider-trading.html">Rasi Electrodes Limited</a>. SAT’s <a href="http://indiacorplaw.blogspot.sg/2012/11/front-running-not-crime-if-committed-by.html">decisions</a>on <a href="http://indiacorplaw.blogspot.sg/2012/12/another-sat-order-on-front-running.html">cases</a>involving front running and the SEBI adjudicating officer’s <a href="http://indiacorplaw.blogspot.sg/2012/12/sebi-penalises-front-running-again-does.html">response</a>leave the matter wide open, with some action possible in the next year to resolve issues. Contrast this with the successful prosecution, <a href="http://indiacorplaw.blogspot.sg/2012/06/insider-trading-enforcement.html">conviction</a>and <a href="http://indiacorplaw.blogspot.sg/2012/10/rajat-guptas-sentencing-order.html">sentencing</a>of Rajat Gupta (and earlier of Raj Rajaratnam) in the US, which has triggered a <a href="http://indiacorplaw.blogspot.sg/2012/06/indian-insider-trading-law-debate.html">debate</a>on whether that is likely to mount severe pressure on SEBI’s enforcement mechanism and resources on cases involving securities frauds.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">While there is every reason to expect SEBI’s enforcement push to continue into next year, there is at least one pending issue where SEBI’s legislative or regulatory intervention is overdue and is remaining on the industry’s wish list. That pertains to the open question regarding the <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1912436">enforceability of put and call options</a>. While there was some clarity from the Bombay High Court in the <a href="http://indiacorplaw.blogspot.sg/2012/03/bombay-hc-in-mcx-case-partial-reprieve.html">MCX case</a>, that matter was settled before the Supreme Court leaving the question of law open. It is hoped that SEBI will clarify the position in the new year. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Mergers & Acquisitions (M&A)</b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">2012 turned out to be a bit of a lackluster year for M&A. While there were indeed a handful of mega deals, the overall level of activity was nowhere near the pre-crisis levels. Inbound deals appear to be more prominent than outbound deals. Part of the drop in activity may also be attributable to the fear psychosis created by the post-Vodafone events in the form of budget announcements and GAAR. The M&A sphere has been dogged by tax uncertainties, which are enumerated in the next section below.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">There have been no significant legislative developments in this area to speak of. The SEBI Takeover Regulations were overhauled in the previous year, and are only yet being fully tested. Given the enhanced threshold of 25% for mandatory public offers, there is more room for investors to acquire stakes in listed companies without triggering such offers.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The year is significant for the complete acceptance of competition law implications as an integral part of M&A deal making. The Competition Commission of India (CCI) has made its presence strongly felt in a positive way. The initial resistance from industry towards merger control regulations due to possible impediments and delays from CCI has given way to a more optimistic outlook given the recent track record of the CCI clearing proposals at such regulatory speeds hitherto unknown. Since its existence, the CCI has already handled <a href="http://www.cci.gov.in/index.php?option=com_content&task=view&id=171">over 100 proposals</a> in the M&A sphere. There is a sense that all the cases before the CCI thus far have been fairly straightforward, and the CCI would be fully tested when more complex situations begins to emerge. Nevertheless, it has been a good start.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Taxation</b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Taxation issues pertaining to M&A transactions caused a major upheaval this year that affected not only M&A specifically but also the investor sentiment in the Indian economy more generally. The corporate community welcomed the Supreme Court’s decision in the <a href="http://indiacorplaw.blogspot.sg/2012/01/vodafone-key-points.html">Vodafone case</a> with much relief. But, that was only to be short-lived. The subsequent response of the Government by introducing <a href="http://indiacorplaw.blogspot.sg/2012/03/budget-2012-retrospective-amendments-to.html">retrospective amendments</a> to the Income Tax Act during the <a href="http://indiacorplaw.blogspot.sg/2012/03/direct-tax-proposals-in-budget-2012.html">budget of 2012</a> caused substantial uncertainty on taxation of M&A transactions that also resulted in a negative outlook for India among foreign investors. The threat of <a href="http://indiacorplaw.blogspot.sg/2012/07/gaar-guidelines.html">imposing GAAR</a> further exacerbated the issue. However, more recent efforts have been taken by the Government to assuage corporate concerns. The Shome committee was appointed to examine these in detail, which provided its <a href="http://finmin.nic.in/reports/report_gaar_itact1961.pdf">report</a> that recommended among other things that the scope of GAAR be restricted when introduced. This, along with the deferral of GAAR, has brought some cheer to investors.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The whole issue of taxation of M&A transactions, believed to have been resolved by the Vodafone case, has resurfaced in yet another form (coincidentally in a case involving another transaction of Vodafone). This case involves a demerger scheme proposed by Vodafone Essar Gujarat and several other companies. While the scheme was approved by several High Courts, it was <a href="http://indiacorplaw.blogspot.sg/2011/04/scheme-of-arrangement-role-of-tax.html">rejected by a single judge</a> of the Gujarat High Court due to objections from the tax authorities. This decision was <a href="http://indiacorplaw.blogspot.sg/2012/09/scheme-of-arrangement-tax-authorities.html">reversed on appeal by a division bench</a> of the Gujarat High Court, which ruled in favour of Vodafone Essar. The tax authorities have now appealed to the Supreme Court. Interestingly, the Supreme Court is not expected only to decide on this specific issue, but the Government has sought for the entire issue of “tax avoidance” to be <a href="http://thefirm.moneycontrol.com/story_page.php?autono=798662">dealt with afresh by a larger bench</a> of the Supreme Court. This is an area that requires a close watch in the new year given the likelihood that an issue of immense importance is likely to be dealt with <i>de novo</i>, and could be a game changer as such.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><b>Commercial Dispute Resolution</b><o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The problems of delay that plague the Indian court system have not dissipated. A <a href="http://www.barandbench.com/brief//3036/bar-amp-bench-speaks-to-nick-robinson-author-of-a-working-paper-on-supreme-court-workload-strong-delhi-bias-and-reduction-in-article-32-petitions-">recent study</a> finds that while the new caseload at the lower courts is decreasing, at the higher courts it is increasing at a rapid pace, thereby creating a bottleneck at the topic of the justice system. Interestingly, a number of cases relating to matters such as company law, arbitration and taxation are being admitted at the highest courts, including the Supreme Court. This research also supports anecdotal evidence of several cases in these fields that have gone all the way up the Supreme Court in a very short period of time, many of which have been discussed in this very post.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The conventional approach to bypass the difficulties of the court system is to opt for arbitration instead. However, in the past, that approach has encountered difficulties due to the inability of parties to enforce arbitration awards (particularly in international commercial arbitration) due to a string of decisions of the Supreme Court, notably in the case of <i>Bhatia International</i>. However, those difficulties have been put to rest (at least going forward) in the <a href="http://indiacorplaw.blogspot.sg/2012/09/the-supreme-court-overrules-bhatia.html">landmark decision of <i>Balco</i></a> that was pronounced by the Supreme Court this year. This will give the much needed fillip to arbitration of commercial disputes, although the judgment also leaves some difficult questions, such as its prospective overruling of <i>Bhatia International</i> and on the ability to approach Indian courts for interim reliefs in international commercial arbitration with a foreign venue.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Finally, the SAT, an active adjudicator of securities law disputes arising from orders of SEBI, finds itself in an odd situation at the end of the year without the necessary quorum. A <a href="http://indiacorplaw.blogspot.sg/2012/11/the-crisis-that-sat-is-heading-towards.html">lot has been written</a> about this issue and a <a href="http://indiacorplaw.blogspot.sg/2012/11/petition-on-composition-of-securities.html">petition has also been filed</a> before the court, and it is hoped that immediate steps will be taken to remedy the situation.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">Overall, 2012 has been an eventful year in the business law area in India. While some of the developments may rather be forgotten, they provide valuable lessons for the future.</span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-2941404082945438882012-12-21T05:00:00.000-08:002013-01-29T11:25:12.532-08:00SEBI penalises front-running again, does not follow SAT’s order<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:DocumentProperties> <o:Revision>0</o:Revision> <o:TotalTime>0</o:TotalTime> <o:Pages>1</o:Pages> <o:Words>721</o:Words> <o:Characters>4114</o:Characters> <o:Company>Jayant M. 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mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0cm 5.4pt 0cm 5.4pt; mso-para-margin-top:0cm; mso-para-margin-right:0cm; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0cm; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin; mso-fareast-language:JA;} </style><![endif]--> <!--StartFragment--> <span style="font-family: Times, Times New Roman, serif;"><br /> </span><br /><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">There is yet another <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1356000103264.pdf">Order</a> of SEBI on front running and SEBI holds that transactions in the nature of front running are violative of the PFUTP Regulations. This is close after SAT’s recent ruling (“the Patel Order”) holding that front running cannot be punished, as discussed by me <a href="http://indiacorplaw.blogspot.sg/2012/11/front-running-not-crime-if-committed-by.html">here</a>, and another later <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1355979838491.pdf">ruling</a> by SAT (“the Karkera Order”) as discussed by Mr. V. Umakanth <a href="http://indiacorplaw.blogspot.in/2012/12/another-sat-order-on-front-running.html">here</a>. By an Order dated 19<sup>th</sup>December 2012, the Adjudicating Officer levied penalty of Rs. 25 lakhs on the persons who allegedly made profit of Rs. 7.16 lakhs from transactions that fit the description of what are popularly known as front running transactions.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">The facts of the present case, being substantially similar as in earlier cases, need not concern us here to avoid repetition. What is interesting is that, despite the parties drawing attention to the ruling of SAT holding that front running does not amount to violations of the PFUTP Regulations, SEBI has held that it is still punishable under the said Regulations.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">It may be remembered that SAT quite clearly held that transactions in nature of front running are punishable under the PFUTP Regulations only if committed by an intermediary and not by others. More specifically, it held that, in absence of any specific provision of law in securities laws, such transactions by non-intermediaries are not punishable at all. To quote the Hon’ble SAT from the Patel Order:-<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">“<span style="color: #343434;">In the absence of any specific provision in the Act, rules or regulations prohibiting front running by a person other than an intermediary, we are of the view that the appellants cannot be held guilty of the charges levelled against them.”.<o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">This ruling was followed explicitly in the later SAT ruling in the Karkera Order. <o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">The parties accused in this case did cite the Patel Order before SEBI. However, interestingly, SEBI did not accept this ruling to give relief to the accused on the following ground:-<o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="margin-bottom: 12.0pt; mso-layout-grid-align: none; mso-pagination: none; text-align: justify; text-autospace: none; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;"><span style="color: #343434;">“</span>The Noticees have even produced the judgment of the Hon'ble Securities Appellate Tribunal in <i>Dipak Patel Vs. The Adjudicating Officer (SAT Appeal No. 216 of 2012 decided on 09/11/2012) </i>in which Regulation 4(2)(q) of PFUTP Regulations, 2003 has been interpreted by the Tribunal. However, the present case does not deal with the violation of the said Regulation but Regulation 3 (a), (b), (c) & (d) and 4(1) of PFUTP Regulations, 2003. The CBI deals in shares on its own account and on behalf of its customers. CBI is a publically listed company and any loss incurred on its investments adversely would affect the interests of its own shareholders and customers. Therefore, the fraudulent and manipulative activities of the Noticees fall upon the CBI and its customers and ultimately on the investors of the securities market. In other words, the undue profits earned by the Noticees are nothing but the losses to them.”<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">Though not specifically made clear, it does appear that Central Bank of India (the employer of one of the noticees) is <b><i><u>not</u></i></b> an intermediary. If this is the case, then the SAT rulings would directly apply. The statement of SEBI that “the present case does not deal with the violation of the said Regulation” (i.e., 4(2)(q)) is not valid, in context of the SAT rulings as a whole, particularly the words reproduced earlier.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="font-family: Times, Times New Roman, serif;">Moreover, the Patel Order did cite and discuss the provisions of Regulation 3(1) (a) to (d) of the PFUTP Regulations.<o:p></o:p></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">The point of SEBI that CBI is a publically listed company and so loss incurred by it would be borne by its shareholders may sound valid but this may imply that if there were no such public shareholders, front running would not be a violation. Same concern can be raised for the point that such transactions affect the interests of its customers. Also, to reiterate, this still does not deal with SAT’s ruling that in absence of specific provisions for non-intermediaries, front running cannot be punished.<o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">An opportunity was thus lost to discuss and analyse the provisions individually and in detail relating to fraud and unfair trade practice in the PFUTP Regulations and apply the same to such cases. Instead, as in earlier case, several provisions were merely cited together and the noticees held to have violated them.<o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">This decision also raises again a long standing concern about the non-binding nature in law of SAT decisions as precedents on SEBI. This concern particularly arises because the next appeal after SAT is straight to the Supreme Court.<o:p></o:p></span></span></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><br /></div><div class="MsoNormal" style="text-align: justify; text-justify: inter-ideograph;"><span style="color: #343434;"><span style="font-family: Times, Times New Roman, serif;">The ruling of SAT in the Patel Order (and, so, the Karkera Order too) is of course dissatisfactory, and the concerns it raises have already discussed earlier here. One hopes that this issue is resolved soon by appeal to the Supreme Court and/or amendment to the law. For such Orders as the present one are satisfactory neither as practice, nor as precedents for other cases in other contexts.</span><span style="font-family: Arial; font-size: 15pt;"><o:p></o:p></span></span></div><!--EndFragment--></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-88155333059646936182012-12-20T19:59:00.000-08:002013-01-29T11:25:12.588-08:00Another SAT Order on Front Running<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">Last month, Mr. Jayant Thakur had <a href="http://indiacorplaw.blogspot.sg/2012/11/front-running-not-crime-if-committed-by.html">discussed</a>an order of the Securities Appellate Tribunal (SAT) in the case of Dipak Patel where SAT interpreted the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (the “PFUTP Regulations”) to mean that front running is not a crime unless it is committed by an “intermediary”. Mr. Thakur’s post points to the difficulties in interpreting the PFUTP Regulations. There has been a significant discussion of this decision, and examples include <a href="http://www.financialexpress.com/news/column-legitimate-fraud-/1036380/0">Yash Bansal & Sandeep Parekh</a>, <a href="http://www.iimahd.ernet.in/~jrvarma/blog/index.cgi/Y2012/front-running.html">Professor J.R. Varma</a> and <a href="http://www.livemint.com/Money/rcYCnXDB5srce2MHTknxKK/Sebi-should-draft-front-running-rules-carefully.html">Mobis Philipose</a>.<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">Earlier this week, the SAT has followed an identical approach in <a href="http://www.sebi.gov.in/cms/sebi_data/attachdocs/1355979838491.pdf">another case</a> pertaining to Sujit Karkera, Shilpa Kotak and Purushottam Karkera. The facts are that parties traded in 3 scrips through B P Equities Pvt Ltd in advance of trades by Citigroup Global Markets in those scrips. Evidence suggests that the parties had prior knowledge of the Citigroup trades that was obtained from a trader of Citigroup, Suresh Menon. The facts clearly suggest a case of front running, and SAT is unequivocal regarding the factual circumstances:<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">5. … The facts on record establish that there was constant flow of information to the appellants from Mr. Suresh Menon and the telephonic conversation related specifically to the order, place, time and quantity of the scrips transacted. On a consideration of the facts on record and the material relied on by the adjudicating officer we have no hesitation in holding that the alleged transactions of the appellant are in the nature of “front running”.<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">However, SAT was hamstrung by the technicalities of its previous decision in <i>Dipak Patel</i>, and quashed SEBI’s imposition of fine because the parties involved were not “intermediaries” under the <span style="background: white;">PFUTP</span> Regulations. SAT simply followed its own precedent.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: small;">Despite the critique of this approach, it appears that SAT would be constrained from making any departures considering that this technicality is well entrenched in its reasoning given these precedents. Hence, any departure to a wider interpretation could only come by way of an appeal by SEBI to the Supreme Court, or alternatively an amendment by SEBI to the </span><span style="background-color: white;">PFUTP</span>Regulations to clarify the position.</span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-50176459285832928472012-12-19T19:51:00.000-08:002013-01-29T11:25:12.640-08:00Delaware Ruling on Indian In-house Counsel and Legal Privilege<div dir="ltr" style="text-align: left;" trbidi="on"><br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">A couple of years ago, we had <a href="http://indiacorplaw.blogspot.sg/2010/09/ecj-on-in-house-lawyers-and-legal.html">discussed</a>the European Court of Justice (ECJ) decision in the Akzo Nobel and Ackros Chemicals case where in-house legal counsel was denied legal professional privilege even though such counsel was enrolled as an advocate in the relevant bar at the time. Although that case involved European companies, we had made some guesses as to what might be the position in India as follows:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">Under Indian law, the Bar Council of India Rules require any lawyer taking up full-time salaried employment to “intimate the fact to the Bar Council on whose roll his name appears and shall thereupon cease to practise as an advocate so long as he continues in such employment” (Rule 49, Section VII, Chapter II, Part VI). Hence, the reasoning of ECJ in the<span class="apple-converted-space"> </span></span><em>Akzo Nobel</em><span class="apple-converted-space"><i> </i></span>judgment ought to apply with greater force in such circumstances,<span class="apple-converted-space"> </span><em>ceteris paribus</em><span class="apple-converted-space"><i> </i></span>(i.e. without taking into consideration other procedural and evidentiary aspects of domestic Indian law, if any, that may operate to the contrary).<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">A <a href="http://spicyipindia.blogspot.sg/2012/12/american-court-rules-against.html">recent post</a> on Spicy IP discusses a Delaware District Court opinion involving Cadila Healthcare Limited where the issue was raised squarely, and answered on similar lines surmised above. The Court found that the in-house counsel of an Indian company is not entitled to protections of confidentiality and legal privilege given the prevailing law in India. The Court was persuaded by the opinion of Justice B.N. Srikrishna, who was appointed as a neutral expert. The Delaware Court opinion, Justice Srikrishna’s opinion and Cadila’s response are contained in the Spicy IP link above.<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;">The Delaware Court’s opinion is not informative as it simply refers to Justice Srikrishna’s opinion, which requires us to consider some of its key reasoning. The opinion analyzes sections 126 and 129 of the Indian Evidence Act, 1972 that deal with confidentiality of professional communication and legal privilege. The opinion finds that while these sections refer to various types of professionals such as “barrister, pleader, attorney or vakil”, all of these positions have been aggregated by the Advocates Act, 1961 within the single concept of an “advocate”. Despite the Bombay High Court’s finding to the contrary in <i>Municipal Corporation of Greater Bombay v. Vijay Metal Works</i>, AIR 1982 Bom 6, Justice Srikrishna’s analysis of the Advocates Act, the Bar Council Rules and recent decisions including <i>Lawyers Collective v. Bar Council of India</i>, (2010) 2 Comp LJ 108 (Bom), and <i>A.K. Balaji v. Government of India</i>, AIR 2012 Mad 124</span>, leads to his conclusion that in-house legal counsel are not “advocates” or “professional legal advisors” who are entitled to the protection of confidentiality and legal privilege under the Indian Evidence Act. <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">Cadila’s response that <i>Vijay Metal Works</i>, which is the only Indian decision squarely on the point, supports legal privilege to in-house counsel and also that the Advocates Act and Bar Council Rules must not be used to interpret sections 126 and 129 of the Indian Evidence Act did not hold sway with the Delaware court.<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">Although this is only a ruling of a district court in a foreign jurisdiction, it has potentially negative consequences on the roles and responsibilities of in-house counsel in Indian companies. The in-house counsel movement has been building up quite strongly in India, with in-house counsel taking on a more proactive role in Indian corporates. This is consistent with the global phenomenon being witnessed in emerging economies generally, as Professor David Wilkins notes in a <a href="http://wisconsinlawreview.org/wp-content/files/2-Wilkins.pdf">recent paper</a>.<o:p></o:p></span></span></div><div class="MsoNormal"><br /></div><span style="background-color: white; background-position: initial initial; background-repeat: initial initial;"><span style="font-family: Arial, Helvetica, sans-serif;">While it is possible to deliberate on the merits of specific court decisions that interpret an assortment of Indian laws in this regard, including Evidence Act, the Advocates Act and the Bar Council Rules, it may perhaps be time to revisit some of the concepts in these legislation and their applicability to in-house counsel whose roles were not nearly as relevant when these laws were enacted as they are now.</span></span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-65942714970029915352012-12-19T02:16:00.000-08:002013-01-29T11:25:12.692-08:00Willful Defaulters and Derivatives Transactions<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>JA</w:LidThemeAsian> <w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript> <w:Compatibility> <w:BreakWrappedTables/> <w:SnapToGridInCell/> <w:WrapTextWithPunct/> 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table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The Supreme Court was recently confronted with a question as to whether a company that had entered into a derivatives transaction with a bank could be categorized as a “willful defaulter” under the <a href="http://rbidocs.rbi.org.in/rdocs/notification/PDFs/43MC290612WFL.pdf">Reserve Bank of India’s Master Circular on Willful Defaulters</a> on account of non-performance of payment obligations. More specifically, the question was whether a bank could be treated as a “lender” in respect of such derivatives transactions. The derivatives were foreign exchange derivatives in which either party could be obligated to make payment to the other depending upon the relative movements of specified currencies over a period of time.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">While there were differences of opinion between two High Courts, the Supreme Court in <a href="http://www.advocatekhoj.com/library/judgments/announcement.php?WID=2875">Kotak Mahindra Bank v. Hindustan National Glass & Industries Limited</a> (and related matters) ruled last week that banks could invoke the willful defaulter provision even in case of unfunded transactions such as derivatives and guarantees, and that the said scheme was not confined to funded transactions such as customary lending and borrowing of sums of money.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The appeals arose out of three different cases. In one case, the Calcutta High Court held that the Master Circular applied only to borrowing and lending transactions. Since the transactions in questions were foreign exchange derivatives, it held that there was no borrower and lender and hence the derivatives counterparty (client) could not be treated as a willful defaulter. In the other two cases, the Bombay High Court came to the opposite conclusion. After considering the Master Circular and various other circulars relating to the banking industry, the Court held that counterparties of banks in derivatives transactions will fall within the purview of the Master Circular, and that banks could name them as willful defaulters (so long as they followed principles of natural justice).<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">On appeal, the Supreme Court was required to interpret the Master Circular. The term “willful default” is defined in the Master Circular with reference to a unit that has “defaulted in meeting its payment/repayment obligations to the lender”. The difficulty arose due to the use of the expressions “payment/repayment obligations” and more specifically the expression “lender”. A literal interpretation would mean that only customary lending and borrowing transactions would be covered. However, the Supreme Court instead adopted a purposive interpretation, keeping in mind the objective of the Master Circular. The Supreme Court’s decision was influenced by the broader objectives of the Master Circular. This is evident from the following extracts from the Supreme Court’s judgment:<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">34. When we look at the Master Circular, we find that the purpose of the Master Circular is "to put in place a system to disseminate credit information pertaining to willful defaulters for cautioning banks and financial institutions so as to ensure that further bank finance is not made available to them". Hence, the purpose of the Master Circular is to have a system to disseminate credit information pertaining to willful defaulters amongst banks and financial institutions so that no further bank finance is made available to such willful defaulters from such banks and financial institutions. …<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">35. Keeping in mind the mischief that the Master Circular seeks to remedy and the purpose of the Master Circular, we interpret the words used in the definition of 'willful default' in clause 2.1 of the Master Circular to mean not only a willful default by a unit which has defaulted in meeting its repayment obligations to the lender, but also to mean a unit which has defaulted in meeting its payment obligations to the bank under facilities such as a bank guarantee. …<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal" style="margin-left: .5in;"><span style="font-family: Arial, Helvetica, sans-serif;">36. The scheme of Collection and Dissemination of information on cases of willful default of Rs.25 lakhs and above was framed by the RBI in the year1999 when the derivative transactions were not part of the country's economy. … Such derivative transactions may not involve a lender-borrower relationship between the bank and its constituent, but dues by a constituent remaining unpaid to a bank may affect the credit policy and the credit system of the country. Information relating to defaulters of dues under derivative transactions who intend to take additional finance from the bank obviously will come within the meaning of credit information under Section 45A(c)(v) of the 1934 Act. …<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .5in;"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Although the companies challenging the banks’ decision to treat them as willful defaulters raised several other issues, the Supreme Court did not set out its views on those. These include issues pertaining to the constitutionality of the Master Circular, which was not directly challenged in these appeals.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Given this interpretation of the Supreme Court, the Master Circular on willful defaults will have wider applicability beyond customary borrowing and lending transactions, and would extend to unfunded transactions as well where the obligor has any kind of payment obligation towards the banks. Among these, the Supreme Court has specifically listed out derivatives transactions as well as guarantees.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: small;">At a broader level, this decision is one among the line of cases where courts are keen to adopt more purposive reasoning to give effect to traditional legislative provisions as they apply in the context of more modern financial transactions such as derivatives and securitization. In this type of an approach, the courts seem keen to uphold the sanctity of contracts in such type of banking transactions in the interest of the overall banking and credit environment in the country. Other examples of this pro-bank approach that we have previously discussed on this Blog include the Supreme Court’s decision in </span><a href="http://indiacorplaw.blogspot.sg/2010/10/legality-of-sale-of-npas-between-banks.html">ICICI Bank Limited v. Official Liquidator of APS Star Industries Ltd.</a><span style="font-size: small;"> and </span><a href="http://indiacorplaw.blogspot.sg/2008/11/legality-of-exotic-derivatives-part-i.html">Rajshree Sugars & Chemical Ltd. v. Axis Bank Ltd.</a></span><!--EndFragment--> </div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-23955101489760145572012-12-18T23:53:00.000-08:002013-01-29T11:25:12.745-08:00Companies Bill as Approved by the Lok Sabha<div dir="ltr" style="text-align: left;" trbidi="on"><!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> <w:LidThemeAsian>JA</w:LidThemeAsian> <w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript> <w:Compatibility> <w:BreakWrappedTables/> 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gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The new companies legislation took a major step yesterday by receiving the approval of the Lok Sabha (India’s lower house of Parliament), and it appears to be inching closer to reality. The version of the Bill as approved by the Lok Sabha and a set of corrigenda are available on the website of the Ministry of Corporate Affairs (<a href="http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2011.pdf">here</a>and <a href="http://www.mca.gov.in/Ministry/pdf/Corrigenda_The_Companies_Bill_2011.pdf">here</a>) respectively.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><span style="font-family: Arial, Helvetica, sans-serif;">Another development is the passage of the Banking Laws (Amendment) Bill, 2011 by the Lok Sabha, which (when enacted) is likely to infuse greater private capital into India’s banking industry. Among several changes is the enhancement of the voting cap on shareholders, from 10% to 26% in private sector banks, and from 1% to 10% in public sector banks.</span><!--EndFragment--> <br /><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span><span style="font-family: Arial, Helvetica, sans-serif;"><b>Update - December 27, 2012</b>: The links to the Bill above are to earlier versions. An updated version of the Bill as approved by the Lok Sabha on December 18, 2012 is now available <a href="http://www.mca.gov.in/Ministry/pdf/The_Companies_Bill_2012.pdf">here</a>.</span></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.comtag:blogger.com,1999:blog-5316348108643768395.post-63637967616509152242012-12-14T02:34:00.000-08:002013-01-29T11:25:12.800-08:00Contract Drafting: Indian Style<div dir="ltr" style="text-align: left;" trbidi="on"> <!--[if gte mso 9]><xml> <o:OfficeDocumentSettings> <o:AllowPNG/> </o:OfficeDocumentSettings></xml><![endif]--> <!--[if gte mso 9]><xml> <w:WordDocument> <w:View>Normal</w:View> <w:Zoom>0</w:Zoom> <w:TrackMoves/> <w:TrackFormatting/> <w:PunctuationKerning/> <w:ValidateAgainstSchemas/> <w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid> <w:IgnoreMixedContent>false</w:IgnoreMixedContent> <w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText> <w:DoNotPromoteQF/> <w:LidThemeOther>EN-US</w:LidThemeOther> 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SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Book Title"/> <w:LsdException Locked="false" Priority="37" Name="Bibliography"/> <w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/> </w:LatentStyles></xml><![endif]--> <!--[if gte mso 10]><style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:Cambria; mso-ascii-font-family:Cambria; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Cambria; mso-hansi-theme-font:minor-latin;} </style><![endif]--> <!--StartFragment--> <br /><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Ken Adams at the Koncision Blog provides a <a href="http://www.koncision.com/what-about-indian-contract-language/#comments">commentary</a>about the continued use of the somewhat archaic language in contracts involving Indian parties. The examples he cites include “unless repugnant to the context or meaning thereof” and “NOW THIS MEMORANDUM WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:” <o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">The simple question being posed is whether this usage aids effective interpretation of the contract or whether it hinders the same. The answer appears to be quite obvious.<o:p></o:p></span></div><div class="MsoNormal"><br /></div><div class="MsoNormal"><span style="font-family: Arial, Helvetica, sans-serif;">Perhaps the plain-English drafting movement could pick up more steam in the Indian context.</span><o:p></o:p></div><!--EndFragment--></div>luv awshttp://www.blogger.com/profile/14273625963477200410noreply@blogger.com