Until recently, whilst it was possible for a foreign company to merge with an Indian company, it was not possible for an Indian company to merge with a foreign company within the court sanctioned merger framework set out under Indian corporate law. This finally changed in April 2017, when the company law provisions that govern cross border mergers were brought into force. In the same month, the Reserve Bank of India (RBI) also issued draft regulations setting out the conditions for obtaining ‘deemed’ approval from the RBI for cross border mergers. Now, companies in India desirous of merging with a foreign company may do so in specified jurisdictions.

Following are some of the key highlights of the recent regulations governing cross border mergers:

  • Jurisdiction Test

The eligible jurisdictions are: (a) those whose securities market regulator is a signatory to the Multilateral Memorandum of Understanding of the International Organisation of Securities Commission or to the Bilateral Memorandum of Understanding with the Securities and Exchange Board of India; or (b) jurisdictions whose central bank is a member of the Bank of International Settlements; and jurisdictions not identified in the public statement of the Financial Action Task Force (FATF) for deficiencies relating to anti-money laundering or combating terrorism financing or jurisdictions without an action plan developed with the FATF to address the deficiencies. Key countries like the USA, UK, Russia, Germany, France, Japan, China, Singapore, Mauritius, etc. will fall within the definition of eligible jurisdictions. Continue Reading A New Dawn for India’s Cross Border Merger Regime

The Securities and Exchange Board of India (SEBI) recently issued an informal guidance in response to a request for an interpretive letter from Kotak Mahindra Bank Limited (KMBL) on the continual disclosure requirements under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).

Regulation 7(2) of the PIT Regulations prescribes a two-step disclosure mechanism wherein:

  1. Promoters/ employees/ directors of listed companies are required to disclose to the company, within two days of the occurrence of a transaction, the number of securities acquired or disposed, where the value of such securities in the transaction (or a series of transactions in any calendar quarter) amounts to a traded value in excess of Rs. 10 lakh.
  2. The company in turn is required to disclose such trades to the stock exchanges, on which the traded securities are listed, within two days of receipt of the disclosure or upon becoming aware of such information.

Continue Reading SEBI’s Informal Guidance on Continual Disclosures under the Prevention of Insider Trading Regulations

In a landmark judgment recently delivered by the National Company Law Appellate Tribunal (NCLAT) in the case of Innoventive Industries Limited v. ICICI Bank Limited, the NCLAT has held that the National Company Law Tribunal (NCLT) is bound to issue only a limited notice to the corporate debtor before admitting a case under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Insolvency Code).

Whilst dismissing the appeal filed by Innoventive Industries Limited against an order passed by NCLT, Mumbai admitting the insolvency petition filed by ICICI Bank Limited, the NCLAT has clarified that adherence to principles of natural justice would not mean that in every situation the NCLT is required to afford reasonable opportunity of hearing to the corporate debtor before passing its order.

Continue Reading NCLAT Defines the Scope and Extent of the Corporate Debtor’s Right to Contest Admission of Insolvency Applications Filed by Financial Creditors

Intellectual property (IP) forms part of our overall growth strategy. This is the message that the Indian government is sending out like never before, as is evident from a number of measures that have been put in place in recent times. The trends show that the government is keen not just to augment efficiency at the Controller’s office, but also to make an effort from a regulatory and legislative perspective. Some of the changes strongly reflect the government’s resolve to push for massive digitisation to strengthen transparency and bring uniformity and consistency into the way the Intellectual Property Office (IPO) functions. The changes are aimed at boosting investor confidence in the long term and signal that India is a pro-IP destination with a conducive environment for innovation and the protection of IP.

The IP regime has been on course to harmonise with internationally accepted jurisprudence ever since India signed up for the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) with new laws, regulations and authorities set up one after the other in compliance with the international obligations. Amendments in patent and copyright laws, new laws on trademarks, design, geographical indications, semiconductor topographies, plant variety and biodiversity marked the beginning of this century. Coupled with these legislative changes, there were also steady changes in the administration with new IP offices and infrastructure set up.

Continue Reading Intellectual Property: On the Path to Reformation

At least since 2012, there has been a fair amount of legal uncertainty on the ambit of powers of the Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions (SERCs) under the provisions of the Electricity Act, 2003 (the 2003 Act) to award what came to be known as a “compensatory tariff” in case of tariff-based competitively bid power generating projects.

The issue took centre stage in 2011-12 with the promulgation of regulations by Indonesia, which barred export of coal from that country below a certain benchmark price. A number of Indian power project developers had submitted aggressive tariff bids during 2006-2009 relying on the import of relatively cheaper coal from Indonesia to India to fuel their power projects.

Continue Reading SC Clarifies the Scope of Regulatory Power under Section 79 (1) of Electricity Act, 2003

The Insolvency and Bankruptcy Code, 2016 (Insolvency Code) has been one of the biggest Indian reform of recent times, which has moved the regime away from one that was highly uncertain for foreign investors. Among other important changes, the Insolvency Code contemplates change in control of the company during the insolvency resolution process to an insolvency professional (IP). The Insolvency Code comes in an environment where many Indian companies have gone global and have made acquisitions outside India.

India has not adopted the United Nations Commission on International Trade Law Model Law on Cross-Border Insolvency (UNCITRAL Model Law). It is notable that only a few countries that have adopted the UNCITRAL Model Law have specified a ‘reciprocity’ requirement for recognition of insolvency proceedings. Therefore, even if India has not adopted the UNCITRAL Model Law, Indian insolvency proceedings may be recognised in a jurisdiction that does not have a reciprocity requirement (this remains untested for Indian insolvency judgements). Also, Section 234 of the Insolvency Code provides for the Indian Government to enter into bilateral treaties with other countries for application of the Insolvency Code to assets or property outside India of the insolvent entities. However, to date, no such bilateral treaty has been signed.

Continue Reading Indian Insolvency Regime without Cross-border Recognition – A Task Half Done?

This piece was previously published in the Economic Times

Next on the list of dilemmas relating to corporate governance issues for independent directors (ID) of a listed company is Board Evaluations. These are 360-degree reviews of the performance of a board of directors, conducted by the Nomination and Remuneration Committee (NRC). In a formal board evaluation process, each director reviews the other.

Interestingly, based on such evaluation, the NRC has to determine (amongst other things) whether an ID should continue holding his directorship or not. Earlier on, such evaluations were voluntary and some companies have been making generic voluntary disclosures in the annual report stating that the evaluation was conducted and recommendations were absorbed for improvement of board functioning. Going forward, the content of this disclosure will change.

Continue Reading Board Evaluations a Nightmare for Independent Directors?

As per the market regulator Securities and Exchange Board of India’s (SEBI) order dated March 31, 2017, in the Kamat Hotels (India) Limited (Kamat Hotels) case, Clearwater Capital (Clearwater) had subscribed to the foreign currency convertible bonds (FCCBs) of Kamat Hotels. Pursuant to a change in the applicable regulation relating to the conversion price for FCCBs, Kamat Hotels passed necessary resolutions approving the revision in price for conversion of FCCBs. Clearwater entered into an inter-se agreement (Agreement) with Kamat Hotels and its promoters on August 13, 2010. The Agreement expired on July 31, 2014. The Agreement had certain affirmative voting rights as are typical for the private equity (PE) investors to have for protection of their interests. Clearwater decided to convert the FCCBs into equity shares on January 11, 2012. The conversion resulted in increase in the shareholding of Clearwater from 24.50% to 32.23% requiring Clearwater to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

The open offer was made only under Regulation 3(1) which relates to acquisition of equity shares/voting rights and not under Regulation 4 (relating to acquisition of control). SEBI issued an observation letter on the draft letter of the offer filed for the open offer. SEBI’s letter stated that Clearwater acquired control under the Agreement in the year 2010 itself as certain affirmative voting rights/ protective covenants gave control to Clearwater and therefore, the open offer should have been made under Regulation 12 (relating to acquisition of control) of the 1997 Takeover Regulations. The protective covenants mandated approval of Clearwater before altering the share capital of Kamat Hotels, creating new subsidiaries, entering joint ventures, disposing or acquiring any material assets, lending or borrowing money beyond certain limits, winding up, etc.

Continue Reading SEBI’s Observation on Protective Covenants – Positive, But Law Not Settled Yet

This blog piece is excerpted from a previously published article in the Express Pharma, April 16-30 Issue and addresses the patent jurisprudence and issues in the pharmaceutical industry in India.

Innovation is the root of success in the competitive world of today. Creativity manifests in new ideas and technologies. New technologies when adopted make life easy. This could not be more true than for the pharmaceutical industry. With the Indian pharmaceutical industry en route to becoming a major player in the global market by 2020, there is increased activity in terms of investments in research and development, access to world class healthcare at affordable rates for the public at large and a renewed focus on development in rural markets.

Though patent law in India has existed over the years, jurisprudence related to pharmaceutical patents is still developing. From granting product patents, to specifically identifying patentable subject matter and incorporation of provisions for compulsory licensing, the law has come a long way since its inception. A conscious effort has been made to ensure that our laws are Trade-Related Aspects of Intellectual Property Rights (TRIPS) compliant while supporting a larger initiative to ensure that life saving medicines are available at affordable prices (compulsory licensing, price control etc.).

Courts in India are getting increasingly sensitive to the complex and technical issues that form the pith and substance of complex pharmaceutical patent litigation. Patent litigation turns on opinion of experts and evidence, which are often absent at the preliminary stages of litigation especially the interim injunction stage. As such the practice of passing ex-parte interim injunctions has given way to a more rational and balanced approach, wherein questions of prima facie infringement, balance of convenience and irreparable injury of the parties are weighed, analysed and rationalised along with a larger public interest perspective. The Supreme Court has time and again insisted that patent matters should be handled on an expedited basis especially where issues of public health, access to life saving drugs and commercial interests are involved and that matters should expeditiously head to trial. Courts are thankfully paying heed to this. Times are changing.

Continue Reading Intellectual Property Rights: Building or Stumbling Blocks? – On The Right Track

Foreign investors into India have often found that when they seek to enforce customary contractual rights in investment agreements, such as option rights, guarantees and indemnities, they have been hamstrung by the ability of the Indian counterparty to contend that such rights are in contravention of the Foreign Exchange Management Act, 1999 (FEMA) and the regulations issued by the Reserve Bank of India (RBI).

It is in this context that the recent Delhi High Court judgment in the case of Cruz City I Mauritius Holdings v. Unitech Limited, MANU/DE/0965/2017, is relevant, in that it categorically strikes down the defence that an arbitral award is not enforceable on the ground that certain provisions of the contract pursuant to which the award was issued were allegedly in contravention of the FEMA regulations.

Cruz City 1 Mauritius Holdings (Cruz City) filed a petition in the Delhi High Court for enforcement of an arbitral award rendered under the rules of the London Court of International Arbitration (Award). This required Unitech Limited (Unitech) and Burley Holding Limited (Burley), a wholly owned subsidiary of Unitech, to pay Cruz City the pre-determined purchase price of all of Cruz City’s equity shares in a joint venture (incorporated in Mauritius) pursuant to:

  1. A “put option” exercised by Cruz City against Burley.
  2. A keepwell agreement (which was in the nature of a guarantee) whereby Unitech was to make the necessary financial contribution in Burley to enable it to meet its obligations.

Continue Reading Alleged Violation of FEMA now a Dwindling Defence against Enforcement of Contractual Rights