Essar Steel India Limited - Supreme Court reinforces primacy of Creditors Committee in insolvency resolution

Essar Steel judgement of the National Company Law Appellate Tribunal (NCLAT), which required that the secured financial creditors share recoveries in a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC), inter se (irrespective of the ranking of their security positions) and with the trade creditors, on a pari passu basis, was considered a ”confusion in the different types of creditors” and a setback for the nascent but growing secondary debt market in India. The judgement perhaps was also opposed to the realities of credit risk assessments and pricing of the credit leading to an unsatisfactory resolution outcome for creditors in an insolvency situation. Continue Reading Essar Steel India Limited: Supreme Court Reinforces Primacy of Creditors Committee in Insolvency Resolution

Put-option Holders - Financial Creditors Under the IBC

In its recent judgment in the case of Jignesh Shah v. Union of India[1] (Jignesh Shah), a three-judge bench of the Supreme Court set aside the NCLAT judgment in the case of Pushpa Shah v. IL&FS Financial Services Limited[2] (NCLAT Judgment) along with the original judgment of the NCLT[3] (NCLT Judgment and, together, La-Fin Judgments). The NCLT Judgment and the NCLAT Judgment had rejected the corporate debtor’s objection in relation to the claim being time barred and initiated corporate insolvency resolution process on the basis that a put option holder may be treated as a “financial creditor” under the Insolvency & Bankruptcy Code, 2016 (IBC). Continue Reading Put-option Holders: Financial Creditors Under the IBC?

Contract Manufacturing - Press Note 4

The question of whether contract manufacturing constitutes “manufacture” from a foreign investment perspective is an oft debated topic in the manufacturing fraternity and many businesses have struggled with this issue for years.

“Contract manufacturing” refers to manufacturing undertaken through a third party and has a range of benefits for the principal manufacturer, including economic efficiency, scale, operational efficiencies and flexibility. For instance, if a specialised set of equipment or skills is required to manufacture a certain product, the principal manufacturer can use the facilities already available with a third party to manufacture these products, instead of investing its capital in creating these facilities for itself. Contract manufacturing also enables a principal manufacturer to utilise a contract manufacturer’s existing supply chains, linkages and labour force. If a principal manufacture has a cyclical manufacturing business, using the facilities of a third party may be more beneficial than making capital investments that may lie idle for large parts of the year. In light of these benefits, contract manufacturing as a business model is one that is preferred by many entities in the manufacturing business. Continue Reading The Contract Manufacturing Conundrum – Press Note 4 to the Rescue?

Surveillance in the Post-Puttaswamy Era - Right to Privacy

In 1997, the Supreme Court of India (Supreme Court) pronounced its judgment in the case of People’s Union for Civil Liberties (PUCL) v. Union of India (SC, 1997) (PUCL Case), which laid the groundwork for the right to privacy in the context of telephonic surveillance (i.e. wiretaps) and constitutional freedoms.

This article analyses the Supreme Court’s stance on the right to privacy in the PUCL Case, which was upheld in the 2017 landmark judgment by the nine-judge bench in KS Puttaswamy v. Union of India (SC, 2017) (Puttaswamy Case) that declared privacy a fundamental right. The applicability of the right to privacy has recently received further validation in the context of wiretaps in the October 2019 judgment in Vinit Kumar v. Central Bureau of Investigations and Ors (Bom HC, 2019) (Vinit Kumar Case), wherein the Bombay High Court outlined the ambit of the State’s power to surveil its subjects particularly on matters that do not fall within the category of ‘public emergency’ or ‘in the interest of public safety’. Continue Reading Surveillance in the Post-Puttaswamy Era

Introduction to the Biodiversity Act of India

India is known to the world for its diversified biological resources. Arising out of its obligations as a signatory to the United Nations Convention on Biological Diversity held at Rio de Janerio in 1992, and “to provide for conservation of Biological Diversity, sustainable use of its components and fair and equitable sharing of benefits arising out of the use of biological resources and knowledge”, the Biological Diversity Act, 2002 (BD Act) was enacted by India to regulate access to, and use of, its biological resources.

In essence, the BD Act mandates approvals from the National Biodiversity Authority (NBA) and to inform State Biodiversity Authorities (SBAs) for people to access and use biological resources, or knowledge associated thereto, for research purposes, commercial utilisation, bio-survey and bio-utilisation, for applying intellectual property or for transferring results of research. Continue Reading The Biodiversity Act of India: An Introduction

New Significant Beneficial Owner (SBO) rules - Companies Act - Implementation Challenges

India is yet to hit its stride in dealing with Significant Beneficial Owner (SBO) rules introduced by the Companies (Amendment) Act, 2017. The SBO rules have its origin in the recommendations made by the Financial Action Task Force (FATF) to its member countries, to make suitable changes in the national legislation to find out individuals, who ultimately own significant beneficial shareholding in the reporting company. There remains a large degree of uncertainty and confusion around the new norms, and their practical impact, as explored below.

Sections 89(10) and 90 of the Companies Act, 2013 (Act) were introduced on the recommendations of the Company Law Committee (CLC) in its Report dated February 1, 2016. The CLC noted that complex structures and chains of corporate vehicles are used to hide the real owners behind the transactions made using those structures. Continue Reading New SBO Rules – Implementation Challenges

Group Insolvency Norms

The recognition of a company’s separate juristic personality by the UK’s House of Lords in its landmark ruling in Salomon v. Salomon A Company Ltd.,[1] remains the basis for modern corporate law.[2] The ruling in effect drew a corporate veil around the legal personality of the company thereby establishing the separate legal identity of a corporate.

While India also follows the separate juristic personality of corporates as a general principle, exceptions have been incorporated over the years by way of legislative action[3] and juridical pronouncements.[4] In the context of insolvency law, the corporate veil is typically lifted in instances where a group company could be held liable for the debts of its associate and subsidiary companies, or if a group of companies functioned as a collective. Continue Reading Staggered Lifting of the Corporate Veil: A Case for Group Insolvency Norms

Depository Receipts - SEBI Framework SMM

 

The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts (DRs) by companies listed or to be listed in India ( DR Framework), by its circular dated October 10, 2019.

In the early years of liberalisation and up to the time SEBI permitted qualified institutions placement (QIPs) in 2006, DR issuances formed a significant and important part of foreign investment into the Indian equity markets. However, in the past five years, there have been very few DR issuances, for a variety of reasons including due to regulatory uncertainty around operational guidelines for DRs and concerns in relation to compliance with rules under the anti-money laundering legislation. Continue Reading SEBI Introduces Framework for Issuance of Depository Receipts

Revised norms for foreign portfolio investors SEBI

The norms surrounding foreign portfolio investors have undergone continuous changes and tweaks since liberalisation. The framework introduced by Central Government was first consolidated and expanded upon by the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Institutional Investors) Regulations, 1995 (1995 Regulations).

A little under a decade later, in 2014, SEBI took steps to consolidate the categories of investors previously accessing Indian capital markets – i.e., foreign institutional investors, sub-accounts and qualified foreign investors – into a single class known as ‘foreign portfolio investors’ (FPIs). SEBI also delegated the responsibility of registering such FPIs to designated depository participants (DDPs). Multiple questions arising out of the new regime were subsequently answered by SEBI in a series of frequently asked questions (FAQs), updated from time to time. The 2014 Regulations also incorporated concepts such as opaque structures and a scope of investor group, which did not find a mention in the 1995 Regulations but were introduced through notifications and instructions from SEBI.

Five years later, SEBI has issued revised norms for FPIs in terms of the SEBI (Foreign Portfolio Investors) Regulations, 2019 (2019 Regulations) with a number of changes (as suggested by the committee headed by Mr. HR Khan), some to concepts dating back to the regime under the 1995 Regulations. The 2019 Regulations also consolidate the extensive guidance and requirements prescribed by SEBI by way of amendments to the 2014 Regulations as well as circulars and FAQs issued thereunder.

This post discusses some of the key aspects of the 2019 Regulations. Continue Reading Revised Norms for FPIs: New Wine in a New Bottle

Insider Trading Hotline SEBI - Informant Mechanism

In our previous blog post, dated June 12, 2019, we discussed the Securities Exchange Board of India’s (SEBI) efforts to institutionalise an informant mechanism for insider trading, through its discussion paper released in June 2019 (Discussion Paper).

The regulator has now formalised this into law through a recent amendment to the Insider Trading Regulations, which came after a SEBI board meeting approved the informant mechanism scheme on August 21 of last month. Interestingly, while the publicly available agenda of the SEBI board meeting states that it had received comments from certain entities on the Discussion Paper, these comments are not publicly available and are stated to have been excised for reasons of confidentiality. Continue Reading SEBI launches a new hotline: Introduction of the Informant Mechanism into the Insider Trading Regulations