The provisions of the Companies Act, 2013 (the Act), and the rules framed thereunder, mandate companies to file requisite documents, including annual returns and financial statements, with the concerned Registrar of Companies (RoC) of their jurisdiction. Non-adherence to such provisions and non-filing of the requisite documents is an offence, exposing non-complaint companies and its directors to severe penal consequences, including fines and prosecution.

However, the records of the Ministry of Corporate Affairs (MCA) and the National Company Law Tribunals (NCLT) would clearly reveal that a lot of companies have been non-compliant with their filings. This non-compliance has been a menace to all the stakeholders involved, including, inter alia, (i) the companies and directors who have to face penal consequences for such non-compliances; (ii) the MCA and its administration who are engaged in the process of updating the records; (iii) the public/ shareholders who do not get access to the records of the companies; and (iv) the NCLT and the office of Regional Directors, which are burdened with compounding cases.


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Claw back clauses in Employment Contracts - A new tool to fight corporate misfeasance

The 2008 financial crisis made it possible to revisit contractual clauses of employees, especially those governing remunerations of executives in financial institutions. One of the clauses that gained prominence was the clause pertaining to ‘clawback’. Broadly speaking, clawback clause refers to an action for recoupment of a loss. It means the refund or return of incentive or compensation after they have been paid. The purpose of such a clause is to claim back unfair enrichment that has happened to an employee. Such a clause acts as a form of insurance and was originally applied in cases of misstatement of financial results or fraudulent acts by employees, but over time, the scope of this clause has gradually expanded.
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The ‘Appointed Date’ Conundrum – Has the MCA Now Resolved This?

‘Appointed Date’ versus ‘Effective Date’

A scheme of arrangement is usually conditional upon the satisfaction of specified conditions. The date on which the conditions to a scheme are satisfied is referred to as the ‘effective date’ of the scheme. Schemes often provide that once all conditions are satisfied, they shall be deemed to have become effective on an identified date (which is not necessarily the same as the effective date) – this is usually referred to as the ‘appointed date’ of the scheme. Accordingly, while the conditions to a scheme are satisfied on an effective date, the transactions under the scheme are deemed to have occurred on an appointed date.
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Vote from Home – A Positive Move for Shareholder Meetings

The Companies Act, 2013 does not contemplate shareholder meetings being held electronically. However, as social distancing becomes de rigueur and the temporary lockdown has been extended to May 3, 2020, due to the COVID-19 pandemic, it has become difficult, impractical and illegal in many cases for companies to hold shareholder meetings physically. At the same time, companies need to plough through these difficult times, and crucial decisions on matters such as fund raising and restructuring, all of which require shareholders’ approval, cannot be suspended. Responding to this dilemma, the Ministry of Corporate Affairs (MCA) has issued circulars[1] relaxing the requirement to hold physical general meetings and permitting meetings to be held remotely through electronic means.

The MCA has requested companies to hold general meetings to take decisions of urgent nature (other than for items of ordinary business[2] and items where any person has a right to be heard) through electronic voting or postal ballot, according to the procedure under Section 110 of the Companies Act, 2013 (Companies Act) and Rule 20 of the Companies (Management and Administration) Rules, 2014, and the additional measures prescribed under the circulars.
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Buy-Backs by Listed Companies - Key Considerations

A listed company proposing to undertake a buy-back is required to primarily comply with the provisions of the Companies Act, 2013 (the “Companies Act”) and the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 (the “SEBI Regulations”). However, a listed company is also required to ensure compliance with the requirements of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “SEBI Takeover Regulations”), the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Foreign Exchange Management Act, 1999, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and other applicable securities laws including in other jurisdictions.

As explained in our earlier blog, as prescribed in the SEBI Regulations, a listed company may undertake a buy-back of its shares and other specified securities through any of the following methods: (a) from the existing holders of securities on a proportionate basis through a tender offer; (b) from the open market either through the book building process or through the stock exchange mechanism; or (c) from odd-lot holders.
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Takeover regulations Companies Act

Background 

The Central Government recently notified Sections 230(11) and 230(12) of the Companies Act, 2013 (“Act”), which deal with takeover offers in unlisted companies. Section 230 of the Act provides for arrangements between a company and its creditors or members or any class of them, specifying the procedure to be followed to make such a compromise or arrangement. The newly-notified Section 230(11) states that in the case of unlisted companies any compromise or arrangement may include a takeover offer made in the prescribed manner, while Section 230(12) permits a party aggrieved by the takeover offer to make an application, bringing its grievance before the National Company Law Tribunal (“NCLT”). The Ministry of Corporate Affairs has also amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“CAA Rules”) and the NCLT Rules, 2016, corresponding to the above provisions. Sub-rules 5 and 6 have been added to Rule 3 of the CAA Rules, and Rule 80A has been inserted in the NCLT Rules, detailing the manner in which the applications may be made under Sections 230(11) and 230(12), respectively. However, these rules are not applicable to any transfer or transmission of shares through a contract, arrangement or succession, as the case may be, or any transfer made in pursuance of any statutory or regulatory requirement.
Continue Reading Takeover Rules for Unlisted Companies: Minority Squeeze Outs Under Section 230(11) of the Companies Act, 2013

SEBI Working Group on Related Party Transactions

 In the battle for good governance, India Inc. keeps tripping on three letters – RPT. Related-Party Transactions. This, despite the fact that India has one of the most elaborate set of rules and regulations for disclosures and approval of RPT by both listed and unlisted companies.

Historically, the Companies Act, 1956 did not specifically regulate RPTs. It had provisions that only restricted certain types of transactions.

The Companies Act, 2013 (CA, 2013) enacted Section 188, which for the first time began regulating certain types of transactions between companies and its “related parties” (as defined in CA 2013), and provided for the approval of such transactions (exceeding a prescribed monetary threshold) by non-related parties.
Continue Reading SEBI Working Group on Related Party Transactions: Will the net be cast too wide?

CHAIRMAN OR MANAGING DIRECTOR SEBI Regulation

Section 203(1) of the Companies Act states that an individual shall not be appointed or reappointed as the chairperson, of the company as well as the managing director (MD) or the chief executive officer (CEO) at the same time, unless the articles of the company provides otherwise or the company does not carry on multiple businesses. Further, this restriction is not applicable to certain specified class of companies engaged in multiple businesses and which have appointed one or more CEOs for each such business.
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Cross-border demergers – lack of legislative intent?

In the matter of Sun Pharmaceuticals Industries Limited, the Ahmedabad bench of the NCLT has ruled that Section 234 of the Companies Act, 2013 and the FEMA Cross Border Merger Regulations, 2018, do not permit cross-border demergers. Sun Pharma sought to demerge two of its investment undertakings in India into two overseas resulting companies, based in the Netherlands and the US. Being a listed entity, it obtained prior approval of SEBI through the relevant stock exchanges and the requisite corporate consents of its shareholders and creditors. The RBI granted its implied deemed approval by stating that the demerged company is required to abide by the applicable rules and regulations, which it had undertaken that it would. None of the other stakeholders to whom notices were issued by the tribunal, including the Registrar of Companies (ROC), objected to the demerger on the ground that it was not permitted by law.
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DECRIMINALIZING OUR COMPANY LAW

In line with the government’s stated goal of promoting Ease of Doing Business, the Company Law Committee (CLC), set up by the Ministry of Corporate Affairs (MCA), has recently submitted its report to the MCA, recommending decriminalisation of 46 compoundable offences under the Companies Act, 2013 (the Act). This list is in addition to the 16 compoundable offences already decriminalised by the Companies (Amendment) Act, 2019.

To put things into perspective, attempts to decriminalise business laws is not new to India. This process began with liberalisation of the Indian economy in 1991. The first commercial law that was decriminalised was the Imports and Exports (Control) Act, 1947. It was replaced by the Foreign Trade (Development and Regulation) Act, 1992, which decriminalised most of the offences relating to imports and exports. The most fundamental step in this direction was the replacement of draconian Foreign Exchange Regulation Act (FERA), 1973, by Foreign Exchange Management Act (FEMA), 1999 which decriminalized offences relating to foreign exchange regulations.
Continue Reading Decriminalizing our Company Law – Has the Pendulum Moved Too Far?