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.
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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.
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 Decriminalising Companies Act Offences

Via the Companies (Amendment) Act, 2019, recommendations of the Committee to Review Offences under the Companies Act, 2013 (Committee) to re-categorise 16 out of 81 compoundable offences under the Companies Act, 2013 (Act) as civil liabilities were accepted. In a move to further relax the provisions, the Government has constituted a Company Law Committee to review aspects of criminalization in the remaining compoundable and non-compoundable offences under the Act.[1]
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Companies (Amendment) Act, 2019

Commitment to social causes is best done voluntarily. Accordingly, corporate social responsibility (CSR) was originally introduced in Section 135 of the Companies Act, 2013 (Companies Act), in keeping with global best practices, to provide a framework to encourage companies to meaningfully contribute to communities.

The framework was premised on the principle that companies would contribute the prescribed amount in good faith and the requirement ‘to explain’ any failure to contribute, in their board report, was considered a sufficient disincentive to ensure compliance.[1] 
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Is Liquidation Irreversible - Schemes of Compromise in Liquidation

The 2005 Report of the Expert Committee on Company Law (JJ Irani Committee Report) had noted that an effective insolvency law:

should strike a balance between rehabilitation and liquidation. It should provide an opportunity for genuine effort to explore restructuring/ rehabilitation of potentially viable businesses with consensus of stakeholders reasonably arrived at. Where revival / rehabilitation is demonstrated as not being feasible, winding up should be resorted to.

Where circumstances justify, the process should allow for easy conversion of proceedings from one procedure to another. This will provide opportunity to businesses in liquidation to turnaround wherever possible. Similarly, conversion to liquidation might be appropriate even after a rehabilitation plan has been approved if such a plan was procured by fraud or the plan can no longer be implemented”.
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Ministry of Corporate Affairs circular - Legal Enforceability

The Ministry of Corporate Affairs (MCA) has been entrusted with the responsibility of administering the Companies Act, 2013 (Act). The MCA, from time to time, issues circulars and clarifications to clarify the provisions of the Act and the rules made thereunder (Rules). For example, in the first year of operation of the Act, the MCA issued 89 clarificatory circulars. In 2015 and 2016 the number was 22 and 21 respectively. In this article, we assess whether such circulars and clarifications are legally enforceable and how far companies may rely on them.

Here, it is pertinent to note that unlike Section 119(1) of the Income Tax Act, 1961, which empowers the Central Board of Direct Taxes to issue orders, instructions and circulars, there is no corresponding provision in the Act that empowers the MCA to issue such circulars and clarifications. As explained in our earlier post, executive action reflects steps taken by the Government in its sovereign authority. Article 73 of the Indian Constitution states that, subject to the provisions of the Constitution, the executive power of the Union extends to matters on which the Parliament’s legislative power extends. However, this power cannot operate in matters of an ‘occupied fieldi.e., where prior legislation over the subject matter exists.
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Shares with Differential Voting Rights

The Securities Exchange Board of India (SEBI) has recently circulated a consultation paper on Differential Voting Rights (DVRs). Issuance of shares with differential voting or dividend rights is not a novel concept for India. It has been around since 2000 and a few listed companies, like Tata Motors and Pantaloons, have issued shares with differential voting / dividend rights.

However, ever since, SEBI amended the Listing Regulations in 2009, to state that listed companies are not permitted to issue shares with ‘superior rights’, there have hardly been any takers for this instrument. SEBI’s current proposal appears to be an attempt to breathe some life into such instruments by providing more flexibility in structuring the terms of such issuances, albeit with some checks and balances.  
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Banning of Unregulated Schemes Ordinance, 2019

In the aftermath of the Saradha scam, the Standing Committee of Finance (Committee) in its 21st report dated September 21, 2015 suggested the introduction of a comprehensive regulatory framework governing all entities engaged in activities involving acceptance of deposits from the public. While making this recommendation, the Committee observed that certain entities were engaged in financial as well as non-financial activities and therefore, it was difficult to identify the appropriate regulator for such entities. Such entities fall under the jurisdiction of various regulatory bodies and in spite of overlapping regulations, several such entities were not regulated by any regulator.

In view of the suggestions of the Committee, a high level Inter-Ministerial Group (Group) was formulated for identifying gaps in the existing regulatory framework. The Group suggested the enactment of a comprehensive central act to criminalise the solicitation, promotion, acceptance and/or operation of ‘unregulated deposit schemes’. In line with the recommendations of the Committee and the Group, the Banning of Unregulated Schemes Ordinance, 2019 (Ordinance) was promulgated on February 21, 2019.
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