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WOS Exemption

Context:

Ever since the stock market scam of 2001 (Ketan Parekh Scam) was brought to light, regulators have been vigilant about the use of complex corporate structures to circumvent statutory restrictions and divert company funds. After the magnitude of financial irregularities in the Ketan Parekh Scam came to light, the Joint Parliamentary Committee (“JPC”) and the erstwhile Department of Company Affairs (“DCA”) proposed steps to prevent  companies from using the ‘subsidiary route’ to siphon off funds, by providing inter-corporate loans.[1]Continue Reading The Layering Restrictions & WOS exemption – Need for Regulatory clarity

Context

Instances of financial/ accounting frauds and serious corporate governance failures have become endemic in today’s corporate world, leading to huge erosion in shareholder wealth. On most occasions, such irregularities and failures are detected very late, when it becomes impossible to rewind the clock and undo damage that has already been done. Recent cases of financial/ accounting irregularities have demonstrated that several early warning signals (like disclosures made in the ‘notes’ to  the financial statements) are often not recognised by the Board of Directors (“Board”) and other gatekeepers of governance – thereby raising serious questions regarding their effectiveness.Continue Reading Why do Boards fail to catch ‘sub-sonic sounds’ within the Organisation?

Introduction

Ease of doing business also includes the ease with which companies can shut operations and exit the marketplace in a country. Under Indian law, companies (or limited liability partnerships (“LLP”) have various options to wind down operations voluntarily, either under the Companies Act, 2013 (“Companies Act”), (or the Limited Liability Act, 2008, for an LLP) or the Insolvency and Bankruptcy Code, 2016 (“IBC”).Continue Reading Ease of closing a Business in India

Financial Statement

Context

The cardinal principle of company law, as enshrined under Section 129(1) of the Companies Act, 2013 (“Companies Act”), is that the financial statements (“FS”) should give a ‘true and fair view’ of the state of affairs of the company, comply with the accounting standards notified under Section 133, and also be in the form provided for different classes of companies under Schedule III.Continue Reading Non-compliance with Accounting Standards – Will it amount to an FUTP Offence?

Shareholders Rights

In a corporate democracy, the rule of majority prevails, period! Hence, in most jurisdictions, shareholders’ resolutions may be passed by a simple majority, or, where the decision may be critical to the operations or the future of a company, by a super/ special majority of at least, three-fourths. In this way, the decision of the majority binds all members/ shareholders.Continue Reading Protection and Redressal of Minority Shareholder Rights

True and Fair

Context

“Forewarned is forearmed” is the cardinal principle underlying company law jurisprudence around the world and the foundation of all disclosure requirements.

Section 129(1) of the Companies Act, 2013 (“Act”), provides that the financial statements (“FS”) shall give a ‘true and fair view’ of the state of affairs of the company, comply with the accounting standards notified under Section 133 of the Act, and also be in the form provided for different classes of companies in Schedule III of the Act.Continue Reading How True is ‘True and Fair’ View?

Gatekeepers of Governance

Context

In an earlier article under the ‘Gatekeepers of Governance’ series, the authors had discussed how the regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), places ‘independent directors’ (“IDs”) at the forefront of India’s quest for better corporate governance. However, it is often forgotten that along with IDs, even non-executive non-independent directors (“NENIDs”) on the Board can play a pivotal role in acting as a ‘watchdog’, and safeguarding stakeholder interest.Continue Reading Gatekeepers of Governance: Non-Executive Non-Independent Directors

Ministry of Corporate Affairs circular - Legal Enforceability

Context

The Ministry of Corporate Affairs (“MCA”) is entrusted with the responsibility of administering the Companies Act, 2013 (“2013 Act”). To this end, it has issued many a circulars to clarify the provisions of the 2013 Act and the rules made thereunder from time to time. On important matters like CSR, the ministry has issued detailed FAQs in the form of clarificatory circulars. Till date, the MCA has issued more than 210 clarificatory circulars under the 2013 Act.Continue Reading Are Ministry of Corporate Affairs (MCA) Circulars constitutionally valid?

Background

The Parliament took 16 years to implement the directions issued by the Supreme Court of India in 1997, in the landmark case of Visakha vs. State of Rajasthan[1] (“Visakha Guidelines”) to enact a law for the prevention of sexual harassment of women at the workplace. The enactment of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (“Act”) and the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Rules, 2013 (“Rules”) was very late, but better so than never.Continue Reading POSH Act – Implementational Challenges

Nomination and Remuneration Committee

Background

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), envisages a key role for the Nomination and Remuneration Committee of the Board of Directors (“NRC”) – in ensuring that the company attracts and retains the best talent – and there is transparency in the process of appointment/ re-appointment and payment of remuneration to directors, key managerial personnel (“KMPs”) and senior management[1].Continue Reading Gatekeepers of Governance – Nomination and Remuneration Committee