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Commercial Contract

Does the arbitration clause in a commercial contract becomes unenforceable due to non-payment of stamp duty, or it is preserved by the separability doctrine? This question has riddled the Supreme Court of India (“SC”) repeatedly and has resulted in contrary views being adopted by various three-judge benches. The issue has been finally laid to rest by a constitution bench of the SC through its judgment dated April 25, 2023 in M/s N. N. Global Mercantile Private Limited v. M/s. Indo Unique Flame Ltd. & Ors.[i] , wherein it held that an unstamped instrument in need of stamping is not a contract and not enforceable in law. Therefore, the arbitration clause contained therein is also unenforceable. Similarly, an arbitration agreement, which attracts stamp duty but is not stamped or insufficiently stamped, cannot be acted upon. Interestingly, the decision has not been unanimous since two Hon’ble Judges have dissented. 

Continue Reading Does Non-Stamping of a Contract Render an Arbitration Clause Contained in it Unenforceable? The Supreme Court Says Yes
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Arbitration Agreement

Introduction

The issue of enforceability of an arbitration clause contained in an unstamped/ insufficiently stamped agreement has been the subject of various judicial pronouncements. Conflicting decisions have been delivered by various High Courts and even the Supreme Court (“SC”) did not lay down a conclusive position. Recently though, a five judge bench of the apex court, through its judgment in N.N. Global Mercantile Private Limited v. Indo Unique Flame Limited[1] (“NN Global”), finally settled the law on enforceability of arbitration agreements contained in unstamped/ insufficiently stamped arbitration agreements.

Continue Reading Enforceability of an Unstamped Arbitration Agreement
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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?
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In a ruling likely to offer significant relief to landowners and real estate developers in Maharashtra, the Hon’ble Bombay High Court (“BHC”) in the matter of Salim Alimahomed Porbanderwalla and Anr (“Petitioners”) vs. The State of Maharashtra and Anr.[1] (“Respondent”), has vide its order dated March 30, 2023, ruled that the Government of Maharashtra (“GOM”) cannot charge a premium or make any entry in revenue records [to the effect that the land is affected by the Exemption Order passed under Section 20 of the Urban Land (Ceiling and Regulation) Act, 1976 (since repealed) (“ULC Act“), and transfer prohibited without prior permission]  vis-a-vis land retainable under the ULC Act (i.e. the land which is not a surplus vacant land).

Continue Reading ULC premium applicable solely on surplus vacant land: Bombay High Court
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New RBI IT Outsourcing Directions Industry Implications

Background

The Reserve Bank of India (“RBI”) has issued the RBI Master Direction on Outsourcing of Information Technology Services, dated April 10, 2023 (“Directions”), that will come into effect on October 1, 2023, in line with its earlier Draft Master Direction on Outsourcing of IT Services, dated June 23, 2022 (“Draft Directions”). The RBI’s message to Regulated Entities (“RE”) via these Directions is clear – the liability of Regulated Entities (“RE”) towards their customers does not get diminished due to such outsourcing arrangements or on account of engaging Third Party Service Providers (“TPSP”), nor does it impede effective supervision by the RBI. Outsourcing activities for financial services were already regulated (“Existing Guidelines”), but not for information technology (“IT”) services. In line with the Existing Guidelines, the idea is that core functional areas of RE cannot be outsourced.

Continue Reading FIG Paper (No. 20 – Series 1): New RBI IT Outsourcing Directions: Industry Implications
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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
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Climate Finance

Climate change is one of the defining challenges of our times. It is a classic example of  a ‘collective action problem’  – one requiring collaborative action between individuals, groups and nations, but where such coordinated action is difficult on account of misaligned incentives. Climate change is likely to result in physical and transition risks that could have implications on stability of the overall financial system as well as the physical safety and financial soundness of banks, financial institutions. Given the potential implications of climate change on monetary policy as well as financial stability, addressing it should be part of the mandate of central banks and financial regulators.

Continue Reading Climate Finance for Regulated Entities – Upcoming Trends
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Introduction

The Securities and Exchange Board of India (“SEBI”) vide its circular dated February 05, 2020, had introduced certain disclosure standards by way of a private placement memorandum (“PPM”) template that all SEBI registered Alternative Investment Funds (“AIFs”) were expected to adhere to. The PPM template inter-alia provided for disclosures under the term “Excuse and Exclusion” and “Direct Plan for investors and constituents of fees that may be charged by the AIFs”.Despite the PPM template, SEBI observed certain disclosure-related inconsistencies and lack of transparency. SEBI by way of circulars dated April 10, 2023, updated the regulatory framework by way of new guidelines to bring in consistency related to disclosures in the PPM.

Continue Reading SEBI Codifies Norms for Excuse and Exclusion and Direct Plan for Investors
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Mergers & Acquisitions

Introduction

While some Indian corporates have been bold acquirers in big-ticket overseas acquisitions, such transactions are rare, often complex, and risky. Indian acquirers have typically used internal accruals or resorted to overseas debt to finance offshore acquisitions due to regulatory restrictions preventing them from using their stock as consideration for the acquisition. Recent liberalisations in the overseas investment framework suggest that this constraint may be going away. While these regulatory changes may provide additional structuring options for cross-border M&A/ restructuring, decisions of certain tribunals on these (relatively recent) amendments may play spoilsport.

Continue Reading Cross-Border Demergers: Navigating muddy waters