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. Continue Reading Claw back clauses in Employment Contracts: A new tool to fight corporate misfeasance

Determinable contracts under the Specific Relief Act,1963 – Part II

In  Part I of this post, we discussed the concept of determinable contracts under the Specific Relief Act, 1963 (the “Act”) and analysed two decisions of the Supreme Court in this regard. In this post, we will examine the decisions of various High Courts which caused some confusion as to what would qualify as a determinable contract under the Act.

Delhi

As far back as 1999, the Delhi High Court found a joint venture agreement which provided for termination by either party in the event that certain government approvals were not obtained by a specified date, to be determinable in nature.[1] Conspicuously, the court did not refer to the decision of the Supreme Court in Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors.[2]

The most notable result of the lack of clarity in Amritsar Gas (supra) came by way of a decision of the Delhi High Court (Division Bench) in Rajasthan Breweries Ltd. v. The Stroh Brewery Company.[3] The agreements in this case specified certain events which would entitle each party to terminate. Observing that the facts of the case before it were identical to those in Amritsar Gas (supra), the court held that the agreements in this case were determinable and, therefore, not capable of specific performance. The court went so far as to hold that even in the absence of a specific clause enabling either party to terminate the agreement on the happening of specified events, the very nature of the agreement (being a private commercial transaction) made it liable to termination without assigning any reason by serving a reasonable notice. In the event such termination is held to be wrongful or bad in law, the only remedy available to the aggrieved party is to seek compensation for wrongful termination and not specific performance. The decision in Rajasthan Breweries (supra) was applied by the Delhi High Court in subsequent decisions.[4] Continue Reading Determinable Contracts Under the Specific Relief Act, 1963 – Part II

Determinable contracts under the Specific Relief Act, 1963 – Part I

Introduction

The remedies most resorted to for breach of contract are damages, specific performance, and injunctions. The remedy of damages is governed by the Indian Contract Act, 1872, whilst specific performance and injunctions are governed by the Specific Relief Act, 1963 (the “Act”).

Prior to the amendment of the Act in 2018, the grant of specific performance was not available as a matter of course but was based on the discretion of the court. Section 10 of the un-amended Act laid down cases in which the court could exercise this discretion viz. when no standard exists for ascertaining the actual damage caused by non-performance of the act agreed to be done or when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief. The Specific Relief (Amendment) Act, 2018 substituted Section 10 of the Act, which now provides that specific performance of a contract shall be enforced by the court, subject to Sections 11(2), 14 and 16 of the Act.[1] Section 20 of the un-amended Act, which set out the contours of the court’s discretion and enumerated cases under which the court may exercise discretion not to grant specific performance, was substituted in its entirety with a provision relating to substituted performance. The grant of specific performance of a contract is, therefore, no longer a matter of discretion and must be granted subject to the exceptions set out in the Act. Continue Reading Determinable contracts under the Specific Relief Act, 1963 – Part I

Battling Covid -19 and Liquidity– The twin crisis of NBFC sector

While the health crisis has brought the country to its knees, the fatal blow seems to be coming our way from the economic effects of the Covid-19 pandemic. The exposure of the severely-stressed para banking industry to risky segments in these times has made it even more vulnerable to an economic slowdown.[1] With its asset quality deteriorating at an increasing rate, the liquidity in para banking industry has been squeezed off to its last drops.

The impact of the liquidity crisis across various classes of non-banking financial companies (“NBFCs”) may be analysed vis-à-vis the exposure it has towards the borrower segments whose economic activities have been severely impacted.  With the economic and consumption activities a bust in sectors such as real estate and micro-finance, the NBFCs with loan exposures in the said sectors will be hit the worst in the wave of this global pandemic. The increasing loan losses and inaccessibility to new capital is likely to exacerbate the liquidity stress. Continue Reading Battling Covid-19 and Liquidity– The Twin Crisis of NBFC sector

DISCLOSURE OF COVID-19 IMPACT BY LISTED ENTITIES - FINDING THE RIGHT BALANCE

Across India, each subsequent phase of the lockdown has permitted a responsible increase in economic activity. As companies re-start their operations, they continue to assess the impact of Covid-19 pandemic on their businesses and operations, which is rapidly and continuously evolving. Listed entities are particularly conscious of their disclosure obligations, more so after the Securities and Exchange Board of India (“SEBI”) issued a circular on May 20, 2020 (the “Circular”), that outlined the relevant considerations for companies in relation to the disclosures on the impact of Covid-19 on their businesses, performance and financials. The Circular is not only a restatement of the current principle-based disclosure regime, but is also indicative of the regulatory expectation on disclosures going forward in relation to impact of Covid-19 pandemic as it evolves. Continue Reading Disclosure of Covid-19 Impact by Listed Entities – Finding the Right Balance

 

Rights Issue - Regulatory to and fro on renunciation

On April 27, 2020, the Central Government notified the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2020 (“FEMA NDI Amendment”). The FEMA NDI Amendment seeks to modify the position on pricing of rights issue – in case of renunciation of rights in favour of a non-resident by a resident, pricing guidelines will apply. We have analysed the implications of the FEMA NDI Amendment on rights issue of securities in this blogpost.

Why Rights issue?

Rights issue has been a preferred mode of raising capital from the existing shareholders of a company as there are no prescriptive conditions on issue price. Companies have the flexibility to determine issue price in case of rights issue under company law as well as SEBI regulations (applicable to listed companies). This gives companies much-needed flexibility to structure a capital raise from existing investors, especially in times of need. Continue Reading Rights Issue: Regulatory to and fro on renunciation?

Listen to this post

DOWN ROUNDS ARE COMING - ENFORCEMENT OF ANTI-DILUTION ADJUSTMENTS

Introduction

The standstill of global economic activity and consequent market downturn caused by the Covid-19 outbreak has delivered a double whammy of capital scarcity and significant valuation correction across several asset classes. Many Indian companies will be in the race to restructure business and/or raise capital, unfortunately, at reduced enterprise valuations.

For businesses with existing venture capital and private equity investors, the looming slew of ‘down rounds’ will trigger anti-dilution rights attaching to convertible securities held by their existing shareholders.

Anti-dilution adjustments are self-executing rights that offer protection from value erosion in the form of reduction of conversion price of securities, translating into a proportional increase in the number of equity shares issuable to the investor on conversion. Continue Reading Down Rounds are Coming: Enforcement of Anti-Dilution Adjustments

FDI in Brownfield Pharma – Will COVID-19 be the catalyst for policy reforms

The pharma sector has gained renewed global attention due to the crisis brought about by COVID-19, a pandemic having an unprecedented impact on health and wellbeing of citizens across geographical boundaries. It is estimated that around 76 pharma companies across the world are in a race to develop and mass-produce an effective vaccine in the fight against COVID-19[1]. Indian pharma companies too are playing a vital role in this search.[2] The Indian pharmaceutical industry has responded to the rapid challenges arising from disruption in supply chains and is working in an integrated manner to drive local expertise by production and export of essential formulation to countries across the globe, and live up to its title as the ‘Pharmacy of the World’. Continue Reading FDI in Brownfield Pharma – Will COVID-19 be the Catalyst for Policy Reforms?

Does the relaxation on PF contribution rates really benefit employers

As part of the ‘Atmanirbhar Bharat’ (Self-Reliant India) campaign, which is the Central Government’s initiative in its war against the Covid-19 pandemic, the Ministry of Labour and Employment (“EPF Amendment”) through a notification dated May 18, 2020, has introduced an amendment to the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (“EPF Act”).

The EPF Act is the key social security legislation in India, under which both the employer and employee are required to contribute a certain percentage of the employees’ salary to the Employees’ Provident Fund Organisation (“EPFO”) (or to a trust in case of exempted establishments). Pursuant to the EPF Amendment, read with the FAQs dated May 20, 2020 issued by the EPFO (“FAQs”)[1], the statutory rate of provident fund (“PF”) contributions under the EPF Act, for both employers and employees, has been reduced from the existing 12 percent to 10 percent, for the months of May, June and July, 2020. The EPF Amendment is applicable to all establishments except: (i) Central/State Public Sector Enterprises; (ii) establishments owned or controlled by the Government; and (iii) establishments covered under the Pradhan Mantri Garib Kalyan Yojana (for whom the Central Government is already contributing both the employer’s and employee’s share – at the rate of 12percent – for the period from March to August 2020). The EPF Amendment is expected to benefit more than 40 million members of the EPFO and more than half a million establishments. Continue Reading Reduction in the rate of PF contributions: Some practical considerations

Section 34 4 of the Arbitration and Conciliation Act 1996 – A fly in the ointment Part II

In Part I of this post, we examined the contours of Section 34(4) of the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”), pre-conditions for its invocation and the scope of the powers conferred upon the court thereunder. In this post, we analyse some of the questions and ambiguities that may arise in the applicability of Section 34(4) of the Arbitration Act.

Can Section 34(4) of the Arbitration Act be invoked to eliminate any ground under Section 34(2) of the Arbitration Act?

Section 34(2) of the Arbitration Act provides two sets of grounds on which an award may be set aside. Section 34(2)(a) sets out grounds of challenge such as incapacity of a party, invalidity of the arbitration agreement, lack of proper notice of appointment of the arbitrator or of the arbitral proceedings or inability of a party to present his case, an award which deals with disputes not submitted to arbitration, improper composition of the arbitral tribunal or arbitral procedure contrary to the agreement between the parties, etc. These grounds must be established by the party challenging the award, on the basis of the record of the arbitral tribunal. Continue Reading Section 34(4) of the Arbitration and Conciliation Act, 1996 – A Fly in the Ointment? (Part II)