Rights Issue – Is the Board’s Discretion to Allot Unsubscribed Shares Absolute?

Introduction

Rights issue, as the term denotes, is the recognition of an inherent right of an equity shareholder against dilution of his shareholding in the company. It is a pre-emptive right of the equity shareholder to subscribe to his proportionate share in all further issuance of equity shares.


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New disclosure obligation in Financial Statements for companies holding cryptocurrencies - Are Regulators testing waters?

Context

India is witnessing a rapid increase in the number of crypto exchanges as well as cryptocurrency transactions. As per publicly available data, the average daily cryptocurrency trading volumes across the top Indian exchanges have grown nearly 500% from March 2020 to December 2020. Globally, countries such as Switzerland, Singapore and the US have been pro-active in undertaking cryptocurrency transactions, and simultaneously creating a robust regulatory framework for the same. In fact, investors from these countries have also been investing in Indian cryptocurrency exchanges.
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New Remuneration Regime for Independent Directors - Will It help in attracting better talent on the boards of India Inc

Recently, the Ministry of Corporate Affairs (‘MCA’) has notified the amendments made to Sections 149(9) and 197(3) of the Companies Act, 2013 (‘2013 Act’) by the Companies (Amendment) Act, 2020 (‘2020 Amendment’) -to enable companies faced with absence or inadequacy of profits to pay certain minimum guaranteed remuneration to Non-Executive Directors (‘NEDs’) and Independent Directors (‘IDs’), as may be prescribed. On the same day, the MCA also issued a Notification to amend Schedule V of the 2013 Act to prescribe the scale of remuneration which can be paid to NEDs and IDs, depending on the effective capital of the company.
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Evidentiary value of Parliamentary Committee Reports 

In Kalpana Mehta v Union of India (‘Kalpana Mehta judgment’)[1], a Constitution Bench of the Supreme Court (‘SC’) pronounced a detailed judgment on whether Courts can place reliance on the Report of a Parliamentary Standing Committee (‘PSC’). The SC also examined whether the factual observations made in a PSC Report can be contested or challenged by the parties, during a judicial proceeding.

This decision arose from a referral order issued by a two-judge bench of the SC. The two-judge bench took the view that this was a ‘substantial question of law’ – that should be adjudicated by a Constitution Bench in accordance with Article 145(3) of the Constitution. While the Constitution Bench took a unanimous view, three separate concurring opinions were issued by Justice Dipak Misra, Justice Dr. D Y Chandrachud and Justice Ashok Bhushan.
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Serious Fraud Investigation Office – Keeping a close watch on frauds in India Inc

The Serious Fraud Investigation Office (‘SFIO’) is an organisation established under the aegis of the Ministry of Corporate Affairs (‘MCA’) – for investigation and prosecution of white-collar crimes. The SFIO was constituted in July 2003 following the recommendations of the Naresh Chandra Committee. In 2002, the Naresh Chandra Committee had recommended setting up a ‘Corporate Serious Fraud Office’, to uncover corporate fraud, and supervise prosecutions under various economic legislations.
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The PMLA – is the net cast too wide

The Prevention of Money Laundering Act, 2002 (‘PMLA’) has undergone multiple amendments after it was brought into operation on July 1, 2005. Most recently, the PMLA was amended through the –

  • Finance Act, 2015 (‘2015 Amendment’)
  • Finance Act, 2018 (‘2018 Amendment’)
  • Finance Act, 2019 (‘2019 Amendment’)

These amendments aimed to plug loopholes in the operation of the PMLA – to strengthen the framework for tackling money laundering. In furtherance of this objective, the 2019 Amendment has clarified the definition of “proceeds of crime” under Section 2(1)(u). Amendments were also made to Section 45, following the Supreme Court’s decision in the Nikesh Tarachand Shah[1] case – which struck down the pre-conditions for bail prescribed under Section 45(1). Over the years, the list of “scheduled offences” under Schedule I of the PMLA has also been amended significantly. Another aspect that arises in many PMLA proceedings is the admissibility of statements made to investigating officers.
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Year 2020 in Review - The Funds Perspective

Remembering the year 2020 could easily turn one pensive. The year posed unprecedented challenges for the funds industry, driving-forth fundamental changes in the manner business would be conducted alongside the pandemic. The year also marked an important milestone in the ever-evolving regulatory landscape, with several amendments critical for funds and fund managers being rolled out.

SEBI Changes to Scheme Circular - Is it a case of over-prescription

SEBI has been continuously streamlining the regulatory architecture governing schemes of arrangements under Sections 230-232 of the Companies Act, 2013 (“Companies Act”) and Regulations 11, 37 and 94 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) involving listed companies with the introduction of the SEBI Circular dated March 17, 2017 (“SEBI Scheme Circular”). SEBI vide its Circular dated November 3, 2020 (“Amendment Circular”), has introduced further changes to the SEBI Scheme Circular. The Amendment Circular is brought into effect for all schemes of arrangement submitted to the Stock Exchanges on or after November 17, 2020. Changes introduced under the Amendment Circular are as follows:
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Vicarious Liability of Non-Executive Directors - A Case for Reform of Law

Context:

The vicarious liability provisions have been evolving ever since the evolution of law of torts. “Offence by companies” is a standard vicarious liability provision in most statutes, which is often used to fasten the liability on directors for the acts and omissions of the company. These vicarious liability provisions are borrowed from colonial-era laws and incorporated in our domestic legislations. As a rule, there is no concept of vicarious liability in criminal law. Such provisions imposing liability on directors for acts/ omissions of the company are present in most statutes.

The vicarious liability provisions have a standard language providing that the person-in-charge of and responsible for the conduct of the business of the company at the time of the commission of the offence, as well as other officers are liable for that offence. However, those provisions do not make a distinction between Managing Directors (“MDs”)/ Executive Directors (“EDs”) and Non-Executive Directors (“NEDs”)/ Independent Directors (“IDs”).
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Arm’s Length Pricing -Navigational Tools for the Audit Committee

India has one of the most detailed set of laws and regulations governing disclosures and approvals of related party transactions (RPT) regulating both listed and unlisted companies. The provisions of Section 188 of the Companies Act, 2013 (the Act) are applicable if:

  1. a company enters into a transaction with a ‘related party’ as defined under Section 2(76) of the Act;
  2. such transaction falls under any of the categories specified under sub-clause (a) to (g) of Section 188(1) of the Act, an approval of the board of directors will be required prior to entering into such transaction; and
  3. such transaction exceeds the monetary thresholds prescribed under Rule 15(3) of the Companies (Meeting of Board and its Powers) Rules, 2014, prior approval of the shareholders will also be required by way of an ordinary resolution.

Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) provides that all material RPTs require shareholder approval through an ordinary resolution and no related party entity shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not. However, all RPTs, whether material or not, require approval of the audit committee.
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