Share transfer restrictions come in various shapes and sizes and in so far as they relate to shares of public companies, their validity has been a topic of hot debate. In several cases, Indian courts have considered and opined on the legality of contractual restrictions on the transfer of shares of public companies. The position in this regard now appears to be much clearer than before with changes also being introduced in the Companies Act, 2013 (CA 2013). However, one aspect of this debate that has hitherto gained lesser traction is the ability of a public company to refuse registration of share transfers pursuant to section 58(4) of the CA 2013.

Section 58(2) of CA 2013 states that the securities of any member in a public company are freely transferable, while under section 58(4) of CA 2013, it is open to the public company to refuse registration of the transfer of securities for a ‘sufficient cause’. To that extent, section 58(4) of CA 2013 can be read as a limited restriction on the free transfer permitted under section 58(2) of CA 2013. However, the statute does not provide any guidance on what would constitute ‘sufficient cause’ and leaves it open to the company itself to ascertain the same. Continue Reading Share Transfers: Can the Company Say No?

Financial investors in India are scared of regulatory uncertainties. Not that uncertainties are exclusive to our country but it’s a critical risk factor that is assessed by those making substantial investments. Historically, one of the most important regulatory concerns for such investors is related to being categorised as ‘promoter’ of a listed company, both when the company is going public and also in cases where a private equity (PE) player intends to take a control position in an already listed company, by replacing its present promoters or by becoming co-promoters. Promoter liability theories have kept such investors away from taking control positions in listed companies. On the contrary, in the unlisted space where the promoter position is perceived differently, control deals are a way of life for certain PE funds in India.

Continue Reading New Promoters on the Block: The Financial Investors

On December 7, 2016, the Ministry of Corporate Affairs (MCA) notified and brought into operation a significant chunk of sections under the Companies Act, 2013, including provisions relating to compromises, arrangements, reconstructions, mergers and amalgamations, with effect from December 15, 2016 (the Notification). This marks a paradigm shift in the corporate restructuring process, which is all set to undergo a transition from the earlier restructuring processes under the aegis of the High Courts, to National Company Law Tribunals (NCLTs), constituted with effect from June 1, 2016.

The MCA notified the Companies (Removal of Difficulties) Fourth Order, 2016, and the Companies (Transfer of Proceedings), Rules, 2016, on the same date as the Notification, clarifying that proceedings relating to schemes will stand transferred, forthwith, except where orders have been reserved. While applicants with final hearings on or before December 14, 2016, who were expecting orders to be reserved, heaved a sigh of relief, other applicants were caught in a limbo, while prospective applicants were left to surmise, and gear up for implementation of the new provisions, yet to be tested by NCLTs. The Notification was soon followed, on December 14, 2016, by the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, on sanction of schemes by NCLTs. Continue Reading National Company Law Tribunal: In the Scheme of Things