Context

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (LODR) Regulations, 2015 (“LODR”), places independent directors (“IDs”) at the forefront of India’s quest for better corporate governance. Given that approximately 75% of listed companies in India are promoter-controlled, the MCA and SEBI have envisaged that the IDs will play a key role in safeguarding minority shareholders’ interest.

Continue Reading Gatekeepers of Governance – Independent Directors

Invesco v Zee

In a recent judgment pronounced in Invesco Developing Markets Fund v. Zee Entertainment Enterprises Limited[1] (“Judgment”), on March 22, 2022, a Division Bench of the Bombay High Court (“BHC”) allowed Invesco’s appeal against a judgment dated October 26, 2021[2]. The October 26 judgment was passed by a Single Judge of the BHC (referred to hereinafter as the “Impugned Order”), which had granted an injunction restraining Invesco from calling for and holding an extraordinary general meeting (“EGM”) of Zee.

Continue Reading Bombay High Court’s Judgment in Invesco v Zee– A major boost for shareholders’ rights in India

JV Company’s Board

Background

The fiduciary relationship between a director and the company is among the foremost principles of company law, which was first enshrined by common law courts of equity. The Supreme Court of India (“SC”) first recognised this common law principle in its celebrated judgment in the Nanalal Zaver case[1], which noted that directors can be considered as “trustees” of the company, and “must exercise their powers for the benefit of the company and for that alone”.[2]

Continue Reading Dilemma of a Nominee Director on the JV Company’s Board – Is there a conflict in his fiduciary duties?

Company Law

Background

The law on minority squeeze-out has not been a glorious chapter in the history of India’s company law. The Parliament, as a matter of legislative policy, appears to be uncomfortable with enacting a law that forces minority shareholders to compulsory sell their shares. The government perceives it as a kind of ‘expropriation’. Hence, despite Dr. JJ Irani Committee’s specific recommendation, our Parliament has adopted a conservative approach while providing majority shareholders with the mechanism to ‘buyout’ the shares held by the minority shareholders. Even after the ‘right to property’ was abolished as a fundamental right under our Constitution, law makers seem uncomfortable in giving such right to majority shareholders, and half-hearted attempts have been made to provide majority shareholders with the ability to fully own a company.

Continue Reading Minority squeeze-out under our Company Law – Is it a legislative policy dilemma?

 

Computation of ‘net profits’ for Managerial Remuneration – Has this provision outlived its utility

Introduction

Section 198 of the Companies Act, 2013 (‘2013 Act’), prescribes a special method for computation of ‘net profits’ of a company in a financial year — which has different rules for arriving at net profit than the one prescribed under Accounting Standards.

The special methodology for computation of net profits prescribed under Section 198 is used for two purposes – (i) for determining managerial remuneration under Section 197 and Schedule V; and (ii) for determining the minimum CSR amount to be spent by the company in a financial year, under Section 135(5) of the 2013 Act.
Continue Reading Computation of ‘net profits’ for Managerial Remuneration – Has this provision outlived its utility?

Vote from Home – A Positive Move for Shareholder Meetings

The Companies Act, 2013 does not contemplate shareholder meetings being held electronically. However, as social distancing becomes de rigueur and the temporary lockdown has been extended to May 3, 2020, due to the COVID-19 pandemic, it has become difficult, impractical and illegal in many cases for companies to hold shareholder meetings physically. At the same time, companies need to plough through these difficult times, and crucial decisions on matters such as fund raising and restructuring, all of which require shareholders’ approval, cannot be suspended. Responding to this dilemma, the Ministry of Corporate Affairs (MCA) has issued circulars[1] relaxing the requirement to hold physical general meetings and permitting meetings to be held remotely through electronic means.

The MCA has requested companies to hold general meetings to take decisions of urgent nature (other than for items of ordinary business[2] and items where any person has a right to be heard) through electronic voting or postal ballot, according to the procedure under Section 110 of the Companies Act, 2013 (Companies Act) and Rule 20 of the Companies (Management and Administration) Rules, 2014, and the additional measures prescribed under the circulars.
Continue Reading Vote from Home – A Positive Move for Shareholder Meetings

DECRIMINALIZING OUR COMPANY LAW

In line with the government’s stated goal of promoting Ease of Doing Business, the Company Law Committee (CLC), set up by the Ministry of Corporate Affairs (MCA), has recently submitted its report to the MCA, recommending decriminalisation of 46 compoundable offences under the Companies Act, 2013 (the Act). This list is in addition to the 16 compoundable offences already decriminalised by the Companies (Amendment) Act, 2019.

To put things into perspective, attempts to decriminalise business laws is not new to India. This process began with liberalisation of the Indian economy in 1991. The first commercial law that was decriminalised was the Imports and Exports (Control) Act, 1947. It was replaced by the Foreign Trade (Development and Regulation) Act, 1992, which decriminalised most of the offences relating to imports and exports. The most fundamental step in this direction was the replacement of draconian Foreign Exchange Regulation Act (FERA), 1973, by Foreign Exchange Management Act (FEMA), 1999 which decriminalized offences relating to foreign exchange regulations.
Continue Reading Decriminalizing our Company Law – Has the Pendulum Moved Too Far?