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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SEBI report on RPTs – Deeper Reflections

SEBI had implemented the Kotak Committee recommendations on Related Party Transactions (RPTs) by making amendments to the Listing Obligations and Disclosure Requirements Regulations, 2015 (“LODR”) on May 9, 2018. In less than two years, in November 2019, SEBI constituted a Working Group (WG) to re-examine the RPT provisions of the LODR, against the backdrop of new corporate scandals, which surfaced, where certain abusive RPTs were undertaken by the listed entity at a subsidiary level, which were not captured by the LODR provisions. The WG Report addressed this loophole and made several recommendations, which were examined by the author in his blog article titled “SEBI Working Group on Related Party Transactions: Will the net be cast too wide? published on February 5, 2020.

In this Blog, the author wants to share his deeper reflections on some of the recommendation made in the WG report. The author argues that this WG report requires a more detailed scrutiny by the SEBI, before it is enacted into a law, by amendments to the LODR. Both these blogs should be read together to get a complete picture of the changes proposed in the WG report.
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Buy-Backs by Listed Companies - Key Considerations

A listed company proposing to undertake a buy-back is required to primarily comply with the provisions of the Companies Act, 2013 (the “Companies Act”) and the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 (the “SEBI Regulations”). However, a listed company is also required to ensure compliance with the requirements of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “SEBI Takeover Regulations”), the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Foreign Exchange Management Act, 1999, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and other applicable securities laws including in other jurisdictions.

As explained in our earlier blog, as prescribed in the SEBI Regulations, a listed company may undertake a buy-back of its shares and other specified securities through any of the following methods: (a) from the existing holders of securities on a proportionate basis through a tender offer; (b) from the open market either through the book building process or through the stock exchange mechanism; or (c) from odd-lot holders.
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mplications of the Finance Bill, 2020, on INVITs, REITs and its Unitholders

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2020-2021 on February 1, 2020 and consequently, introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprises the financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“Income-tax Act”) for the financial year 2021.

The Income-tax Act comprised provisions in relation to the taxability of, and exemptions available to, infrastructure investment trusts (“InvITs”) and real estate investment trusts (“REITs”, together with “InvITs”, referred to as “business trusts”) registered with the Securities and Exchange Board of India under the Securities Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) or the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”), respectively.
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 Recent Maha RERA Directions on Change in Promoter

The real estate sector post enactment of the Real Estate (Regulation and Development) Act, 2016 (Act) is witnessing major consolidation primarily on account of financial constraints faced by small and mid-sized developers. Such consolidation has resulted in developers looking to either exit from their existing projects or enter into collaboration with large established developers for completing such projects.

Hence, in the present scenario, it is of the utmost importance for the industry to know the present legal regime under RERA dealing with new developers / promoters taking over an ongoing projects from existing promoters or from lenders during the process of enforcement of their security over the project.
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Ministry of Corporate Affairs circular - Legal Enforceability

The Ministry of Corporate Affairs (MCA) has been entrusted with the responsibility of administering the Companies Act, 2013 (Act). The MCA, from time to time, issues circulars and clarifications to clarify the provisions of the Act and the rules made thereunder (Rules). For example, in the first year of operation of the Act, the MCA issued 89 clarificatory circulars. In 2015 and 2016 the number was 22 and 21 respectively. In this article, we assess whether such circulars and clarifications are legally enforceable and how far companies may rely on them.

Here, it is pertinent to note that unlike Section 119(1) of the Income Tax Act, 1961, which empowers the Central Board of Direct Taxes to issue orders, instructions and circulars, there is no corresponding provision in the Act that empowers the MCA to issue such circulars and clarifications. As explained in our earlier post, executive action reflects steps taken by the Government in its sovereign authority. Article 73 of the Indian Constitution states that, subject to the provisions of the Constitution, the executive power of the Union extends to matters on which the Parliament’s legislative power extends. However, this power cannot operate in matters of an ‘occupied fieldi.e., where prior legislation over the subject matter exists.
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