Holding-Subsidiary Relationship – Legal & Regulatory Architecture

Background

Companies, as the business grows, operate through their subsidiaries for various reasons such as flexibility in operation of different units, expansion in different geographies, etc. While subsidiary is an entity over which the wholly owned subsidiary has control, the Companies Act, 2013 (“CA 2013”) recognises subsidiary companies as a separate legal entity.Continue Reading Holding-Subsidiary Relationship – Legal & Regulatory Architecture

Purpose & Effect Test for RPTs – How should Audit Commitees navigate it?

Regulatory Context

The definition of ‘Related Party Transaction’ (“RPT”) under Regulation 2(1)(zc) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), inter alia provides that with effect from April 1, 2023, a transaction involving transfer of resources, services or obligations between “a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries,” will also be regarded as an RPT (referred to below as the “Purpose and Effect Test”).Continue Reading Purpose & Effect Test for RPTs – How should Audit Commitees navigate it?

Recommendations on Changes to SEBI ICDR Regulations for Ease of Doing Business – Missing the Point

On January 11, 2024, SEBI issued its consultation paper on interim recommendations of its expert committee to harmonise the SEBI ICDR and LODR regulations.  The public has been invited to share comments on this paper.Continue Reading Recommendations on Changes to SEBI ICDR Regulations for Ease of Doing Business – Missing the Point

Will ‘sale of shares’ amount to ‘sale of an undertaking’ – Has the Conundrum been resolved?

Context

‘What would constitute an ‘undertaking’ of a company’ has been among the most hotly debated topics in the history of India’s company law regime. This question arises while evaluating whether a transaction falls within the purview of Section 180(1)(a) of the Companies Act, 2013 (“2013 Act”), which corresponds to Section 293(1)(a) of

Market Rumours SEBI’s New Prescription and India Inc’s Dilemma SM

Context

With effect from October 1, 2023, India’s top 100 listed entities (based on market capitalisation) would have to mandatorily confirm, deny, or clarify market rumours to the stock exchanges, and this requirement extends to the top 250 listed entities with effect from April 1, 2024. The Securities and Exchange Board of India (“SEBI”), by way of notifying amendments to the LODR Regulations on June 14, 2023 (“LODR Amendments”), has introduced this mandatory requirement under Regulation 30 read with Schedule III of the LODR Regulations (referred to below as the “Market Rumours Amendment”).Continue Reading Market Rumours: SEBI’s New Prescription and India Inc’s Dilemma

The Securities and Exchange Board of India (“SEBI”) has recently introduced significant changes to the governance framework for listed companies through an amendment to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).

The amendments were signaled by various consultation papers issued by SEBI over the last 6-9 months, including consultation papers on ‘Review of disclosure requirements for material events or information under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015’ and ‘Strengthening Corporate Governance at Listed Entities by Empowering Shareholders – Amendments to the SEBI (LODR) Regulations, 2015’.Continue Reading SEBI Amendments to the LODR – An Overview of Key Changes

Disenfranchising Majority Shareholders

Context

Even after the ‘right to property’ was abolished as a fundamental right by the 44th Amendment to our Constitution[1], it has continued as a ‘constitutional right’ by virtue of Article 300-A, which provides that – “No person shall be deprived of his property save by authority of law”.Continue Reading Disenfranchising Majority Shareholders – Is it Constitutionally Valid?

Context

Instances of financial/ accounting frauds and serious corporate governance failures have become endemic in today’s corporate world, leading to huge erosion in shareholder wealth. On most occasions, such irregularities and failures are detected very late, when it becomes impossible to rewind the clock and undo damage that has already been done. Recent cases of financial/ accounting irregularities have demonstrated that several early warning signals (like disclosures made in the ‘notes’ to  the financial statements) are often not recognised by the Board of Directors (“Board”) and other gatekeepers of governance – thereby raising serious questions regarding their effectiveness.Continue Reading Why do Boards fail to catch ‘sub-sonic sounds’ within the Organisation?

SEBI

The concept of promoter and promoter group of a listed company finds a mention in the SEBI regulations, and assumes significance as it impacts a wide range of M&A transactions involving listed companies. After closing in a change in control deal, one needs to follow the conditions prescribed in Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), to re-classify the outgoing promoter. The conditions in Regulation 31A are onerous, cumbersome, and not in consonance with the way the transacting parties and market participants think. We will also explain below how Regulation 31A is not in consonance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), and does not reflect the realities of deal making and therefore, needs a change.Continue Reading Fresh Look Needed for Re-Classification of Promoters