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Buy-back of shares: Will recent changes in the tax laws end the party?

Rationale for Buy-Back Provisions

A cardinal principle of company law, incorporated in Section 67 of the Companies Act, 2013 (“the Act”), prohibits the purchase by the Company of its own securities for the protection of creditors.  Section 68 is an exception to this general rule; hence, it starts with a non obstante clause laying down several conditions and restrictions for the companies undertaking a buy-back of its shares, primarily with a view to protect the creditors.Continue Reading Buy-back of shares: Will recent changes in the tax laws end the party?

NCLT rejects a scheme of merger citing public interest concerns

Introduction

In a recent case, the National Company Law Tribunal (“NCLT”) rejected a scheme of merger of three related entities on the ground that it was against public interest. Unlike the other cases of arrangements and schemes where the NCLT focused on the technical compliance of the provisions of the Companies Act, 2013 (“the Act”), in the instant case, the NCLT, in addition to analysing the scheme and verifying its satisfaction of the technical requirements, also went through the facts presented and the reports submitted by the Ministry of Corporate Affairs (“MCA”) and the Income Tax Department (“ITD”), who had carried out their separate investigations. The trend of recent decisions appears to show that the NCLT is not just mechanically sanctioning schemes of merger but is also going beyond the facts provided and reviewing them holistically.Continue Reading NCLT rejects a scheme of merger citing public interest concerns

The “Ordinary Course of Business” exception in preferential transactions – Deciphering the interpretation methodology

Blog Post:

The concept of avoidance of preferential transactions under Section 43 of the Insolvency & Bankruptcy Code, 2016 (“Code”), is based on the principle that insolvency is a collective scheme process and that the assets of a corporate debtor (“CD”) are distributed equitably in a liquidation scenario. During the twilight period of insolvency, paying off one creditor selectively can be disadvantageous to the interests of other stakeholders/creditors as transferring certain assets/monies diminishes the CD’s value. To reverse/avoid such preferential transactions, Section 43(1) of the Code empowers the resolution professional (“RP”) or the liquidator to approach the jurisdictional National Company Law Tribunal (“NCLT”). As per Section 43(2), a CD shall be deemed to have been given “preference” if the CD’s transfer of property benefits any creditor on account of any pre-existing debt owed by the CD and such a transfer puts the creditor into a beneficial position than it would have had the assets been distributed in a liquidation scenario. One of the two exclusions Section 43(3) lays down two exceptions from the trappings of the deeming fiction of preferential transactions one of them being “transfers made in the ordinary course of business or financial affairs of the corporate debtor or the transferee” (the “OCOB Exception”)[1].Continue Reading The “Ordinary Course of Business” exception in preferential transactions – Deciphering the interpretation methodology

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

In the judgment of Union of India and Another vs. Deloitte Haskins and Sells LLP & Another[1], the Supreme Court has enunciated and cleared the law pertaining to the removal and resignation of a statutory auditor vis-à-vis the proceedings initiated under Section 140(5) of the Companies Act, 2013 (“Act”). The Supreme Court upheld the constitutional validity of Section 140(5) of the Act and interpreted it as “neither discriminatory, arbitrary and/or violative of Articles 14, 19(1)(g) of the Constitution of India”. The Supreme Court clarified that the resignation of an auditor after filing an application under Section 140(5) of the Act does not automatically terminate the proceedings initiated under this Section.Continue Reading Supreme Court Sets the Bar Too High for the Statutory Auditors

The lack of a fixed time limit for adjudication of applications for proper stamp duty under the provisions of the Indian Stamp Act, 1899 (“Act”) often results in inordinate delays in stamping of instruments. In a judgment that will exponentially expedite the process of adjudication, the Delhi High Court (“Delhi HC”) has now opined that the Collector of Stamps shall communicate to the parties the proper stamp duty within 30 days of the date of the application.Continue Reading Application for Payment of Stamp Duty must be Adjudicated within 30 Days: Delhi High Court

Insolvency and Bankruptcy Code

Recently, the Supreme Court, in the case of Gaurav Agarwal vs CA Devang P. Sampat, has issued notice to the parties for adjudicating the crucial question of law pertaining to the ‘Period of Limitation’ for preferring an appeal under Section 61 of Insolvency and Bankruptcy Code, 2016 (“the Code”).Continue Reading Limitation under Section 61 of Insolvency and Bankruptcy Code: Too Strict Interpretation of the Law?

Introduction

Ease of doing business also includes the ease with which companies can shut operations and exit the marketplace in a country. Under Indian law, companies (or limited liability partnerships (“LLP”) have various options to wind down operations voluntarily, either under the Companies Act, 2013 (“Companies Act”), (or the Limited Liability Act, 2008, for an LLP) or the Insolvency and Bankruptcy Code, 2016 (“IBC”).Continue Reading Ease of closing a Business in India

Introduction

There is no denying that India is one of the most significant players in the global pharmaceuticals space, especially in the generic and affordable vaccines segment. Emerging markets such as India are expected to become further crucial in the foreseeable future, given the global supply chain disruptions and discontinuities. Fifty percent of the global demand for various vaccines is met by the Indian pharmaceuticals industry and as per the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. It is expected to develop at an annual rate of 11% over the next two years, possibly exceeding $60 billion in value.[1] India’s healthcare market is expected to reach $372 billion, driven by rising income, better health awareness and increasing access to insurance. India’s healthcare public expenditure stood at 2.1% of GDP in 2021-22 against 1.8% in 2020-21. Furthermore, in Union Budget 2022-23, Rs 86,200.65 crore ($11.28 billion) was allocated to the Ministry of Health and Family Welfare (MoHFW).Continue Reading Examining the Regulatory and Operational Issues Affecting M&A in Pharmaceuticals and Healthcare Industry

On July 12, 2022, the Supreme Court of India (“Supreme Court”) passed a judgment in Vidarbha Industries Power Limited v. Axis Bank Limited[1] (“Vidarbha”), which considered the question whether Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 (“Code”), is mandatory or discretionary in nature. Section 7(5)(a) of the Code states that the National Company Law Tribunal (“NCLT”) “may” admit an Application filed under Section 7 of the Code (“Application”), if (a) a default has occurred; (b) the Application is complete; and (c) there is no disciplinary proceeding pending against the proposed resolution professional. The Supreme Court held that Section 7(5)(a) of the Code allows the NCLT to reject an Application even if the financial creditor establishes ‘debt’ and ‘default’ on the part of the corporate debtor.Continue Reading The Vidarbha Aftermath