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True and Fair View of Financial Statements: Who will finally bell the cat?

One of the most important communications by a company to its shareholders is its financial statements. It is a key document on which shareholders rely while making their decision on whether to stay invested in a company or not, as it highlights the financial health of the company. The regulators also understand the importance of financial statements, due to which the issuance of the same is heavily regulated and scrutinized. Section 129 of the Companies Act, 2013 (“CA 2013”), provides that the financial statements shall give a ‘true and fair view’ of the state of affairs of a company, while also complying with the accounting standards notified under Section 133 and be in the form as provided in Schedule III of CA 2013.Continue Reading True and Fair View of Financial Statements: Who will finally bell the cat?

Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test

Background

SEBI[1] has recently revised the materiality threshold for obtaining shareholder approval for related party transactions (“RPTs”) under Regulation 23(1) of the SEBI (LODR) Regulations, 2015 (“LODR”), to cover RPTs that exceed INR 1000 crore or 10% of a listed entity’s annual consolidated turnover (as per the last audited financial statements), whichever is lower.

The revised materiality threshold has come into effect on April 1, 2022, and this change assumes significance, as prior to April 1, 2022, there was no absolute numerical threshold for RPTs that require shareholders’ approval.

This also raises the question as to whether an absolute numerical threshold of INR 1000 crore could potentially be considered as violative of Article 14 of the Indian Constitution.

In this post, the authors aim to probe deeper into this constitutional aspect and examine some of the arguments that can be made from both sides of the spectrum.Continue Reading Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test?

Prakash Gupta Judgment – Has the Supreme Court given more Powers to SEBI in the Matter of Compounding

Introduction

The Securities and Exchange Board of India Act, 1992 (“SEBI Act”) was essentially introduced to protect the interests of investors and to regulate and promote the development of the securities market in India. As a direct consequence of this legislative intention, the SEBI Act lays down that contravention, attempt to contravene and abetment of contravention of the provisions of the SEBI Act would be punishable with imprisonment and fines of varying quantum.Continue Reading Prakash Gupta Judgment – Has the Supreme Court given more Powers to SEBI in the Matter of Compounding

Technicality or Trivialisation - SAT’s Attempt to Balance Interests of Justice

The Securities Appellate Tribunal (SAT) passed an order (Order)[1] recently, ruling that it is empowered to hear and decide appeals even in the absence of a Technical Member. The Order was prompted by an objection raised by the Securities and Exchange Board of India (SEBI) regarding the constitution of SAT’s Bench, in light of the earlier technical member of SAT having demitted office on March 31, 2021, and the ensuing vacancy of such office.
Continue Reading Technicality or Trivialisation? SAT’s Attempt to Balance Interests of Justice

Share Transfers Can the Company Say No

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?