Vidarbha Industries Power Limited v Axis Bank Limited- A temporary storm in the waters?
INTRODUCTION The Supreme Court on 12th July 2022, in Vidarbha Industries Power Ltd. v Axis Bank Ltd. [1] held that Section 7(5)(a) of the Insolvency & Bankruptcy Code (“IBC”) is directory. Enunciating on the same, the Supreme Court held that National Company Law Tribunal (“NCLT”) can reject an application even if the financial creditor fulfills the twin test of establishing “debt” and “default” on the part of the corporate debtor. While a Review Petition was filed against the said judgment due to the untoward path taken, the same was rejected by the Supreme Court. The case analysis seeks to understand the position as adopted by various forums in the present case and seeks to critique the Supreme Court judgment as being violative of the objectives of the IBC. The analysis also tests for the sustainability of this position in the insolvency regime of India in times to come. BRIEF FACTS OF THE CASE Axis bank being the financial creditor of Vidarbha Industries filed an application under Section 7(2) before the NCLT, Mumbai for institution of Corporate Insolvency Resolution Process (“CIRP”). In response, Vidarbha Industries filed a Miscellaneous Application No. 570 of 2020 in C.P. (IB) No. 264 of 2020 before the NCLT seeking stay on proceedings under Section 7 of the IBC in the NCLT as long as Civil Appeal No. 372 of 2017 was pending in the Supreme Court. Vidarbha Industries averred that it was power generating company operating a 600 MW Coal-fired Thermal Power Plant in Maharashtra and had been supplying power to Reliance Infrastructure Ltd. (“RIL”) since 1st April 2014 as per various agreements approved by the Maharashtra Electricity Regulatory Commission (“MERC”). In 2016, Vidarbha Industries filed an application before MERC for truing up the Aggregate Revenue Requirement and for determination of tariff due to increase in fuel costs and cost of procuring coal. MERC disposed off the application in June 2016, by disallowing substantial portions of the fuel costs for financial years (2014-15, 2015-16) and additionally capped the said tariff for (2016-17 to 2019-20). An Appeal was filed before the Appellate Tribunal for Electricity (“APTEL”) which was allowed. Hence Vidarbha Industries claimed that an amount of INR 1,730 Crores (Indian Rupees One Thousand Seven Hundred and Thirty Crores only) is due as per the order passed by APTEL. Though MERC has challenged the said order by way of an Appeal before the Supreme Court, the same is pending adjudication. Hence, in its Miscellaneous Application for stay Vidarbha Industries stated that it was financially healthy and due to unwanted financial stress due to the pending Appeal, debts could not be paid. The NCLT dismissed the stay application by holding Section 7 to be mandatory in its wording and hence Vidarbha Industries approached the NCLAT. The NCLAT held that the issue of liquidity as raised by Vidarbha Industries cannot impact the admission of Application under Section 7 of the IBC when the twin test of existence of a debt and default to pay the debt is proven. The said decision was finally brought before the Supreme Court and the question raised was “whether Section 7(5)(a) is mandatory or a discretionary provision?” SUPREME COURT JUDGMENT Vidarbha Industries’ Stance Vidarbha Industries basis the facts stated that the only reason for the existence of debt was the pending appeal and once the same is adjudicated in its favor, it would realize a sum of INR1,730 Crores (Indian Rupees One Thousand Seven Hundred and Thirty Crores only) and would be able to satisfy the debt. Basis the law, it was strongly contended that a perusal of Section 7(5)(a) indicates the use of “may” when admitting an application for initiating the CIRP process. Hence, Vidarbha Industries averred that the NCLT can reject an application even if there is existence of debt for meeting the ends of justice and achieving the true objective of the IBC, i.e., revival of the company and value maximization. Axis Bank’s Stance Solely relying on the statute, Axis Bank Ltd. vehemently argued that once default in payment of dues has been admitted, application must be allowed. While relying on Swiss Ribbons Pvt. Ltd. & Anr. v Union of India & Ors. [2] it was contended that the legislative policy as established by the IBC was to shift from “inability to pay debts” to “determination of default.” It was further stated that the adjudicating authority under Section 7 was merely required to ascertain existence of default within 14 days of receipt of such application and if the default was found, the adjudicating authority should allow the application. It was concludingly argued that the said section was mandatory in nature and pointed out that since the application being instituted in the NCLT, one year had lapsed and there was no change in the solvency of Vidarbha Industries. JUDGMENT OF THE SUPREME COURT The Supreme Court stated that both the previous fora as per the requirements of Section 7 of the IBC had only observed whether a debt and requisite default had occurred. It concluded that both the institutions had not entered into the merits of the matter. While not agreeing with the view taken by the previous forums, the Supreme Court held that the award of the ATEPL cannot completely be disregarded, and the viability and overall financial health of Vidarbha Industries cannot be held as extraneous matters. While holding that the use of the word “may” under Section 7(5) to be directory, the Supreme Court stated that the rule of literal construction must be taken into consideration while viewing statutes. The Supreme Court also enumerated the difference between the CIRP Proceedings lodged by an Operational Creditor and Financial Creditor. While the former under Section 9(5) having filed an application “shall” be allowed to initiate CIRP upon existence of debt and default therein, the latter “may” be permitted to do the same if the tribunal is satisfied that no other reasons preclude the application from being allowed as was seen in the present case. Due to these reasons, the Orders
Compliance Checklist – Foreign Companies under the Companies Act 2013(“Act”)
In the age of globalization, foreign companies venturing into India encounter the comprehensive regulatory framework of the Companies Act 2013 (the “Act”), governing their operations, management, and compliance obligations. Navigating this landscape is vital to ensure legal adherence, transparency, and market presence. The Act mandates foreign companies to meet diverse compliance requirements, spanning registration, operations, and reporting, aimed at safeguarding stakeholders, ensuring fairness, and upholding corporate governance. This article offers a tailored “Compliances Checklist,” guiding foreign companies to establish, sustain, and prosper in India while conforming to legal standards. By addressing these obligations, businesses can mitigate risks, foster growth, and align with the country’s business environment. Definition of Foreign Company: – As per section 2(42) of the Act, a foreign company is any company or body corporate incorporated outside India which, — (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. Governing Chapter and Sections of the Act: – Chapter XXII of the Act, Section 379 to 393. Applicable Rules: – The Companies (Registration of Foreign Companies Rules) 2014 (“Rules”). Outlined below is the compliance checklist for foreign companies under the Act – Sr. No Activity e-Form Required Documents/Information required Timeline Establishment of place of business in IndiaRef: – Section 380 of the Act read with (i) Rule 3 of The Companies (Registration of Foreign Companies Rules) 2014 and (ii) Instruction Kit for filing Form no. FC-1. FC-1 Certified copy of the chartered documents and/or other instrument constituting or defining the constitution of the company and, if the instrument is not in the English language, a certified translation thereof in the English language.Full address of the registered or principal office of the company.List of directors and secretary of the company.Name and address or the names and addresses of one or more persons resident in India authorised to accept on behalf of the company service of process and any notices or other documents required to be served on the company.Full address of the office of the company in India which is deemed to be its principal place of business in India.Power of attorney or board resolution in favour of the authorised representative(s)Particulars of opening and closing of a place of business in India on earlier occasion or occasions.Declaration that none of the directors of the company or the authorised representative in India has ever been convicted or debarred from the formation of companies and management in India or abroad.Translated version of the documents in English (in case the documents attached are not in English). Within 30 days of establishment of place of business in India. Alteration of Charter Documents, change in the registered office of the company in the country of incorporation, change in address in India, Change in Directors, secretary, authorised representative, Intimation of New place of business in India, closure of place of business in IndiaRef: – Section 380 of the Act read with (i) Rule 3 of the Companies (Registration of Foreign Companies Rules) 2014 and (ii) Instruction Kit for filing Form no. FC-2. FC-2 Certified true copy of the Board resolution approving such change.Copy of the general meeting resolution approving such change.Copy of approval letter if any approval is required for such alteration.Translated version of the documents in English (in case documents attached are not in English). Within 30 days of such change/alterationbeing made Filing of Financial StatementsRef: – Section 381 of the Act read with (i) Rules 4,5 and 6 of the Companies (Registration of Foreign Companies Rules) 2014 and (ii)Instruction Kit for filing Form no. FC-3. FC-3 Copy of the latest consolidated financial statement of the parent company.Copy of balance sheet and profit and loss account duly authenticated under section 381(1).Statement of related party transactions.Statement of repatriation of profits.Statement of transfer of funds between the place of business of a foreign company in India and any other related party of the foreign company outside India including its holding, subsidiary and associate company;Copy of Approval letter of extension of validity period if applicable;Approval of Reserve Bank of India or any other authority as may be required;Details of other entity(s) through CSR Activities have been undertaken if applicable.Translated version of the documents in English (in case the documents attached are not in English). Within 6 months of the close of the financial year of the foreign company to which the financial statements relate. Annual ReturnRef: – Rule 7 of The Companies (Registration of Foreign Companies Rules) 2014 read along with Instruction Kit for Form no. FC-4. FC-4 Details of Promoters, Directors and Key managerial personnel and changes therein since the close of the previous financial year;Details of directors and key managerial personnel and their remuneration;Details of the meeting of the members or class thereof, board and its various committees along with attendance details;Particulars of members and debenture holders along with changes therein since the close of the previous financial year. Within 60 days from the last day of its financial year Appointment of Auditor for audit of accounts pertaining to the Indian business operationsRef: – Section 139 and 381 of the Act read with Rule 4 and 5 of The Companies (Registration of Foreign Companies Rules) 2014. ADT-1 Certified copy of the resolution for the appointment of an auditor;Consent and eligibility certificate from proposed auditor. Within 15 days of the appointment of the auditor – Surendra Rahalkar, Associate, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law firms. The Firm is a full-service firm that provides legal services to Indian and international companies and high-net-worth individuals on all aspects of Indian law. “Disclaimer” The information contained on this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved.
Navigating the Zee-Sony Merger: Insights and Challenges
Foreword One of the most significant business transactions to ever occur in the Indian entertainment industry is the Zee-Sony merger. One of the India-based subsidiaries of the Japanese company Sony Pictures Networks, Sony Pictures Networks India Private Limited (“Sony“) (now known as “Culver Max Entertainment Private Limited”), and Zee Entertainment Enterprises Limited (“Zee“), an Indian listed company of Essel Group, will merge in a deal that has been under negotiations since 2021 and finally approved on August 10, 2023 by the Mumbai bench of the National Company Law Tribunal (“NCLT“). The need to scale up in the fiercely competitive media and entertainment industry, as well as the desire to combine the strengths of the two businesses to build a more inventive and varied entity, are said to be some of the driving forces behind the said merger. La Raison of the Merger In response to fierce competition from Disney-Star’s collaboration, Sony had been striving to come to an arrangement with an Indian company to improve its operations in India. Digital streaming and content providers like Netflix, Amazon Prime Video, and Disney+ Hotstar gave a competitive edge to Zee and Sony. The Zee-Sony merger will establish a strong force in India’s media and entertainment industry that will help them compete more successfully against their digital rivals. With a combination of advertising and subscription video on demand, India boasts one of the largest and most intensely competitive streaming scenes in the world. Both Sony and Zee have reliable multi-platform platforms with various genres that audiences can engage with. The merger is well timed as the Indian television business undergoes a significant transformation brought on by streaming video services and improved broadband connectivity. The Merger Shareholding and Board Sony’s shareholders and promoters will own 50.86% in the merged entity, while Zee’s promoters will own 3.99% and the public will own the remaining 45.15% as the merged entity will be a listed entity. Since Zee will no longer exist as a separate company following the merger, its shareholders will be issued proportionate shares in the merged entity. Furthermore, five (5) executives of Sony will serve on the merged entity’s nine-member board. Roadblocks prior to the grant of approval Despite approval from NCLT, the Zee-Sony Merger faced numerous obstacles throughout the process. Though the merger was approved by the Securities and Exchange Board (“SEBI“), certain objections were raised by the country’s anti-trust body, the Competition Commission of India (“CCI“). The CCI believed that the proposed Zee-Sony merger would result in a significant market share (40-45%) for the parties in Hindi-language TV channels, creating a prohibited horizontal combination under the competition regime. Additionally, the merger could lead to market dominance and monopolistic pricing for advertisement slots, potentially affecting advertisers with higher costs and lower-quality services. Furthermore, the merged entity’s influence as a major broadcaster and a vital distribution platform operator partner could allow it to increase prices for channel bundles, impacting end-consumers. Such actions might breach section 6 of the Competition Act 2002 which states that ‘if a combination causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India, it can be modified/prohibited by the Commission’. Consequently, the CCI believed the merger could cause appreciable adverse effect on the competition. Addressing these objections of CCI, the parties proposed a voluntary remedy proposal, wherein Zee proposed to divest three of its TV channels namely, Big Magic (in the Hindi general entertainment channel market) and Zee Action and Zee Classic (in the Hindi Films channels market). This proposal was accepted by the CCI with the condition that Star India Private Limited and Viacom18 Media Private Limited (including its affiliates) cannot compete for divestiture of the channels since they are the next credible players with substantial dominance in the market. This step aimed towards preserving competition in the market. Consequently, the objections raised by CCI were resolved, and non-objection was granted to the scheme in March 2022. Besides that, the said merger was fiercely opposed by Invesco, one of the shareholders of Zee holding 5.11% of shares. Nevertheless, over time, Invesco totally sold its shares in Zee, and as a result, such concerns were resolved. Furthermore, several creditors, including Axis Finance Limited, JC Flower Asset Reconstruction Private Limited, IDBI Trusteeship Services Limited, Imax Corporation, and IDBI Bank Limited (“Creditors”), who were associated with the Essel Group have expressed their opposition to the non-compete fee of around INR 1101 crores (Indian Rupees One Thousand One Hundred and One Crores) payable by SPE Mauritius Investment Limited (a Sony group entity) to Essel Mauritius SPV. Since such a sizable sum could have been used to pay off Zee’s debts, the Creditors appeared dissatisfied with the non-compete agreement and believed it to be fraudulent. To the Creditors’ astonishment, the NCLT dismissed their argument on the grounds that the Creditors had claims against the other Essel Group firms, of which Zee is merely one, and that none of them were Zee’s direct creditors, depriving them of contractual privity. Also, the proposal that Mr. Punit Goenka, Zee’s CEO, and MD would be designated to run the merged entity, was challenged due to a disqualification order against him issued by the Securities Appellation Tribunal (“SAT“) in June 2023. The SAT affirmed the imposition of one-year limitations on Subhash Chandra and Punit Goenka from serving on the boards of publicly traded firms due to suspected misallocation and round-tripping of funds. Concerns were expressed by Creditors for the termination of the Zee-Sony merger based on SAT’s Order, citing regulatory constraints on Punit Goenka’s ability to occupy the position of CEO and MD of the merged entity. However, NCLT dismissed such accusations that were impeding the approval of the Zee-Sony merger, claiming that this was a management issue that could be dealt with at the board level after the scheme was approved. Synergies of Merger The Zee-Sony merger will combine the best aspects of the two businesses and will have a sizable content library, a broad channel selection, and a
Powers of Shareholders and Directors: A Brief Recapitulation
Introduction The shareholders being the owners of a company, appoint directors in a company and directors acting as agents of a company play a significant role in effectuating the business operation of a company and taking key managerial decisions in accordance with the Memorandum of Association (“MOA”) and Articles of Association (“AOA”) of the company. There are various statutory provisions with respect to appointment, removal, meetings, and powers of the directors under the Companies Act, 2013 (the “Act”). It is important to focus on the powers of the board of directors and shareholders as disputes among the board of directors may arise from time to time. To have a better understanding of the concept, let us understand this through a hypothetical situation. For instance, in XYZ private limited company (the “Company”) there are three directors “A”, “B” and “C”. “A”, being an NRI is also the majority shareholder in the Company, “B” is the minority shareholder and is an Indian Resident Director and “C” is also an Indian Resident Director in the Company. There has been a dispute between the directors of the Company and “A” wants to understand his legal rights under the Act to protect his interest in the Company. To have a deeper understanding of the above-mentioned scenario, some of the fundamental questions that may arise are elucidated herein. 1. Does “A” require other director’s approval to make decisions in relation to the Company? Yes, the power to make key decisions with respect to the functioning of the Company lies with the Board of Directors. As per section 179 of the Act, the Board of Directors of the Company is entitled to exercise all such powers and to do all such acts and things, as the Company is authorized to perform as per AOA and MOA. The Board of Directors may exercise the following powers on behalf of the Company by means of resolutions passed at the meetings of the Board, namely: To exercise the above-mentioned powers, a resolution is to be approved by the Board of Directors of the Company with a majority as per the quorum of a meeting of the Board of Directors. Further, for the regularization of the director and appointment of an auditor, approval by a majority of shareholders will be required. The quorum of the meeting of the Board of Directors of the Company, as per section 174 of the Act, shall be at least one-third of its total strength or two directors, whichever is higher. The directors may also participate by way of video conferencing or by any other audio-visual means and such participation shall also be counted for the purposes of the quorum. Therefore, “A” shall require support from one of the other directors in order to exercise the aforesaid powers. 2. What are the rights of “A”? Can “A” terminate the services of the other directors and appoint new directors of his choice? Set out below are the following ways in which “A” can terminate the services of other directors: Removal of director by shareholders Section 169(1) of the Act empowers the Company to remove a director from its board unless he has been appointed as a director by the tribunal. This power may be exercised by the shareholders by passing an ordinary resolution after giving him a reasonable opportunity to be heard. The procedure for the removal of the director is as follows: Suo Moto resignation from the director Other directors may suo moto resign from the directorship of the Company. Thereafter, “A” shall undertake the noting of their resignation/acceptance of their resignation in the board meeting of the Company as per section 168 of the Act. Once the Company/board of directors has accepted the resignation, thereafter, the necessary form i.e., e-Form DIR-12 is required to be filed with the Registrar of Companies (“ROC”), Ministry of Corporate Affairs (“MCA”) to effectuate the resignation of the director. The Resigning Director may also notify his resignation separately to ROC, MCA by filing e-form DIR-11. Vacation of office of the director If any director fails to comply with any of the provisions under section 167 of the Act, then he shall be required to vacate the office of the director. As per section 167(1)(b) of the Act, a director has to vacate his office if he remains absent for a continuous period of twelve (12) months from the board meeting of the Company even if the leave of absence has been granted to him by the board. This would be adequate grounds to disqualify him and remove him from the office of director. In such a scenario, “A” would be required to establish the proof of service of notices of board meetings to the concerned director(s) whom he wishes to remove from the post of directorship. The notice of the board meeting shall be dispatched through the registered post with acknowledgement due, as the postal department now has ceased the certificate of posting facilities and also through the registered email address of the director(s) with read receipts of the mail sent with clear seven (07) days notice under the Act or such longer time as provided under AoA of the Company. Further, the notice should specify that if the director wants to participate through audio or video conferencing, then such director has to give prior intimation for the same to the company to make necessary arrangements. This will ensure that the director(s) have received the notice and have gone through the contents of the notice of the board meeting. 3. Can “A” shut down the Company? Yes, “A” may shut down the Company in accordance with section 248 of the Act. A company not carrying on any business or operation for a period of two (02) immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company, then a company may, after extinguishing all its liabilities, upon receiving approval from a majority of the board of directors and passing a special resolution
FEMA Compliance – A Checklist for Issuance of Equity Instruments in Foreign Inward Remittances
FEMA Compliance – A Checklist for Issuance of Equity Instruments in Foreign Inward Remittances Sr. No Event Form Required Documents required Compliance requirements Timeline Issuance of equity instruments by an Indian company to a person resident outside India and reckoned as Foreign Direct Investment under Foreign Exchange Management [Non-debt Instruments (NDI)] Rules, 2019.(Including issue of bonus shares/rights issue/ shares issued directly or on amalgamation/merger/demerger approved by NCLT or competent authority/issue of equity instruments on cross border merger/sweat equity/ ESOP/ conversion of convertible notes; issuance of equity instruments to foreign portfolio investors which is considered as FDI within the meaning of rule 2(t) of NDI Rules, 2019.) FCGPR Declaration from the authorized representative of the Indian company in a prescribed format*.Certificate from a company secretary (In case a company has a company secretary on the Board then from such company secretary and in other cases by practicing company secretary) in a prescribed format*.Valuation certificate (should not be more than 90 days old as on the date of allotment of shares), for rights issue it is not required.Form PAS-3 (e-form for allotment of equity instruments)/Board Resolution for allotment of equity instruments.Memorandum of Association (In case of First Subscription).Acknowledgement letter of FC-GPR/FC-TRS, as applicable, of the original investment – In case of Bonus/Rights issue.Extract of relevant approvals from the competent authority in case of Merger/ Demerger.A no-objection certificate (NOC) from the remitter for issuing equity instruments to the beneficial owner mentioning their relationship if applicable (e.g., Nominee Shareholder).Letter from the beneficial owner explaining the reason for the remitter making remittance on its behalf if applicable (e.g., Nominee Shareholder).Copy of agreement/board resolution from the investee company for issuing equity instruments to a person other than from whom the remittance has been received (e.g., Nominee Shareholder).Foreign Inward Remittance Certificate (FIRC).KYC of both the remitter and beneficial owner.Note: – There is no resubmission for this filing, A fresh form is required to be filed in case such form is rejected. It does not breach the sectoral cap applicable to the issuer company.Compliance with Foreign Exchange Management (NDI) Rules, 2019. Within 30 days from the date of issue of the equity instruments. Annual Return: – An Indian company that has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year or has made overseas investment. Foreign Liabilities and AssetsReturn(“FLA”) Financials as of end of the relevant Financial Year.Form FLA could be filed with the unaudited financials. A revised return could be filed once the relevant financials are audited. In case of revision of return, approval of RBI is to be obtained through the Flair portal of RBI. On or before the 15th of July of each year. Transfer of equity instruments(Including transfer of equity instruments on a recognized stock exchange by a person resident outside India; payment on a deferred basis, transfer of participating interest/rights in oil fields, buying back shares in a scheme of amalgamation/de-merger/ of Indian companies approved by NCLT/ competent authority. FCTRS Documents required in case of sale (Private Arrangement)Share transfer agreement/SH-4(Share transfer form).Valuation Certificate (should not be more than 90 days old as of the date of share transfer).Non-resident declaration in the prescribed format*.In case of sale by a non-resident, acknowledgment of FC-GPR/ FC-TRS as applicable for the Equity instruments whereby such equity instruments have been acquired by such non-resident.FIRC /Outward remittance certificate and KYC.In case of Gift: –Relevant regulatory approvals, wherever applicable.Consent letter: Consent letter between the donor and donee for the transfer. Non-resident declaration in the prescribed format*.Acknowledgement letter of initial allotment.In case of transfer by way of sale (on Stock Exchange):-Broker’s Note containing details such as date of trade/settlement, no. of shares transferred, name of investee company, and consideration amount.Non-resident declaration in the prescribed format*.Outward Remittance Certificate.Copy of acknowledgment of FC-GPR/ FC-TRS as applicable for the equity instruments whereby such equity instruments have been acquired by such non-resident. Prior government approval shall be obtained for any transfer in case the company is engaged in a sector which requires government approval.Compliance with Foreign Exchange Management (NDI) Rules, 2019. Within 60 days of transfer of equity instruments or receipt/ remittance of funds whichever is earlier. Conversion of External Commercial Borrowing (ECB) into equity(Including full conversion of ECB into equity and partial conversion of ECB into equity) FCGPR and ECB-2 For FCGPR please refer to documents in point 1.For ECB-2, a Loan Registration Number (LRN) is required to be obtained from RBI. Compliance with Foreign Exchange Management (NDI) Rules, 2019. Within seven working days from the close of month to which it relates. Issuing employees stock options (ESOP) to persons resident outside India who are its employees/ directors or employees/ directors of its holding company/ joint venture/ wholly owned overseas subsidiary/ subsidiaries ESOP Relevant extracts of the ESOP scheme.CS certificate in a prescribed format*.Declaration in a prescribed format*.Letter of Grant/ Offer – which shall contain the name of the employee in the letter of grant vis a vis name mentioned in the CS certificate, no. of shares and the exercise price. Prior government approval in case of issue to citizens of Bangladesh or Pakistan.Compliance with Foreign Exchange Management (NDI) Rules, 2019. Within 30 days from the date of issue of ESOPs. Downstream Investment: An Indian entity or an investment vehicle making a downstream investment in another Indian entity which is considered an indirect foreign investment. Form DI PAS – 3 (e-form for allotment of equity instruments); or SH-4 (Share Transfer form) as the case may be.Certified true copy of Board Resolution for allotment of equity instruments or noting Transfer of equity instruments as the case may be.Certified true copy of Shareholders Resolution if applicable.Valuation Certificate.In case of an unlisted company – Declaration by an authorized representative of such company in a prescribed format*. Compliance with Foreign Exchange Management (NDI) Rules, 2019. Within 30 days from the date of allotment of equity instruments by such Indian entity in which downstream investment is made. Investment by Foreign Venture Capital Investor (“FVCI”) FCGPR Please refer to documents
Navigating ESG Compliance in India: Evaluating SEBI’s BRSR Core Framework and Value Chain Disclosures
Background ESG investments have been increasingly popular in recent years, with India playing a significant role in this development and the Securities and Exchange Board of India (“SEBI”) issuing Circular No. SEBI/HO/CFD/CFD-SEC-2/P/CIR/2023/122 dated 12 July 2023 (“BRSR Circular”) pertaining to Business Responsibility and Sustainability Reporting (“BRSR”) Core as a framework for assurance and Environmental, Social, and Governance (“ESG”) disclosures for the value chain. Indian businesses are progressively incorporating sustainability ideas into their framework for conducting business. By integrating ESG factors into their decision-making frameworks, many businesses are developing clear goals targeted at reducing their ecological footprint and enhancing their social and governance practices. There is still a lot of work to be done, even while there has been progress in the inclusion of ESG practices inside the Indian business environment. This is because there are several challenges that must be overcome, such as strengthening corporate resilience, implementing effective risk management, and ensuring stakeholder satisfaction. and ensuring stakeholder satisfaction. THE BRSR CORE The Business Responsibility and Sustainability Reporting or BRSR Core, which is suggested in the BRSR Circular, has been designed to be a subcategory of the present Business Responsibility and Sustainability Reporting format, which was adopted by SEBI in 2021. The nine Key Performance Indicators (“KPI”) that make up the present BRSR format are used to evaluate the listed companies. Providing sustainable goods and services, advocating, and upholding human rights, working to protect and restore the environment, encouraging inclusive growth and equitable development, and ethically delivering value to consumers are a few of these. The KPIs under Annexure I of the BRSR Circular were updated by the BRSR Core to include several additional qualities. These include trash management, employee well-being and safety, facilitating gender diversity, inclusive development, and greenhouse gas, water and energy footprint. ESG Disclosures For Value Chain Value Chain under the BRSR Core has been defined as, “the top upstream and downstream partners of a listed entity, cumulatively comprising 75% of its purchases/sales (by value) respectively.” It stipulates that disclosures for the value chain shall be made by the listed company as per BRSR Core, as part of its annual report. The listed entities shall report the KPIs in the BRSR Core for their value chain to the extent it is attributable to their business with their value chain partner. Such reporting may be segregated for upstream and downstream partners or can be reported on an aggregate basis. ESG disclosures for the value chain shall be applicable to the top 250 listed entities (by market capitalization), on a comply-or-explain basis from FY 2024-25. Assurance Provider The criteria for assurance providers as given under the BRSR Core framework include the following: – Analysis: Pros and Cons SEBI’s implementation of ESG disclosure requirements for value chains is highly relevant in the current context, as this mandate ensures the participation of smaller businesses and intermediaries, such as the micro, small, and medium enterprise (MSME) sector, in adhering to the disclosure standards. The implementation of ESG reporting standards would be facilitated by the integration of KPIs that particularly target the Indian markets, embracing both present and upcoming industries. The implementation of BRSR Core is in line with the recommendations made by the Committee on Business Responsibility Reporting of the Ministry of Corporate Affairs (MCA). The Committee suggested using “BRSR Lite” to convey the ideas of sustainable reporting to unlisted business entities. As it requires a smaller number of characteristics and does not call for detailed disclosures of ESG aspects, BRSR Core can be seen as a reduced version of BRSR Comprehensive. Therefore, it is advantageous for small-scale enterprises to adopt the framework early on. The BRSR Core format is also distinct from the BRSR main format since it encompasses KPIs that are not addressed within the regular BRSR format. Therefore, just receiving reasonable assurance for BRSR Core does not guarantee the overall reliability of the full BRSR disclosure. It solely enhances the reliability of BRSR Core parameters. This specific approach is anticipated to result in a significant bias towards BRSR Core inside internal ESG procedures. Reporting entities are likely to prioritize aligning BRSR Core with reasonable assurance standards, potentially at the expense of other disclosures. Hence, the implementation of BRSR Core, aimed at improving the dependability of ESG disclosures, has the potential to inadvertently divert attention and provide contrasting outcomes. Investors may find the Core ESG rating to be a potential distraction, particularly considering the availability of two full ESG ratings. These ratings include one that is based on current global rating schemes and another that incorporates India-specific criteria, as per the decision made by the SEBI board. The gathering and analysis of data might present a significant difficulty when it comes to the disclosure of information. Due to a wide range of factors, it is probable that value chain partners would employ various methods of data collection and processing. This poses difficulties for the listed businesses in acquiring data for all KPIs. Monitoring and obtaining “third-party endorsed data” from a diverse range of value chain partners can be a challenging task due to the existence of disclosure laws. Conclusion While SEBI’s attempt to improve ESG compliance among listed companies is commendable, it is crucial to acknowledge that there are issues with the current framework that demand quick attention. The regulatory framework demonstrates several advantageous features intended to simplify reporting processes. These initiatives by SEBI show their commitment to establishing business entities that are socially and ecologically conscious, which lays the groundwork for fostering a responsible corporate environment. A sophisticated and flexible strategy that takes into account many traits of businesses and their value chain partners may increase the success and usefulness of ESG disclosures. With the help of this strategy, organisations may align themselves with international ESG disclosure requirements and pursue sustainable practices. – Nehal Daga, Associate, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law firms. The Firm is a full-service firm that provides legal
The Legal Landscape of Indian Business: Navigating Legal Complexity with Ease
Introduction India has become the 5th largest economy in the world ranking by enabling local manufacturing, relaxed foreign direct investments policies, attractive government initiatives and incentives to business owners, and much more. With India’s vast consumer base and accelerating economy, India presents an opportunity for foreign companies/investors to expand their global presence in India. Moreover, Reserve Bank of India in its March 2024 bulletin, issued that India had an inflow of US$59.5 billion in foreign direct investments from April 2023 to January 2024. In this article, we will deep dive into the important aspects of doing business in India, along with a legal perspective of Indian laws. To start with, one should be aware of the advantages of doing business in India, some of which are as follows: Legal perspective of doing business in India From a legal perspective, doing business in India entails navigating a complex regulatory landscape influenced by diverse laws and regulations. Understanding and complying with Indian laws, including those governing company formation, taxation, labor, intellectual property, and contract enforcement, is crucial for local business owners and foreign investors. India’s legal system, based on English law principles, offers a robust framework for resolving commercial disputes, although judicial backlog remains a challenge. Additionally, recent reforms aimed at enhancing the ease of doing business, such as the introduction of commercial courts and online dispute resolution mechanisms, signify a commitment to improving the business environment. Engaging competent legal counsel, maintaining compliance with regulations, and staying abreast of legal developments are essential strategies for mitigating risks and ensuring successful business operations in India. Let us break down some factors for you: We hope that this information is helpful to anyone seeking introductory information on commencing and conducting business in India and on gaining a legal perspective about doing business in India. The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. As such, it should not be used as a substitute for consultation with a competent adviser. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting. – Aaron Solomon Managing Partner, Solomon & Co. About Solomon & Co. Solomon & Co., (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law-firms. The Firm is a full-service firm that provides legal service to Indian and international companies and high net-worth individuals on all aspects of Indian law.
Reverse CIRP: Breathing New Life into Distressed Assets
1. Introduction: 2. Overview of Reverse CIRP: This article proceeds to discuss the process of Reverse CIRP, its defects, and how an ex-ante regulatory regime would work in its betterment. The Deficiencies in the Present Regime: The need for an ex-ante Approach: Conclusion: Nishka Shah, Associate, Solomon & Co. About Solomon & Co. Solomon & Co. (Advocates & Solicitors) was founded in 1909 and is amongst India’s oldest law-firms. The Firm is a full-service firm that provides legal service to Indian and international companies and high net-worth individuals on all aspects of Indian law. “Disclaimer” The information contained in this article is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. The application and impact of laws can vary widely based on the specific facts involved. As such, it should not be used as a substitute for consultation with a competent adviser. Before making any decision or taking any action, the reader should always consult a professional adviser relating to the relevant article posting. Copyright © 2020 Solomon & Co., All rights reserved.
