Transcript Recent Changes in Company Law

Recent Changes in Company Law
By Mahavir Lunawat
Outline
• History – Sequence of Milestone
Events
• Developments since 2005 till date
– Amendments
– Significant Judicial Pronouncements
– Proposed Law
Sequence of Milestone Events
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Scams in US
US Sarbanes Oxley Act, 2002
SEC Rules under SoX
Naresh Chandra Committee on Corporate
Governance
Companies Amendment Bill, 2003
Concept Paper on Company Law
White Paper on Modern Company Law, UK
Company Law Reform Bill, UK
J J Irani Committee
Concept Paper on LLP Law
Amendments
SEBI Law
• Implementation of revised Clause 49
– Independent Directors
– Subsidiary Monitoring
– Shareholders’ Prior approval for compensation / stock
options to NEDs
– Audit Committee – Eligibility Criteria, mandatory
review etc.
– Statutory Compliance Review
– Risk Management Procedure
– Code of Conduct for Directors & Senior Management
– CEO and CFO Certification
– Non-Mandatory : Term of Independent Director,
Whistle Blower Policy etc.
SEBI Law
• SEBI (DIP) Guidelines, 2000 - Book Building Norms
– Enhancing allocation category for RIIs
Category
From
To
RIIs
25
35
Non Institutional Investors (NIIs)
25
15
QIBs
50
50
In case of book built issues with mandatory allocation of 60% to QIBs
under Rule 19(2)(b), the respective figures shall be 30% for RIIs and 10%
for NIIs.
– Redefining “Retail Individual Investors” : RIIs can apply for shares up to
a maximum amount of Rs.1,00,000/- as against the extant limit of
Rs.50,000/– Reducing the bidding period : The bidding period has been reduced from
current 5 – 10 days (including holidays) to 3 -7 working days
– Timing of disclosure of Price Band / Floor Price in case of listed
companies : Listed issuers making a follow-on public issue may disclose
the price band /floor price atleast one day before bid opening
[SEBI/CFD/DIL/DIP/15/20, dated March 29, 2005]
SEBI Law
• SEBI (DIP) Guidelines, 2000 - Book Building Norms
– Changes re. QIB allotment
• Out of the existing 50% portion available for QIBs, 5%
will be specifically available for Mutual Funds registered
with SEBI. However, the Mutual Funds will also be
eligible for allotment in the remaining 45% portion
• QIBs will bring at least 10% margin (calculated on
application money) while submitting the bids
• The allotment of shares to QIBs will be on proportionate
basis
SEBI Law
• SEBI Press Release (no. 108/2005 dated August 26, 2005)
on Minimum Public Shareholding
– All listed companies to maintain atleast 25% shareholding
with public for continuous listing. However, companies
permitted to make an IPO of atleast 10% to public under
Rule 19(2)(b) to maintain min. 10% only
– Listed companies, not complying with the min. public
holding requirement to be given a period of 2 years for
compliance
– Government companies, infrastructure companies and
companies registered with BIFR to be exempted
SEBI Law
• Review of Demat Charges
– Effective 9-1-2006, no charges will be levied by a depository
on a DP and by a DP on a Beneficiary Owner (BO) when a
BO transfers his account to another branch of the same DP or
to another DP of the same depository or another depository.
[MRD/DoP/Dep/Cir-22/05 dated 9-11-2005]
– SEBI vide Circular MRD/DoP/SE/Dep/Cir-4/2005 dated
January 28, 2005, had already waived the following charges
effective February 1, 2005 –
• charge towards opening of a BO Account except for applicable
statutory charges
• charge for credit of securities into BO Account
• custody charge
SEBI Law
• Guidelines for Execution of Block Deals on the Stock
Exchanges [Circular MRD/DoP/SE/Cir-19/05 dated 2-9-2005]
– A trade, with a min. quantity of 5,00,000 shares or value of Rs.5
crore, through a single transaction, will constitute a “block deal”
– Block deals will be executed on a separate trading window - for a
limited period of 35 minutes a day from 9.55 am to 10.30 am
– Orders may be placed at a price not exceeding +/- 1% from the
ruling market price or previous day's closing price as applicable
– Block deals will need to be settled in delivery and will not be
squared off or reversed
– Stock exchanges will make public the information on block deals
such as the scrip, client, quantity of shares bought/sold, traded
price etc. on the same day, after the market hours.
• Block delas will be in addition to the disclosure of ‘bulk deals’. In terms
of SEBI Circular SEBI/MRD/SE/Cir -7/2004 dt. 14-01-2004, a“bulk”
deal constitutes of “all transactions in a scrip (on an exchange) where
total quantity of shares bought/sold (in one or more transactions) is
more than 0.5% of the no. of equity shares of the company.
SEBI Law
• SEBI Press Release dated Dec 30, 2005
(Note : These are policy announcements based on decisions of the
Board and do not reflect change in the existing legal framework until
the relevant amendments are effected through issue of circulars.)
– Public issue refunds through Electronic Clearing Scheme
(ECS)
– Introduction of optional grading of IPOs by credit rating
agencies
– Rationalizing disclosure requirements for further public
offers and rights issues
– Common platform for electronic filing and dissemination of
corporate information
– Amendment to Takeover Regulations
– Amendment to SEBI (Delisting of Securities) Guidelines
– Unique Identification Number (UIN) : To resume fresh
registrations for obtaining UIN under MAPIN Regulations
SEBI Law
• Amendment to Takeover Regulations
– Restrictions on market purchases, preferential
allotments as in the Takeover Regulations to be
removed.
– Outgoing shareholder (promoter) can sell entire
stake to incoming acquirer in case of takeover.
– Shareholders holding more than 55% would be
able to make further acquisitions subject to
making open offer
SEBI Law
• Clarifications on the revised Clause 49 of the
Listing Agreement (Effected vide SEBI Circular
SEBI/CFD/DIL/CG/1/2006/13 dt. January 13, 2006)
– Max time gap between two Board meetings has
been increased from 3 months to 4 months
– Sitting fees paid to non-executive directors as
authorized by the Companies Act, 1956 would not
require shareholders’ approval
– Certification of internal controls and internal
control systems by CEO/ CFO would be for the
purpose for financial reporting
Euro Issue - 2005 First Amendment
•
Dated Aug. 31, 2005
•
Eligibility of issuer [New Paragraphs 3(1)(A) and
3(1)(B)]
1. An Indian company, which is not eligible to raise
funds from the Indian Capital Market will not be
eligible to issue ADRs/GDRs/FCCBs under the
Scheme.
2. An Indian company which has been restrained from
accessing the securities market by SEBI will not be
eligible to issue ADRs/GDRs/FCCBs under the
Scheme.
3. An
unlisted
Indian
company
issuing
GDRs/ADRs/FCCBs
will
be
required
to
simultaneously list its shares on one or more of the
recognized Stock Exchanges in India
Euro Issue - 2005 First Amendment
• Eligibility of subscriber : Paragraph
3(1)(C), inserted by the amended Scheme,
provides that
– the erstwhile OCBs which are not eligible to
invest in India through the portfolio route and
– entities prohibited to buy, sell or deal in
securities by SEBI
will not be eligible to subscribe to Euro Issues.
Euro Issue - 2005 First Amendment
•
Pricing
–
–
–
The amendments to Paragraph 5 of the Scheme provides that ADRs /
GDRs issued by listed companies should be made at a price not less
than the higher of the following two averages :
1.
The average of the weekly high and low of the closing prices of
the related shares quoted on the stock exchange during the 6
months preceding the relevant date;
2.
The average of the weekly high and low of the closing prices of
the related shares quoted on a stock exchange during the two
weeks preceding the relevant date.
The “relevant date” means the date 30 days prior to the date on which
the shareholders’ meeting is held, under section 81(IA) of the
Companies Act.
Conversion price of the FCCBs will also be in accordance with the
above provisions.
The pricing of ADRs/GDRs as well as the conversion price of FCCBs
of unlisted companies should be in accordance with the RBI
Regulations notified under the FEMA, which talks of CCI Valuation
Guidelines.
Euro Issue - 2005 Second Amendment
• The applicability of the amended Scheme has been relaxed by
the Ministry for those companies which have already taken
effective steps and thereby incurred costs before August 31,
2005, provided these companies complete their issues latest by
December 31, 2005.
• “Effective steps,” for the above purpose, will mean the
following :
– That the company has completed due diligence and filed
offering circular in the overseas exchange(s); or
– That approval of overseas exchange(s) has been obtained; or
– That the payment of listing fees is made; or
– That the approval of the Reserve Bank of India, where
applicable, for meeting issue related expenses has been
obtained.
• Private placements of issues, where no offering circular was
placed before the overseas exchange(s), would not qualify for
“effective steps” .
Euro Issue – 2005 Third Amendment
• Dated November 17, 2005
• The companies going in for an offering in the domestic
market and a simultaneous or immediate follow on
offering (within 30 days of domestic issue) through
ADR/GDR issues wherein GDRs/ADRs are priced at or
above the domestic price, would be exempt from the
requirement of the revised pricing guidelines. Such
companies will have to take SEBI’s approval for such
issue, which will specify the percentage to be offered in the
domestic and ADR/GDR markets.
• It is also clarified that in terms of the First Amendment,
2005, unlisted companies, which have already issued
GDRs/FCCBs and are to list in the domestic market, would
be required to do so by March 31, 2006.
• All other conditions of the First Amendment dated August
31, 2005 would continue to be applicable.
Significant
Judicial Pronouncements
Judicial Pronouncements
• DCA Circulars are advisory and do not have mandatory effect
[Bhagwati Developers v. Peerless General Finance & Investment Co.
(2005) 62 SCL 574 (SC)]
• Enforceability of shareholders’ joint venture agreements even if
incorporated in AOA – subject to Section 9 of the Act [Jindal
Vijayanagar Steel Limited, In re (2005) 63 SCL 7 (CLB - Chennai)]
• Share related matters
– Sub-sections (1A) and (1C) of Section 108 of the Act are directory
[Dove Investments (P.) Ltd. v. Gujarat Industrial Investment Corpn. Ltd.
(2005) 60 SCL 604 (Mad)]
– Issue of bonus out of revaluation reserve is permissible [Bhagwati
Developers v. Peerless General Finance & Investment Co. (2005) 62 SCL
574 (SC)]
Judicial Pronouncements
• Corporate Directors not liable merely because of
being directors
– For dishonour of cheque for insufficiency, etc., of funds in
account – NI Act [S.M.S. Pharmaceuticals Ltd. v. Neeta
Bhalla 63 SCL 93 (SC); S.V. Mazumdar v. Gujarat State
Fertilizers Co. Ltd. (2005) 62 SCL 116 (SC); CDR. Shekhar
Singh v. N.K. Wahi (2005) 57 SCL 9 (Del)]
– For payment of wages under the Payment of Wages Act
[P.C. Agarwala v. Payment of Wages Inspector, MP (2005) 63
SCL 109 (SC)]
Judicial Pronouncements
• Auditors’ duties re. report about disqualification of
a director under Section 274(1)(g) [Pawan Jain v.
Hindusthan Club Ltd. (2005) 62 SCL 610 (Cal)]
• A corporation or company can be prosecuted for
any offence punishable under law [Standard
Chartered Bank v. Directorate of Enforcement (SC)
2005]
• Meetings - POA is a valid proxy [Gharda Chemicals
Ltd. v. Jer Rutton Kavasmaneck (2005) 63 SCL 222
(Bom)]
Judicial Pronouncements
• SEBI Law Matters
– For violation of Regulation 7 of the SEBI Takeover Regulations,
shares cannot be forfeited [Aska Investments (P) Ltd. v. Grob Tea
Co. Ltd (Cal)]
– Receipt of communication by one Stock Exchange - presumption
that the other Stock Exchanges also would have received the
same [NNV Finance Ltd. v. Securities and Exchange Board of India
(SAT – Mum) 2005]
• Competition Law
– Competition Act - Composition of Commission : Decision : As
the amendments which the Government proposed to introduce in
the Parliament would have a clear bearing on the question raised
for decision, the Court postponed the matter and decided that the
same should be decided after amendments, if any, are carried out.
[Brahm Dutt v. Union of India (2005) 57 SCL 429 (SC)]
Proposed Law
Committee Reports / Concept
Papers
•
•
•
•
Concept Rules on New Company Law
J J Irani Committee on Company Law
M H Kania Committee on SEBI Act
O P Vaish Committee on Streamlining Prosecution
Mechanism under Company Law
• Concept Paper on LLP Law
• Other Committees like Capoor Committee on
MAPIN, Lahiri Committee on FII investments
etc.
Thank You !