ArchiveDecember 2009

SEBI Order on Participatory Notes

Just when it appeared that the din surrounding offshore derivative instruments (ODIs) and participatory notes (PNs) had subsided, the significance of regulating these instruments has resurfaced in an order passed by SEBI yesterday in the case of Barclays Bank PLC, a foreign institutional investor (FII) registered with SEBI. By this order, Barclays has been prohibited from issuing, subscribing or...

“Consent in writing” and Standing for Oppression and Mismanagement: Section 399(3)

Having discussed the apparent relaxation in standing requirements under Section 399(1), this post will now consider what the requirements under Section 399(3) are. In particular, the effect of the Justice Ruma Pal’s decision in J.P. Srivastava v. Gwalior Sugars will be considered. Section 399(3) states: 3) Where any members of a company are entitled to make an application in virtue of sub-section...

Locus Standi for Oppression and Mismanagement: Dilution of Section 399(1)

Remedies for oppression and mismanagement under Section 397 and 398 of the Companies Act, 1956 provide for some relief to shareholders. However, in order to invoke the provisions of Sections 397/398, the petitioners must demonstrate their standing under Section 399. Section 399, which deals with the right to apply under Sections 397 and 398, says in the relevant part: (1) The following members of...

Climate Change and Corporations

Ultimately, when it comes to corporations, incentives seem to matter a whole lot, with one key incentive being the profitability (or avoidance of loss) of any action to shareholders. In his column in the New York Times, Paul Krugman notes: Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to...

Derivative Actions – Part I

The issue of shareholders making claims on behalf of a corporation has been a bone of contention ever since the decision in Foss v. Harbottle. However, in recent times, two particular aspects of this controversial area of corporate jurisprudence have received significant attention. These are the issues of multiple derivative claims, and the statutory requirements laid down for a derivative claim...

Insider Trading: Where Do We Draw the Line?

In an interesting two-part column series in the Mint (here and here), Govind Sankaranarayanan considers the broad academic debate surrounding insider trading. He makes at least two pertinent observations: (i) the line between insider trading that is considered acceptable and that which is improper is quite often blurred and difficult for regulators to segregate; and (ii) there is a need for...

Consequences of Listing Violations

One of the usual consequences that befalls a company when it violates conditions of the listing agreement is a delisting of its shares from the stock exchanges. This is perceived to be a disincentive that deters companies from breaching listing conditions. It has recently been put to use in a more mild form by the Bombay Stock Exchange that threaten to suspend 18 companies for non-compliance of...

Commencement of Disinvestment Process

Following the Finance Minister’s announcement in Budget 2009 to undertake disinvestments, the Government has now announced stake sales in 25 public sector companies through public offers. Its zeal to ensure the success of these public floats of shares is evidenced by a proposal to grant significant powers to the Department of Disinvestment. The truth, however, is that disinvestments tend to be a...

Restructuring Companies: Capital Gains and Transfer Pricing

In a very interesting decision that could have significant implications for restructuring companies, the Authority for Advance Rulings [“AAR”] has discussed several controversies in connection with restructuring schemes. The decision, Re Dana Corporation (decided November 30, 2009), is available here. The applicant, Dana Corporation, was incorporated in the USA. As part of its extensive worldwide...

The Debate over Multiple Classes of Shares

Currently, the issue of shares with differential rights as to voting and dividend is in a state of flux. While the Companies Act, 1956 and the Rules issued pursuant to that allow shares with differential rights, SEBI has proscribed the issue of shares with “superior voting rights” in listed companies, implicitly allowing shares with “inferior” voting rights. Finally, however, the Companies Bill...

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