ArchiveApril 2011

Parent Company’s duty to employees of its Subsidiary

In an interesting judgment delivered earlier this month, Chandler v. Cape Plc. [2011] EWHC 951 (dt. 14/4/2011), it has been held that a parent company owes a duty of care to employees of its subsidiary. The decision contains a detailed analysis of the scope of the duty of care in such situations; and provides some indication that the existence of the corporate veil between the parent and its...

Globalisation: Myth and Reality

A new study asserts that the importance and virtues of globalization, including cross-border trade and foreign investment, may have been overplayed. The Economist has a column discussing Pankaj Ghemawat’s book World 3.0: Global Prosperity and How to Achieve It. It points to some astonishing data and conclusions that emerge from the book: Mr Ghemawat points out that many indicators of global...

UDF at Mumbai and Delhi airports

A Division Bench of the Supreme Court today declared that the User Development Fee [“UDF”] charged by the private operators of the Mumbai and Delhi airports is ultra vires. The judgment, reported as Consumer Online Foundation v Union of India, contains several observations that are crucial in ascertaining the proper scope of the public-private model [“PP”] in the aviation sector. This post set...

Lifting the Corporate Veil for Tax Purposes

The judgment of the Bombay High Court rendered last year in the Vodafone Case favours the revenue when it comes to imposition of tax by the Indian authorities on sale of shares in an offshore company that has a substantial stake in an Indian company. While an appeal in the Vodafone Case is pending before the Supreme Court, the Karnataka High Court recently had the opportunity to pronounce a...

Attracting Sovereign Wealth Funds

Although there had been a great amount of discussion a couple of years ago regarding soverign wealth funds (SWFs), both in terms of their investments in the Indian markets and to to whether India should create one for itself, that seemed to have died down. This was largely because SWFs were expressly recognized in 2008 as foreign institutional investors (FIIs) under the SEBI FII Regulations, and...

Offering of Securities: Public or Private?

Today’s Economic Times carries a newsreport about a company that has 2.6 million shareholders, but nevertheless continues to be unlisted. If true, this oddity of circumstances calls into question section 67 of the Companies Act. That section provides any offer of shares or debentures made to 50 persons or more will be considered a public offering, which will require listing of the securities on a...

The Romalpa Clause and Bankruptcy Protection

To a supplier or, more generally, to any commercial entity involved in the initial stages of a supply chain, protecting itself in the event of the bankruptcy or change in constitution of its principal buyers is a matter of great importance. It is therefore commonplace to find clauses in a contract creating, for example, a unilateral right to terminate in the event of change of control. Similarly...

Territorial Nexus Revisited: GVK Industries v. Union of India

We have previously discussed issues surrounding the application of the “territorial nexus” doctrine to income tax law in several posts (here, here, here and here). In its recent decision in GVK Industries v. Union of India, a Constitution Bench of the Supreme Court has confirmed that the doctrine applies to Parliamentary laws. The precise question of the constitutionality of Section 9(1)(vii) of...

SEBI on Put and Call Options

The Vedanta/Cairn Energy deal brings the issue of put and call options back into the spotlight as SEBI has sought removal of those clauses from the agreement regarding sale of shares in Cairn India. Curiously enough, SEBI has adopted a strict stance on an issue that is far from being clear under Indian law. As we have discussed earlier, the enforceability of put and call options hinges upon a...

Caution in Whistle Blowing

Whistle blowing is one of the key tools used in corporate governance to act as a check on managerial actions. It is also recognised in India as a non-mandatory requirement under Clause 49 of the listing agreement. While whistle blowing is useful in enhancing governance standards, the recent episode at Renault suggests that it is also capable of abuse. Lessons from that episode include the need...

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