In a recent article, Mr. Umakanth drew a distinction between ‘insider’ and ‘outsider’ models of corporate governance, and argued that “…the current regime on corporate governance has been transplanted from jurisdictions which display diffused shareholding and hence is inappropriate to the Indian regime which is dominated by promoter-controlled companies. What is necessary is a...
Fraud and Bank Guarantees
Often, it so happens in the commercial world that a contract between two parties requires one to provide a performance guarantee to the other. Accordingly, the party provides a bank guarantee; but the guarantee itself is expressed to be “unconditional” and “irrevocable”. The understanding of the parties is that the guarantee will be utilized and encashed if and only if a breach is committed. Some...
Moore Stephens: Extending Protection for Auditors
Moore Stephens v. Stone & Rolls might well be the most important case on auditors’ liability since Caparo v. Dickman . The House of Lords, by a narrow majority, extended the protection which Caparo offers to auditors even further. The facts, as detailed by Lord Phillips, were that the sole “directing mind” of a company used the company as a vehicle for defrauding certain banks. The...
Corporate Opportunities: A “Scope of Business” Exception?
A couple of weeks ago, Corporate Law and Governance highlighted a decision of the Court of Appeal in O’Donell v. Shanahan, reasserting the strictness of a director’s fiduciary duties. A leading decision on the point of the director’s fiduciary duties was Regal (Hastings) v. Gulliver, [1942] 1 All ER 378, where the duties were held to extremely strict. The principles – bearing a relationship with...
Is a tax avoidance motive necessary for application of Transfer Pricing provisions?
In a recent decision, ACIT v. MSS India, ITA No. 393/PN/07, the Pune Bench of the Income Tax Appellate Tribunal had to consider an interesting issue pertaining to the application of transfer pricing provisions. On an appeal after a transfer pricing assessment, the CIT (Appeals) had held in favour of the assessee; deciding that as the assessee was a 100% export oriented undertaking exempt from...
The Duties of Non-Executive Directors
Earlier discussions on corporate governance norms have raised questions about the role of independent non-executive directors in maintaining appropriate standards of governance. In this context, a recent Australian judgment indicates the nature of duties which a non-executive director may be required to discharge. Australian Securities and Investment Commission v. MacDonald involved a situation...
Duties of the Official Liquidator: Madras HC decision
A recent judgment of the Madras High Court throws some light on the role of an Official Liquidator. In TCI Distribution Centers v. Official Liquidator (C.A. 1953/2008 in C.P. 526/2000), the Official Liquidator had sold certain properties through an auction-sale. The auction-purchaser later found out that the properties were not exactly the same as described in the sale advertisement. The...
Pyramid Saimira and the Powers of the SEBI
A few weeks ago, the SEBI passed an order (WTM/KMA/60/04/2009) in the Pyramid Saimira case, which raises questions pertaining to insider trading. The order resulted from SEBI’s investigation into the affairs of Pyramid Saimira, highlighted in this post. The particular sequence of events is discussed in several reports, linked here and here. In its order (though only an interim one), the SEBI...
NLSIR Symposium: Is Judicial Intervention in arbitration justified?
The recent Symposium on Arbitration conducted by the National Law School of India Review saw the much-maligned interventionist role of the judiciary receiving support from leading practitioners, including Senior Advocates Arvind Datar and Gourab Banerji. Two of the most heavily criticized judicial interventions are (a) holding that the Chief Justice carries out a judicial function in determining...
Partnerships and the Effects of Non-Registration: Section 69(2A) declared unconstitutional
In a judgment delivered last week, V. Subramanium v. R. Rao (Civil Appeal 7438/2000; MANU/SC/0417/2009), the Supreme Court declared unconstitutional a significant state amendment to the Partnership Act, 1932. Section 69 of the Partnership Act reads: 69. Effect of non-registration. (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by...
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