The abuse of extreme powers in financial regulatory laws has been subject matter of litigation for the past two decades – particularly since the mid-1990s when SEBI started using the (then) newly-introduced Section 11B of the SEBI Act, 1992. The power to “issue such directions as deemed fit” is a sweeping and general one. The use of such powers without even...
OECD on Public Enforcement of Corporate Governance in Asia
The principles and norms of corporate governance tend to operate through layers. On the one hand, there is the basic legislation, i.e. the Companies Act, SEBI Act and the like. Then there are specific norms in the form of clause 49 of the listing agreement that are mandatory for listed companies. Finally, there could be voluntary guidelines that exhort companies towards higher standards. That...
The Indian Supreme Court on Lifting the Corporate Veil
In its recent judgment in Balwant Rai Saluja, a three-judge Bench of the Supreme Court has considered a number of important questions relating to when, if ever, it is appropriate to lift the corporate veil. Readers may recall that we had previously discussed Lord Sumption’s magisterial judgment on this point in Petrodel v Prest: Although the Supreme Court has not endorsed precisely the same...
“Dual-class” Share Structures
The recent NYSE listing of Alibaba has once again brought to the fore the issue of dual-class share structures, as discussed in this column in the Economist. Alibaba’s founder and a group of insider shareholders have control rights that are disproportionate to their economic rights. The wave of dual-class structures in tech-IPOs was triggered by Google’s IPO in 2004, which was followed by another...
Restrictions on Tax Inversions
A few months ago, we had discussed the use of “inversion” deals by U.S. companies to minimize the effect of U.S. taxes. Since then, inversions have been the subject matter of intense debate from a policy perspective. Two potential regulatory responses have been proffered. One is more short-term by which the U.S. government limits the ability of companies to carry out inversion deals by either...
SEBI’s Final Order in GDR Manipulation Case
In a September 2011 post, we had discussed an ad-interim ex parte passed by SEBI in relation to a specific transaction structure that involved the use of global depository receipts (GDRs) to allegedly manipulate the stock price of several companies: The modus operandi was as follows. The companies issued GDRs, which were acquired by various foreign institutional investors (FIIs) or their sub...
Share buybacks – cause for concern?
Several recent articles (in The Economist, the Financial Times and the Wall Street Journal) highlight the spate of buybacks by blue chip companies over the last year, and raise some concerns arising out of this seemingly shareholder-friendly trend. The companies in the S&P 500 index bought US$500 billion of their own shares in 2013, close to the high reached in the bubble year of 2007. This...
RBI Allows FDI against “Legitimate Dues”
Hitherto, an Indian company could issue shares to a non-resident against payment obligations only in certain circumstances. These related to “lump-sum technical know-how fee, royalty, External Commercial Borrowings (ECB) (other than import dues deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital goods by units in Special Economic Zones” subject to applicable...
Report on Gender Diversity in Corporate Boards
The issue of board diversity has acquired considerable prominence in recent times. Although there can be various hues to the concept of diversity, one manifestation relates to gender diversity and the requirement for women directors on corporate boards. What began as a useful management strategy has acquired regulatory overtones. Several countries have incorporated gender diversity into their...
Supreme Court on Non-Compete Fee Under the Takeover Regulations
[The following post is contributed by Yogesh Chande, Associate Partner, Economic Laws Practice. Views are personal] The Supreme Court passed an order setting aside the Securities Appellate Tribunal (SAT) decision [and order of SEBI] on payment of “non-compete” fee under the erstwhile SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SEBI Takeover Regulations) Background...
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