Sunday, September 22, 2013

Call for Papers: NUJS Law Review

[The following is an announcement posted on behalf of the NUJS Law Review]

The NUJS Law Review is pleased to invite contributions for its annual Special Issue for 2013-14 “Surveillance, Censorship & Indian Law: Mapping the Field”

A spate of recent events, such as the debate surrounding Section 66A of the Information Technology Act and the Intermediaries Guidelines under it, the calls against decriminalizing speech offences (such as sedition, obscenity or defamation) in both traditional and new media, the debate around the Central Monitoring System, the NAT GRID and CCTNS in India (and the Snowden affair globally) have thrown the effect of state action (including legislation) on the fundamental rights to free speech, privacy and due process into sharp relief.

This issue proposes to engage with key questions surrounding the state of speech and privacy rights in India, in light of existing and improving capacities of both state and non-state entities to engage in activities that restrict these rights. We welcome contributions engaging with state and non-state led censorship and surveillance arising across the Indian media, whether physical or virtual, and with the sufficiency and effectiveness of existing laws to govern them. Submissions may address censorship in any medium (press, broadcasting, film or new media) and surveillance of any type (whether of persons, physical property or of communications).

Information for Contributors

All contributions must be sent to the Board of Editors of the NUJS Law Review at on or before December 15, 2013.

Authors are welcome to write to the Board of Editors to check the suitability of their proposed papers prior to their submission of finished drafts by the Submissions Deadline.

Friday, September 20, 2013

Ambiguity regarding Consent Settlements - whether resolved?

Readers may recollect that the legal basis of settlement by Consent Orders by SEBI has been questioned before the Delhi High Court. Recently, an Ordinance ("First Ordinance") had been notified which amended the SEBI Act apparently with the intention to provide specific provisions in the form of Section 15JB for settlement by Consent Orders, both past and future (similar amendments have been made to the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996). I had written a post pointing out that the amendments suffered from a technical defect and certain ambiguities. A reader has kindly drawn attention to a new provision in the Securities Laws (Amendment) Second Ordinance, 2013 ("Second Ordinance") which further deals with these issues. The question is whether this provision resolves the issue before the Delhi High Court and/or the points raised in my post. It appears that they do not. The new provision is reproduced below for ready reference (emphasis supplied):-

"34A. Any act or thing done or purporting to have been done under the principal Act, in respect of calling for information from, or furnishing information to, other authorities, whether in India or outside India, having functions similar to those of the Board and in respect of settlement of administrative and civil proceedings, shall, for all purposes, be deemed to be valid and effective as if the amendments made to the principal Act had been in force at all material times. " 

In other words, the amendments made by the Ordinance relating to settlement effectively are being given retrospective effect. Will it make any difference? 

Firstly, insertion of 15JB, the new provision dealing specifically with settlement, was already given retrospective effect by the First Ordinance. This continues under the Second Ordinance. 

Secondly, Section 15T(2) dealing with earlier provisions relating to settlement by consent was omitted with prospective effect under the First Ordinance. Under Section 34A of the Second Ordinance, it can arguably that this omission is with retrospective effect (presumably, it will override Section 1(2) of the Second Ordinance which states that unless otherwise provided, the amendments will come into effect from 18th July 2013). Thus, Section 15T(2) which was supposedly the basis of settlement by consent orders will not be available for past consent orders. The validity of consent orders would thus be governed by Section 15JB.

However, and thirdly, the basic issue raised in my post was that Section 15JB requires that settlement should be in accordance with Regulations made in this regard. No such Regulations have been made. Hence, future consent orders may arguably cannot be made until Regulations are issued for this purpose.

Indeed, arguably, even past Consent Orders may suffer from a fresh defect. If Section 15T(2) is indeed omitted with retrospective effect, the only basis of settlement by Consent Orders would be Section 15JB. That section, as explained earlier, requires that settlement should be in accordance with Regulations made. In absence of such Regulations, therefore, past consent orders would not be technically legal under Section 15JB as retrospectively inserted.

Hopefully, this issue will be resolved in the Bill to enact the Ordinance. One would also watch with interest the wording of the Regulations when they are notified under Section 15JB. Finally, it will also have to be seen whether the Delhi High Court treats the lack of Regulations as a fatal defect or whether it considers the Guidelines as sufficient and substantive compliance.

Damodaran Committee Report: Impact on Impulsive Law Making

[In yesterday’s post, we had briefly discussed the publication of the Damodaran Committee on Reforming the Regulatory Environment for Doing Business in India, and its broad impact.
In this post, Nidhi Bothra at Vinod Kothari & Co discusses the report in greater detail. Nidhi can be contacted at]
The Damodaran Committee was set up by the Ministry of Corporate Affairs to make recommendations for reforming the regulatory environment for doing business in India. This was due, among other things, to India’s lacklustre performance over the last few years in the Doing Business of the World Bank. The report of the Committee was submitted to the Ministry on 2nd September, 2013 and is available in the public domain.

The report is classified into 6 chapters and relates to a) dispute resolution/ legal reforms, b) architecture of regulatory space, c) measures to boost efficacy of regulatory process, d) improving business for MSMEs, e) addressing issues at state level and f) reviewing World Bank’s Doing Business Report. The report makes several recommendations which are very relevant in the present day context. The crux of the report is to provide such regulatory environment facilitating easy doing business in India and the highlights of the recommendation are as below:

a.   Dis-incentivising civil courts and encouraging arbitration. Commercial dispute resolution in India takes a long time, a large number of cases are pending under section 138 of the Negotiable Instruments Act as well. The Committee recommends to create a pool of trained arbitrators for facilitating easy dispute resolution.

b.   Need for Regulatory Review Authority. The Committee rightly states that new regulations should not be knee-jerk response to a specific situation or context. The Committee recommends that as in developed nations, a regulatory review authority should be set up which would carry out a regulatory impact assessment and should determine the effort and the cost involved and review the need for the regulation and cost thereof. The regulatory review authority should also be the internal regulation review authority for proposed regulations as well. The Committee mentions that owing to the non-consultative approach, regulations formed sometimes are impractical and lose relevance in the rapidly changing environment.

c.   Consultative approach for law making. For drafting a law there should be two levels of consultation process to be carried out, one, stakeholders’ consultation process and two, revised draft consultation. The regulatory impact assessment should precede the public consultation process. Matters of systemic risk to get priority and non-systemic matters to be dealt in a summary manner. The draft regulations should be simple and should not leave any scope for ambiguity. Also that every organisation given the task of writing regulations should have a provision for advance authority for rulings.

d.   Regulatory Autonomy. The Committee recommends that there should be regulatory autonomy and that the regulatory organisations should do a self-evaluation once every 3 years and put it on public domain. Also, a Parliamentary Committee should review the work of the head of the regulatory organisation every six months wherein the developments of the previous six months will be reviewed.

e.   Improving business for MSMEs. In the present day, policies for MSMEs are not co-ordinated at the Central and the State level. Hence the Committee recommends that there should be an over-arching body set up for addressing the key business issues for MSMEs and acting as an interface with the relevant Ministries and Departments to address the impediments. According to the report 97% of the MSMEs are proprietorship or partnership firms and face several compliance issues which are huge cost burden and strain management bandwidth. The recommendation is to set up a single window clearance mechanism for MSMEs and an appellate process for persons aggrieved by an order of rejection.

f.    Incentivising States. The Committee recommends that there should be nodal contact for persons intending to obtain information on the procedural and substantive conditions to be fulfilled while setting up business. The States should be incentivised for simplifying regulations and to expedite approvals. Also at the Central level there should be a clearing house set up for providing information on the practices adopted by different state governments.

As per the World Bank Doing Business Report, the first indicators of doing business are the measure of time, cost, minimum capital required to start a new business, where India ranked low. In India, enforcement of contracts is a problem, resolution of commercial disputes take long, India’s regulatory architecture is getting increasing complex, insolvency takes lot of time, absence of bankruptcy and lenders’ liability laws are some of the problems of the many.  On the business side more and more entities are offering themselves for corporate debt restructuring, NPA levels are constantly soaring in the country. The near absence of policies towards corporate insolvency and problem loans have been a major stumbling block in India and the problems remain.

As India faces an uphill task with escalating problem of corporate debt restructuring, much of which may turn bad over a period of time, the country cannot afford to have knee-jerk solutions to a problem The Companies Act 2013 has been recently enacted, and is currently going through enforcement in a phased manner. The new Act makes some effort to streamlining and speeding up the winding up process. However, provisions about revival of sick companies have been made creditor-driven, rather than debtor-motivated. Revival of sick companies is more like survival instinct, which has to come from the person facing sickness rather than the creditors. True, sickness cannot be used as a ploy to keep creditors at bay; at the same time, the social costs of creditor-driven enforcement are huge. There has to be a balance between creditor needs and debtor concerns – the balance is missing at the current time.

As regards asset reconstruction companies (ARCs), India is the only country which allows ARCs as a business model, and that too, equipped with statutory powers. Recently, the foreign investment regime was relaxed to permit upto 74% investment in “security receipts”. Presumably, there will be lot of traction on this front as loans go non-performing over time.

In short, the country seems to be moving about impulsively on a subject which requires a balanced policy decision. The complex mesh of regulations that are ever changing along with the uncertainty that they bring about are not just deterrent but are also having a tremendous negative impact on doing business in India. In this background, the 70 pager Report on the Committee’s recommendations are welcomed and if implemented would surely have impact on ‘doing business’ in India.

- Nidhi Bothra

Thursday, September 19, 2013

Committee Report on Reforming Regulatory Environment in India

Last year, the Government had appointed a committee under the chairmanship of Mr. Damodaran, former Chairman of SEBI, to recommend reforms to enhance the regulatory environment for doing business in India. This was in response to the annual Doing Business rankings put out by the World Bank, where India has not been performing satisfactorily with little improvement or the last few years.

The committee has now issued its report, which is useful as it identifies the various shortcomings from the perspective of foreign investors doing business in India. It also makes several recommendations regarding legal reforms as well as on the regulatory architecture. While the reforms suggested are overdue, it is not clear as to how they can be implemented given that they relate to different government departments, and on certain issues even at the state levels, and it would be a mammoth task to implement them even if they are accepted formally by the Government. Nevertheless, the recommendations provide a useful starting point even if some of the government bodies were to begin implementing the recommendations that will send strong signal positive signal for others to follow.

Clarification on Effectiveness of the Companies Act, 2013

In a previous post concerning the notification bringing into effect several provisions of the Companies Act, 2013, it was discussed that the provision repealing the respective provisions of the Companies Act, 1956 was not brought into effect causing some confusion as to which law will apply to those matters. Based on requests for clarification seemingly made by several parties, the Ministry of Corporate Affairs (MCA) has now clarified through another notification dated September 18, 2013 that “the relevant provisions of the Companies Act, 1956, which correspond to provisions of 98 sections of the Companies Act, 2013 brought into force on 12.09.2013, cease to have effect from that date.” While this is intended to avoid overlap during the transitional period, it still leaves the task to companies and their advisors to identify the appropriate provisions of the 1956 Act that will cease to apply as they are not specified in the new notification.

Wednesday, September 18, 2013

Paper on Private Equity in India

In the past, some readers have asked if we could cover matters pertaining to the private equity sector in greater detail. Often, the difficulty we encounter is that private equity is not recognised specifically as an investment class under the Indian laws and regulations. As far as foreign private equity investments are concerned, they are generally treated as part of the foreign direct investment (FDI) regime and sometimes under the foreign institutional investor (FII) category. Private equity investments are subject to the same restrictions as other foreign investors. Moreover, a number of different laws and regulations apply in the context of investments by private equity firms, much like other foreign investors.

In this context, Professor Afra Afsharipour makes a timely contribution to the literature through her recent paper titled “The Indian Private Equity Model”. The paper analyzes the various laws and regulations that apply to private equity investments, and also the various structures and contractual arrangements used by the parties. It also contains a comparative perspective discussing the types of structures that either work or do not work in the Indian context relative to those that are well understood in other markets.

The abstract of the paper is as follows:

Private Equity (PE) firms have long invested in Western firms using a leveraged buyout (LBO) model, whereby they acquire a company that they can grow with the ultimate goal of either selling it to a strategic buyer or taking it public. Unable to undertake the traditional LBO model in India, PE investors in Indian firms have developed a new model. Under this Indian PE Model, PE firms acquire minority interests in controlled companies using a structure that is both hybridized from other Western investment models and customized for India‘s complex legal environment. PE investors in India face several challenges, including continuing restrictions related to foreign investment, the corporate governance structure of Indian firms, and securities and corporate law hurdles to investments in publicly listed companies. PE investors have thus developed an Indian PE model focusing on several major issues: (i) structuring of minority investments, (ii) investor control rights, and (iii) exit strategies. Nevertheless, recent governance and regulatory difficulties, such as uncertainty regarding the legal status of put options, highlight the insufficiency of the Indian PE model to provide investors with their desired protections.

This paper is part of the NSE Working Papers series that is gradually building up content on issues such as capital markets and corporate governance. It also has a separate series on Student Research Papers.

Sunday, September 15, 2013

Companies Act, 2013: Additional Disclosures in Notices of Meetings

[The following post is contributed by Nidhi Ladha, who is a junior partner at Vinod Kothari & Co. She can be reached at]

The Companies Act, 2013 (the Act) has already been enacted as Act no. 18 of 2013 after obtaining the assent of the President on August 29, 2013. The Ministry of Corporate Affairs (MCA) has placed on its website the draft rules for public comments on September 6, 2013 inviting comments till October 8, 2013. As a further step and as continuation of its speedy actions, the Ministry has now enforced 98 sections of the Act vide notification dated September 12, 2013. The said sections have come into effect with immediate effect (i.e. from September 12, 2013).

One of the enforced provisions is section 102 dealing with Statement to be annexed to the notice calling general meetings for every special business [corresponding to section 173 of the Companies Act, 1956 (1956 Act)].


What are the additional disclosures required now?

Apart from the existing requirements of disclosing full particulars and reasons for proposing a resolution and place and date for inspection of relevant documents, section 102 now requires disclosure of not only the names of the interested parties but also the nature and extent of interest of directors, managers, key managerial personnel (KPM) and relatives of directors, manager and KMP in the explanatory statement to be annexed for every special business in the notice calling general meetings.

The proviso to sub-section (2) requires mention of the extent of the interest of every promoter, director, manager or KMP in any other company to be affected by the proposed resolution if they hold 2 (two) percent in that other company. The 1956 Act required such a disclosure if director, manager or secretary holds 20 (twenty) percent or more in such other companies.


It is pertinent to note that the section now requires disclosure of interest of KMP and relatives of directors, managers and KMP also. The term ‘relative’ as defined in section 2(71) of the Act has also been enforced and includes, for the time being, members of HUF and husband-wife relationship only. The other relationships to be termed as ‘relatives’ are yet to be specified by the Central Government as the draft Rules as put up by the MCA on its portal do not provide for the same.

In terms of proviso to sub-section (2), disclosure of interest is to also to be made in relation to other companies in which director, promoter, manager or KMP holds 2% or more paid up capital. One may note that the provision uses the term ‘paid up capital’, which includes equity as well as preference share capital of a company.

Impact of enforcement of the section

As this is the peak time for companies to hold their annual general meetings, it is quite necessary to know whether the enforced section 102, which has come into effect with immediate effect, applies to them or not.

Section 102 has been enforced with effect from September 12, 2013, and hence, in our view, it should apply to all notices to be issued after this date and not to the meetings to be held after this date for which notices have already been issued. Accordingly, all notices which are to be issued by a company after this effective date will be required to have additional disclosures in their notices as detailed in preceding paras.

What if the company fails to comply?

Unlike 1956 Act, the Act now prescribes for huge penalty, which may extend to Rs. 50,000 or five times of benefits accrued due to non disclosure of interest or violation of any other provision of the section. In addition to any other action under the Act, the benefits, which have accrued to director, manager, KMP or their relatives due to non disclosure of interest, are required to be held in trust by such persons and such persons will also be liable to compensate the company to the extent of such benefit received by them.


The Ministry has acted before anyone expected with regard to notifying and implementing the new Act and the MCA has enforced 98 sections in the first phase. However going by the general saying of ‘haste makes waste’, such faster actions of the MCA might also prove so.

Along with section 102, some other sections related to calling of general meetings have been enforced by the MCA at this time when most of the companies have already issued the notices calling their annual general meetings. Section 103 provides for quorum for general meetings. For public companies, the said section has now fixed a quorum depending on the number of its members unless higher quorum is required by the articles of such companies. However, the 1956 Act required a quorum of 5 members personally present in case of public companies. In case of the applicability of the section with effect from September 12, 2013, it surely needs clarification as to whether the companies which have already issued notices and will be holding their annual general meetings after the date of the notification are required to comply with the old Act or the new Act.

Section 465 of the Act, which repeals the 1956 Act, has not been notified yet. Hence, there could be a question as to whether the new provisions notified will operate in addition to the provisions of the 1956 Act.

In absence of appropriate clarifications in this regard, the stakeholders might have to face problems while complying with the new provisions. Enforcement of several sections in lack of proper guidelines, rules, clarifications etc from the MCA might prove the September 12 notification a premature and hasty action.

- Nidhi Ladha