Recent Changes in Company Law

8/2/2019 Recent Changes in Company Law

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Recent Changes in Company Law

By Mahavir Lunawat


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Outline

HistorySequence of MilestoneEvents

Developments since 2005 till dateAmendments

Significant Judicial Pronouncements

Proposed Law


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Sequence of Milestone Events

Scams in US

US Sarbanes Oxley Act, 2002

SEC Rules under SoX

Naresh Chandra Committee on CorporateGovernance

Companies Amendment Bill, 2003

Concept Paper on Company Law

White Paper on Modern Company Law, UK

Company Law Reform Bill, UK

J J Irani Committee

Concept Paper on LLP Law


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Amendments


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SEBI Law Implementation of revised Clause 49

Independent Directors

Subsidiary Monitoring

Shareholders Prior approval for compensation / stockoptions to NEDs

Audit CommitteeEligibility Criteria, mandatoryreview etc.

Statutory Compliance Review

Risk Management Procedure Code of Conduct for Directors & Senior Management

CEO and CFO Certification

Non-Mandatory : Term of Independent Director,

Whistle Blower Policy etc.


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SEBI Law

SEBI (DIP) Guidelines, 2000 - Book Building Norms Enhancing allocation category for RIIs

In case of book built issues with mandatory allocation of 60% to QIBsunder Rule 19(2)(b), the respective figures shall be 30% for RIIs and 10%for NIIs.

RedefiningRetail Individual Investors : RIIs can apply for shares up toa maximum amount of Rs.1,00,000/- as against the extant limit of

Rs.50,000/- Reducing the bidding period : The bidding period has been reduced from

current 5 10 days (including holidays) to 3 -7 working days

Timing of disclosure of Price Band / Floor Price in case of listedcompanies : Listed issuers making a follow-on public issue may disclosethe price band /floor price atleast one day before bid opening

[SEBI/CFD/DIL/DIP/15/20, dated March 29, 2005]

Category From To

RIIs 25 35

Non Institutional Investors (NIIs) 25 15

QIBs 50 50


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SEBI Law

SEBI (DIP) Guidelines, 2000 - Book Building Norms

Changes re. QIB allotment Out of the existing 50% portion available for QIBs, 5%

will be specifically available for Mutual Funds registeredwith SEBI. However, the Mutual Funds will also beeligible for allotment in the remaining 45% portion

QIBs will bring at least 10% margin (calculated onapplication money) while submitting the bids

The allotment of shares to QIBs will be on proportionatebasis


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SEBI Law

SEBI Press Release (no. 108/2005 dated August 26, 2005)

on Minimum Public Shareholding

All listed companies to maintain atleast 25% shareholding

with public for continuous listing. However, companiespermitted to make an IPO of atleast 10% to public underRule 19(2)(b) to maintain min. 10% only

Listed companies, not complying with the min. publicholding requirement to be given a period of 2 years for

compliance Government companies, infrastructure companies and

companies registered with BIFR to be exempted


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SEBI Law

Review of Demat Charges Effective 9-1-2006, no charges will be levied by a depository

on a DP and by a DP on a Beneficiary Owner (BO) when a

BO transfers his account to another branch of the same DP orto another DP of the same depository or another depository.[MRD/DoP/Dep/Cir-22/05 dated 9-11-2005]

SEBI vide Circular MRD/DoP/SE/Dep/Cir-4/2005 datedJanuary 28, 2005, had already waived the following chargeseffective February 1, 2005

charge towards opening of a BO Account except for applicablestatutory charges

charge for credit of securities into BO Account

custody charge


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SEBI Law SEBI Press Release dated Dec 30, 2005

(Note : These are policy announcements based on decisions of theBoard and do not reflect change in the existing legal framework untilthe relevant amendments are effected through issue of circulars.)

Public issue refunds through Electronic Clearing Scheme(ECS)

Introduction of optional grading of IPOs by credit ratingagencies

Rationalizing disclosure requirements for further publicoffers and rights issues

Common platform for electronic filing and dissemination of

corporate information

Amendment to Takeover Regulations

Amendment to SEBI (Delisting of Securities) Guidelines

Unique Identification Number (UIN) : To resume fresh

registrations for obtaining UIN under MAPIN Regulations


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SEBI Law

Amendment to Takeover Regulations

Restrictions on market purchases, preferential

allotments as in the Takeover Regulations to beremoved.

Outgoing shareholder (promoter) can sell entirestake to incoming acquirer in case of takeover.

Shareholders holding more than 55% would beable to make further acquisitions subject tomaking open offer


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SEBI Law

Clarifications on the revised Clause 49 of theListing Agreement (Effected vide SEBI CircularSEBI/CFD/DIL/CG/1/2006/13 dt. January 13, 2006) Max time gap between two Board meetings has

been increased from 3 months to 4 months

Sitting fees paid to non-executive directors asauthorized by the Companies Act, 1956 would not

require shareholders approval Certification of internal controls and internal

control systems by CEO/ CFO would be for thepurpose for financial reporting


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Euro Issue - 2005 First Amendment

Dated Aug. 31, 2005 Eligibility of issuer [New Paragraphs 3(1)(A) and

3(1)(B)]

1. An Indian company, which is not eligible to raise

funds from the Indian Capital Market will not beeligible to issue ADRs/GDRs/FCCBs under theScheme.

2. An Indian company which has been restrained fromaccessing the securities market by SEBI will not be

eligible to issue ADRs/GDRs/FCCBs under theScheme.

3. An unlisted Indian company issuingGDRs/ADRs/FCCBs will be required tosimultaneously list its shares on one or more of the

recognized Stock Exchanges in India


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Eligibility of subscriber : Paragraph

3(1)(C), inserted by the amended Scheme,

provides thatthe erstwhile OCBs which are not eligible to

invest in India through the portfolio route and

entities prohibited to buy, sell or deal insecurities by SEBI

will not be eligible to subscribe to Euro Issues.


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Pricing The amendments to Paragraph 5 of the Scheme provides that ADRs /

GDRs issued by listed companies should be made at a price not lessthan the higher of the following two averages :

1. The average of the weekly high and low of the closing prices ofthe related shares quoted on the stock exchange during the 6

months preceding the relevant date;2. The average of the weekly high and low of the closing prices of

the related shares quoted on a stock exchange during the twoweeks preceding the relevant date.

The relevantdate means the date 30 days prior to the date on whichthe shareholders meeting is held, under section 81(IA) of the

Companies Act. Conversion price of the FCCBs will also be in accordance with the

above provisions.

The pricing of ADRs/GDRs as well as the conversion price of FCCBsof unlisted companies should be in accordance with the RBIRegulations notified under the FEMA, which talks of CCI Valuation

Guidelines.


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Euro Issue - 2005 Second Amendment The applicability of the amended Scheme has been relaxed by

the Ministry for those companies which have already takeneffective steps and thereby incurred costs before August 31,2005, provided these companies complete their issues latest byDecember 31, 2005.

Effective steps, for the above purpose, will mean thefollowing :

That the company has completed due diligence and filedoffering circular in the overseas exchange(s); or

That approval of overseas exchange(s) has been obtained; or

That the payment of listing fees is made; or

That the approval of the Reserve Bank of India, whereapplicable, for meeting issue related expenses has beenobtained.

Private placements of issues, where no offering circular wasplaced before the overseas exchange(s), would not qualify for

effectivesteps .


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Euro Issue2005 Third Amendment Dated November 17, 2005

The companies going in for an offering in the domesticmarket and a simultaneous or immediate follow onoffering (within 30 days of domestic issue) throughADR/GDR issues wherein GDRs/ADRs are priced at orabove the domestic price, would be exempt from the

requirement of the revised pricing guidelines. Suchcompanies will have to take SEBIs approval for suchissue, which will specify the percentage to be offered in thedomestic and ADR/GDR markets.

It is also clarified that in terms of the First Amendment,2005, unlisted companies, which have already issuedGDRs/FCCBs and are to list in the domestic market, wouldbe required to do so by March 31, 2006.

All other conditions of the First Amendment dated August

31, 2005 would continue to be applicable.


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SignificantJudicial Pronouncements


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Judicial Pronouncements

DCA Circulars are advisory and do not have mandatory effect[Bhagwati Developers v. Peerless General Finance & Investment Co.(2005) 62 SCL 574 (SC)]

Enforceability of shareholders joint venture agreements even ifincorporated in AOA subject to Section 9 of the Act [JindalVijayanagar Steel Limited, In re (2005) 63 SCL 7 (CLB - Chennai)]

Share related matters

Sub-sections (1A) and (1C) of Section 108 of the Act are directory

[Dove Investments (P.) Ltd. v. Gujarat Industrial Investment Corpn. Ltd.(2005) 60 SCL 604 (Mad)]

Issue of bonus out of revaluation reserve is permissible [BhagwatiDevelopers v. Peerless General Finance & Investment Co. (2005) 62 SCL574 (SC)]


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Corporate Directors not liable merely because ofbeing directors For dishonour of cheque for insufficiency, etc., of funds in

account NI Act [S.M.S. Pharmaceuticals Ltd. v. NeetaBhalla 63 SCL 93 (SC); S.V. Mazumdar v. Gujarat StateFertilizers Co. Ltd. (2005) 62 SCL 116 (SC); CDR. ShekharSingh v. N.K. Wahi (2005) 57 SCL 9 (Del)]

For payment of wages under the Payment of Wages Act

[P.C. Agarwala v. Payment of Wages Inspector, MP (2005) 63SCL 109 (SC)]


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Auditors duties re. report about disqualification ofa director under Section 274(1)(g) [Pawan Jain v.Hindusthan Club Ltd. (2005) 62 SCL 610 (Cal)]

A corporation or company can be prosecuted forany offence punishable under law [StandardChartered Bank v. Directorate of Enforcement (SC)2005]

Meetings - POA is a valid proxy [Gharda ChemicalsLtd. v. Jer Rutton Kavasmaneck (2005) 63 SCL 222(Bom)]


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SEBI Law Matters For violation of Regulation 7 of the SEBI Takeover Regulations,

shares cannot be forfeited [Aska Investments (P) Ltd. v. Grob TeaCo. Ltd (Cal)]

Receipt of communication by one Stock Exchange - presumptionthat the other Stock Exchanges also would have received thesame [NNV Finance Ltd. v. Securities and Exchange Board of India(SAT Mum) 2005]

Competition Law Competition Act - Composition of Commission : Decision : As

the amendments which the Government proposed to introduce inthe Parliament would have a clear bearing on the question raisedfor decision, the Court postponed the matter and decided that thesame should be decided after amendments, if any, are carried out.[Brahm Dutt v. Union of India (2005) 57 SCL 429 (SC)]


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Proposed Law


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Committee Reports / Concept

Papers Concept Rules on New Company Law

J J Irani Committee on Company Law

M H Kania Committee on SEBI Act O P Vaish Committee on Streamlining

Prosecution Mechanism under Company Law

Concept Paper on LLP Law

Other Committees like Capoor Committee onMAPIN, Lahiri Committee on FII investmentsetc.


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Thank You !

Documents

Recent Changes in Company Law