SEBI Clears Air Over Remuneration to Promoter-Executive Director

Gaurav Pingle, Practising Company Secretary

Remuneration or compensation to the directors of the company is one of the crucial aspects of corporate governance. The amount of remuneration or increase in the remuneration to directors is usually based on the profitability of the company and its performance for the corresponding financial year. By the amendments introduced by the Companies (Amendment) Act, 2019 and the Companies (Amendment) Act, 2020, the provisions relating to remuneration to non-executive directors / independent directors have been amended. Remuneration to promoter directors (executive directors or managing directors) has always been a matter of discussion.

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Representation and Warranties Insurance & Need for Establishing a Legal Framework in India

Avijit Singh and Chetan Saxena

Introduction

With the advent of Covid-19 nothing has been left untouched, from a daily household routine to critical market avenues, it has brought new challenges for everyone. However, with these new challenges, various new opportunities have popped up, especially for India. In terms of legal landscape, various novel legal concepts can be introduced in India (already existing in the west) on a much wider scale that can reap benefits. An important domain is the scheme of Representation and Warranties Insurance (“RWI”) in M&A transactions. While Representations and Warranties (together “R&W”) has been an important component of M&A dealings, the introduction of insurance has brought concerns along with multiple benefits. RWI is in its initial phase in India; contrary to the position in the west which has a much wider application and understanding of the concept.

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Equity Crowdfunding in India – Some Lessons from Australia and New Zealand

Akshaya Kamalnath, Lecturer, Auckland University of Technology

Introduction

How would you like to hold a small stake in an innovative start-up? With the space industry being opened up to the public sector for instance, once could imagine holding a stake, however small, in a company in that sector. Presumably enthusiasts would want to invest in such a company, not with the hope of profits, but rather, to be part of the story of a company that does something they find interesting. Equity crowdfunding allows the ordinary person to do this. Equity crowdfunding also allows start-ups to find an alternative funding source.

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Poison Pill: A Vaccine for Hostile Takeovers in India?

Aastha Agarwalla and Lavanya Gupta

Prefatory

The coronavirus outbreak has undisputedly pushed corporate entities to vulnerable positions wherein entities have become attractive targets for hostile acquisitions because of the plummeted stock prices. This tension has spurred debates across the globe, including India, on tactical strategies that should be adopted by potential target-entities to thwart such hostile takeovers. There are several anti-takeover strategies, inter-alia, shark-repellant, golden-parachute, staggered-board; however, amongst others, the ‘poison pill strategy’ is being advocated as a successful mechanism to combat hostile takeovers. Many US companies have recently resorted to poison pills, including Hexcel Corp, Woodward Inc., etc. 

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Structuring Distressed M&A Deals: Regulating the Unregulated Opportunistic Behaviour

Tanuj Agarwal, Institute of Law, Nirma University, Ahmedabad

All intelligent investing is value investing, acquiring more that you are paying for.

-Charlie Munger

(Vice-Chairman, Berkshire Hathaway)

Merger & Acquisition (M&A) deals have witnessed robust challenges, firmly because of financial distress posed due to the Covid-19 outbreak. Where the companies have observed their all-time high valuations and market capitalisation in a momentous bull market, the Covid-19 pandemic has led to the deterioration of the commercial activities and financial market to a great extent. Many desirable and credit-worthy companies are unable to discharge their financial obligation owing to the economic fallout. This will surge the M&A activity in these financially distressed companies.

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Line of Difference: Letter of Comfort and Contract of Guarantee

Yash Tripathi, Associate at Pioneer Legal, Mumbai

Concepts

In an event of default in repayment of the debt, invoking a guarantee is always the priority of the lenders. However, it should also be looked thoroughly whether a document serves as a contract of guarantee or not. In the recent decision of Yes Bank Ltd. v. Zee Entertainment Enterprises Ltd. &Ors.[1], Bombay HC draws the line of difference between a letter of comfort (“LOC”) and a contract of guarantee.

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STRENGTHENING BOARDS THROUGH DIVERSITY – A TWO-SIDED MARKET THAT CAN BE EFFECTIVELY SERVICED BY INTERMEDIARIES

Akshaya Kamalnath, Lecturer, Auckland University of Technology

The current focus on the monitoring role of the board has come under much criticism. Independent directors play a significant role in this model. However, their ability to truly function independently has been rightly questioned in the last decade. Independent directors are impeded by two main problems: lack of access to relevant information, for which they are reliant on management; and the high likelihood of being captured (to varying degrees) by management. There have been various suggestions to fix these problems, ranging from enhancing board diversity to drastically reforming the current model of corporate boards.

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Minority Squeeze Out: Dissecting the Conundrum over Multiple Takeover Routes

Priyanshu Agrawal and Vaishnavi Vyas, NMIMS KPM School of Law, Mumbai

Introduction

In India, squeeze-outs have become an area of increasing interest and scrutiny. The extant legal framework provides for several methods through which squeeze-outs can be effected in Indian companies. On February 03, 2020, a newly notified provision, Section 230(11) of the Companies Act, 2013 (the “Act”) has been introduced to enable minority squeeze-outs in unlisted companies. The new rule enables a majority shareholder holding more than 75% of the stake in a company to make a takeover offer to acquire the minority stake. However, the amendment is a half-baked remedy and provides minimal protection to the minority shareholders. Having said that, the new rules do not envisage any clarity on the existing provisions but merely are an additional tool reflecting hostile takeover in unlisted companies.

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CORPORATE GENDER DIVERSITY IN INDIA – LOOKING BEYOND THE BOARD

Dr. Akshaya Kamalnath, Lecturer Auckland University of Technology

India’s regulatory intervention with regard to corporate diversity has focused exclusively on board gender diversity. It has required companies to have atleast one woman on its board. The relevant section of the Companies Act, 2013 is extracted below:

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