Company Law

[By Yagn Purohit and Vishesh Gupta] The authors are students at the Institute of Law, Nirma University. Introduction In India, the directors are bound to call and convene an EGM on requisition made by shareholders under section 100 of the Companies Act, 2013 (hereinafter CA, 2013) if such requisition is compliant with procedural requirements u/s 100.  However, Zee v. Invesco saga has reignited the debate on corporate democracy and has disturbed the already settled legal position laid down by the Hon’ble Supreme Court concerning the validity of requisition made u/s 100 of CA, 2013. Invesco (shareholder of Zee) had filed a requisition for calling an EGM u/s 100 of CA, 2013. The requisition was fulfilling the criteria of 10% as given u/s 100. Zee filed for an injunction against the requisition before the Bombay HC which was granted by the Single Judge (hereinafter SJ). Section 100 of CA, 2013 promotes corporate democracy by establishing the right of shareholders to regulate the working of the company by calling Extraordinary General Meeting (hereinafter EGM) by submitting a valid requisition. The question then is whether there exists a test to determine the validity of a requisition and whether the directors are empowered to refuse such a requisition? In the case of Zee v. Invesco SJ and Division Bench (hereinafter DB) adopted contrasting approaches. This article analyses both the positions to determine their alignment with the existing legal framework in India. Ruling by Single Judge The SJ held that the requisition made by shareholders must be valid from a procedural perspective and the objective of the requisition should be capable of being carried out legally. If the objective of the meeting cannot be carried out lawfully, then such a requisition is invalid and the board has the right to reject it. The court observed that if under Section 100, only procedure, i.e., the numerical threshold of shareholders is considered to deem it to be a valid requisition and mandate the board to convene an EGM of the company, then it would mean that a group of qualified shareholders can propose any sort of resolution, regardless of its legality, and force this to be considered by the general body at an EGM. The court explained this with an example of online gambling. It took a scenario where a group of qualified shareholders could propose that the company take up the business of online gambling. The court applied null hypothesis testing which says that an argument must be tested for falsification or failure, just like any other hypothesis in philosophy. Therefore, SJ granted an injunction restraining the shareholders to hold the EGM. Ruling by Division Bench  The DB overturned the judgment of SJ and held that shareholders cannot be restrained from holding EGM. Court placed reliance on two judgments: LIC v. Escorts and Cricket Club of India v. Madhav Apte to hold that (i) validity means procedural and numerical compliance with the conditions mentioned in Section 100 and not the substance of the requisition (ii) BOD has no discretion to sit in judgment over resolutions proposed by requisitionists, (iii) reason for resolutions are not subject to judicial review and (iv) If requisition complies with the procedure and numerical requirement u/s 100, the board is mandated to call the EGM. The court further noted that Section 100 aids corporate democracy and protects shareholder rights and this intent of the legislature must be taken into consideration for interpreting section 100. Therefore, DB did not grant an injunction as it would have hampered corporate democracy. Analysis  The SJ heavily relied on foreign judgments for interpreting the power of the Board to refuse the requisition made by shareholders. In the author’s opinion, DB was correct in not relying on such judgments. There are two reasons for the same: Firstly, there exists a binding precedent of the supreme court of India, i.e. LIC v. Escorts according to which, directors are bound to call EGM on the receipt of a requisition which is only subject to the numerical requirements provided u/s 100. Whereas, the DB has rectified this by taking a procedure-centric definition of a valid requisition which is in consonance with LIC v. Escorts. DB correctly noted that the purpose-centric definition propounded by the SJ will lead to a string of appeals, opening floodgate of litigation and rendering the corporate democracy nugatory. Secondly, UK Companies Act, 2006 is not pari materia with the Indian CA, 2013 with respect to law on shareholder requisitioned meeting. Section 303(5) of the UK Companies Act, 2006 provides for a ground that if the resolution proposed by the shareholder is ineffective, if passed, then the board has the ground for not moving such resolution in the meeting. Whereas in the Indian CA, 2013, this ground doesn’t exist for repudiating a resolution. To stop a resolution proposed by shareholders, the board must apply to the regional director u/s 111(3) of CA, 2013. Such application can only be filed on the ground that the requisition is for needless publicity for defamation. If valid is interpreted according to the reasoning of the SJ, it would lead to adding words to Section 111 of the CA, 2013. Therefore, foreign laws and judgments should not be preferred over LIC v. Escorts to interpret the validity of a requisition for EGM in India. Further, The SJ has contradicted his observations in the judgment. SJ noted that the requisitionists have been bestowed with the power of the EGM themselves if the board refuses or fails to call an EGM. This power is taken away the moment SJ granted an injunction to Zee restraining Invesco and other requisitionists from calling an EGM of the company. As a result of this injunction, the shareholders have no remedy left, and their statutory right to call an EGM is taken away. The court recognized the shareholder rights with one hand but snatched them away with the other. However, it is important to note that the SJ raised an important issue by taking a purpose-centric approach to a valid requisition.

[By Aditi Sheth] The author is a student at the National Law School of India University. This paper argues that courts must not overrule the explicit intention of parties on the binding value of their term sheet by finding intention in the performance/non-performance of the conditions precedent (“CPs”) clause. It borrows from law and economics jurisprudence to support this claim. Introduction Commercially sophisticated parties enter into term sheets that set out the material terms of the deal before entering into definitive agreements. Term sheets allow them to reach consensus on material terms and reach deal certainty before spending time and resources on due diligence and definitive agreements. Despite this key advantage, some lawyers advise against entering into term sheets because of the risk of uncertainty surrounding their binding value. Courts may find “non-binding” term sheets to be binding and vice versa. In India, the lack of a well-developed jurisprudence has increased this risk. This paper clarifies the muddles surrounding the binding value of term sheets in the context of performance of CPs detailed in the term sheet. Understanding conditions precedent CPs are conditions that must be fulfilled before closing the transaction. Parties may choose to specify these conditions in either their term sheet or their definitive agreements. For instance, the IVCA model term sheet recommends listing CPs directly in the definitive agreements. However, some parties may choose to place CPs that are material to the deal in their term sheet to ensure there is no mismatch of expectations between the parties. The binding value of a term sheet should not be affected if parties were to place CPs in the term sheet instead of definitive agreements. This is because placing CPs in a term sheet does not impact the timeline according to which parties have to perform the CPs. Parties may perform CPs any time before the closing of the transaction, even after the signing of definitive agreements. In other words, parties are free to wait for the performance of CPs till definitive agreements are signed since the only significance of placing CPs in the term sheet is of signalling materiality. However, Indian jurisprudence has viewed it differently. Tribunals have found a term sheet labelled “non-binding” to be binding due to the performance of several CPs (Zostel v. Oyo) and a term sheet labelled “binding” to be non-binding due to the presence of several CPs (GAIL v. Sravanthi). This paper argues against this jurisprudence by using the only two relevant and publicly available cases as test-suites. Zostel v Oyo – “non-binding” term sheet found binding Oyo and Zostel entered into an acquisition term sheet according to which the acquisition was conditional upon performing CPs detailed in the term sheet itself. The dispute arose when Oyo abandoned the acquisition process before the parties executed definitive agreements. Before the arbitral tribunal, Zostel sought specific performance of Oyo’s obligations under the term sheet, while Oyo claimed that the term sheet was non-binding and thus, had no obligation to pursue the transaction. Pertinently, the preamble of the term sheet explicitly stated that it was non-binding. Instead of deferring to the parties’ explicit choice, the Tribunal examined the clause on closing, which mentioned several CPs to determine whether the parties intended the term sheet to be binding. Merely because these conditions were necessary for closing the transaction, the Tribunal held that closing was the “natural and only consequence of compliance of these conditions”. Moreover, the Tribunal explicitly noted that “execution of definitive documents was not independent of the term sheet”, effectively collapsing the distinction between the two. Furthermore, the Tribunal claimed that Oyo could not conduct due diligence of a competitor in the absence of definitive agreements and that without definitive agreements, Zostel had no incentive to comply with the CPs mentioned in the term sheet.  Critical analysis The Tribunal erred on three accounts. First, it failed to realise that despite the performance of CPs, parties do not need to close a deal. They are free to walk away even after the performance of all CPs if there is no consensus on other terms considering the parties intended the term sheet to be non-binding. This understanding is also manifested in clause 7 of the term sheet, which stated that “subject to the conditions set forth in this Term Sheet, the parties shall mutually agree, execute” the definitive agreements. Thus, this term sheet was a mere agreement to agree to a binding contract.  Second, the Tribunal’s claim that Oyo could not conduct due diligence of a competitor in the absence of definitive agreements is patently erroneous. It is customary for parties to conduct due diligence after signing the term sheet and before signing the definitive agreements. The very purpose of conducting due diligence is rendered fruitless if parties have already bound themselves to a deal. This does not change despite them being competitors because all the information provided for due diligence is subjected to strict confidentiality and non-disclosure agreements. Third, it is also not true that without definitive agreements, Zostel had no incentive to comply with the CPs. Contrarily, Zostel may have complied with the CPs to signal its interest and seriousness in the deal to Oyo and consequently, push the deal forward. GAIL v. Sravanthi – “binding” term sheet found non-binding In GAIL v. Sravanthi the parties signed a term sheet for supply of natural gas but failed to later convert the term sheet into a more detailed Gas Sale Agreement. The Electricity Appellate Tribunal had to determine whether the term sheet was binding and could form the basis of restrictive trade practises on part of GAIL. While the court of first instance found that the term sheet was binding, the Appellate Tribunal disagreed with this finding, merely because the term sheet provided that none of the “rights or obligations set out in this Agreement [the term sheet] shall become effective until the date known as CP ‘Satisfaction Date’”. In the Tribunal’s understanding, since the obligations stemming from the term sheet were subject to

[By Anushka Juneja] The author is a student at the Gujarat National Law University.  The Indian economy has long been sitting on a ticking time bomb which is the mountain of bad loans held by its banks. The rapidly increasing non-performing assets pose a systematic risk to the banking system which consequently affects the economy as a whole. Several steps including the enforcement of the Insolvency And Bankruptcy Code, setting up of bad banks, amendments to the Banking Regulation Act 1949, have been taken to tackle this chronic crisis. It is believed that these steps need to be supplemented with the application of the doctrine namely reverse piercing of the corporate veil. The doctrine would enable the creditor to utilise the assets of the debtor’s corporation to discharge the liabilities of the individual defaulter. The broad aim of this article is to propose adoption of the doctrine as a solution to the plaguing bad loan problem. To that end, I will discuss the judicial approach undertaken in India and foreign jurisdictions. Further, the adoption of the doctrine for debt resolution in India would cause disruption in the priority of claims matrix which can be resolved as I would explain later in the article.  GROWING INCLINATION TOWARDS THE DOCTRINE IN INDIA The equitable doctrine of Reverse piercing is antithetical to the traditional doctrine of corporate veil piercing. Unlike the latter, where a shareholder is held liable for the default of the corporation, in the former, the liability of the shareholder is imposed upon the corporation. In India, a divergence of opinion has been observed by the judicial fora on the application of the doctrine. Initially the courts were reluctant in their approach, the appellate tribunal in NEPC India Ltd. v. SEBI termed the doctrine to be inconceivable and outlandish. However, with changing economic realities and commercial growth, a judicial inclination can be observed. In Punjab and Sind Bank v. Skippers Builders (P) Ltd. ,the “reverse piercing” jargon was not explicitly used, however, the facts of the case clearly point towards its application. The doctrine has been applied to fix criminal liability in numerous cases. It was held in Iridium India Telecom Ltd. v Motorola Incorporation and Others that guilty intent of a person should be attributed to the corporation in case it is found that they are the alter-ego of the corporation. Further, in Aneeta Hada v. Godfather Travels, the court confirmed that the criminal act of an individual can be attributed to his company. JUDICIAL STANCE OUTSIDE INDIA Globally, the doctrine is not yet well recognised, however, the nature of remedy that it offers has often compelled the courts to consider its applicability in appropriate situations. The High Court of Singapore in Koh Kim Teck v. Credit Suisse Ag held that the doctrine demands full consideration and cannot be dismissed straight away. Numerous courts worldwide have allowed the application of the doctrine in debt recovery cases. The Supreme court of Colorado, in the case of Re Phillips, held the claims of an outsider against the corporation for the default of the debtor to be legit. Under Pennsylvanian law, even an allegation of fraud or misconduct against the debtor-shareholders is not imperative for the sustainment of a reverse piercing claim. Analogously, in various tax recovery cases like Towe Antique Ford Foundation v. IRS, Zahra Spiritual Trust v. United States, Shades Ridge Holding Co. v. United States, the tax recovery agency was treated as the creditor, their claims were placed over the other creditor-stakeholders and outside reverse piercing claim was allowed for the satisfaction of the dues. ADOPTION OF THE DOCTRINE IN THE INDIAN JURISPRUDENCE FOR DEBT RESOLUTION Application of the doctrine in debt related cases would amount to giving more powers in the hands of the creditors. This is in consonance to what the legislature intended while enforcing the insolvency and bankruptcy code. However, it is quite understandable that this application would give rise to a clash of priority of claims between the corporation’s existing creditors and the ones having reverse piercing claims against it. In Alfred Booth v. Jeremiah Bunce, the controllers of an insolvent corporation transferred their assets to a new company to defraud the creditors of the former corporation. When a clash of priority of claims arose between the creditors of the former cooperation and the existing creditors, the court observed: “though the new corporation was a valid legal entity for its own creditors, the principle of qui prior est tempore, potiore est jure would enable the old creditors to make their claims against the new corporation, owing to the fact that the controllers of the corporation were same and that the transfers were fraudulent.” As has been noted above and considering the principle of “qui prior est tempore, potiore est jure” meaning “he who is earlier in time is stronger in law”, it is hence contended that the reverse piercing claims of the creditors ought to be placed either at the top in the hierarchy list which has been specified in Section 53 or 178 of the code or should at least be considered at par with the claims of the other highest ranked creditors and distribution of assets should hence be done accordingly. Further, in light of the principles of equity, justice and good conscience, the Adjudicating Authority might help in resolving the conflict. The application of judicial mind would warrant a rational decision rather than a mechanical one. CONCLUSION Undeniably, the courts are yet irresolute to adopt the doctrine. This is perhaps because of their tendency to adhere to the ancient principle of a separate legal entity. However, this approach needs to be altered because corporate veil is often used as a façade to escape liability and commit fraudulent acts. Several changes were made to the Companies Act in line with the Insolvency and Bankruptcy Code. The substantial shift made from the current priority of claims under the Act was solely done to promote the interests of the creditors. Empowering the creditors through the application

[By Tanish Arora] The author is a student at West Bengal National University of Juridical Sciences, Kolkata. Introduction The case is centred around the conversion of a Public Limited Company to a Private Limited Company and has been filed before the National Company Law Tribunal, Allahabad under Section 14(1) of the Companies Act, 2013.[1] The court has considered the question of what prerequisites must be present for such a company to convert to a private limited company and analyses the presence of such elements in the given case.[2] The court also concerns itself with the question of retrospective applicability of the altered articles to transfer of shared effected by the shareholder prior to the resolution amending the article.[3] This case comment provides an analysis of the court’s reasoning in this judgement and is divided into three parts. The first part provides brief facts and general background of the case. The second part provides an analysis of the reasoning of the court. The final part provides a concluding opinion of the writer. General Background The company was listed with Delhi and Bombay Stock Exchange when it was focused on manufacturing and distribution of edible oil during 2012, however, it later transferred this business and manufacturing undertaking and bought back all its shares from public shareholders. Following this, it became an unlisted public company after getting delisted from the stock exchange in 2013. Its offices also shifted to Noida. As required under Article 14 of the Companies Act, 2013, the Company filed a petition before the NCLT to seek its approval for the conversion from a public limited company to a private limited company. As per the Article, the Tribunal can grant such permission as it deems fit.[4]  Such application can be filed as per Rule 68 of the NCLT Rules, 2016,[5] for a conversion of a public company into a private company in the prescribed format and the manner accompanied by documents/information and requisite filing.[6] According to the explanatory statement attached with the EOGM the Company and its shareholders agreed to change its nature to private limited so as to improve its functioning under the Act, in addition to being more law compliant.[7] Key Analysis of the Court In order to decide the case on its merit the Tribunal called for a report from the Registrar of Companies (ROC) which stated the main objective of the company to be “Trading in commodities and holding an investment in the Group companies.”[8]; the company has been regular in filing its statutory return,[9] it has not violated Sections 383A/203 of the Companies Act,[10] and there is no pending proceeding against it under Sections 235/210 to 251/277 of the Act.[11]The court took note of the fact that no serious objection from the offices of the RD(NR) or ROC existed against the conversion and it will not be detrimental to Public Interest at large.[12] The Tribunal while giving its approval relied on: Section 18 r/w Section 13 of the Companies Act.[13] Subject to the approval of the Central Government. Members’ approval is obtained through a General Meeting of the Company, by way of a Special Resolution. The court also ordered the Company to adopt a new set of Articles of Association as applicable to the Private Company. Ramaiya’s commentary stated that a Public Company must be granted permission to convert to a Private Company if it is in its best interests and the shareholders agree to the same and if such a conversion is sought so that the company can function more efficiently and not merely to avoid restrictions imposed on public companies.[14] The court also relied on a judgement of the Kerala High Court stating that the “power is conferred on the company under the Act to alter the article by special resolution”[15] With regards to the retrospective applicability of the amended article the court opined in the negative. In the present case, the court stated that the shareholders will be subject to the altered articles and placed reliance on the reasoning of the Pepe’s case of 1893,[16] that when the articles are altered the shareholder has the option of withdrawing his shared but if he does not do so and continues to hold the shares he is agreeing to be bound by the altered articles. The Pape’s case held this in terms of a person’s position in the society which has the right to alter its rules and the person being in a contract with the society shall remain subject to the rules when duly altered.[17] Concluding Opinion While section 14 of the Companies Act, 2013 merely mentions that the conversion of a Public Company to a Private Company shall be granted by the Tribunal as it may deem fit. The court, in this case, has actually gone to the lengths of defining what criteria a company needs to fulfil for the Tribunal to permit its conversion to a Private Limited Company by taking into consideration various factors as pointed out in the analysis part of this case comment. The court has recognised the company’s autonomy in terms of making decisions about its operations by emphasising the need for member approval via Special Resolution at the Company’s General Meeting. By citing A Ramaiya, it has also identified the importance of such permission being granted to facilitate better company functioning rather than simply to avoid restrictions placed on public companies. The Court has also talked about the applicability of the Alteration of Articles in this case. The importance of altering articles is considered so important that a company by no manner can deprive itself of the power to alter its articles.[18] In the present case, the court has clarified the applicability of altered articles as well. The judgement also points out that the conversion of a Public Company to a Private Company must be such that it is not oppressive to the minority members by placing reliance Madhurabhami case.[19] Conversion of such a nature is regarded as illegal.[20] The judgement is highlighting and places

[By Shuchi Agrawal]  The author is a student at the Jindal Global Law School. Corporate governance refers to the mechanisms which are used to regulate and govern a corporation. The model of corporate governance adopted, determines the scope of powers that are wielded by different actors, in order to facilitate the smooth functioning of a company. The U.S. and U.K. follow an outsider model of corporate governance, which is based on the separation of control and ownership, as the shareholders have limited interest in the management of the company. Meanwhile, India follows the insider model, which is characterized by the presence of cohesive groups of ‘insiders’ who have a long term affiliation with the company. Usually, the controlling shareholders are a business family or the State. The presence of such controlling shareholders helps concentrate ownership and may lead to greater benefit for the dominant shareholder at the expense of the minority shareholders. Thus, this may result in an agency conflict between the controlling shareholders and the minority shareholders. However, despite the differences between the shareholding patterns in India and, the U.S. and U.K., legal transplants have been heavily employed in formulating the corporate governance policies in India. This has been done without considering the historic, cultural and economic differences between the concerned jurisdictions and has resulted in the establishment of a regime that is severely ill-equipped to prevent unethical or fraudulent activity within corporations, in India. Considerations while Introducing Legal Transplants ‘Legal transplants’ are legal models and regulations which are exported from an alien jurisdiction into a receiving one. Due to the historic imbalance of power between nations, legal transplants are often adopted by developing countries, from more developed nations. This allows developing countries to import legal wisdom from developed jurisdictions, which may have a rich historic background for a particular legal framework. However, it has been suggested that emerging markets should not copy codes implemented in mature markets. Moreover, there is a lack of universal consensus regarding the effectiveness of legal transplants. Nonetheless, in the context of corporate governance in India, legal transplants have not been very effective, as is evidenced by the fact that government companies were discovered to be major violators of Clause 49 of the Listing Agreement, which details the guidelines regarding corporate governance that listed companies in India must comply with. Additionally, the theory of path dependence states that an outcome is structured in specific ways based on the historical context and the prevalent socio-economic conditions. Consequently, differences in models of corporate governance, as well as historical and social background, play a role in the effectiveness of a legal transplant. Markets have always operated in relation with communities and social organizations, such as families and religion and governments and never in a vacuum. Thus, legal rules which have been shaped by particular political, historical and cultural elements cannot be transplanted in another jurisdiction, unless similar conditions prevail in the other State as well. Recently, there has been a marked shift from the transplant model to an entirely autochthonous model in the field of corporate governance in India. From the perspective of legal reform, it has been suggested that rules which can be enforced with the existing enforcement structure must be preferred over the creation of ideal rules which require the development of new structures for their implementation. The inefficiency of India’s Transplanted Model Further, the Satyam scam of 2009, worked to showcase the gaps that were present in the effective implementation of the legal transplants. The Satyam scam was one of India’s biggest corporate governance and financial accounting scandals. In this matter, the ambiguity regarding the duties of the independent directors and the promoters especially highlighted the failure of the corporate governance model. Moreover, it has been claimed that multiple measures borrowed from other jurisdictions, primarily the U.S. and U.K., have failed to improve corporate governance in India. For instance, S. 166 of The Companies Act, 2013, gives directors overarching discretionary powers, which may be utilized to further their own interest with little accountability. In addition to this, it was found that “more than 3,000 people who were on the boards of various companies on January 1, 2006, were re-designated as independent directors” in order to comply with the requirements under Clause 49 of the Listing Agreement. This defeats the very reasoning behind these reforms and demonstrates the ineffectiveness of legal transplants. Additionally, the transplanted corporate governance model is not perfect in its functioning even in its countries of origin, such as the U.S. and U.K. Some problems associated with the transplanted model include the dispersed nature of shareholding, combined with a lack of oversight, excessive interference by managers in determining their own remuneration, and the lack of a division between the roles of the CEO and Chairperson. Contrastingly, Indian laws have a comprehensive system with respect to these concerns. Controlling shareholders in India do play a role in the management of the company, and the management’s remuneration is limited by legal provisions and is subject to the shareholders’ approval. Additionally, despite the lack of a mandatory provision requiring a separation of the roles of the CEO and the Chairperson, Indian companies tend to follow the separation. However, in the context of Anglo-Saxon corporate governance models, it has been stated that strong managers and relatively unprotected minority shareholders have been at the centre of corporate governance failures. This was evidenced in the case of Parmalat, where the controlling shareholders had illegally used corporate resources at the expense of minority shareholders. Moreover, the CEO and chairperson positions were held by the same person despite the codes of practice recommending a separation. Further, on analyzing some corporate governance failures such as Enron, WorldCom, Satyam and Xerox, it was found that they had certain common features, including incompetence of management, the inefficiency of internal audit, and non-compliance with internal regulations. Conclusion While it has been acknowledged that there is no one successful model of corporate governance, several prescriptive ruleshave been laid down on the basis of research. A

 [By Aastha Bhandari]  The author is a student at the O.P Jindal Global University. Introduction This article intends to address that while India is joining the race to becoming an attractive destination for the listing of Special Purpose Acquisition Companies (hereinafter referred to as “SPACs”) through the proposed International Financial Services Centres Authorities (Issuance and Listing of Securities) Regulations of 2021 (hereinafter referred to as “IFSCA Regulations”), Indian regulators and legislators must consider the local peculiarities of Indian corporate culture. It is in this context that the article argues that there is a need for balancing between the two factors which are essential to the success of SPACs in India. Firstly, there must be facilitation of ease of doing business by providing entrepreneurs with this alternative way of capital raising. However, it is extremely important to consider the passivity of retail investors in India and the issues emulating from the same. As such, there must be provisions for investor protection in the SPAC listing rules, especially from the perspective of retail investors due to the issues concerning corporate governance in India. Thus, hereinafter is an attempt to undertake a comparative analysis of the functioning of SPACs in India with four foreign jurisdictions (hereinafter referred to as “said jurisdictions”), namely, United States of America (hereinafter referred to as “U.S”), Malaysia, Singapore and the United Kingdom. (hereinafter referred to as “U.K”) Through this analysis, the author seeks to determine whether the proposed IFSCA Regulations meet the bar for providing rights to founders along with ample investor protection and whether there are any good practices from said jurisdictions that may be implemented in India to better achieve the smooth operation of SPACs. Comparative Analysis of Four Jurisdictions: As per Regulation 68 of the IFSCA, it has the authority to approve the listing of an SPAC on the IFSC as per its own discretion. The Regulation provides the terminology of “on a case-by-case basis.” There are no explicit restraints on this power of the IFSCA which in turn may have an impact on the ease of doing business if the decisions are arbitrary or motivated by personal and political considerations. This may lead to situations where the SPAC in question has fulfilled all the statutory requirements including, but not limited to, those of filing of the offer document and initial disclosures made therein, minimum size and minimum subscription however it may still not be allowed to be listed on account of this power. As such, this Regulation requires an amendment by at least mandating that the IFSCA must record the reasons for disapproving the listing of an SPAC and publish it in the public domain. The legislative intent of this particular Regulation is unclear as none of the said jurisdictions provides for such a condition. Regulation 71 provides for the initial disclosures to be made in the offer document of the SPAC. This is an extremely important document as it enables the investors to make an informed decision related to their investment in the company. Thus, there must be enough disclosure requirements to provide investors, especially retail investors, protection through the way of easy access to information about the company. Some of the significant disclosure requirements as per the Regulation include the disclosure of risk factors, basis of issue price, tax implications, previous acquisition experience of sponsors, target business sector or geographical area of the SPAC if any, valuation methods intended to be used for business acquisition, remuneration and benefits to the sponsors, outstanding litigations and the limitation on the exercise of conversion rights for shareholders who vote against the proposed business combination if any. However, this article argues that this may be insufficient as the IFSCA has provided extremely broad parameters in the current proposed Regulations. This Regulation must be amended or supplemented by rules to ensure that the SPAC sponsors and directors are held accountable for their actions. This argument finds its root in the Disclosure Guidance issued by the Division of Corporate Finance of the U.S SEC on December 22, 2020. The Guidance asked SPACs to disclose significant considerations in their offer document, such as potential conflicts of interest between the sponsors, directors and shareholders in terms of their economic interests; how the outstanding litigations or other conflicts may affect the ability of the sponsors to make a decision about the final business combination; and description of the financial incentives of the SPAC sponsors and how they may be different from those of shareholders. Also, it is crucial to not only disclose previous experience in the acquisition of the sponsor but also how the prior outcome of the presented and completed business combination has taken place. The aforementioned illustrates how detailed and descriptive the disclosures in India must be made too. As per Regulation 72, the issue size of the SPAC must not be less than USD 50 million. Prima facie, this numerical value is much lower in comparison to the said jurisdictions. This can evidently be illustrated through the following table: (hereinafter referred to as “TABLE 1.1”) Jurisdiction Issue Size U.S Not specified U.K 100 Million Euros Malaysia RM 150 Million Singapore Not specified but requirement of minimum market capitalization of 150 million dollars. TABLE 1.1 However, according to Ashwin Bishnoi, who is a partner at Khaitan & Co, the value of USD 50 million is a delicate balancing act. This is because if the issue size for the SPAC had been made too small, then it would not have been possible to attract large and long-term investors. On the other hand, had the size been made too large, then Indian start-ups and SMEs would not have been eligible to participate in the business combination. Considering the local peculiarities of India, this seems to be the right decision. 4. Regulations 81 to 89 provide several provisions relating to investor protection. However, it is important to consider whether these are sufficient to protect retail investors alongside institutional investors. As per Regulation 81(1),  90 percent of the proceeds from IPO are to

[By Mehek Wadhwani & Rishi Raj]  The authors are students at MNLU Aurangabad.  Introduction The globally revered tenet of good corporate governance combined with the incessantly increasing importance of Shareholders’ rights has ignited ‘Shareholder activism’ as a primary phenomenon in several developed markets such as the United States of America (“USA), the United Kingdom (“UK”), etc. This activism in the Asian markets is faced with cultural resistance and is subdued compared to its counterparts. In India, Shareholder Activism is primarily facilitated by the Companies Act, 2013, and the Securities and Exchange Board of India (“SEBI”) regulations, which provide various rights and remedies for the Shareholders. The developments brought with the aim to bring the Indian corporate sector at par with the global standards, have strengthened the corporate governance standards, and the shareholders’ rights and remedies. This ultimately supports the rapid growth of shareholder activism in India. A recent instance of this activism can be seen in the corporate battle between Zee Entertainment Ltd. (“Zee”) and the US-based Invesco Developing Markets Fund (“Invesco”) that witnessed an interesting development, as Justice G.S. Patel of the Bombay High Court granted a temporary injunction in favour of the Indian television network, Zee. The authors attempt to briefly describe the essential facts of the Controversy, delineate the crucial observations made by the High Court, and comment on the significance of the Order in accordance with our outlined theme, i.e., ‘resistance to shareholder activism, especially in Asia.’ Synopsis of the Zee-Invesco corporate tussle On 11th September 2021, Invesco holding 17.88% of Zee’s equity, requisitioned a meeting invoking Section 100(2) of the Companies Act, 2013 (“Act”). This section 100 of the Act is the “heart of the controversy” and it envisages the Shareholders’ right to requisition an Extraordinary General Meeting (“EGM”).  The shareholders holding the qualifying equity of at least 10% can requisition the EGM. Thereafter, the Board ‘shall’ within 21 days of receipt of the Notice, proceed to call the meeting within the specified time, i.e., 45 days from the date of requisition notice. In the instance of failure of the Board to call the meeting within 21 days, the requisitionist shareholders ‘may’ call and hold the meeting themselves. It is apparent that the requisition notice (“Notice”) is the subject matter of the controversy under consideration. The matters listed in the Notice inter alia provided for the removal of Mr. Punit Goenka, the Managing Director of the Zee, and the replacement of the members of the board with six independent directors, subject to the approval of the Ministry of Information and Broadcasting (“MIB”). The refusal of the Board to call the requisitioned meeting resulted in the initiation of proceedings by Invesco on 29th September 2021, before the National Company Law Tribunal (NCLT) under Sections 98 (1) and 100 of the Act. Thereafter, the Board met on 1st October 2021 to consider the nature of matters listed within the notice. Deeming the matters to be ‘invalid’, the Board expressed its inability to convene the meeting to Invesco. Accordingly, Zee brought a civil suit against Invesco seeking an injunction against the said meeting on the ground that the requisitioned meeting is illegal since the matters which were set out in the notice were violative of various regulatory frameworks. Issues addressed The interim application before the Bombay High Court considered Zee’s prayer for an injunction against Invesco, to prevent the operation of the Notice. The counsel for Zee sought to get a declaration against the notice, deeming it to be ‘illegal, ultra vires, invalid, bad in law and incapable of implementation’, to legally justify its inaction on the notice. Invesco argued against the grant of an injunction by invoking the principles of ‘corporate governance’ and ‘indoor management, seeking to implement the shareholders’ rights to call an EGM under section 100. It was contended that the word ‘valid’ under the mentioned provision required satisfaction of the qualifying criterion, upon which the Board ‘shall’ call the meeting. The counsel argued that Invesco having satisfied the criterion stipulated within the section, the shareholders’ right could not be curtailed by the Board by prematurely declaring the proposed resolutions as invalid. On considering the rival submissions and declaring that the Courts’ jurisdiction is not ousted in such instances, the court negated all the contentions raised and granted an injunction in favour of Zee. The Order restrained Invesco from taking any action in furtherance of the Requisition notice. Further, the present order didn’t curtail or abridge the shareholders’ right to call a requisition meeting but suggested the manner of requisitioning meeting that it must be legally compliant. It was unequivocally observed that the shareholders did not enjoy a greater immunity than the Board to propose infructuous or infirm resolutions. Comments  The material elements of the controversy outlined in the above discussion give us the appropriate foundation to comment on two significant aspects. First, to conclude on the correctness of the Order.. Second, to comment on the significance of this order in light of the broader theme of ‘resistance to shareholder activism’ in India. In the given case, Invesco prima facie attempts to place six independent directors of their choice on the Board by proposing the resolution to remove Zee’s Managing Director. This was to ensure adherence to the 12 members Board requirement envisaged under the Articles of Association of Zee. The authors find this to be in contravention of the Companies Act, 2013. The proposed appointment of the independent directors directly by the shareholders doesn’t find favour with the statutory framework for appointment of independent directors under s. 150 of the Act. Further, the non-compliance with s. 203 of the Act is a valid point raised by Zee, considering that the resolution to remove the MD without replacement, makes the directors and the key managerial persons open to liabilities and penalties. The authors find that the resolutions proposed by the Invesco activist shareholders raise several red flags in terms of statutory and regulatory compliance with the Indian corporate laws. Thus, on this account, the decision of

[By Raghav Sengupta]  The author is a student at Jindal Global Law School.  Introduction In June 2020, an unprecedented series of events was triggered by Reliance Industries Ltd (hereinafter “RIL”) that conducted India’s largest ever rights issue for the subscription of shareholders.[i] The industry giant finalised a Rs. 53,124 crore ($ 7 billion) rights issue that was condensed into 3-stage deferred payment offer. This rights issue was in furtherance of RIL’s objective of raising public funds to eliminate any pending debts and create a zero net debt for the current fiscal year.[ii] RIL rolled out this unprecedented rights issue offering one share for every fifteen shares held, to existing shareholders, at a cost of Rs. 1,257 per share (1:15 rights issue).[iii] By way of such rights issue, RIL and similar companies created a right in favour of their existing shareholders to purchase new shares at a cost that is significantly lower than the present market trading price.[iv] In the current scenario, it can reasonably be inferred that RIL conducted this process with the prerogative of reducing overall debt, in addition to remunerating pre-existing shareholders for their investments, while significantly bolstering the belief of their promoters. However, being the largest ever rights issue and the first of its kind, RIL’s initiative raises a few queries regarding the manner in which the Company raised funds. Public offerings are traditionally pursued by companies in order to raise capital, for their various transactions, by offering a stake (share) in their company in return for a pre-determined price. These public issues are enumerated in Section 23 of the Companies Act 2013 (hereinafter “The Act”) which prescribes the various procedures that a company has to undertake in order to issue securities to the general public.[v] To provide context for the proposed discussion, it is pertinent to understand that Section 23(a) of the Act[vi] deals with public offers through a prospectus, whereas Section 23(c)[vii] is based on the issuance of securities by way of a rights issue for listed companies. A company usually makes public offerings by way of (1) initial public offerings or (2) further public offerings.[viii] RIL had previously made a public offering and established a strong financial foothold in the economy.[ix] Considering the large number of shareholders that this rights issue brought into the loop, it would not be irrational for some to contend that this mechanism could come under the purview of a public offer. Through this piece, the author shall assess whether RIL’ largest ever rights issue, owing to its sheer magnitude, could be categorically placed within the ambit of a public offer. Analysing RIL’s legal conundrum As per Section 62(1) of the Act, rights issues are synonymously prescribed in numerous sections with no clear-cut definition explaining its meaning. As per the SEBI Regulations 2009[x], the term ‘rights issue’ is usually used to denote transactions pertaining to listed companies. Regulation 2(1)(zg) specifically describes a ‘rights issue’ as an ‘offer of certain securities’ by a company that has been listed by the stock market.[xi] These shares (securities) are then offered to pre-existing shareholders, at a discounted rate, for various purposes which can revolve around raising capital for the issuing company. In the case of RIL, the Company carried out the largest ever rights issue offered only to their existing shareholders, thereby vesting them with the ‘pre-emptive’ right to play a vital role in the issue. RIL’s existing shareholders were vested with the authority to subscribe to the proposal in whole or even partially. Further, they were permitted to rescind the shareholdings that had been offered to anyone who was not a pre-existing investor and  had previously taken part in RIL’s public offering processes.[xii] Rights issues are often conducted    by organizations to exercisetheir legal powers or simply comply with statutory requirements by determining the appropriate number of investors.[xiii] Whereas, public offerings are initiated to acquire capital for a variety of goals including as diversification, funding working capital requirements, investing in commodities, and debt restructuring.[xiv] The means of raising the requisite capital, via the rights issue, enables the company to secure funding. While in the case of a public offer, a company like RIL would have had to bring in several functionaries such as intermediaries and their respective costs into the fray. Therefore, RIL’s method of raising funds, by way of rights issue, was an efficient and cost-effective mechanism. RIL’s rights issue also carried the ‘right to renunciation in favour of third parties’ which is stipulated in Section 26(2) (a)of the Act.[xv] It is undisputed that an offer notification shall also comprise of a right to renounce one’s shares. This essentially means that RIL’s right to subscribe to shares could be allocated to a third party, who need not have a previous investment in the Company. So far, it is clear that rights issues are usually given to existing shareholders of a certain organization, by selling them these shares at a cost which is lower than that of the market price.[xvi] . There is a strong possibility that such a shareholder exists who might not wish to accept the rights issue being offered by RIL. In order to curtail the possibility of facing such issues while raising capital, companies like RIL offer their shareholders the ‘right to renunciate’ shares. A rights issue or a public offer: What is an ‘offer to the public’? Another point of differentiation in determining whether what RIL actually implemented was a rights issue or a public offer can be ascertained from the intention of the Company’s directors at the time of issuing an offer/prospectus/notification depending on the circumstance. The key component to understand here is that the Company had carried out this project by satisfactorily identifying the target persons concerned with raising capital. Here, they clearly identified the investors by stating that the issue would be open exclusively to pre-existing shareholders and would not be open to new prospective stakeholders. In addition to this, they had granted the ‘right to renunciation’ to prevent the participation of completely new investors for the company, and raise capital by