The insolvency regulator has sought public comments on all the legislation so far under the Code. This is likely to result in a complete overhaul of the Insolvency and Bankruptcy Code (IBC). The Insolvency and Bankruptcy Board of India (IBBI) has given 8 months time to all the stakeholders to give their opinion on all its regulations, which will end on 31 December.

IBBI has named this exercise as ‘Crowdsourcing of Ideas’. The insolvency regulator has also said that it will study all the responses together and make necessary changes in the rules following certain procedures.

IBBI is expecting that after taking and considering the feedback from all the stakeholders, the rules will be amended by March 31, 2024 and they can be implemented from April 1, 2024. Inviting public feedback, IBBI said that consultation with the public, especially those involved in insolvency, would ensure that stakeholders and those affected by the regulations are informed about the legal requirements.

“In a dynamic environment, despite best efforts and intentions, it is possible that the regulator may not be able to respond to ground realities in such a new and evolving regulatory environment,” IBBI said.

Terming it as a step in the right direction, industry representatives said that this would lead to a complete change in IBBI regulations and would restore confidence in the performance of IBC.

Harihar Mishra, CEO, ARC Association, said, “In the 2023 budget speech, the Finance Minister had talked about a comprehensive review of the existing rules after consultation with all the stakeholders, citing several financial regulators. There have been some new challenges in the IBC in recent times.

The rules on which IBBI has sought public comments include Insolvency Resolution Process for Corporate Persons, Liquidation Process, Faster Insolvency Resolution Process for Corporate Persons, Personal Guarantee for Corporate Borrowers Insolvency process for lenders etc.

Stakeholders may give their opinion regarding any difficulty or discrepancy in the implementation of all the provisions contained in these Regulations. They can also make specific comments on any regulation.

Finance Minister Nirmala Sitharaman on Saturday proposed to sell a part of its holding in largest insurer LIC via initial public offer (IPO). She also proposed to sell the government’s remaining stake in IDBI Bank.

The government set a divestment target of Rs 2.1 lakh crore for FY21 compared with Rs 1.05 lakh crore target for the ongoing financial year. The target came far above analyst estimates of Rs 1 lakh crore.

The government has divested Rs 18,094.59 crore so far this year.

Amar Ambani of YES Securities said that the government divestment was based largely on the back of LIC IPO. It is much higher than our target of Rs 1.35 lakh crore, he said.

“Given that Sebi regulations need a minimum dilution of 10 per cent, it is unclear if there is enough liquidity for such a large sized IPO. Additionally, LIC has been a port of call for various PSU fund raises in the past. Given that LIC would be open to the public to invest, we understand that the government would also strengthen its governance policies especially when it comes to investments of its investable corpus,” said Aditya Cheriyan, Partner, Khaitan & Co.

Markets regulator Sebi has deferred by two years to April 2022 its directive for listed companies to split the roles of chairman and managing director in view of demand from corporates, and to keep compliance burden lower in the wake of the current economic scenario.

Under the Sebi norms, the top 500 listed entities by market capitalisation were mandated to comply with the requirement of separation of the roles of chairperson and managing director (MD) or chief executive officer (CEO) with effect from April 1, 2020.

The norms were aimed at improving corporate governance structure of listed companies.

Now, the date of implementation of the regulatory provision has been deferred to April 1, 2022, according to a gazette notification dated January 10.

While the notice did not specify any reason for the move, sources said that the decision to defer the implementation has been taken in view of demand from corporates and also to ease the compliance burden amid a slowing economic growth rate.

Securities and Exchange Board of India (Sebi) has been receiving various representations with respect to the regulatory requirements including from industry bodies like Ficci and CII.

The representations highlighted the present levels of unpreparedness of listed entities to comply with the directive.

Data from stock exchanges reveal that presently, only around 50 per cent of the top 500 listed entities are in compliance with the regulatory provision.

Currently, many companies have merged the two posts as CMD (chairman-cum-managing director), leading to some overlapping of the board and management, which could lead to conflict of interest and consequently the regulator in May 2018 came out with its norms to split the post.

The norms were part of the series of recommendations given by the Sebi-appointed Kotak committee on corporate governance.

A large number of big companies including Reliance Industries, BPCL, ONGC, Coal India, Wipro and HeroMotoCorp have a single person holding the twin post of chairman and managing director.

Industry body Ficci has welcomed Sebi’s decision to extend its deadline for splitting Chairman and MD posts by two years to April 2022.

“This was part of multiple representations made by Ficci and we appreciate that Sebi has extended the deadline as managerial continuity, unified vision and speed of execution are crucial to business success and are facilitated in family businesses,” the industry body’s President Sangita Reddy said.

Addressing the issue of varied rates across states, the Centre on Tuesday notified that stamp duty for trading in stocks, derivatives, currencies and commodities will be uniformly charged, effective from January 9.

The notification also makes it easier for consolidated payments through the exchanges where the products are traded.

At present, brokers have to comply with stamp duty payments under the rates levied by states.

The new rate will benefit the currency traders most as it will come down from Rs 200 to just Rs 10 per Rs 1 crore of trade.

The single rate and centralised system will help streamline the entire process, reduce the cost of collection and plug revenue leakage.

But it will lead to increase in cost of trading in securities as transactions specifically on stock exchanges are subject to the securities transaction tax.

“It’s also important to bring the state governments on board with respect to stamp duty rates on issuance of securities, the subject that falls under List II of the Constitution and on which the state governments are only empowered to legislate,” it said.

Union Budget 2020 India | Ease of Doing Business for MSMEs: With a sustained growth rate of over 10 per cent in the past few years, the MSME sector has come to represent the ability of the Indian entrepreneur to innovate and create solutions despite the logistical, social, and resource challenges across the country. Because of its huge contribution to the economy, the MSME sector is called the growth engine of the nation. In India, at present, there are 55.8 million enterprises in various industries, employing close to 124 million people. Of these, nearly 14 per cent are women-led enterprises, and close to 59.5 per cent are based in rural areas. In all, the MSME sector accounts for 31 per cent of India’s GDP and 45 per cent of exports.

Despite the rising importance of the MSME sector in the Indian economy, the sector is grappling with several issues that are hindering it from performing to its optimum. Amid fears of a slowdown, cut in jobs in various industries and rising unemployment, the MSME sector can play a big role, if aided and supported ably by the government as well as others.

Let me mention some of the top MSME issues along with solutions, which should be addressed in this year’s budget by the Finance Minister Nirmala Sitharaman, that in my opinion can be immediately acted on to give this growth engine a major restart.

Firstly, the lack of adequate and timely access to finance continues to remain the biggest challenge for MSMEs and has constrained their growth. The sector is not able to invest in its manufacturing, purchase raw materials timely, access new technologies or acquire new skills due to lack of funds which is a big handicap especially in its fight with global competitors. Slowdown and liquidity crunch has led to NPA woes which led Finance Minister Nirmala Sitharaman to announce at the recent ASSOCHAM anniversary celebrations event that restructuring in the MSME sector can be done without categorizing the loans as NPAs.

Secondly, technology is a big issue for MSMEs. Concerted efforts are needed to apprise MSMEs of new developments and technologies and how these can be usefully employed by them keeping in view the local conditions, in the language and mode which the locals can understand and assimilate. IITs, ITIs, Academics, Process and Product Development Centers, Tool Room and Training Centers and such similar bodies should be encouraged to associate/involve actively with the local MSMEs clusters, understand and appreciate their technology-related problems and issues and undertake projects addressing the specific problems. Students, as part of their projects, should be encouraged to associate with local units and suggest innovations.

Thirdly, MSMEs need a lot of handholding on several fronts. Clusters of MSMEs spread all across the country may be listed out and Common Facility Centers may be established at each MSME cluster, which, besides extending other common facilities like maintenance and provision of common facilities, facilitating availability of raw materials, marketing support, easy movement of goods and services etc., can guide and help in safeguarding the Intellectual Property Rights of the entities. These centres can facilitate individuals and entities in obtaining patents in respect of new technologies/products/innovations, in a cost-effective manner.

Besides, branding and packaging play an important role in marketing and help the product to establish itself and survive. The Common Facility Centers should continuously engage in research and innovation in this sphere and sensitize the local units in this regard.

Fourthly, GST has emerged as the biggest compliance issue before the MSMEs. It is time that the GST issues/bottlenecks are addressed and resolved at the earliest. Then there are issues related to labour, research, infrastructure and others for MSMEs. Some new Labour Law Codes are already in place and some others are in the pipeline. Equally important is to sensitize the State Governments/local bodies not to impose undue compliance burden on these units. Also, continuous research and development through State-funded institutions may go a long way in making MSMEs internationally competitive.

The government seems to have taken issues related to MSME on a priority now. To help MSMEs government has announced to launch E-commerce portal ‘Bharat Craft’ that will act as a direct interface between sellers and buyers. To boost employment opportunities, the Nitin Gadkari-led MSME ministry has launched a scheme of ‘second financial assistance’ to help the PMEGP and Mudra units expand or upgrade. Here one solution I specifically wanted to draw at the authority’s attention on. MSMEs are proprietorships or partnership firms. Even where they are registered as companies, they are in reality, deemed partnerships. These entities have typically low asset base. Banks and other lending institutions may accordingly re- align their lending policies and practices as per practical realities of MSMEs, like in place of asset-based lending, lending may be based on potential/IPR of the unit, the credit score of individuals behind the unit, etc.

I am very positive for the coming future as MSME Minister Nitin Gadkari and Finance Minister Nirmala Sitharaman themselves are aggressively batting for the sector. Now PM Modi has called out for Indians to buy India made, local products for at least the next few years. That’s encouraging for all MSMEs. I see good times for MSME just round the corner.

The cabinet approved amendments to the Insolvency and Bankruptcy Code (IBC) to protect successful resolution applicants from criminal proceedings against offences committed by previous managements or promoters.

It also lowered the rating threshold for public sector banks to purchase high-rated pooled assets to BBB+ from “financially sound” nonbanking finance companies (NBFCs) and housing finance companies (HFCs) under the partial credit guarantee (PCG) scheme. Lowering the limit from AA will make more NBFCs and HFCs eligible for funds from banks.

MONETISING ROAD PROJECTS

It also approved the National Highways Authority of India (NHAI) plan to set up an Infrastructure Investment Trust (InvIT) and monetise road projects. This will help speed up monetisation of working assets and attract more funds to the sector.

IBC AMENDMENTS

Ring-fencing successful bidders from offences committed by previous managements will speed up the resolution process by giving comfort to buyers of stressed assets.

ET had reported last week that Lakshmi Mittal’s ArcelorMittal, which has successfully bid for Essar Steel through the insolvency process, had sought immunity from any future investigations pertaining to the company and its erstwhile promoters, the Ruia family.

The changes will help the Rs 42,000-crore resolution offered by ArcelorMittal to go through. Worries on this count had risen after the Enforcement Directorate had attached assets worth Rs 4,000 crore in Odisha of Bhushan Power and Steel Ltd, a company undergoing insolvency resolution, in a case related to the alleged diversion of bank funds. This has delayed a Rs 19,700 crore insolvency resolution plan proposed by JSW Steel. Proposed changes will ensure investigations do not stall insolvency resolution.

Other amendments include measures to ensure that corporate debtors undergoing resolution continue as going concerns. Licences, permits, concessions, clearances etc. cannot be terminated, suspended or not renewed during the moratorium period.

They also propose a threshold for financial creditors to prevent frivolous triggering of corporate insolvency, ensuring that bankruptcy isn’t invoked for small amounts.

Amendments are expected to be introduced in the ongoing session of Parliament.

Changes are being made to streamline the corporate insolvency resolution process (CIRP) and protection of lastmile funding, in a move that will help sectors such as real estate and infrastructure.

Experts say these amendments were badly needed. They will remove hurdles in the way of speedy resolution and also attract bidders.

RELIEF FOR NBFCS, HFCS

Lowering of rating threshold will provide significant relief to liquidity-starved NBFCs and HFCs and follows representations from them and banks. Not much disbursement has happened under the PCG mechanism because of the high threshold.

The move will help otherwise solvent NBFCs or HFCs avoid the distress sale of assets.

“The proposed government guarantee support and resultant pool buyouts will help address NBFCs/HFCs resolve temporary liquidity or cash flow mismatch issues, and enable them to continue contributing to credit creation and providing last-mile lending to borrowers, spurring economic growth,” the government said in a release.

The move will also protect the financial system from any “adverse contagion effect” that may arise due to the failure of such entities, the government added. The scheme will remain open until June 30, 2020, or till assets worth Rs 1 lakh crore are bought. The finance minister has been empowered to extend the scheme by three months.

“The government has brought much-needed amendments to the IBC. Ring-fencing the companies resolved under the IBC from regulatory actions during past management was much needed to make the IBC process attractive for investors and acquirers,” said Manoj Kumar, partner, Corporate Professionals.

On the day Reliance Communications (RCom) announced the quarterly losses of Rs 30,163 crore, its chairman Anil Ambani resigned as the director of the insolvent telco, which effectively meant resignation from chairmanship as well. Prior to and along with Ambani, five other directors of RCom had also resigned from the telco, including Ryna Karani, Chhaya Virani, Manjari Kacker, Suresh Rangachar and Manikantan V.

The committee of creditors (CoC) has rejected the resignations saying these cannot be accepted. It asked the directors, including Ambani, to perform their duties until the insolvency proceedings are concluded. However, the resignation of the other director Manikantan V., who had put in his paper on October 4, was accepted and Viswanath Devaraja Rao replaced him as director and CFO (chief financial officer).

But why did CoC reject the resignation of Ambani and four other directors? Do they have the powers to do so and how? The company law experts say that working directors or wholetime directors can be removed or resign as per the terms of their appointment, which is subject to the approval of the board. But since RCom has been admitted for insolvency, the power of the board ceases to exist, and those powers are now vested with the (RP) resolution professional (Anish Nanavaty of Deloitte). Through RP, the CoC has the authority to accept or reject resignations of the wholetime directors.

However, that is not the case with independent directors who can resign at any time without needing a formal approval from the board or CoC.

The reason why CoC rejected the resignation of RCom directors is because these directors are required to attend the meetings while insolvency proceedings are underway. While they are not allowed to vote in those meetings, they are supposed to provide clarifications when sought by the CoC. If these directors are no longer holding a title in the company, they cannot be invited in the CoC meetings. Once they demit the (director’s) office, they can argue that they are no longer associated with the company. So it seems logical that CoC rejected the directors’ intent to exit the telco.

Even as mutual funds have been impatient regarding their dues from crisis-hit DHFL, which will soon go the insolvency way, legal experts say that it is unlikely that the funds would be the first in the list of creditors to get back their dues.

They are also of the view that the fund houses would have to take a haircut, much against the their wish of incurring any such paring down of their refunds.

Mutual fund houses want the Wadhawans, the promoters of Dewan Housing Finance Corp Ltd (DHFL), to arrange funds and pay back their dues and are likely to raise the issue in the committee formed by the Reserve Bank of India (RBI) to administer DHFL.

“The company cannot redeem any part, during the CIRP. even if it happens before the commencement of the CIRP (Corporate Insolvency Resolution Process), even then, if they make the payment, it will be made on a priority as per the provisions of the IBC,” he added.

Sector experts are of the view that fund houses cannot themselves prsessure the promoters for refund. They feel it is too late for them to take up the matter as the RBI has superceded the company board and will now move for insolvency.

Last week, citing governance concerns, the RBI superseded the Board of Directors of the housing lender and said that it intends to shortly initiate the process of resolution of the company. Promoters hold around 39 per cent stake in DHFL.

When Sterling and Wilson Solar, a Shapoorji Pallonji company, hit the market with its initial public offering (IPO) in August, the issue was sold in the price band Rs 775-780.

The IPO was undersubscribed, but qualified institutional buyers (QIBs) saved the day. Shares were issued at Rs 780 and the stock ended 7 per cent below issue price in debut trade on August 20, 2019.

Three months on, those IPO investors find themselves holding a piece of dead wood, as the stock has since fallen by half.

Reason: the promoters have done a U-turn on their promise to use part of the IPO money to cut the debt that they had taken from the company. Now they are seeking an extension for the same.

The Rs 4,500 crore IPO comprised an offer-for-sale by promoters Shapoorji Pallonji and Khurshed Yazdi Daruvala.

Some analysts blame the merchant banker for faulty pricing of the IPO, but others say investors themselves are responsible if a stock cracks after listing, as they had all the information while deciding to bet on the issue.

ICICI Securities, Axis Capital, Credit Suisse, Deutsche Equities India, IIFL Holdings and SBI Capital Market were global coordinators and book running lead managers to the Sterling and Wilson Solar, while IndusInd Bank and Yes Securities were only book running lead managers.

When contacted, some of these investment bankers refused to comment.

Sebi rules require merchant bankers (MB) to disclose the performance of all the scrips for which they had acted as lead managers in the previous three years, which is then treated as a benchmark of their performance.

“This is a deterrent enough for an iBanker to not suggest unreasonable or aggressive pricing to a company even if the issue looks saleable at those prices,” says Rachit Chawla, Founder and CEO of Finway.

A merchant banker to an issue has to disclose all the details to the market regulator, including the number of issues for which it is engaged as iBanker, dates on which applications from investors were forwarded to the issuing company, number of applications received, details of application money received, amounts refunded to investors, books of accounts for a period of three years, agreement with the issuing company, and such others.

It is also duty-bound to inform Sebi about any action by RBI that it may have faced in the past.

“After listing of shares, market dynamics and investor perception determine price performance of a stock. Investors bet on an issue as per their own price judgment and advice of their advisers. Bad performance of a scrip after listing may be due to several reasons, which may or may not be directly associated with the company. A merchant banker cannot be held responsible for the market price or performance of a stock after listing, unless the same happens due to misrepresentation or false statement of facts in the offer document or in public domain,” she said.

Corporate Professionals, Advisors and Advocates (‘CP’) acted as the legal advisor to Auxano Entrepreneur Trust – a Gurgaon-based Alternate Investment Fund (AIF) in securing SEBI’s approval for its registration as a Venture Capital Fund (VCF) – Angel Fund under the SEBI (Alternate Investment Funds) Regulations, 2012. The AIF focuses primarily on start-ups in the sectors like FinTech, Artificial Intelligence, E-commerce, Bots, and Drones etc. From the side of Corporate Professionals, the team was spearheaded by Ms. Deepika Vijay Sawhney, Partner, Securities Law and Transaction Advisory.

Role of CP: The CP team provided comprehensive legal advisory in relation to Documentation and Registration process with SEBI including drafting of documents like Trust Deed, Private Placement Memorandum Investment Management Agreement, Investor Contribution Agreement and filing, coordination and follow ups with SEBI including resolving queries of SEBI.

Ms. Deepika Vijay Sawhney

Partner

deepika@indiacp.com

+91 11 40622229

+91 9818316936

Regulator Sebi on Friday put in place stricter norms for auditors, including prompt disclosures about reasons for their resignation and requirement to approach chairman of audit committee directly in case of any concerns with management of the firm concerned. The norms have been issued against the backdrop of rising instances of auditors quitting companies as well as those of auditors coming under the scanner in connection with alleged financial irregularities at firms.

The circular on ‘Resignation of statutory auditors from listed entities and their material subsidiaries’ will come into force with immediate effect. According to Sebi, resignation of an auditor of a listed entity before completion of the audit of financial results for the year due to reasons such as pre-occupation may seriously hamper investor confidence and deny them access to reliable information for taking timely investment decisions.

Coming out with the circular, Sebi has asked all listed entities and material subsidiaries to ensure that an auditor issues the audit report, if he or she is tendering resignation, within 45 days from the end of a quarter. Besides, those resigning after 45 days from the end of a quarter have to issue audit reports for the quarter concerned as well as the successive quarter.

The auditors who have signed the limited review or audit report for the first three quarters of a financial year, before resignation need to issue the audit report for the last quarter as well as for the complete financial year, Sebi said in a circular. However, an auditor who has rendered as disqualified as per the relevant provisions of the Companies Act, would not be required to comply with the directions.

“In case the auditor proposes to resign, all concerns with respect to the proposed resignation, along with relevant documents shall be brought to the notice of the Audit Committee,” the circular said. As per the norms, an auditor has to approach the chairman of the audit committee in case of concern with the management of firm such as non-availability of information or non-cooperation by the management that may hamper the audit process.

“The audit committee shall receive such concern directly and immediately without specifically waiting for the quarterly audit committee meetings,” Sebi said. The committee upon the resignation of the auditor, will deliberate upon the concerns raised by the auditor regarding the resignation as soon as possible, and not later than the date of the next audit committee meeting and communicate its views to the management.

Companies have to ensure that disclosures about the audit committee’s views to the stock exchanges are made within 24-hours of the committee’s meeting. In case the listed entity does not provide the information required by the auditor, Sebi said that the auditor would have to provide an appropriate disclaimer in the audit report.

Further, Sebi has issued the format for information to be obtained from the auditor upon resignation and has asked the firms to cooperate with the auditor and provide information necessary for the audit review. Sebi requires listed firms to disclose reasons for resignation of the companies’ auditor as soon as possible but not later than 24 hours of receipt of such reasons.

Paving the way for the resolution of debt-laden entities such as Dewan Housing Finance (DHFL), the government on Friday notified the rules for insolvency and liquidation proceedings of financial service providers (FSPs). These rules, notified by the Ministry of Corporate Affairs (MCA), will not be applicable to banks. The government is yet to notify the categories of FSPs to be covered by the notification.

“The special framework provided under Section 227 of the Code for financial service providers is essentially aimed at serving as an interim mechanism to deal with any exigency pending introduction of a full-fledged enactment to deal with financial resolution of banks and other systemically important financial service providers,” Injeti Srinivas, secretary, corporate affairs, said in a press statement.

While most of the provisions of corporate insolvency will apply to FSPs, there are certain exceptions. For instance, insolvency proceedings will be initiated only on an application by the appropriate regulator, who will be notified by the MCA. Depending upon the FSP, the regulator could be the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi) or Insurance Regulatory and Development Authority.

“IL&FS and DHFL crises have pushed the government to bring systemically important financial services companies other than banks into the IBC fold. It is important to note that an eligible bidder under the provisions of Section 29A can still not be approved by the regulator,” Saumil Shah, partner, Dhruv Advisors, said.

The regulator will appoint an administrator and will supervise the entire process. The administrator would have the same duties and powers of an insolvency professional, interim resolution professional, resolution professional or liquidator, as the case may be.

“They should soon notify the list of FSPs as well so these rules can be put to use.”

Unlike the corporate insolvency process, the moratorium period for FSPs will begin as soon as the application for insolvency is filed by the regulator. The interim moratorium will be in effect till admission or rejection of application by the Adjudicating Authority. These provisions will not apply to any third-party assets or properties in custody or possession of the FSP, including any funds, securities and other assets required to be held in trust for the benefit of third parties, according to the rules.

Experts have also said the subject will need deeper research to understand potential implications for different types of FSPs. “It would be interesting to note how are fixed deposit holders are treated – operational or financial creditors similar to home owners in real estate companies,” Shah added.

The latest notification has also raised questions on the future of the Financial Resolution and Deposit Insurance Bill, the proposed law for ushering insolvency of financial institutions which was withdrawn by the government.

The fear that at Dewan Housing Finance Corporation (DHFL) may spill over to other non-banking finance companies (NBFC) has pushed the government to introduce fresh rules and regulations to bring even the financial sector under the purview the Insolvency and Bankruptcy Code (IBC).

A government source said that Ministry of Corporate Affairs (MCA) has finalized new rules under Section 227 of IBC that would be notified soon after all the concerns of market regulator SEBI and financial sector regulator RBI are addressed.

“There is a definite plan to open a window under existing insolvency laws to bring certain category of financial institutions including Housing Finance Companies under the purview of IBC. The delay is on account of concerns expressed by the regulators. They are being addressed and soon we will have provisions to deal with all cases of default affecting the NBFCs,” said the source quoted earlier.

Regulators fear that initiation of insolvency proceedings against a strong NBFC may have a spiralling affect that could start other entities in the sector. This could put a serious risk on depositors and investors’ money parked in several of these NBFCs. This issue has emerged in the case of DHFL and earlier IL&FS where defaults scared the entire sector that faced the prospect of liquidity crisis.

The Section 227 of IBC reads: “Notwithstanding anything to the contrary examined in this Code or any other law for the time being in force, the Central government may, if it considers necessary, in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under this Code, in such manner as may be prescribed.”

DHFL may be one of the first cases to test the notified rules under Section 227 of IBC. Sources indicated that the current resolution of DHFL under banks inter-creditor agreement is unlikely to bear any results and crediots may be forced to refer it to once rules are in place.

DHFL is one of the largest HFCs that ran into trouble last year soon after the collapse of IL&FS. Banks have an exposure Rs 46,000 crore in DHFL.

The changes including NBFCS under IBC would not be different from how insolvency is initiated against other entities. The rules will clealy specify under what circumstances and who can initiate insolvency proceedings against NBFCs. The rule will allow for a period of moratorium over payment obligation of the affected NBFCs.

The government is also looking at notifying inclusion of NBFC under IBC as its earlier plan to deal with the issues under the proposed Financial Resolution and Deposit Insurance (FRDI) Bill fell flat. The government withdrew FRDI Bill as it caused caused a lot of furore among the general public. The bill contained a ‘bail-in’ clause for resolution of bank failure which was perceived to be against the interest of the depositors.

All independent directors will soon have to take an “online proficiency self-assessment test” before they are appointed to company boards, according to an amendment to the Companies Act notified by the Ministry of Corporate Affairs (MCA) on Tuesday. This rule will come into effect from December.

According to the MCA notification, the Indian Institute of Corporate Affairs (IICA) in Manesar, Harayana, will conduct this exam. It will also create and maintain a data bank with names, addresses and qualifications of people who are eligible to be appointed as independent directors for companies.

Boards of companies will have to disclose the results of these tests in their annual reports. The government inserted a new clause in the Companies (Accounts) Rules 2014, sub-rule 5; it will require companies to file such a statement.

Lawyers and sector observers were, however, sceptical how helpful these tests will be.

The current law requires all listed companies to have a third of their board members as independent directors. Their role is to ensure the interests of minority shareholders are protected and act as overseers outside the influence of the firm.

Recent corporate scams have turned the heat on company directors, who, the government feels, failed to detect any signs of trouble.

Data indicates that the rate of resignation of independent directors from the boards of listed companies has increased significantly in comparison to previous years.

A total of 606 independent directors resigned from the National Stock Exchange-listed company boards in 2018. In comparison, 412 independent directors resigned between January 1 and July 22 this year.

“Independent directors perform functions that are critical to good corporate governance and having qualified and upright independent directors on company boards are crucial for the development of our capital markets. However, an examination of the liability framework governing such directors indicates that the liability-related risks faced by them seem disproportionate to their duties,” a recent report by Vidhi Centre for Legal Policy said.

The report also said that while the Companies Act seeks to limit the liability of independent and non-executive directors by providing for certain safe harbours designed specifically for them, they come to their rescue only after investigative or legal proceedings have been initiated against them.

A working group under the insolvency regulator has recommended a group insolvency framework to allow for consolidated insolvency proceedings for multiple companies which are part of the same group.

A report, authored by a working group led by former Sebi chairman UK Sinha, noted that consolidated or coordinated insolvency proceedings may allow for more efficient resolution for companies with inter-corporate liabilities and operational linkages.

The need for a group insolvency framework has come to the fore in the case of defaults by the Videocon Group, in which the insolvency proceedings of 13 group firms have been consolidated into one proceeding by the Mumbai bench of the National Company Law Tribunal. Meanwhile, 169 group entities of Infrastructure Leasing and Financial Services group are also undergoing debt resolution proceedings outside the Insolvency and Bankruptcy Code (IBC).

The report recommended that insolvency proceedings of companies that are part of a corporate group – holding, subsidiary and associate companies — be consolidated with a single resolution professional, and adjudicating authority as well as a group committee of creditors (CoC) to assist individual CoCs at the discretion of stakeholders.

The report also said that insolvency proceedings of companies which are not categorised as holding, subsidiary or associate but are intrinsically linked with other companies undergoing insolvency be similarly consolidated. The group did, however, recommend that coordination and information sharing between RPs, CoCs and adjudicating authorities be made mandatory in the case of separate insolvency proceedings from companies which are part of the same group.

The report says that a “group coordinator” may also be appointed to propose a strategy for group resolution, which may include inviting common resolution plans for the distressed group companies. The working group has recommended that creditors be allowed to vote against a joint resolution by majority vote. The framework has also proposed that stakeholders be allowed to seek an additional 90 days for resolution above the current 330-day limit under the IBC to allow for a value-maximising resolution.

The working group noted that creditors tend to treat group entities as a single economic entity even when they were lending to distinct entities.

Experts have said that the recommendations may help in maximising value of assets in cases where companies are better resolved together.

The government is set to curb lenders’ penchant to drag companies to bankruptcy courts at the slightest delay in loan repayments through a change in the insolvency code, amid rising strain on balance sheets because of a slowing economy.

The idea is to prevent the aggressive use of the insolvency and bankruptcy code (IBC) as a recovery tool by lenders by rebalancing the rights of lenders and loan defaulters, a government official said on condition of anonymity.

“Bankruptcy code should not be the first resort for a lender for handling a default, especially in the case of micro, small and medium enterprises (MSMEs). Some changes will be built into the code to ensure that. The government is cognizant of the abuse of the IBC,” the official said.

The move implies that the government, which has been taking steps to improve liquidity in the market, does not want lenders to take an unrelenting position on debt recovery by invoking the IBC.

In recent weeks, the ministry of corporate affairs, which is looking into the possible amendments to the Code, has been signalling its disapproval about the aggressive use of the IBC. Minister of state for finance Anurag Thakur cautioned bankers in September that lenders should refer cases to the National Company Law Tribunal (NCLT) only if a satisfactory resolution was not available outside the courts. This will also help in reducing litigation. Experts said that the government’s effort is possibly to give a breather to businesses, especially MSMEs, in a slowing economy by preventing them from coming under the pressure of bankruptcy proceedings.

“In the MSME sector, there are not many bidders. Invoking bankruptcy code against them poses a risk of their liquidation rather than a revival, which is not good for our economy in which MSMEs are big employment generators,” said Sumant Batra, managing partner and head of insolvency practice at law firm Kesar Dass B & Associates.

The move also comes after the recent amendment to the Code in August, which gave an upper hand to banks in the proceeds of bankruptcy resolution, over operational creditors, which are mostly small enterprises that supply materials and services. “The government’s effort may be to correct the signal that has gone to small enterprises and balance stakeholders’ interest,” said Batra.

In move aimed at increasing transparency and avoiding conflict of interest in the functioning of the National Company Law Tribunal (NCLT), the ministry of corporate affairs on Monday notified rules restricting members of the NCLT from being posted to locations where they have worked as chartered accountants, company secretaries or cost accountants.

The rules also restrict members from being posted to locations where they have been posted in the past two years or where any of their close relatives are working as advocates, chartered accountants, cost accountants or company secretaries.

Benches of the NCLT are located in 12 cities across the country and deal with insolvency cases as well as cases under the Companies Act 2013. The government is also in the process of setting up new benches at Amravati and Indore.

Under clause 15A of the NCLT Amendment Rules, 2019, the initial posting of a member shall be done by the central government in consultation with the President of the NCLT with any subsequent transfers being done by the President alone.

The notification also said that members would not be transferred before completing three years at a location except on administrative grounds in consultation with the central government or on a personal request basis. Further the rules require that members not be posted in a location for longer than three years without sufficient reasons for the same.

Transfer on personal request may be based on considerations such as serious medical grounds, serious dislocation in children’s education and unavoidable family responsibilities according to the notification.

The ministry of corporate affairs had recently appointed 28 new members to the NCLT and is also set to add more members to deal with the large number of insolvency cases coming before NCLT benches.

The tribunal’s act of questioning reliance on preponderence of probabilities will set a wrong precedent, the regulator feels

SEBI is all set to file an appeal with the Supreme Court challenging the Securities Appellate Tribunal’s decision in the matter involving Price Waterhouse. One of the key questions which SEBI will put before the top court is whether it has faulted in taking action against the audit firm drawing inference from convincing probable evidence (preponderance of probabilities).

SEBI will challenge SAT in the apex court for passing an ‘erroneous order’ that has potential to set precedent for the regulator to establish ‘mens rea’ (criminal intent and direct evidence) in civil matters, according to sources in the know.

While SEBI had taken action against the audit firm to protect investor interest based on the principle of ‘preponderance of probabilities’, the SAT rejected SEBI’s strictures against a network of accounting firms and individuals working under PW in the absence of any direct evidence to link them with Satyam Computer scam.

“Thus, pinning down the engagement partners and the audit firms on a preponderance of probabilities that they had committed a big fraud in a reckless and careless manner cannot in our view lead to a conclusion that there was any intention or mens rea on their part,” the SAT order had said.

The Supreme Court in its previous judgment involving SEBI v/s Kishore Ajmera on the particular question had held: “…mens rea is not an indispensable requirement and the correct test is one of preponderance of probabilities. Proof beyond reasonable doubt as is not an indispensable requirement. The inferential conclusion from the proved and admitted facts, so long as the same are reasonable and can be legitimately arrived at on a consideration of the totality of the materials, would be permissible and legally justified.”

Disgorgement

SEBI will further question the inconsistency in the SAT order, which upholds the ‘disgorgement’ amount imposed on the auditor but gives it a free pass on other strictures. “Usually, disgorgement is of ill-gotten gains and if SAT was comfortable in upholding that in the same case, it reflects their inconsistency,” sources close to the developments said.

The SAT order was mainly based on inference drawn from a Bombay High Court judgment which held that it would be necessary for SEBI to establish connivance in the matter where the ‘auditor’ was not dealing in the securities market. SEBI had cited its wide powers to act against entities when it came to protecting the the interest of shareholders and investors. In case of Satyam scam, while the auditor is not regulated by SEBI directly, its report directly affected share market investors who mainly depended on audited financial statements for a holistic picture. SAT rejected this argument. SEBI by its Act is a quasi-judicial authority and decides matters under civil proceedings. Yet, the High Court had allowed SEBI to continue with its probe.

“The HC order was for limited purpose to determine if SEBI has jurisdiction to conduct enquiry and investigation against chartered accountants. The writ petition was dismissed allowing SEBI to proceed with the matter considering the aspect as to whether any directions can be issued by SEBI on the basis of evidence available on record as per the provisions of Section 11 and 12 of the SEBI Act i.e. investor protection and regulating securities market,” Sawhney said.

Pavan Kumar Vijay, founder, Corporate Professionals Group, said the move is in right direction. “The exercise will help more in resolution of practical issues rather than [addressing] the governance [issues]. The move to rationalise legislative processes will bring ease,” he said.

“Under Companies Act, a company without any assets and liability get struck off if it has not started any business activity one year after its incorporation or has not done any business in the past two years. But a company with any kind of asset or liability, the option is to let the company die. And the only way you can let the company die is voluntary liquidation,” says Pavan Kumar Vijay, founder, Corporate Professional, a legal and financial advisory firm.

New Delhi I Mumbai I 31st July 2019 Corporate Professionals, as integrated legal and financial solutions provider has launched second edition of its book “Business Valuation in India – beyond the numbers”. This must-read book for Valuation Professionals and Companies in India is a comprehensive commentary covering the latest International Valuation Standards issued by the International Valuation Standards Council (IVSC), Regulatory and Industry position as on May, 2019, updated Companies (Registered Valuers and Valuation) Rules, 2017, latest Industry-wise trends of 30 Industries for last 10 years and numerous case studies on DCF, Relative, Intangible and Start up Valuations. The Book, co-authored by highly experienced and proficient team of Corporate Professionals, is a well conceptualized guide to act as a first hand tool to the Valuers and Companies in India.

The 1st copy of this book was recently presented to the internationally acclaimed Professor of Valuation Mr. “Aswath Damodaran” by Mr. Chander Sawhney, Director, Corporate Professionals at the sidelines of the event “The Jedi Guide to Valuation” a talk by Prof. Aswath Damodaran on 31st July, 2019 at Hotel Sofitel, Mumbai. This event was conducted by the ICAI Registered Valuers Organisation jointly with CVSRTA, in association with the IBBI.

About the Book

Business valuation is critical for transactions including fund raising, mergers & acquisitions, sale of businesses, strategic business decisions, voluntary value assessment and also for regulatory and financial reporting in accordance with applicable laws. Today ‘Valuation’ in evolving economy like India, is a niche profession with a rousing need to standardise the divergent valuation practices. It has led to the requirement of capacity building among the valuation professionals and thereafter the need of proper tools and resources for them.

This 2nd edition of book from the house of Corporate Professionals is fully updated and is a well conceptualised guide, to act as the First hand tool to the Valuers and Companies. Beyond the valuation principles, processes, approaches, methodologies and challenges, it covers at length the important metrics which form the fundamentals of valuation. It comprehensively covers the legal requirements of Valuation in India in different situations and also analyses important judicial pronouncements on Valuation by Indian Courts and Tax Tribunals.

Recently, the MCA Secretary had said at a national seminar on Valuation, organised by the IBBI that ‘Indian Valuation Standards’ are a work in progress and could soon be a reality. He also felt that in a globalised world the best approach would be for Indian standards to adopt the International Valuation Standards, albeit with some carve outs. This book on Business Valuation duly covers the latest International Valuation Standards issued by the IVSC. The guidance under the IVS and the Ind-AS has also been mapped along with the respective sections of the book for optimum reader interface.

More case studies have been added in this edition for DCF Valuation (H – Model), Intangibles (Multi Period Excess Earning Model (MPEEM), Royalty Relief Model (RRM), Assembled Workforce etc.). The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and IPEV guidelines (December 2018) have also been updated along with changes in applicable laws and regulations.

Mr. Mark Zyla, Chairman, Standards Review Board, IVSC has written Foreword of the book.

The book, published by Wolters Kluwer, is now available at all leading bookstores in India and also online at www.amazon.in/wolterskluwer

For more details, visit www.corporateprofessionals.com or e-mail at info@corporatevaluations.in

“Three months is a reasonable amount of time. The government is aiming to squeeze the timeline. If it is possible to complete the insolvency resolution process, including litigation, within 330 days then 90 days is a very reasonable amount of time for any scheme or arrangement,” said Manoj Kumar, head of M&A and Insolvency at legal firm Corporate Professionals.

On the revised formats, Anjali Aggarwal, partner and head of capital market services at Corporate Professionals said, “Presently, governance is on the drivers” seat. Listed entities have already witnessed many a changes in their compliance regime. Regulators including Sebi, are proactive in reviewing the existing legal framework. Issuance of revised formats of limited review reports and audit reports is a step in the same direction”.

The article has been written by Pavan Kumar Vijay , Founder, Corporate Professionals Group,

“This is a welcome move as it will address a key concern of startups who have sought to use DVRs to be able to raise capital without diluting control over their companies,” said Ankit Singhi, partner at law firm Corporate Professionals.

Allowing DVR shares to the extent of 50 per cent or 75 per cent and scrapping the three-year distributable profit norm will allow promoters of startups room to raise more capital as they expand operations without diluting control, Singhi said.

As part of its efforts to rid Corporate India of scams and frauds fuelled by financial opaqueness, SEBI is turning up the heat on auditors by making them more accountable. Financial auditors of a company will now not be able to casually resign without finalising the audit report for the full year if they have signed previous quarterly reports. Besides, the auditors will have to provide proper reason for resignation and would have to state if the company was not sharing proper financial numbers for audit purpose.

All these proposals are part of a consultation paper that SEBI put out on Thursday for public comments. This comes amid a spate of exits by auditing companies. Recently, BSR & Associates, part of global accounting firm KPMG’s network in India, had resigned as an auditor of IL&FS Financial Services, which is being probed for alleged financial irregularities. PwC too had resigned as the auditor of Reliance Capital and Reliance Home Finance and Deloitte Haskins and Sells LLP had tendered resignation as the auditor of Fortis Healthcare.

Enhancing public disclosures

“The changes proposed will certainly help in enhancing public disclosures required in case of resignation by auditors,” said Moin Ladha, Partner, Khaitan & Co. “It will also lay down a procedure in case the auditors’ resignation is triggered by significant concerns about a company.”

SEBI has proposed that if an audit firm of a listed entity proposes to resign and has signed the audit report for all the quarters of a financial year, except the last quarter, then it shall finalise the audit report for the said financial year before such resignation. In all other cases, the auditor shall issue limited review/audit report for that quarter before such resignation (i.e. previous quarter in reference to the date of resignation). SEBI has also come out with a proposal on strengthening and clarifying the role of the audit committees.

Detailed reasons for the resignation, a declaration by the auditor that there are no other material reasons other than those provided, and in case of any concerns, efforts made by the auditor prior to resignation need to be compulsorily mentioned in the prescribed format. If information is not furnished by the company, the auditor has to provide details on the information requested, reason for the inability to provide the information, assessment of the severity of the information, etc. In case of concerns about the management such as its non-cooperation, the auditor shall approach the chairman of the Audit Committee directly and immediately.

To make stressed firms more attractive for bidders, the Finance Bill has allowed companies to carry forward losses even after a change in majority shareholding.

The Bill also seeks to amend the provision pertaining to minimum alternate tax (MAT), allowing companies to adjust depreciation and loss against profits after the resolution process. These two amendments were long-pending demands of industry and insolvency professionals.

The Securities and Exchange Board of India (SEBI) has introduced stricter disclosure norms for pledged shares by promoters of listed firms. At the board meeting on Thursday, the market regulator not only expanded the definition of the term encumbrance – basically making it all-encompassing – but also decided to impose more checks and balances on this increasingly prevalent practice.

India Inc promoters had reportedly pledged shares worth Rs 2.50 lakh crore with their respective lenders at the end of December 2018. SEBI’s move comes amid free-falling share prices of several entities including Zee Entertainment, Sun Pharma and the Reliance Group due to post-default distress sale of pledged securities by their lenders.

As per the new norms, promoters will henceforth have to separately disclose detailed reasons for encumbrance whenever their combined encumbrance along with persons acting in concert (PACs) crosses 20 per cent of the total share capital in the company or half their shareholding. SEBI further clarified that the stock exchanges will have to maintain the details of such encumbrances along with the purpose on their websites.

Incidentally, SEBI is not the only regulator taking a close look at share pledging. The RBI’s June Financial Stability Report also put the spotlight on increased promoter activity on this front. “High level of pledging by promoters is seen as a warning signal, indicating the company’s poor health and probably a situation where the company is unable to access funding through other options. Further, the increased pledging activity is risky for any company as debt repayment will leave no room for the company’s growth,” read the FSR.

Addressing issues around shares encumbered by promoters, the Securities and Exchange Board of India (SEBI) on Thursday enhanced norms for disclosure of pledged shares and made it mandatory for the promoters to disclose reasons for encumbrance when it crosses 50 per cent of shareholding in the company. Similarly, disclosure would be required when it crosses 20 per cent of total share capital in the company. Widening the definition further for encumbered shares, the markets regulator said that any direct, indirect lien on shares will qualify as encumbered share. Under the current takeover code, encumbrance includes a pledge of shares, lien or any such transaction. SEBI chief Ajay Tyagi also said that the company audit panels must be told of any undisclosed encumbrance. SEBI also issued framework on differential voting rights share issue.

The board of market regular also announced new regulations on liquid mutual funds as well. SEBI said that the liquid mutual fund schemes will have to hold at least 20 per cent in liquid assets such as government securities gilts. A cap on sectoral limits of 25 per cent has also been cut to 20 per cent. The markets regulator has started adjudication against some credit rating agencies, Ajay Tyagi also said.

The valuation of debt and money market instruments based on amortisation would now be dispensed with completely and would be based on mark to market basis, SEBI added. The mutual fund schemes would be mandated to invest only in listed NCDs, implemented in a phased manner.

An additional exposure of 15 per cent to housing finance companies (HFCs) was also brought down to 10 per cent in HFCs and 5 per cent in securitised debt based on retail housing loan and affordable housing loan portfolio. SEBI also said that the consolidated debt-equity ratio must be considered for buybacks.

Amit Kumar, Co-founder, GalaxyCard, a digital credit card start-up, had just gone live with a non-banking finance company (NBFC) when the IL&FS default crisis erupted in September 2018. The NBFC, which had started discussions with GalaxyCard in January 2018, had big plans but changed its mind. “Nine months of integration, legal paper work and banking transactions went for a toss in just 10 days,” says Kumar. Many NBFCs that had tied up with fintech firms or were in the process of doing so are not even willing to talk, says Kumar. As a result, a lot of fintech lenders are finding it difficult to raise funds. Some are even closing down.

The liquidity crunch has put a spanner in the works for such firms despite the fact that the potential market of millennials and salaried professionals remains. Akshay Mehrotra, Co-founder and CEO, EarlySalary, sees a huge untapped market in consumers with credit scores of less than 750 and loan size below Rs 1 lakh for less than one year tenure. “The salaried individual segment is a Rs 4.5 lakh crore opportunity (by 2023/24) based on 201 million individuals,” he says.

India is the second-biggest fintech hub in the world, after the US, with 2,035 start-ups in the sector against just 737 in 2014, according to the India Fintech Report 2019 by Medici.

However, fast paced growth in a short span doesn’t guarantee sustainability. China’s peer-to-peer (P2P) lending segment flourished in the past four-five years but witnessed multiple defaults from June 2018 after it surfaced that a few P2P operators had duped investors. Thousands of platforms disappeared over two years.

In India, regulations are trying to put things right.

Road to Regulations

The Reserve Bank of India’s, or RBI’s, recent draft circular on liquidity risk management for NBFCs and Core Investment Companies proposes to focus more on granular buckets (0-7 days, 8-14 days and 15-30 days instead of 30 days now) for asset liability management. It also talks of introducing liquidity coverage ratio requirements in line with banks and having more transparency in borrower or concentration details.

While a long-term positive, the regulations will pressurise margins. Yields on liquid assets would be lower than cost of funds for most NBFCs, says brokerage PhillipCapital’s report. But most large NBFCs have cash balances (after IL&FS default) that cover around 60-120 days of net outflow.

The Securities and Exchange Board of India also has a framework on ‘innovation sandbox’ to provide an ecosystem to test at a small scale.

Deep pockets would help fintech firms ride this storm, but many do not have that kind of backing. This has led some to look at other ways of staying in action, as a lot depends on their model of operations.

In recent years, corporate governance standards have been tightened all over the world. This is in response to a spate of corporate failures and a strong negative stock meltdown over governance issues, especially insider trading issues. In India, allegations under insider trading, whistleblower and auditor resignations have shaken the confidence of investors —both retail and institutional in recent years.

The Securities and Exchange Board of India (SEBI) introduced insider trading rules through SEBI (Prohibition of Insider Trading) Regulations in 1992. These regulations were replaced by SEBI (Prohibition of Insider Trading) Regulations of 2015. Ever since the promulgation of the 2015 regulations, there have been amendments and strengthening of regulatory provisions. Recently, in December 2018, SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (PIT Amendment Regulations) was introduced. The PIT amendment regulations came into force on April 1, 2019, and will have a significant impact on the manner in which listed companies and intermediaries navigate the market. The market regulator has revamped these regulations to bring several new provisions, including the concept of ‘material financial relationships’ and also specifically lays down the basis of determination of “Designated Person”. The listing includes the promoters of the company, board members, and other key functionaries.

The new rules also mandate insiders to provide personal details of all their immediate relatives, including their PAN details. Further, listed companies have also been asked to maintain a structured digital database with details of everyone who had access to unpublished price sensitive information (UPSI). The market regulator has brought in material financial relationship to help crack cases where an insider may have funded an unconnected person to trade on his behalf. Schedule B of the PIT regulations prescribes the minimum standards for the code of conduct for listed companies to regulate, monitor and report trading by designated persons and their immediate relatives.

While the above notification drew attention and company officials rushed to comply by March 31, 2019, there is a new circular which will have a far greater impact on companies and its senior management as well as shareholders.

Subsequent to the notification of Amended Regulations 2018, recently, on April 02, 2019, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), came out with a circular for all listed entities in the nature of clarification to the clause 4 of schedule B, dealing with the closure of trading window.

The circular withdraws the liberty and prudence of the compliance officer to determine the time of closure of trading window on the origination of UPSI in case of financial results and provides that Clause 4 of the Schedule B be read as the trading window of a listed company is to be mandatorily closed at the end of each quarter and shall remain closed up-till the expiry of the 48 hours from the declaration of the financial results of the previous quarter.

The aforesaid circular, which has been issued in the form of a clarification, based on discussions with SEBI, has far-reaching implications for listed companies, their promoters and employees, along with the industry at large. This mandatory closure of trading window immediately at the end of each quarter till the date of result announcement would mean that the trading window of a listed company shall practically remain closed for approximately 200 days out of 365 days of a calendar year. The restriction on trading would therefore also affect the planning and execution of transactions such as preferential allotments, right issues, takeover offers, ESOPs, warrant conversion, pledging of shares for raising funds and other similar transactions which need not be in the nature of insider trading.

The fact that is going to lead confusion among corporates is that the legal validity and enforceability of the circular is uncertain, as it is issued by stock exchanges in “consultation with SEBI” and not by SEBI. The stock exchanges are only market infrastructure institutions and do not have any regulatory powers under any statute.

The trading window closure was introduced to ensure a level playing field between the person(s) who can be reasonably expected to have access to unpublished price sensitive information of a listed company and a common investor who trades in the stock market. However, this circular not only places promoters and employees of a listed company at a detrimental position but also poses challenges for the company itself in terms of planning of corporate actions and raising funds. Unless any clarifications or exemptions are explicitly provided by the regulator itself or legal precedents created, the circular is surely set to lead to confusion among listed companies and its promoters and employees and overall chaos and ambiguity within the capital market.

National Stock Exchange was fined an unprecedented Rs 624 crore by the Securities and Exchange Board of India in the co-location case for giving preferential access to certain brokers. While the capital markets regulator did not find the leading bourse of the country guilty of any fraud, the order is a warning to market players that such lapses will not be tolerated

It took almost five years for the market regulator, the Securities and Exchange Board of India (Sebi), to bring a conclusion the in infamous co-location case of National Stock Exchange (NSE), with the final judgement passed on April 30, 2019, in voluminous five series orders.

Interestingly, after multiple years of investigations and a number of forensic audits, the regulator could not find NSE guilty of any fraudulent activities or unfair trade practices, though a penalty of around Rs 1,100 crore, including interests for five years, has been imposed on the exchange.

In Sebi’s own words, “In the absence of any evidence leading to the culpability of any specific employee of NSE or the collusion or connivance from the side of NSE with any specific with any specific trading member (TM), I’m compelled to rule against the possibility of existence of a ‘fraud’.”

However, in the same order, Sebi’s whole-time member G Mahalingam states, “…Even though sufficient evidence is not available before me to conclude that the Noticee No.1, NSE has committed a fraudulent and unfair trade practice as contemplated under the Sebi (PFUTP) Regulations, I find that it is established beyond doubt that NSE has not exercised the requisite due diligence while putting in place TBT architecture.” The regulator has, hence, directed NSE to disgorge Rs 624.89 crore, along with interest at the rate of 12% per annum from April 01, 2014 onwards. The exchange has also been barred from accessing the capital markets for six months.

What is the impact?

Some market experts feel Sebi’s order is contradictory in nature. According to a market expert, the regulator could not find sufficient evidence against Sebi, yet it has imposed a heavy penalty on the exchange, along with the disgorgement of partial salaries of two of its former MDs and CEOs – Ravi Narain and Chitra Ramakrishna.

“The whole issue got dragged for too long. Apart from a little delay in the public issue, no other significant impact is expected on the exchange’s business due to this,” says this person, on condition of anonymity.

NSE, which was set up in 1992 to break the growing monopoly of Bombay Stock Exchange, has its initial public issue lined up for a long time. Now, it will get delayed by a further six months.

Recently, in a telephonic conversation with DNA Money, NSE’s current MD & CEO Vikram Limaye has said, “We are not allowed to access the public market for six months, after that we can go ahead with it. The IPO cannot happen for six months, which is okay since any IPO preparation will take that much of time.”

However, the delay is unlikely to dampen investors’ sentiments, feel experts.

“No doubt the exchange’s credibility has been affected. There will be now a difference in perception, but it may not affect the IPO. The issue is more about ethical practices than legal, and investors understand that,” he says.

Corporate Professionals Group, India’s leading legal and corporate advisory firm, has launched ‘INSILYSIS’ a path-breaking IT Solution for insider law management which caters the requirements under the amended SEBI (Prohibition of Insider Trading) Regulation, 2015. This digital solution integrates the organization’s insider law expertise with informatics to facilitate all insider law compliance and management reporting needs through a seamless digital mechanism.

With the recent amendments in the SEBI (Prohibition of Insider Trading) Regulations, the Securities and Exchange Board of India (SEBI) has reinforced its endeavor to establish an efficacious mechanism for regulating market infraction. The Boards and Audit Committees responsibilities have been extended to ensure legal compliance and verification of digital systems & controls implemented by organizations.

“The new digital solution ‘INSILYSIS’ is developed to assuage Indian corporate houses’ requirements and address predicaments concerning the establishment of an effective system of internal controls to facilitate efficient regulatory compliance. With organizations becoming more cognizant of the risks associated with regulatory violations including legal and reputational risk, solutions such as Insilysis will come in handy” said, Mr. Pavan Kumar Vijay, Founder, Corporate Professionals Group.

Safeguarding UPSI and sharing it on a ‘need to know basis’ is one critical task bothering the management. The software facilitates creation and storage of insider database including those with whom UPSI is shared, fulfilling the statutory requirement of maintaining a structured digital database. Such information may be shared with SEBI when sought on case to case basis.

Insilysis automates the entire insider management process with a holistic approach to allow corporates to derive real value in terms of corporate governance, data security, control, and audit. Discovery and identification of malicious behavior leading to insider trading threat involves substantial inherent limitations. Setting up a controlled environment that enhances transparency in reporting and ensures regulatory compliance is definitely a prudent step towards good Corporate Governance.

In recent years, corporate governance standards have been tightened all over the world. This is in response to a spate of corporate failures and a strong negative stock meltdown over governance issues, especially insider trading issues. In India, allegations under insider trading, whistleblower and auditor resignations have shaken the confidence of investors —both retail and institutional in recent years.

The Securities and Exchange Board of India (SEBI) introduced insider trading rules through SEBI (Prohibition of Insider Trading) Regulations in 1992. These regulations were replaced by SEBI (Prohibition of Insider Trading) Regulations of 2015. Ever since the promulgation of the 2015 regulations, there have been amendments and strengthening of regulatory provisions. Recently, in December 2018, SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (PIT Amendment Regulations) was introduced. The PIT amendment regulations came into force on April 1, 2019, and will have a significant impact on the manner in which listed companies and intermediaries navigate the market. The market regulator has revamped these regulations to bring several new provisions, including the concept of ‘material financial relationships’ and also specifically lays down the basis of determination of “Designated Person”. The listing includes the promoters of the company, board members, and other key functionaries.

The new rules also mandate insiders to provide personal details of all their immediate relatives, including their PAN details. Further, listed companies have also been asked to maintain a structured digital database with details of everyone who had access to unpublished price sensitive information (UPSI). The market regulator has brought in material financial relationship to help crack cases where an insider may have funded an unconnected person to trade on his behalf. Schedule B of the PIT regulations prescribes the minimum standards for the code of conduct for listed companies to regulate, monitor and report trading by designated persons and their immediate relatives.

While the above notification drew attention and company officials rushed to comply by March 31, 2019, there is a new circular which will have a far greater impact on companies and its senior management as well as shareholders.

Subsequent to the notification of Amended Regulations 2018, recently, on April 02, 2019, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), came out with a circular for all listed entities in the nature of clarification to the clause 4 of schedule B, dealing with the closure of trading window.

The circular withdraws the liberty and prudence of the compliance officer to determine the time of closure of trading window on the origination of UPSI in case of financial results and provides that Clause 4 of the Schedule B be read as the trading window of a listed company is to be mandatorily closed at the end of each quarter and shall remain closed up-till the expiry of the 48 hours from the declaration of the financial results of the previous quarter.

The aforesaid circular, which has been issued in the form of a clarification, based on discussions with SEBI, has far-reaching implications for listed companies, their promoters and employees, along with the industry at large. This mandatory closure of trading window immediately at the end of each quarter till the date of result announcement would mean that the trading window of a listed company shall practically remain closed for approximately 200 days out of 365 days of a calendar year. The restriction on trading would therefore also affect the planning and execution of transactions such as preferential allotments, right issues, takeover offers, ESOPs, warrant conversion, pledging of shares for raising funds and other similar transactions which need not be in the nature of insider trading.

The fact that is going to lead confusion among corporates is that the legal validity and enforceability of the circular is uncertain, as it is issued by stock exchanges in “consultation with SEBI” and not by SEBI. The stock exchanges are only market infrastructure institutions and do not have any regulatory powers under any statute.

The trading window closure was introduced to ensure a level playing field between the person(s) who can be reasonably expected to have access to unpublished price sensitive information of a listed company and a common investor who trades in the stock market. However, this circular not only places promoters and employees of a listed company at a detrimental position but also poses challenges for the company itself in terms of planning of corporate actions and raising funds. Unless any clarifications or exemptions are explicitly provided by the regulator itself or legal precedents created, the circular is surely set to lead to confusion among listed companies and its promoters and employees and overall chaos and ambiguity within the capital market.

India’s largest airline by market share IndiGo is headed for the National Company Law Tribunal (NCLT) for resolving deep fissures that have surfaced between major shareholders Rahul Bhatia and Rakesh Gangwal who along with other promoter entities hold about 75% in InterGlobe Aviation Ltd., the listed company that runs the airline.

Bhatia and Gangwal have hired law firms JSA Law and Khaitan & Co, respectively, for dispute resolution, The Times of India reported on Thursday. There has been no word on the nature of the differences.

In a response to an emailed query from Mint, IndiGo said the company has not made any statement on the subject yet but did not rule out the possibility of one in due course.

Major shareholders hiring law firms indicate the possibility of the dispute reaching the tribunal, said regulatory experts. The most recent high profile shareholder dispute to reach NCLT was of the Tata group when former chairman of Tata Sons Cyrus Mistry moved the tribunal in 2016 after he was removed abruptly from Tata Sons. Mistry claimed that the charter of the company was oppressive to minority shareholders, a claim rejected by NCLT when it dismissed the petition on behalf of Mistry last July.

The charge that shareholders usually make while moving NCLT against another shareholder is that the company is being run in a way prejudicial to their interests. This is done by invoking section 241 of the Companies Act, 2013 that deals with mismanagement and oppression. Besides deciding on a share transfer between shareholders, the tribunal can also decide on regulating the affairs of the company or terminating or modifying certain agreements between the company and any of its directors.

The Supreme Court setting aside the Reserve Bank of India’s (RBI’s) 12 February 2018 circular to replace all loan restructuring schemes with a formal bankruptcy process has restored previous debt recast options for defaulting companies and given a free hand to banks to explore steps to rescue such companies outside the court. The apex court’s decision on Tuesday to strike down the RBI circular will significantly impact lenders and defaulting firms.

For lenders, who were asked by RBI to put in place an early recognition system for bad loans, the decision opens up the possibility of less provisioning requirements as they could drop the tag of non-performing asset (NPA) in the case of some borrowers.

Anil Gupta, vice-president and sector head (financial sector ratings) at Icra Ltd, said the total debt estimated to have been impacted due to the RBI circular was ₹3.8 trillion across 70 large borrowers, of which ₹2 trillion was from 34 borrowers in the power sector. These companies will now get the earlier options for restructuring.

The Investor Education and Protection Fund Authority (IEPF) has finally compelled Peerless General Finance and Investment company to transfer deposits worth Rs 1,514 crore to Investors Education and Protection Fund (IAPF).

The company has taken a deposit of Rs 1.49 crore from over one crore individual investors, as per the release. As per the data provided by the company, 50.77 per cent of the total amount was taken in the form of deposit certificates of value of Rs 2,000 or less from investors across 30 states and union territories.

The money was lying unclaimed with the company for the past 15 years. As per the law, a company needs to transfer the amount to IEPF if it remains unclaimed for a period of seven years.

Till recently, the company was supposed to deposit only the unclaimed dividend to IEPF but the government came out with a regulation in October 2017, which asked companies to deposit the unclaimed dividend as well as shares with IEPF by October 31st 2017. But many companies have not complied with the deadline and the shares are still lying unclaimed with them. The IEPF authority had issued 4000 notices to such companies, it said in the release. In the release, IEPF has specifically mentioned that there are companies including NBFCs, which have neither refunded these amounts to investors nor transferred such amount to IEPF even after the expiry of seven years.

The corporate affairs ministry has withdrawn its directions restricting Limited Liability Partnerships (LLPs) from engaging in manufacturing activities.

Concerns were raised in various quarters about an office memorandum issued by the ministry earlier this month, wherein LLPs were restricted from manufacturing and allied activities.

The ministry is implementing the Limited Liability Partnership Act.

“Manufacturing & allied activities were restricted in LLPs vide OM (Office Memorandum)… dated 06.03.2019. This OM invoking the restriction regarding manufacturing & allied activities has been withdrawn with immediate effect,” the ministry said in a message posted on its website.

In the memorandum issued on March 6, the ministry had said that LLPs as body corporates have been set up for the purposes of carrying out business activities related to the service sector.

“Incorporation of LLPs and conversion of LLPs with the proposed business activity (ies), including manufacturing & allied activities are not be allowed,” the memorandum had said.

“When the LLP Law came into existence, no where it was mentioned that LLPs were only for the purpose of services… That was a wrong interpretation,” he noted.

The arrest of fugitive diamond merchant Nirav Modi on fraud and money laundering charges amounting to USD 2 billion, represents a turning point in India’s efforts to deal with those attempting to trick its banking system, say experts. The Rs 14,000 crore, fraud which moreover included a few bank staff, nearly brought India’s second biggest state-run bank on its knees. Punjab National Bank (PNB) had detailed a net loss of over Rs 12,200 crore in FY18 after the scam came to light in January 2018.

Investigation by the Reserve Bank of India (RBI), the government and an expert panel driven by Y H Malegam named by the banking regulator brought these weaknesses to sharp focus. These incorporate blunders made by state-run banks in administration and checking of risk as well as its audits, the central bank informed a parliamentary board headed by Congress leader Veerappa Moily that tabled its report in Parliament in August 2018. The central bank moreover recognised certain gaps in its powers to regulate public sector banks (PSBs).

Without alleged lapses from board members of the bank, auditors, we might not see the scam happening, as seen in the case of the distressed Infrastructure Leasing & Financial Services (IL&FS).

As per the RBI, none of the bank’s audit reports brought out the gaps within the processes at PNB’s Brady House Branch in Mumbai since 2011. Consequently, directors on the board of the bank had no means to be aware of these inconsistencies as they banked completely on the data given by the administration.

Vijay Aggarwal lawyer of Nirav Modi declined to comment.

“The board of directors of banks and their risk management committee should be held responsible for the fraud of such magnitude,” said Ved Jain, former president of Institute of Chartered Accountants of India (ICAI).

PNB maintains the scam was not the result of a systemic issue. “It was one of the people’s issues and it was happening in one of the branches. The moment this surfaced, we took corrective action. We started filing with the regulatory authority and we started filing with the investigation agencies,” the bank informed parliamentarians.

The increasing number of bank frauds has driven to investors getting to be very cautious in making lending decisions, said specialists.

Punjab National Bank’s financial health is improving. It reported a net profit of Rs 246.5 crore within the December quarter of FY19.

“IBC cases need to maintain the sanctity of timing as the entire process is a time-bound system,” said Manoj Kumar, Partner & Head – M&A, Transactions and Insolvency, Corporate Professionals Capital. “The government looks committed to upholding IBC as a key tool to control bad loans.”

Legal experts say, there are two kinds of incentives that government gives for places like Daman – one to set up heavy industries and generate employment, while the other is to increase the commercial activity of the place. The stamp duty exemption falls in the latter category. “Brokerages operating out of Daman will certainly increase the commercial activity around the place and hence it is not in violation of the law,” said Pavan Vijay, founder, Corporate Professionals. “However, spirit of law is a different question since they don’t generate employment or provide any major benefits for the jurisdiction.”

An arrangement in step with that for homebuyers, who were granted the financial creditors status last year under the IBC, may be explored in case of operational creditors, albeit with certain changes, said the sources. Manoj Kumar, head (M&A, transactions and insolvency) at consultancy firm Corporate Professionals Capital, said, ideally, operational creditors should not be discriminated against in a resolution process and their role should be defined in sync with their stake in the matter. A company can’t operate without operational creditors.

“In the case of banks whose shares are listed on stock exchanges, such banks also need to comply with the Sebi Listing Regulations (including appointment of independent directors), whereas under the Banking Regulations Act, 1949, there is no such requirement to appoint independent directors,” said Pavan Kumar Vijay, founder and managing director at legal and financial consulting firm Corporate Professionals India.

Leading corporate legal firm Corporate Professionals’ founder Pavan Kumar Vijay said there is a need to increase competition in the banking space and that calls for a review of the ownership guidelines, which have been a cause for non-participation to obtain license.

The government wants to evaluate if the practice of keeping listed companies under an unlisted holding company is the correct way forward

Following the IL&FS crisis, the government is looking into the practice of unlisted parent companies listing subsidiaries, Mint reported quoting a top government official.

IL&FS’ subsidiaries IL&FS Transportation Networks (ITNL), IL&FS Engineering and Construction Co and IL&FS Investment Managers are all listed on stock exchanges but the parent itself is not.

This is an established practice in the corporate sector. The Corporate Affairs Ministry is evaluating whether holding companies that are major players in multiple sectors can remain unlisted.

This review may bring more transparency to the corporate system. “There is a need to see if keeping the holding company unlisted is the right way of organising a business. It is better if it is the other way around,” the official cited above said.

The regulatory framework for independent directors, boards of directors, auditors and credit rating agencies will also be reviewed as a part of this exercise.

Unlisted companies are only mandated to disclose their annual financial statements, not quarterly ones. Getting unlisted holding companies listed would mean they would have to disclose information about themselves as well as their subsidiaries on a quarterly basis.

Another example of this is Tata Sons, which is not listed but has several subsidiary companies that are. Notably, most major Tata Group entities are publicly traded.

Experts believe this may not be the solution the government is looking for.

Investors who have punted on the Insolvency and Bankruptcy Code (IBC) bound stocks hoping to cash in on business turnaround could be in for a rude shock due to the new delisting rules. The special regulations released by the Securities and Exchange Board of India(Sebi) for delisting of IBC bound companies provide flexibility to the acquirers, including exemption from any reverse book building and requirement for minority shareholders’ approval. As a result, the new managements are providing exit to existing shareholders by paying a paltry value, said experts.

For instance, consider the delisting case of Electrosteel Steels which was acquired by Vedanta Group. The company offered a delisting price of only 19 paisa per share while the Electrosteel shares were trading at around Rs 26 in the stock exchange platform at the time of announcement. Similarly, in case of Assam Company, the acquirer BRS Ventures has offered to pay only 10 paisa per share to public shareholders even as the stock was trading at around Rs 5 at the time of announcement. Lawyers privy to the development said, there are atleast four more delisting issues in progress wherein the minority shareholders will get a raw deal.

These delisting prices are a fraction of even the actual face value of the shares of the company. Before providing an exit to the existing shareholders, the acquirers are restructuring the capital of the company.

In yet another attempt to curb the creation of black money and shell companies, the government has now cracked the whip on company directors who failed to comply with the KYC norms by 15 September.

The MCA officials claim that out of 33 lakh directors, only 12 lakh had completed the KYC process for free, by the last date of 15 September. The government is now looking to deactivate 21 lakh directors identification numbers (DINs).

However, all is not lost. Those directors who have not been able to complete the process can still do so by paying a fee of Rs 5,000.

In a statement issued on 16 September, the MCA said: “As you are aware the last date for filing form DIR-3 KYC without fee has expired on 15th September 2018. The process of deactivating the non-compliant DINs is in progress and is likely to be completed by 17 September 2018. Please note that the form DIR-3 KYC will not be available for filing during the pendency of this activity from 16-17 September 2018.”

Though it seems the government may extend the date for KYC without fee by another 15 days.

Purpose

So what was the purpose of the whole exercise? How does it help in cleaning the ‘shell’ companies?

The purpose is to get rid of the ghost directors — those directors, who do not even know they are directors in companies. Some of them may be peon or drivers of the owners of a company. In some cases, the director could have been long dead but his/her name continues to appear in the list of directors.

With recent frauds shaking investors’ trust in corporate governance standards, we look at role, limitations and accountability of independent directors who are custodians of these standards.

After the conflict of interest case involving ICICI Bank CEO Chanda Kochhar came to light, the bank, on March 28, issued a statement defending its credit approval processes and the role of its CEO. “The credit approval authorisation framework is laid down by the Board of Directors. The larger exposures are approved by the Credit Committee of the Board. The majority of Credit Committee members are independent directors of the bank. The Chairman of the Credit Committee, till as late as June 2015, was always a non-Executive Director,” it said.The bank focused on independence of its non-executive directors to convince shareholders, media and others interested in the developments that “there are adequate checks and balances in loan appraisal, rating and approval processes within the bank, both from control as well as from governance perspective.” The issue at hand was a Rs3,250 crore loan to Videocon Group, which had business relations with Chanda Kochhar’s husband Deepak Kochhar.

The statement went on to say that the board did not find any evidence of nepotism or conflict of interest in extending the loan. However, under pressure from various quarters, including CBI and Sebi probes, the bank board finally asked Kochhar to go on indefinite leave till the probe ordered by it is completed. At this stage, questions began to be asked about the role of the bank’s board, especially the independent directors. Many experts say the ICICI Bank fiasco again proved that independent directors, supposed to be custodians of corporate governance, are happier toeing the management line than raise questions on issues concerning governance and minority shareholders.

ICICI Bank is not the only big case where independent directors were found wanting. In May, two Fortis Healthcare investors – Jupiter India Fund, East Bridge Capital Master Fund Ltd – sought removal of four directors, including three independent directors, through an extraordinary general meeting. The investors said the directors had not satisfactorily exercised their fiduciary duties towards all shareholders and failed to maintain the expected levels of corporate governance. The decision to remove the directors came after an allegation that promoters Malvinder Singh and Shivinder Singh siphoned off Rs500 crore from the company without the board’s approval. What happened in Tata Sons last year when independent director Nusli Wadia – who had opposed the then chairman Cyrus Mistry’s ouster – was asked to resign from Tata group companies’ boards, does not give one too much confidence about the institution of independent directors. “The reasons for which I am being sought to be removed as director is my independence of mind and action.. My independent stand has aggravated Tata Sons and my removal is being sought because I chose not to follow their diktat. My fiduciary duty is to your company and not to an unidentified Tata group,” Wadia, himself the chairman of the Wadia Group, had said then. What transpired in Infosys, where founders and investors openly criticised some of the steps taken by the then CEO, Vishal Sikka, forcing him to resign, also came as a shock to many. Here, too, independent directors were caught between the management and the founders, who were gunning for the CEO.

The question is – how independent are independent directors? Are they too overawed by promoters, especially if they are industrialists of repute such as Ratan Tata of the Tata group or N.R. Narayana Murthy of Infosys, that they let them have their say even if that means compromising the interests of minority shareholders? Can they ever be completely ‘independent’?

An Oxymoron

Independent directors are not government or regulator-appointed ‘representatives’ who wield unlimited power independent of the company or its promoters. They are, in fact, appointed by the company itself. Though the law says that the selection of independent directors should be independent of the management, they are selected by the company board, which also comprises chairman, CEO and other executive directors.

“Full independence is too much to ask for; after all, he has been picked up by promoters and the management. They interact with you before they select you,” says Amarjit Chopra, Senior Partner, GSA Associates, and independent director on boards of Rico Automobiles and Tata Power Delhi Distribution Ltd. Though the appointment has to be approved by shareholders, there are few instances of shareholders rejecting such appointments. Shriram Subramanian, Managing Director of InGovern, an independent corporate governance research and advisory firm, says shareholders need to vote for truly independent directors.

While he believes that the process for selection of independent directors is flawed, he thinks the government’s idea of creating a database of independent directors is also not a foolproof solution. “They are talking about creating a database of independent directors. There is confusion as many agencies are working on it. We do not know if you can make it mandatory for companies to select independent directors from that database only. Unless that happens, it cannot give you any solution,” he says.

A provision in the Companies Act, 2013, requires the government to maintain such a database. However, not many believe that this can resolve the issue of independence. “It hasn’t worked effectively in any country. There would be some familiarity between the independent director and promoters. Invariably it happens through a networking circle,” says Shriram Subramanian of InGovern

Pavan Kumar Vijay, Founder, Corporate Professionals, who pointed out that often IRPs take on more cases than what they can handle.

Rescuing sinking companies or exiting doomed businesses has been a pain for investors for decades. Things have turned smoother under the insolvency and bankruptcy code of 2016, that rebalanced the rights of promoters, banks, vendors and employees. A set of changes that are expected to be made to the code shortly will give home buyers a say in deciding the future of defaulting builders, along with their lenders.

Experts say the new ecosystem of bankruptcy code and tribunals across the country is a resounding success in turning around companies through various means, including changing management or ownership. The reform seeks to tackle the mountain of Rs10 trillion of non-performing assets in the banking system, that slows down investments and growth in Asia’s third-largest economy.

An efficient corporate revival or exit procedure for investors under supervision of the courts encourages swift investment decisions and, in the unfortunate event of things going wrong, enables investors to recover their capital for redeployment before its value erodes far too much.

The success of the new bankruptcy code became evident when Tata Steel Ltd in May took over Bhushan Steel Ltd, the largest NPA among 12 large defaulters that banks took to the National Company Law Tribunal (NCLT) for resolution last year. In a historic breakthrough in rescuing bankrupt firms, Tata Steel settled Rs35,200 crore, or nearly two-thirds of the money the steel maker owed to lenders. The beneficiaries include State Bank of India, the largest in the consortium of lenders. Recovering loans boosts the financial health of lenders, enabling them to make further investments.

“The Insolvency and Bankruptcy Code (IBC) has defied India’s poor track record in implementation of laws. Green shoots can already be seen as a result of the persistent effort by all stakeholders to make the code a success. A nearly perfect strategy was deployed for the launch of IBC and its sustainable progress,” said Sumant Batra, managing partner of law firm Kesar Dass B & Associates.

READ: Tax reforms in four years of Modi govt: GST makes tax evasion tougher

A robust bankruptcy regime is also likely to favourably impact India’s ease of doing business ranking. About two-fifth of the non-performing assets in the Indian banking system are at present in NCLT, of which, a large part is in the steel industry. Resolution of bad debts in the banking sector is critical for stimulating investments badly needed for the economy. Corporate affairs secretary Injeti Srinivas said in March that it will be a great achievement to reduce the time taken for resolution from 4.3 years in the earlier system to less than a year under the new code. The code allows 270 days for finalizing a corporate rescue plan.

Corporate Professionals, an integrated legal and financial solutions provider today launched a book titled ‘Business Valuation in India – beyond the numbers’ which will serve as a one stop repository for all valuation needs.

The book was launched at the Business Valuation Summit-2018, Mumbai by the Chief Guest Shri G.N. Bajpai, Former Chairman – SEBI. Also, present on the occasion were Mr. Makarand Lele, President, ICSI, officials from the International Valuation Standards Council (IVSC) and International Institute of Business Valuers (iiBV).

On the occasion, Mr. Pavan Kumar Vijay, Founder, Corporate Professionals said, “Business valuation is a practice followed for over 6 decades now in India. However the choice and application of valuation approaches and methodologies have significantly changed in the last decade as regulatory and financial reporting have increased significantly. We are extremely delighted to launch the first ever comprehensive book on the subject, which will sensitize the valuers about the various fundamentals of valuation process and provisions as introduced under the law”.

Talking about the book Mr. Chander Sawhney – Partner – Valuations, Corporate Professionals said, “We have come out with this book keeping in mind the need of any valuer including an aspiring valuer. The book focuses on the fundamentals of Valuation and guides a valuer what all he needs to know, ask the client, where to find such information, how to analyze, understand, validate, report and document. This book is comprehensive and customized for the Indian environment and would help valuation professionals in exploring and aligning the academic and practical wisdom of Valuations”.

The possible coming together of online retailers Amazon and Flipkart is likely to face close scrutiny on competition issues as the combined entity will be a dominant player in the fast growing Indian e-commerce market, according to experts.

While there is no formal announcement from any quarter on the possible multi-billion dollar deal, reports indicate that discussions are going on.

Engaged in intense competition, home-grown Flipkart and Amazon India are leading players in the Indian online retail market place.

Deals beyond a certain threshold require the approval of Competition Commission of India (CCI) before they are consummated. In cases where the watchdog finds possible anti-competition issues, it can call for remedial measures to address the concerns.

The possible coming together of online retailers Amazon and Flipkart is likely to face close scrutiny on competition issues as the combined entity will be a dominant player in the fast growing Indian e-commerce market, according to experts.

While there is no formal announcement from any quarter on the possible multi-billion dollar deal, reports indicate that discussions involving Flipkart and Amazon are going on.

The possible coming together of online retailers Amazon and Flipkart is likely to face close scrutiny on competition issues as the combined entity will be a dominant player in the fast growing Indian e-commerce market, according to experts.

While there is no formal announcement from any quarter on the possible multi-billion dollar deal, reports indicate that discussions involving Flipkart and Amazon are going on.

Engaged in intense competition, home-grown Flipkart and Amazon India are leading players in the Indian online retail market place.

Deals beyond a certain threshold require the approval of Competition Commission of India (CCI) before they are consummated. In cases where the watchdog finds possible anti-competition issues, it can call for remedial measures to address the concerns.

The legal battle that has broken loose in the insolvency resolution process of Bhushan Power & Steel underlines the importance a confidentiality clause in bidding or deals involving mergers and acquisitions. The two bidders, Tata Steel and Liberty House, seem to know each other’s offer price and have been throwing that as an argument supporting their claim for bailing out the troubled lenders to the steel company.

Abhishek Manu Singhvi, the Tata Steel lawyer, last week stated in the National Company Law Tribunal that Liberty House’s bid was higher by “only Rs 10 billion”. The Liberty offer, he argued, came after it was informed that the Tata Steel bid was the highest. He said the Liberty offer should not be considered on this ground.

London-based Liberty House, too has been claiming its bid is higher than that of the Tata’s. While there seems to be no contradiction in the statements by the two sides, other stakeholders are questioning the breach of confidentiality in the whole process.

“It’s a sealed bid. I do not know where Tata Steel got this information. I am surprised how Tata Steel can make such statement. I don’t wish to comment more on this matter,” Rajiv Bajaj, executive director, Business Development (Asia), Liberty House, told Business Standard.

Calls and text messages to Singhvi and his office did not get any response, while questions emailed to Tata Steel remained unanswered.

The Cabinet on Thursday approved a crucial Bill to confiscate assets of fugitive economic offenders like jeweller Nirav Modi and also decided to tighten the scrutiny of auditing firms by setting up an “oversight body”, effectively stripping the Institute of Chartered Accounts of India (ICAI) of some of its precious regulatory functions. The government will now place the Fugitive Economic Offenders Bill (FEOB), 2017, which was cleared by the Cabinet, in Parliament as soon as the Budget session reconvenes on March 6, finance minister Arun Jaitley said after the Cabinet meeting. Once cleared by Parliament, the law will make it easier to attach all the assets of economic offenders fleeing India to escape the reach of law, even without a conviction. Offences with a value of Rs 100 crore or more will be covered by this law. While the existing Prevention of Money Laundering Act (PMLA) has provisions for the confiscation of an offender’s assets, it can happen only after his conviction, and the confiscation is also limited to the proceeds of the relevant crime. However, the new Bill provides for the attachment of all the assets of offenders, irrespective of whether these are the proceeds of crime or not, Jaitley said.

The Cabinet’s clearance to the National Financial Reporting Authority (NAFRA), as envisaged in the Companies Act, 2013, will see the body working as a regulator for auditors of all listed and large unlisted firms above a certain threshold. The ICAI, the apex body of chartered accountants that currently functions as a self regulator, will continue to be the watchdog of other smaller unlisted firms. Moreover, ICAI’s other functions, including conducting examinations for CAs, will continue to be vested with it. NAFRA will comprise a chairman and a maximum of 15 members. “We can’t allow people to make a mockery of law — that you first indulge in loot and then refuse to submit to our legal system,” Jaitley said, in a veiled reference to businessmen like Modi and Vijay Mallya.

Independent directors appointed for a second term at corporates can now be removed only by a special resolution passed by shareholders, with the government tightening the rules.

Before removal, such independent directors should also be given “reasonable opportunity of being heard”, according to the corporate affairs ministry.

The move comes against the backdrop of concerns in certain quarters about the independence of independent directors in carrying out their functions and instances of such people being removed from the boards of companies by promoter entities.

A special resolution requires approval from at least 75 per cent shareholders present at a meeting whereas only a minimum of 50 per cent is needed in case of ordinary resolutions.

Coming out with the new provision, the ministry said the decision is to ensure better corporate governance and balancing of powers of the boards.

In this regard, the ministry has issued a ‘Removal of Difficulties’ order to introduce a new provision under Section 169 of the Companies Act.

Section 169 pertains to removal of directors.

An independent director appointed for a second term shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard, the order, issued on Wednesday, said.

Till now, an independent director can be appointed for a second term only through a special resolution whereas such a person can be removed by way of an ordinary resolution. “… to ensure better corporate governance in companies and balancing of powers of the board of the company, it is felt that there is a need for an amendment in Section 169 of the Companies Act, 2013 to provide for removal of such re-appointed independent director by way of a special resolution,” it noted.

Insolvency resolution professionals will now be required to assess the fair value and liquidation value of the entity undergoing insolvency proceedings, with the latest set of amendments to the regulations.

The Insolvency and Bankruptcy Board of India (IBBI) has amended the norms pertaining to insolvency resolution process for corporate persons.

Under the revised framework, the resolution plan — approved by the committee of creditors — should be submitted to the adjudicating authority “at least 15 days before the expiry of the maximum period permitted for the completion of the corporate insolvency resolution process”.

An official release today said the norms have been amended wherein the resolution professional should appoint two registered valuers to determine the fair value and the liquidation value of the corporate debtor.

“After the receipt of resolution plans, the resolution professional shall provide the fair value and the liquidation value to each member of the committee of creditors in electronic form, on receiving a confidentiality undertaking,” it said.

The Insolvency and Bankruptcy Code (IBC) stands out among the series of reforms the present government has brought about as the Indian banking system juggles with the huge pile of non-performing assets (NPAs) of over Rs 8 lakh crore.

However, as in the case of any new law, the IBC too has certain loopholes and implementation-related issues, which came to the fore as the process progressed.

Even as the government and the Insolvency & Bankruptcy Board of India (IBBI) are being proactive in aiding resolution of NPAs, according to my understanding, there are certain major issues relating to income tax law in the insolvency resolution process that should be addressed in Budget

The implication of deemed income under section 56(2)(x) of the Income Tax Act

This sub-section provides that when shares are acquired at a price lower than the fair value of such shares the difference between the price paid by the acquirer and such fair value would be taxable in the acquirer’s hands as notional income. Since last financial year, this provision is applicable to the acquisition of shares of a listed company and now any discount to the ruling market price would attract tax to the acquirer. As many big stressed companies are listed but their acquisition price could be at significant discount to the market price, this could bring in an immediate tax burden on the acquirer. Hence, the Government should exempt transactions relating to transfer of shares of a listed companies under insolvency resolution plans.

Markets regulator Sebi today said cross-holding in credit rating agencies (CRAs) will be capped at 10 per cent and also decided to raise the minimum networth requirement to Rs 25 crore from the current Rs 5 crore.

Also, the board of Sebi has approved a slew of measures for tightening the financial and operational eligibility of the promoters of CRAs, besides greater disclosure requirements for them.

The moves are likely to have an impact on global rating agencies like S&P, Moody’s and Fitch which have significant holdings in domestic agencies besides their direct presence.

In a significant move, the regulator has decided that no CRA should, directly or indirectly, hold more than 10 per cent of shareholding and/ or voting rights in another CRA and would not have representation on the board of the other CRA, Sebi Chairman Ajay Tyagi told reporters here.

Further, Sebi’s prior approval would be needed for acquisition of shares or voting rights in a CRA that results in change in control.

“A shareholder holding 10 per cent or more shares and/ or voting rights in a registered CRA shall not hold 10 per cent or more shares and/ or voting rights, directly or indirectly, in any other CRA,” the regulator said.

The minimum net worth threshold for the rating agencies has been proposed to be raised to Rs 25 crore from the current level of Rs 5 crore.

The move would check the menace of ‘rating shopping’ and ‘pick-and-choose’ approach in their actions.

Besides, the promoter of a CRA would have to maintain a minimum shareholding of 26 per cent in the CRA for a period of three years from the date of registration.

“The foreign CRA should be Incorporated in a Financial Task Force (FATF) jurisdiction and registered under their law only shall be eligible to promote a CRA in India,” the regulator noted.

Sebi said that credit rating agencies will be permitted to “withdraw the ratings subject to the CRA having rated the instrument continuously for a stipulated period of time and in the manner as may be specified by it from time to time”.

Besides, any activity, other than the rating of financial instruments and economic or financial research, should be hived off by the CRA into a separate entity.

As part of enhanced disclosure framework, Sebi has proposed that the agencies should disclose annual consolidated financial results, statement of profit and loss on a quarterly and year-to-date basis and statement of assets and liabilities/ balance sheet on a half-yearly basis.

“The quarterly and half yearly financial results reporting, as applicable to the listed equity instruments, have been mandated even for listed debt instruments, as against the extant requirement of providing only the half yearly results.

Turning around a stressed company may be the primary objective of the new insolvency law, but official data suggest more firms have gone for liquidation in the new regime so far than resolution. The liquidation process has been initiated in case of over 20 stressed firms under the Insolvency and Bankruptcy Code, 2016, as lenders have failed to endorse any viable plan for their revival. By contrast, resolution plans for only 5-6 companies (including Visakhapatnam-based Synergies-Dooray Automotive) have been approved by the adjudicating authority so far. The National Company Law Tribunal (NCLT) has approved liquidation proceedings against firms such as VNR Infrastructures, Bhupen Electronic, Innoventive Industries, REI Agro, Nicco Corporation, Oasis Textiles, Wind-Ways Packaging, Hind Motors, Hind Motors India, Hind Motors (Mohali), Blossoms Oils & Fats, Healthline Hospitality and Abhayam Trading, official sources told FE. Others include RG Shaw & Sons, UB Engineering, New Tech Fittings, New Tech Forge & Foundry, Micro Forge India, Pooja Tex-Prints, Swift Shipping & Freight Logistics and DCM International. Many of these firms have been stressed for a long time and were among the first batches of cases to be filed under the IBC.

Commenting on the high level of liquidation proceedings in old cases, MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India, said: “The not-so-good results in the initial set of cases is no indication of the performance of the IBC.” However, as and when fresh cases of defaults regularly come up for being admitted, the resolution performance of the IBC will look much more impressive, he added. Analysts, too, concurred with the view. Many of the 450-odd companies where insolvency proceedings have been admitted by the NCLT have been struggling for survival for years, much before the IBC was implemented late last year. Therefore, these are almost ‘dead’ cases where chances of insolvency resolution are very remote, and liquidation is the only natural outcome, they said. The IBC provides for a time-bound and professional resolution of insolvency. Once a case is admitted by the NCLT, a resolution plan to keep the company as a going concern has to be approved in 180 days, which can be extended by 90 days by the adjudicating authority. If the insolvency resolution professional and the committee of creditors fail to come up with a viable resolution plan within this period, the company goes for liquidation. There is, however, no strict time frame to complete the liquidation process.

Hyderabad-based VNR Infrastructures–owned by Vakati Narayana Reddy, a member of legislative council of Andhra Pradesh–was the first company to go for liquidation under the IBC. It owed Rs 1,102 crore in loans and guarantee to a number of banks, led by State Bank of India. Similarly, Innoventive was the first case where a bank–ICICI Bank– had invoked the insolvency law to recover dues. The Pune-base steel products maker owes the lenders Rs 955 crore. A committee of creditors, led by ICICI Bank, Bank Of India and Bank of Baroda, rejected a resolution plan, paving the way for its liquidation proceedings last month. Bhupen Electronic was another interesting case where the committee of creditors was constrained to recommended liquidation, as the company had not been operational for almost a decade with no employee on its payroll. Only land and building were its sole assets. VIP Finvest Consultancy started insolvency proceedings against Bhupen. The committee of creditors did not firm up any resolution plan nor did it receive any from others.

The amendments to the companies law provide for stringent penalties in case of non-filing of annual returns which would act as a deterrent against shell entities, according to an expert.

Parliament today passed a bill to amend the Companies Act to strengthen corporate governance standards, initiate strict action against defaulting companies and help improve ease of doing business.

The Rajya Sabha passed the Companies (Amendment) Bill, 2017 by a voice vote. It was cleared by the Lok Sabha in July this year.

“The bill while rationalising and simplifying certain provisions, also provides for stringent penalties in case of non-filing of balance sheet and annual return every year, which will act as deterrent to shell companies.

President Ram Nath Kovind gave his assent to an ordinance amending the Insolvency and Bankruptcy Code (IBC) on Thursday, barring errant promoters of defaulting companies from regaining control of their assets being sold under the bankruptcy process.

While experts welcomed the move as sending a strong signal against crony capitalism, some expressed concern that such stringent criteria for potential investors could reduce the number of revival proposals that may come up.

The IBC ordinance bars not only wilful defaulters, but also several other categories such as guarantors to the debtor, those with loans classified as non-performing assets (NPAs) for at least a year, those convicted for any offence with a prison term of more than two years, directors in companies that are disqualified, entities barred by the capital markets regulator, those who have been found to have struck fraudulent transactions with the firm, and connected entities.

The amendments also distinguish individuals and those who run small proprietorships into two categories so that a small individual businessman or trader can file for bankruptcy resolution for one of his businesses without himself undergoing personal insolvency proceedings.

Stock exchanges will impose a fine of up to Rs 10,000 on companies for each day of non- compliance with the minimum public shareholding requirements, according to a Sebi circular.

Names of the non-compliant entities would also be disclosed on the websites of the exchanges concerned.

Under the Sebi norms, listed entities are required to have a Minimum Public Shareholding (MPS) of 25 per cent.

Listing out the procedures to be followed by stock exchanges, Sebi in a circular today said that in case they find companies are not in compliance with MPS requirements, then notices should be issued to them within 15 days.

In cases where the listed entity has failed to meet the MPS norms for more than a year, the bourse would slap a fine of “Rs 10,000 per day of non-compliance” and the penalty would continue to be imposed till the date of compliance.

For other non-compliant entities, the fine would be Rs 5,000 per day.

“The amount of fine realised… Shall be credited to the ‘Investor Protection Fund’ of the concerned recognised stock exchange,” the circular said.

Besides, the stock exchange would intimate depositories to freeze the entire shareholding of the promoter and promoter group in those non-compliant entities till the date of compliance.

“The promoters, promoter group and directors of the listed entity shall not hold any new position as director in any other listed entity till the date of compliance by such entity.

“An intimation to this effect shall be provided to the listed entity by the recognised stock exchange and the listed entity shall subsequently intimate the same to its promoters, promoter group and directors,” the circular said.

Apart from penalty, the exchanges can also consider compulsory delisting of the non-compliant entity.

Periodically, the bourse would disclose on their website “names of non-compliant entities, amount of fine imposed, freezing of shares held by the promoters and promoter group and other actions taken against the entity”.

Status of compliance, including details regarding fine paid by the entity, would also be disclosed, as per the circular.

Issuing the circular, Sebi said it is to maintain consistency and uniformity of approach in the enforcement of MPS norms and the procedures have to be followed by the recognised stock exchanges as well as depositories.

SEBI has tightened the noose on listed companies not adhering to norms with regard to minimum public shareholding (MPS). Those that are non-compliant will have to pay a fine of ?5,000 a day. In addition, the entire promoter holding, except for compliance to MPS, will be frozen by depositories, and the promoter group and directors of the particular company will not be allowed to hold any position in other companies.

According to MPS norms, any listed company must have at least 25 per cent as public share holders while the remaining 75 per cent can be held by promoters. Government-promoted companies were given time till August 2018 to comply with these norms. Newly listed companies are given a three-year window to comply.

De-listing

Further, if the non-compliance continues for over one year the amount of fine per day will double to ?10,000 and such companies may even face compulsory de-listing of their shares from stock exchanges. Stock exchanges have been asked to share all the details of non-compliant companies on their website.

We are pleased to inform that Corporate Professionals, a SEBI Registered (Cat-I) Merchant Banker has re-launched its dedicated website on “Valuations” – www.corporatevaluations.in, with updated content and optimized look and feel for a better user experience.

Our site www.corporatevaluations.in was first launched in Jan 2012 (after we had more than 5 years of Valuation and Transaction Advisory experience) and a lot a changed since then both in terms of the regulatory landscape on Valuation and our Valuation practice.

The regulatory landscape on Valuation has broadened significantly in India and Valuation is now required under different statutes (Companies Act, Income Tax, FEMA and SEBI laws) and for different purposes (Management Assessment, M&A, Brand Valuation, Transfer & Allotment of Shares, Fairness Opinions, ESOPs, Sweat Equity and Accounting purposes – Purchase Price Allocation, Valuation of Financial Instruments etc).

With kind support of our clients, associates and hard work of our Dedicated Team, our Valuation practice has also grown decently. We are now proud to have established a Full Service Valuation Department with one of the best Valuation and Industry experience. Our credentials of performing 750 Valuations for happy and repeat clients speak a lot in itself.

However we firmly believe that with the latest regulatory developments in India viz. “Registered Valuer” and “Ind-AS” focusing on ‘Valuation Standards’ and ‘Fair Value’, and we being fully prepared, the best is yet to come.

Thanking you and looking forward to your continuous support, always.

Yours,
Chander Sawhney
Partner & Head – Valuations 
Corporate Professionals 
Mob: +91 9810557353
Email: chander@indiacp.com

In the event of liquidation following a failed resolution of a real estate company, while the secured lenders or the banks will have recourse to the under-construction property that may be mortgaged to them, the people who have taken a home loan will be among the last to any receive compensation from the leftover liquidation proceeds.

The initiation of insolvency process in the case of Jaypee Infratech and other real estate companies has brought to light a potential loophole in the Insolvency and Bankruptcy Code (IBC) 2016 — that it overlooks the interests of the buyers who have booked the property but are yet to get it registered in their names. In such a case, the IBC does not provide any remedy to the homebuyers even though they have paid most of the apartment cost. In the event of liquidation following a failed resolution of a real estate company, while the secured lenders or the banks will have recourse to the under-construction property that may be mortgaged to them, the people who have taken a home loan will be among the last to any receive compensation from the leftover liquidation proceeds.

Taking cognisance of these gaps in the law, the Supreme Court last week stayed insolvency proceedings against Jaypee Infratech, but on Monday, modified its earlier order, directing Jaiprakash Associates (the parent company of Jaypee Infratech) to deposit Rs 2,000 crore by October 27 with its registry. The Court also asked the interim resolution professional (IRP) in the case to take over its management and work out a plan to protect the interests of homebuyers and creditors.

Since homebuyers are customers of the real estate companies, the IBC does not provide them any remedy, as the law can be invoked only by entities that have lent funds for earning interest or by the corporate debtors themselves. While financial and operational creditors can trigger corporate insolvency resolution process (CIRP) in case of a defaulting company under Section 7 and Section 9 of the IBC, respectively, no such remedy is available to the customers of a company, thereby creating problem for homebuyers in the real estate projects. Lawyers dealing with insolvency cases note that the government will have to amend the Section 9 of the IBC to enforce “third-party rights” such as in the case of homebuyers.

There are certain other liabilities that do not figure in either Section 7 or Section 9 of the IBC. Unsecured loans given without any interest — such as zero coupon bonds — have no claim under the IBC. The Central government is aware of these implications of the enactment of the IBC and is working to protect the interests of the homebuyers, said a senior official with the Insolvency and Bankruptcy Board of India (IBBI). The government might amend Section 9 of the Code to provide the status on an operational creditor to the homebuyers who have paid substantial money to the builders.

A review of cases being heard at various benches of the National Company Law Tribunal (NCLT) shows that individual investors, who have put in money to buy shop or apartments through a “committed return plan” offered by a builder, can initiate insolvency process against the builder in the event of a default. These are the plans in which the builder takes lump sum funds from the individual investor, with the promise to pay monthly rental till a certain period.

While such cases are admissible under the IBC, a homebuyer does not have any remedy under the bankruptcy law. Indeed, in such cases, the NCLT has advised the homebuyers to approach consumer courts or seek remedy under the “general law of the land”. A lawyer working on such cases explained how it will be a “double whammy” for the property buyer. “While the consumer may have paid 95 per cent of the apartment cost, he or she will be last person to whom the company will pay anything in the event of a liquidation, while his lender will have the ‘first charge’ over the mortgaged apartment on which he/she may be paying EMIs regularly,” he said.

The IBBI had introduced a new form under the insolvency law to enable a person who has to receive a payment from an insolvent company to seek the claim. This enabled homebuyers to submit proof of their claims, but they still have no clear right when the assets of a company will be distributed in the event of liquidation.

The NCLT has so far decided more than 655 cases under the Insolvency and Bankruptcy Code while all efforts are made to stick to the timelines, the tribunal’s President Justice M M Kumar said on Thursday.

The Code, which provides for a market-determined and time-bound resolution of insolvency proceedings, became operational in December 2016.

A case is taken up for resolution under the Code only after getting clearance from the National Company Law Tribunal (NCLT) and subsequently, an insolvency professional is appointed.

“We have already decided at the NCLT more than 655 cases under the IBC. We have made all efforts to keep the time line,” Kumar said here at an event to launch a book and a website on the Code.

Some corporate debtors have also tried to misuse provisions of the Code and the tribunal has discouraged it. “Adventurous people came before us and we were able to show them the right place,” Kumar said.

Noting that insolvency professional is pivotal in the whole process, he said the emphasis should be to bring back the company to its operations and that can be done by them by finding out of the box formulae.

Among others, 12 cases of NPAs identified by the RBI to be resolved under the Code were referred to the NCLT.

In his Independence Day address, prime minister Narendra Modi has said that after demonetisation, the government has identified 3 lakh shell companies dealing in Hawala transactions and cancelled registration of 1.75 lakh of them.

He also said they have been able to accomplish this task despite the fact that even if five companies shut shop in India, there is huge public outcry. Let us see if these claims made by the prime minister are correct.

1) Identification of 3 lakh shell companies: We could not find any official (finance ministry or income tax department) statement or release verifying the prime minister’s claim. All that we have is a response to a query in Lok Sabha, where the government has claimed that from 2013-14 to 2015-16, investigations by the Income-tax Department have led to detection of more than 1,155 shell companies/entities which were used as conduits by over 22,000 beneficiaries.

The 3 lakh ‘shell’ companies that the prime minister is referring to could be dormant companies and not necessarily shell companies.

2) Deregistration of 1.75 lakh shell companies post-demonetisation: Answering a question in Lok Sabha, minister of state Santosh Gangwar has informed the house that as on 12 July 2017, Ministry of Corporate Affairs has removed 1.63 companies from the Register of Companies by following the due process under Section 248 of the Companies Act, 2013. Probably, the PM’s claim of closing 1.75 lakh companies comes from here.

However, we do not know if registration of all these companies’ were cancelled after demonetisation. The Lok Sabha response only says cancellation till 12 July 2017.

Besides, such closure of companies are common and they are in no way all shell companies. Closure of companies can happen for many reasons — liquidation, merger and amalgamation, deregistration of inactive and defunct companies.

Section 248 of the Companies Act 2013 gives the Registrar of the Companies the power to deregister inactive and defunct companies. However, these dormant or inactive companies are not necessarily shell companies.

Dr Balakista Reddy (Registrar) of Nalsar University of Law, V.S Sundaresan, CGM, SEBI, CS V. Ahalada Rao, Central Council Member-ICSI and CS R Venkata Ramana, ICSI Hyderabad Chapter Chairman, V. Ganesh, CEO, Karvy Group; V.S. Sundaresan, CGM, SEBI; CS Pavan Kumar Vijay, Past President ICSI; Suprapath Lala, Vice President – NSE; CS Savithri Parekh, CS Narayan Shankar; CS Mr. G Raghu Babu shared their experiences and expertise with the participants.

“Many e-tailers reported significant decline in number of orders as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations,” Corporate Professionals Founder Pavan Kumar Vijay said.

“Many e-tailers reported significant decline in number of orders as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations,” Corporate Professionals Founder Pavan Kumar Vijay said.

He further said that investors are now focusing on past performance, scalability and entry barriers and also unit economics.

However, experts believe that the deal momentum should accelerate going ahead as macro-economic factors are positive. MORE “With macro-economic factors continuing to be positive

and with economic reforms demonstrating early signs of growth, PE monies will shift focus to the Consumer & Industrial sector to fund both organic growth and consolidation in the domestic industry,” Mehra said.

He further said that “PE will perhaps be visualised as an alternative means of financing consolidation for large and select corporates and this may result in the long-awaited big ticket transactions in the PE space.”

Sanjeev Krishan, transaction services leader at PwC India, said deal momentum looks positive on PE front with some of the pension funds getting very active in India and this trend is expected to continue in 2017.

He further said the anticipated volatility in the public markets to direct corporates to private capital, with financial services, healthcare, technology, logistics, consumer and consumer derivatives expected to be the big themes.

Echoing similar sentiments, Mergermarket India Bureau Chief Savitha Kraman said, “2017 certainly looks positive for PEs which would continue to exit via IPOs. Other mode of exits would depend on expectations. Pharma, healthcare and renewables sector could attract PE investments.”

Consumer sector could also see some PE investments as India continue to witness growth in consumer spending, Kraman added.

There are some early signs of revival and deal activity has picked up a bit in recent months but mostly consolidation is seen in many sectors and it is expected to be continued for quite some time now.

“PE rounds are smaller now and taking longer to close. New norm is the single-digit Pre-Money Valuation now. B2B is back to action (compared to the early euphoria of B2C earlier) as business customers are more likely to stay once they get value,” Vijay said.

Corporate boardrooms remained abuzz with deal activities in 2016 with mergers and acquisitions worth over USD 52-billion and the tally may get even bigger in the new year on growing interest of global investors in the Indian businesses.

The surge in deal value this year was largely driven by big-ticket transactions and consolidation in many sectors, experts said, while adding that similar trends may continue going forward in 2017.

They said the new year looks promising in terms of domestic, inbound as well as outbound deals, but this outlook is dependent on macro-economic trends and reforms in sectors like infrastructure and power among others.

According to consultancy major EY, the total quantum of announced deal value for 2016 is estimated at $52.6 billion, sharply higher than $31.3 billion in 2015, though the deal count declined to 756 deals (from 886 deals in 2015).

“The M&A activity in 2017 is expected to stay positive owing to continued interest of financial and strategic investors in the Indian economy. Sectors like technology, life sciences and financial services are expected to attract significant investor attention in 2017,” said Ajay Arora, Partner, Transaction Advisory Services, EY.

In the near term, experts believe, there could be some slowdown in M&A activity but in the medium to long term, demonetisation and GST will act as a catalyst to fuel increased deal activity over the coming years.

While experts are unanimous in M&As; getting a further boost in the new year, some other major consultancies such as PwC and Grant Thornton pegged the 2016 deal tally lower at $44.6 billion and $35 billion respectively.

“GST could result in improved bottom line for most of the corporates which could improve valuations and it also removes bottlenecks in tax structure and makes it more efficient which would mean more savings for corporates and the benefits of which would be passed on to consumers as well,” Mergermarket India Bureau Chief Savitha Kraman said.

Moreover, both the reforms are expected to shift the focus from unorganised sector to the organised sector and this in turn would add to the attractiveness of India as an investment destination.

Since the economic environment may be a bit volatile in 2017 owing to various domestic and global factors — this could actually spur further consolidation in the domestic markets. This would include infrastructure and the core sectors, financial services as well as e-commerce businesses.

CHANDER SAWHNEY

Partner & Head, Valuation & Deals, Corporate Professionals Capital Pvt. Ltd

The Corporate Affairs Ministry (MCA) is open to suggestions from the public and other stakeholders to further improve the Merger & Acquisition (M&A) framework in company law, a top official said.

The industry can also share with the government some of the best practices that are already adopted in foreign jurisdictions so that the time period for the legal nod for M&As; can be, if possible, further reduced, Amardeep Bhatia, Joint Secretary, MCA, said in his address to the 6th National Summit on Mergers & Acquisitions, organised by Assocham here on Saturday.

Bhatia also expressed hope that M&As; will be increasingly used as a tool for resolution of distressed assets, besides other mechanisms such as insolvency, strategic debt restructuring and the scheme for sustainable structuring of stressed assets.

Bhatia highlighted that M&A cases have been transferred to the National Company Law Tribunal (NCLT) since December last year. “The responsibility of NCLT has increased manifold. We will work towards increasing the capacity of NCLT. In the next couple of months, you will see more Benches getting formed and more members appointed,” he said.

Indian M&A activity had soared in 2016 with deal values of $56.2 billion. This is comparatively the highest since 2010. Inbound activity contributed significantly to this surge in value. In 2015, the M&A deal value was about $30 billion.

However, there was a 2 per cent decline on the volume front, with only 867 deals in 2016 against 887 in 2015.

Now, Indian company law allows mergers of an Indian company with a foreign company, fast-track mergers between two small companies and their wholly-owned subsidiaries and so on, he said.

There has been a quantum leap in M&A transactions across sectors, including oil and gas, healthcare, telecom, pharmaceuticals, energy and power, real estate, media and entertainment, insurance, asset management and consumer products.

The Insolvency and Bankruptcy Code has segregated the judicial and commercial aspects of insolvency process whereby stakeholders have the right to decide on what suits them, IBBI chairperson M S Sahoo said today.

The Code, which became operational in December last year, provides for a market-determined and time-bound insolvency resolution process.

The Insolvency and Bankruptcy Board of India (IBBI) is implementing the Code.

Sahoo said there is an oversight mechanism, that includes IBBI and National Company Law Tribunal (NCLT), to facilitate the transaction that a market participant wishes to do while the approval of insolvency resolution plan is done by the stakeholders concerned.

“The IBC actually has segregated commercial aspects and judicial aspects… It has put commercial aspects in the hands of stakeholders, judicial aspects with the tribunal and with all that it has put a time line with firm consequences,” Sahoo said here.

In case the process is not completed within 180 days time, then the company concerned would go into liquidation.

“That is the disincentive if they dont do it within the time line. The incentive is that they stand to gain if the process goes through and they have the right to take the decision on what suits them the most,” he noted. More than 150 transactions are going on under the Code. Sahoo was speaking at an event organised by industry body Assocham.

Last week on November 8, when the whole world was waiting for the outcome of US presidential elections, Prime Minister Narendra Modi came out with his master stroke on corruption, counterfeit currency, terrorism and black money by announcing demonetisation and ceasing Rs 500 and Rs. 1000 notes as a part of legal tender in India.

The Reserve Bank of India manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934 and a new redesigned series of Rs 500 banknote, in addition to a new denomination of Rs 2000 banknote is in circulation since November 10, 2016.The new redesigned series is also expected to be introduced to the banknote denominations of Rs 1000, Rs 100 and Rs 50 in the coming months.

The term demonetisation is not new to the Indian economy. The highest denomination note ever printed by the Reserve Bank of India was the Rs 10,000 note in 1938 and again in 1954. But these notes were demonetised in January 1946 and again in January 1978, according to RBI data.

Since less than 5 percent of population in India had access to such notes and most banks never had such currency notes, demonetisation did not have a big impact on the country. The decision was taken to curb the illegal use of high denomination currency which was used for corrupt deals in the country.

However, with the latest round of demonetisation, the common public and bankers are undoubtedly facing hardship since more than 85 percent of currency in circulation has been rendered illegal in one single stroke. Demonetisation is surely hampering the current economy and will continue to do so in the near term and will also impact India’s growth for the coming two quarters but will have positive long lasting effects. The question that arises is why demonetisation was required at this point of time. There are certain pros and cons of demonetisation.

Most merchant bankers registered with the Securities and Exchange Board of India (Sebi) might be excluded as valuers in areas such as valuation of shares issued by companies for consideration other than cash or valuation of assets under a scheme of corporate debt restructuring.

The draft Companies (Registered Valuers and Valuation) Rules, issued by the ministry of corporate affairs (MCA), say only individuals and partnership entities are eligible. Most Sebi-registered merchant bankers are companies. A few are limited liability partnerships (LLPs), which may be allowed, by these rules.

The other areas where these rules are proposed to apply are issuance of shares by unlisted companies to unrelated parties, valuation of assets in insolvency, merger or acquisition, approved by the National Company Law Tribunal. These rules are proposed to cover only activities under the Companies Act, 2013. So, these will not cover areas of valuation that come under the Sebi, Reserve Bank of India (RBI) and Income Tax Acts.

In the earlier draft rules, issued three years earlier, Sebi-registered merchant bankers were deemed to be valuers under the Companies Act.

The rules were a step in the right direction but should be aligned with the norms prescribed by Sebi and RBI, he said.

Though these rules are officially in draft form, there is a specific date, July 15, proposed for their enforcement. Comments on these have been invited till June 27. Sawhney said it was probable these rules excluded companies from the work of valuers as these have limited liabilities, whereas individuals and partnership entities have unlimited liabilities.

When asked why LLPs were proposed to be included as valuers, as these specifically have limited liabilities, experts said MCA should clarify. An LLP is a partnership in which partners do not have liabilities of other partners.

The rules say valuers should not disclaim liability for expertise. This means a valuer will be entirely responsible for the work done. However, the data provided by a company for the purpose of valuation would not form part of his responsibility, the rules say.

The rules talk of coming out with standards for valuation but these are yet to be formed. Till then, international standards or the norms set by other statutory bodies such as Sebi and RBI may be adhered to.

The move to ban currency notes of Rs 500 and Rs 1,000 is the biggest step of Modi government to eradicate fake currency being used for terrorism, and black money and curb corruption in India (estimated worth of currency in circulation comprising these two notes is Rs 15 lakh crore or around 88% of total currency presently in circulation). This comes immediately after the recently concluded Income Disclosure Scheme (IDS) under which Rs 65,250 crore was declared.

This may prove difficult in the short run as cash is required for day-to-day operations by common man but this decision will favour all honest taxpayers and will hurt tax evaders and black money holders. I fully support this surgical strike on black money by the government. All those with a clear source of money can go ahead and deposit it in banks/post offices till December 30 by filling a simple form and giving an ID proof. However, those who don’t have a clear source of money and deposit high amounts could be scrutinised and subjected to tax and penalty. The government has cautioned the public to not allow using their bank accounts for depositing black money belonging to others as a thorough scrutiny will be done by the government for deposit of larger amounts.

This move will impact a lot of unorganised sectors and small businesses (including small real estate developers as there is always an element of cash in secondary sales in real estate transactions). The number of real estate deals and prices in real estate secondary sales are expected to fall further as those in distress may like to liquidate their holdings. Overall, it is negative for the otherwise struggling real estate sector. The involvement of the cash component in realty space has made real estate unaffordable for a majority of Indians. This move will create transparency in the longer term but for the movement property sales will dip like anything and eventually prices are expected to fall. The affordable housing segment will, however, continue to see sales going forward and more developers could come into this segment.

Those doing cash businesses—for instance, jewellery dealers, may, however, benefit as 80% of their dealing is in cash. They can use this opportunity to buy these notes at a discount and convert it into jewellery. Depending on their cash balance, they can then justify the cash income and deposit it in banks. This also happened in 1978 when the then government demonetised high value currency notes. As is evident, the prices of precious metals have already risen 10-15% and a lot of currency is being exchanged for jewellery. Needless to say, they would have to substantiate the source of money and jewellers have been asked to obtain PAN for transactions above Rs 2 lakh. 

By Mr. Chander Sawhney, Partner & Head – Valuation & Deals, Corporate Professionals

In 2015–16, we saw launch of as much as four start-ups a day and that’s a big number. Thanks to this, we are now on third position when it comes to number of start-ups. But most of these starts-ups failed to take-off in business after having raised funds. It is estimated that close to 90 per cent of the start-ups in India have failed within their two years of existence. Some of the biggest numbers of these casualties are in such as e-commerce, logistics and food technology. Over estimating the market potential, lack of innovation and over-crowding of the market are some of the reason that has led to the closures of these start-ups. The e-commerce casualties included online lifestyle store Fashionara and fashion marketplace DoneByNone. Dazo, Spoonjoy, and Eatlo failed in the food tech space. Other prominent failures were recruitment marketplace TalentPad.com, marketplace for leisure activities, Tushky, and on-demand laundry services Tooler.

Many e-tailors have reported decline in number of orders significantly as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations. Start-up funding has dried up with investors, especially when the venture is looking turn profitable. The sanity is back with focus on having a business model with stable profitability. This will eventually be driving more M&A and consolidation in this space.

The trend of investments has remained difficult for start-ups since 2016 and is still continuing in 2017. Venture capital and private equity investments are down 60% in 2016 to $2.76 billion, down from $ 6.91 billion in 2015. Deal volume fell 31%. Falling investment has also cut the next round of funds for start-ups, which is crucial for growth. This in turn is putting start-ups on the ebb. However, serious investor are making smaller rounds of funding but the process of investment is getting longer, thus hampering the projected growth for these companies.Startups big and small have already felt the withdrawal pangs from these investors. Flipkart is struggling to raise funds and saw its valuation slashed repeatedly. Japanese giant SoftBank wrote down US$550 million in its biggest India investments, Snapdeal and Ola.

The obvious reason for the fall in private equity funding or venture capital to start-ups is closely linked to fall in valuations. In the global markets till 2015, Indian digital retail and e-commerce companies and their valuations were being closely linked to the soaring valuation of US tech start-ups and investors are under the fear of missing out. The online retail companies were relying on a different metric of valuations – “GMV” gross merchandise value which is defined to indicate total sales value for merchandise sold through a market place over a period. The GMV was then multiplied by a multiple (x times) to get the Valuation of the entity. New norm is the single digit pre-money valuation now. B2B is now back to action as business customers are more likely to stay once they get value.

The reason is simple – all start-up’s want to be in profits at the earliest and thus are only focusing on their core competencies now. This is leading to closure of non-core businesses which are not expected to get profitable in near future. As there was no dearth of Investor’s money, so multiple businesses got opened with mass hiring across verticals, but now with question of unit economic in all ventures, most of these operations are shutting down leading to mass lay off’s.

There hasn’t been much movement on the government’s Start up India programme also. SIDBI was acting on behalf of the government but it was allowed to invest only 15% in a fund. The remaining amount was to be brought in by the VC’s who have not been able to raise funds on their part in this difficult market conditions, leading to negligible disbursals to start up’s. It is understood that the government is under process to relax these norms and may also bring other institutions like LIC etc. to fund a part of such funds reducing the limits on part of VC’s.

India is still a nascent market and hence has, hesitance to accept new ideas, opportunistic founders and complete lack of clarity on the user groups. However, still many of those start-ups have managed to scale up their business especially in areas which are niche in technology and face fewer competitions.

Now, the question arises that how Startups can reduce the problem they are currently facing right now. The startups must focus on their core business areas where they have created expertise over time. They must focus on Unit Economics of their products thereby coming in profits at the earliest. Also, startups should focus on B2B businesses rather than focusing just on B2C businesses which require a lot of cash burn for customer acquisition and marketing.

As many startups have already begun doing the same, this has led to mass downsizing of teams but the maturity of the startup ecosystem has seen them getting absorbed in other Startups which have more availability of capital and focus on sustainable biz models. Startups must also do innovation in solving key problems of India, rather than just focusing on e-commerce businesses.

Even as the high-profile committee constituted by Tata Sons Ltd launches an exercise to look for a new chairman after unceremoniously ousting Cyrus Mistry from the post last week, there is a slim chance that Mistry might fight his way back. Some legal experts are of the opinion that Mistry can approach the courts or institutions such as the National Company Law Tribunal (NCLT) alleging oppression and some others say that if Mistry does take the legal route, Tata Sons will have some tough questions to answer.

If media reports are to be believed, the Tata Group and Mistry have both hired public communication teams to handle the fallout of what promises to be a long-drawn, messy corporate feud between two of India’s best-known Parsi business families – the Tatas and the Shapoorji Pallonji Group. Mistry is the younger son of Pallonji Mistry, the chairman of the $4.2 billion Shapoorji Pallonji Group, one of India’s largest construction groups and also the largest single shareholder in Tata Sons. Tata Sons—the holding company for the Tata Group—is majority-owned by Tata Trusts, of which Ratan Tata is the chairman.

Mistry stepped into Tata’s shoes in December 2012 as the chairman of Tata Sons but was sacked suddenly on 24 October. After his ouster, Mistry hurled several allegations pertaining to undue interference, corporate governance violations, procedural impropriety and unethical dealings, on Tata and Tata Sons. Mistry also alleged that he was ousted illegally.

Observers say that belligerence displayed by both the groups indicates that a long-drawn-out legal battle may be on the cards.

But can Mistry get his job back?

Mistry’s allegations

In his 25 October letter to the board of Tata Sons, Mistry alleged that he was promised a free hand but that never happened. He said that following his appointment as the chairman of the Tata Group, the Articles of Association were modified, “changing the rules of engagement between the Trusts, the board of Tata Sons, the chairman, and the operating companies”. Mistry goes on to say that “inappropriate interpretation” of the rules followed, which “severely constrained the ability of the group to engineer the necessary turnaround”.

The issue essentially relates to Article 118, which was amended in 2012 to give more powers to directors nominated by the Tata Trusts in the appointment and removal of the chairman.

Later, in the same letter, Mistry says that directors nominated by the Tata Trusts, the largest institutional shareholder in Tata Sons, were “reduced to mere postmen”. Mistry points out how once, two trust directors (Nitin Nohria and Vijay Singh) “had to leave a Tata Sons board meeting in progress for almost an hour, keeping the rest of the board waiting, in order to obtain instructions from Mr (Ratan) Tata”.

While some experts believe that this may be Mistry’s best legal bet, if he were to take the Tatas to court or approach the NCLT, others like Chandubhai Mehta, managing partner at Mumbai-based litigation law firm Dhruve Liladhar & Co, say his chances of getting his job back are dim. “The chances of Mr Mistry coming back to the board are very bleak. The only thing he can claim is damage to goodwill or reputation because of his wrongful removal.” Mehta added: “It’s (removal) the board’s decision and under the articles of association, one has to be bound to that.”

JN Gupta, who heads Stakeholders Empowerment Services, a Mumbai-based corporate governance advisory, also believes that Mistry has no real chance of heading back to the corner office at Bombay House. “The right of removal of a manager is very much with the shareholders. Moreover, there is nothing wrong with the will of the majority shareholders prevailing as long as it is in the interest of all shareholders,” he says.

Pavan Kumar Vijay, founder managing director at New Delhi-based financial and legal consultancy Corporate Professionals, however, feels that although Mistry has few legal options, he can certainly approach the NCLT. “He can go to the NCLT as a minority shareholder, but not as a director,” says Vijay.

Minority shareholders holding more than 10% shares are allowed to approach the NCLT for redress and the Shapoorji Pallonji Group owns a little over 18% in Tata Sons.

Headquartered in Delhi, Corporate Professionals is a one-stop-shop of widest spectrum of corporate services. This leading corporate advisor helps customers with Corporate Restructuring, Corporate Compliance and Due Diligence, Investment Banking, Securities Laws advisory and many more.

The Internet based businesses globally have seen unprecedented growth and now with India taking a center stage in global markets because of high growth & reform expectations, demographic dividend and large market, many Indian startups have come out, especially in the last couple of years, building scalable businesses (substantially Tech-enabled) to solve a multitude of problems we face in our daily life.

The key characteristics of start-up companies is that they don’t have any past history, the operations has not reached the stage of commercial production, have negligible revenue with high operational losses and limited promoter’s capital infused with high dependence on external sources of funds. The investments are also Illiquid in nature. Startup Funding has Dried Up with Investors looking when and if ventures would turn profitable.

Till 2015, Start Up valuations was closely linked to the valuation of U.S. and China tech start-ups and investors felt the fear of missing out. Investors were relying on a different metric of valuations, ‘GMV’ gross merchandise value which is defined to indicate total sales value for merchandise sold through a marketplace over a period. The more you scale, the more was the valuation and focus was not on creating a profitable biz model.

Interestingly the trend of Investments has remained difficult and different in 2016. Many e-tailers have reported decline in number of orders significantly as they cut discounts leading to drop in their GMV raising eyebrows on their fresh funding rounds and valuations. Instead many startups have reported Down Rounds (funding at lower levels) and so many of them have even shut their shops. Many startups have also changed their business model looking at unit economics and profitability.

The impact of above is that Angel Funding and Serial A Funding is at all-time low and now the focus is back on the basics – business model validation and positive Cash Flows.

For valuing mature companies there are broadly three approaches to valuation namely Asset Approach, Income Approach & Market Approach. However, these approaches do not find much of relevance for valuing the Start-ups as they often have insignificant revenue or EBITDA metrics, insufficient history, no meaningful comparable(at their stage) and long term income/ cash flow projections are quite difficult to estimate.

There are three ways to value startups namely Venture Capitalist method, First Chicago Method, Adjusted discounted cash flow method.

Startups like Flipkart, Snapdeal, OYO Rooms, Lenskart have entered the Hall of Fame as far as the Startups community is concerned. A pertinent question that comes to mind is how these ventures have become so successful and why not all Startups manage to succeed? What all has contributed in their success stories and making them reach the level at which they are today? Let’s find out…

No one is born as a readymade performer. All big players of the corporate sector started with everything less in their hands. So what made them survive and build to a level which is now admired by all young minds who wish to become like them.

It is clear that there has been a huge amount of hard work, discipline, clarity in goals, ambition and guts. But is that enough to get into the billion-dollar club? There exists no single answer for this. A right effort, on the right time, with the right opportunity will only result into wonders.

The business environment is affected by internal and external factors. An entrepreneur cannot control the external factors affecting the business to a great extent but the command of internal factors is in his very hands. Human Resource is one of the most important among the internal factors in turning a business story into its success story.

Employees are the stepping stones which need to be nurtured in order to build a strong foundation that leads to growth. Contrary to this, people generally fail to pose trust into new ventures, which is even correct, as a startup is neither in a position to pay attractive packages nor it can assure a sure-shot success / profits out of its endeavors.

But this is not the end of the story. Early stage companies are high-risk investments and many fail. In order to attract employees, startups need to be able to offer something different, such as the prospect of a share in the upside should the company go on to be successful. Entrepreneurs need to chalk out strategies which enable them to create a win-win situation. The best and most trending incentive for employees is to make them partner in the growth of the business by making them co-owner.

CHANDER SAWHNEY

CONTRIBUTOR

Partner & Head, Valuation & Deals, Corporate Professionals Capital Pvt. Ltd

ESOP Online, a one-stop solution for all your ESOP related needs covering the Legal, Taxation, Regulatory & Management support and a venture of much accredited Merchant Banker (SEBI CAT-I License) – Corporate Professionals, today announced that it has become a reliable ESOPs Solutions provider to over 50 start-ups and 150 Corporates and accentuated their growth with their strategic services – online and offline over a short span of four years. ESOP Online is witnessing steady progress and has registered 40 clients in the first quarter of 2016-17.

The startup companies using ESOPonline services include Lenskart, Oyo Rooms, School Guru, IndiaMart, Bridge i2i, Grex Alternate Capital, Orangegubbi, Rockstand and many more.

It has also made another landmark achievement of offering its solutions to 200+ clients in a span of 4 years. The company has also recently acquired 40 new clients in the first quarter of 2016-17. Today, the company serves companies across diversified industries including a Client base of LISTED, UNLISTED & STARTUP companies.

ESOP online provides a new-age and dependable workforce solution, acting as a catalyst to help companies retain their employees. The complete workforce management solution and services offered by the company has been a hit with successful entrepreneurial ventures, which in turn, function in a highly competitive industry. Also, for corporate leaders, ESOP Online- a young venture launched 4 years back- has been a reliable HR partner for many Start-ups as well as established companies.

Ms. Mohini Varshneya, said that,” Workforce management, right from the hiring process to retaining an employee has undergone a change. While hiring and retaining the desired candidate is a challenge now- given the competitive scenario, it also triggers a situation where employees need to make them feel home. One important link here is the monetarily growth, which can be further linked to each employees performance. ESOPOnline, given its array of financial solution-offers that. It links the growth of the employee with the performance of the company by investing in stocks and therefore, managing individual stock growth. For the companies at large, it is a one-time low cost investment, giving them huge benefits in return.”

ESOP Online has become a reliable ESOPs Solutions provider to over 50 start-ups and 150 Corporates and accentuated their growth with their strategic services – online and offline over a short span of four years. ESOP Online is witnessing steady progress and has registered 40 clients in the first quarter of 2016-17.

The startup companies using ESOPonline services include Lenskart, Oyo Rooms, School Guru, IndiaMart, Bridge i2i, Grex Alternate Capital, Orangegubbi, Rockstand and many more.

It has also made another landmark achievement of offering its solutions to 200+ clients in a span of 4 years. The company has also recently acquired 40 new clients in the first quarter of 2016-17. Today, the company serves companies across diversified industries including a Client base of LISTED, UNLISTED & STARTUP companies.

ESOP online provides a new-age and dependable workforce solution, acting as a catalyst to help companies retain their employees. The complete workforce management solution and services offered by the company has been a hit with successful entrepreneurial ventures, which in turn, function in a highly competitive industry. Also, for corporate leaders, ESOP Online- a young venture launched 4 years back- has been a reliable HR partner for many Start-ups as well as established companies.