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The implementation of the 2013 Act will depend on the draft rules being
notified
MINORITY PROTECTION
Minority shareholders have been given greater powers under the 2013 Act. The normal principle
of majority binds the minority has been diluted. Most notable provisions are as below:
Majority shareholders who by virtue of amalgamation, share exchange, conversion or any other
reason have come to hold 90% or more of the equity share capital have been mandated to make
an offer to minority shareholders for buying their equity shares. The price for the shares will be
determined by a registered valuer
Specific obligations have been imposed on the promoters of a company to provide dissenting
shareholders an exit opportunity if they do not agree to vary the terms of contracts or objects
referred to in the prospectus
For any resolution requiring special notice, notice must be given to the
company by members holding not less than 1% of the total voting power or
those holding paid up shares of an aggregate sum not exceeding INR 500,000
Members holding shares of nominal value not exceeding INR 20,000 shall be
entitled to collectively nominate one director on the board of a listed company
ENFORCEABILITY OF RESTRICTIONS ON
TRANSFERABILITY
Recognised the principle laid down in the decision of the Bombay High
Court in Messer Holdings Ltd. v. Shyam Madanmohan Ruia & Ors. [2010]
159 Comp Cas 29 (Bom), where it was held that an agreement between
shareholders restricting the transfer of shares in a public company is not
in violation of the law mandating free transferability of shares of a public
company
ENFORCEABILITY OF RESTRICTIONS ON
TRANSFERABILITY (CONTD.)
SEBI had vide a notification dated October 3, 2013 expressly permitted put
and call options in relation to shares of public limited companies. However
it also prescribed a lock-in of 1 year before the put option could be
exercised
RBI released its circular dated January 9, 2014 which also recognized put
and call options. However RBIs circular further states that securities
carrying optionality rights which provide assured returns cannot be
subscribed to by foreign investors and will not be regarded as eligible
security. There is a lock-in of 1 year before the options maybe exercised
The 2013 Act has introduced a prohibition on forward dealings and insider
trading on directors and Key Managerial Personnel (KMP) which includes
the CEO, CFO, company secretary and a whole time director
Directors and KMP have been prohibited from purchasing call and put
options of shares of the company. Offence punishable with imprisonment
of up to 2 years and/or fine up to INR 500,000
This restriction will impact deal structuring since almost every deal in the
unlisted company space involves sharing of information by directors or key
managerial personnel or subscription or sale of shares by promoters who
are normally in an executive capacity within the company
The 2013 Act provides greater protection to deposit holders. Only those
public companies which meet the prescribed net worth or turnover criteria
and meet the conditions below may accept deposits from persons other
than its members. Other companies will be able to accept deposits only from
its members
Note: Draft Rules define eligible company as having a net worth of not less
than INR 100crore or a turnover of not less than 500crore
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Deposits accepted before the 2013 Act comes into force will need to be
repaid within one year from the date of commencement
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ENTRENCHMENT
This will ensure that amending specific clauses of articles becomes more
difficult and restrictive. It will protect minority shareholders by providing
them a right to consent to amendments to clauses of the articles
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DIFFERENTIAL RIGHTS
Public and private companies are now treated at par in relation to issuing
shares with differential rights
In the 1956 Act, only public companies had to comply with a prescribed set
of rules in order to be able to issue shares with differential rights. Private
companies had the flexibility to structure their capital to contain shares of
various classes carrying differential rights particularly relating to voting
and dividend rights. This right has now been taken away
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CURRENT STATUS
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Sections
Notified
Minority Protection
No
Enforceability of
restrictions on
transferability
58(2)
Yes
Prohibition of forward
contracts and insider
trading
Yes
73-76
No
Entrenchment
5(3)
No
CURRENT STATUS
Sections
Notified
Raise an objection to a
compromise or
arrangement
Proviso to S.230(4)
No
S.43(a)(ii)
No
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THANK YOU
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DISCLAIMER
This presentation is academic in nature and is not intended as legal advice. No
client attorney relationship is created by the circulation of this
presentation. Readers are requested to take legal advice relating to their
specific situations. The Companies Act, 2013 is a new legislation that is not
entirely in force as on the date of the presentation. The Ministry of
Company Affairs and / or courts in India may not agree with our
interpretation of its provisions.
For any queries please contact:
Aditya Vikram Bhat, aditya.bhat@azbpartners.com
Anind Thomas, anind.thomas@azbpartners.com
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