Information Filled Under 'Practicing Law in India' Category
Voluntary Guidelines on Governance and Social Responsibility Thursday, December 31st, 2009
Corporate Governance Earlier this month, we had highlighted the recommendations of the CII Task Force and the Institute of Companies Secretaries of India seeking reforms to the existing regime for corporate governance in India. Shortly thereafter, and based on various other suggestions received, the Ministry of Corporate Affairs has published the Corporate Governance Voluntary Guidelines 2009 . The preamble sets the tone: These guidelines provide for a set of good practices which may be voluntarily adopted by the Public companies.
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Voluntary Guidelines on Governance and Social Responsibility
The Department of Industrial Policy and Promotion has issued a draft Press Note dated 24th December 2010 (“PN”) that is similar to the Master Circulars that we have on FEMA issued by the Reserve Bank of India. This 66 page Press Note is only a draft and comments are invited by 31st January 2010 after which a final Press Note would be issued. A couple of quick and preliminary comments.
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DIPP issues draft "Master Press Note"
Hitherto, Indian companies were allowed to make royalty payments to their foreign collaborators under the automatic route within certain limits. These involved payment for technology transfers of a lump sum fee of US$ 2 million and royalty of 5% on domestic sales and 2% for exports.
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Foreign Collaboration and Royalty Payments
We have discussed the controversy in Indian law surrounding the treatment of bad debts. In short, it has traditionally revolved around two questions. The first pertained to the extent to which commercial reality could influence the determination of taxable income.
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Bad Debts, Commercial Judgment and Taxation
Just when it appeared that the din surrounding offshore derivative instruments (ODIs) and participatory notes (PNs) had subsided, the significance of regulating these instruments has resurfaced in an order passed by SEBI yesterday in the case of Barclays Bank PLC, a foreign institutional investor (FII) registered with SEBI. By this order, Barclays has been prohibited from issuing, subscribing or otherwise transacting in any ODIs until reporting systems are put in place to the satisfaction of SEBI. The order seems to rest on two principal grounds
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SEBI Order on Participatory Notes
Having discussed the apparent relaxation in standing requirements under Section 399(1), this post will now consider what the requirements under Section 399(3) are. In particular, the effect of the Justice Ruma Pal’s decision in J.P
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"Consent in writing" and Standing for Oppression and Mismanagement: Section 399(3)
Remedies for oppression and mismanagement under Section 397 and 398 of the Companies Act, 1956 provide for some relief to shareholders. However, in order to invoke the provisions of Sections 397/398, the petitioners must demonstrate their standing under Section 399. Section 399, which deals with the right to apply under Sections 397 and 398, says in the relevant part: (1) The following members of a company shall have the right to apply under section 397 or 398:- (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less or any members or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members
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Locus Standi for Oppression and Mismanagement: Dilution of Section 399(1)
Ultimately, when it comes to corporations, incentives seem to matter a whole lot, with one key incentive being the profitability (or avoidance of loss) of any action to shareholders. In his column in the New York Times, Paul Krugman notes: Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they’ll be able to increase their profits if they can burn less carbon — and there’s every reason to believe that they’ll be clever and creative about finding ways to do just that
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Climate Change and Corporations
Anastasia Kelly has seen a few things in her long career as a general counsel, a position she served at Fannie Mae, then at Sears Roebuck, then at MCI, and now at AIG. But it’s probably fair to say she’s never been embroiled in a situation quite like this. Kelly and four other high-ranking AIG executives said last week they were prepared to quit if their compensation is cut significantly by AIG’s government overseers — namely Ken Feinberg, the government’s so-called “pay czar.” Feinberg is charged with setting pay limits for top executives at companies receiving the most federal bailout money.
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AIG’s GC, In Middle of Pay Kerfuffle, Brings in Dickstein Shapiro
Yes, so the title of this post is a bit glib. But believe it or not, the issue of robots-and-the-law (or, more accurately, liability stemming from the use of robots) is getting some serious attention in the halls of academia. A SF Chronicle story out Monday lays out the issue: Robots have been an increasingly familiar sight in recent years, disarming explosives in Iraq, delivering mail in industrial complexes or bringing drugs to nurses in hospitals.
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When the Robots Attack, How Will We Hold Them Liable?
In an interesting two-part column series in the Mint ( here and here ), Govind Sankaranarayanan considers the broad academic debate surrounding insider trading. He makes at least two pertinent observations: (i) the line between insider trading that is considered acceptable and that which is improper is quite often blurred and difficult for regulators to segregate; and (ii) there is a need for regulators to undertake greater investigations and enforcements, which may not only act as greater deterrence but may also help set some boundaries between the permissible and the proscribed
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Insider Trading: Where Do We Draw the Line?
India Knowledge@Wharton carries a discussion (or a mutual interview of sorts) between Wharton professors Jitendra Singh and Harbir Singh and former SEBI Chairman M. Damodaran on several issues pertaining to Indian corporate governance, including the role of independent directors. The discussion is rich in that it dissects several fundamental issues of Indian corporate governance, such as whether it is prudent for Indian corporate governance to follow other models or whether it should develop a model of its own, a matter that we constantly endeavour to focus on this Blog.
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Dissecting Indian Corporate Governance
Professor Balasubramanian of IIM Bangalore has posted two interesting papers. In the first paper, Addressing Some Inherent Challenges to Good Corporate Governance , he examines certain specific issues arising due to the concentrated ownership in Indian listed companies. Specifically, he notes: While the objectives of good governance, namely creation, protection and equitable distribution of shareholder value, have long been recognized, their full achievement in practice has been dogged by challenges emanating from various sources like dominant shareholders, autocratic executive managements, inefficient independent auditors, inefficient enforcement mechanisms, and so on.
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Some Literature on Governance and Social Responsibility
Earlier posts here had discussed the decision of a Special Bench of the Bombay ITAT in Daga Capital and the possible inequities that could result from its interpretation of section 14A. The most significant one was that expenditure could be disallowed even if no nexus was established between the expenditure and tax-free investment income. To quote from an earlier post explaining the inequity, Section 14(A)(2) provides that if the Assessing Officer (AO) ‘is not satisfied’ with the assessee’s claim as to the amount of expenditure relatable to exempt income, he shall determine the amount of expenditure ‘in accordance with such method as may be prescribed’.
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Yet Another Controversy over Section 14A
Earlier posts here have considered the issue of whether the penalty under section 271(1)(c) of the Income Tax Act, 1961 is a criminal, quasi-criminal or civil liability, which in turn has implications on whether mens rea is needed for awarding penalty under the section. The Supreme Court had held in Dilip Shroff that mens rea is needed for the non-disclosure of penalty to result in penalty, but this was subsequently overruled by the Court in Dharmendra Textiles .
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Supreme Court Reaffirms Dharmendra Textiles
The United Nations has been developing a project on Reports on Corporate Law Tools, which involves leading law firms from across the globe working with UN Special Representative John Ruggie to analyse how corporate structures in different legal systems foster respect for human rights. The idea behind the project is found in this note prepared by the Special Representative. Reports from several countries are now available , including the report from India prepared by AMSS
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UN Corporate Law Tools project: Corporate Structures and Governance and Human Rights
Auditors of non-banking financial companies (NBFCs) have to submit a certificate every year to the Reserve Bank of India on whether the NBFC is engaged in the business of a non-banking financial institution (NBFI). The certificate also gives the income/asset pattern for making it eligible for classification under various categories. The last date for submission of this certificate for the immediately previous financial year ended on 31st March was 30th June (e.g., the last date for FY ended 31st March 2009 was 30th June 2009).
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RBI extends time limit for Auditors’ Certificate for NBFCs – leaves fundamental issues unaddressed
With the SEC recently charging hedge fund manager Raj Rajaratnam and others for insider trading, the debate regarding the scope of insider trading and its (un)desirability in capital markets has resurfaced. SEC’s complaint filed in the District Court in New York indicates that Rajaratnam, through his hedge fund Galleon, had traded in stocks of 10 different companies while in possession of inside information that was provided to him by various tippers
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The Insider Trading Debate Resurfaces
According to one school of thought, the excessive use of derivatives, particularly credit default swaps (CDSs) was a key cause of the global financial crisis. Related to this is the argument that progressive liberalisation of rules governing derivatives accelerated their downfall. In an interesting debate titled Regulate OTC Derivatives by Deregulating Them , Professor Lynn Stout traces the history of derivatives regulation: … In the United States and the United Kingdom, derivatives traditionally were subject to a common-law rule known as the “rule against difference contracts.” … [The rule] allowed you to wager on anything you liked, from sporting contests, to wheat prices, to interest rates.
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Regulating Derivatives
This year’s Nobel Prize has been awarded to Professors Elinor Ostrom and Oliver Williamson for their work in the area of “economic governance”. The significance of this year’s award is its recognition of transaction economics despite its decline due to the financial crisis. Of relevance to our discussion is Williamson’s work, which has triggered academic thought in the area of law and economics, with reference to firms and associations, and more particularly companies
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The Economics Nobel Prize 2009 and Governance
Anyone who follows the Supreme Court could have predicted that the Supreme Court’s Heller opinion from 2008, in which the court found that Washington D.C.’s gun control law ran afoul of the Second Amendment, would give lower courts, lawyers and legal academics much to chew on in years to come. Already, for instance, courts have wrestled over whether the ruling would apply to the states — a potentially significant barrier to those looking to extend Heller’s reach throughout the land. But it seems a Tenth Circuit judge, Timothy Tymkovich , a George W
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Supreme Challenge? Judge Calls Out Scalia Over Heller Language
The American Lawyer’s mid-level associate survey, contained in the publication’s August issue, lands on the desks of managing partners soon. We can’t imagine they’re looking forward to it, despite the fact that they’re just going to find out something most of them already know: mid-level associates are anxious, working less, and are much less gung-ho about their jobs than they were last year. While it’s not surprising, it is, in our opinion, saying something for a group that often seems as contented with their jobs as Terrell Owens seems with his.
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Surprise, Surprise: Mid-Level Associates Feeling ‘Significant Anxiety’
Note to self: When the time comes to commission a wax statue in our own likeness, do it with our own hard-earned money (and, of course, when it’s complete, keep it away from open flame.) Use someone else’s money for such a tribute, and you just might wind up in a lawsuit over it. Alleged Example A: Barbara McKinzie, the international president of Alpha Kappa Alpha, the country’s oldest black sorority. Members of the sorority are suing to remove McKinzie (pictured, left), alleging she spent hundreds of thousands on the group’s money on herself, some of it to pay for a wax statue of herself (pictured, right).
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The Lady in Wax . . . Gets Sued
So, Microsoft and Yahoo have convinced each other that a search and advertising between the companies is a good thing. But will they be able to convince antitrust regulators that the deal’s good for the marketplace? Possibly, but according to this WSJ story , it won’t happen without some considerable scrutiny by federal antitrust regulators and lawmakers
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Next Up For Yahoo/Microsoft: An Antitrust Battle?
Ever since Bernie Madoff’s guilty plea back in March, life seemed to be finally settling down for Bernie’s wife, Ruth. Last month, she agreed to give up her potential claim to more than $80 million of assets, but, in an agreement with federal prosecutors, was allowed to keep $2.5 million in cash. (Minus taxes and legal fees, she will have less than $2 million, according to a person familiar with the matter.) Then, earlier this month, federal investigators concluded they didn’t have enough evidence to charge her criminally
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Madoff Trustee Spreads His Wings, Sues Ruth
It was nearly impossible not to think of the “To Catch a Predator” show from a few years back, starring that fellow to your left, Chris Hansen, when we read this latest story: New York state prosecutors have filed criminal charges against a Goldman Sachs compliance officer after he allegedly solicited an undercover investigator posing as a teenage girl in online conversations. Click here for the Dow Jones Newswires article; here for the NY Daily News piece
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To Catch a Goldman Sachs Compliance Officer?
SEBI had amended the Insider Trading Regulations 1992 vide a Notification dated November 19, 2008 which I had discussed it here and here. SEBI has now released a set of “Clarifications” on 24th July 2009 on certain issues arising out of the amendments made. I had opined on some of these issues in my earlier posts referred to above and hence me update on what are the clarifications so given
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SEBI clarifies on Insider Trading Regulations amendments of November 2008