Money Pragati’s Post

SEBI BSE Listing Case Law : December 10, 2024 Jyoti Limited [Appellant(s)] Vs. BSE Limited & Anr [Respondent(s)] Supreme Court of India Civil Appeal No. 4707 of 2022 2024 INSC 992 Conflict: Approval of the Shareholders would be Mandatory before the Shares are accepted for Listing? Brief Facts The appellant-Jyoti Limited applied for listing of certain equity shares to the Bombay Stock Exchange1 but the application to that effect was not accepted for the reason that the appellant had not taken in principle approval from the Stock Exchange and that the appellant had not even taken the approval of the shareholders for the allotment of the shares to the Asset Reconstruction Private Limited (RARE). The above order of the BSE rejecting the application of the appellant for the listing of shares was upheld and confirmed by the Securities Appellate Tribunal by the order impugned. Thereafter Appellant appeal to the Supreme Court. Order Hon’ble Supreme Court ruled that the conversion of the debt into additional shares had taken place with the agreement of the appellant company and RARE, and it is on the basis of such an agreement between the parties that a resolution was passed on 02.05.2018 by the Board of Directors of the appellant company accepting the proposal to convert the debt into shares and to allot them in favor of RARE, thus, resulting in increase of the equity capital of the appellant company. Even the application for listing of the aforesaid additional shares was made by the appellant company to the BSE meaning thereby that the proposal for increasing the subscribed capital of the company by converting part of the debt into equity shares, as aforesaid, was initiated by the appellant company itself and not actually by RARE. Accordingly, as contemplated by Section 62(1)(c) of the Companies Act, 2013, the approval of the shareholders would be mandatory before the shares are accepted for listing on the BSE. Hon’ble Court said that insofar as the other ground for rejection of the application is concerned, that is to say, for want of approval of the BSE, the Securities Appellate Tribunal has returned a clear finding that the approval of the BSE is necessary in view of Regulation 28 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and we do not have different opinion on it rather we accept the said finding which is not perverse in any manner. Apex Court opined that no error or illegality has been committed either by the BSE or the SAT in refusing to accept the request of the appellant company for the listing of the shares at the Stock Exchange inasmuch as Section 62 of the Companies Act stands duly attracted and in the light of sub-clause (c) of sub-section (1) of Section 62 of the Companies Act, special resolution of the shareholders is necessary which is lacking in the instant case. For details: https://lnkd.in/gH_qsqCQ

𝗜𝗺𝗮𝗴𝗶𝗻𝗲 𝘁𝗵𝗶𝘀: You’re an investor, about to fund a promising company. But before you commit, you want the company to implement an employee stock option plan to ensure your shareholding won’t be diluted in the future. Now, how do you make this a reality before your funds are transferred? This is where 𝗖𝗼𝗻𝗱𝗶𝘁𝗶𝗼𝗻𝘀 𝗣𝗿𝗲𝗰𝗲𝗱𝗲𝗻𝘁 ("𝗖𝗣𝘀") come into play. 𝗪𝗵𝗮𝘁 𝗮𝗿𝗲 𝗖𝗣𝘀? CPs are specific obligations or actions that must be completed by the parties before the contract becomes effective. They serve as checkpoints to ensure that all critical risks are addressed before the contractual arrangement comes into effect. 𝗛𝗼𝘄 𝗱𝗼 𝗖𝗣𝘀 𝗵𝗲𝗹𝗽? - 𝗠𝗶𝗻𝗶𝗺𝗶𝘇𝗶𝗻𝗴 𝗿𝗶𝘀𝗸𝘀: CPs ensure that major legal, regulatory, and operational issues are resolved before closing, providing confidence to all parties involved. - 𝗖𝘂𝘀𝘁𝗼𝗺𝗶𝘇𝗲𝗱 𝗽𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻: CPs are customized to address specific risks, such as unresolved litigation, overdue taxes, or gaps in compliance. 𝗖𝗣𝘀 𝘀𝗲𝗿𝘃𝗲 𝗮𝘀 𝗮𝗻 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁 𝗺𝗶𝗹𝗲𝘀𝘁𝗼𝗻𝗲 𝘁𝗼 𝗯𝗲 𝗮𝗰𝗵𝗶𝗲𝘃𝗲𝗱, 𝗴𝗶𝘃𝗶𝗻𝗴 𝗮𝘀𝘀𝘂𝗿𝗮𝗻𝗰𝗲 𝘁𝗼 𝘁𝗵𝗲 𝗽𝗮𝗿𝘁𝗶𝗲𝘀 𝘁𝗵𝗮𝘁 𝗮𝗹𝗹 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹 𝗮𝗻𝗱 𝗳𝗼𝗿𝗲𝘀𝗲𝗲𝗮𝗯𝗹𝗲 𝗿𝗶𝘀𝗸𝘀 𝗮𝗿𝗲 𝘁𝗮𝗸𝗲𝗻 𝗰𝗮𝗿𝗲 𝗼𝗳 𝗯𝗲𝗳𝗼𝗿𝗲 𝘀𝗶𝗴𝗻𝗶𝗻𝗴 𝘁𝗵𝗲 𝗱𝗼𝘁𝘁𝗲𝗱 𝗹𝗶𝗻𝗲. For example, during due diligence, you discover that the investee company hasn’t formed an Internal Complaints Committee ("𝗜𝗖𝗖") as mandated under the applicable POSH Act. As a diligent investor, you will make sure here to include a CP here requiring the invested company to establish an ICC in compliance with the POSH Act before the transaction is completed. This proactive step will help you avoid penalties and reputational damage down the road. 𝗪𝗵𝗮𝘁 𝗶𝘀 𝘂𝘀𝘂𝗮𝗹𝗹𝘆 𝗶𝗻𝗰𝗹𝘂𝗱𝗲𝗱 𝗶𝗻 𝗮 𝗖𝗣 𝗹𝗶𝘀𝘁? - Obtaining regulatory approvals (e.g., FDI, RBI, SEBI). - Addressing due diligence issues (e.g., clearing pending taxes or forming ICC under the POSH). - Corporate actions like passing board and shareholder resolutions. - Execution of ancillary documents (e.g., escrow or shareholder agreements). 𝗔𝗹𝘄𝗮𝘆𝘀 𝗿𝗲𝗺𝗲𝗺𝗯𝗲𝗿 𝘁𝗵𝗮𝘁 𝗳𝗮𝗶𝗹𝗶𝗻𝗴 𝘁𝗼 𝗽𝗿𝗲𝗽𝗮𝗿𝗲 𝗶𝘀 𝗽𝗿𝗲𝗽𝗮𝗿𝗶𝗻𝗴 𝘁𝗼 𝗳𝗮𝗶𝗹 and that’s exactly why CPs are essential.

"What Are the Legal Implications of Investing in Bonds?" A common question: "What legal factors should I be aware of before investing in bonds in India?" Answer: ⚖️ Regulatory Oversight: Bond investments in India are regulated by SEBI and the RBI. Investors must ensure that bonds are issued by recognized entities, such as government or SEBI-registered corporate issuers, to ensure legal security. 📜 Types of Bonds: There are various types of bonds like sovereign bonds, corporate bonds, and municipal bonds. Understand the nature and creditworthiness of the issuer before investing. Ensure that the bond’s terms and conditions are clear, especially in relation to interest rates and maturity periods. 💼 Rating Agencies: Bonds are rated by agencies like CRISIL, ICRA, and CARE. Always check the credit ratings before investing. High-rated bonds have lower risk but generally offer lower returns. 🔐 Taxation: Interest income from bonds is taxable under income tax laws. Long-term bond gains may qualify for capital gains tax advantages, so tax planning is crucial. 💡 Risk of Default: While bonds are generally safer than equities, credit risk exists. Bonds with lower ratings or from high-risk sectors can face defaults. Always read the prospectus and investment memorandum for full disclosure. Key Takeaways: Ensure SEBI and RBI compliance ⚖️ Understand the type of bond and issuer’s credibility 📜 Check credit ratings for risk assessment 💼 Be aware of taxation on bond income 🔐 Consider credit risk when choosing bonds 💡 Need assistance with bond investments? We offer expert legal advice to help you navigate through bond terms, credit risks, and tax implications. 📞 Contact: +91-9051112233 💻 Website: https://zurl.co/vqKbV #BondInvestment #SEBIRegulations #CreditRisk #Taxation #InvestmentPlanning #LegalCompliance #LexCliq

The Supreme Court in Jyoti Limited v. BSE Limited & Anr. clarified that equity shares arising from debt conversion under the SARFAESI Act and Companies Act, 2013, cannot be listed without in-principle shareholder approval. In the present article, we discuss the Supreme Court’s ruling and its impact on asset reconstruction companies. https://lnkd.in/dk3BjrgA #India #CompanyAndCommercial #Banking #CapitalMarkets #SupremeCourt #Listing #StockExchange #SecuritiesLaw #Litigation

Do you own a LLC? Did you file your BOI report? The reporting obligation under the CTA applies to several types of entities, particularly Limited Liability Companies (LLCs), even those with only one member. It also includes similar entities that are either domestically formed or foreign entities registered to engage in U.S. business activities, but generally does not include trusts, unless they register in a manner similar to corporations or LLCs. Exempt entities include SEC-registered issuers, tax-exempt organizations, certain financial institutions, inactive entities, domestic pooled investment vehicles, and businesses with over 20 full-time U.S. employees, more than $5 million in annual U.S. revenue, and a physical U.S. location.

Do you own a LLC? Did you file your BOI report? The reporting obligation under the CTA applies to several types of entities, particularly Limited Liability Companies (LLCs), even those with only one member. It also includes similar entities that are either domestically formed or foreign entities registered to engage in U.S. business activities, but generally does not include trusts, unless they register in a manner similar to corporations or LLCs. Exempt entities include SEC-registered issuers, tax-exempt organizations, certain financial institutions, inactive entities, domestic pooled investment vehicles, and businesses with over 20 full-time U.S. employees, more than $5 million in annual U.S. revenue, and a physical U.S. location.

India: Mandatory dematerialisation of shares & debentures of private limited companies. To whom does this new requirement apply? All the private limited companies (other than small companies) incorporated in India. A subsidiary company of a body corporate is NOT a small company (refer below note for detail) Shareholders and debenture holders of the private limited companies (other than small companies) Note: A small company means a private limited company having a paid-up share capital of INR 40,000,000 or less and turnover not exceeding INR 400,000,000 in the immediately preceding financial year. What is the deadline for compliance? 18 months from the date of closure of financial year ending on or after 31 March 2023. Hence, in case the company’s financial year ends on 31 March 2023 (Standard Financial Year) then the due date is 30 September 2024. In case the company’s financial year is January to December then considering 31 December, 2023 as the date of end of financial year, 30 June, 2025 would be the due date for the compliance. What needs to be done? FOR A PRIVATE LIMITED COMPANY, WHICH IS A SUBSIDIARY OF A FOREIGN COMPANY Securing International Security Identification Number (ISIN) for each type of security. FOR A SECURITYHOLDER OF A PRIVATE LIMITED COMPANY Get a “demat account” opened with an authorized depository within the legal timelines. Convert existing securities into dematerialized form within the legal timelines. What are the consequences and penalties for non-compliance? The company will not be able to issue/allot any type of securities The security holder will not be able to transfer or subscribe for any type of security Monetary penalties on company and every officer in default: On the company: INR 10,000 + INR 1,000 for each day violation continues. Maximum limit is INR 200,000 Every officer of the company who is in default – same as above. Maximum limit is INR 50,000

Compliance of Related Party Transactions under Companies Act, 2013 Section 2(76) of the Act lays down a general meaning for the term ‘related party’ and it includes directors, the Key Managerial Personnel or their relatives and every associate of such a person, director or Key Managerial Personnel, that holds an interest in the concerned business in the corporate. Key Provisions of Section 188 1.      Board Approval: Every RPT must be approved by the Board of Directors as the case is preceded by a resolution of the board 2.   Shareholder Approval: In respect of transactions where the consideration received or which is to be paid exceeds predetermined thresholds, share holder approval is prescribed through a special resolution. The voting right procedure also cancels for all other interested parties. 3.    Disclosure Requirements: The Board report and the financial statements of the RPT must contain specific disclosure of such arrangements In addition, the disclosures must be made to the stock exchange in which the company’s securities are traded. 4.   Arm’s Length Transactions: Any dealing in the shares or securities of the Company and on an arm’s length basis and where such dealing is in the ordinary course of the business of the Party, does not require the approval of the shareholders.

NCLAT: LODR COMPLIANCE INAPPLICABLE FOR REVIVAL SCHEME; QUASHES NCLT-ORDER DIRECTING NOC FROM BSE NCLAT allows appeal filed by the acquirers (Petitioners) of Birla Cotsyn India Ltd. (Corporate Debtor under liquidation) challenging the NCLT order directing the Liquidator of the Corporate Debtor to seek a No Objection Certificate (NOC) from Bombay Stock Exchange (BSE) under the SEBI LODR Regulations before approval of the Scheme of Arrangement by NCLT for revival of the Corporate Debtor under the Companies Act; Further, NCLAT highlights that Sec. 230(1) of the Companies Act treats the liquidator as a separate and distinct category of person who can file a scheme before the NCLT and it does not consider the liquidator to be the same as the company, hence the rigors of LODR Regulations shall not apply herein, and opines that, “If Reg. 37 is considered to impose a mandatory requirement for prior NOC from stock exchanges for a scheme for revival of a company in liquidation also, it would conflict with the strict timelines provided under the Code and the Liquidation Process Regulations. In case of any such conflict, the provisions of the Code must prevail given the non-obstante clause contained in Sec. 238 of the Code.”; Therefore, quashing the impugned NCLT order, NCLAT directs NCLT to proceed with the hearing of scheme on merits without insisting on prior NOC from stock exchanges and ultimately concludes that, “If a restrictive literal interpretation of Reg. 37(7) of LODR is accepted then the same will lead to manifest absurdity…If the scheme fails and the Corporate Debtor is liquidated, its shareholders will get nothing. Under the Scheme, they are retaining some value whereas in the alternative scenario, they would get ‘nil’ value. That being so, the Scheme cannot possibly be contrary to the interests of public shareholders.”:NCLAT NDEL The judgment was delivered by Justice Yogesh Khanna (Member – Judicial) and Shri. Ajai Das Mehrotra (Member – Technical).

Do Material RPTs Require Shareholder Approval? Here's What You Need to Know...... When Related Party Transactions (RPTs) involve a foreign wholly owned subsidiary (WOS) and a listed related party, they can still trigger compliance requirements under SEBI regulations—even when the transaction value is below Rs. 1,000 crores. Let’s dive into the specifics: 1. Materiality Threshold: A transaction exceeding 10% of the listed company’s annual consolidated turnover, as per the last audited financial statements, is deemed material under SEBI (LODR) Regulations, 2015, even if it’s less than Rs. 1,000 crore. 2. Scenario in Practice: Suppose a foreign WOS of a listed company enters into an RPT worth Rs. 500 crores with a listed related party, and the listed company’s annual consolidated turnover is Rs. 4,000 crores. Since the transaction exceeds 10% of the turnover, it qualifies as material and requires shareholder approval. 3. Voting Restrictions: - Non-related party shareholders must approve the resolution. - Related parties involved in the transaction are barred from voting to ensure impartiality. Why It Matters Transactions below Rs. 1,000 crores can still fall under the ambit of materiality if they surpass the turnover threshold, emphasizing the need for vigilance in compliance. Proactively addressing such requirements reinforces transparency and strengthens governance. What’s your take on this nuance in SEBI’s RPT framework? Share your thoughts below! 👇