The Legal One’s Post

𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐀𝐩𝐩𝐫𝐨𝐯𝐚𝐥 𝐢𝐬 𝐍𝐨𝐧-𝐍𝐞𝐠𝐨𝐭𝐢𝐚𝐛𝐥𝐞: 𝐒𝐮𝐩𝐫𝐞𝐦𝐞 𝐂𝐨𝐮𝐫𝐭 𝐉𝐮𝐝𝐠𝐦𝐞𝐧𝐭 𝐢𝐧 𝐉𝐲𝐨𝐭𝐢 𝐋𝐢𝐦𝐢𝐭𝐞𝐝 𝐯𝐬. 𝐁𝐒𝐄   The Supreme Court of India, in 𝘑𝘺𝘰𝘵𝘪 𝘓𝘪𝘮𝘪𝘵𝘦𝘥 𝘷. 𝘉𝘚𝘌 & 𝘈𝘯𝘳. (Civil Appeal No. 4707 of 2022), recently upheld the rejection of Jyoti Limited’s listing of equity shares on the Bombay Stock Exchange (BSEIndia) due to the absence of shareholder approval and compliance with regulatory norms.    𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝: Jyoti Limited had an agreement with an Asset Reconstruction Company (ARC), RARE, to convert ₹32.80 crores of its outstanding debt into equity shares. Following a resolution passed by its Board of Directors on 02.05.2018, the company applied to BSE for listing 59,63,636 shares allotted to RARE. The BSE rejected the listing application due to the lack of shareholder approval and prior in-principle approval from the exchange. The Securities Appellate Tribunal upheld this decision.   𝐒𝐮𝐩𝐫𝐞𝐦𝐞 𝐂𝐨𝐮𝐫𝐭’𝐬 𝐎𝐛𝐬𝐞𝐫𝐯𝐚𝐭𝐢𝐨𝐧𝐬: Shareholder approval via a special resolution as prescribed under section 62 (1) (c) of the Companies Act, 2013 is mandatory for increasing subscribed share capital, even in cases of debt-to-equity conversion under SARFAESI. Regulation 28 of SEBI’s Listing Obligations mandates prior in-principle approval from stock exchanges for listing new shares—a requirement that was not met in this case.   𝐊𝐞𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲𝐬 - 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐀𝐩𝐩𝐫𝐨𝐯𝐚𝐥 𝐈𝐬 𝐂𝐫𝐮𝐜𝐢𝐚𝐥: Section 62(1)(c) of the Companies Act underscores the necessity of shareholder consent, ensuring compliance with statutory corporate governance norms. 𝐒𝐄𝐁𝐈 𝐂𝐨𝐦𝐩𝐥𝐢𝐚𝐧𝐜𝐞 𝐈𝐬 𝐌𝐚𝐧𝐝𝐚𝐭𝐨𝐫𝐲: Regulatory requirements such as prior in-principle approval cannot be bypassed, reinforcing the need for procedural diligence in equity listings. This landmark judgment serves as a strong reminder that compliance with corporate and securities laws remains non-negotiable.   Access the full judgment for detailed insights. #SupremeCourt #CorporateLaw #SEBI #SARFAESI #CompaniesAct #DebtRestructuring #LegalUpdate #Governance

The Hon’ble Supreme Court of India in its recent judgment (Jyoti Limited v. BSE Limited & Anr.) upheld the requirement of approval of stock exchange under Regulation 28 of the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 and special resolution of the shareholders under Section 62(1)(c) of the Companies Act, 2013 as mandate for listing of shares. Brief facts say that Jyoti Limited applied to Bombay Stock Exchange Limited (BSE) for listing of 59,63,636 equity shares allotted to Asset Reconstruction Private Limited (RARE). BSE rejected the application due to: 1.      Lack of in-principle approval from the stock exchange. 2.      Absence of shareholder approval for the share allotment. The above Order was upheld and confirmed by the Securities Appellate Tribunal and the same was challenged before the Supreme Court of India. In the matter, Jyoti Limited contended that: 1.      Under Section 9(1) of the SARFAESI Act, RARE had authority to convert debt into shares without shareholder approval. 2.      Shareholder approval under Section 62(1)(c) of the Companies Act, 2013, was unnecessary as the proposal originated from RARE. The Court observed that: 1.      Conversion of debt into shares resulted in an increase in Jyoti Limited’s subscribed capital. 2.      The proposal was initiated by Jyoti Limited through its Board resolution. 3.      Shareholder approval was mandatory under Section 62(1)(c) of the Companies Act, 2013, but was not obtained. Therefore, the Hon’ble Court upheld the Tribunal’s finding that BSE approval and special resolution of the shareholder is necessary for listing of shares. #SEBI #SupremeCourtofIndia #BSE #SecuritiesAppellateTribunal

Understanding the Procedure and Restrictions on Bonus Share Issuance Issuing bonus shares is an exciting milestone for any organization, but it comes with well-defined procedures and regulatory restrictions to ensure transparency and compliance. Here’s a quick overview of the process: 1. Board Approval: The process begins with the approval of the board of directors, ensuring alignment with the company’s financial health and strategic goals. 2. Shareholder Approval: A resolution is passed at the general meeting, seeking the consent of shareholders. 3. Source of Funds: Bonus shares can be issued only from free reserves, securities premium, or surplus profits. 4. Compliance with Laws: Adherence to regulatory guidelines such as those by SEBI (in India) or equivalent authorities is mandatory. 5. Eligibility Cut-off Date: A record date is set to determine eligible shareholders. Restrictions: * Adequate Reserves: The company must ensure sufficient reserves before issuing bonus shares. * No Default: The company must not have defaulted on debt or statutory payments. * Fully Paid-Up Shares: Bonus shares can only be issued for fully paid-up equity shares. * Time Gap: Regulatory authorities may impose restrictions on the frequency of bonus issues. The procedure and restrictions safeguard shareholder interests while maintaining market stability. By following these measures, companies can celebrate growth responsibly and sustainably. #BonusShares #CorporateCompliance #ShareholderEngagement #FinancialGrowth #Transparency

🚨 Supreme Court Clarifies Shareholder Approval in Share Listing Disputes 🚨 The recent case Jyoti Limited vs. BSE Limited & Anr. (C.A. No. 4707/2022) offers a significant ruling on the interplay between Section 62(1)(c) of the Companies Act, 2013 and SEBI Listing Regulations, 2015. Key Takeaways: Approval from shareholders through a special resolution is mandatory when a company seeks to increase its subscribed share capital, even if the proposal stems from a debt conversion agreement with an Asset Reconstruction Company (ARC). The Court upheld that the Bombay Stock Exchange (BSE) rightly rejected the listing application due to the absence of such shareholder approval. This decision reaffirms compliance with SEBI Regulations and strengthens corporate governance norms in India. The judgment reinforces that companies cannot bypass shareholder approval under Section 62 when increasing share capital. Legal and financial professionals, particularly those handling SARFAESI Act and SEBI compliance, should take note of this clarity. For Full Insights: Legal professionals and stakeholders are encouraged to study the judgment carefully, especially regarding: 1️⃣ The Companies Act, 2013 provisions on share capital. 2️⃣ SARFAESI Act implications on debt-to-equity conversions. 3️⃣ Compliance with SEBI (LODR) Regulations, 2015. This judgment brings much-needed clarity for businesses, investors, and stock exchanges, setting a precedent for similar corporate disputes. #CorporateLaw #SEBIRegulations #SupremeCourtJudgment #CompanyCompliance #LegalInsights #DebtConversion #SARFAESIAct #ShareCapital #Governance #LegalProfessionals #StockExchange #BSE #CompaniesAct2013 #LawUpdates

In a welcome move, Securities and Exchange Board of India (SEBI) has backtracked on its advisory asking that special rights of PE investors be extinguished before filing the updated draft red herring prospectus (UDRHP), which I had criticized in my previous post. According to me abrupt removal of #PE Rights in any company would have been detrimental to the interests of not just PE investors, but also other stakeholders who rely on top PE players to install #transparency and good #governance. Negotiating these rights takes a lot of effort, and their sudden removal could have led to complex litigation, especially with errant promoters who are keen to see PE investors less involved. An email sent by SEBI to bankers on Monday indicates that paragraph 13 of the earlier advisory will be modified based on industry feedback and now reads: “All special rights granted to shareholders under AoA, SHA or through any arrangement or agreement shall lapse on the date of listing.” The regulator’s 31-point advisory, sent out a few weeks ago, had initially asked bankers to ensure that any special rights under Articles of Association or shareholder’s agreements be cancelled before the UDRHP. SEBI has now revised this directive, allowing special rights to continue until actual listing. Until a few months ago, such rights were cancelled only post-listing so that all non-promoter shareholders have equal rights once the company is listed. Recently, however, SEBI had insisted on cancelling these rights before filing the red herring prospectus, which could have caused shareholders, including PE players, to forfeit their special rights if the IPO did not proceed. If the IPO did not materialize, reinstating these special rights would have been difficult and left to the discretion of the company, or as I said potentially benefiting unscrupulous promoters who may have been happy to litigate with the PE Players on this front. It's high time we recognize the importance of PE investments in India. Regulators need to go a step further and create a separate regulatory framework for PE investors, encouraging them to bring industry domain expertise, greater transparency, good governance, and best management practices to investee companies. Once again, thanks to SEBI for this timely course correction. #SEBI #PrivateEquity #CorporateGovernance #IPO #Investment #Transparency #GoodGovernance #Regulation #corporatecounsel #inhousecounsel #investmentbankers

The Rising Influence of Shareholder Activism and Proxy Advisory Firms in India * Listed companies, from Ashok Leyland to Ujjivan Small Finance Bank, Adani Wilmar, and Raymond, among many others, are increasingly facing opposition from large public investors regarding the induction of directors on their boards and their remuneration. * A review of filings made by public companies to the National Stock Exchange (NSE) between April 1 and July 27 revealed that large public institutions opposed at least 137 out of 1,300 resolutions—about one in ten—proposed by 650 companies. Each of these 137 resolutions saw at least 35% of votes against them, according to Mint's research. Despite this significant opposition, all 137 resolutions were approved due to substantial promoter ownership, fewer retail investors, or a small group of public investors voting on the resolutions. * Experts attribute the rise in opposition to regulatory changes prioritizing governance, the increasing shareholding of large institutions in listed companies, and the growing influence of proxy advisory firms such as Institutional Investor Advisory Services India (IiAS) and Stakeholder Empowerment Services (SES). * For example, Ujjivan Small Finance Bank's (SFB) move to reappoint independent director Mona Kachhawaha was approved by only 69% of shareholders, falling short of the 75% majority required for a special resolution. Nevertheless, the resolution was approved due to provisions in the LODR Regulations. * This trend underscores the growing importance of shareholder activism and the influential role of proxy advisory firms in shaping corporate governance practices. #icsi #lodr #corporategovernance #shareholderactivism #proxyadvisors #sebi #mca #listedcompanies #compliance

Renunciation of shares under rights issue In the rights issue, the shareholders have a right to participate. It is a pre-emptive right given by the status to existing shareholders. Such shareholders have a power to renounce the shares offered to any other person who need not be an existing shareholder of the company. Generally, valuation of shares is not required to be carried out in case of rights issue; however in case a person resident outside India who has acquired a right from a person resident in India who has renounced it may acquire equity shares against the said rights as per pricing guidelines specified under FEMA NDI rules.

"How to Legally Protect Investments in IPOs?" A common query: "What legal factors should I consider when investing in Initial Public Offerings (IPOs) in India?" Answer: ⚖️ Regulatory Framework: IPOs in India are regulated by SEBI to protect investors from fraud. Always ensure the IPO is listed on SEBI-approved stock exchanges like NSE or BSE and verify the issuer’s compliance with disclosure norms. 📜 Draft Red Herring Prospectus (DRHP): Read the DRHP carefully. It provides insights into the company’s financials, business model, risks, and usage of funds. This document is critical for assessing the viability of the IPO. 💼 Allotment and Refunds: Know the rules for IPO allotment. If shares aren’t allotted, the refund must be processed within a specified period. Delays can be reported to SEBI for redress. 🔐 Lock-in Periods: Be aware of lock-in periods for certain categories of investors, such as promoters or anchor investors, as they may impact share liquidity and pricing post-listing. 💡 Tax Implications: Gains from IPO investments are subject to capital gains tax. Short-term gains are taxed higher than long-term gains, so plan your holding period strategically. Key Takeaways: Invest only in SEBI-regulated IPOs ⚖️ Analyze the company’s DRHP thoroughly 📜 Understand allotment and refund policies 💼 Consider the impact of lock-in periods 🔐 Plan for tax-efficient returns 💡 --- Need legal advice for IPO investments? We guide you through the regulatory maze, ensuring informed and secure decisions. 📞 Contact: +91-9051112233 💻 Website: www.lexcliq.com #IPOInvestment #SEBICompliance #DRHP #TaxPlanning #StockMarket #CapitalGainsTax #LegalGuidance #LexCliq

In a conversation with The Economic Times, Siddarth Pai, Founding Partner, CFO, and ESG Officer, 3one4 Capital, and Co-chair, Regulatory Affairs Committee, Indian Venture and Alternate Capital Association (IVCA), discussed the tax parity on long-term capital gains from financial assets. He noted, "the 37.5% reduction of LTCG on unlisted shares from 20% to 12.5% is still a major boost to post-tax returns as compared to the erstwhile regime of indexation." Read the full piece below. #IVCA #MaximumIndia #UnionBudget2024 #Budget2024

Investment Banking Unpacked: Reliance Industries’ Historic Rs. 53,125 Crore Rights Issue Did you know that in May 2020, Reliance Industries raised a staggering Rs. 53,125 crores through a rights issue – which made it India’s Largest? But what exactly is a rights issue, and why was this move crucial for Reliance’s ambitious debt-free strategy? Reliance Industries, India’s largest business conglomerate, had pledged to go debt free by 2021 as part of its growth strategy. In order to achieve this goal, in May 2020, they launched their rights issue – India’s largest rights issue ever. What made this move bold was that it was launched amidst the COVID-19 pandemic, a time when markets were grappling with severe losses, and even in such a scenario, the issue was oversubscribed by 1.59 times. But what is a Rights Issue? A rights issue refers to the issuing of shares to the existing shareholders, generally at a price lesser than the market price, in order to raise funds. This gives the shareholders a “right” to maintain or increase their shareholding in the company. In Reliance’s case, the shareholders were issued shares at a price of Rs. 1257 per share, which was roughly a 14% discount from the prevailing market price. This rights issue helped Reliance in their future plans in the following ways: Deleveraging: Proceeds from the issue were used to reduce debt. Shareholder Loyalty: The issue rewarded existing shareholders by offering discounted shares. Market Confidence: The oversubscription signaled strong investor trust in Reliance’s vision. Key Lessons from Reliance’s rights issue: Timing is Key: Launching during a volatile market showed Reliance’s ability to leverage its reputation and brand value. Building Shareholder Trust: Offering discounted shares ensured shareholder participation, reinforcing loyalty. Strategic Alignment: This capital-raising move aligned with Reliance’s long-term goals of financial independence and global business expansion. Reliance’s rights issue wasn’t just a financial move—it was a masterclass in leveraging market confidence, timing, and shareholder trust to achieve strategic goals. What’s your take? Do you think bold capital-raising moves like Reliance’s rights issue are crucial for long-term growth, or do they carry risks that outweigh the rewards? #InvestmentBanking #RelianceIndustries #RightsIssue #FinanceInsights #CapitalMarkets #BusinessStrategy #Deleveraging #BrandValue