viswanath hajib’s Post

The Hon’ble Supreme Court of India, in Jyoti Limited v. BSE & Anr., upheld the rejection of Jyoti Limited’s application for listing equity shares on the Bombay Stock Exchange (BSE), citing non-compliance with shareholder and regulatory approval requirements. This judgment reinforces the importance of corporate governance and adherence to legal norms in financial operations. Key Legal Issues and Court Findings 1. Mandatory Shareholder Approval Under Section 62(1)(c) of the Companies Act, 2013, shareholder approval via a special resolution is required for increasing subscribed share capital, even in debt-to-equity conversions. The Court rejected Jyoti Limited’s argument that approval was unnecessary since RARE initiated the conversion. Regardless of initiation, companies must comply with shareholder approval requirements. 2. Stock Exchange Approval The Court upheld Regulation 28 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which mandates prior approval from stock exchanges for listing additional shares. Jyoti Limited’s failure to comply led to BSE rejecting the application. Judgment Highlights and Implications The Supreme Court dismissed Jyoti Limited’s appeal, emphasizing: a. Mandatory Shareholder Consent: Shareholder democracy is central to corporate governance, and a special resolution is non-negotiable. b. Regulatory Compliance: Adhering to SEBI and stock exchange regulations is critical for ensuring smooth market operations. Key Lessons for Companies 1. Governance and Compliance: Companies must respect shareholder rights and statutory mandates in any capital restructuring exercise. 2. Regulatory Preparedness: SEBI norms and stock exchange regulations must be diligently followed to avoid listing disruptions. 3. Integrated Approach: Boards must balance internal governance (shareholder approvals) with external compliance to minimize legal and procedural risks. This judgment serves as a reminder that corporate governance and regulatory adherence are inseparable in maintaining financial market integrity. Let’s Discuss: How can boards strengthen governance to avoid similar pitfalls? #CorporateGovernance #SEBIRegulations #SupremeCourt #LegalInsights #FinancialRestructuring

Akash was director of a private limited company. He acquired 10 lakhs shares of the same company. When company attained tremendous growth and generated free cash flow, board decided to reduce the liability of the company. They decided to buy back equity shares of Akash for a value of INR 35 per share. When shares were bought back it had book value of INR 50 per share. After buying back director reinvested in the same company in the form of loan. A few months later ITR of Akash got selected for scrutiny. AO took the view that the entire exercise was carried out to reduce the liability of company by purchasing its own shares below the fair market value. Accordingly he assessed 1.5 Cr as Income of Akash u/s 56(2)(viiia). Matter reached before the Tribunal and it pointed that buy back of shares below the FMV doesn't invite section 56(2)(viia). Section states that share should become "Property" of recipient company and it should be shares of "another company". Current situation is different from what Tribunal stated. In this case share wouldn't become property and company is purchasing its own share not of "another company". Accordingly Tribunal deleted the demand of 1.5 cr raised by AO and confirmed by CIT(A). #Buyback #Incometax #Directtax #Proceeedings #Judgements #Tribunal #Taxassessment #DGA

Supreme Court Ruling: Shareholders' Approval Mandatory for Listing of Additional Shares Case: Jyoti Limited vs. BSE Limited & Anr Court: Supreme Court of India Civil Appeal No.: 4707 of 2022 Citation: 2024 INSC 992 In a significant decision, the Supreme Court has upheld the requirement for shareholder approval before equity shares can be listed on a stock exchange. Background: Jyoti Limited, the appellant, applied to list certain equity shares on the Bombay Stock Exchange (BSE). However, the application was rejected as the company failed to obtain: In-principle approval from BSE. Shareholder approval for the allotment of shares to Asset Reconstruction Private Limited (RARE). This rejection was upheld by the Securities Appellate Tribunal, prompting the appellant to approach the Supreme Court. Supreme Court’s Observations: Mandatory Shareholder Approval: The Court emphasized that the conversion of debt into equity shares was initiated by Jyoti Limited through an agreement with RARE. A resolution dated May 2, 2018, by the Board of Directors of Jyoti Limited approved this conversion, increasing the company’s equity capital. Section 62(1)(c) of the Companies Act, 2013 mandates shareholder approval via a special resolution for such actions. The absence of this approval rendered the application non-compliant. Approval from BSE: The Court concurred with the Securities Appellate Tribunal's findings that approval from BSE was essential under Regulation 28 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Ruling: The Apex Court affirmed the decisions of BSE and the Securities Appellate Tribunal, holding that the application for listing lacked compliance with both statutory and regulatory requirements. Key Takeaway: This judgment reinforces the importance of adhering to corporate governance norms and shareholder rights, particularly under Section 62(1)(c) of the Companies Act, 2013. Shareholder approval is a cornerstone for actions impacting equity structure, and regulatory approvals remain non-negotiable. #CorporateGovernance #SupremeCourt #SEBI #CompaniesAct #ShareholdersRights

🚨 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

Part 2: Are most UK and EU buybacks BREAKING THE LAW? In Part 1: https://lnkd.in/eBZ_iCXX I mentioned that I am receiving some flak for suggesting that the majority of UK and EU share buyback executions may breach our Market Abuse Regulations (MAR)... Across the UK and EU, we are on track for buybacks to be over €250bn this year, and likely to be a larger than dividends. Buybacks only return capital to the selling shareholders, the remaining shareholders receive an increase in ownership. Remaining shareholders interests are directly correlated to the number of shares repurchased. Our MAR contains several safe harbours which allow certain acts to be exempt from the prohibitions of MAR. Safe harbours exist in respect of buyback programmes, but they are conditional on one of the exemptions being applied. The exemptions in Article 5 are in clauses 1(d) and 2. If the issuers buyback execution fails to meet these exemptions this means the issuer is likely to fall foul of the market abuse regime as the safe harbour only offers protection once the exemption is met. Issuers use Clause 2 a) when they disclose that a fixed value of money has been allocated to a buyback programme. To use this exemption the objective of the buyback must have the SOLE PURPOSE to reduce the issuers capital. This aligns with the holding shareholders’ interests I mentioned above. I think this clearly means that the only execution strategy that qualifies for this exemption is one that optimises for share quantity. The more shares purchased the better it is for the remaining shareholders. One of the most common execution strategies used has nicknames such as “VWAP-discount”, “VWAP-minus” and “optimised-VWAP”. VWAP stands for the volume weighted average share price. In the case of share buybacks this “VWAP” benchmark is the simple average of the shares daily VWAP over the total number of days that the programme takes to complete. Often the broker will guarantee a discounted price to this benchmark. In return the broker is incentivised by the issuer agreeing to pay/receive a fee based off the difference between this benchmark and the average prices that the broker manages to buy the shares at. Incentivising the broker to out-perform this benchmark means that the execution strategy is going to be optimised for maximising the differential between these two prices. An execution strategy that optimises for maximising the differential in price is NOT the same as one that optimises for the total number of shares purchased. These programmes should not qualify for an exemption which requires that the sole purpose is to reduce the share capital of the issuer. These structured execution products not only produce really poor execution outcomes, but it looks likely that they also tip the issuer into breaching MAR. #makeourmarketsbetter #buyback #buybacks #dividendyield

In India, shares that remain unclaimed or undelivered for seven years are transferred to the Investor Education and Protection Fund (IEPF), a government initiative to safeguard the interests of shareholders. This includes dividends, matured debentures, and shares that haven’t been claimed by their rightful owners. Converting physical shares into dematerialized (demat) form can be challenging for many shareholders. Common issues arise with the transmission of shares—where shares are transferred due to the death of the shareholder. This process involves several legal steps, including submitting a copy of the death certificate, the will (if applicable), and proper documentation proving the heir’s right to inherit the shares. For NRIs (Non-Resident Indians), the process is further complicated by the need for additional regulatory compliance, such as submitting proof of residency and a power of attorney in some cases. Multiple joint holders also pose complications. When shares are held jointly, the transmission process requires consent from all joint holders or legal heirs, which can lead to delays, especially if one holder is untraceable or unavailable. Furthermore, some shareholders may face difficulties if their share certificates are lost or damaged. To retrieve shares, investors must first approach the company’s registrar and submit relevant documents, including proof of identity and ownership. If the shares are with IEPF, an online claim process is available. The shareholder must submit an application to the IEPF authority, providing the necessary documentation to prove their entitlement. In the last 5 years, we at Fincode, have helped hundreds of shareholders retrieve shares worth more than 50 crores from IEPF.

The Bombay Bumrah Trading Corporation (BBTC) is facing allegations of non-compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST) and related party disclosure norms. The charges include: 1. Non-Disclosure of Shareholding Changes: BBTC allegedly failed to report significant shareholding changes, as required under SAST regulations, which mandate disclosures for acquisitions or disposals crossing thresholds like 5%, 10%, or 25%. 2. Related Party Transaction Irregularities: The company reportedly omitted details of transactions with related parties, such as directors or subsidiaries, which may have benefited these parties while harming shareholder interests. 3. Accounting Standards Violation: BBTC is accused of non-compliance with Ind AS 24, failing to disclose the financial impact of related party transactions in its statements. 4. Lack of Transparency in Takeover Processes: BBTC may not have disclosed critical details about acquisitions, including valuation and funding sources. Potential Outcomes SEBI could impose penalties, suspend trading, or bar directors. The company may face investor lawsuits, reputational damage, and mandatory rectifications like restating financials. Recommendations BBTC should immediately rectify lapses, strengthen governance via an independent audit committee, adopt transparency in reporting, and consult legal and financial experts to ensure future compliance.

The growing clout of proxy advisory firms? A Mint review of filings made by public companies to the National Stock Exchange showed that between 1 April and 27 July, large public institutions opposed at least 137 resolutions of 1,300—about one in 10—put forth by 650 companies. Each of these 137 resolutions saw at least 33% votes against the resolution, as per Mint's research. These include the continuation of Pranav Adani, Gautam Adani's nephew, as a director at Adani Wilmar Ltd; chairman Gautam Singhania at Raymond Ltd; vice chairperson Radhika Piramal at VIP Industries Ltd; and chairman Habil Khorakiwala at Wockhardt Ltd.  https://lnkd.in/gPgCt7xq

Penalty of Rs.7 crores u/s 42 of CA 2013 for raising Rs.3.90 crores through portal: Unlisted public company issued shares to one group company through its online portal on private placement basis. Issuer company allowed  the group company to use its portal to sell the shares to investors treating it as secondary market transactions. Accordingly, the group company transferred these shares to 76 investors using the portal at varying consideration totalling to Rs.3.90 crores. Issuer company arranged its valuation report but surprisingly the data given therein was that of the group company which was allotted shares. Issuer company held the valuer responsible for this. ROC levied penalty of Rs.7 crores on the company and its directors, including non-executive/independent directors who were about the business model of the company, for violation of Sec.42 of Companies Act 2013 since group company was used as distribution channel for offering shares to public through its portal.

File your XBRL before due date. Applicability of XBRL: 1. All public companies listed on the stock exchange in India and their Indian subsidiaries. 2. All businesses who have a turnover of Rs 100 crores or exceed. 3. All companies who possess a paid-up capital of Rs 5 crores or exceed it. The businesses are urged to build the financial statements as per the norms of Companies ( Indian Accounting standards) rules, 2015. Last date is 29th October, 2024.