Independent directors in a fix after SC order on asset transfer in Jaiprakash Associates case

Independent directors in a fix after SC order on asset transfer in Jaiprakash Associates case
A recent Supreme Court judgement restraining independent directors of Jaiprakash AssociatesBSE -0.80 % from transferring any personal assets over a group company’s insolvency issue has sent shock waves through the independent directors’ fraternity, with experts warning that there would be few takers for this role.

Several independent directors on boards of companies are now seeking legal advice to find out to what extent they can be held liable for any operational issues in those firms.

Kiran Mazumdar Shaw, chairperson of Biocon, said the country is moving from poor governance to extreme governance. “It is unfair to place the entire onus on independent directors who are only privy to the information shared with them by the management,” she said. “Instead of penalising independent directors, the management and promoters should be penalised.”

A corporate veteran who is on the board of several blue chip companies as an independent director said they should be “provided immunity and protection except in cases of wilful fraud or gross neglect”. “We spend so much time and energy to understand issues although the compensation for the same is not adequate enough,” the person said on condition of anonymity.
The Supreme Court had last week restrained independent directors and promoters of Jaiprakash Associates and their family members from transferring any personal assets or property without the court’s permission until its real estate arm Jaypee Infratech deposited Rs 2,000 crore to protect the interest of hundreds of homebuyers who have invested in the firm’s incomplete residential projects.
Many industry and legal experts said independent directors should not be held liable for operational issues, while others defended the court’s decision saying such directors cannot alienate themselves from affairs of companies.

Independent directors need to be given immunity and protection except in cases of wilful fraud or gross neglect. They should not be held liable for the business losses or business financial failure of the company. People of calibre are wary of joining boards and the recent order may be a jolt to the office of independent directors as it has given a new dimension to this office, says Rajesh Narain Gupta, Managing Partner SNG & Partners.
Experts warned that people will now think long and hard before joining the board of companies, leading to difficulties in implementing the recent Uday Kotak committee recommendations on corporate governance, which mooted stronger role for independent directors.

“Public policy must figure out how to ensure that the burden of serving on boards is not so heavy that the beneficial effects of independence emphasised by the Kotak committee are not given up,” said Shailesh Haribhakti, chairman at chartered accountant firm Haribhakti & Co.

“This will be a fine balancing act,” said Haribhakti who is an independent director on the boards of several companies including Blue Star, ACC, Torrent Pharmaceuticals, Ambuja Cements, Future Lifestyle Fashion and L&T Finance Holdings.

Deepak Parekh, chairman of HDFC Bank, however, said independent directors are bound to closely monitor operations of the company on which they are a board member.

“In case they come across any governance issues they should put across their views strongly to the promoters or step off such boards,” he said. “While the judgement may be seen as harsh, independent directors cannot alienate themselves from company issues,” Parekh said.

COMPLIANCE NORMS MAY BE EASED FOR COMPANIES FACING INSOLVENCY

COMPLIANCE NORMS MAY BE EASED FOR COMPANIES FACING INSOLVENCY
A committee set up to ease listing, compliance and disclosure regulations for companies in the process of insolvency resolution has submitted its recommendations to market regulator Securities and Exchange Board of India (Sebi), two people with direct knowledge of the matter said.
The committee comprising members from Sebi and the Insolvency and Bankruptcy Board of India (IBBI) was formed considering that 11 of the 12 large NPA accounts currently under insolvency proceedings, including Bhushan Steel Ltd, Alok Industries Ltd, Amtek Auto Ltd, Lanco Infratech Ltd, Electrosteel Steels Ltd and Era Infra Engineering, are listed companies.
“The committee was formed to ease listing, compliance and processes for companies that are currently undergoing insolvency proceedings. Major recommendations include easing the listing obligation and disclosure requirements (LODR), and delisting and relisting if these are a part of the resolution plan,” said one of the two persons cited above, who declined to be named.
“Recommendations were submitted to the market regulator earlier this week for amending Sebi regulations. These recommendations could be considered in a meeting of Sebi’s board next month (December),” said the second person mentioned above, also on condition of anonymity.
This is the second time this year that the market regulator is considering changes in regulations to ease the resolution of stressed assets in banks’ balance sheets.
On 21 June, the Sebi board had exempted buyers of shares in distressed firms from the requirement of making an open offer even if the purchase triggers such an event under the takeover code.
An email sent to Sebi on Thursday regarding the new proposals was not answered immediately.
“A pragmatic way of dealing with such companies will be to facilitate their revival and therefore various compliances that are otherwise required to be done by a listed company on a continuous basis under the listing regulations should be relaxed for companies referred to the insolvency board,” said Yogesh Chande, partner, Shardul Amarchand Mangaldas, a law firm.
Once a firm is admitted for insolvency by the National Company Law Tribunal, its board is no longer in control and the decisions to keep the firm as a going concern is taken by the Insolvency Resolution Professional (IRP).
“There was a proposal from the IRPs to suspend the compliance requirements for the insolvent companies. But the committee felt that certain minimum LODR requirements would need to be met by the IRP. The IRP would be assisted by the stock exchanges in generating alerts for the required disclosures,” said the second person cited above.
The committee has recommended that trading in a company’s shares should not be suspended, another demand from lawyers and IRPs, the person added.
The other key recommendation is to ease the delisting regulations. Under Sebi regulations if an acquisition is done with an intention to delist, the buyer has to first make an open offer.
If, after the open offer, its shareholding crosses 90% (the delisting threshold), it has to make another offer to acquire the majority of the remaining minority shareholding. If that doesn’t happen, then the buyer has to scale back its ownership to 75%.
The erstwhile Sick Industrial Companies Act, or SICA, which was repealed on 1 December 2016, had a specific provision for delisting sick companies.
“The delisting regulations for insolvent companies will be eased if it is a part of the resolution plan. The delisting price would be the price on which the National Company Law Tribunal admits the plan,” said the second person.
“Sebi has taken giant strides in bridging the gap between listing regulations and IBC requirements, but some more steps need to be taken to build a wholesome environment for listing. The most important bit is to have a framework for delisting (that was present under SICA). Second is to allow listed insolvent companies undergoing restructuring to have some more time to comply with minimum float requirements,” said Ashwin Bishnoi, partner, Khaitan and Co, a law firm.

EXPENDITURE IN RAISING LOANS OR ISSUING DEBENTURES WOULD BE REVENUE IN NATURE

EXPENDITURE IN RAISING LOANS OR ISSUING DEBENTURES WOULD BE REVENUE IN NATURE

Case Name : Tata Industries Ltd. Vs. ACIT (ITAT Mumbai)
Dis allowance of expenditure in the shape of upfront fees and brokerage etc. paid for issuing the non-convertible debentures. The AO concluded that since the term of the debentures was spread over two years, hence benefit arrived at by the assessee was of enduring nature spread over two years. The AO therefore calculated the expenses pertaining to the year under consideration and disallowed the remaining expenses.
This issue is also covered with the decision of the Hon’ble Supreme Court’ in the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, wherein the Supreme Court held that the expenditure in raising loans or issuing debentures would be revenue in nature, irrespective of whether the borrowal is a long term or short term one. It was held that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. This issue is accordingly decided in favour of the assesse.

IFCI FILES FOR INSOLVENCY SUIT AGAINST ANIL AMBANI’S RELIANCE NAVAL & ENGG

IFCI FILES FOR INSOLVENCY SUIT AGAINST ANIL AMBANI’S RELIANCE NAVAL & ENGG
Anil Ambani-led Reliance Naval and Engineering is facing bankruptcy proceedings under the Insolvency and Bankruptcy Code at the National Company Law Tribunal (NCLT). The Ahmedabad bench of the NCLT, which is hearing the insolvency case filed by infrastructure lender IFCI Ltd, has posted the case for hearing on December 8.
NCLT Member Judicial Bikki Raveendra Babu and Member Judicial Manorama Kumari presided at the November 27 hearing of the case, which has been filed under Section 7 of the Insolvency and Bankruptcy Code section of the Companies Act.
Reliance Naval, yet another defence shipyard that is floundering amidst high debt, has been asked to file its objections, if any, within one week.
Refuting the charge, Reliance Naval said in a statement that there are no merits in the application filed by IFCI before NCLT “as it is an unsecured creditor”.
In a response to the stock exchanges, Nikhil Jain, Chief Financial Officer said, “The action of IFCI is unwarranted and premature. The 25 secured lenders of the company have also requested IFCI that the matter be resolved outside the NCLT."

OVERSEAS PRIVATE INVESTMENT CORPORATION LINES UP $ 1 BILLION FOR INDIA

OVERSEAS PRIVATE INVESTMENT CORPORATION LINES UP $ 1 BILLION FOR INDIA
The Overseas Private Investment Corporation (OPIC), a financial institution of the US government, has readied $1 billion in the pipeline for investments in infrastructure and lending projects in India, its president Ray Washburne told ET.

Washburne, who has been a key political fundraiser for Donald Trump’s presidential campaign, said the reforms for doing business put in place by the Narendra Modi government have been very encouraging and similar to what the US president has done in America. “We currently have $1.4 billion in investments in India. We have been doing business in India since 1974,” Washburne told ET on the sidelines of the Global Entrepreneurship Summit in Hyderabad on Wednesday.
“We have about $1 billion worth of projects in India in small business loans, infrastructure such as power plants and electrical grids that we are reviewing,” he said. Washburne said the reforms for doing business put in place by the Modi government have been very encouraging.

UNINSURED DEPOSITORS LIKELY TO GET PREFERENCE OVER OTHER CREDITORS

UNINSURED DEPOSITORS LIKELY TO GET PREFERENCE OVER OTHER CREDITORS

A proposed Financial Resolution and Deposit Insurance Bill (FRDI), which is aimed at orderly resolution of bankruptcies in the financial services sector, includes a special high-risk deposit instrument, regulatory supervision by the finance ministry, and a bankruptcy framework that will envelope all financial institutions.

Just like the current bank deposit insurance scheme, deposits up to Rs 1 lakh would be insured but there is also a proposal for a new kind of high-yielding deposits which can be called whenever they are deemed critical, which can be referred to as a bail-in clause. These instruments would be last in the line for payments in case of liquidation.

“The bail-in provision relates to instruments specifically issued with a bail-in clause upfront with the specific understanding that these liabilities can be called up when the financial institutions are deemed critical,’’ said Usha Thorat, former deputy governor of the Reserve Bank of India. “This bill will also look to clarify some infirmities in the present scheme and provide uninsured depositors preference over other creditors. The resolution corporation will be under the finance ministry unlike the DICGC (Deposit Insurance and Credit Guarantee Corp) which is under the RBI.”
A separate law to wind down institutions in the financial services is in the works in line with global developments where many countries have evolved special laws post the collapse of Lehman Brothers in 2008 which roiled the global financial system.
The Bill is currently with a Parliamentary standing committee and there is no clarity on when the bill would wind its way to lawmakers for a vote. The Deposit Insurance Corporation and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI, was formed in 1961. Banks have to mandatorily take deposit insurance which covers individual deposits up to Rs 1 lakh. The DICGC manages the Deposit Insurance Fund (DIF) which is made up of the premium received from in-sured banks and coupon received from investment in central government securities.
The deposit insurance scheme currently covers all banks, commercial, regional rural and co-operative banks. So far in 2017, more thanRs 28 crore was sanctioned from the insurance scheme to all co-operative banks according to information on the DICGC website.

“The present deposit insurance scheme will be subsumed by the new Bill, but the Rs 1 lakh deposit insurance amount will not change,’’ said Sandeep Parekh managing partner at Finsec Law Advisors. “To be precise, no commercial bank has been allowed to go down in India in the last 70 years and that implicit sovereign guarantee continues even with this new Bill.”

The bill proposes to establish a resolution corporation to monitor financial firms and oversee the liquidation, which was not the case in so far. The RBI which has been in charge of bank liquidations or resolutions will also no longer be in charge.

“Unlike the present scheme, which was only restricted to banks, the new Bill will cover resolution of all financial institutions. This Bill will also look to clarify some infirmities in the present scheme and provide uninsured depositors preference over other creditors,” Thorat said.

Neither the government nor the RBI or any other financial regulator has said by when this would become a law, or in what form.

INDIA INC RAISES RECORD RS 49,000 CR VIA QIPS: PRIME DATABASE

INDIA INC RAISES RECORD RS 49,000 CR VIA QIPS: PRIME DATABASE
The total amount raised by companies through the qualified institutional placement (QIP) route has hit a record high in 2017, crossing Rs 49,000 crore, even as the stock markets have scaled new highs. A total of 33 companies took the QIP route in 2017 to raise Rs 49,702 crore, data sourced from Prime Database revealed. This includes some of the biggest issues in the past 11 years, with banks leading the way. State Bank of India’s (SBI) Rs 15,000 crore offer was the biggest in 2017 so far. SBI’s was biggest such equity issuance in the country, the lender had issued around 52.21 crore new shares at a price of Rs 287.25. SBI came with the offer to augment its capital adequacy ratio and for general corporate purposes. Kotak Mahindra Bank’s offer was the next biggest. The private lender raised Rs 5,803 crore in May 2017. Kotak’s offer was to enable its founder, Uday Kotak, to bring down his personal stake to the RBI mandated levels. Uday Kotak at present owns a 29.78% stake in the bank. Yes Bank which had to scrap its QIP in September 2016, successfully raised Rs 4,906 crore in March 2017. Federal Bank, DCB Bank and United Bank of India were the other banks which raised money through QIPs this year.
Hindalco, Brigade Enterprises, Delta Corp, Apollo Tyres, Edelweiss Financial Services and Premier Explosives were some of the other companies which raised money through QIPs. “It has been a phenomenal year for follow-on fundraising. Many large global fund managers and marquee pension funds have invested in QIP issues this year. Demand was strong from both foreign portfolio investors and domestic institutional investors. The companies which raised money are very large companies with a strong track record. Moreover, there is a strong fund flow especially from domestic retail investors, and mutual funds also participated in these issues in large numbers,” said V Jayasankar, Senior Executive Director and Head of Equity Capital Markets at Kotak Investment Banking.