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Knowledge Series – India Update Part 1 of 2018 ‘India Update – Part 1 of 2018” is the latest addition to the  Knowledge Series. This document is intended to keep you updated on the latest legal, policy and regulatory developments in India. While many such developments have ramifications across sectors, an equally significant number pertains to specific industry sectors. It is our endeavour to short-list, collate and analyse the available data in order to curate information that provides a succinct overview of selected topics and issues. Many developments over the recent past – especially regarding the Insolvency & Bankruptcy Code, data privacy and liability concerns stemming from GDPR, ramifications of the Kotak Committee report for corporate governance in the country, etc. – have forced companies to revisit several fundamental aspects of their operations and corporate structures. We have presented a detailed analysis of these topics. Additionally, we have also added a sec

IBC | Legislative Alert | Ordinance, 2018 to amend IBC approved by the President | Key changes The President today (6 June 2018) gave assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ordinance). Following are the key points to be noted as per the press release issued by the Government (Ministry of Corporate Affairs): 1. Home buyers as financial creditors.  The Ordinance provides significant relief to home buyers by recognizing their status as financial creditors. This would give them due to representation in the Committee of Creditors and make them an integral part of the decision making the process. It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) against errant developers. 2. Boost to MSME Sector.   The Ordinance empowers the Government to provide Micro, Small and Medium Sector Enterprises (MSME), with a special dispensation under the Code. The immediate benefit it provides is that it

IBC | Case Law Alert | Right of operational creditors / suspended board/resolution applicants to attend COC meetings In an important ruling in the matter of ANG Industries Limited v/s Shah Brothers Ispat Private Limited & Ashok Leyland Limited, the National Company Law Appellate Tribunal (NCLAT) vide an order dated 24 May 2018 (available here), has analysed the following critical issues: (i) Whether the resolution professional is required to give notice to ‘Operational Creditors’ or their representatives to attend the meeting of Committee of Creditors (COC); and (ii) What is the legislative intent behind allowing the ‘suspended board of directors’, the ‘partners of the corporate debtor’, the ‘operational creditors or their representatives’ or the ‘resolution applicant(s)’ to attend the meeting of the COC, even though they do not have the right to vote? Observations of the NCLAT The NCLAT while relying upon the findings of Joint Parliamentary Committee and its earlier ru

IBC | Legislative Alert | Provisions in relation to financial service providers under the Code notified The Central Government has notified the provisions (notification available here) in relation to financial service providers under the Insolvency and Bankruptcy Code, 2016 (“Code”), with effect from 1 May 2018. Section 227 of the Code deals with the power of the Central Government to notify financial service providers and provides that the Central Government may in consultation with the appropriate financial sector regulators, notify financial service providers or categories of financial service providers for the purpose of their insolvency and liquidation proceedings, which may be conducted under the Code, in such manner as may be prescribed. In addition to the aforementioned, the Central Government has also notified the following provisions with effect from 1 May 2018, in relation to: (i) release of annual reports by the Insolvency and Bankruptcy Board of India (“IBBI”) deta

BC | Legislative Alert | Maintenance of public shareholding in listed companies for whom resolution plan is approved | SCRR amended Vide an amendment carried out to the Securities Contracts (Regulation) Rules, 1957 (“SCRR”) by the Securities Contracts (Regulation) (Amendment) Rules, 2018, dated July 24, 2018 ( available here ), the rule has been introduced regarding maintaining minimum public shareholding (“MPS Requirement”) in a listed company for whom a resolution plan has been approved under section 31 of the Insolvency and Bankruptcy Code, 2016 (“Code”). As per the amendment: 1. In cases of public shareholding falling below 25%. Where the public shareholding in a listed company falls below 25%, as a result of implementation of the resolution plan approved under section 31 of the Code, such company shall bring the public shareholding to 25% within a maximum period of 3 years from the date of such fall, in the manner specified by the Securities and Exchange Board of India (“S

IBC | Case Law Alert | Liquidation Order, not a bar to pass appropriate orders u/s 230 of the Companies Act, 2013 The National Company Law Appellate Tribunal (“NCLAT”) has in the matter of Arun Kumar Jagatramka vs Gujarat NRE Coke Ltd., order dated 10 July 2018 ( available here ), held that a liquidation order passed by the National Company Law Tribunal (“NCLT”) under the Insolvency and Bankruptcy Code, 2016 (“Code”) will not come in the way of the NCLT to pass appropriate order in accordance with law on the petition filed under Section 230 of the Companies Act, 2013 (power to compromise or make arrangements with creditors and members) which should not be in conflicted with the provisions of the Code. Factual Matrix: 1. A liquidation order dated 11 January 2018 (“Liquidation Order”) was passed by the NCLT Kolkata against Gujarat NRE Coke Limited (“Corporate Debtor”) in absence of approval of resolution plan and in want of time beyond 270 days, under Section 33 of the Code. 2.

The Indian Insolvency and Bankruptcy Regime The Government has been looking to take adequate action to improve the “ease of doing business ranking”, in addition to making attempts to address the alarming rise of stressed assets in India. Resolving Insolvency being one of the criteria for World Bank’s ease of doing business (in which India ranks 136 among 185 countries), there was a need to address the issues surrounding insolvent and bankrupt Tandoor Manufacturer entities. With the aim to address such issues, the Insolvency and Bankruptcy Code, 2016 (“IBC”) was introduced and enforced in December 2016. The IBC is intended to assist domestic and foreign lending by providing a uniform, comprehensive and efficient insolvency legislation, with an emphasis on revival as the first avenue for debt recovery.

IBC | Legislative Alert | IPEs cannot act as IP and to render only support services to IPs The Insolvency and Bankruptcy Board of India (“IBBI”) has clarified on the nature of services that can be provided by an insolvency professional entity (“IPE”) and insolvency professionals (“IP”), vide it's circular dated 6 July 2018 ( available here ). As per the circular: IPEs to provide services to only IPs An IPE is recognised in accordance with regulation 12 (1) of the IBBI (Insolvency Professionals) Regulations, 2016, only if “its sole objective is to provide support services to the insolvency professionals, who are its partners or directors, as the case may be”. Thus, an IPE cannot provide any service to any person. It can provide only support services to the IPs who are its partners or directors. Thus, the role of IPE is clearly specified. Only IPs can provide services of IPs and IPE cannot act as an IP Section 206 of the Insolvency and Bankruptcy Code, 2016 (“Code”)

IBC | Alert | IBBI’s circular in aid of IPs conducting CIRP The Insolvency and Bankruptcy Board of India (“ IBBI ”) has released a circular dated 29 June 2018 ( available here ) listing orders passed by different National Company Law Tribunals (“ NCLTs ”) where the NCLTs have aided insolvency professionals (“ IPs ”) in discharging their roles and responsibilities under the Insolvency and Bankruptcy Code, 2016 (“ Code ”), rules and regulations made thereunder. Tandoor Manufacturer As per the said circular, the IPs are requested to go through the orders passed by NCLTs for better and complete understanding and update themselves from subsequent orders on the same subject. The IBBI has listed the following factors for issuing the circular: An IP plays a key role in corporate insolvency resolution process (“ CIRP ”) under the Code. A whole array of statutory and legal duties and powers is vested in him. Section 20 of the Code requires him to make every endeavour to protect a

Knowledge Series – India Update Part 2 of 2018 Over the last quarter, there has been a spate of regulatory and legal developments that have significant implications for domestic and foreign businesses alike – ‘India Update – Part 2 of 2018’ endeavours to examine these developments and present a succinct summary to our readers. Government of India’s intent of promoting ease of doing business and creating parity with international regulatory standards is clearly manifest in the latest round of legislative reforms. In this document, we examine the improvements made to the country’s dispute resolution process by strengthening provisions relating to specific enforcement of contracts and reducing the scope of local courts to grant interim relief during ongoing arbitration proceedings. We also delve into the implementation guidelines recently notified for enabling outbound cross-border mergers and the new reporting structure for disclosing information on foreign investment in Indian com

Interim Union Budget 2019 – An Analysis Dear Reader, The Hon’ble Interim Finance Minister Mr Piyush Goyal announced the Interim Union Budget 2019 today. The attached booklet contains an analysis of the key announcements. Usually a vote on the account does not bring with it massive changes; however, this year was different in that there are several important changes proposed to reduce the tax burden on the middle-class taxpayers, MSMEs and rural populace. It has managed to strike the right balance wherein every segment of society gets a little bit, with the promise of lots more to come, as was clear from the Tandoor Manufacturer Interim Finance Minister’s vision for India over the next 10 years. Our endeavour is to ensure that it makes for an interesting read, and we welcome your feedback. Please connect with us with any queries or comments. As always, your feedback and comments are welcome.

Knowledge Series – India Update Part 1 of 2019 This iteration of ‘India Update – Part 1 of 2019’ examines the emerging landscape with respect to arbitrations in India and discusses taxation concerns pertaining to the fair market value of acquired shares, the emerging interplay between IBC and India’s Income Tax Act, as well as increased scrutiny of related party transactions. Updated requirements for the issue of capital and disclosure are analysed in detail, in addition to the latest press note on the e-commerce sector, which has been widely debated in the business media. We also discuss the increasing relevance of Bureau of Indian Standards and certain key aspects of hotel acquisitions in the country. We conclude by delving into the risk faced by nominee directors and concerns in the industry with respect to information exchange with competitors, which is looked at critically by the competition regulators globally. Our continuing endeavour is to present a succinct summary

IBC | Legislative Alert | IBBI clarifies on IPs’ fees, expenses and on insolvency resolution process cost The Insolvency and Bankruptcy Board of India (IBBI) has issued a circular on 12 June 2018 (available here), for clarifying various obligations of the insolvency professional (IP) under the provisions of the Insolvency and Bankruptcy Code, 2016 (Code) in relation to fees, expenses and insolvency resolution process cost (IRPC). The circular has been issued in furtherance of the discussion paper earlier issued by the IBBI titled “Regulation of fee payable to IPs and other process costs under Corporate Insolvency Resolution Process” on its website on 1 April 2018. Following are the key obligations of IPs covered under the circular: 1. Illustrative list for reasonable fees provided. An IP can charge reasonable fees and what is reasonable is context specific and is not amenable to a precise definition. The circular has provided an illustrative list of factors considered in the det

IBC | Legislative Alert | SEBI amends its regulations to provide for exemptions vis-a-vis resolution plans The Securities and Exchange Board of India (SEBI) has amended the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Code), SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR) and SEBI (Delisting of Equity Shares) Regulations, 2009 (Delisting Regulations), to provide for exemptions (as provided below) to resolution plans (Approved Resolution Plan) approved under section 31 of the Insolvency and Bankruptcy Code, 2016 (Code), with effect from 31 May 2018: 1. Takeover Code – Acquisitions to take shareholding beyond maximum permissible non-public shareholding Under the Takeover Code, there is an embargo for acquirers (holding shares between 25% to maximum permissible non-public shareholding) to not acquire or enter into an agreement to acquire shares or voting rights exceeding such Tandoor Manufacturer number of shares

IBC | Case Law Alert | Exclusion of certain period from 270 days – NCLAT illustrates grounds for such exclusions   view of various cases being dealt by the National Company Law Tribunals (“NCLT”) across various jurisdictions to allow exclusion of certain period from the 270 days period (being the maximum period for completion of the ), the National Company Law Appellate Tribunal (“NCLAT”) has dealt with the question in the matter of Quinn Logistics India Private Limited v/s Mack Soft Tech Private Limited, dated 8 May 2018 (order available here), and held that if an application is filed by the ‘Resolution Professional’ or the ‘Committee of Creditors’ or ‘any aggrieved person’ for justified reasons, it is always open to the NCLTs/NCLAT to ‘exclude certain period’ for the purpose of counting the total period of 270 days, if the facts and circumstances justify exclusion, Tandoor Manufacturer in unforeseen circumstances. The NLCAT has, however, stated a caution that after exclusion of

IBC | Legislative Alert | Pending disciplinary proceedings against Insolvency Professionals | Ineligibility to accept fresh assignment under the Code The Insolvency and Bankruptcy Board of India (“IBBI”) has issued a circular dated April 23, 2018 (“Circular”) (available here) to clarify the circumstances when disciplinary proceedings are said to be pending against an insolvency professional (“IP”), and when such IPs should not accept any fresh assignment under the Insolvency and Bankruptcy Code, 2016 (“Code”). As per the Circular: 1. The Code provides that an IP may be appointed as an interim resolution professional, resolution professional, liquidator or bankruptcy trustee if no disciplinary proceeding is pending against him/her, the Code, however, does not define the term ‘disciplinary proceeding’. 2. The IBBI took note of the following provisions under the Code: (a) Section 219 of the Code envisages issue of show cause notice (“SCN”) following an inspection or investigat

IBC | Case Law Alert | Income-tax department, not a secured creditor once liquidation has commenced under IBC | Stands 5th in the order of distribution of assets In a landmark ruling, the Hon’ble High Court of Hyderabad (“High Court”) has held that the Income-tax Department (“Department”) does not enjoy the status of a secured creditor on par with a secured creditor covered by Section 52 of the Insolvency and Bankruptcy Code, 2016 (“Code”), once a liquidation order has been passed against a corporate debtor under the provisions of the Code. The High Court ruled the above in the matter of Leo Edibles & Fats Limited vs. The Tax Recovery Officer (Central), Income Tax Department, Hyderabad and others vide an order dated 26 July 2018 (available here), where it primarily dealt with the construction and interpretation of the provisions of the Code in juxtaposition with the Income-tax Act, 1961 (“IT Act”). Keeping in mind the non-obstante nature of the Code, the High Court further

IBC | Case Law Alert | Whether being empanelled with a financial creditor debars to act as insolvency professional? | Whether COC needs to give reasons for replacement of RP The National Company Law Appellate Tribunal (“NCLAT”) in the matter of State Bank of India vs. Ram Dev International Limited, vide its order dated July 16, 2018  has dealt with the question if an individual who is empanelled with a financial creditor, is eligible to act as an insolvency professional as per the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”), rules and regulations made thereunder. As per the facts of the case, the NCLAT held that a resolution professional (“RP”) if empanelled as an Advocate or Company Secretary or Chartered Accountant with one or other financial creditor, that cannot be a ground to reject the proposal for his appointment as RP, if otherwise there is no disciplinary proceeding pending or it is shown that the person is an interested person being employee or in

IBC | Legislative Alert  Further to notification of the IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018, dated 3 July 2018 (“CIRP Amendment”), the Insolvency and Bankruptcy Board of India (“IBBI”) has applied the provisions of CIRP Amendment in relation to appointment of authorised representative for class of creditors, to the existing corporate insolvency resolution processes (“CIRP”) as well, vide a clarificatory circular issued on 13 July 2018 (available here) (“IBBI Circular”). The IBBI Circular states that such appointments are matters of procedure. As per the amendment introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 promulgated on 6 June 2018 (“2018 Ordinance”), it had provided for ability of appointment of authorised representative for “class of creditors”, that is, creditors other than creditors in relation to consortium arrangements, Tandoor Manufacturer syndicate facility, where financial d