On March 26, the Supreme Court delivered its verdict in a matter that has grabbed headlines for more than four years. Two prominent business groups, historically inter-connected with each other in multiple ways, have engaged in a no-holds-barred battle that by all accounts will be a significant marker in the history of corporate India. It started at a board meeting of Tata Sons on Oct. 24, 2016, when Cyrus Mistry was removed by the board of directors from his position as executive chairman. This led to a series of cascading events that ultimately ended up in the courts.
We are pleased to announce that Jitesh Shahani has joined S&R Associates as a partner based in the Firm’s Mumbai office.
The SEBI’s Insider Trading Regulations prohibit trading in listed securities when in possession of unpublished price-sensitive information (“UPSI”). Therefore one question which invariably needs to be addressed in such matters is whether the information that was alleged to be UPSI was “unpublished”. In a recent order issued by the SEBI in February 2021, Future Corporate Resources Private Limited, Mr. Kishori Biyani and certain other persons (together, the “Noticees”) were held to be in violation of the Insider Trading Regulations. It was alleged that the Noticees traded in shares of Future Retail Limited when in the possession of UPSI. The Noticees argued, inter alia, that the information that was alleged to be UPSI was already in the public domain in the form of media reports. This argument was rejected by the SEBI. It was not the first time that such an argument was made. It will likely not be the last. However, the backdrop is that the original 1992 regulations, and then the amendments in 2002 and 2015, have taken divergent approaches on this point. It has also not helped that the orders of adjudicatory authorities on this point have been inconsistent.
In 2020, over $80 billion was raised in the US from more than 200 SPACs (special purpose acquisition companies), with SPAC IPOs comprising over 50% of US IPOs. While Indian laws have been amended to facilitate cross-border mergers, regulatory and taxation challenges restrict the ability of the parties to efficiently merge an Indian company with the SPAC. The parties’ objectives could therefore be met through externalisation and structuring within the scope of Indian regulations. Apart from the regulatory and taxation challenges involved in a US listing through the SPAC route, Indian companies should also be prepared for compliance with a stringent governance, internal controls, accounting and disclosure regime. Several Indian technology companies have plans to go public. It remains to be seen how many will opt for the SPAC route, which has increasingly emerged as an attractive option for companies around the world particularly in the technology and ESG sectors. In the meanwhile, the SPAC alternative could also well be explored by Indian regulators as a route for listing in India with appropriate safeguards.
The Supreme Court of India in the Essar Steel case held that allowing claims apart from those covered in a resolution plan to survive after approval of a resolution plan militates against the rationale of Section 31 of the IBC. The Supreme Court recognized that a successful resolution applicant should be given an opportunity to take over and run the business of the corporate debtor on a clean slate. Subsequently, the legislature introduced Section 32A of the IBC to provide that a corporate debtor shall not be prosecuted for an offence committed prior to the corporate insolvency resolution process, subject to certain conditions. Recently, the Supreme Court dismissed a writ petition challenging the constitutional validity of Section 32A of the IBC. The Supreme Court issued an unequivocal declaration of the need to give the successful resolution applicant a fresh start.