Vidarbha Industries v. Axis Bank: An Unsettling Literal Interpretation

The enactment of the Insolvency and Bankruptcy Code, 2016 (“IBC”) marked a historic shift in India’s insolvency regime shifting the focus from recovery to resolution. The Bankruptcy Law Reform Committee (“BLRC”) reports highlighted the need for the legislative policy to initiate a resolution process at the instance of default to prevent erosion of value. Keeping this objective in mind, the IBC lays out a party driven process which places the creditors at the helm of the resolution procedure.
The Supreme Court of India (“Supreme Court”) has repeatedly held that keeping in mind the objectives of the IBC, the adjudicating authority at the stage of admission into the corporate insolvency resolution process needs to restrict its analysis to: (1) the existence of debt and (2) default in payment of debt. However, on July 12, 2022, the Supreme Court in Vidarbha Industries Power Limited v. Axis Bank Limited (“Vidarbha”), relying on the use of the word “may” in the relevant statutory provision, applied the literal interpretation test and held that National Company Law Tribunal has the discretion to admit an application after it is satisfied regarding the existence of debt.
This judgment, which departs from precedent, could have serious consequences for the insolvency regime in India. This note discusses the implications of a literal interpretation test in context of Vidarbha and highlights the need for an intervention to avoid the mistakes of the past.


Renewable energy in india

Great Expectations: India’s Tryst with Climate Change

India appears to be on the right track in respect of its accelerated pivot towards renewable energy (RE). However, going by present trends, national capacity-addition with regard to RE is not even close to the annual rate required for achieving its ambitious climate-related targets. Even as the country remains poised to witness a massive increase in electricity demand over the next few decades, in order to remain on a sustainable path, it needs much more funding than what is available in the current policy environment. Further, significant foreign investment is essential to address a developmental change as paradigmatic as achieving carbon-neutrality, especially given the country’s fundamental anxieties related to local industry and energy security. While its climate-related initiatives have mainly been funded through domestic capital so far, India now requires, in addition, both capital and technology from outside. Accordingly, sovereign and international development finance institutions, as well as foreign lenders and investors, need to play a key role towards funding India’s clean energy transition, over and above the government’s own legislative and regulatory interventions.


Material Adverse Effect

Renewed Spotlight on Material Adverse Effect Clauses following Covid-19 and the Musk-Twitter Dispute

Material Adverse Effect (“MAE”) clauses are once again in focus with the recent Musk-Twitter dispute arising from the termination of the transaction related to the acquisition of Twitter on MAE grounds. This note discusses certain issues relating to MAE clauses from a practical perspective in an M&A setting and how these clauses have been interpreted by courts in the past.


IPL franchise

Transactions involving IPL Franchises: Legal Due Diligence

With the recent auction and sale of media rights of the Indian Premier League (“IPL”) by the Board of Control for Cricket in India (“BCCI”) for over INR 480 billion (approximately USD  6 billion), IPL franchises are in the spotlight. Reports suggest that certain IPL franchise owners may look to capitalize on an improved valuation, and either sell a part (or all) of their shareholding in the legal entity that has bid for and owns the IPL franchise, or may even consider a public listing of such legal entity.  In this note, we look at key legal due diligence issues that may arise in connection with transactions involving IPL franchises.


independent directors

Monitoring Independent Directors: Who Will Guard the Guards?

Since the introduction of the concept of independent directors, it has been perceived as an easy remedy to poor corporate governance. Their efficacy in effectively monitoring company management is often taken at face value. Studying recent instances of corporate governance lapses provides an insight into the efficacy of independent directors. To plug gaps, regulators constantly strive to raise the bar on the relevant criteria for determining the independence, and the procedure for the appointment, of independent directors. However, the changes affected do not appear to address the problem at hand. In the United States, unlike in India, shareholders have often pursued derivative claims against independent directors. While these derivative actions are not always successful, they function as an additional check on independent directors’ actions. Derivative actions are also pursued by shareholders in India. However, they: (a) are rarely pursued against independent directors; and (b) typically arise out of situations where directors have committed a fraud on the shareholders rather than when they have simply failed to perform their duties. For independent directors in India to function as an effective check on management, the threat of shareholder action needs to be a real one.


insider trading regulations

Testing the Frontiers of the Insider Trading Regulations

By an order issued on January 14, 2022, the United States District Court, Northern District of California allowed the Securities Exchange Commission (“SEC”) to proceed on the misappropriation theory of insider trading in its “shadow trading” complaint against Matthew Panuwat. The SEC had alleged that Panuwat used confidential information about the acquisition of his employer, Medivation, to buy options in another publicly traded company and Medivation’s peer, Incyte. This note discusses the circumstances in which trading in securities of a company while in possession of information related to another company may be considered a violation of the Indian Insider Trading Regulations.


Private Equity in Sports Franchises in India

With the recent expansion of the IPL to include two new teams, CVC Capital Partners, a leading international private equity firm, acquired the Ahmedabad franchise – this is the first instance of a significant private equity investment in professional sports in India. We discuss the opportunities and potential challenges that lie ahead for private equity investment in sports franchises in the attached note.


data centers in india

Legal Considerations for Investments in Data Centres in India

With the continuing focus on digitisation accelerated by Covid lockdowns and rising demand for sustainability and green goals, there is an increase in activity relating to data centres for operators and investors as well as policymakers and regulators. In order to attract investment in data centres in India with a vision “to make India a global data centre hub”, the new Government policies intend to provide various incentives and exemptions to promote data centre industry growth. In the recent past, several multinational and domestic companies have set up data centres in India. Given the focus on data localization, there appears to be significant potential for growth for the data centres industry. In this background, the Government’s move to grant ‘infrastructure’ status to data centres and introduce a national data centre policy are welcome measures which will promote investments in data centres in India. In addition, two other policy initiatives announced in the budget speech which are expected to incentivize data centre investments are the 5G spectrum auction and the widening footprint of optical fibre.


shareholders meeting

Requisitioning a Shareholders’ Meeting: The Unfolding Events Relating to Zee Entertainment and Dish TV

The recent controversies involving Zee Entertainment and Dish TV both involve investors holding significant stakes attempting to convene general meetings of shareholders. Through such meeting, the investors seek to replace certain directors on the existing boards. In both cases, the existing boards of directors have declined to convene such meetings. In this context, we first consider a purely legal question related to the circumstances under which can a company’s board decline a request from the company’s shareholders to convene a shareholders meeting. We then consider whether the grounds on which the boards of Zee Entertainment and Dish TV have rejected the investors’ requests are valid.


committee of creditors ibc process

An Alternative Approach to a Code of Conduct for the Committee of Creditors in an IBC Process

Recently the Standing Committee on Finance in a report placed before the Parliament on August 3, 2021 proposed a Code of Conduct for the Committee of Creditors in a corporate insolvency resolution process under the Insolvency and Bankruptcy Code. Following such report, the Insolvency and Bankruptcy Board of India has published a discussion paper on August 27, 2021 which includes, among other things, a draft Code of Conduct. This note considers an alternative approach for such a Code of Conduct.