By a judgment dated November 15, 2019, the Supreme Court of India in the case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others delivered its final verdict on the acquisition of Essar Steel India Limited under the Insolvency and Bankruptcy Code, 2016. The proceedings under the IBC in relation to the acquisition of Essar Steel lasted for more than two years and laid down precedents on several questions arising out of the then newly introduced insolvency legislation in India. This paper is a comment on this judgment. It critically analyses the decision of the Supreme Court and the impact of the judgment on insolvency law in India.
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The SEBI’s Insider Trading Regulations prohibit trading in listed securities when in possession of unpublished price-sensitive information (“UPSI”).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which invariably needs to be addressed in such matters is whether the information that was alleged to be UPSI was “unpublished”.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.
Although the Government fell short of its disinvestment targets for the financial year ending March 31, 2021, the finance minister, in her budget speech, has promised the completion of several key disinvestment transactions in the next financial year. Completing disinvestment proposals has historically proven to be challenging on account of different factors. These factors include regulatory hurdles, conflicting expectations from different stakeholders, litigation risks and uncertainty in post-closing arrangements. Learning from such experiences and anticipating the challenges that lie ahead will be key to executing the Government’s proposals in an effective and timely manner.
The recent interpretation of “control” by the High Court of Delhi in a litigation between Future Retail and Amazon has once again focused attention on the perennial question of what constitutes control. As described in more detail in the note, this question cannot be considered in abstract; it must be considered in the context of a specific legislation or policy and the objective it seeks to achieve. The relevant provisions of the FDI policy, which provide the context in this case, may not have been correctly appreciated.
In the recent spate of amendments to the Arbitration & Conciliation Act, 1996 (the “Arbitration Act”), one issue remained overlooked – whether a particular dispute can be referred to arbitration or whether such dispute is exclusively reserved for adjudication by a court. For almost a decade, the sole guidance to courts deciding this question was the test formulated by the Supreme Court of India (the “Supreme Court”) in Booz Allen and Hamilton Inc v. SBI Home Finance Ltd. & Others (2011) 5 SCC 532 (“Booz-Allen Test”). However a closer look at the rulings of the Supreme Court over the last few years reveal that the Booz-Allen Test has failed to withstand the test of time – the ‘nature of rights’ principle on which the test is predicated has been found inadequate to conclusively determine the question of arbitrability. Recently, the Supreme Court revisited this question in Vidya Drolia & Others v. Durga Trading Corporation 2019 SCCOnLine SC 358 (“Vidya Drolia”) and proposed a four-fold test to determine arbitrability under Indian law. The Supreme Court also issued guidance to forums adjudicating this issue.
In light of the growing trend of private equity (“PE”) firms acquiring minority stakes in multiple firms in the same sector, the Competition Commission of India (the “CCI”) has recently announced a market study to analyse the incentives and rights associated with such minority investments, and their impact on competition in India. There is a lack of clarity around situations in which a PE investor is required to notify a proposed minority acquisition to the CCI, and it is hoped that the CCI’s proposed market study will inform improvements to this framework, in order to bolster certainty and investor confidence. In this context, this note provides an overview of the existing Indian merger control framework vis-à-vis ‘minority acquisitions’, including the uncertainty currently surrounding the notifiability of such transactions, and suggests a possible way forward.