India has witnessed a significant increase in institutional shareholder activism over the past few years. As a consequence of the rapid rise in shareholder activism, there has been much greater focus on the rights of minority shareholders in relation to a company. In this context, the judgment of the division bench of the Bombay High Court on March 22, 2022 in Invesco Developing Markets Fund v. Zee Entertainment Enterprises Limited addresses two key issues: (i) the statutory right of shareholders to call a shareholders’ meeting and (ii) the appropriate judicial forum for such shareholder disputes.
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.
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.
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.
By an order dated July 19, 2021, the National Company Law Appellate Tribunal (the “NCLAT”) stayed the operation of the order of the National Company Law Tribunal (the “NCLT”) which had approved a resolution plan in relation to the Videocon group. In staying the operation of the NCLT’s order, the NCLAT appears to have been influenced by the observations of the NCLT on two points, a substantial haircut and a breach of confidentiality. Apart from these two points, this note considers a possible shortcoming in the NCLT order in relation to treatment of dissenting creditors.
On June 15, we had written about a proposed preferential issue by PNB Housing Finance, in respect of which a proxy advisor issued a report asking public shareholders to vote against the proposed investment. As an alternative to a preferential issue, the report suggested that the company should have considered a “rights issue”. In our previous article, we considered a “rights issue” and a “preferential issue” from the perspective of certainty in funding, disclosure obligations, approvals and timelines and pricing.
The debate has since focused on whether the proposed preferential issue required a report of a registered valuer and whether such a report was in fact procured. In this article, we consider the legal framework around which the debate turns, comprising the SEBI ICDR Regulations, the Companies Act and PNB Housing Finance’s articles of association.
Recently PNB Housing Finance announced a “preferential issue” of shares, through which the Carlyle Group will acquire a controlling interest in the company. A proxy advisor has issued a report asking public shareholders to vote against the proposed investment. The report argues that the price at which Carlyle will be investing in the company belies the company’s true value. As an alternative to a preferential issue, the report suggests that the company should have considered a “rights issue” in which all shareholders will be entitled to participate. In this context, it is important to consider whether a preferential issue and a rights issue are, in fact, comparable options for fundraising and accordingly, if there is merit in the allegation of poor corporate governance that has been levelled against the target company’s board of directors.
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.
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.
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.