On August 22, 2022, the Government of India notified the new regime for overseas investments by Indian entities and individuals. The new regime is a mixed bag of liberalizations, new restrictions and clarifications, and signals the revised thinking of the Reserve Bank of India in certain respects, particularly in relation to the scope of overseas investments and round tripping. This note discusses the changes introduced by the new regime and its impact on cross border transactions.
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.
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.
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.
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.
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.
On September 28, 2021, the Securities and Exchange Board of India (the “SEBI”) approved certain changes to regulations governing related party transactions involving listed entities under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “Listing Regulations”). The changes were announced in a press release dated September 28, 2021. Subsequently, the SEBI amended the Listing Regulations on November 9, 2021 (the “Amendment Regulations”). This note sets out an overview of the amendments introduced by the Amendment Regulations, most of which will take effect from April 1, 2022, with certain provisions taking effect from April 1, 2023. While these amendments will require increased monitoring and compliance by listed entities, clarifications have also been provided to ease compliance. Overall, these amendments are expected to strengthen oversight of related party transactions involving listed entities in India.
A key feature of the Prevention of Money Laundering Act, 2002 (the “Act”) is the power of the investigating agency under the Act, i.e., the Directorate of Enforcement (the “ED”), to provisionally attach any property believed to be involved in money laundering for an initial period up to 180 days from the date of such attachment. This provision ensures that proceeds that are obtained directly or indirectly from the offences noted under the Act (“scheduled offences”) are not dealt with in any manner so as to frustrate proceedings relating to the confiscation of such proceeds under the Act. Ex facie, this provision appears to be in direct conflict with the rights of bona fide third-parties such as banks, mortgagees, transferee, and lessee etc. who may otherwise have a lawful interest in a property alleged to be involved in money laundering and had no knowledge of such involvement at the time of acquisition of interest in such property. In light of this apparent conflict, does the Act adequately safeguard the rights of such third-parties who have a lawful interest in a property provisionally attached by the ED?
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.