Shareholder Activism in India: The Zee-Invesco Decision

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.


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.


Related Party Transactions

Recent Changes to Framework Governing Related Party Transactions involving Listed Entities

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.


Does the Prevention of Money Laundering Act, 2002 Safeguard Third-party Rights in the Course of Attachment of Properties?

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 Conundrum of “Unpublished Information” under the Insider Trading Regulations

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.


SPACs: A ReNew-ed Interest in US Listings

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.


Defining Control: Future Retail vs. Amazon

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.


Bribery and Money-laundering Risk Management in M&A

As government agencies and regulators around the world are strengthening their enforcement efforts (having unearthed major bribery, corruption and money laundering related lapses by various corporates in the recent years), corporate activities have come under increased regulatory scrutiny. A target’s historical and existing anti-money laundering (AML) or anti-bribery, anti-corruption (ABAC) violations and resultant liabilities typically become the acquirer’s responsibility post-closing. This can have far-reaching legal, business and reputational consequences on the acquirer and in an extreme case, could result in an acquisition being a failure. As a result of this, acquirers have to be cognizant of not only any post-closing transgressions but also any pre-closing ones that they know, or ought to have known. The approach of a hurriedly-conducted limited due diligence with heavy reliance on warranties alone is therefore a risky one.
This note is divided into four parts – the first part provides a general overview of the key legislations. The second part highlights certain factors such as the target’s jurisdiction, sector, local laws and other cultural and geographical issues that typically influence such AML and ABAC issues. The third part outlines safeguards that are customarily adopted by the acquirers and the last part proposes certain measures that may be considered and implemented for effective risk-management by the acquirers.


Operational Creditors in Insolvency: A Tale of Disenfranchisement

This note attempts to explain the unique predicament of operational creditors under the Insolvency and Bankruptcy Code, 2016 (IBC). It examines the various factors considered by the judiciary in recent pronouncements that have shaped the status of the operational creditors and outlines solutions that could be considered for a constructive resolution of the issues at hand.
This note is divided into four parts – the first part discusses certain issues considered by the Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, and its key findings in this regard. In the second part, the authors highlight how the IBC and the ruling of the Supreme Court unfairly disadvantage operational creditors, and offer solutions in line with international practice. In the third part, the authors point out a lacuna in the IBC regarding the treatment of the claims of creditors with ‘disputed’ claims in an insolvency resolution process and propose an alternate framework to determine such claims. The last part underscores the key takeaways from this article and a few concluding thoughts.