The Government in India ("Government") has extended the reach of a Qualified Foreign Investor ("QFI") in India by permitting it to directly invest in equity shares of Indian companies listed on Indian stock exchanges. The Reserve Bank of India ("RBI") has issued guidelines to this effect on January 13, 2012 ("Guidelines").
India Regulation
The Securities and Exchange Board of India Once Again Takes the View That Put/Call Options Are Unenforceable under Indian Law
In a letter dated May 23, 2011, the Securities and Exchange Board of India (“SEBI”, and such letter, the “SEBI Letter”) took the view that put/call options governing the shares of an Indian public listed company are unenforceable. This is consistent with the view SEBI had taken previously, in an unpublished letter dated March 18, 2011, issued in connection with the proposed acquisition by UK based Vedanta Resources Plc. (an English company) and others of a majority stake in Cairn India Limited.[1]
The Securities and Exchange Board of India Has Proposed New Takeover Regulations
On July 28, 2011, the Securities and Exchange Board of India ("SEBI") proposed new Takeover Regulations based on recommendations of the Takeover Regulations Advisory Committee ("TRAC"). While a takeover code in India has been in place since 1997 (revised and amended from time to time), SEBI constituted the TRAC in September 2009 to review the existing regulations and make them more relevant for present day transactions. While TRAC submitted its report in 2010, SEBI proposed the new Takeover Regulations subsequent to its internal deliberations. The major changes to the existing Takeover Regulations, inter alia, include:
Directors and Shareholders of Indian Companies are Permitted to Attend Board Meetings and Shareholder Meetings via Video Conference
On May 20, 2011, the Ministry of Corporate Affairs, Government of India ("Corporate Affairs Ministry"), issued two general circulars ("Circulars") permitting attendance of meetings of the Board of Directors ("Board") and general meetings of the shareholders of an Indian company by using an electronic mode of communication. The Circulars were issued by the Corporate Affairs Ministry as part of its "green initiative in corporate governance" and are a long-awaited change to the means of attending Board and shareholder meetings. The first circular[1] ("Circular 1") clarified that shareholders of an Indian company can participate in general meetings of the shareholders by using video conferencing facilities. The second circular[2] ("Circular 2") clarified that directors of an Indian company can participate in meetings of the Board using video conferencing facilities and also clarified that directors who participate via video conferencing facilities will be counted towards the quorum of such Board meetings.
The Securities and Exchange Board of India Takes the View that Put/Call Options and Rights of First Refusal are Unenforceable
In an unpublished letter dated March 18, 2011, the Securities and Exchange Board of India ("SEBI") has taken the view that put and call option arrangements and rights of first refusal are not enforceable in India. Although the law on this question is far from settled, the view taken by SEBI may potentially impact several public M&A transactions in India where such clauses are frequently included in transaction documents. Please note that this discussion is based on an unpublished letter and that the analysis should therefore not be taken to be final law on the subject.
The Government of India Issues a New Consolidated Foreign Direct Investment Circular
On March 31, 2011, the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India ("DIPP"), issued a new consolidated foreign direct investment policy, Circular 1 of 2011 ("Circular"), which supersedes all prior press notes, press releases and clarifications issued by the DIPP relating to foreign direct investment in India. The Circular reflects the current policy of the Indian Government with respect to foreign direct investment in India, and has the force of law.
Bombay High Court Holds That Public Listed Company Shares Can Be Subjected to Preemptive Rights
On September 1, 2010, a division bench of the Bombay High Court held that consensual preemptive arrangements between shareholders in a public listed company do not violate the principle of free transferability of shares enshrined in section 111A of the Indian Companies Act, 1956 (“Companies Act“). In its 103-page opinion in the case of Messer Holdings Limited v. Shyam Ruia (Appeal No. 855 of 2003), the High Court overruled its previous decision in the case of Western Maharashtra Development Corporation v. Bajaj Auto [2010] 154 CompCas 593 (Bom) where it had taken a contrary view.