December 11, 2001
Corporate and securities laws update
DECISION OF THE SUPREME COURT OF INDIA ON DISINVESTMENT OF SHARES
The Supreme Court of India (“SC”) has, in its recent decision in the case of the divestment by the Central Government of its 51% equity stake in Bharat Aluminium Company (“Balco”), held that the said divestment by the Central Government in favor of the highest bidder (i.e. Sterlite Industries Limited) for a consideration of approximately Rs. 5.51 billion was transparent.
Importantly, the SC has stated in its judgment that the courts should keep away from economic policy matters. Furthermore, the SC restricted its power of judicial review in economic policies and said it would interfere only if the policy was contrary to the Constitution of India or any other law.
The aforesaid judgment has eased the legal hurdles in the path of the disinvestments and privatization of Public Sector Undertakings and will indeed give a boost to the disinvestment process.
Source: The Economic Times December 11, 2001
PROHIBITION ON THE USE OF CERTAIN NAMES BY INDIAN COMPANIES
The Act prohibits RoCs from approving the use, in the corporate names of companies, of certain names, emblems or seals which closely resemble those of national leaders, global organizations, etc. Names, emblems or seals prohibited by the Act include names like Mahatma Gandhi India Private Limited, emblems resembling the emblem or the official seal of the United Nations Organization or the World Health Organization or the Indian National Flag, etc.
Source: The Economic Times December 5, 2001
AMENDMENTS TO THE RULES FOR POSTAL BALLOT
For your information we have listed below the businesses in which shareholder resolutions are required to be passed by a Company through postal ballot:
(a) alteration in the object clause of a company’s Memorandum of Association;
(b) alteration of a company’s Articles of Association in relation to the insertion of provisions defining a private company;
(c) buy-back of shares by a company under sub-section (1) of section 77A of the Indian Companies Act, 1956 (“Act”);
(d) issue of shares with differential voting rights as to voting or dividend or other wise under sub-clause (ii) of clause (a) of section 86 of the Act ;
(e) change in place of the registered office out side local limits of any city, town or village as specified in sub-section (2) of section 146 of the Act;
(f) sale of whole or substantially the whole of the undertaking of a company as specified under sub-clause (a) of sub-section (1) of section 293 of the Act;
(g) giving loans or extending guarantees or providing security in excess of the limit prescribed under sub-section (1) of section 372A of the Act;
(h) election of a director under sub-section (1) of section 252 of the Act;
(i) variation in the rights attached to a class of shares or debentures or other securities as specified under section 106 of the Act.
Source: Notification No. G.S.R. 337(E) dated October 10, 2001.
AMENDMENTS TO BUY-BACK PROVISIONS
On a separate note the Securities and Exchange Board of India press, clarified that notwithstanding the proposed (“SEBI”) in its recent discussions with the amendments to the listing agreementthe existing disclosure norms, for all companies to , it is mandatory as per intimate the Securities and Exchange Board of India about all significant board resolutions. Hence any material event including any decision by a company to buy back its shares, has to be conveyed to the Indian stock exchanges on which the company’s shares are listed.
Source: The Companies (Amendment) Ordinance, 2001 and Business Standard
AMENDMENT TO TAKEOVER CODE
Exceptions in the case of a sale of the shares of a public sector undertaking
The SEBI has amended Regulations 22 (relating to general obligations of an acquirer), Regulation 23 (relating to general obligations of the board of directors of a target company) and Regulation 25 (relating to a competitive bid) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Code”) vide its notification dated September 12, 2001 to provide for certain exceptions to the abovementioned regulations in the case of an open offer in the context of the sale of the shares of a Public Sector Undertaking (“PSU”) by the Central Government:
In order to avail of this exemption, the agreement for the transfer of the shares from the Central Government to the acquirer must contain a clause that in the event of non-compliance of any of the provisions of the Takeover Code by the acquirer, the transfer of shares or change of management or control of the PSU would revert to the Central Government. Also in the event of such non-compliance the acquirer would be liable to a penalty that may be imposed by the Central Government at its discretion.
Source: Notification No. S.O.875(E) dated September 12, 2001
Changes to ‘creeping acquisition’ route
Source: Notification SO1058(E) dated November 24, 2001
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