Protecting Minority Investors in India Delhi

Transcription

1 Protecting Minority Investors in India Delhi Dear Contributor, We would like to thank you for your participation in the Doing Business project. Your expertise in the area of Protecting Minority Investors in India Delhi is essential to the success of the Doing Business report, one of the flagship publications of the World Bank Group that benchmarks business regulations in 190 economies worldwide. The protecting minority investors indicator measures legal protections afforded to minority shareholders of domestic corporations, and is one of the 11 indicator sets published by the Doing Business report. The report attracts much attention around the world. The latest edition, Doing Business 2017: Equal Opportunity for All, introduced improvements in the paying taxes and protecting minority investors indicators, and included a gender component in 3 of 11 Doing Business indicator sets. It received over 7,000 media citations within just a week of its publication on October 25, 2016 and the report was downloaded almost 40,000 times within that same period. A record 137 economies implemented a total of 283 reform. Low and middle income countries carried out more than 75% of these reforms, with Sub-Saharan Africa accounting for 80 of them. Governments worldwide read the report with interest every year, and your contribution makes it possible for the Doing Business project to disseminate the regulatory best practices that continue to inspire their regulatory reform efforts. Since 2012, economies worldwide have implemented 89 reforms that have strengthened the protection of minority investors. In 2015/16, 19 economies implemented such reforms. Most increased disclosure requirements and expanded shareholders role in company management. We are honored to be able to count on your expertise for Doing Business Please do the following in completing the questionnaire: Review the assumptions of the case study before updating last year's information in the questionnaire. Please describe any reform that has affected the rights of minority shareholders since June 1, Be sure to update your name and address if necessary, so that we can mail you a complimentary copy of the report. Kindly return the questionnaire to protectinginvestors@worldbank.org We thank you again for your invaluable contribution to the work of the World Bank Group. Sincerely, Hervé Kaddoura +1 (202) hkaddoura@worldbank.org Varun Eknath veknath@worldbank.org Christian de la Medina Soto +1 (202) cdelamedinasoto@worldbank.org

2 Primary Contributor Information: Please check the box next to information you do not want us to publish. Do not publish Never Published Name Title (Mr., Ms., Dr.) [ Mr. ] First Name Contributor [Shailendra] Last Name [Singh] Position (e.g. manager, associate, partner) Profession (e.g. judge, lawyer, architect) [Joint Secretary] [ ] Contact details Firm name [Department of Industrial Policy and Do not publish Promotion, Government of India ] Website [ Do not publish address [singh.shailen@nic.in] Do not publish Phone [ ] Never Published Fax [ ] Mobile phone [ ] Do not publish Firm Address Street [Udyog Bhawan, Rafi Ahmed Kidwai Marg, Rajpat ] P.O. Box [ ] City [New Delhi ] State/ Province [New Delhi ] Zip/Postal code [110017] Country [India ] 7 IND_Delh 384 Additional Contributor(s): If there are more people whom you would like us to acknowledge, kindly send us an . Name Occupation Phone Address [title] [first name] [last name] [title] [first name] [last name] [firm] [position] [profession] [firm] [position] [profession] [ ] [phone] [mobile] [ ] [phone] [mobile] [street] [state/province] [city/country] [street] [state/province] [city/country] [title] [first name] [last name] [firm] [position] [profession] [ ] [phone] [mobile] [street] [state/province] [city/country] Paperless Option for Complimentary Report and Certificate Last year contributors saved nearly half a million pieces of paper by selecting the paperless report option. We welcome you to join us in conserving resources: Please me an electronic copy of the report and my certificate of appreciation, rather than mailing me a paper copy.

3 Did any reform (e.g. a new act, code, law, decree, order, supreme court decision, amendment, stock exchange listing rule) affecting the internal governance of corporations, the regulation of related-party transactions, disclosure obligations, liability of company executives or access to evidence in civil litigations enter into force between June 1, 2016 and June 1, 2017? If yes, please provide the information below. Name of the legislation: 1. Notification [F. No. 1/32/2013-CL-V-Part] dated 30 March 2017 in relation to Companies meeting of Board and its Power Amendment Rule Section 101 of the Companies Act Section 96 of the Companies Act Section 243 of the Companies Act Section 245 of the Companies Act Section 242 of the Companies Act Section 21 of the Securities Contract (Regulation Act), 1956; Clause 36 of the Listing Agreement Regulation 30 of SEBI( LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015.pdf 8. Clause 78 of Table F to the Schedule I of the Companies Act Notification [F No. 1/30/CLB/2013/CL-V]0 dated 1 June 2016 in relation to constituting NCLT and NCLAT under Section 408 and 410 of the Companies Act The Companies (Management and Administration) Amendment Rules The Companies (Management and Administration) Amendment Rules The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 Date of adoption: March April April June June June September April June September September December 2016 Date of entry into force: March April April June June June 2016

4 7. 2 September April June September September December 2016 Link to electronic copy: 1. Notification [F. No. 1/32/2013-CL-V-Part] dated 30 March 2017 in relation to Companies meeting of Board and its Power Amendment Rule 2017 on the given link select date and ruleshttp://ebook.mca.gov.in/default.aspx?page=notification 2. Section 101 of the Companies Act Section 96 of the Companies Act Section 243 of the Companies Act Section 245 of the Companies Act Section 242 of the Companies Act Point 78 of Table F to the Schedule I of the Companies Act Notification [F No. 1/30/CLB/2013/CL-V]0 dated 1 June 2016 on the given link select date and notification in relation to constituting NCLT and NCLAT under Section 408 and 410 of the Companies Act On the given link select date and notification in relation to the Companies (Management and Administration) Amendment Rules On the given link select date and notification in relation to the Companies (Management and Administration) Amendment Rules On the given link select date and notification in relation to the Companies (Compromises, Arrangements and Amalgamations) Rules, Description: 1. Notification has been issued revising the limits for certain related party transactions under Section 188 of the Companied Act, 2013 ( the Act ) read with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, Before the notification, the shareholder approval was required if the value of property to be purchased exceeds 10% of the net worth of the company or INR 1000 Million, whichever is less. However, after the amendment the limit has been amended and now, approval of shareholder would be required if the value of property is 10% or more of the net worth of the company or INR 1000 Million, whichever is less. This limit applies to transaction or transactions to be entered into either individually or taken together with the previous transactions during a Financial Year. 2. As per Section 101 of the Act, the company is required to give a notice of shareholder's meeting atleast 21 days in advance to its members/shareholders. The notice of the meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. 3. As per Section 96(1) of the Act, every company shall in each year hold an annual general meeting where all the members would meet and such annual general meeting is required to be held within 15 months from the date of last annual general meeting.

5 4. As per Section 243 of the Act, where an order made under Section 242 terminates, sets aside or modifies an agreement then no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company. 5. As per Section 245 (1)(g) of the Act, the members can claim damages or compensation for any act done by the director which is prejudicial to the company's interest. 6. As per Section 242 of the Act, the Tribunal has the power to terminate, to set aside or modify, any agreement, entered between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case. 7. As per Section 21 of the Securities Contract (Regulation Act), 1956; Clause 36 of the Listing Agreement Regulation 30 of SEBI( LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015, the listed entity is required to disclose the transaction details within 24 hours of occurrence of the event or information to the stock exchange. 8. The clause 78 of the Table F to the Schedule I of the Companies Act 2013 provides that A provision of the Act or these regulations requiring or authorising a thing to be done by or to a director and chief executive officer, manager, company secretary or chief financial officer shall not be satisfied by its being done by or to the same person acting both as director and as, or in place of, chief executive officer, manager, company secretary or chief financial officer. Accordingly, both the CEO and managing director should be separate individuals as per the standard articles of association. 9. National Company law Tribunal (NCLT) is operationalized from 1 June NCLT has been constituted under the 2013 and has been operationalized to replace the Company Law Board (CLB). NCLT is initially located at ten places across India. It will prove to be effective platform for adjudication of disputes on corporate law matters through disposal of such cases in a time bound and speedy manner. 10. Increased transparency through the amendment in the Companies (Management and Administration) Rules, Any change in the shareholding position of promoters and top ten shareholders of the company representing increase or decrease by 2% or more of the paid-up share capital needs to be reported within 15 days of such changes. 11. Provision introduced to facilitate members of Listed Company with 1000 or more members to exercise vote through electronic means. 12. Rules dealing with amalgamation, compromise, arrangement, liquidation and winding up were introduced. These rules have provided the procedures relevant for corporate restructuring and also clarified the issues relating to implementation of the restructurings. I. Private limited companies In the following questions, please assume that Buyer Co. ( Buyer ) is a manufacturing company. It is incorporated as a private limited company or its functional equivalent. Its shares cannot be listed on a stock exchange. Examples include the Private Limited Company (Ltd), the Limited Liability Company (LLC), the Sociedad de Responsabilidad Limitada (SRL), Gesellschaft mit beschränkter Haftung (GmbH) and the Société à responsabilité limitée (SARL). New question Do all members have the right to inspect and copy any record maintained by the company regarding the company s activities, financial condition, and other circumstances that are relevant to their rights and duties? Last year This year Last year law Applicable Law Comment Yes Section 94, 1. As per Section 136, Section 94 of Section 171 the Act, any and Section member of the 399 of the Company shall have the right 2013 to inspect the registers and returns required

6 to be maintained by the Company without payment of any fees. Further, the member would have the right to take the extracts from any register or index or return without payment of any fees. 2. As per Section 171 of the Act, the register of directors and key managerial personnel shall be open for inspection for any member of the Company and the members can take extract and copies of the registers free of cost from the Company. 3. As per Section 136 of the Act, a copy of the financial statements, including consolidated financial statements, auditor s report and every other document annexed or attached to the financial statements shall be sent to every member of the company not less than twenty-one days before the date of the

7 Does the sale of 51% or more of Buyer s assets require the consent of the majority of its members? (whether such sale occurred in a single transaction or several transactions taking place within 1 year from the date of the first transaction) Yes Yes Section 180 and 188 of the 2013 read with Rule 15(3) of the Companies (Meetings of Board and its Powers) Rules, Section 180 of the Companies Act, Section 188 of the Act read with Rule 15(3) of the Companies (Meetings of Board and its Powers) Rules, 2014 general meeting. 4.In addition to above, any person other than member can also inspect by electronic means any documents kept by the Registrar on payment of prescribed fees for inspection. a.gov.in/default.aspx?page=m ain 1. As per Section 180 of the Act, the sale of whole or substantial whole of the undertaking of the company (i.e. which values 20% or more of the value of the undertaking) would requie to be approved by 3/4 or more votes of the members in a general meeting. the Board of Directors are empowered to sell the whole or substantial whole of the undertaking only with the consent of the company by a special resolution. 2. Further, in case of a transaction of sale of assets o to or buying of

8 Can members who represent 10% of Buyer s capital call for a meeting? Yes Yes Section 100 of the 2013 Section 100(2) of the companies Act 2013 assets from the related party valuing 10% or more of the networth of the company or INR 1000 Million, whichever is less, the transaction of sale of property, the approval of the shareholders of the company by way of resolution and also, consent of Board of directors would be required. This limit applies to transaction or transactions to be entered into either individually or taken together with the previous transactions during a Financial Year a.gov.in/default.aspx?page=m ain As per Section 100(2) of the Act, the Board shall at the requisition made by members representing 10% or more of the paid up share capital of the company, call a general meeting of the company.

9 Must all members of Buyer consent to add a new member? Must a member of Buyer first offer to sell his or her interest to the existing members before selling to a nonmember? Must Buyer have a management deadlock breaking mechanism such as a member exit buyout in case of disagreement? Yes Yes Section 62 of 2013 Yes Yes Section 62 of 2013 Yes Yes Sections 163 and 169 of 2013 Section 62(1) ( c ) of companies Act, 2013 Section 2 (68) (i) implies that before transfer to a new member, Buyer's meember will have to first offer it to existing member. Section 174 Section 184, Section 241, and Section 242(2) of Companies Act, 2013 a.gov.in/default.aspx?page=m ain In case of a private company, the right to transfer the shares is restricted through Articles of Assocuation. a.gov.in/default.aspx?page=m ain In the Companies Act 2013, several provisions provide mechanism to break the management deadlocks. Some of the key provisions are provided below: 1. Under Section 174 of the Act, a board meeting quorum has been prescribed as one third of its total strength or two directors, whichever is higher. Further, as per Section 300 the interested directors would not be counted for the purpose of forming a quorum. In order to resolve a deadlock where the number of

10 interested directors exceeds or is equal to two thirds of the total strength of the Board of Directors, it has been mentioned that non-interested directors who are atleast 2 in number shall be considered as quorum for the board meeting. 2. Under Section 184 of the Act, every director who is interested or concerned in a contract or arrangement shall disclose his interest in the board meeting in which such contract or arrangement is discussed and also, shall not participate in this meeting. In case of a private company (i.e. company in which public are not interested) where there are only 2 directors (say spouses) and one of them is interested party, passing a resolution for such contract/arrang ement shall be a challenge and therefore, to

11 break the deadlock in case of a private company interested directors are allowed to participate in the board meeting after disclosing their interest. 3. In order to break the deadlock of oppression and mismanageme nt, under Section 241 it has been provided that any member of a company who complains that (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member(s) or in a manner prejudicial to the interests of the company; or (b) the material change in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the

12 management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the National Company Law Tribunal (NCLT) for prevention of oppression or mismanageme nt. The application can be made to NCLT by 100 members or by atleast one tenth of the total number of members, whichever is less (in case of company with share capital) and by one fifth of the members in case of company without share

13 Is there a percentage of acquired capital that requires a new member to make a tender offer to all remaining members of Buyer? If yes, please specify what percentage. No No Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers) regulations, 2011 ("Takeover Code") Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers) regulations 2011 capital. 4. As per Section 242(2) of the Act, provides for obtaining an order from NCLT seeking purchase of share by any member or by the company. URL : a.gov.in/default.aspx?page=m ain As per the Regulation, An acquirer who intends to acquire shares which alongwith his existing shareholding would entitle him to exercise 25% or more voting rights, can acquire such additional shares only after making a public announcement to acquire additional shares of Target Company from the shareholders through an open offer. Further, An acquirer who holds 25% or more shares or voting rights of a target company, can acquire such additional shares as would entitle him to exercise more than 5%

14 of the voting rights but less than the maximum permissible non-public shareholding i.e. 75% only after making a public announcement to acquire additional shares of target company from the shareholders through an open offer. This regulation is applicable only on listed companies. As in the instant case, the entity under observation is a private limited company, this regulation would not be applicable. goo.gl/i6vsfz Must Buyer distribute profits or pay dividends at the latest one year from the declaration date? Yes Yes Section 123 and Section 127 of the 2013 and Chapter 8 of the Companies (Declaration and Payment of Dividend) Rules 2013 Section 123 read with Section 124 and 127 of the Once a dividend is declared, the company is required to deposit the dividend in the designated bank account within 5 days from the date of declaration of dividend and within 30 days the dividend shall be paid to the members. a.gov.in/default

15 Must members of Buyer meet once a year? Must annual financial statements of Buyer be audited by an external auditor? No Yes Section 101 and 102 of the 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2014 Yes Yes Sections 139, 143(2) and 143(3) of the 2013 and Rules 11 and 12 of the Companies (Audit and Auditors) Rules, Section 96(1) of the Companies Act 2013 Section 139, 143 (2) and 143(3) of the Companies act, 2013 and Rules 11 and 12 of the Companies( Audit and Auditors) Rules, aspx?page=m ain As per section 96(1), every company shall in each year hold an annual general meeting where all the shareholders would meet and such annual general meeting is required to be held within 15 months from the date of last annual general meeting. a.gov.in/default.aspx?page=m ain Yes, the annual financial statements need to be audited by an external auditor. a.gov.in/default.aspx?page=m ain

16 II. Listed companies In the following questions, please assume that Buyer is a publicly traded listed corporation or its functional equivalent in India Delhi. It is not state-owned and has issued stock that is publicly traded and is listed on your country s largest stock exchange. Examples include the Joint Stock Company (JSC), Public Limited Company (PLC), C Corporation, Societas Europaea (SE), Aktiengesellschaft (AG) and Société Anonyme/Sociedad Anónima (SA). It has not adopted specific bylaws or articles of association that differ from default corporate law or securities regulations. It does not follow any code of corporate governance, model charter, or code of good practice, unless it is mandatory. If there is no stock exchange or if there are fewer than 10 firms actively traded on the stock exchange, please assume that Buyer is a joint-stock company with a large number of shareholders. Does the sale of 51% or more of Buyer s assets require shareholder approval? (whether such sale occurred in a single transaction or several transactions taking place within 1 year from the date of the first transaction) Last This year year Last year law Applicable Law Comment Yes Yes Section 180 and 188 of Section 180 of the 1. As per the 2013 Section 180 of the read with Rule 15(3) of Section 188 Act, the sale of the Companies (Meetings of the Act read whole or of Board and its Powers) with Rule 15(3) of substantial whole Rules, the Companies of the (Meetings of undertaking of the Board and its company (i.e. Powers) Rules, which values 20% 2014 or more of the value of the undertaking) would requie to be approved by 3/4 or more votes of the members in a general meeting. the Board of Directors are empowered to sell the whole or substantial whole of the undertaking only with the consent of the company by a special resolution. 2. Further, in case of a transaction of sale of assets o to or buying of assets from the related party valuing 10% or more of the networth of the company or INR 1000 Million, whichever is less, the transaction of sale of property, the approval of the shareholders

17 Can shareholders who hold 10% of Buyer s share capital call for an extraordinary meeting? Must Buyer obtain shareholder approval to issue unissued share up to its authorized share capital? Yes Yes Section 100 of the 2013 Yes Yes Section 62 of Companies Act, 2013 Section 100(2) of the Companies Act, 2013 Section 62 of 2013 of the company by way of resolution and also, consent of Board of directors would be required. This limit applies to transaction or transactions to be entered into either individually or taken together with the previous transactions during a Financial Year ov.in/default.aspx?page=main As per Section 100(2) of the Act, the Board shall at the requisition made by members representing 10% or more of the paid up share capital of the company, call an extraordinary general meeting of the company. ov.in/default.aspx?page=main As per Section 62(1), the company can issue its capital to any person, if it has received consent of 3/4th of the members present at the meeting. Also, the shares are required to be first offered to the existing shareholders in the proportion of paid up share capital (right issue).

18 Are shareholders automatically granted subscription (preemption) rights on new shares? Must shareholders approve the election and dismissal of the external auditor? Yes Yes Section 62 of Companies Act, 2013 Yes Yes Sections 139 and 140 of Rules 3, 7 and 8 of the Companies (Audit and Auditors) Rules, Section 62 of 2013 Sections 139 and 140 of Rules 3, 7 and 8 of the Companies (Audit and Auditors ) Rules, ov.in/default.aspx?page=main Yes, as per section 62(1)(a) where at any time a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered to existing shareholders in proportion to their paid-up share capital. The offer shall be open for minimum 15 days and not more than 30 days. ov.in/default.aspx?page=main Yes, the shareholders approve the election or dismissal of the external auditor in its general meeting. ov.in/default.aspx?page=main Can the majority vote of holders of the affected shares prevent changes to the rights of their class of shares? Yes Yes Section 48 of the 2013 Section 48 of the Yes, where the holders of not less than ten per cent of the issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal (i.e. NCLT) to have the variation

19 cancelled, and where any such application is made, the variation shall not have effect unless and until it is confirmed by the Tribunal ov.in/default.aspx?page=main Must the CEO and the chair of the board of directors be different individuals? Must the board of directors (or supervisory board) include independent and non-executive board members? No Yes Sections 2(18), 2(54), 104 of the 2013 and Clause 49 of the Listing Agreement. Yes Yes Sections 2(18), 135 and 149(4) of the Companies Act, 2013 read with Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 and Clause 49 of the Listing Agreement. Section 203 and Schedule I, Clause 78 of Table F of the 2013 Sections 2(18), 135 and 149(4) of 2013 read with Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 1. As per proviso to Section 203(1) of the Companies Act, 2013, an individual shall not be appointed as the chairperson of the company as well as the managing director or CEO of the Company unless the articles of the Company provides such appointment. In the instant case, as the Company has adopted the articles as provided under the Companies Act under Schedule I, Clause 78 oftable F, the CEO and the chairperson are required to be different individuals. ov.in/default.aspx?page=main Yes

20 Can shareholders remove members of the board of directors without cause before the end of their term? Yes Yes Sections 163 and 169 of , Regulation 17 of SEBI's LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS REGULATIONS, 2015 and Clause 49 of the Listing Agreement Section 169 of Yes, the company can remove a director before expiry of the period of his office by passing an ordinary resolution after giving a reasonable opportunity of being heard. ov.in/default.aspx?page=main Must Buyer have a separate audit committee? Yes Yes Clause 49 of the Listing Agreement, Sections 177 and 178 of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of Boards and its Powers) Rules, Regulation 18 of SEBI's LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS REGULATIONS, Section 177 of 2013 read with Rule 6 of the Companies (Meeting of Board and its Powers ) Rules, Yes, as per the conjuctive reading of the stated provisions, the buyer being a listed entity must have a separate audit committee. ov.in/default.aspx?page=main and v.in/cms/sebi_dat a/attachdocs/ pdf. Is there a percentage of acquired shares which triggers a mandatory bid rule, requiring a potential acquirer to make a tender offer to all remaining shareholders? Yes Yes Regulation 3 of SEBI (Substantial Acquisition of Shares and Takeovers) regulations, 2011 ("Takeover Code") Regulation 3 of SEBI ( Substantial Acquistion of Shares and Takeovers )regulation, 2011 ('Takeover Code') As per the Regulation, An acquirer who intends to acquire shares which alongwith his existing shareholding would entitle him to exercise 25% or more voting rights, can acquire

21 Must Buyer distribute profits or pay dividends within a set maximum time period from the declaration date? Yes Yes Section 123 and Section 127 of the Companies Act, 2013 and Chapter 8 of the Companies (Declaration and Payment of Dividend) Rules 2013 Section 123 read with Section 124 and 127 of the such additional shares only after making a public announcement to acquire additional shares of Target Company from the shareholders through an open offer. Further, An acquirer who holds 25% or more shares or voting rights of a target company, can acquire such additional shares as would entitle him to exercise more than 5% of the voting rights but less than the maximum permissible nonpublic shareholding i.e. 75% only after making a public announcement to acquire additional shares of target company from the shareholders through an open offer. The entity under obsevarion is a listed company, this regulation would be applicable. goo.gl/i6vsfz Once a dividend is declared, the company shall distribute the same to its members within 30 days of such declaration, failing which punishment u/s 227 shall apply. ov.in/default.aspx?page=main

22 Is a subsidiary prohibited from acquiring shares issued by its parent company? If not, must the subsidiary dispose of the shares within a year and cannot exercise any voting rights? Yes Yes Section 19 of the 2013 Section 19 of As per Section 19, no company shall hold any shares in its holding company. ov.in/default.aspx?page=main Must Buyer disclose ultimate beneficial ownership stakes (i.e. direct and/or indirect) representing 5%? Must Buyer disclose information on other activities and directorships held by board members, including on their primary employment? Must Buyer disclose on an individual basis the compensation of directors and high-ranking officers, including bonuses and incentive schemes? Yes Yes The Takeover Regulations and Section 92 of 2013 Yes Yes Sections 170 and 184 of 2013 Yes Yes Section 134 of Companies Act, 2013, Rule 8 of the Companies (Accounts) Rules, 2014, Clause 49 of the Listing Agreement and Accounting Standards The Takeover Regulations, Section 89 and Section 92 of 2013 Section 170 and 184 of Section 134 of 2013, Rule 8 of Companies (Accounts)Rules, 2014 and Regulation 34 of LISTING OBLIGATIONS AND DISCLOSURE 1. As per Section 89, where the company has received a declaration from any person about any beneficial interest in share of company, the Company shall file Form MGT 6 with Registrar within 30 days from date of receipt of declaration. Also, the Company shall make a note of such ownership/interest in its register of members. 2. As per Section 92 of the Act, the company is required to file annual return providing the particulars of shareholding pattern. Yes Yes

23 Must Buyer publish the notice of shareholder meeting 21 calendar days in advance and include information and deadlines on participating and exercising voting rights remotely? Can shareholders or members who hold 5% of Buyer's share capital put items on the general meeting agenda? No Yes Section 101 and 102 of the 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2014 No No Section 100(2) of the 2013 REQUIREMENTS REGULATIONS, 2015 And IND AS 24 Section 101 and 102 of the 2013 and Rule 20 of the Companies(Mana gement and Administration ) Rules, 2014 Section 100(2) of 2013 Yes, as per Section 101 of the Act, the company is required to give a notice of shareholder's meeting atleast 21 days in advance. As per Section 100(2) of the Act, the Board shall at the requisition made by members representing 10% or more of the paid up share capital of the company, call an extraordinary general meeting of the company. Must a certified external accountant audit Buyer's annual financial statements? Must Buyer disclose its audit reports to the public? Yes Yes Sections 139, 143(2) and 143(3) of the Companies Act, 2013 and Rules 11 and 12 of the Companies (Audit and Auditors) Rules, Yes Yes Section 134 of Companies Act, 2013, Rule 11 and Rule 12 of the Companies (Accounts) Rules, 2014 Section 139, 143(2) and 143(3) of the Companies Act, 2013 and Rule 11 and 12 of Companies (Audit and Auditors) Rules, Section 136(1), 137 read with Section 399 of Companies act, 2013.Regulation 34 of SEBI's LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS REGULATIONS, 2015 Yes Yes

24 III. Conflict of interest case study For the following questions, in addition to previous assumptions, please assume the following: Mr. James owns 60% of Buyer. He sits on the 5-member board of directors (or management board) together with 2 other directors whom he elected. He is neither CEO nor chair. Mr. James also owns 90% of Seller, which operates a chain of retail stores. Seller, facing financial difficulties, closed a large number of stores and is no longer using many of its trucks. Mr. James proposes that Buyer purchase Seller s unused fleet of trucks to expand Buyer s distribution of its products. Buyer agrees and enters into the transaction. All required approvals are obtained and all mandatory disclosures are made. Buyer pays Seller a cash amount equal to 10% of Buyer s assets to acquire the trucks. The transaction is part of Buyer s ordinary course of business and is not ultra vires (i.e. is not outside the power or authority of Buyer). It is subsequently discovered that the price of the trucks was above market value. The transaction therefore causes damages to Buyer. Shareholders of Buyer want to sue Mr. James as well as board members who voted in favor. Who provides the final authorization before Buyer can acquire Seller's trucks? The board of directors excluding Mr. James The general meeting of shareholders excluding Mr. James. Applicable Law: Section 188 of Section 2(76), Section 188 and Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Notification [F. No. 1/32/2013-CL-V-Part] dated 30 March 2017 If the transaction is with a related party (including company in which director of the company has substantial ownership) and the property to be purchased is 10% or more than 10% of the net worth of the company or INR 1000 million (100 crores), whichever is lower, then the transaction needs to be approved by shareholders by passing a resolution in the general meeting. Also, the consent of the Board of Directors by way of resolution is required for entering into any contract or arrangement with a related party with respect to buying, property of any kind. In the instant case, the value of the trucks to be purchased is equal to 10% of the net worth of the Buyer and therefore, approval of shareholders as well as board of directprs would be required. Further, the voting of shareholders or directors would exclude Mr. James as he being an interested party. Also, the limit of 10% applies to transaction or transactions to be entered into either individually or taken together with the previous transactions during a Financial Year Must an independent body, external to the company, review the transaction prior to its execution (e.g. external auditor, outside financial advisor, stock exchange or regulator)? (1) The Buyer must seek approval from the Audit Committee in accordance with Clause 49(VII)(D) of the Listing Agreement; (2) The Buyer shall make disclosures in compliance with the Accounting Standards on "Related Party Transactions" in its Annual Report. In terms of Section 188 of the 2013, which replaces Section 297 of the 1956, no approval of the Ministry of Corporate Affairs is required. Yes Applicable Law: Section 188 of the 2013; Clause 32 and 49 of the Listing Agreement; Companies (Auditor's Report) Order, 2003 and Accounting Standard 18 issued by ICAI. Section 177(6) of the 2013 empower Audit Committee to obtain professional advice from external sources who may review the transaction before it is executed. The list of transactions for which such professional advice can be obtained includes transaction with related parties. What information about the Buyer-Seller transaction must Mr. James disclose to the board of directors before the transaction is concluded? Full disclosure of all material facts regarding Mr. James interest in the Buyer-Seller transaction. Full disclosure of all material facts regarding Mr. James interest in the Buyer-Seller transaction. Applicable Law: Sections 184, 297, 299 and 301 of the Applicable Law: Section 184, 188 and 189 of Companies Act, 2013 Rule 16 of The Companies (Meetings of Board and Powers) Rules, 2014 Regulation 23 of SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

25 Which information about the Buyer-Seller transaction must be disclosed by Buyer to the public, the regulator or the stock exchange immediately (within 72 hours of closing the transaction)? Last year This year A description of the assets purchased by Buyer No Yes The nature and amount of consideration paid by Buyer to Seller No Yes Mr. James ownership interest and/or director position in Buyer No Yes The fact that Mr. James owns 90% of Seller No Yes Applicable Law: Section 21 of the Securities Contract (Regulation Act), 1956; Clause 36 of the Listing Agreement Regulation 30 of SEBI( LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015, the listed entity is required to disclose the transaction details such as nature, amount, directors' interest, etc within 24 hours of occurrence of the event or information to the stock exchange. Which information about the Buyer-Seller transaction must be disclosed by Buyer in its annual financial statement? Last year This year A description of the assets purchased by Buyer Yes Yes The nature and amount of consideration paid by Buyer to Seller Yes Yes Mr. James ownership interest and/or director position in Buyer Yes Yes The fact that Mr. James owns 90% of Seller Yes Yes Applicable Law: Section 134 of the 2013 and Accounting Standard 18. Section 134 of companies act 2013 and IND AS 24 Can shareholders representing 10% sue Mr. James for the losses that the transaction caused to Buyer? Yes, both. Yes, both. Applicable Law: Sections 241 to 245 of the Section 241 of the Companies Act 2013 deals with application to Tribunal for relief in cases of oppression wherein the affairs of the company have been conducted in manner prejudicial to members, provided such member has a right to apply under section 244 of the Act Section 244 of the Act provides that 10 % or 1/10 of the total number of its member have the right to file an application for oppression. Further, as per Section 245 the Tribunal after receiving an application from the members can make an order to to claim damages or compensation from or against the directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part. Which of the following is the least difficult to prove for shareholders and would be sufficient to hold Mr. James liable for the damage that the transaction causes to the company? That Mr. James was grossly negligent, committed fraud, or acted in bad faith. That Mr. James was grossly negligent, committed fraud, or acted in bad faith. Applicable Law: Section 188 (3), and 241 of the Section 102 of the Indian Evidence Act, Case Law: Needle Industries (India) Ltd. & Needle Industries Newey (India) Holding Limited For relief under section 241 of the Companies Act a conduct which lacks in probity, conduct which is unfair to and which causes prejudice to the applicant in the exercise of his legal and proprietary rights as a shareholder must be shown to exist.further, to prove that the transaction caused damage to the Buyer the Applicant has to provide the details and the manner in which the same resulted in a financial loss to the company.also, as per Section 102 of the Indian Evidence Act, 1872 the burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.for conviction under criminal laws, guilt must be proved beyond reasonable doubt. Under Section 241(1) of the Companies Act 2013 any member of a company may file an application to Tribunal for relief in cases of oppression wherein the affairs of the company have been conducted in manner prejudicial to members, public interest or company, provided such member has a right to apply under section 244 of the Act i.e. he holds 10% of the issued share capital or one tenth of the total number of members applied to Tribunal. Further, as per the Section 102 of the Indian Evidence Act, 1972, the burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side. Applicable Law: Section 241 of the Companies Act

26 Which of the following is the least difficult to prove for shareholders and would be sufficient to hold the other board members liable for the damage that the transaction causes to the company? That there was a conflict of interest, that the transaction was unfair and/or that it caused damages to the company. That there was a conflict of interest, that the transaction was unfair and/or that it caused damages to the company. Applicable Law: Section 241 of the 2013; Indian Contract Act, 1872; Civil Procedure Code, 1908; Indian Penal Code, 1860; Code of Criminal Procedure, Section 241 of the 2013 is yet to be notified Under Section 241(1) of the Companies Act 2013 any member of a company may file an application to Tribunal for relief in cases of oppression wherein the affairs of the company have been conducted in manner prejudicial to members, public interest or company, provided such member has a right to apply under section 244 of the Act. Powers of the Board Members are enumerated under Section 179 of the Act wherein they are entitled to exercise all such powers and to do all acts and things as the company authorise however these powers should be subject to provisions of act, memorandum and articles of the company. Director of a company should act in good faith,apply due dilligence and reasonable care, skill and dilligence. In the present case they can be held liable for not applying due diligence. Applicable law: Sec 241, 179, 166 of the Companies Act If shareholders are successful in their action(s) against Mr. James, what remedies are available? Last year This year He pays damages Yes Yes He repays personal profits made from the transaction Yes Yes He is disqualified from serving in the management of any company for 1 year or more No Yes Applicable Law: Section 188(3) 188 (4), 224 and 245 of the In terms of Section 188(3) and 188(4), the company can file a suit against the director concerned and such director will be required to indemnify the company for the loss sustained by the company due to his act. Further, in terms of Section 245, the shareholders can claim damages for any act done by the director which is prejudicial to the company's interest.in addition, as per Section 224 of the Companies Act 2013, if fraud has been committed in a company and as a result of the fraud, any director of the company has taken undue advantage or benefit, the Central Government can file an application before the tribunal and pray for disgorgement of such benefit and can also pray for holding such director personally liable for such loss to the company. This provision has not been notified and corresponds to Section 242 of the Companies Act 1956 which is still in operation and provides that if on investigation the Central Government thinks that a fraud has been committed in the company, it can initiate proceedings against the person responsible for the fraud. Sections 166 and 188(3) of the 2013 read with Rule 15 of the Companies(meetings of Board and its Powers) Rules, As per Section 242 of the Companies Act 2013, if the Tribunal on an application is of the opinion that the company's affairs have been conducted in a manner prejudicial or oppressive to any member of the company the Tribunal may setting aside of any transfer, delivery of goods, exection, further removal of the managing director and recovery of undue gains made by any managing director. Section 224, deals with action to be taken in pursuance of Inspector report, the Inspector is appointed under Section 213 of the Act wherein 10 % of the shareholders can file an application for seeking an order to conduct investigation. As per section 224(5) wherein based on the report of the Inspector, Central Government may file an application before the Tribunal for any appropriate order and held director personally liable without any limitation. Disqualification - As per Section 243, where an order made under section 242 terminates, sets aside or modifies an agreement then no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company. Damages and Compensation - Further in terms of Section 245 (1)(g), the members can claim damages or compensation for any act done by the director which is prejudicial to the company's interest. In view of above, the shareholder upon successful claim can ask Mr. James to pay damages, compensate by repaying personal profits made from the transaction and also, Mr. James can be disqualified for a period of 5 years from the date of termination or setting aside of the transaction/agreement.

27 Applicable law : Section 164, Section188(3), (4) and (5) 242, 243,224, 245 of the Companies Act Can a court void/rescind the transaction upon a successful claim by shareholder plaintiffs (please select the least difficult argument to prove that would likely succeed)? The Buyer- Seller transaction can be challenged by the Buyer's Shareholders on the ground that it amounted to oppression or mismanagement of the company. A petition may be filed in the court of law for declaring the transaction to be null and void. Yes, if there was a conflict of interest, if the transaction was unfair or caused damages. Applicable Law: Sections 241, 244 and 245 of the 2013 not notified hence section 397, 398, 399 and 403(d)(e) of the 1956 are still applicable. The Buyer -Seller transaction was conducted in a manner prejudicial to interest of buyer's shareholder therefore they can seek relief from the court on the ground of oppression and mismanagement. As per Section 242, the Tribunal has the power to terminate, to set aside or modify, any agreement, entered between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case. Accordingly, yes the court can declare a transcation to be void/rescind the transaction upon a successful claim. Applicable Law: Section 241, Sec 242(2) (g) read with Sec 242(2) (i), section 244 and 245 of the Companies Act 2013 and these sections have been notified. Before filing a suit, can shareholders representing 10% obtain internal company documents such as minutes of board meetings, contracts and purchase agreements in connection with Buyer's acquisition of the trucks? Yes, through a government appointed inspector. Yes, directly. Applicable Law: Sections 128(3), 189, 206, 207, 208 of the 2013 Yes, the shareholders representing 10 % may inspect the minute-books of general meeting without charge subject to reasonable restriction as imposed by company article or in general meeting. As per Section 189 with reference to contract and purchase agreement, a register containing particulars of all contracts or arrangements wherein the Director of a company is directly or indirectly concerned or interested in a contract or arrangement should be kept at regsitered office and the same shall be open for inspection by any member during business hours and extracts can be on payment of prescribed fees. Applicable Law: Section 189 of the Companies Act 2013 In a civil trial, what is the scope of information that the plaintiff can ask the judge to compel? From the defendant: Any information that may lead to discovery of relevant information. Any information that may lead to discovery of relevant information. From an uncooperative witness: Any information that may lead to discovery of relevant information. Any information that may lead to discovery of relevant information. Applicable Law: Order VIII Rule 1A, Order XI and Order XVI Rule 6 of the Code of Civil Procedure, The courts generally consider (i) the relevancy of the document to the subject matter in the suit, (ii) the necessity of document for effective disposal of suit while deciding an application for production of documents. The court may summoned to produce a document without being summoned to produce evidence. Applicable Law: Order XVI Rule 6 and Order VIII Rule 1 A of the Code of Civil Procedure, How specific must the plaintiff s request to the judge be to compel evidence from a defendant or witness in a civil trial? The request must specifically identify the documents sought (i.e. list the title, author, date and contents). The request must specifically identify the documents sought (i.e. list the title, author, date and contents). Applicable Law: Section 30 and Order 11 of Code of Civil Procedure Code 1908 Court may on the application of any party may make orders related to the delivery and answering of interrogatories, the admission of documents, facts, and the discovery, inspection, production, impounding and return of documents or other material objects producible as evidence and further issue summonses to persons whose attendance required to give evidence or to produce documents and order any fact to be proved by affidavit.