SEBI TAKEOVER AMENDMENT Creeping acquisition limit 16 June 2020

Creeping acquisition
limit for fresh acquisition by promoters temporarily increased to 10% under the
SEBI Takeover Code

SEBI increases creeping
acquisition limit up to 10% for acquisition of shares by promoters through
preferential issue without making an open offer under Takeover Code

Currently, under
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (Takeover Code), acquirer together with persons
acting with him (PAC), who holds 25% or more of voting rights in the target
company but less than the maximum permissible non-public shareholding
(presently at 75%), are allowed to acquire additional shares or voting rights
up to 5% of the voting rights (creeping acquisition) in any financial year (1
April to 31 March) without having to make an open offer.

Regulation 6 of Takeover
Code ,2011

Under Regulation 6,
acquirer together with PAC who holds 25% or more of voting rights in the target
company but less than the maximum permissible non-public shareholding, are not allowed to make voluntary open offer (minimum
10%) to acquire additional shares in accordance with Takeover Code, if they
have acquired shares without attracting the obligation to make a public
announcement of an open offer in the preceding 52 weeks.

Amendments to Takeover
Code by SEBI:

Increase in creeping acquisition
limit for acquisition through preferential issue to promoters by the target
company Securities and Exchange Board of India (SEBI) has, on 16 June 2020, amended
Takeover Code allowing promoters who hold 25% or more of shares or voting
rights in the target company but less than the maximum permissible non-public
shareholding, to acquire additional shares or voting rights up to 10% of the
voting rights through preferential issue of equity shares, without triggering
an open offer.

This relaxation can be availed during the financial year
2020-21 i.e. 1 April 2020 to 31 March 2021.

Voluntary
open offer

SEBI has also permitted
acquirer and PAC holding 25% or more of the shares or voting rights in the target
company, but less than the maximum permissible non-public shareholding, who have acquired shares
without attracting the obligation to make a public announcement of an open
offer in the preceding 52 weeks, to make a voluntary open offer till 31 March
2021.

Opportunity to Promotors
of Listed Companies

The above relaxation by
SEBI comes at an opportune time when businesses are under economic stress and in need of
capital to tide over the Covid-19 crisis. It would assist the listed entities to raise additional
equity funds from promoters for their business needs without triggering
an open offer under the Takeover Code. It also permit promoters to increase
their shareholding in the target company up to 10% in the financial year
2020-21, under the creeping acquisition route through preferential issue
without making an open offer.

Right time for promoters
to fund the growth of the company on one hand and to also increase their
shareholding in the company in another hand.

#IBBI DIRECTS RESOLUTIONB PERSON TO PASS THE IP EXAM ONCE AGAIN#

IBBI DIRECTS RESOLUTIONB PERSON TO PASS THE IP EXAM ONCE AGAIN
AND TO PAY A FINE OF 25% OF HIS FEE FOR ACTING BEYOND HIS AUTHORITY

INSPECTION ORDER AGAINST VIJAY KUMAR GARG , RP UNDER IBC

IBBI  vide Order dated
5 th September 2019 appointed an Inspecting Authority (IA) to conduct an
inspection of Mr. Vijay Kumar Garg, an IP on having reasonable grounds to
believe that the IP had contravened provisions of the Code, Regulations, and
directions issued thereunder.

Allegation Against IRP

Contravention No. 1:

RP appointed Duff & Phelps India Private
Limited (D&P) to provide support services during theCIRP of GGL, NWL and
NBL.

Section 20 (2) (a) of IBBI Code states that the
IRP shall have the authority to appoint accountants, legal or other
professionals as may be necessary. However, appointment of D&P by the RP
was finalized in violation of the provisions since

 D&P
cannot be considered a professional

. Therefore, the Board is of the prima facie
view that RP has violated  various
sections of Insolvency Code.

Whooping Fees  payable
to IRP

It was observed by DC the fact of the matter is
that D&P was engaged in all three CIRPs (GGL, NWL, NBL) for providing
infrastructure, personnel, and back office support at a fee of Rs. 23,75,000/-
per month for GGL and Rs. 6,87,500/- per month each for its two subsidiaries
i.e, NWL and NBL.

D&P was only engaged to provide
infrastructure, personnel and back office support services which cannot be
classified as „professional services‟ involving skill or even a „profession‟

D&P CANNOT BE
REGARDED AS AN IPE

Further, D&P cannot be regarded as an IPE
since it has not been recognized by the Board under

Regulation 12 of the IP Regulations

. Thus, D&P does not fall within the
definition of the term „professional‟.

High Amount of
Professional Fee Paid to D&P

It has been observed from the minutes of 1st
CoC meeting that D&P was engaged for providing infrastructure, personnel
and back office support at a fee of Rs. 23,75,000/- per month (excluding taxes
and out of pocket expenses) for GGL and Rs. 6,87,500/- per month (excluding
taxes and out of pocket expenses) each for NWL and NBL. The total fee payable
to RP was Rs. 1, 25,000/- per month in theCIRP of GGL

. It is observed that the payment agreed to be
paid to D&P in GGL is 19 times of the fee payable to RP. It is
inconceivable that the cost of providing infrastructure, personnel and back
office support services in GGL is 19 times of the fee payable to the RP.

ICICI BANK Ltd Vs
Gitanjali Gems Ltd

 In this
regard, the RP has submitted that given the peculiarities, complexities, and
the work to be undertaken for meeting the objectives of the CIRP in the present
case, the professional fee charged by D&P was commensurate and reasonable
WTM by referring ICICI Bank Ltd. vs. Gitanjali Gems Ltd.  observed that 
the amount recommended to be paid to D&P by the Committee is  Rs. 48,34,312/- (including GST)

RP already aware that the assets of the
Corporate Debtor were already attached by various investigation authorities and
could not be taken over. This shows that the engagement of D&P for NBL and
NWL (subsidiaries of GGL) at an exorbitant rate of Rs. 6,87,500 per month each
(plus taxes and out of pocket expenses) was nothing but a way of siphoning off the money of the
Corporate Debtor.

Findings:

D&P is not a professional and hence its
appointment of D&P is in contravention of section 20(2) of the Code. Fee of
Rs. 23,75,000/-(excluding taxes) per month to D&P in the matter of GGL
which is 19 times of the fee payable to the RP cannot be said to be reasonableFee of Rs. 6,87,500 /-(excluding taxes and out
of pocket expenses) per month each in case of NBL and NWL to D&P also
cannot be said to be reasonable.

Thus there is contravention of Code of Conduct
by RP.

Contravention No. 2:

 In the
matter of GGL, RP received approval from the CoC members to get insurance for
himself during the course of CIRP. However, the RP purchased two insurance
policies from ICICI Lombard General Insurance Company Limited and made D&P
a beneficiary in the same. The RP provided unnecessary benefits to D&P even
though it was stated in the engagement agreement between the RP and D&P
that D&P would act independently of the RP. Costs incurred by RP in
providing insurance to D&P was done in violation of section 5(13) of the
Code, Therefore, the Board is of the prima facie view that RP has acted beyond
his authority.

Findings:

Conducting two meetings of the CoC beyond the
CIRP period and discussing agendas other than as directed by AA i.e.
ratification of IRPC, are beyond the provisions of the Code and the directions
of the AA..

Order

1.    Mr. Vijay Kumar Garg converted the noble
insolvency profession to a business, converted professional client relationship
to that of money lending and borrowing, manipulated the market for insolvency
professional services, attempted to siphon off crores of rupees from the ailing
CD to its partner in crime.

(i)                
Mr.Vijay Kumar Garg  IRPm shall pay a penalty equal to 25% of fee payable
to him  .

(iii)             
Mr. Vijay Kumar Garg shall ensure that no
amount beyond the reasonable fee, as determined by the Expert Committee, is
paid to D&P.

(iv)             
Mr. Vijay Kumar Garg shall undergo
pre-registration educational course from the IPA of which he is a member and
pass the Limited Insolvency Examination again to build his capacity to take up
assignments on his own.

ICICI BANK Ltd Vs Gitanjali Gems Ltd

From the Synopsis of the Order passed by
Disciplinary Committee of IBBI, it is shockingly revealed that IP of Geetanjali
Gems Ltd and its two subsidiaries had manipulated regulations and paid
substantial amount to D&P who could not be engaged as per IBBI Regulations
and burdened the ailing companies.

#Can a person whose age is 70 can be appointed as an Independent directo...

Can a person who has attained the age of 70 can be appointed
as an Independent or non-executive director of a public company? https://youtu.be/WDZ5Pq9oRek

No age limit need be prescribed as per law. There should be
adequate disclosure of age in the company’s documents. It should be the duty of
the Director to disclose his age correctly.

 In case of a public
company, appointment of directors beyond a prescribed age say 70 years, should
be subject to a special resolution by the shareholders which should also
prescribe his term. Continuation of a director above the age of 70 years,
beyond such term, should be subject to a fresh resolution.

 Then in such case it
attracts the provisions of section 196(3)(a) of
Companies Act 2013 which lays down that no company shall appoint or continue the
employment of any person as its managing director,whole time director or
manager who-is below the age of twenty one years or has attained the age of 70
years.However special resolution can be passed with justification of such
appointment stated in notice (in explanatory statement to the Special
Resolution).

196 (3) (a) No company shall appoint or continue the employment
of any person as managing director, whole-time director or manager who —

(a) is below
the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of a person who has attained the
age of seventy years may be made by passing a special resolution in which case
the explanatory statement annexed to the notice for such motion shall indicate
the justification for appointing such person;

4[Provided further that where no such special resolution is
passed but votes cast in favour of the motion exceed the votes, if any, cast
against the motion and the Central Government is satisfied, on an application
made by the Board, that such appointment is most beneficial to the company, the
appointment of the person who has attained the age of seventy years may be
made.]

Another interesting situation happened in the case

Hon’ble High Court of Bombay had decided following issues in
case of

 Ultramarine &
Pigments Limited vs Rangaswamy Sampath

As per proviso it’s clear that if at the time of appointment
age of person is more than 70 year then by passing of Special Resolution that
person can be appoint as Managing Director. But now question is IF person .attain
age of 70 after appointment during his tenure then what are the consequences?

There is no
mid-tenure cessation of Managing Directorship as a result of Section 196(3)
(a).

High Court
observed that Is the age of 70 an absolute bar? A public limited company may
well appoint a person of 80 years of age as a Managing Director. All that is
needed is a special resolution. That is what the proviso plainly says.
Therefore, it’s not a absolute bar.

According to
the defendant if a person who is of the age of 68 years is appointed after 1st
April 2014 for five years, he shall not continue after two years once he
attains the age of 70 years. The court did not agree to this view either and
gave a judgment that the age is relevant only on the date of appointment and
not any time later.

While
conducting secretarial audit of a company, the practicing company secretary
shall keep this judgment in view while ascertaining compliance with provisions
of Section 196 of CA, 2013 by the company.

SEBI amended the clause relating to ‘board of directors’ in
the Listing Regulations and inserted

SEBI regulation 17(1A)

No listed entity shall appoint a person or continue the
directorship of any person as a non-executive director who has attained the age
of seventy five years unless a special
resolution is passed to that effect, in which case the explanatory statement
annexed to the notice for such motion shall indicate the justification for
appointing such a person.

Conclusion

1.Thus , an Independent Director or a non-executive director
can be appointed in a public company even if his age is 70 years as section
196(3)(a) says that only in case of appointment of Managing Director , or
Whole-time Director or Manager of a public company , approval by special
resolution in general meeting is needed.

2. The age is relevant only on the date of appointment and
not any time later as held in Ultramarine & Pigments Limited v/s Mr.
Rangaswamy Sampath

3. Even Listed companies can appoint an Independent director
or non-executive director who has attained the age of 70 or above by passing a
special resolution as the listed companies have to take the approval from
members for appointment of Independent director in the general meeting.

4.There is no bar for a private limited companies to appoint
a person as director who has attained the age of 70.

#Why Majority of Rental Agreements are usually of 11 months only?#

Why Majority of  Rental Agreements are usually of 11 months
only?

Lease agreement or the rent
agreement is a written contract between the owner of a property (the landlord)
and the tenant who takes it on rent. The agreement specifies the terms and
conditions based on which the property is let-out, such as: description of the
property (address, type and size), monthly rent, security deposit, purpose for
which property can be used (residential or commercial), and duration of the
agreement.

Its terms and the conditions
can be negotiated but after it is signed, it is binding on both the landlord
and tenant. It also specifies the conditions under which the agreement can be
terminated.

To
Avoid Stamp Duty

Most rent agreements are
signed for 11 months so that they can avoid stamp duty and other charges.

 According to the Registration Act, 1908,

 the registration of a lease agreement is
mandatory if the leasing period is more than 12 months. If an agreement is
registered, stamp duty and registration fee needs to be paid for it. For
instance, in Delhi, for a lease of up to five years, the stamp paper cost is 2%
of the total average annual rent of a year. Add a flat fee of Rs100, if a
security deposit is part of the agreement. For a lease of more than 5 years but
less than 10 years, it is 3% of the value of the average annual rent of a year.
For 10 years and more but less than 20 years, it is 6% of the value of average
annual rent of a year. The stamp paper can be in the name of the tenant or the
landlord. In addition, a flat registration charge of Rs1,100 is also to be paid
by demand draft (DD).

Beware Landlords about 11
months rental agreement

When a rental agreement is
made for a period beyond 11 months in tenure, it is mandatory to register the
agreement as per the Registration Act of India. And the registration
formalities with the local authorities is a lengthy process. So, to avoid these
lengthy legal formalities, the Landlords insist upon making the agreement for
11 month rather than making it for an year.

11
months rental agreement-No Sanctity – Say Karnataka High Court

An year agreement is required
to be registered to make it executable under the Registration Act.

“In a recent 2014 judgment, it
was declared by the

Karnataka High Court that 11-month agreements can
no longer be produced as an evidence in the courts as any transaction affecting
the property. So, if a dispute arises regarding a rental property and that
particular dispute is governed by a 11-month agreement, then the agreement
cannot be used as an evidence in the court for all purposes.”

SIGNING ON AN 11 MONTH
AGREEMNT CAN BE A RISK. THINK BEFORE YOU MOVE AHEAD!!

Case Law: Abdul Rasheed v.
Srinivas:

Justice HG Ramesh in this case
probed a question “Whether a lease deed, where the term of lease stated therein
does not exceed one year, requires to be registered under the Registration Act,
1908.”

In an order that debunks the
myth regarding the validity of the 11-month agreement, the court held, “In law,
the lease deeds need to be registered and therefore, such unregistered lease
deeds cannot be received as an evidence of an transaction affecting the
property”.

To see the video , please click the following link

#Why Majority of Rental Agreements are usually of 11 months only?#