India Losing its Domestic Arbitration! The Need for Legislative Amendment
Question-Answer session with Payal Chawla
Founder of JusContractUs on various issues of Corporate Law.
Response: In the past, according to SEBI, Options amounted to forward Contracts and not Spot Delivery contracts in terms of Section 2(i) of the Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and nor can they be considered Derivative Contracts under Section 18A of SCRA. Further RBI on its part had held that when an investment has been made by a foreign investor with a pre decided rate of return the same would amount to a debt and not equity or foreign direct investment. However, SEBI vide its notification dated October 3, 2013 has treated Call and Put Options as valid, provided the conditions prescribed in the said notification are met. Furthermore, RBI has permitted Options. For preference shares and debentures, the exit price can be as per internationally accepted price methodology. However, in regard to equity shares of unlisted companies, the exit has to be on an ROE linked price, even whilst the investment are made on the discounted cash flow method. For listed companies, exit has to be on the listed price.
Response: No. The position has now been clarified by a General Circular bearing No. 33 of 2014, issued by the Ministry of Corporate Affairs, whereby the government has clarified that the word “any other company owned or controlled, directly or indirectly………by the Central Government and partly by one or more State Governments” appearing in subsection (5) and (7) of section 139 of the New Act are to be read with the definition of ‘control’ in section 2(27) of the New Act. Thus documents like articles of association and shareholders agreements etc. envisaging control under section 2 (27) are to be taken into consideration while deciding whether an individual company, ……… is covered under section 139(5)/ 139(7) of the New Act”.
Response: As you may be aware Slump Sale is defined under the Income Tax Act, 1961. Under a Slump Sale an entire undertaking is sold for a lump sum consideration, without an individual determination of price ascribed to each asset separately. It is also possible to exclude liabilities. In a Slump Sale no Sales Tax is payable on the transfer of business as a going concern.
[The responses to question are for general information and not intended for legal advice and the reader is advised not to act upon it as such]
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