Newsletter | December 2016
 
NOTIFICATIONS/CIRCULARS
Securities and Exchange Board of India (SEBI)

Streamlining the Process for Acquisition of Shares pursuant to Tender-Offers made for Takeovers, Buy Back and Delisting of Securities.

SEBI vide circular dated December 09, 2016 has issued amendments w.r.t Streamlining the Process for Acquisition of Shares pursuant to Tender-Offers made for Takeovers, Buy Back and Delisting of Securities. In the said amendments, SEBI has decided that transfer of shares of shareholders under the tender offers would be made directly to the account maintained by the clearing corporation and the clearing corporation will be allowed to utilize the securities towards the settlement obligations under such offers. Further, consideration for the accepted shares in the tender offer and shares tendered but not accepted under such offer would be credited directly to shareholders' bank and Demat accounts respectively.

Circular

 
Ministry of Corporate Affairs (MCA)

Clarification regarding due date of transfer of shares to IEPF Authority

MCA vide notification dated December 07, 2016 has clarified that considering various representations for simplification of transfer process of shares under IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016 and request to extend the due date prescribed for transferring the shares to IEPF Authority, the government has decided to put the matters under consideration, and rules are likely to be revised which shall be notified in due course.

Circular

Constitution of Expert Group to look into issues related to Audit firms

MCA Vide order dated December 02, 2016 has extended the time period provided to Expert group constituted for looking into issues related to Audit firms and submitting its report till 15.01.2017. The decision was made in partial modification of Ministry Order dated September 09, 2016 on Constitution of Expert Group to look into issues related to Audit firms.

Circular

Notification on commencement of Section 33 – 54 of Insolvency and Bankruptcy code, 2016

Central Government vide circular dated December 9, 2016, has notified December 15, 2016 as the date on which the provisions of section 33 to section 54 (both inclusive) of the Insolvency and Bankruptcy code 2016, will come into force.

Circular

Notification of Merger Provisions

The Ministry of Corporate Affairs vide its notification dated December 7, 2016 has notified few more provisions of the Companies Act, 2013 including that of the provisions relating to “mergers and amalgamation of the companies”. The said notification shall come into force from December 15, 2016.

Circular

Transfer of Pending Proceedings Rules

MCA has also notified (Transfer of Pending Proceeding) Rules, 2016 which shall come into force from December 15, 2016. A brief summary of the Rules is provided hereunder:

1. Transfer of pending proceedings relating to cases other than winding up (Rule 3):

All the pending proceedings under the Companies Act, 2013 including proceedings relating to arbitration, compromise, arrangements and reconstruction other than proceedings relating to winding up shall stand transferred to the benches of Tribunal (“NCLT”) exercising respective territorial jurisdiction except those which are reserved for orders.

2. Pending proceedings relating to voluntary winding up (Rule 4):

Pending proceedings relating to voluntary winding up shall continue to remain and dealt with by the High Court.

3. Transfer of pending proceedings of  winding up on the ground of inability to pay debt (Rule 5):

Pending proceedings relating to winding up u/s 433(e) of the Companies Act, 1956 pending before a High Court, and where the petition has not yet been served on the respondent shall be transferred to the respective benches of NCLT and such petitions shall be treated as applications under section 7, 8, 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”) and shall be dealt in accordance with part II of the Code.

4. Transfer of pending proceedings of  winding up matters on the ground other than inability to pay debt (Rule 6):

All the pending proceedings relating to winding up u/s 433(a) and (f)  of the Companies Act, 1956 pending before a High Court, and where the petition has not yet been served on the respondent shall be transferred to respective benches of NCLT.

NOTIFICATION OF SECTIONS 248-252 OF COMPANIES ACT, 2013

MCA vide its notification dated 26th December, 2016 notified Sections 248 to 252 of Companies Act, 2013 which deals with removal of names of companies from register of companies, thus replacing Section 560 of erstwhile Companies Act, 1956. MCA has appointed 26th December, 2016 as the date of enforcement of the said notification and has also notified Companies (Removal of Names of  Companies from the Register of Companies) Rules, 2016 on the same date.

Circular

 
Reserve Bank of India (RBI)

Financing of Infrastructure – ‘Definition of 'Infrastructure Lending'

RBI vide circular dated December 01, 2016 has issued further updates on ‘Definition of Infrastructure Lending'. It has  harmonized the RBI definition of Infrastructure Lending with that of the 'Master List of Infrastructure sub-sectors' notified by the Government of India on October 7, 2013.It has been decided that for the purpose of definition of ‘Infrastructure Lending’, banks and select All India Term-Lending and Refinancing Institutions may henceforth be guided by the Gazette Notifications issued by the Department of Economic Affairs, Ministry of Finance, Government of India, from time to time.

Circular

 
Ministry of Finance

Notification of SICA (Repeal) Act, 2003

Central Government vide circular dated November 25, 2016, has notified December 1, 2016 as the date on which provisions of Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (“SICA Repeal Act”) shall come into effect and Section 4(b) of the SICA Repeal Act shall be enforced.

Circular

Offices
 
DELHI
Thapar House, Central Wing,
First Floor, 124 Janpath,
New Delhi 110 001, India
Tel: +91 11 4651 1000
Fax: +91 11 4651 1099
 
MUMBAI
Dubash House, 2nd Floor,
15 J. N. Heredia Marg, Ballard Estate,
Mumbai – 400 001, India
Tel: +91 22 6633 6791
Fax: + 91 22 6633 6790
 

BENGALURU
#10, First Floor, 12th Main, 
Palace Road, Vasanth Nagar, 
Bengaluru - 560 052, India 
Tel: +91 80 4123 1072
Fax: +91 80 4123 1073

 
HYDERABAD
401, ABK Olbee Plaza, 8 - 2-618/8 and 9,
Road No. 1, Banjara Hills, 
Hyderabad - 500 034, India 
Tel: +91 40 2331 0084
Fax: +91 40 2331 0085
 
CHENNAI
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Chennai - 600 041, India
Tel: +91 44 4271 9731
Fax: +91 44 5260 7956 
 
linklegal@linklegal.in
www.linklegal.in
 

Previous Issues:

November 2016
October 2016
August 2016
April 2016
March 2016
February 2016
January 2016
LINK LEGAL INDIA LAW SERVICES (LL-ILS) AND DH LAW ASSOCIATES ANNOUNCE MERGER
 

Link Legal India Law Services (LL-ILS) and DH Law Associates (DH Law) announced the merger of their practices with effect from 1st January 2017. The merged entity will continue to be known as “Link Legal - India Law Services” and will be amongst the top 15 law firms in the country in terms of its size.

Post the merger, Atul Sharma, co-founder & Managing Partner of LL-ILS will continue as the Managing Partner of the merged entity. Nusrat Hassan, the Managing Partner and co-founder of DH Law will assume the role of Co – Managing Partner of the merged entity. Nusrat will join the Firm’s Management Committee.

Mr. A.G Karkhanis, Co-Managing Partner of LL-ILS will now be the “Chairman” of the merged entity.

Co-Managing Partner, Nusrat Hassan said, “The merger of the two firms will galvanise the already strong full service practices and will create a national firm with unparalleled strengths in all practice areas. The merger will also increase the merged entity’s international reach. We at DH Law Associates look forward to this new journey”

Managing Partner, Atul Sharma said, “Consolidation of legal practices is now the necessity of the legal services sector with our Indian lawyers being called upon to match international standards. We have been constant in our strife to build such an institution and towards this end, it was important that we merge with a firm that is culturally aligned and shares our vision, work ethos and value system. Nusrat & the DH Law team are a perfect match for us and we are excited about our merger and the opportunity that it represents for our teams and clients. I welcome Nusrat & his team and congratulate all the lawyers across both firms on this merger.”

Mr. Karkhanis, the Chairman of LL-ILS in a statement welcomed the development and observed that the merger will enhance the capabilities of the Firm and enable it to render high quality services to its clients at National and International level.

Post merger, the headcount of LL-ILS will increase to 155 at the national level with 35 Partners (including Associate Partners) and offices at New Delhi, Mumbai, Gurugram, Bengaluru, Hyderabad, Chennai.

 
FUNDING OPTIONS FOR INDIAN START UPS
- By Mr. Bhumesh Verma, Partner
 

Startups play a crucial role in an innovation driven economy like India at the moment in view of their dynamic and active nature. Recognising this, Government of India has startups at the centre of its executive and legislative agenda. Facilitating factors such as the flexibility in setting up, statutory relaxations and various funding opportunities available have enabled startups to thrive in the last couple of years.

The success of a startup is inextricably linked to a multitude of parameters: a strong business plan, funding, marketing techniques, profitability of the business, a coherent understanding of the market among others. Only those startups which are at the top of their game, vis-à-vis the various factors involved and further are fiercely competitive, having a thorough understanding of the market, survive. 

Founders of startups vouch for the importance of networking in start(ing) up. Networking is crucial for generating ideas, adopting practices, and for raising funds. Fund raising can be a daunting task despite the available opportunities. Therefore, the founders must carefully ascertain the type, structure and amount of funding necessary for their business model and the kind of investors they would want to take on board.

In the current scenario, founders aim to raise funds to float the business model and then venture on to break even in a certain time schedule. If founders are well prepared and can meet the investors’ concerns, there are several options for raising funds.

Angel investors

An angel investor could be either an individual investor with prior early stage investment experience, a body corporate with a net worth of Rs 10 crore, a registered Alternate Investment Fund or Venture Capital Fund, or even a company with family connection. Investors with family connection are quite common in this category. Several angel funds co-invest with the founders while insisting on the first round of funding to be from the founder.

There is also a concept of angel networks which has been developing in the past few years. The annual growth rate of the number of investments by angel networks made during the 2009-15 period has been about 75% p.a. Further, the average size of funding received by startups from angel investors grew to 27 per cent to Rs. 47 million from 10 million in 2009. The Angel Networks are more organised in Tier 1 and 2 Indian cities.

Seed funding

Seed investments that support startups in the early phase, bringing the first funding from external investors are critical for the startup ecosystem. Typically, for amounts up to Rs 100 million seed funds can be approached.

Loans

This funding option is the issuance of debt which, involves the exchange of a claim for an obligation; a loan. It involves a transfer of funds in exchange for the obligation to repay the funds in certain amounts over a period as per a fixed schedule agreed upon. Businesses choosing this form of financing must be prepared to offer some assurance in the form of a collateral. Banks and Non-Banking Financial Companies (NBFCs) are a common source of securing loans. However, it is difficult to procure funding from banks for startups since these institutions don’t prefer smaller companies or startups which cannot offer collaterals. Approaching them during a later, stable phase is, therefore, preferable for ventures.

Interestingly, there is a new hybrid scheme called venture-debt. These are essentially NBFCs that invest into the debt and term loan after the Venture Capital has backed the venture.

Crowdfunding

This method of fund raising involves any common person contributing money towards a business idea they see potential in. A crowdfunding platform enables an entrepreneur to put out a detailed description of the business model, including details such as amount of funding needed, future financial strategies for getting profits, goals of the business, etc. Subsequently, consumers and investors can choose to contribute depending on their perception of the idea.

This funding option is proving to be difficult on startups after SEBI’s warning against digital crowdfunding platforms which are not registered. In a note issued by SEBI, recently, it questioned the legality of equity crowd funding platforms catering to startups stating that these platforms constitute contraventions under the Securities Contract Act, 1956. Further, SEBI declared the some of the prominent digital Equity Crowdfunding Platforms (ECPs) as unauthorised and illegal. These platforms had proven to be beneficial for raising funds. Despite SEBI's warning, some experts are of the opinion that crowdfunding will continue because a number of passionate investors would want to see the product exist and will be willing to pay to create it.

Government grants

Startups can also take a collateral free loan up to Rs 10 million under the Credit Guarantee Fund for micro-and small-enterprises, a scheme of National Credit Guarantee Trust Company (NCGTC) or Small Industries Development Bank of India (SIDBI) and the Ministry of Small and Medium Enterprises.

Funding from business incubators and accelerators

Found in major cities, incubators and accelerator programmes are a useful funding option for early-stage businesses. These programmes assist several startups annually, running for four to eight months and requiring time commitment from business owners. The platforms also provide opportunities to make good connections with investors, mentors, and other startups.

External Commercial Borrowing (ECB)

Under the Fourth Bi-monthly Monetary Policy Statement for the year 2016-17 the RBI has permitted startups to raise external commercial borrowings (ECBs) of up to USD 3 million in a financial year. The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the non-resident lender, should mobilise INR through swaps/outright sale undertaken through bank in India.

The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares and the minimum average maturity period will be 3 years. ECBs can be raised from a country which is either a member of Financial Action Task Force (FATF) or FATF-Style Regional Bodies. However, overseas branches and subsidiaries of Indian banks and overseas wholly owned subsidiary or joint venture of an Indian company will not be considered as recognised lenders.

Venture Capital Funds (VCF)

A venture capital investor is an institutional group that offers capital to startups. A VCF provides funds to promising companies that are typically knowledge based; assumes a high risk element but promise sustainable growth and higher rewards.

Venture capital deal-making brings a larger stash of capital compared to angel or seed funding rounds. However, this form of funding may require an entrepreneur to be flexible with his or her business, and give up varying amounts of control over the business model. The returns to the venture capitalists depend upon the growth of the company.

Foreign Venture Capital Investors (FVCIs) registered with SEBI are permitted to invest in Indian startups without RBI approval. These Investors can subscribe equity or equity linked instrument or debt instrument issued by an Indian startup irrespective of the sector in which the startup is engaged. 

CONCLUSION

Trends in the startup ecosystem, documenting the last few years go a long way in highlighting that startups overall have been growing. Though the startup businesses have a niche set of challenges to face, entrepreneurs and investors, learning along the way, are developing and funding startup-businesses respectively that they believe in.

The investment provided by the investor undoubtedly shapes the future of a startup. On the other hand, investors gain by backing startups, as in many cases it provides a variant line of business for them often in an untapped market. The key for startup businesses to flourish therefore continues to be the alignment of interests of the founders and the investors.

 
FIRM NEWS
 

Link Legal India Law Services ranked # 1 in Asia (excluding Japan) and Australasia in Project Finance League Table – Dealogic Rankings (January 1- December 16, 2016)
The Firm reported the highest deal revenue as compared to other firms (including international firms) in the Asia Pacific region (excluding Japan). The data and rankings were computed for the period of January 1st to December 16, 2016. Link Legal India Law Services has acted on 60 deals worth USD 5910 million during the above period.

Announcement – New Partner Joining
Link Legal India Law Services has expanded its Hyderabad practice with the addition of Mr. Y. Sriniwas Arun as Partner. He has 12 years of experience in Legal, Secretarial and corporate matters including corporate restructuring, corporate advisory and corporate governance. Prior to joining Link Legal India Law Services, he was heading the Legal & Secretarial team at GKC Projects limited.

 

Ranked #1 in Asia (excluding Japan) and Australasia in Project Finance League Table – Dealogic Rankings (January 1-December 16, 2016)

Best Full Service Law Firm – India & Recognised Leaders in Corporate Law – India 2016 by APAC Insider

Project Finance Law Firm of the Year in India – 2016 by Global Law Experts

Best Dispute Resolution Law Firm – India, Acquisition International Legal Awards, 2016

Energy, Projects & Infrastructure Law Firm of the Year 2013, 2014 and 2015 by India Business Law Journal

Best Law Firm – Aviation 2014 and 2015 by India Business Law Journal

Acquisition Law Firm of the Year – 2016 by Corporate Intl

Acquisition Law Firm of the Year – 2015 by Global Law Experts

Corporate and Commercial Law Firm of the Year in India – 2015 by Acquisition Intl

Consistently ranked as Band 1 Firm in the category “Project, Infrastructure and Energy” by Chambers and Partners – Asia Pacific

Aviation, Banking and Finance, Projects and Energy, Corporate and M&A, Dispute Resolution, Antitrust and Competition and TMT Practice has been rated highly by the Legal 500 Asia Pacific

 

Disclaimer

The contents of this newsletter are intended for information purposes only. Parts of this newsletter are based on news reports and have not been independently verified. The newsletter is not in the nature of a legal opinion or advice and should not be treated as such.

Link Legal India Law Services does not warrant the accuracy and completeness of this newsletter, and readers are encouraged to seek professional advice before acting upon any of the information provided therein.
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In no event will Link Legal India Law Services be liable for any loss whatsoever arising out of the use of or reliance on the contents of this newsletter.

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