infrastructure players to adopt structures containing multiple subsidiaries.
Usually, private equity investors have preferred to take exposure at the level of the holding company so as to derive economic value from the entire group as a whole, as against any particular arm/investment vehicle within the group. If this restriction is not implemented practically by the government (by not providing exceptions for genuine corporate structures), it may hurt the ability of infrastructure companies to lure private equity investors – since investors may not be able to derive the same amount of economic value from a single investment at the holding company level as they would have, under the Act.
Definition of ‘listed company’: The Bill now defines a ‘listed company’ to mean a company which has ‘any of its securities’ listed on any recognised stock exchange. Consequential implications arising from this definition are very interesting!
For example, a large number of companies in the real estate sector have listed their non-convertible debentures (NCDs) on the stock exchange. Going by the definition of a ‘listed company’ under the Bill, each of these companies would qualify as a ‘listed company’. Does this mean that such companies (regardless of what status they enjoy in their articles of association) would need to comply with all the obligations and compliances of a ‘listed company’, such as provisions in relation to appointment of independent directors, audit committee and a nomination and remuneration committee? The definition of ‘listed company’ also has the potential to stir a fresh debate on the applicability of the Securities Contract Regulation Act, 1956, to such private companies (that may have issued NCDs).
Positives: While the Bill poses some challenges, certain positives also deserve a mention. The Bill has granted statutory recognition to contracts or arrangement between two or more persons in respect of transfer of securities of a public company, putting to rest contradicting judicial precedents on this aspect. Through this change, provisions such as tag and drag along rights, ROFO (right of first offer) and ROFR (right of first refusal) commonly found in investment agreements have been granted legitimacy, providing much needed relief to private equity investors who rely on such contractual protections. The Bill has also sought to grant greater protection to non-executive directors by making them liable only in respect of such acts of omission/commission by the company which had occurred with their knowledge, attributable through board processes, and with their consent or connivance.