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Fund raising challenges of startups under the Companies Act
By Noorul Hassan
The first article in this issue of Corporate Amicus discusses a recent decision of the Registrar of Companies, NCT of Delhi and Haryana relating to Section 42 of the Companies Act, 2013 (private placement of shares). The Adjudicating Officer has in this decision observed that the provision requires that the company should adhere to the limit of 200 persons not just with respect to the number of persons who ultimately subscribe to the securities of the company, but also that this limit cannot be exceeded at the time of making an offer or invitation to offer of the securities of the company. It was also held that the role played by an intermediary in the present case could not be relegated to mere ‘generation of interest in the company’, instead it was an active facilitator for allowing the companies to raise investments through its portal and provided the services of media/ marketing/ distribution channel/ agent to inform the public at large about the issue of securities. Considering the case, the author opines that the provisions dealing with fund raising by startups could do with a fresh look particularly due to the nature of business and the need for funds.
Digital India Act: Evolving clarity & challenges
By Sameer Avasarala and Prashant Phillips
The Digital India Act (DIA) is set to replace the Information Technology Act, 2000 (IT Act) on account of a transformed internet landscape today, with significant internet penetration, multiple intermediaries operating across the internet and complex forms of user harms. The second article in this issue of the newsletter hence discusses the glimpse into the Digital India Act, as presented recently by the Minister of State for Electronics & Information Technology. The authors in this regard discuss how the DIA lays importance on open internet, protection of online safety and trust of internet users, and recognizes that the nature of intermediaries and role played by them have transformed significantly and are functionally different. They also note that while some broad obligations around due diligence, content restrictions, grievance redressal are likely to remain, the new approach may invite certain new requirements linked with definitive penalties for non-compliance, unlike the IT Act. The article concludes by stating that it would be interesting to track incremental developments on the Digital India Act and analyze its impact across various industries.
Notifications and Circulars
Filing of Forms GNL-2, MGT-14, PAS-3, SH-8, SH-11 due to migration from V2 version to V3 version in MCA 21 portal from 22 February 2023 to 31 March 2023
Master Circular for Foreign Venture Capital Investors (FVCIs) issued
Master Circular for Portfolio Managers issued
SEBI (Foreign Portfolio Investors) (Amendment) Regulations, 2023 notified
Operational Guidance – Amendment to SEBI (Buy-back of Securities) Regulations, 2018 issued
Extension in enforcement of Food Safety and Standards (Advertising and Claims) Second Amendment Regulations, 2022
Ratio decidendi
Dissenting secured creditors cannot be treated higher than other creditors under Section 53 of the Insolvency and Bankruptcy Code, 2016 just because they enjoy security interest – NCLT, Kolkata
Insolvency – When Financial Creditors are not paid in full in the Resolution Plan, Operational Creditors cannot claim a higher amount – NCLT Ahmedabad
Arbitration under Section 42 of the Special Economic Zones Act, 2005 shall override any contractual agreement between the parties – Telangana High Court
News Nuggets
Negotiable instruments – Person authorized by the company to sign a cheque is not the ‘drawer’
Arbitration – Assignee of an agreement is entitled to invoke arbitration clause of the agreement not signed by it
Arbitration – Merely because borrower is a MSME, there is no privilege to be bound by arbitral mechanism provided under MSMED Act
Insolvency – Applications under Sections 7 and 9 are not ‘suit’ – Restrictions under Section 69(2) of Partnership Act are not applicable
Insolvency – Right of homebuyers to raise claim before Resolution Professional would not cease to exist when Resolution Plan is still pending adjudication
Insolvency – Moratorium – Explanation to 14(1)(d) of IBC does not include within its ambit lease premium and lease rent amount
Insolvency – Petition under Section 9 of IBC can be filed only after expiry of 10 days period under Section 8(2)
Insolvency – Defences with respect to pre-existing dispute or no amount due can be raised in direct manner when replying to Section 9 Application
