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Corporate Law

IPO or M&A? How Venture Capital Shapes a Startup’s Future.

By Corporate Law No Comments

Understanding Venture Capital Funding Process

Startups are the new burgeoning fashion of the finance world. It is no news that varied startups in the economy have taken the economy by storm.

With many registering high profits,  IPO the startup culture in various economies, in the west and the east have been blooming. With millions of ventures sprouting in the economy, its funding process garners importance and has drawn itself into a heated debate.

venture capital

The heated debate around the topic is due to the fact that entrepreneurs rarely know who will ultimately own their startups. There are various ways a startup is funded in the economy. A startup that is effectively funded by Venture capitalists, tends to work with the same group of partners.

This usually leads to a faster exit that is sought after by the investors by selling the company to a larger one. In contrast, to the VCs, startups that are emphatically funded by a VC, exit potentially through a splashy IPO is demanded.

It is no news that funds are strategically required to sustain the fledgling business or to ramp up the output. Therefore, a cash injection, from any source, can go a long way in sustaining a business much longer or launching a critical, new product in the market.

ipo in india

However, it has been found through various studies that the founders usually don’t put much thought into what alternate funding mechanisms have to offer. Thus, they effectively fail to recognize the importance of scrutinizing and examining investors’ relationships that might eventually find themselves relinquishing their ventures to a much larger profit-mongering acquirer.

Thus, strategically knowing the details of what actually is at stake with both outcomes is important and imperative.
The main rationale that runs behind the reluctant attitude of the founders not to get to know the alternatives is that many founders are mostly interested in the amount of funding and whether the venture capital is well known or not.

Thus, decisions are made on the basis of popularity and amount of funding, which according to many analysts is a wasteful approach.

According to the study, it has seen found that of the 16 percent of the startups that have been acquired, the main motivator of investment and negotiation of like-mindedness in business to ensure stable returns and not what such kind of investing have to offer both the parties.

Such kinds of relationships in businesses have been termed “focused successes” because they effectively deliver a venture mostly to a well-resourced owner.

venture capital funding process

It is to be noted that going for such an approach usually leads to repercussions in the form of pressure that the founders will have to yield to coordinate with the plans of an aligned investor group. in fact, any many cases, it has been witnessed that the founders have to effectively give up control of the startup’s vision.

This can be due to the demand of the investors that lead to founders taking a step back altogether after a larger company takes possession. With such uncanny and unwarranted behaviors, it is usually seen that such businesses fall apart.

On the other hand, one can also effectively argue that venture capitalists who don’t strategically or effectively work closely together tend to actually hold on to startups longer.

Thus, the tradeoff for the founders is emphatically between the infringement of the power in the startup and the investors who might outlive their utility in the venture.

According to the reports, if an investor clings to a startup for a longer time, it is usually four and a half years on average.

entrepreneurs and ventures capitalists

Though one might argue that becoming a publicly-traded company can actually bring about more attention, profits and can effectively retain the original management team, the high risks of failure for such ventures that are backed by such syndicates is a fact that cannot be ignored.

Thus, as aforementioned, though for most entrepreneurs, it might be just about the term sheet or how much equity they can retain from such investing, usually, the structure of the alternatives, which is a kind of hidden variable, has huge implications.

Though the degree of collaboration between two parties gives off mixed signals, there are instances that such investments might actually prove much more beneficial than the repercussions aforementioned. The pool of investors might help the firm pool together resources and provide hefty, important connections within an industry.

This might seem like a promising opportunity that many firms or startups might want to explore. On the other hand, we also witness a more diverse investor group that might be willing to give founders more leeway in decision-making.

Whatever be the case, founders need to understand and interpret the pros and cons of such investment relationships and who they get in bed with. Such decision-making is mainly motivated by their solemn take on their companies and what they aspire for the same, which should be made clear before committing to various popular VC funds.

Though, a quick cash injection might seem enticing, ultimately, the structure of relationships matters, which most probably is overlooked.

 


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corporate insolvency resolution process

Effect of Committee of Creditors Approval in Corporate Insolvency

By Corporate Law, Banking No Comments

Corporate Insolvency Resolution Process for Creditors Approval

Insolvency and Bankruptcy Code that came into effect in the financial year 2016, has been the most effective code for the insolvency creditors for proceedings in India.

One can even state that the invention of the code has been revolutionary for the banking sector, given, the state of haphazard and the industry finds itself in. it can also be maintained that with the advent of the code, the industry saw the demise of the laws for liquidation and insolvency in the Indian bankruptcy regime.

But given that even the IBC brings to the table the option for liquidation, how exactly is the code different from the prior process of liquidation?

It is to be noted that the crux of the code encapsulates effective objectives like maximizing the value of assets of a corporate which were barely recoverable under the arcane laws and emphatically ease the businesses by effectively minimizing the financial risk in business.

Thus, it can be effectively stated that the code significantly improves the condition of the financially distressed company by recovering its value through its effective time-bound manner of work. Even though the IBC helps in the recovery of payments from the defaulter, its main focus is on the relief of the creditors of the company.

corporate insolvency resolutionIt is worth mentioning here that under the Corporate Insolvency Resolution Process, the creditors have placed ion the pinnacle of utmost importance. Thus, given its newfound, enhanced role, the committee of creditors has been emphatically seen playing a major role in the regime of insolvency.

In fact, If the procedure is to be believed, the committee of creditors wields the utmost power and is effectively considered the supreme decision-making body in the Corporate Insolvency Resolution Process. Thus, one cannot help but note here that the effective decisions by the committee will affect the resolution of the insolvency of the corporate debtor.

corporate insolvencyUnder particular regulation 21 of the code, the committee of creditors finds the seed of its formation. According to the code, the committee of creditors shall emphatically and strategically comprise all the financial creditors of the corporate debtor.

To remove the barrier and the arbitrariness of distinction, the code also effectively makes a clear distinction between the financial creditors and the operational creditors. If a financial creditor is to be solemnly described, it effectively means anyone to whom the debt along with interest is owed. On the other hand, an operational creditor is one who has debts related to the supply of services and goods.

committee of creditorsThe power-wielding committee of creditors

As aforementioned, the committee of creditors is described as the supreme decision-making body. Thus, all the major or humungous decisions about the company are effectively taken with the approval of the committee.

Therefore, one can state that the committee of creditors has a humungous authority to affect the insolvency process. This is also due to the fact that the committee can call the shots on sensitive topics like whether or not to restore the corporate debtor by strategically accepting any resolution plan.

In fact, it is worth mentioning here that the committee of creditors has the supreme power of approving the proposed resolution plan. This strongly indicates the fact that the committee has an undue influence on the insolvency process, which will be tackled on its whims and decisions, thus, deciding the fate and the regular functioning of the corporate debtor.

In fact, it is also worth mentioning here that the committee of creditors also enjoys the authority to approach the adjudicating authority. This can be done in the case of any foul play event that can be detected by the committee. This emphasizes the fact that the conditions of foul play and what determines it will be emphatically be decided by the committee, which surely puts humungous, undue power in the hands of the committee to sway the decision-making in the insolvency process.

corporate restructuring and insolvencyThe authority can also be effectively evaluated from the fact that the co9mmitee can also choose to proceed with the liquidation of the corporate debtor by not approving any resolution plan.

Thus, in a gist, it can be stated that the insolvency process depends heavily on the commercial wisdom of the committee while taking any decision for the corporate debtor.

This is because it is staunchly believed that the committee of creditors has better knowledge to mediate and analyze the debilitated situation of the company.

Thus, one can effectively argue that the committed creditors have been vested with immense powers under the insolvency and bankruptcy code,2016.

With immense power bestowed on one committee, it can be stated that effects on the resolution of a company under distress can be immense and humungous.

bankruptcy creditors committee

With even a little whimsical attitude, one can conjure that it will have a negative impact on the financial health of the company that will nonetheless affect the process of insolvency in due course. But on the other hand, one can also maintain that if the creditors can take absolute control of the management of the corporate debtor, important decisions and the resolutions plan can be passed in a timely, swift manner which can help recover a larger value of the assets and will thus ease the financial risk in a company.

Thus, if the power is to be used sagaciously and prudently, one can expect such creditor-in-control model management to usher the banking sector into a stronger bankruptcy regime in India.

 


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corporate social responsibility in india

Corporate Social Responsibility Regime in India

By Corporate Law No Comments

Importance of Corporate Social Responsibility

Capitalization has been a contentious topic for decades. With various social civilizations tilting towards the socialistic regime, the corporate world’s faster growth has been hard to miss.

With the mixed economy shenanigans and advantages, harmony between the public and the private sector is needed. With various high profits that accrue to the capitalistic economies, condemnations in the form of wage discrepancies and violations, corporations have to commit themselves to not sever the neutrality line between the socialists and themselves.

With the need to maintain harmony, the adoption of Corporate Social Responsibility becomes a pressing need for corporations.

It is to be noted if Corporate social responsibility is to be deconstructed, in simpler words, it means a concept that effectively tries to instill a sense of social responsibility amongst various corporations in the economy. Well, the need for corporate social responsibility comes from the fact that society essentially is of the opinion that it emphatically funds or contributes to the businesses of corporations in one way or the other.

importance of corporate social responsibilityThis provides impetus to the growth of most businesses. Thus, given the pertinent argument, corporations that in some way or the other benefit from the society should effectively recognize and realize such contribution through their share.

Thus, it can be maintained that CSR strategically nurtures a businesses’ sense of responsibility towards society.

 

Though around the world the activity of CSR is voluntary, India is one of the first few nations that had legalized mandate CSR in the year 2014.

CSR is all wonderful for society and the world, but do the corporations, whose sole motive is profits, find any utility in conducting such activity? As a matter of fact, there are various advantages for the well-established corporations that carry out their social responsibilities.

One of the advantages that the company enjoys when it fully discharges its responsibility is a good repute amongst the citizens and are normally considered and regarded as virtuous corporates amongst citizens.

It is no news, that in India, moral policing plays a huge role in determining the popularity and the fate of anything and everything.

Thus, conducting social responsibility adds brownie points for the corporations working in India.
Other than enjoying popularity amongst the masses, the corporations also can use the opportunity to make positive contributions towards cultural, social, economic, and environmental issues that are increasingly prevalent in society.

importance of corporate social responsibility

As a matter of fact, it cannot most certainly be denied that healthy corporate employee relationship leads to increased efficiency in the organization. Indulging in CSR activities presents an opportunity for the corporations to strengthen their bond with the employees.

But the key growth factor that does not lend the property or reluctance to the law is change. Though CSR was effectively mandated under the law by bringing amendments to the Companies Act of 2013, the provisions strategically regulating CSR activities of companies have been evolving with time.

What makes the act for the company less of a liability is the fact that the amendments caused to CSR were particularly aimed at mostly motivating the companies to develop a genuine desire to take up a social cause and not burden them with social work.

Thus, one can attribute the mild curtailment of freedom as the main driver of the success of CSR.
It is to be noted that prior to the Companies act of 2013, CSR activities in India were merely seen as a philanthropic activity.

But with the change in 2013, that saw replacement in the Companies Act of 1956, CSR activities become the work of every organization.

But this gives rise to a pertinent question what really is the role of the corporate social responsibility committee in India? It is to be noted that the committee works to formulate and effectively recommend to the board the amount of expenditure to be incurred on the activities.

Alternatively, it also assists in monitoring the Corporate Social Responsibility Policy of the company from time to time.

The board of the companies usually approves the Corporate Social Responsibility Policy. The board also strategically ensures that the activities are effectively included in the Corporate Social Responsibility Policy of the company and are in fact undertaken solemnly by the company.

In order to emphatically counter any discrepancy, the board also ensures that the company spends, every financial year.

The criteria are that at least 2% of the average net profits of the company that are made during the three immediately preceding financial years should be used for CSR activities.

Thus, in totality, one can maintain that the CSR activities in India are worked out efficiently under a system that solemnly ensures that the system is worked out in a proper manner.

In fact, given the higher scope of the policy, amendments were made in If the company fails to spend such amount, the financial year 2019.

In order to inculcate the responsibility in various corporations in India, the newer amendment has suggested that if any amount that is remaining unspent, shall emphatically be transferred by the company within a period of thirty days.

This should be transferred to a special account to be opened by the company, which will be effectively called the Unspent Corporate Social Responsibility Account.

socialThus, in recent years the government has been trying to incorporate responsibility amongst the corporations and making it arduous for them to skip their social responsibility.

The CSR has a high potential for the future, will the government be able to make any fruitful gains out of it, is something we’ll have to wait and scrutinize.


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corporate compliance laws

Corporate Compliance Relaxations by MCA, and Other Agencies Due to Covid 19 Scenario

By Corporate Law No Comments

Relaxation of Corporate Compliance Laws Due to covid 19

Where many might agree to disagree on various range of topics, many will strongly agree on the fact that the global outbreak of coronavirus was a one. The pandemic has ruthlessly brought about unexpected restrictions in the economy in the form of blanket lockdown, that has curtailed the freedom of the citizens around the world.

The same is true not only for the general public but also for the corporate sector across the world, which has been dying under the weight of the pandemic mayhem. India serves as a prime example of extreme steps that are taken for the curtailment of the pandemic.

This included 3-month long blanket lockdown in the economy that had emphatically ordered all establishments, except the essential services to temporarily close down their physical offices. This has presented a humongous problem for the employees who are finding it arduous to coordinate.

corporate compliance issues

This is effectively and significantly due to the lack of office facilities, and how long the companies are taking an immense amount of time to face difficulties in undertaking timely compliances of various applicable laws.

Having mentioned the mayhem in the economy and the resultant lockdowns and precautions, it needs to be stated that the government has temporarily relaxed quite a number of compliance requirements. This has especially been embraced for the corporate sector that is having a hard time adjusting to the new normal.

corporate compliance policySome of the major relaxations that have been put in force by the securities and exchange board of India include exemptions from the cumbersome periodic filing requirements for select listed entities under the SEBI.

Thus, the extension of time has been provided for compilations as SEBI has extended the last date for the conduct of meetings. SEBI, in order to offload the burden of the executives, has also exempted the board of directors from observing the maximum stipulated time gap of 120 days between any two meetings.

It is to be noted that such time constraints had to follow under Regulations 17(2) and 18(2)(a) of the LODR respectively. Thus, in order to relax the norms, in view of the lingering pandemic, that can be described as uncertain and unpredictable at the best, one can expect the continuation of such exemptions for a while longer.

Along with the aforementioned relaxations that have been made by the SEBI, it has generously also provided relaxations to holders of 25% or perhaps more shares.

These could also include voting rights and to the promoters of listed entities. The aforementioned parties have been granted exemption from filing disclosure of their voting rights and aggregate shareholding.

It is to be noted that promoters were to be given their fair share of exemptions by not having the compulsion to promote along with the person acting in concert from filing the declaration on a yearly basis
But had only SEBI introduced certain restrictions and had the government not introduced any in the view of the welfare of the society and the employees in the economy?

corporate compliance program

It is to be noted that the Ministry of Corporate Affairs has emphatically issued a notice whereby it has clearly and strongly inserted a new sub-rule under Rule 4 of the Companies Rule of 2014. It has provided for the relaxation in holding board meetings.

This has been done to relax the compulsion of holding a meeting in the physical presence of directors under Section 173 (2).

In addition to the aforementioned, restrictions, the ministry had also come up with several important relief measures. These have been emphatically introduced to address the glaring threat that has been posted by the COVID-19. The compliance burden had been reduced through the moratorium freeze on the payments which was quite crucial for the people in the economy.

This is due to the pertinent and imperative fact that people’s economic and financial standing in society has been crippled by the pandemic. thus, this has led the government to graciously take the moratorium freeze with it for as long as it can.

Though the government might have taken care of the corporations in the financials, the government has not forgotten about corporate social responsibility. Though the government has taken an altered stance on corporate social responsibility, it has been clarified that the spending of CSR funds for the pandemic should be continued.

In fact, the government has maintained that positively and significantly making contributions to the PM-CARES Fund is quite well an eligible CSR activity. The government has strongly maintained that such funds will be judiciously used for the promotion of health care which will effectively include preventive health care and sanitation disasters in the medical system.

It is to be noted that given the wrath that has been inflicted on the corporations, such acts and exemptions will empathically allow them to avoid penalties. This can be delayed on the account of unavoidable delays in meeting their regulatory compliances. Though it is a fact that companies will have to eventually comply with such regulatory requirements until then such a breather can be enjoyed.

 


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evaluation of corporate compliance programs, corporate compliance laws and regulations, corporate legal compliance.

sebi aif regulations

SEBI’s New AIF Regulations

By Corporate Law No Comments

New SEBI AIF Regulations

India, a developing economy is all set to accommodate investments in the economy. Given the outrage against the Chinese government for its pandemic containment policy, many companies have been leaving China for alternative business investments.

Thus, it can be rightly stated that the pandemic has presented India with a golden opportunity to attract investments in its economy. It is to be noted that this has been materialized in some sense as the FDI equity investments in the economy in the last quarter jumped by 168 percent.

Now, to make the investment environment more accommodative, SEBI has stepped up with its investment accommodation policy. Recently, in a meeting held, the Securities and Exchange Board of India had approved various accommodating amendments to the regulations.

These regulations were brought into force to facilitate alternative investment funds in the economy. It is to be noted that the regulations by the SEBI will effectively ease compliance needed for Alternate Investment funds. On the other hand with flexibility in ease of compliance, such regulations will also foster investment flexibility that will ramp up further investments and will streamline regulatory processes.

sebi regulationsTalking about the recent announcement compared to the earlier archaic regulations, it is to be noted that as per SEBI’s amendments made to Alternative Investment Funds Regulations, 2012, Venture Capital Funds will need to invest at least 75 percent of investable funds.

But it is to be noted that in a partial relief that has been provided by SEBI to alternative investment funds, it has provided the Investments certain exemptions. Such exemptions come in regard to the investment committee. It is duly noted that under the recent norms, AIF members of an investment committee will no longer be effectively responsible for any investment decisions.

Also, as aforementioned, compliance will be made flexible as members of the committee would not be effectively liable for the compliance of the AIF investments. This will be in relation to governing documents, the regulatory provisions, and other applicable laws. This will emphatically take off the burden from AIF investments that will see an inflow in the coming months.

It is to be noted that due to the recent amendments, existing investment restrictions in investable funds of VCFs will be happily done away with. As per the newer regulations, Social Venture Funds that lead to the minimum amount of grant of ₹25 lakh that has been stipulated for Category I AIFs shall not be applicable anymore.

However, it is to be noted that such exemptions come with certain conditionalities. According to the recent amendments, the exemption in the AIF rule is conditional upon capital commitment. As aforementioned, the rule states that the capital commitment of at least ₹70 crores from each investor will be accompanied by a suitable waiver.

However, the effectiveness is somewhat thwarted as the exemptions are quite limited to an AIF in which effectively each investor other than the sponsor, directors, manager, and employees of the AIF or employees has effectively and emphatically committed to investing not less than ₹70 crores.

This is what puts certain conditionalities in investments which can present some kind of hindrance in the promotion of investments. Secondly, the waiver that has been furnished for the AIF is in respect of compliance with the said clauses and is effective in the manner specified by the board. Thus, even with investment promotion, certain conditionalities with the same have been imposed.

sebi guidelinesBut it is to be noted that such investment promotion comes as a series of steps. In October amendments were passed by Sebi that had amended the AIF regulations.

This had provided the recommendation and regulation for shared responsibilities for the members of the investment committee. These responsibilities were to be shared with the investment manager. This has been done to bring in efficiency and accountability in the system as prior to this only fund managers were effectively responsible and accountable for investment decisions.

Thus, it can be rightly stated that such amendment provided an accommodative opportunity for equal responsibility for the members of the IC and the investment managers with regard to investment decisions of the AIF.
Also, such joint accountability will lead to AIF’s compliance with the regulations.

This will also help in doable compliance with the private placement memorandum and the applicable law.
Scrutinizing the newer regulations it is to be noted that the newer AIF fund that is established or incorporated in India and is a privately pooled investment vehicle that emphatically and effectively collects funds from foreign or Indian investors, will invest in accordance with a defined investment policy.

This will effectively lead to the benefit of its investors and thus it can be rightly stated that such amendments have led to upholding of investors’ rights which will again foster confidence and will call for increased inflow of investments in the economy.

In fact, given the data released by the SEBI such regulations led AIFs to witness a surge in commitments worth ₹82,228 crores in the financial year 2021. Such investments found their way from family offices, institutions, and high net-worth individuals.

 


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payment services regulations

Payment Services Framework – Demystifying Regulations

By Economy, Corporate Law No Comments

Understanding The New Payment Services Regulations

Even though pandemic might have inflicted severe wounds on the economies around the world but one silver lining that can be deciphered from such a debacle is that it has been a usherer of technology usage in various economies.

Given the rapid speed of adoption, it can be stated that it is effectively taking the speed and convenience of being a digital savvy individual in a globalized world to new greater heights. But with the increase of convenience and speed in the economy, is also effectively enabling cybercrime.

This is certainly leading to absurdity and discrepancy too as cybercrime is on an alarming rise. Such a claim has been corroborated by the global 2018 study that was conducted by PwC. The study revealed that at least 49% of organizations effectively admitted to being victims of fraud.

If such statistics are put in perspective, it is significantly up 36% in 2016. With the rise of cybercrime, Payment service providers and merchants are facing the challenge of reinforcing eCommerce security. This gains all the more important because it needs to be done without creating any discrepancies and obstacles that could severely lead to cart abandonment.

It is to be noted that much has materialized in the decade since the first Payment Services Directive that was introduced. The inefficiency in the system can be accommodated by the fact that fraud losses are on an extreme rise year on year. This has significantly happened due to the rapid digital change. Additionally, this has been also due to the open banking and FinTech industry that has arisen in recent years and has gained momentum radically through the pandemic.

payment services

It is to be noted that the condition is applicable globally and is especially true for the progressing country like India which is imbibing the richness of the digital revolution. It is no news that electronic payments have made a humungous impact on the lives of millions of Indians. This has been seen through the increase in usage of UPI payments around the country.

With the increased usage by Indians and increasing cyber-attacks, RBI has recently released regulations for all Payment System providers. The regulations significantly state that any payments that will be made in Indian entities for domestic payments transactions need to be stored only in India itself. As for the data for payments that are made outside India, the data has to be effectively deleted from those systems abroad. In addition to deletion of such data abroad systems, it has to be stored in India no later than 1 business day or 24 hours. from payment processing, whichever is earlier.

The need for such payment services regulations

This might give rise to a query that why is there a need for such regulations by the RBI? It is to be noted that with the growth in electronic payments systems and cyber-attacks, there is an urgent need for regulations. Such regulations are needed to protect the interests of millions of users to safeguard their primary data. This is also needed to safeguard the integrity of the newly formed payments systems.

new payment services regulationsGiven the objectives of the RBI regulation, it is quite sagacious to mention what might be the impact of such regulations. It is to be noted that the newer regulations have posed some urgency within the financial institutions and the banks.

This is mainly due to the fact that the financial system and banks need to significantly adhere to such regulations which are crippling and to the working hours of the bank. This in fact has led many of the banks to miss the deadline or breach the regulations, though extensions have been generously provided.

However, it is worth mentioning here that given the arduous list of tasks and regulations that the various banks have to adhere to, it is a significant step in the direction of imbibing the user data privacy norms and strengthening the cyber laws. Given that there has been an immense increase in online businesses, a robust payment system is the need of the hour to usher India into being a digital economy.

Though it is worth noting here that India had its payment system in place with its Level 4 data centers and major cloud providers. In addition to this, it has formidable payments technology. But given the advanced progression that has been made in the cyber-attack industry, such a system usually falters.

payment rules and regulationsThus, given the nature of the issue and the relevance and importance of such robust censoring and payment system, the recent regulations will greatly safeguard the users’ data. This has all the more important as data privacy concerns are becoming a big concern for users across the globe now. Thus the regulations will emphatically ensure that surveillance and right monitoring will ease out in the investigations.

 


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lic ipo news

LIC IPO News

By Corporate Law No Comments

                                                     LIC IPO News

LIC is all set for its IPO which will emphatically raise the valuation of the company surpassing that of the Reliance industry.

  • This shows the significant nature and importance of the IPO that is all set to hit the market. The IPO of LIC will be game-changing as it will help the government garner from Rs. 50,000 crore to Rs. 1 lakh crore for its divestment policy which is crucial for raising funds for the functioning of the government.

In fact, the sale of 5-10 percent government stake in the company will give the company better returns on its investment. This is due to the fact that independent directors and investors will be able to raise questions on economically viable decisions that will be lucrative and strategic for the growth and performance of the com

LIC’s embedded value as of September 30, 2021, has been estimated at 5.39 lakh crore. Currently, private insurance companies trade at a multiple of 3-4 times embedded value.

However, embedded value is only an estimation of value based on several assumptions, and the multiple attribute to an insurer could vary based on several qualitative factors.

LIC

Considering its size, and dominant position in the market with 66 percent market share in new business premium, its growth rate may not match up to some of the nimble-footed private insurers.

A range of embedded values multiple between 2-3.5 throws up a valuation for the corporation ranging from Rs 10.7 lakh crore to Rs 18.7 lakh crore. Based on the total equity capital of 632 crore shares, the issue size for a 5% offer for sale works out from Rs 53,500 crore to Rs 93,625 crore.

The per-share price thus works out from Rs 1693 to Rs 2962. Against this, the government’s average cost of acquisition of shares stood at Rs 0.16 as LIC went through a capital rejig ahead of the IPO.

LIC’s initial capital, when it was incorporated, was Rs 100 crore. Since LIC was a collective, and not envisaged as a public limited company, there were no shares allotted. To transform the corporation into a corporate structure with shareholders ahead of the public issue, the original capital of Rs 100 crore infused by the government during the inception of the corporation was converted into share capital by allotting shares of face value Rs 10 for an equivalent amount.

In September 2021, the corporation then allotted an additional 62.24 crore equity shares at the same face value against the free reserves outstanding in LIC’s book as of March 31, 2020.

Then again, another 560 crore equity shares of the same face value were allotted against the retained share of a surplus of the government of India for fiscal years 2020 and 2021. LIC’s total capital now stands at Rs 6,324 crore.

Cadila Healthcare Ltd on Monday said group firm Zydus Pharmaceuticals (USA) Inc has received final approval from the US health regulator to market its generic version of Roflumilast tablets in the strength of 500 mcg indicated to reduce the risk of chronic obstructive pulmonary disease (COPD) exacerbations.

Zydus, being one of the first applicants for Roflumilast Tablets, 500 mcg, is eligible for 180 days of shared generic drug exclusivity, Cadila Healthcare said in a regulatory filing.

The US Food and Drug Administration (USFDA) has also given tentative approval for Roflumilast tablets, 250 mcg, the company added. The drug will be manufactured at the group’s formulation manufacturing facility at the SEZ, Ahmedabad.

LIC’s embedded value as of September 30, 2021, has been estimated at 5.39 lakh crore. Currently, private insurance companies trade at a multiple of 3-4 times embedded value.

However, embedded value is only an estimation of value based on several assumptions, and the multiple attribute to an insurer could vary based on several qualitative factors.

ipo of licConsidering its size, and dominant position in the market with 66 percent market share in new business premium, its growth rate may not match up to some of the nimble-footed private insurers.

A range of embedded values multiple between 2-3.5 throws up a valuation for the corporation ranging from Rs 10.7 lakh crore to Rs 18.7 lakh crore. Based on the total equity capital of 632 crore shares, the issue size for a 5% offer for sale works out from Rs 53,500 crore to Rs 93,625 crore.

In September 2021, the corporation then allotted an additional 62.24 crore equity shares at the same face value against the free reserves outstanding in LIC’s book as of March 31, 2020.

Then again, another 560 crore equity shares of the same face value were allotted against the retained share of a surplus of the government of India for fiscal years 2020 and 2021. LIC’s total capital now stands at Rs 6,324 crore.

 

 


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corporate borrowers in india

Large Corporate Borrowers in India Return to Banks as Economy Shows Revival

By Corporate Law, Others No Comments

Why Corporate Borrowers in India Return to Banks?

Given the uncertainty that has been imposed by the pandemic on the countries around the world, lower bank credit is the most visible consequence of it.

According to the reports, bank credit to industry has been mute for quite some time now, having fallen 1.7% in the year to date. But under current circumstances and a growing economy, bankers are highly expecting a revival in corporate loan growth. ‘

This can be emphatically possible due to the economy opening up, demanding a higher flow of credit in the market. What would make this a strong business case is the act that high recovery will guarantee high economic prospects in the future, which will ramp up the need for capital expenditure in the economy and hence higher borrowing.

talking about performances of different kinds of loans in the market, chunky industrial loans, which effectively make up about 30% of non-food credit, witnessed mild reactions and demand in the financial year 2021.

This severely underscored a trend among companies to conserve cash. On the other hand, retail credit demand in the economy expanded emphatically. What makes this expansion surprising is the fact that it expanded through the period of episodic lockdowns and curbs that were placed by the authorities on mobility.

but given the gloom that the banking sector had witnessed in the financial year 2021, higher growth prospects are making analysts believe that credit demand will now pick up.

the corporate borrowers in indiaA fact that is backed by an organization of consequence carries weight. Hence, to add weightage to the argument stated above, the Japanese leading investment bank, namely Nomura. Has strategically stated that growing optimism in the market and abundant liquidity should boost loan demand in the future.

with the high performance of the retail sector, what other sectors will encounter loan growths in the future? It is to be noted that other than the retail sector, the manufacturing and services sector will encounter growth and liquidity.

If the last, unconventional year is to be scrutinized, uncertainty had provided that better judgment of the investors and had forced the infrastructure and various sectors to close down in the economy.

This had severely affected the business environment, which in return has exhibited muted credit demand from traditionally asset-heavy industries. But this gives rise to a pertinent question with heavy stimulus running through the economy and lower interest rates, shouldn’t investment and spending be on the rise?

The answer is more complicated than a layman might anticipate it to be. Instead of undertaking newer investments in the market and emphatically adding more debt to their balance sheets, several companies in the asset-heavy sector effectively and strategically sought to deleverage.

corporate business loansThis was done by harnessing cash flows in the economy to heavily improve their debt profiles, which had been faltering throughout the pandemic.

But was the pursuit to improve the debt profiles of the companies the only reason for the enactment of such a plan of action? It is to be noted that a good business practice is that when two motives can be achieved through one strategy, one should go for it and what certainly can be better than that?

And that is what had motivated the companies and corporations to go along with the plan to deleverage. It is to be noted that the better, debt-free profiles of the corporations should now encourage many companies to add debt to their portfolio as they undertake expansion of capital. Thus, with improved profiles, the extra room has been created for undertaking more expansion in the future.

Thus, one can effectively argue that after undergoing a strenuous and arduous phase of deleveraging over the past few years, the companies will be in a better position for re-leveraging. In fact, as a matter of fact, Indian financiers have emphatically and effectively saddled themselves with ample liquidity also known as capital buffers to tap the emerging opportunity.

Another reason that had led to smaller bank credit growth was the cheaper rates in overseas and the local bond markets that were looked upon by the companies as their source for their short- and medium-term funding needs.

What corroborates the claim that the loans will be on the rise is the fact that the banks are already seeing an uptick in demand from city gas, road projects, and renewable energy projects. Thus, given that one is witnessing such a strong demand even when the econom6 is struggling with a newer variant, one can definitely anticipate higher demand for loans in the future.

corporate term loanin totality, it can be stated that industry growth will emphatically emerge as a key driver to boost credit growth in the economy. Though, a word of caution is necessary that states that though India will witness an increase in loan demands, lags would still be prevalent.

This merely will be due to fact that the economy can be highly unpredictable mainly due to covid variant mutations and unorganized consumer and investors’ confidence. Though, even though lags might fraught the process, government spending and revival in consumer demand can be the potential triggers.

 


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insolvency resolution process

IBC is The Best Bet For Timely and Effective Resolution

By Corporate Law, Banking No Comments

The Effective Ways of Corporate Insolvency Resolution Process

Given the plight of the banking industry in India, IBC is well deservedly called epochal legislation. The legislation has been hailed for bringing a paradigm shift in the manner of resolution of stressed assets and companies. The high rate of recovery, compared to its peers has made it the most influential legislation to mitigate the NPA disaster in India.

The unwarranted criticism

However, it is to be noted that every coin has two sides to it. This too has its side of criticism that is not much appealing as its appreciable side. In recent times, the IBC has effectively encountered numerous criticisms.

These have been in relation to high haircuts which emphatically indicates lesser recovery than admitted claims.

These have been especially accrued by the lenders, which has caused substantial loss to companies and recovery of assets. To top it all, the IBC has also been encountering higher liquefication compared to resolution.

corporate insolvency resolution processCertain critics have come up with claims of lenders, on average, realizing only around 40% of their total admitted claim.

In fact, to add to the unwarranted drama, the IBC has also encountered various criticisms of individual cases having a recovery rate of a mere 20 percent. To state that such claims and criticisms are unwarranted would be an understatement.

This is mainly due to the fact that the claims are being made on the basis of average IBC cases, which effectively is not taking into consideration the high rate of recoveries made in cases that affect this average.

But what poses an obvious threat is that in some cases IBC has seen recovery as low as 6%. Also, to add to the narrative and to corroborate the fact that high liquidation is an issue, around 75% of the companies have faced liquidation effectively.

But one thing that such criticism has shown is that such claims have heavily focused on primary two categories namely, lesser resolution than liquidity and higher haircuts.

Thus, such assertions point towards the fact that IBC has emphatically turned out to be an instrument of losing public money or causing harm to the assets. Broadly, one can argue that IBC has not been able to provide the maximum utility for which it was strategically devised.

But it is to be noted that the recovery rate under IBC has really been appreciable compared to its peers. However, as one can scrutinize, the critics have failed to appreciate the fact.

One argument that the critics need to pay attention to is the fact that IBC has been emphatically successful in facilitating the recovery of debts and it should be strategically be ascertained by comparing the realized amount with the value of assets of a company under stress, rather than making a comparison by comparing the realized amount with the admitted claims.

ibc resolution processWhat fact can be conjured as absurd is that to presume that IBC ought to facilitate the realization of all admitted dues of lenders, and to be the panacea of all economic difficulties of an economic unit, without taking into consideration the value of the assets of a company?

In fact, if the aforementioned argument is taken into consideration, IBC’s data shows that it has even realized around 186% of the liquidation value of the assets of the companies.

In fact, if the same report is to be scrutinized, it is released that more than 25% of the companies have actually realized more than twice the liquidation value. Thus, with such re[ports, can one still assert the aforementioned claims? Probably not.

Revolutionary legislation

Given the aforementioned arguments, one can definitely not claim that the IBC has gone stale. In fact, in this context, IBC has revolutionized the recovery mechanism for the Indian banking sector so much so that its constitutional validity has been successfully defended by the present government recently before the Supreme Court.

Thus, one can feel optimistic about the recovery rate in the future that will, in all probability, increase further. This will be effective due to the fact that the lenders are now likely to initiate insolvency proceedings against the guarantors of the companies.

To counter the second unwarranted argument of excess liquidation over resolution, it is the need to be emphatically noted here that the companies that were increasingly facing liquidation were actually already defunct at the time of initiation of the insolvency resolution process.

For that matter, given the data that 35% of the companies were actually able to get a new life under law through successful resolution cannot be overlooked.

liquidation process under ibcHence, in totality, it needs to be stated that the banking industry or even the critics for teat matter must not shy away from accepting that the IBC has been a groundbreaking resolution that is ushering the banking sector towards insolvency jurisprudence. This is definitely in line with the global best practices if the statistics are to be realized and scrutinized.

 


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lower corporate tax

From Retro To Lower Corporate Tax To Bad Bank – How India is Turning Around Its Corporate Story

By Corporate Law No Comments

Lower Corporate Tax To Bad Banks in India

The world was presented with an unprecedented situation last year which had havocked great health crisis on nations.

But what made one country stand out from the other was its government’s strategic plan to contain the same and to turn its adverse situation into an opportunity.

It is to be noted that India was one of the nations that took quite appreciable steps to ramp its prospects in the international community.

It is no news that a long-drawn arduous battle of the government with foreign entities was ended when the retrospective tax was taken down.

Thus, it can be stated that a large breather was provided for consistent FDIs as the retrospective tax was withdrawn.

This led to more certainty about taxation rules in India and emphatically led to more business certainty in the economy.

Thus, the scrapping of retrospective law laid a robust foundation for clearer taxation policies in India.

The USA bears testimony to the fact that government intervention is crucial during a time of crisis.

This is mainly due to the fact that in the wake of the financially crippling meltdown in 2008, the United States too had embraced various emergency legislation to keep its economy afloat.

In fact, various schemes were enacted on large scale to effectively bail out private banks and institutions that were rotting away in the economy.

Along the same lines, the Indian government is implementing schemes with resolution and conviction. Given the numerous steps that have been taken during the last month, one can state that India ramped up FDI in its economy.

This can be stated as in addition to the abolition of the retrospective law which provided much-needed clarity, efforts were also made to move up a notch on the crucial scale of ease of doing business.

corporate rates With the lower corporate rates plummeting from a significant 20 percent to 22 percent, India opened its gate for various industries that had long dreamt of pursuing their dream in India.

In fact, if the reports are to be scrutinized, for some manufacturing firms the corporate rates were even reduced to a significant 15 percent.

In addition to lower corporate taxation, which made India a fertile ground for investments, various promotions in terms of the PLI scheme were also rewarded.

This was done to ramp up production and provide impetus in the corporations or sectors that had potential in the economy. It is to be noted that a corporation can either pull together a nation or pull it apart.

Thus, with investment in the corporate sector, the government altered its faltering prospects.

The need

This gives rise to a pertinent question what was the need for the attitudinal change or the need to make India an investment hub? Partly, a pandemic can be attributed to the success and implementation of the policy.

Various corporations and companies moving out of China due to the US-China trade war and high tariffs.

Thus, taking the advantage of geopolitics, India tried to renew its appeal to such firms with its aforementioned schemes.

Recently, newer strategies to revamp the banking or the financial sectors were also implemented. This was seen during the establishment of the bad bank in the economy.

With the establishment of the NARCL, the government aims to rectify its bad loan crisis in India and to clean the accounting books of the banking sector.

corporate sector Thus, call it immense conviction or perfect strategy, but it cannot be denied that the government has shown efficiency in the revamping of the corporate sector through the right timing and policies.

What presents the government’s brownie points is the fact that such reforms had been discussed earlier and time and again in the past but were implemented by the government in the most adverse of the times.

Talking about the corporate sector, it would be hard to not mention the telecom sector in India. It is no news that the telecom sector has been news much recently.

This was due to the AGR rules that had exacerbated the woes of the sector, especially of Vodafone which was on the verge of bankruptcy.

With the implementation of the telecom relief package, the government emphatically preserved consumers’ interest. This is due to the fact that India has three major telecom giants in its economy.

These include Jio, Airtel, and Vodafone. With the disintegration of the latter, there was a high possibility of the emergence of Duopoly.

This could have not fared well for the consumers. Also taking into consideration that the government cannot allow a giant like Vodafone to disintegrate, such a relief package was designed.

Given the decisive steps that are being taken by the government, it can be stated that the current government is definitely also winning its political capital for its conviction for change.

Also many might argue that the recent amendments in laws and initiatives are being taken to not only emphatically promote ease of doing business in the economy but also to soften the blow of the pandemic.

corporate
Thus, with a slew of newer initiatives, can such growth be sustained? The answer would definitely depend on the continuation of such sagacious schemes and initiatives. But will it be so? Only the future will tell us.

 


Tags: corporate rates, corporate sector, bad bank, corporate tax rate, company tax rate, global minimum corporate tax, bad loans, corporate taxation rate, bad loan bank

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