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insolvency and bankruptcy code 2016

Understanding Insolvency and Bankruptcy Code, 2016

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Insolvency and Bankruptcy Code 2016

India’s bankruptcy legislation, the Insolvency and Bankruptcy Code, 2016 (IBC), intends to consolidate the current framework by adopting a unified insolvency and bankruptcy legislation. The Code was introduced in the parliament in 2015. While, on May 28, 2016, the President of India gave his assent to the Code. From the 5th to the 19th of August 2016, certain parts of the Act came into effect.

The Code provided a one-stop solution for complicated and fragmented insolvency and bankruptcy process. That is varying between the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the Companies Act, 1956, the Recovery of Debts due to Banks and Financial Institutions Act (RDDBFI Act), 1993, the Sick Industrial Companies (Special Provisions) Act, 1985, etc. 

The IBC 2016 provided a unified framework for bankruptcy resolution in the nation, providing a careful balance for all stakeholders to keep the firm running and economic value intact promptly.

In circumstances of CIRP initiation, Section 14 of the IBC, 2016 addresses the idea of a Moratorium. This is a significant policy that tries to safeguard ailing enterprises to aid their resurrection and re-establish themselves in the competitive market.

Moratorium tries to safeguard a Corporate Debtor under Section 14 in Part II of the IBC and the individuals/partnership firms under Section 101 in Part III of the IBC against the Financial Creditors, Operational Creditors, and Corporate Applicants under Section 7, 9, and 10 respectively of the Code.  

Section 14(1) holds the prime key to this postulate while Section 14 (2) and (3) of the Act forms an exception to the former. It states that the Adjudicating Authority shall by order declare a moratorium for prohibiting institution or continuation of suits; transaction of Corporate Debtor’s asset or legal right or any beneficial interest. As mentioned under the SARFAESI Act, 2002; recovery of any property by an owner or lessor currently held in possession of Corporate Debtor.

Canara Bank vs. Deccan Chronicle Holdings Limited

[LSI-1886-NCLAT-2017-(NDEL)], The power of the Hon’ble Apex Court under Articles 32 and 136 of the Indian Constitution, as well as the power of the Hon’ble High Courts under Articles 226 and 227 of the Indian Constitution, shall be untouched by the moratorium, it was noted.

In Shah Brothers Ispat (P) Ltd. vs. P Mohanraj [2018 SCC Online NCLAT 415], it was established that criminal proceedings being grave shall not be exempted from being affected by the moratorium under Section 14 of the Code. 

In Power Grid Corporation of India vs. Jyoti Structures Ltd. – [LSI-85-HC-2017(DEL)],

The Hon’ble High Court of Delhi observed that the term “proceedings” as used in Section 14(1)(a) did not include “all” proceedings, and thus Section 14 of the IBC,2016 would not apply to proceedings in favor of the Corporate Debtor, as the Code’s goal is to strengthen and flourish the enterprise’s financial position.

The IBC forbids “recovery of any property by an owner or lessor of such property is occupied by or in the possession of the corporate debtor,” according to Section 14(1)(d). From the start of the CIRP to the end, the provision tries to prohibit owners and lessors from recovering “any property” from the Corporate Debtor.

Immovable and moveable property, such as land and buildings, as well as goods and equipment, are all included. It’s best to read “lessor” and “in possession of” together. This means that the corporate debtor has legal possession, which includes both real and constructive possession.

In the case of Rajendra K Bhutta vs. Maharashtra Housing and Area Development Authority and Anr [Civil Appeal No 12248 of 2018], it was observed that the dissolution of agreement in the moratorium to provide a property to the Corporate Debtor for the developmental activity shall be in violation concerning Section 14(1)(d) of the Code.

In the case of Bank of India AND ORS vs. Mr. Bhuban Madan And Ors. [No. 590 of 2020 & I.A. No. 156 of 2020], it was held that merely because the Corporate Debtor had enough liquidity to run the Company as a going concern, the act of the Banks to adjust the credit balance in the Cash Credit Account towards the debit balance after CIRP commenced, cannot be justified.

Following a thorough examination of the situation, it may be concluded that the IBC’s moratorium provisions are crucial in protecting corporate debtors and guaranteeing a successful resolution. While this can present significant impediments for third parties, Section 14 has a broad reach, covering a wide range of decisions. Being a newly adopted Code, it is in its evolving stage. Further, re-evaluation of these is demanded from time to time.


Tags: understanding insolvency and bankruptcy code, insolvency and bankruptcy code, insolvency and bankruptcy code 2016, ibc code 2016, insolvency & bankruptcy code 2016, ibc act 2016, indian bankruptcy and insolvency code, ibc 2016, insolvency bankruptcy code

due diligence

Everything You Need to Know About Due Diligence

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Due diligence is a procedure that entails:

  • Estimating an entity’s commercial potential by analyzing various aspects.
  • A comprehensive assessment of the financial viability of an entity based on its assets and liabilities.
  • Reviewing the operations and verifying the material facts of the entity concerning relation to a proposed transaction.

The term ‘due diligence’ refers to the process of verifying and taking steps to detect and avoid anticipated dangers. It is the process of thoroughly assessing a problem from a range of angles before deciding on a business.

The Indian legal, economic, and regulatory environment is complex. Therefore, a company’s ability to navigate the Indian business landscape is critical to its success. Thus, a company’s success is directly related to the risk management and mitigation strategies it employs.


  1.   Operation Due Diligence: Assesses the Target company’s operational efficiency. Examine non-financial components of a Target company, such as system and process evaluations, management team evaluations, personnel levels, and other HR operations, or insurance arrangements.

     2. Technical Due Diligence: Examines and performs due diligence on intangible assets such as Patents, Copyrights, Designs, Trademarks, and Brands. Furthermore, it includes assessing the Target Company’s performance on the current level of technology and determining future scope for improvement.

Focus areas of Due diligence

  1. Mergers and Acquisitions: Both the buyer and the seller perform due diligence. The seller is more concerned with the buyer’s background, financial capabilities, and capacity to follow obligations than the buyer, who is concerned with financials, lawsuits, patents, and a wide variety of other pertinent facts.

2. Financing Agreements: Examine copies of all agreements evidencing borrowings by the Target company, whether secured or unsecured, documented or undocumented, such as loan and credit agreements, mortgages, deeds of trust, letters of credit, indentures, promissory notes, and other shreds of evidence of indebtedness, as well as any amendments, renewals, notices, or waivers, as well as any amendments, renewals, notices, or waivers…[1]

  1.     Partnership: All strategic alliances, strategic partnerships, business coalitions, and other partnerships are subject to due diligence.
  2.     Joint Enterprise and Collaboration: When companies join forces, the reliability of the combined company is a subject of concern. Accordingly, the other company’s position would include the adequacy of supplies at their end.
  3. Intellectual Property: Patents, trademarks, copyrights, and trade secrets are all forms of intellectual property. A thorough examination of all contracts, licenses, and litigations involving a target company’s intellectual property is conducted as part of legal due diligence.
  4.     To check Regulatory Compliance: A compliance with regulations, policies, and standards refers to an organization’s adherence to the laws, regulations, and policies within which it operates. To ensure regulatory compliance, the acquirer must ensure that the target company is on the right side of the law. In this regard, legal due diligence is an essential component of the due diligence process, where the acquirer can view how the target company follows regulatory guidelines and complies with regulations.


  •   Opportunity to understand the target company: An acquirer can run due diligence on a target company before closing a deal, identifying and assessing risks, liabilities, and business problems ahead of time, helping to prevent losses and poor press later on.
  •       To identify the future of business: To make informed decisions, the information gathered during this process should be reported. By reviewing the Due Diligence report, one can determine how the company plans to earn additional income (both monetary and non-monetary). As a result, it serves as a handy reference for understanding the state of affairs at the time of purchase/sale, etc. Ultimately, the goal is to get an accurate understanding of how the business will perform.

To identify future Legal risks: There may be risks entrenched inside the target firm that might become troublesome after the merger, in addition to the risks connected with finalizing the acquisition. Furthermore, these risks may include outstanding litigation, permission on pending intellectual property such as patents, trademarks, and other forms of intellectual property, tax and other government responsibilities, and so on.


Due diligence provides a superficial understanding of the target company to the acquiring company. Thus, businesses may not succeed at all times as a result.

  1.  Commercial or financial risks: An examination of asset elements including operating and maintenance costs, current and future profitability, the cost of environmental mitigation measures (such as pollution), and the impact of potential delays or problems.
  2. To the acquiring company, the workforce, the competencies, and the work culture remain a mystery, all of which are crucial to its smooth operation.
  3.  There is a risk involved with due diligence because it is judgment-driven.
  4.  There is one major obstacle that often causes the process to be shaky, and that is the lack of available information.

According to independent surveys, countries with higher levels of development have less corruption and greater openness, making it simpler to verify facts. A company conducting due diligence may quickly obtain information from a number of government offices that also serve as public record offices.

A factor that is intricately related to the accessibility of information is the efficiency of such offices in keeping information records. The answer depends on the archiving and filing processes these offices follow, as well as the level of information of records they have.


Obtaining accurate and timely feedback on financial facts is the foundation of a strong decision-making process. Due diligence should be considered an essential component of every financial transaction or activity.

Due diligence must be organized and coordinated so that the buyer may make an educated choice about whether or not to proceed with the purchase or operation based on the information gathered.


Tags: regulatory environment, risk management and mitigation strategies, operation due diligence, due diligence, technical due diligence, financing agreements, financial due diligence, types of due diligence

disinvestment plan

Will the Center Lose Out on Disinvestment Plan It Again?

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Disinvestment Plan

While the pandemic is still ongoing, the government has made significant attempts to counteract not just the loss of life, but also the loss of companies, activities, and the economy. The economy has experienced a severe setback as a result of the second wave, which has hit India harder in every aspect, generating financial problems for many MSMEs and indigenous enterprises. To revive the economy disinvestment of more sectors is considered by the government.

To comprehend the disinvestment strategy, we must first comprehend the major elements associated with it. The complexities of disinvestment include anticipating better possibilities.

It also contains other data such as the process’s sector and the required percentage. These factors are the tip of the iceberg when it comes to comprehending disinvestment. To understand the current scenario we have to analyze defenses, comprehend the present, and calculate the prospects.

Disinvestment is being undertaken by the government in order to lessen the budgetary load on the exchequer. It raises funds for specific purposes, such as covering losses from underperforming industries. And may occur in a variety of situations to privatize. Even though privatizing some assets raise the total proportion of earnings.

However, not all disinvestments result in privatization. It has to be comprehended because of the false context that arises. Disinvestment plans have various types within themselves that formulate overall schematics. Minority disinvestment, majority disinvestment, and complete disinvestment to name a few.

To comprehend the necessity of disinvestment, we have to demarcate the basic yet main goals of the plan. These goals/objectives mainly involve reducing certain debt and increasing the proficiency of a particular underperforming sector. It may also include:-

  • Diminishing the financial loss on the exchequer.
  • Incentivizing sectors and Improving finances
  • Encouraging ownership by private entities.
  • Increasing competition and maintaining quality assessment of commodities.

As per the government, disinvestment measures are appropriate in the current situation. Before establishing the policy that ushered in a new chapter in our country’s economy, the Indian economy was impacted by bankruptcy. With the introduction of the policy of LPG in 1991, the main aim of the preceding governments has also been to reduce the financial burden accumulated due to poor policy implementation, and improper and unarticulated procedures. 

All disinvestment-related activity for the public authority is handled by a separate entity within the Ministry of Finance. Since the latter half of the 1990s, progressive administrations have made disinvestment an almost automatic element of their budgetary strategies. That set an objective every year to raise assets from stake deals in public sector endeavors.

 Due to the second wave of COVID-19 hitting every corner of the country and wreaking physical, and mental, the financial health of families’ drastic measures had to be undertaken. The public authority to decrease the damage may move dependence on cash-rich and monetarily independent central public area ventures (CPSEs). 

To protect the disinvestment and its key programs with a view that the monetary deficiency because of the Covid-19 pandemic will hose revenue of private area homegrown and overseas financial investors. The COVID-19 pandemic affected the public authority’s CPSE stake deal program, and the objective has been brought down to Rs 32,000 Cr. in the Revised Estimates.

Despite the fact that disinvestment has certain advantages, it is far from being the final solution/answer to the current situation. Fear of foreign control, a lack of interest from the investment sector, and the possibility of the establishment of a single monopoly all impede the economy’s general growth. The unprecedented times have called for a beneficial and insured method of involvement of foreign finance to provide aid. 

The combination of disinvestment and privatization may help to revive the economy, which is otherwise thriving. It might be claimed that commercialization is the way to go in today’s world, but mixed nature should also be considered. To ensure that the government and GDP do not suffer as severely as they would in a communist economy. 

Some PSUs (railways, defense) may have shut down, been corrupted, or extorted as a result of private sector engagement, but are still afloat thanks to government assistance. Post disinvestment, the economic growth of Central Public Sector Enterprises (CPSEs)/ financial institutions will be through the infusion of private capital, technology, and best management practices. Will contribute to economic growth and new jobs,” the Budget said.

Therefore, we can understand why disinvestment may be looked upon while reviving the economy in these times. With the loss of lives, and livelihood, the government must adopt measures modified and efficient to decrease fiscal losses.

The pandemic sure has left an unprecedented dent in the economy, even at the smallest level. Strategic privatization coupled with disinvesting those sectors where the government still has a majority may be the key role to eradicate the deficit in a faster and an efficient manner.


Tags: indigenous enterprises, disinvestment strategy, disinvestment plan, center disinvestment plan, central public sector enterprises

due diligence

The Key Areas Where a Due Diligence Should Be Done

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Due Diligence and The Key Areas

Due diligence is a study and analytical procedure that is carried out before a merger and acquisition, an investment, a business partnership, or a bank loan to establish the worth of the topic of the due diligence, if there are any serious difficulties, and to ensure that the transaction is legal. There are majorly 3 types of due diligence, namely, business due diligence, legal due diligence, and financial due diligence.

Brief History of Due Diligence

Due diligence is a term that refers to the process of completing a transaction. It became popular after the passage of the United States Securities Act of 1933, specifically Section 11b3, which states that sellers of securities must provide sufficient information to allow investors to make an informed decision before purchasing.

The phrase signified “necessary carefulness” or “due care” in this context. Since then only the expression has become common in other areas and has found its most common use in mergers and acquisitions.

Need for Due Diligence

A Company needs to initiate the process of due diligence because it performs various functions that benefit both buyers and sellers in a merger or acquisition. These benefits include the following:

  •  To confirm and verify the information that was brought up in a particular deal or investment
  •  To identify potential defects in the deal or investment opportunity and thus avoid a bad business transaction
  •  To obtain information that would be useful in the valuation of the concerning deal
  •  To ensure that deal or investment opportunity complies with the investment or deal criteria

Challenges to Due Diligence                                              

Some of the challenges in undertaking the due diligence in distress M&A are given below:

  • Lack of information: Due diligence on a corporate debtor is limited by a lack of shared information, since the reliance on information at several levels, beginning with the IRP, COC, and existing management for supplying important information, frequently leads to discrepancies that can lead to conflicts.
  • Access to the information: Since the management of the affairs of the corporate debtor vest in the IRP; having access to the information itself is a challenge. This has to do with the IRP, who, in most cases does not possess knowledge of the industry and simply relies on the promoters and other officers of the corporate debtor for such information. The promoters, being already removed, are typically not very cooperative and leave a huge piece of anonymous information with the IRPs. Though, the IBC directs the promoter or the other person to co-operate with the IRP and provides IRP a right to approach NCLT with an application for necessary directions just in case of default.
  • Time Factor:  In a normal M&A situation, the stakeholders have time to negotiate with third parties to obtain consent or negotiate changes to allow the sale to proceed, but in an unsettled sale, there could be situations of interaction with third parties who have interests in the sale of assets and over whom the seller has no control. This can create significant delays in the wind-up of a transaction.

Due Diligence in Indian Law

In India, there are no particular regulations governing due diligence, but the Securities and Exchange Board of India (SEBI) and various clauses in the Companies Act, 2013 put a requirement on directors to act in the best interests of the firm. While doing so, he is required to exhibit proper caution and expertise.

In Nirma Industries and Anr v. Securities Exchange Board of India, the Supreme Court held that under Regulation 27 (d) of the SEBI, 1997, an investor Company needs to ensure that appropriate due diligence is carried out with respect to the target company before investing.

Tags: due diligence process, financial due diligence, due diligence, commercial due diligence, due diligence real estate, types of due diligence, investment due diligence, legal due diligence, operational due diligence

legal due diligence

Things to Keep in Mind Before Devising Legal Due Diligence

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Legal Due Diligence – Things to Keep in Mind Before Devising

Legal due diligence is the process of studying a company’s documentation and interviewing its workers in order to do research and analysis on it. Its goal is to gather information about the company in order to guarantee that the investment or purchase is worthwhile by disclosing key facts and potential liabilities. This might aid the business in making a better-educated selection.

Due diligence is typically undertaken while preparing for a merger, acquisition, public offering, joint venture, or other transaction, and it focuses on intellectual property, technical features, financial statements, and other areas of the firm.

Thorough due diligence research necessitates precise information about a company’s legal and financial responsibilities, management and employment concerns, tangible and intangible assets, contracts, existing litigation, and business strategy, among other things. Further, it requires the preparation of comprehensive and customized checklists detailing specific questions that can elucidate information needed for a better understanding of the business.

The checklist must include:

  • Corporate Documents of the Business and its Subsidiaries
  • Undertaking and declaration to be obtained
  • Contracts and Agreements
  • Legal Obligations
  • Debt Obligations
  • Trade union and Labour relations
  • Financial Information
  • Title to Property and Real Estate
  • Insurance
  • Undisclosed Liabilities
  • Taxation
  • Governmental Regulations
  • Employees and Related Parties
  • Exchange control
  • Statutory Documents
  • Products and Equipment
  • Environmental Matters
  • Intellectual Property
  • Others

Legal due diligence not only aids in making educated business decisions, but also assists the firm in better understanding its business and worth in terms of assets, agreements, and any dangers that may stymie the transaction. Further, the information gathered during the due diligence process can lend support to the drafting and negotiations process and give an unbiased legal expert’s opinion to the buyer and the seller company.

The disadvantage of Due Diligence investigations is that they are sometimes met with opposition from companies that are guilty of engaging in questionable business practices, and the outcome of the process may be skewed by those who stand to profit personally or professionally from the proposed activity.

As a result, businesses must be wary of such careless or faulty attitudes, because an ineffective Due Diligence process can cost organizations severe harm with far-reaching implications for the firm’s reputation.


Tags: legal diligence, due diligence law, diligence lawyers, legal due diligence, diligence in law, legal due diligence process, potential liabilities, due diligence law firm

k sera sera ltd

SEBI Fines Rs 1 Cr Fine On K Sera Sera’s Director for GDR Fraud

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K Sera Sera Ltd – SEBI Fines Rs 1 Cr Fine On GDR Fraud

(SEBI) India’s capital market regulator Securities and Exchange Board of India has penalized the major media and entertainment, business group. Such as K Sera Sera Ltd, also known as KSS Ltd for having defrauded Indian investors under Section 12A(a), (b), (c) of SEBI Act read with Regulations 3(b), (c), (d), and Regulations 4(2)(c), (f), (k) and (r) of PFUTP Regulations over the issuance of Global Depository Receipts in the year 2007 and 2009. 

It has made the company liable for Rs. 12.1 crore while Hussain  Sattaf, the director, and managing director Rajesh Pavithran, the managing director have been asked to pay Rs. 1 crore each.

Following a thorough examination by the authorities, it was discovered that KSS had issued GDR issues on March 30, 2007, and May 15, 2009, respectively, with Pan Asia Advisors Ltd serving as the book-running lead manager for each of these companies. Further, Arun Panchariya was the company’s founder, director, and only shareholder of Pan Asia. 

According to the order copy, the investigation report (IR) alleges that Mr. Panchariya designed and arranged the whole process of KSS GDR issuances to the detriment of Indian investors, whereby loans were secured for the subscription of KSS GDRs on both occasions.

Mr. Panchariya was also reported to be the Managing Director, a 100% shareholder, and an authorized signatory of Vintage, the company with whom KSS had a loan and pledging agreement for both of its GDR issuance. He used certain domestic businesses connected to him to convert the GDRs into underlying shares, which he then sold on the Indian securities market with the aid of some Foreign Institutional Investors (FIIs).

KSS is also accused of violating Sections 11C(3) and 11C(6) of the SEBI Act by neglecting to submit some information required by SEBI and supplying false information.

The “Order” can be read hereunder –


Tags: global depository receipts, global depositary notes, k sera sera limited share price, gdr global depositary receipt, k sera sera ltd, global depositary shares, international depository receipt

single securities code

Single Securities Code: Combination of Financial Laws

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Understanding The Single Securities Code: Combination of Financial Laws

Multiple pieces of law governing the banking industry have created more uncertainty than legislators could have imagined. The Minister Of finance created a Single Securities Code to address this issue. SEBI Act 1992, Depositories Act 1996, Securities Contracts (Regulation) Act 1956, and Government Securities Act 2006 were presented as a complete framework for the four most essential legislation relating to the financial industry.

Whereas SEBI, as the market regulator, is responsible for enforcing these laws, courts have been forced to interpret the impact of these laws on one another in the past, making things more confusing. Also, the implementation of several legislations for each facet of the capital market often leads to duplication and conflict as was also visible in dematerialized shares; wherein experts had to refer to various acts to ensure regulatory compliance.

Indeed, a common code would enhance the operational efficiencies in terms of bringing down the turnaround time in matters of regulatory approvals. It may even offer the investor community at large and market intermediaries improved clarity in terms of the legalities of certain matters as, firstly, it will avoid a conflicting scenario.

Moreover, it will improve administrative efficiency, making it easier to regulate trading and reducing the need for SEBI to stretch its claws across securities and commodities markets.

Additionally, over time, it is past time for harsh laws to be repealed and replaced with a contemporary framework that results in a slim code. That is quite similar to the present environment.

Thereby, the unification of four laws into one would not only make the laws more cohesive but also suitable for the present times as some were introduced as early as 1956. This would also allow the policymakers to address all the current ambiguities within the regulatory framework and introduce provisions that may be presently missing. 

A single rule would also provide tremendous operational efficiency to the regulator, who is currently overburdened with the responsibility of regulating many types of assets, including equity, commodities, currency, interest rates, and stock exchanges.

That gives a mercantilism platform for government and private sector bonds as well. Moreover, unification of the securities market code would mean that Government Securities augment the credibility of the government’s borrowings and the foreign capital flow in the country.

Therefore, a comprehensive code if enforced will make compliances transparent, and efficient, and enforcement of regulations simpler, thereby, reducing litigation. It would also enable the revamping of the Securities Contract Regulation Act streamlining multiple laws, guidelines, ordinances, and regulations.

Nevertheless, SEBI acts as a watchdog to observe key aspects of the capital market transactions along with an enormous variety of investment vehicles like foreign investors and mutual funds. There is the likelihood that the consolidation of the legislation into a renewed Code, could elevate the position of SEBI from a watchdog to that of a Super Regulator. 

This is significant considering that the Supreme Court in the matter of SEBI vs IRDAI battle over unit-linked insurance plans, issued a clarion decision back in 2010 towards a revamp of financial laws. Probably hinting at the formation of a super-regulator by the Central Government. More recently, regulatory overlaps appear to have arisen between SEBI and NFRA in penalizing quality lapses by auditors and audit corporations. 

The management and regulation of government securities presently lie with the Reserve Bank of India whereas trading of Government Securities along with other financial instruments on the stock exchanges is regulated by SEBI.

Thereby, including the Government Securities Act under the same umbrella as the SEBI Act and Securities Contracts (Regulation) Act, 1956. Which is the regulative foothold of SEBI, and poses a potential overlap of powers between RBI and SEBI once again. However, while drafting a unified Code the clarification of regulatory jurisdiction of these agencies could be addressed and conquered.

 As a result, there are several overlapping laws and interpretations of many acts that require tweaking and modifications, which could be readily accomplished by enacting a Consolidated Code. That could also assist in the creation of contemporary financial legislation. In addition, it would provide ease of operations for businesses and enhance the confidence of investors leading to an overall flourishment of the securities market as well.


Tags: single securities code, depositories act 1996, securities contracts regulation act 1956, securities code, combination of financial laws, financial laws

united co operative bank ltd

Impact Of Cancelling United Co-Operative Bank’s License

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United Co Operative Bank Ltd – Impact of Cancelling License

The license of United Co-operative Bank Ltd., Bagnan, West Bengal, has been revoked by the Central Bank of India, according to an order dated May 10, 2021. As a result, on May 13, 2021, at the end of the business, the bank will cease to undertake banking activities.

With immediate effect, United Co-operative Bank Ltd., Bagnan, West Bengal, is forbidden from doing the business of “banking,” which includes accepting and repaying deposits, as defined in Section 5 (b) read with Section 56 of the Banking Regulation Act, 1949.

The West Bengal Registrar of Cooperative Societies has also been asked to issue an order for the bank’s winding up and the appointment of a liquidator.

As listed in the order here are the following reasons why the bank’s license was revoked by the Reserve Bank:

  •  The bank lacked sufficient capital and earnings potential. As a result, it violated section 11(1) and section 22 (3) (d) of the Banking Regulation Act, 1949, as well as section 56 of the Act.
  •   The bank has failed to comply with the provisions of sections 22 (3) (a), 22 (3) (b), 22 (3) (c), 22 (3) (d), and 22 (3) (e) of the Banking Regulation Act, 1949, as well as section 56.
  • The bank’s continued existence was seen to be detrimental to its depositors’ interests.
  •  With its current financial situation, it was concluded that the bank would be unable to pay all of its current depositors in full; and
  •  If the bank had been permitted to continue operating as a bank, it would have harmed the public interest.

With the cancellation of the license and the initiation of liquidation processes, the process of repaying the depositors of United Co-operative Bank Ltd., Bagnan, West Bengal, as per the DICGC Act, 1961, would begin. According to the bank’s information, all depositors will get the whole amount of their deposits from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Subject to the terms of the DICGC Act, 1961, every depositor would be entitled to receive deposit insurance claim amounts in respect of his or her deposits up to a monetary ceiling of Rs. 5,00,000/- (Rupees Five lakh only) from the DICGC upon liquidation.

The Banking Regulation (Amendment) Bill 2020, which was passed by the Lok Sabha, brought cooperative banks under RBI supervision in order to solve the following issues that the cooperative banking industry in India was facing.

1)  The capital base is limited

Cooperative banks have a small capital base, which can start as low as Rs. 25 lakhs, making it difficult to account for a portion of that capital as working capital, which has been a major difficulty for practically all cooperative banks.

2)  Interference by politicians

Politicians use them to increase their vote bank, and they usually elect their representatives to the board of directors in order to get illegitimate benefits such as loan approvals that are later revoked.

3)  Supervision by the RBI

Cooperative banks are subject to less stringent RBI oversight than commercial banks. The RBI only inspects the records of some banks once a year.

4)  Dual-control system

Cooperative banks are managed by a dual system, with the RBI and state governments overseeing them, providing coordination and management difficulty.

5)  Management expertise and technical advancement

Cooperative banks are usually resistant to new technology, such as computerized data management. Due to a lack of funds and human training, professional management at banks is usually insufficient.

6)  Financial reliance

Cooperative banks rely heavily on the RBI, NABARD, and the government for refinancing. It relies on the government for funding rather than its members.

As a result, cooperative banks are now controlled by the RBI, which has the jurisdiction to give or revoke a bank’s license. The amendment’s goal is to safeguard depositors’ interests and enhance cooperative banks by improving governance and supervision, as well as extend the RBI’s authority over other banks to cooperative banks.

However, existing powers of the State Registrars of Co-operative Societies under state co-operative legislation are unaffected by the modifications. This measure will increase cooperative banks’ access to capital, which has been limited previously.

It strikes the right note by establishing a process for these institutions to be reformed, as well as significantly enhancing their regulatory oversight by the RBI, a competent and efficient regulator. This move should increase public confidence in cooperative banks while also protecting the interests of all stakeholders in the long run.

To deal with bank failures, central banks have been established all over the world. Even after regulating and adopting extensive oversight of banks, the RBI has been unable to prevent many of them from collapsing, as indicated by the recent history of banks put under moratorium in the public interest due to mismanagement and progressively going out of business.

Due to increased control and regulation, cooperative banks play a significant role in the achievement of development goals and are crucial to the smooth running of India’s banking industry. Following a series of high-profile scams, India is categorized as an underbanked country, and actions must be done to narrow the gap and restore public trust in the banking system.


Tags: the banking regulation act 1949, united co operative bank ltd, banking act 1949, section 56 of banking regulation act, br act 1949, banking regulation act 1949

cybersecurity norms

Decoding The Cybersecurity Norms for Payment Service Providers

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Cybersecurity Norms – Decoding for Payment Service Providers

Cybersecurity is a major concern in an increasingly digitalized society. Because of the rapid rise of online transactions, payment service provider systems have become vulnerable to cyber-attacks. As a result of the increasing number of breaches by third-party payment service providers, the RBI has tightened the criteria for the operation and regulation of such payment service providers.

Following a string of data breaches, the RBI introduced perspective guidance with regard to digital payment protection whereby it stated security protocols to be used in mobile apps, internet banking of scheduled commercial banks, small finance banks, payment banks, and card issuing non-bank lenders.

These rules would unquestionably strengthen digital payment security requirements by increasing security, control, and enforcement for banks and other regulated companies. Furthermore, it mandates multi-factor authentication for payments and fund transfers made by electronic means, achieving a dual goal of promoting customer convenience while also tightening the loose ends of digital payment security.

Strong governance, enforcement, and scrutiny at the ground level on fundamental security measures for networks such as internet and mobile banking, card payments, and so on are critical to the achievement of these principles.

Moreover, as digitization and human lives become increasingly intertwined, security checks at all levels will be essential to cope with any cybersecurity concerns. It’s also worth noting that the rule fails to recognize the potential harm that monopoly poses in this industry.

Notwithstanding the government’s numerous restrictions, individual users must stay cautious at all times, since this is the only way to ensure that hazards associated with digital transactions are not abused. As a result, the challenge to be met is to implement fintech without jeopardizing the financial sector’s safety and security.


Tags: cybersecurity norm, internet banking, online banking, cybersecurity norms

due diligence report

Due Diligence Report : The Ball of The Game

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Due Diligence Report

The Business Standards, on its 27th of May 2021 issue, reads a headline about how million-dollar M & A deals are being sealed in the pandemic situation where countries over the world are facing the wrath of lockdowns.

What is M&A?

M&A, the abbreviated term for Mergers and Acquisitions, is a generalized term describing the coming together of companies or the assets through transactions like mergers, acquisitions, purchase of assets, tender offers, partnerships, and consolidations. The term Merger and Acquisition is often understood as synonymous, whereas they are not.

A merger is the bringing together of two or more separate businesses to form a single new firm. An acquisition is the takeover of a submissive firm by a dominant one, with the dominant firm becoming the owner of the submissive firm.

I concluded that before a merger or acquisition, a corporation must study and examine important benefits and drawbacks in order to transform the financial transaction into a lucrative one. And this research must be done meticulously. Here comes the role of ‘Due Diligent Report’.

What is the Due Diligent Report?

The importance of mergers and acquisitions in the development of firms may be demonstrated by using Yahoo as an example. Once a pioneer in the world of the Internet, this company has squandered its value whereas its competitor, Google, has made it to the apex, which is all due to the calculated steps taken during Mergers & Acquisitions.

Prior to paying a large sum of money in a commercial deal, investors conduct extensive research, which is referred to as Due Diligence. It is clear from the term that the act of research is being carried out with the utmost care. This conscious analysis, when presented as summarized in a report, it is known as a ‘Due Diligence Report’.

A due diligence report includes a statement describing the research, the documents based on which the research is performed, information on assets and liabilities, debts, market analysis, and SWOT Analysis. SWOT stands for Strength, Weakness, Opportunities, and Threats, linked with the company being acquired. 

What are the types of Due Diligent Reports?

The due diligence report forecasting the estimates of commercial potentialities are primarily of 3 (three) types. They are:-

  1. Financial Due Diligence
  2. Business Due Diligence
  3. Legal Due Diligence

The accounting practices, audits, tax-related compliances, and other financial and commercial prospects of the acquired business are highlighted in the financial due diligence report. The business due diligence report demonstrates the parties engaged in the transaction’s business viability. Legal due diligence, also known as Documents Only due diligence, is the estimation of the legal risks that are evaluated before a merger or acquisition.

Importance of Due Diligent Report

The main objective of the Due Diligent Report is to give the company acquiring a complete overview of the possible risks in the future. These risks, when recognized, can be negotiated likewise for the smooth running of the business.

Sections of the Due Diligence Report

The sections of a due diligence report are as follows:-

  1. Corporate Records like the certificate of incorporations, certificates of shares, articles of
  2. Association, memorandums, and the existence of any warrants.
  3. Financial information for the past five years. The statements of audits, taxes filed, the tax returns, internally generated financial models, etc.
  4. The records of indebtedness of the company to be acquired like the loan agreements, mortgages, etc.
  5. The list of employers and the code and policies related to employment. Documents if there is any pending litigation related to labor law.
  6. Documents relating to the real property of the company.
  7. All the agreements the target company has entered into.
  8. Copies of legal proceedings, environmental policy compliances, and licenses obtained.


As a result, a Due Diligent Report is an essential component of any financial transaction involving two or more organizations. The importance of the report emphasizes how meticulously it should be created, as the prospects of both the firm acquiring and the firm acquired are dependent on it, despite the fact that such studies have some limitations.

The competency of the workforce remains behind the curtain. The report entirely relies on the information available and this may pose a hurdle for a reliable due diligence report. 


Tags: due diligence, due diligence report, m & a deals, purchase of assets, financial due diligence, commercial due diligence, tender offers, legal due diligence