India Business Law Journal – May 2019

Historic mandate

Challenges abound as India’s new government takes charge

Applause for the efficient running of the recent elections has been loud and long. With 900 million potential voters, 12 million polling workers and a million polling booths, the carefully calibrated election to the lower house of the Indian parliament is unlike any other on the planet. That it was largely peaceful and that the process used is relatively credible is laudable. It is a crucial test for the ruling party and a source of pride for the population at large.

It should instil in the parliamentarians – both old and new – the drive to interrogate and legislate wisely. India faces considerable and complex challenges that deserve an efficient and effective parliament and one that respects the voter. Only this could justify the enormous cost to the exchequer in conducting the elections and the gravity of the process.

One of the many tasks before the new government is to breathe life into the many companies that are weighed down by debt. In this month’s Cover story, we analyse just how far the Insolvency and Bankruptcy Code, 2016 (IBC) has succeeded. It is generally agreed that “the defaulters paradise is lost”, as stated by the Supreme Court in a recent ruling that upheld the constitutionality of the IBC. In addition, many of the key legal questions asked in the course of implementing the IBC have been answered.

Yet, alarm bells have been ringing for some time now about the all-important timelines in the IBC being overrun. Add to that indications that creditors wanting to realize better value could be looking to sidestep the IBC – a case in point being Jet Airways where creditors have not yet invoked the IBC.

In Running in circles we turn the spotlight on the country’s complex and labyrinthine advertising laws. While proactive self-regulation has long been the name of the game for advertisers, a recent push to control and prevent false and misleading advertisements has resulted in a dramatic shift. Three laws implemented in 2018 aim to preserve the interests of consumers in specific industry sectors but have had a far-reaching impact on how we choose to brand and advertise products in India. Our coverage details implications of the legal changes and asks what lies ahead for companies.

This month’s Vantage point provides a view from the real estate industry. Parveen Mahtani, general counsel of Tata Realty and Tata Housing, argues that although the Real Estate (Regulation and Development) Act, 2016, has ushered in accountability in the sector, some concerns remain. These include penalties imposed on developers for delays in registration of agreements and defaults in taking over projects. She writes that the implementation of the act has led to an increase in project costs, tighter liquidity, higher capital cost and delays in project completion. However, the test of its effectiveness will be its ability to resolve disputes successfully, expeditiously and with a degree of finality.

The Securities and Exchange Board of India’s 20 March discussion paper on allowing dual-class shares, or differentiated voting rights (DVR) as the regulator has named it, is the subject of this month’s What’s the deal?. While rising demand from issuers and growing competition between global stock exchanges is prompting lawmakers and regulators to re-think their opposition to dual-class shares, the paper has divided opinions among capital markets practitioners, founders and investors.

As it stands, regulations allow listed companies to offer shares with lower voting rights, which usually come with higher dividends, but they have been rarely used, and investors have shown a marked preference for proportionate voting rights. Yet as Shinoj Koshy, a partner at Shardul Amarchand Mangaldas & Co says: “There is a strong case for allowing shares with superior voting rights in India, especially for technology companies.” Will the regulator resort to introducing dual-class shares for a limited number of sectors, startups or asset-light companies? The debate continues.

In this issue’s Intelligence report we investigate the ongoing turf war between lawyers and accountants, who allegedly provide legal advice in violation of the Advocates Act, 1961. Such skirmishes are not new and a recent investigation launched by the Bar Council of Delhi into the type of work handled by accountants has required the Big Four accounting firms to provide details of the lawyers they work with.

The Society of Indian Law Firms’ complaint, which prompted the Bar Council of Delhi’s action, against the accounting firms in India dates back to 2015. Yet tie-ups between law and accounting firms stretch back even further. Clients seek out accounting firms for legal advice and assistance typically on account of their large bench strength and lower costs compared to large law firms. While the blurred demarcation between lawyers and accountants raises interesting questions about the future of law firms, ironing out the differences could prove challenging.