Ministry of Corporate Affairs invites public comments for proposed expansion of the scope of Fast Track Mergers.
The Ministry of Corporate Affairs (“MCA”) issued a public notice dated 04.04.2025 inviting comments on the proposed amendments to the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 (CAA Rules). MCA has proposed the new set of company classes under the ambit of fast-track mergers under Section 233 of Companies Act 2013.
Key Takeaways:
- Merger of one or more unlisted company with one or more unlisted company, where neither of them falls under Section 8 of the Companies Act, 2013. The auditors of the companies shall be required to certify that the unlisted companies have a reasonable debt exposure from banks, financial institutions, or any other body corporate, for less than 50 crores and that they have no default in the repayments of such borrowings. The unlisted companies involved in the merger shall be required to fulfil the criteria at least 30 days before issuance of notices under Section 233(1)(a).
- The other proposed provision is merger of holding companies with one or more unlisted subsidiary companies belonging to the same group.
- Merger of unlisted fellow subsidiary companies belonging to the same group has been proposed to include these mergers under the scope of Section 233 based on the reason that they are similar to the mergers of between a holding company and an unlisted subsidiary company.
- Merger provided under Rule 25A (5) of CAA Rules which is merger of a transferor foreign holding company incorporated outside India with its wholly owned subsidiary incorporated in India as transferee may be included in Rule 25 to make it self-contained.
SEBI notifies Standard format for System and Network Audit Report of Market Infrastructure Institutions (MIIs)
SEBI, vide circular no. SEBI/HO/MRD/TPD/CIR/P/2025/50 dated 04.04.2025 has stipulated the guidelines for System and Network Audit for MIIs.
Key Takeaways:
- Presently, all MIIs are required to conduct system and network audit in accordance with the prescribed framework. However, each MII has adopted different template for such audit report. Through this Circular, SEBI, in consultation with its Technology Advisory Committee and MIIs, has introduced a uniform format for the system and network audit report, replacing the diverse templates previously used by MIIs.
- The Circular provides for standardized format for System and Network audit report which would help to increase the data quality, capturing of relevant information in a streamlined and standardized manner as well as monitoring compliance requirements.
- This shall become applicable for audit period FY 2024-25 or second half of FY 2024-25 as per the frequency of System and Network audit required to be conducted by the MII.
- MIIs are required to take necessary steps to put in place systems for implementation of the Circular, including necessary amendments to the relevant bye-laws, rules and regulations, if any.
The Supreme Court of India upheld the validity of exclusive jurisdiction clauses in Employment Contracts
The Supreme Court in its judgment dated 08.04.2025 in Rakesh Kumar Varma v. HDFC Bank Ltd. and HDFC Bank Ltd. v. Deepti Bhatia, clarified that when employee sign agreements with their employers specifying a particular court for dispute resolution, even if its distant from the place of posting, such clauses can be valid.
Key Takeaways:
- The case involved 2 (two) former employees of HDFC Bank Ltd. who were terminated due to allegations of fraud and misconduct. The appointment letters included an ‘exclusive jurisdiction clause’, specifying that any disputes would be resolved in the courts of Bombay. Despite which the employees filed their civil suits in local courts of Patna and Delhi, respectively.
- The Patna High Court ruled in favour of the HDFC Bank Ltd holding the clause valid and enforceable whereas the Delhi High Court took the opposite view and dismissed HDFC Bank’s argument.
- The Apex Court held that exclusive jurisdiction clauses in private employment contracts are legally valid and enforceable provided they are clear, unambiguous, and do not violate Section 28 of the Indian Contract Act, 1872 or Section 20 of the Code of Civil Procedure, 1908.
- The Supreme Court emphasised that unequal bargaining power is not unique to personal service contracts; it is a broader issue that affects all contracts and noted that the “law treats all contracts with equal respect and unless a contract is proved to suffer from any of the vitiating factors, the terms and conditions have to be enforced regardless of the relative strengths and weakness of the parties.
India’s Department for Promotion of Industry and Internal Trade (DPIIT) clarifies on the permissibility of issuance of bonus shares in prohibited sectors
India’s DPIIT by Press Note No. 2 of 2025 has clarified under Para 1 of Annexure 3 of the policy that, “an Indian company engaged in a sector/activity prohibited for FDI, is permitted to issue bonus shares to its pre-existing non-resident shareholder(s) provided that the shareholding pattern of the pre-existing non-resident shareholder(s) does not change pursuant to the issuance of bonus shares.”
Key Takeaways:
- Currently, FDI in India is allowed in most sectors such as defence and insurance through the automatic route/approval route.
- FDI is not allowed in certain prohibited sectors, such as lottery business, gambling and betting, chit funds, trading in transferable development rights, manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes, and real estate business or construction of farmhouses excluding the development of townships and construction of residential/commercial premises, roads or bridges.
- As per the Press Note 2 of 2025, Indian companies engaged in any of foregoing prohibited sectors will be eligible to issue bonus shares to their existing non-resident shareholders.
- The clarification will be effective from the date of issue of the applicable FEMA notifications.
