Article
Convertible Notes – A case of square pegs in a round hole!!
By Rohit Subramanian
The article in this issue of Corporate Amicus discusses issues related to recently introduced system of Convertible Notes (C-notes). C-Notes have been defined as an instrument of debt, which can be converted to equity or redeemed. The author believes that C-notes are similar to optionally convertible debenture (OCD) and fall under its definition under Section 2(30) of the Companies Act, and hence their issuance should mandatorily comply with Section 71 of the Companies Act read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014. Author also brings to notice that, similarly, definition of securities under Securities Contracts (Regulation) Act, 1956 also covers C-notes as marketable securities equivalent to shares, scrips, stocks, etc., and hence a rigorous issuance process which will have to be necessarily followed. The article also notes that C-notes are already popular in western countries like US where they are preferred because the issuance procedure does not involve valuation of the business and the option & timeline for “conversion” is pre-determined, which guarantees an assured return on investment. Deliberating on few regulatory issues, the author believes that if these are addressed and the issuance procedure is further streamlined, C-Notes may yet prove to be a game changer in the start-up financing space.
Notifications and Circulars
- Appointment and remuneration of managerial personnel - Companies (Appointment and Remuneration of Managerial Personnel) Rules amended
- Winding up - Companies (Winding Up) Rules, 2020 notified
- Section 460 of Companies Act applicable to Limited Liability Partnerships
- Third-party assets in custody or possession of the financial service providers in insolvency/liquidation proceedings – Manner of dealing
- Liquidation and Voluntary liquidation processes – IBBI amends two Regulations
- Operating Guidelines for Investment Advisers in International Financial Services Centre
- Statement indicating deviation or variation in use of proceeds of issue of listed non-convertible debt securities or listed non-convertible redeemable preference shares
- Fines for non-compliance with SEBI (Listing Obligations and Disclosure Requirements) Regulations, revised
- E-commerce in India - Market Study by Competition Commission of India
- Implementation of Telecom Commercial Communications Customer Preference Regulations, 2018 - TRAI issues directions
Ratio decidendi
- No requirement under Insolvency and Bankruptcy Code, 2016 for the Resolution Plan to match the liquidation value of the Corporate Debtor - Supreme Court
- Lease of immovable property cannot be considered as a supply of goods or rendering of any services and thus, cannot fall within the definition of 'Operational Debt’ - NCLAT
- Statutory Arbitral Tribunals have power to grant interim injunction under Section 17 of the Arbitration and Conciliation Act, 1996 - Supreme Court
- Acceptance of Corporate Insolvency Resolution Plan is not a ground to quash proceedings under Section 138 of Negotiable Instruments Act, 1881 –Madras High Court
News Nuggets
- Companies (Accounts) Amendment Rules, 2020 notified
- Scope of interference in international commercial arbitration in India is narrow under Section 34 of Arbitration and Conciliation Act, 1996
- SEBI penalty order cannot be sustained on account of inordinate delay
- CCI directs investigation against alleged anti-competitive practices of two major e-commerce players
- Investment by Foreign Portfolio Investors in Debt
- NCLT, Ahmedabad Bench to exercise jurisdiction over State of Madhya Pradesh
- Debts Recovery Tribunals and Appellate Tribunals Electronic Filing Rules, 2020 (“E-Filing Rules”)
- European Data Protection Board adopts final version of Guidelines on processing of Personal Data through Video Devices
