Friday, August 19, 2011


1. Put Options & Foreign Exchange Regulations

We have in the past discussed the questions regarding the enforceability of put and call options under securities laws and regulations, primarily the Securities Contracts (Regulation) Act, 1956. In addition, if put options are entered into by foreign investors, the Foreign Exchange Management Act, 1999 and regulations issued by the Reserve Bank of India (RBI) come into play. Given the downside protection conferred to foreign investors holding put options in securities of Indian companies, the RBI seems to be raising two concerns, as this report in the Mint suggests: (i) the options are derivative contracts, which only foreign institutional investors registered with SEBI and non-resident Indians are allowed to invest in, that too when they are traded on a stock exchange; and (ii) the availability of the put option confers advantages to the investor that makes it akin to an external commercial borrowing (ECB). This certainly complicates the issues surrounding the enforceability of put options entered into by foreign investors, and might likely impact the flow of FDI into India, as the Mint report suggests.

2. India and the Financial Crisis

In an interview published in the Mint, noted Harvard professor Dani Rodrik offers his take on India’s position in the wake of the economic events engulfing the globe. Here are some excerpts:
I think in a way, India is better positioned than many other developing countries to continue its rapid growth. I think China’s rapid growth is much more threatened by what’s happening in the West and the US in particular, because their growth model for the last 10-15 years has relied so much on generating larger trade surpluses. That is going to be very hard to sustain, given the period of low growth and the political sensitivity that this surplus will necessarily create. Also, I think there are internal problems in China as well. The global environment is the greater threat to China than it’s to India, where the internal dynamics in India have played a greater role in the recent growth process. So I think it’s possible for India to keep growing at 7-8%, may be not 10%, with the right kind of policies and frameworks in place.

The recent rise in India’s growth rate has made the argument for democracy look even better. It used to be said, people still say it, that India cannot manage growth because they don’t have an authoritarian regime that is needed to undertake all these tough reforms the way that China has; I think that misinterprets the reforms process in China and in any case now we see that India can grow really rapidly as well. So, I think democracy in India is the main reason why I feel much more bullish about India’s economic future than I do about China.
3. Satyam’s Impending Delisting from NYSE

This column in the Business Line discusses Satyam’s delisting from the NYSE following the corporate fraud uncovered in the company and its subsequent sale. Interestingly, the column compares the financial reporting requirements between the U.S. and India, and makes the case for strengthening Indian GAAP. The fact that Indian investors have not been recompensed raises further concerns.

4. CCI Order in the DLF Case

In a 237-page order, the Competition Commission of India (CCI) imposed a penalty of Rs. 630 crores (Rs. 6.3 billion) on DLF Limited on the ground of abuse of dominant position by adversely affecting the interests of home-buyers. This order is likely to have a general impact on the real estate industry, as the CCI notes:
12.111 The examination of this case has brought forth several areas of concern pertaining to the housing sector in India. The Commission feels that although there is a plethora of laws, there is no proper regulation of the real estate sector, particularly the housing sector. In order to promote overall consumer welfare, to ensure free and fair competition in real estate residential market and to set standards of conduct of enterprises engaged in similar nature of trade, the Commission therefore makes a strong recommendation to the Central Government and all State Governments to come out with real estate regulations at the earliest for ensuring overall consumer welfare and to discourage unfair trade practices that seem prevalent in the sector.
In subsequent paragraphs, the CCI also provides illustrations of real estate developers’ conduct that adversely impinge upon consumer interests.

1 comment:

vswami said...

Ref. Item 4. above:

No doubt the News, just any other other like ones given publicity before, is expected, if not necessarily bound, to in course of time result in a rude awakening / create a welcome change in the 'mindset' of one and all (individual/collective) among the community of 'apartment' buyers; hopefully leading to some improvement, for their good, upon the presently obtaining sad and disparaging state of affairs. For obvious reasons, the same legal course of seeking remedy by moving the CCI as in DLF'case will not be open to all; especially to those having dealings with no-high-profile player in the field or with an entity suchn as not being one registered as a 'corporate' ('company').
For what one knows, there are quite a large number of such other entities, e.g fly-by night ones, operating , e.g.a mere partnership, at times not even a duly 'registered' firm.

As is now common knowledge, any number of instances have come to light in recent years, which go to bear on the sleeves, more than one factor/reason to which the tragic state of affairs obtaining in the field is attributable.The most predominant of all, in the order of gravity, are these: a) the professionals, acting in an advisory or other capacity, either for the seller or the buyer, having a vital role to play, - but with almost 'nil' or inadequate expertise or knowledge of the governing enactments, the rules and regulations, etc., so also in the special technique expected of them in the drafting of the legal documents strictly in accordance therewith; b) the callous / cavalier attitude of the buyers in miserably failing , or not at all caring to know even the related fundamentals, or to attach any importance to the legality of the transaction, before going through it; c) the authorities concerned in not caring to take a note and ensure whether the pricipal legal documentation i.e. the conveyance deed, when produced for registration, is at least prima facie in accordance with or meets with the crucial but clear requirements of the governing law; and d) professionals who are in no way even academically qualified or equipped or competent enough so as to offer their services, by engaging themselves in the task of drafting of legal documents, rendering advice, without having any regard to the lawful rights and interests of both parties - seller and buyer. Under this category, would fall not just the professional engaged for drafting of documents, but also all related others- e.g. architects, company secretaries.
In one's conviction, these are undeniably so vital and crucial aspects that should necessarily be kept in view and the utmost attention be paid, in framing and legislating appropriate laws and regulations, so as to provide efficient and effective safeguards/insulation against them as well; also, adequately and in a foolproof manner.- having one, and the only one ideal objective, of protecting, and keeping protected, the profoundly lawful 'rights and interests' of the 'consumers', the buyers.