Latest news with #KetanDalal
Mint
a day ago
- Business
- Mint
Faster M&A clearances may keep traffic moving—until the roadblocks hit
A new standard operating procedure has set the framework for slashing the longdrawn procedural drift involved in securing regulatory approvals for mergers and demergers, creating much-needed predictability for dealmakers. Yet, the toughest hurdles remain untouched. The SOP rolled out by the National Stock Exchange of India Ltd and BSE Ltd, effective 1 August, promises a seven-working-day processing window for merger and demerger applications if all the documents are in order. Until now, the processing window typically stretched for 3-5 months. The framework, which has been mandated by the Securities and Exchange Board of India, also scraps physical paperwork, requiring only digital filings through platforms such as NSE's Electronic Application Processing System and BSE's Listing Centre. However, companies listed on stock exchanges still need to approach the National Company Law Tribunal (NCLT) to secure approvals for mergers and demergers, a time-consuming and laborious processthe government had considered eliminating. Also, regulatory scrutiny and sequence can still stretch deal timetables, said market participants and lawyers, adding that the new framework's rigidity could create fresh risks. 'While the SOP imposes a streamlined and timebound mechanism it simultaneously gives rise to certain challenges, primarily due to the inflexible nature of the framework, undefined obligations of Sebi, and the absence of safeguards against unforeseen procedural failures," said Madhavan Srivatsan, senior partner, Emerald Law Offices. The SOP enforces strict timelines at every stage. Companies must file their draft scheme for a merger or demerger within 15 days of board approval, and will be given only two opportunities to respond to queries from the exchanges. The exchanges, if satisfied with the draft scheme, will issue a no‑objection certificate or observation letter to Sebi, which will then issue its clearance. Only then can a company approach the NCLT for a final sanction. Ketan Dalal, managing director at compliance and advisory firm Katalyst Advisors, termed the first step of securing exchange and Sebi signoffs as 'long and tortuous". 'The first step of taking approval from exchanges (where they internally take Sebi's approval) is now taking 3-5 months. Unless this approval comes, companies cannot apply to the NCLT," he said. Dalal urged for a structural change: Allow parallel NCLT filings, with companies committing to incorporate Sebi-driven amendments in their draft scheme or withdraw if the plan is rejected. 'This parallel tracking will help to save 4-5 months in a situation where the current timelines are out of sync with commercial reality," he said. Some gaps, but keeps traffic moving Srivatsan of Emerald Law Offices pointed to the lack of a statutory outer limit for Sebi's signoff in the new framework, leaving the overall timetable open-ended. 'The SOP could have clarified an outer timeline for exchanges to grant the NoC to the issuer, which actually matters the most to the issuer for filing the scheme with NCLT," he said. Srivatsan also flagged the absence of redressal mechanisms for technology failures, which could potentially require restarting the review cycle. The SOP's strict reminders-and-return mechanism for incomplete responses could penalize issuers even when delays stem from exchange systems or required third-party inputs, he added. Other practitioners warned about the tighter response pressures in the new framework. 'They (companies) will now only get two opportunities to respond to the deficiencies before the application is rejected," said Yash Vardhan Singh, counsel, Sarvaank Associates, adding that the mandate to respond only through a digital platform could test the digital-readiness of a company. Ravi Mehta, leader–transaction tax, BhutaShah and Co. Llp, flagged that limited timeline allowed for companies to respond to queries from the stock exchanges. 'Companies must respond to exchange queries in three working days, which may be tight if internal approvals, like (from the) board or auditors, are needed. There could also be risk of rejection or deferral if deadlines are missed," he said. 'The exchanges should ideally have the power to relax the time period for responding certain queries upon request," added Anand Jayachandran, partner at law firm Cyril Amarchand Mangaldas. The new framework, despite these complaints, offers several advantages, market participants and lawyers said. The fixed turnaround times and common checklists in the new SOP should cut friction, enable cleaner equity issuance timelines, and support capital deployment schedules for investors and private equity funds, said Mehta. 'The SOP also ensures quick transmission of documents to Sebi, which often has been a bottleneck in large deals. Investors and private equity can better estimate when regulatory clearance might arrive," he said. 'Any step that defines or reduces approval timelines is a net win," added Jayachandran. 'They may not eliminate traffic lights, but will ensure listed companies and exchanges try to keep the traffic moving."
Mint
6 days ago
- Business
- Mint
Experts laud Sebi move on related-party deal rules, also flag gaming risk
The proposal of the Securities and Exchange Board of India (Sebi) to overhaul related-party transaction (RPT) rules may offer long-awaited compliance relief for India's large listed companies and reshape governance standards, but it also opens the door to fresh regulatory arbitrage, legal experts caution. Announced on Monday, the capital markets regulator's proposals, issued as a consultation paper, seek to replace the one-size-fits-all threshold for material RPTs with a scale-based model tied to the company's turnover. The move is expected to impact over 2,000 listed firms and significantly reduce the volume of routine intra-group transactions requiring shareholder approval, by as much as 60% among the top 100 companies, according to Sebi's own back-testing. While industry voices have welcomed the shift as a pragmatic response to operational gridlock, concerns are mounting over how companies might exploit the leeway, particularly through subsidiaries operating under different threshold rules. Read more: Retail, HNIs chase IPO listing gains—even as risks loom One of the biggest red flags lies in how thresholds will now be calculated for subsidiaries. For newly-formed arms without financials, Sebi proposes using net worth as the basis. Some experts warn this could create confusion--or worse, opportunities for misuse. Since subsidiaries often serve as key vehicles for complex corporate structuring, multiple threshold definitions across a group could enable deal-routing and dilute oversight. Experts say clarity and enforcement would be crucial to prevent the system from being gamed. Much-needed reform Exuding optimism over the proposals, Ketan Dalal, managing partner of Katalyst Advisors, said: 'It is very heartening to see Sebi address ease of doing business with tangible steps." If the proposal goes through, for a company with ₹50,000 crore turnover, the threshold would be ₹3,250 crore. 'This obviates the need for shareholder approval in such a case." Currently, any RPT exceeding ₹1,000 crore or 10% of annual consolidated turnover, whichever is lower, requires shareholder approval. Industry participants say this rule has forced even routine intra-group deals in vast conglomerates into public scrutiny, weighing down audit committees and managements with time-consuming procedural hurdles. 'Not all categories of related party transactions require the same degree of approval or disclosure rigour," Dalal said. He added that any sign of unfairly priced or questionable RPTs is quickly reflected in market valuations, acting as an added deterrent. 'Against this backdrop, Sebi's move to relax approvals for such transactions is both logical and much needed" Under Sebi's proposal, an RPT would be considered material if it exceeds 10% of annual consolidated turnover for companies with a turnover up to ₹20,000 crore; ₹2,000 crore, plus 5% of a turnover above ₹20,000 crore for those between ₹20,001 crore and ₹40,000 crore; and a ₹3,000 crore plus 2.5% of turnover above ₹40,000 crore (capped at ₹5,000 crore) for those above ₹40,000 crore. Shriram Subramanian, founder and MD of InGovern Research Services, was emphatic about the need for transparency. 'The current thresholds are creating an excessive burden for audit committees, prompting them to push back because there is simply too much to review. What matters most is transparency; companies should disclose related party transactions openly," he said. Read more: F&O slump is hurting brokers. Their fix— become wealth managers He emphasized that as long as the disclosures are made, seeking approvals is just a step and can be managed within higher thresholds. 'Ultimately, stringent rules only increase compliance costs for good companies, while those intent on wrongdoing often find ways around them anyway. Therefore, focus should be on improving disclosures, rather than unnecessarily raising the compliance burden," Subramanian said. Plugging subsidiary loopholes Sebi is also fortifying oversight of RPTs involving subsidiaries, entities frequently used for complex corporate structuring. Materiality will now be based on the lower of the parent or subsidiary's thresholds, and new subsidiaries without financials will calculate thresholds from net worth, reducing regulatory blind spots. Some experts have, however, flagged risk of confusion or malpractices. Apurva Kanvinde, partner at Juris Corp said permitting different methods for calculating the threshold for related party transactions by subsidiaries may create confusion. 'Or even raise concerns about potential misuse through creative accounting practices. Companies might use this to avoid crossing the approval threshold," she said. Meanwhile, the exemption for small-value RPT disclosures has been proposed to be relaxed: deals below the lower of 1% of turnover or ₹10 crore (up from ₹1 crore) will not trigger detailed reporting, reducing red tape for routine, low-risk deals. 'This is best understood as a measured recalibration, not a relaxation of standards," said Sujoy Bhatia, head of corporate and M&A at Chandhiok and Mahajan. 'The blanket materiality threshold had an unintended consequence of triggering procedural approvals even for low-risk, routine intra-group transactions in large corporate groups; that became operationally burdensome". Read more: Sebi claims Sanjiv Bhasin 'kingpin' in front-running case He said now proportionality is being brought back, so the focus is on relevance, risk, and context, aligning India with global best practices, such as those in the UK. Safeguards remain, but so do risks Importantly, audit committee scrutiny remains mandatory for all RPTs, and truly material deals still need shareholder approval, preserving minority investor protection. Validity periods for blanket RPT approvals are also coming, and only consolidated, wholly-owned subsidiaries will get disclosure exemptions, plugging older gaps. Yet, experts warn of new ambiguities and loopholes. 'Some risks remain, especially with transactions done through subsidiaries or how the new, simpler disclosure rules will be used", cautioned Puneet Gupta, managing director of Protiviti Member Firm for India. 'If done right, this move could bring India closer to global standards, but strong enforcement will still be key to making sure the system is not abused." Kanvinde summed up the proposals as a mixed bag. 'The scale-based approach brings India a step closer to global practices and international standards. However, enforcing some of the proposed thresholds may be challenging due to complex calculations and loopholes in regulations," she said.
Mint
28-07-2025
- Business
- Mint
India's Income Tax law revision: Why well begun is still only half done
Ketan Dalal The draft of India's 2025 Income Tax Bill simplifies the language of the complex 1961 Act. This is welcome. But the effort must not end there. We also need changes that go beyond form to address key aspects of substance. Given the Simplification Committee's mandate, it has done well to simplify the law's language, but at least some structural changes are needed. Gift this article There has been significant press coverage of India's Income Tax Bill, 2025, which was introduced in Parliament on 21 July. As readers would recall, a committee was set up in October 2024 for the simplification of the Income Tax Act; the panel's mandate was ring-fenced to simplification of language, reduction of litigation and the compliance burden, and the removal of redundant or obsolete provisions. In that sense, the committee was restrained by its limited mandate. There has been significant press coverage of India's Income Tax Bill, 2025, which was introduced in Parliament on 21 July. As readers would recall, a committee was set up in October 2024 for the simplification of the Income Tax Act; the panel's mandate was ring-fenced to simplification of language, reduction of litigation and the compliance burden, and the removal of redundant or obsolete provisions. In that sense, the committee was restrained by its limited mandate. A Lok Sabha Select Committee was set up to look at the draft Income Tax Bill framed by the Simplification Committee, which has submitted its report with 285 recommendations, a majority of which seem to find favour with the government; the net result is that the bill framed by the simplification panel will likely be passed into law with some changes. However, there are some key aspects that need to be discussed. The Income Tax Act of 1961 has been amended dozens of times, and with some 4,000 amendments, its language had turned complex; in this context, the simplification panel has made a good attempt to offer clarity. For example, several tables and explanations have been added and the number of sections has been brought down from 819 to 516. However, there are concerns over several aspects; for example, there has been a tendency to delegate rule-making to the Central Board of Direct Taxes (CBDT)—like in the case of faceless assessments—whereby, compared to existing provisions, the CBDT would gain greater scope to make legislative -type changes without parliamentary oversight. This is worrisome. There are apparent errors and omissions in the existing law that should have been corrected. For example, in the context of the 'deemed gift' provision u/s 56(2)(x), the definition of 'relative' for tax exemption does not expressly include reciprocity, or whether the relationship is mutually applicable for gifting; this aspect should have been explicitly clarified (even under the existing law, the CDBT should have issued such a circular). It impacts gifting between taxpayers and nephews, for example, if the tax exemption for relatives applies only one-way. Also, the tax neutrality provision for a 'demerger' does not include 'fast track demerger,' because that concept came later. Representations were received by the Select Committee and both these aspects were pointed out to the ministry, but were apparently brushed aside; surprisingly, the common-sense point that relationships should be reciprocal (or two-way) was met with a response from the ministry that this is 'in the nature of a major policy change"! Although the Committee's mandate was limited, the larger concern is that once the bill is enacted, the government would be reluctant to make substantive changes. Here are some we badly need. Individual taxation: The limit of annual income beyond which the maximum tax rate kicks in is only ₹ 15 lakh, which seems too low and needs to be addressed. Also, medical expenses have gone through the roof in the last few years, as have education costs; both these are critical, and even relatively well-off Indians are struggling to meet these costs. The bill should allow a higher deduction for mediclaim and medical expenses and provide for a meaningful deduction for education (the latter could help address the skill gaps we face). Real estate costs have also shot up, while the deduction of interest on housing loans is too low at ₹ 2 lakh per year. This badly needs an upward revision. Corporate taxation: India's corporate tax rate is very reasonable at 25%; however, some aspects that need to be addressed relate to mergers and acquisitions (M&As), including group restructuring. Some specific aspects that could be looked at even at this stage have been long-standing demands. The definition of a 'demerger' for tax neutrality is highly restrictive and needs rationalization. The commercial reality of M&A transactions involves earn-outs and deferred amounts, and the Act does not have contemporary provisions on the year of taxability, which causes uncertainty and litigation. Losses of merging companies are allowed to be carried forward only in restricted circumstances, primarily if the merging company is in manufacturing; this is a relic from a bygone era, since several service companies also have losses and the mergers of such companies could save them from extinction and prevent job losses. India's problem of non-performing assets has reduced but is still substantial. In the context of takeovers that emerge from the official bankruptcy process, the provision in Section 28 that makes write-backs of haircuts taken by lenders taxable is a major dampener from the perspective of an acquirer that seeks to reduce its risk of acquiring an insolvent company to resurrect. The last two aspects have again been pointed out to the ministry, which appears not to see merit in these changes. Also Read: India's Income Tax Bill sets the stage for significant reforms Administrative dimensions: There have been simplifications in Tax Collected at Source (TCS) and Tax Deducted at Source (TDS), but the larger issue is that the deductor of tax is doing the government's job; from an Ease of Doing Business perspective, TDS provisions need to be shrunk, as opposed to language being simplified. Also, given the need to reduce tax litigation, a robust advance ruling mechanism needs to be put in place, so that tax disputes can be addressed upfront; all advance ruling mechanisms till now have failed, either because of faulty architecture or elongated time frames (or both), making the term 'advance' seem meaningless. Given the Simplification Committee's mandate, it has done well to simplify the law's language, but unfortunately, that's about form rather than substance; the issues outlined above still need to be addressed in the context of India's avowed intent to ease business. At least some structural changes are needed. A redraft of our tax law is useful and attractive, no doubt, but would be disappointing if it falls short of dealing with fundamental issues. The author is managing director, Katalyst Advisors Pvt Ltd. Topics You May Be Interested In
Economic Times
16-06-2025
- Business
- Economic Times
Sebi board to discuss changes in ESOP rules for startup founders and PSU delisting
The regulator is of the view that certain PSUs have a thin public float and weak financials. Sebi is considering allowing startup founders to retain ESOPs post-IPO, addressing concerns about dilution and aligning founder incentives with stakeholders. The regulator is also mulling a one-year cooling-off period for ESOP grants before IPOs to prevent misuse. Additionally, Sebi may permit voluntary delisting of PSUs with over 90% government stake, acknowledging their thin public float and potentially inflated market prices. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Mumbai: The Sebi board, which is scheduled to meet on June 18, is likely to discuss allowing startup founders to continue holding employee stock options even after taking their ventures public, and permitting voluntary delisting of public sector companies , among other proposals, said two people with knowledge of the rules mandate that founders be classified as promoters at the time of filing initial public offering ( IPO ) documents. Once listed as promoters, employee stock options (ESOPs) cannot be issued to capital market regulator believes the current rules do not clearly specify whether a founder holding ESOPs-who is subsequently categorised as a promoter-can exercise the granted options, both vested and of many new-age tech companies often receive ESOPs instead of cash-based remuneration in their early years, aligning their interests with those of other shareholders. However, as these companies raise funds from external investors, the founders' shareholding tends to get diluted."The proposed changes in ESOP rules recognise the 'skin in the game' incentive for such founders, with corresponding benefits to all other stakeholders," said Ketan Dalal, managing director, Katalyst Advisors."The issue of ESOPs has always been a contentious one, because the perception often is that it leads to dilution of public shareholding and may also be used as a tool for unjust enrichment of those in management."The regulator is also considering a one-year cooling-off period between the grant of ESOPs and the company's decision to pursue an IPO. It believes allowing share-based benefits shortly before IPO filing could be prone to misuse."The one-year period may need to be revisited, given that circumstances for making a public offer change rapidly, and a shorter period may be justified," Dalal Sebi board, chaired by Tuhin Kanta Pandey, is also likely to consider allowing public sector companies (PSUs) to voluntarily delist from stock exchanges through a separate carve-out mechanism-provided the government holds more than 90% regulator is of the view that certain PSUs have a thin public float and weak financials. Some, though currently profitable, may lack long-term prospects due to outdated product lines or government decisions to sell off a discussion paper released last month, Sebi noted that since the shares of these companies are held by the government, they tend to offer perceived security to investors. This often results in elevated market prices that may not reflect the actual book value. "If such PSUs are to undertake delisting, being frequently traded, the 60-day volume-weighted average market price would need to be considered. This would result in a higher floor price and, consequently, a greater budgetary outlay for the government," Sebi said.
Time of India
16-06-2025
- Business
- Time of India
Sebi board to discuss changes in ESOP rules for startup founders and PSU delisting
Mumbai: The Sebi board, which is scheduled to meet on June 18, is likely to discuss allowing startup founders to continue holding employee stock options even after taking their ventures public, and permitting voluntary delisting of public sector companies , among other proposals, said two people with knowledge of the matter. Currently, rules mandate that founders be classified as promoters at the time of filing initial public offering ( IPO ) documents. Once listed as promoters, employee stock options (ESOPs) cannot be issued to them. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Discover the best air conditioner unit prices in the Philippines 2024 Air Condition | Search Ads Search Now Undo The capital market regulator believes the current rules do not clearly specify whether a founder holding ESOPs-who is subsequently categorised as a promoter-can exercise the granted options, both vested and unvested. Founders of many new-age tech companies often receive ESOPs instead of cash-based remuneration in their early years, aligning their interests with those of other shareholders. However, as these companies raise funds from external investors, the founders' shareholding tends to get diluted. "The proposed changes in ESOP rules recognise the 'skin in the game' incentive for such founders, with corresponding benefits to all other stakeholders," said Ketan Dalal, managing director, Katalyst Advisors. Live Events "The issue of ESOPs has always been a contentious one, because the perception often is that it leads to dilution of public shareholding and may also be used as a tool for unjust enrichment of those in management." The regulator is also considering a one-year cooling-off period between the grant of ESOPs and the company's decision to pursue an IPO. It believes allowing share-based benefits shortly before IPO filing could be prone to misuse. "The one-year period may need to be revisited, given that circumstances for making a public offer change rapidly, and a shorter period may be justified," Dalal said. PSU Delisting The Sebi board, chaired by Tuhin Kanta Pandey, is also likely to consider allowing public sector companies (PSUs) to voluntarily delist from stock exchanges through a separate carve-out mechanism-provided the government holds more than 90% stake. The regulator is of the view that certain PSUs have a thin public float and weak financials. Some, though currently profitable, may lack long-term prospects due to outdated product lines or government decisions to sell off assets. In a discussion paper released last month, Sebi noted that since the shares of these companies are held by the government, they tend to offer perceived security to investors. This often results in elevated market prices that may not reflect the actual book value. "If such PSUs are to undertake delisting, being frequently traded, the 60-day volume-weighted average market price would need to be considered. This would result in a higher floor price and, consequently, a greater budgetary outlay for the government," Sebi said.
