INDIA Law and Practice Contributed by: C R Dua, Sanjeev Kaul, Abhinav Rastogi and Ashish Malkotia, Dua Associates
operations with long-term shareholder value, ethical conduct and regulatory requirements. In India, the efficacy of institutional shareholder groups in influencing corporate governance has improved significantly. The shift has been driven by new regula- tions, rise in proxy advisory firms and growing empha- sis on ESG. However, powerful promoter sharehold- ers, information asymmetries and short-term focus of A registered holder of shares, also known as the ostensible owner, is required to make a declaration to the company if they do not hold a beneficial interest in those shares. This declaration must include the name and details of the beneficial owner. In turn, the ben- eficial owner must also submit a similar declaration regarding the registered member. The company will record and report these declarations to the Registrar of Companies. The Act recognises only the registered owner of the shares as the individual legally entitled to enjoy the rights associated with those shares. investors still present major hurdles. 2.13 Holding Through a Nominee Rights shares, bonus shares and dividends are offered to the registered member. However, the registered member may direct the company to pay the dividend on their shares in favour of the beneficial owner and may renounce the rights shares offered to them in favour of the beneficial owner. Typically, the beneficial owner enters into a contract with the registered owner, or another instrument is executed for the creation of a beneficial interest, which records the arrangement between the parties with respect to the shares held by the nominee/regis- tered member and (inter alia) provides that: • the registered member shall hand over the notice of the general meetings received by the registered member to the beneficial owner; and • the registered member shall vote on such issues as per the directions and instructions of the beneficial owner.
Neither the Act nor the company is concerned with such arrangements between the parties. 2.14 Written Resolutions As a general principle, all resolutions requiring share- holders’ approval are passed only at a general meet- ing. However, certain matters are reserved under the Act to be passed (as ordinary or special resolution) only by postal ballot if a company has more than 200 shareholders. Very few matters expressly provided under the Act can also be passed with the written consent of the members, such as variations of the rights of any class of shares. 3. Share Issues, Share Transfers and Disclosure of Shareholders’ Interests 3.1 Share Issues The Act provides for pre-emptive rights with regard to fresh issues of shares to a company’s shareholders. In cases where the company intends to raise monies by way of issuing further shares, such shares are first offered to the existing shareholders of the company in proportion to their paid-up share capital (referred to as a “rights issue”), unless the shareholders have decid- ed by way of a special resolution to issue shares to any persons, regardless of whether or not they include any existing shareholders. In the case of a rights issue, a shareholder may: • accept or decline an offer for subscribing to the shares on a rights basis; • subscribe for a lower number of shares than offered; or • renounce the shares offered to them in favour of another person, unless the articles state otherwise. 3.2 Share Transfers A private company must restrict the right to transfer of its shares in its articles. The shares of a public company are freely transferra- ble. However, the Act recognises that any contract or arrangement between two or more persons in respect of the transfer of securities shall be enforceable as a contract.
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