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September 2016

Corporate Amicus: July 2016

Article

Agreement in restraint of legal proceedings – Is your bank guarantee valid?

Banking Laws (Amendment) Act, 2012, introduced Exception 3 to Section 28 of Indian Contract Act, 1872 as a saving clause for a guarantee agreement of a bank or a financial institution. A relook at this amendment, though aimed at protecting banks and financial institutions, shows that instead of resolving the issues, it may add conditions which many banks and financial institutions should be worried about. It seems that every bank guarantee would have to be kept open for at least a year from the date of occurring or non-occurring of a specified event. According to the authors, an action brought against a bank for extinguishing rights of a party under a bank guarantee before a period of one year may presently allow the Courts to term such bank guarantees as void. The authors hope for another legislative amendment to clarify Section 28 and make it more commercially viable.

 

Corporate Insolvency Procedure – A Comment

Insolvency and Bankruptcy Code, 2016 is the topic of discussion in the second article in this issue of Amicus. Considering the objectives of the Code, authorities involved, Corporate Insolvency Resolution Process and the liquidation process, the author highlights various stumbling blocks in implementation of the provisions. It is stated that the Code as on date sounds as a deterrent to companies from taking loans instead of being a protective measure for the creditors. It needs to cross various practical and logistical hurdles and set up the required infrastructure to serve its objective.

 

Notifications & Circulars

  • Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 amended - No need to file return of appointment in form MR-1
  • Companies (Acceptance of Deposits) Rules, 2014 amended - Any amount raised by a company by issue of bonds or debentures convertible into shares within ten years shall not to be considered as deposits
  • SEBI simplifies Account Opening Kit - Stock brokers to make available standard documents to the clients, either in electronic or physical form.

 

Ratio Decidendi

  • Proceedings under Companies Act must give way to proceedings under Sick Industrial Companies (Special Provisions) Act – Supreme Court
  • Proceedings for insolvency cannot be maintained under Presidency Towns Insolvency Act in presence of a compromise deed stipulating terms of agreement – Madras HC
  • Term “Other proceedings” under Section 69(3) of Partnership Act does not include Arbitral Proceedings – Supreme Court

 

July, 2016/Issue-59 July, 2016/Issue-59

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