In recent years, the issue of corporate governance in India has been a hot topic of discussion. As India Inc. has grown by leaps and bounds, corporate India’s attention has evolved from simple ‘management’ to ‘governance’, and now ‘effective governance’. Given the unique challenges that India Inc. faces due to the predominance of family run businesses, there is a pressing need to move from the Raja’ and ‘Praja’ model of governance (wherein the self-interests of the promoter family precedes the interests of other stakeholders) to the ‘Custodian’ model of governance (which is designed to serve the interests of all stakeholders). While some promoters have consciously worked hard to establish a “Ram Rajya” (a democratic-righteous rule), many are still reluctant to yield power and fear that it may lead to an abdication of their throne.

Kotak Committee

In June 2017, Securities and Exchange Board of India (SEBI), constituted a high powered committee under the chairmanship of Mr. Uday Kotak (Kotak Committee) with the aim of improving governance standards of Indian listed companies which came out with detailed recommendations (Kotak Report)[1]. The legal experts on the Kotak Committee included our Firm’s Managing Partner, Mr. Cyril Shroff.

On March 28th, 2018, SEBI’s Board decided on these recommendations whereby (i) 40 out of 80 were accepted without any modifications; (ii) 15 were accepted with modifications; and (iii) 18 were rejected.

Kotak Committee – Key recommendations accepted by SEBI

The Kotak Committee suggested numerous amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which will consequently impact all listed entities. In this article, we dissect some of the critical proposals and their impact on Indian Promoters. For a full list of recommendations accepted by SEBI, please refer to the press release[2].

Continue Reading India’s Tough New Corporate Governance Regime – Impact on Promoters

Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime.

–  Anonymous

Philanthropists the world over have been inspired by this simple but powerful statement, and have evolved from undertaking traditional notions of charity to philanthropy and now more recently, towards impact investing.

Impact investing bridges the gap between pure charity and donations for social, environmental and other causes, and pure investment aimed only at financial gain. As the world and, in particular, India, braces itself to battle increasing demand but diminishing resources, the deployment of monies in a manner that helps solve societal problems and conserve resources is not a luxury, but an urgent necessity.

Impact investing is an idea whose day has come. Mahatma Gandhi believed that the rich should be custodians of their wealth for the benefit of society, leading to a more egalitarian world. In this article, we explore why Indian family offices – being custodians of family wealth – should embrace impact investing that embodies this Gandhian philosophy. In doing so, they will not only contribute to society but also extend family legacies beyond the board room.

Impact Investing

The World Economic Forum describes impact investing as an approach that intentionally seeks to create both financial return as well as positive social and/or environmental impacts that are actively measured. The term is often used narrowly as an asset class, but, in fact, it represents an investment approach or philosophy by which investments are made across asset classes. Such asset classes include venture capital and private equity, social impact bonds, municipal bonds, real estate and contribution to social venture funds.

Continue Reading Impact Investing by Family Offices

Over the past few years, many Indian business families have established estate planning structures, many of which comprise one or more family trusts. The main driver for these structures would have been tax driven considerations. Under the recent Finance Bill, 2017 (Finance Bill), there was a key amendment proposed to the Income-tax Act, 1961 (IT Act), which if passed would have had a significant impact on existing and future estate planning structures – by way of a ‘gift tax’ in respect of assets received by taxpayers without consideration or for inadequate consideration (Proposed Amendment).

Subsequently, the Proposed Amendment has been further amended by the Finance Act, 2017, as passed by the Parliament on March 30th, 2017 (Finance Act). In this article, we discuss the said amendment to the gift tax regime.

Under the IT Act, gifts received by individuals and Hindu Undivided Families (HUFs), were taxed, subject to tax certain conditions and exceptions. However, other tax payers, such as unlisted companies, partnership firms and limited liability partnerships were not subject to gift tax, except if they receive shares of unlisted companies without consideration or for inadequate consideration. However, certain exceptions, namely receipts from relatives, gifts on occasion of marriage, etc had been retained.

In order to remove this disparity, the Finance Act provided that the ‘gift tax’ regime shall apply equally to all tax payers post April 1st, 2017.

Continue Reading Update on Finance Act, 2017: A lucky escape for Trusts

Indian society is predominantly a family oriented society, both at the social familial level, and almost equally so at the business level. Indian society lays strong emphasis on family values, loyalty (to the family) and inclusion. There are unsaid dynamics that define and drive family relationships, especially concerning authority and hierarchy. Family ties, age and gender play an important, if not the only role, in decision making. This kind of structure is not unique to any particular religious community as a vast majority of traditional Indian business families, irrespective of their religious backgrounds or beliefs, will display these characteristics.

Traditional Hindu families have adopted the teachings from the two major ancient Indian mythological epics, the Mahabharata and the Ramayana. These epics have been imbibed to such a great extent in the mind and conscience of Indian society, that the values and thoughts therein still evoke reverence. Continue Reading The Indian Model of Family Governance