Page 325 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes Related party transactions refer to dealings amongst subsidiaries, SPVs, sister concerns,
individuals having an interest in the voting power, chairman and their relatives.
These transactions are a cause of concern as a company can use it to evade tax or cheat investor,
and require strict monitoring.

According to clause 166 of the Companies Bill 2009, shareholders are authorised to decide on
contracts and arrangements with the related party on matters like sale, purchase or supply of
goods and services and property; leasing property, and appointment of agents.
In December 2008, shareholders of Satyam Computer Services had opposed and blocked the
buy out of infrastructure firms – Maytas Infrastructure and Maytas Properties – the two fi rms

promoted by the kin of the then chief of the software firm B Ramalinga Raju.
Among other things, it was felt the transaction was overvalued.

14.8 Regulation of OTCEI

The functioning and operations of the OTCEI are subject to the provision of the Securities
Contracts (Regulation) Act, 1956, the Companies Act, 1956 and other relevant laws, which are
applicable to Indian Stock Exchanges of operations are supervised by SEBI and Government of
India. The criteria for admission of members, licensed dealers and companies on the OTCEI are
prescribed as follows.

Criteria for Admission of Members

The members would be public financial institutions, scheduled banks, mutual funds, banking
subsidiaries, SEBI-registered merchant banks, venture capital funds and venture capital
companies, non-banking financial companies having a minimum financial net worth as specifi ed

by OTCEI. The applicant should satisfy the elegant requirements of the Securities Contracts
(Regulation) Rules, 1957.
The member should posses the necessary skills, resources and capabilities to appraise project/

common establish its viability, analyze a company’s financial worth, evaluate a company’s
management and determine value for a company’s products.
The member should have the necessary status and standing to be able to carry the confi dence of
the members and licensed dealers while recommending any scrip for investment.

The member should have suffi cient financial reserves to ‘sponsor’ and trade in the scrip.
The member should be authorized by SEBI for carrying out merchant banking activities.
The member should have adequate organizational infrastructure to establish and manage the

OTC count (that is, office space, computers, PTI scam, telephones, telex, fax and any other data
communication equipped specifi ed).
The net worth of the member should be a minimum of ` 2.50 crores.

Criteria for Admission of Licensed Dealers

The licensed dealers would be a corporate body, partnership firms and individuals having

minimum tangible net worth of an amount to be decided by the OTCEI governing board from
time to time. The corporate bond should satisfy the eligibility requirements of the Securities
Contracts (Regulation) Rules, 1957. The licensed dealers should have a minimum tangible liquid
net worth which would be sufficient to carry investment, trading and market making in the

scrips listed on the OTC Exchanges.

320 LOVELY PROFESSIONAL UNIVERSITY