India: ‘Preferential Allotment' In Restructuring Schemes

Last Updated: 20 September 2017
Article by K. A. Najmi and Y. Sriniwas Arun

The restructuring of stressed assets under the Strategic Debt Restructuring Scheme (SDR), the Scheme for Sustainable Structuring of Stressed Assets (S4A) or any other deep restructuring under the extant guidelines of the Reserve Bank of India (RBI) seeks to achieve timely resolution of stressed assets.

The purpose of the restructuring is to enable the borrowing company to address intermittent cash stress and meet the repayment obligations of its debts by converting the unsustainable portion of debt into equity or an equity-like instrument, thus substantially reducing the debt repayment and servicing obligation of the company for a considerable time.

A comparison between the allotment of securities by further issue in the normal course and allotments pursuant to the restructuring schemes reveals substantial differences in the processes.

In the case of further issue in the normal course, the Companies Act, 2013, and the rules made under it set out a significant and proactive role for the board of directors in driving the process of further issue of capital by private placement/preferential allotment.

As against this, S4A involves identification or acknowledgement of a stress situation (either current or potential), building consensus on the need for restructuring, subjecting the company to a techno economic viability study by an independent agency, drafting a resolution plan (based on the study) by the majority of the lenders and submitting it to the overseeing committee. The committee reviews the plan and examines whether it is in conformity with the S4A guidelines. If the plan is found to be in order, it becomes binding on the lenders. It is then communicated to the borrower, which is expected to carry out all corporate compliances and allot the securities as per the resolution plan.

A doubt has been raised in some quarters as to whether the issue of securities pursuant to restructuring schemes is in compliance with the Companies Act and rules framed under it in relation to preferential allotment on a private placement basis. Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014, lays down that the issue of shares on a preferential basis should comply with section 42, which in turn stipulates issuance of a "private placement offer letter" by the company. Under S4A the need to make preferential allotment on a private placement basis emanates from approval of the resolution plan by the lenders and is not a normal business need or outcome.

The resolution plan, on being approved, is communicated to the company and triggers further action on the part of the company to achieve the following: (i) approval of implementation of the resolution plan by the shareholders and the board of directors; (ii) issuance of securities pursuant to section 62 and other applicable provisions of the Companies Act pertaining to allotment of securities; and (iii) amendment of the articles of association, if required.

The restructuring schemes have been formulated to address larger interests and are vital for managing the non-performing assets of banks. Hence, the schemes call for a holistic approach from a compliance perspective in accord with the underlying spirit and intent of the legislative prescriptions.

Section 62(3) of the Companies Act allows conversion of debt into equity. However, difficulty is encountered in cases where the conversion option is not available to the lender under the loan agreement and/or a special resolution under section 62(3) was not passed. It is desirable that sub-section (3) of section 62 be suitably amended or that the applicability of sub-sections (4), (5) and (6) of section 62 be extended for the securities issued pursuant to the restructuring schemes.

Another area of concern in the formulation of the resolution plan under S4A has been the pricing of listed shares for conversion purposes where such shares are traded at a price which is far from being representative of their real value as arrived at on the basis of the techno economic viability report prepared by an independent agency.

Where, despite the high price at which the company's shares are being traded, the borrower is in financial distress and approaches its lenders for restructuring of debt, S4A becomes difficult to apply. This is because, under the regulations of the Securities and Exchange Board of India, the debt is to be converted into equity at a price at which the shares are being traded in the market. Hence, in such situations, allowing conversion at a fair value on a case-to-case basis could go a long way in resolving the pricing issue and thus achieving the objective of the restructuring schemes.

Recent Amendments

Recent amendment to Legal Metrology (Packaged Commodity) Rules, 2011.

  1. The Legal Metrology (Packaged Commodities) Rules ("Rules"), 2011 regulates pre-packaged commodities and provides, among other things, certain mandatory declarations to be made on the package or on the label affixed on the package.
  2. Recently, the Ministry of Consumer Affairs, Foods and Public Administration ("Ministry") has notified Legal Metrology (Packaged Commodities) Amendment Rules, 2017 ("Amendment Rules"). The Amendment Rules are aimed at enhancing customer protection, while also balancing the requirement of ease of doing business. The Amendments Rules shall come into force with effect from January 1, 2018.
  3. The substantial changes that have been made to the Rules by the Amendment Rules are summarized below:

    1. The definition of 'institutional consumer' under Rule 2 has been amended to prevent commercial transactions by such institutions. Accordingly, 'institutional consumer' means the institution which buys packaged commodities bearing a declaration 'not for retail sale', directly from the manufacturer or from an importer or from wholesale dealer for use by that institution and not for commercial or trade purposes.
    2. In respect of packages containing food articles, the declaration of name and address of manufacturer, packer and /or importer as provided in Rule 6 (1) (a) of the Rules shall not be applicable and such declarations are required to be made as per requirements specified in Food Safety and Standards Act, 2006. Prior to the Amendment Rules, the entire Rule 6 (1) was not applicable to packages containing food articles, and all the declarations were required to be made as per Food Safety and Standards Act, 2006.
    3. In case of imported products, name of the country of origin or manufacture or assembly should be mentioned on the package.
    4. Declarations such as 'best before or use by date, month and year' should be mentioned on the packages containing items that can become unfit for consumption after the expiry of the stated time. The terms "best before" and "use by date" have been defined. However, if any other law has provisions in respect of "best before" / "use by date", the provisions of the Rules in this regard shall not apply.
    5. Placing barcodes, e-codes and authorized logos of Government schemes, such as Swatch Bharat Mission on the packages has been made discretionary. However, e-code for net quantity assurance of the commodity and other required declarations may be made only after obtaining the same in the manner as specified by the Central Government.
    6. E-commerce entities or in case of market-place model of e-commerce, the manufacturers or the sellers are required to display all the mandatory declarations specified in the Rules, except for month and year in which the commodity is manufactured or packed, on the digital and electronic networks used for e-commerce transactions.
    7. The specifications of height and width of declaration made on the package has been increased, particularly for packages with principal display panel of 50 to 500 square centimeters. Further, the manner of determining the area of principal display panel has also been provided in Rule 7.
    8. Specific mention has been made in the Rules that no person shall declare different MRPs (dual MRPs) on identical pre-packaged commodity unless permitted under any law. This will have a huge impact on the consumers, manufacturers and retailers as no person can overcharge for identical products.
    9. The manner of carrying out test of quantity and error and manner of deciding the samples for the purposes of conducting inspection has been made more scientific.
    10. Definition of the terms consumer, e-commerce, e-commerce entity and marketplace based model of e-commerce has been inserted in the Rules.
    11. Penalty for contravention of provisions where specific penalty is not provided has been enhanced from INR 2,000 to INR 5,000.
  4. In addition to the above, the Ministry has, vide notice dated July 4, 2017 ("Notice"), provided certain clarifications in respect of unsold stock of pre-packaged commodities, subsequent to the introduction of Goods and Services Tax with effect from July 1, 2017. As per the Notice:

    1. Manufacturers, packers or importers of pre-packed commodities are permitted to declare the changed retail sale price (MRP) due to imposition of GST ("Changed Price"), on unsold stock manufactured/packaged/imported prior to July 1, 2017, only till September 30, 2017.
    2. The Changed Price may be mentioned by way of stamping, sticker or printing.
    3. The Changed Price shall not be more than the increase in GST or any fresh tax made applicable on the product.
    4. The Changed Price shall not overwrite the original price already printed on the package.
    5. Notice of Changed Price must be advertised in newspapers, circulated to dealers and to the Director / Controller of Legal Metrology.
    6. Any packaging material or wrapper which could not be exhausted by the manufacturer/packer/importer prior to July 1, 2017, may be used for packaging of material up to September 30, 2017 or till such date the packaging material or wrapper is exhausted, whichever is earlier, after mentioning the Changed Price and adhering to the abovementioned conditions.
  5. As mentioned above, the primary objective of the Amendment Rules is to bring more transparency and accountability. Further, the Notice, with the objective of keeping in pace with the tax reforms, provides transition provisions. It is important for companies dealing with pre-packaged commodities meant for retail consumption in India to review their labels and make necessary changes to ensure that they are not violating the applicable laws, as amended from time to time.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.