RBI ACT, 1934

Banker to the banks:

 This is a special relationship that is created due to statutory requirements under the
RBI Act.
 Once the name of a bank is included in the Second Schedule, that Bank is eligible to
be called as a Scheduled Bank.
 Among other conditions, it is bound to maintain the stipulated Cash reserves under
section 42 in an account with RBI.
 The Scheduled Bank status to any bank also confers privileges such as availing financial
accommodation from RBI under specified conditions.

Lender of last resort:

When banks exhaust all other means for raising funds for their operations, they fall back on
RBI as a source for finance as provided under the RBI Act. Hence RBI is known as Lender of
last resort. RBI grants financial accommodation to banks - “sale, purchase and rediscount of
eligible bills” as well as loans and to advances banks.

Rediscount of bills with RBI by banks are confined to the following categories:

 Bonafide Commercial bills

 Bills related to financing agriculture operations or marketing of crops
 Bills that are associated with Cottage and Small Scale Industries
 Bills representing holding or trading in Government Securities
 A foreign bill

Q. What are the types of Anti-Competitive Agreements?

There are two types of Anti-Competitive Agreements – Section 3 of the Competition Act, 2002.
1. Horizontal 2. Vertical
Vertical Anti-Competitive Agreements:
a. Tie in agreement: Any agreement wherein a condition is placed on the purchaser to buy
additional goods alongwith original purchase. Example: In Anand Gas Limited Case, a
precondition to buy gas stove along with gas connection was imposed on the consumer.
b. Exclusive Supply Agreement: Any agreement restricting the purchaser in the course of his
trade from acquiring or dealing in any goods other than those of the seller or any other person.
Example: In the case of Consumer Guidance Society v Hindustan Coca Cola Beverages Ltd., it
was observed by the court that Hindustan Cocoa Cola Beverages Limited indulged in exclusive
supply agreement with multiplexes, denying entry to other market players.
c. Exclusive Distribution Agreement: includes any agreement to limit, restrict or withhold the
output or supply of any goods or allocate any area or market for the disposal or sale of the
goods. An exclusive distribution agreement can manifest as a territorial restriction, where the
supplier agrees to sell his products only to one distributor for resale in a particular territory,
or as a customer restriction, where the supplier is restricted to sales only to a particular group
of customers. It is quite popular in the pharmaceutical sector where chemists are appointed
exclusively for institutional sales to large buyers like hospitals etc.
d. Resale Price Maintenance: includes any agreement which restricts, or is likely to restrict,
by any method the persons or classes of persons to whom goods or services; are sold or from
whom goods or services are bought.
Hyundai Case: The discount control mechanism put in place by Hyundai required the dealers
to adhere to the discount policy of Hyundai. Any deviations by the dealers would lead to
penalties. The CCI found that this policy led to a collusive outcome at the level of the
distributors and held that Hyundai had contravened the provisions of the Competition Act.

Horizontal Anti-Competitive Agreements:

These agreements are between same competitors who are at the same stage in production
chain and exist in the same market.
1. Price Fixing: An agreement between two or more competitors can have the effect of
determining the prices directly or indirectly. They can adopt various methods such as deciding
to increase the price or decrease the price or maintain the price, granting certain discounts,
adopting identical cost accounting methods etc. Such agreements are void because they
adversely impact competition in the market, as the competitors are already aware of each
other’s pricing policies. It kills the competition.
For Example: Panasonic, Everready and Nippo entered into an agreement by which they
determined the prices of the zinc-carbon dry cell batteries. Panasonic would increase the price
of the battery, and Everready and Nippo would also increase the battery price in the pretext
of following the market leader.
2. Sharing of Market: This sharing may happen in a variety of ways such as allocating that the
market in a particular geographical area shall be covered only by a particular
enterprise/person, or by allocating that particular type of goods or services shall be dealt with
only by a particular enterprise/person, or by allocating a certain number of customers in the
market to an enterprise/person, or any other similar way.
For Example: If there are only 5 cable operators in Mumbai and they divide the whole city in
5 parts and they agree not to enter into one another’s areas, consumers will not have any
choice.
3. Limiting Production/Supply of goods: An agreement that reduces or controls the
production of goods or their supply in the market will increase prices due to less supply. Such
behaviour harms the enterprises by preventing those with the capacity to produce more from
doing so, and thus lessens the competition between enterprises. The reduced supply and
consequent increase in prices harm the consumers.
4. Bid Rigging: Bid rigging takes place when bidders collude and keep the bid amount at pre-
determined level. Such pre-determination is intentional.

In Anuj Kumar Bhati v Sony Entertainment Television (SET), it was alleged that the opposite
parties have duped the participants of T.V. Quiz Show 'Kaun Banega Crorepati season 4 and
are indulging in foul play in the selection of contestants. The main allegation was that the
opposite parties, being in dominant position, were discriminating in selection of the
contestants and adopting unfair practices in selection of questions asked during the show,
which is in violation of section 4 of the Competition Act. The Competition Commission, on the
basis of viewership rating observed that compared to all other shows/programmes telecasted
on T.V. in Hindi during prime time in India, the share of viewers of KBC was not so much that
on the basis of which it could be said that it was dominating all other shows. The viewers had
many options to watch programmes during the prime time depending on the demographic
profile of the viewer, his tastes and preferences. The KBC show was not adversely affecting
any other programme as each programme has its niche viewership. The Commission thus held
that there was no violation of the provisions of section 3 or section 4 of the Act and,
consequently, the matter be closed under section 26(2) of the Act.

Q. What are the 2 trigger points under SAST regulations for open offer?
1. Acquirer: “Acquirer” means any person who, directly or indirectly, acquires or agrees to
acquire whether by himself, or through, or with persons acting in concert with him, shares or
voting rights in, or control over a target company. [Reg. 2(1)(a)]
2. “Persons acting in concert” means – persons who, with a common objective or purpose of
acquisition of shares or voting rights in, or exercising control over a target company, pursuant
to an agreement or understanding, formal or informal, directly or indirectly co-operate for
acquisition of shares or voting rights in, or exercise of control over the target company.
3. Control: “Control” includes the right to appoint majority of the directors or to control the
management or policy decisions exercisable by a person or persons acting individually or in
concert, directly or indirectly, including by virtue of their shareholding or management rights
or shareholders agreements or voting agreements or in any other manner. However, a director
or officer of a target company shall not be considered to be in control over such target
company, merely by virtue of holding such position.

Trigger Point 1 – Mandatory Open Offer

An acquirer, along with Persons acting in concert (PAC), if any, who intends to acquire shares
which along with his existing shareholding would entitle him to exercise 25% or more voting
rights, can acquire such additional shares only after making a Public Announcement (PA) to
acquire minimum twenty six percent shares of the Target Company from the shareholders
through an Open Offer.
For example – Mr. A is presently holding 1% in Ram Enterprises Limited; a listed entity and he
further desires to acquire the shares as tabulated below:
Case Pre-Holding Post-Acquisition Open Offer under SAST
1 1% 27% Yes
2 1% 24% No

Trigger Point 2 – Voluntary Open Offer

An acquirer, who together with persons acting in concert with him, holds shares or voting
rights in a target company entitling them to exercise 25% or more but less than the maximum
permissible nonpublic shareholding (i.e. 75%), shall be entitled to voluntarily make a public
announcement of an open offer for acquiring shares in accordance with these regulations,
subject to their aggregate shareholding after completion of the open offer not exceeding the
maximum permissible non-public shareholding.
Therefore, under Voluntary Offer the size of the Offer would be as such that the minimum
public shareholding shall be maintained even after acquisition of shares by the Acquirer.
Further for the purpose of this regulation, any reference to “twenty-five per cent” in case of
listed entity which has listed its specified securities on Innovators Growth Platform shall be
read as “forty-nine per cent”.

Q. What are the types or categories of AIF?

There are three categories of Alternative Investments Funds:
Category I: are those which invest in start-up or early stage ventures or social ventures or
SMEs or infrastructure or other sectors or areas which the government or regulators consider
as socially or economically desirable and shall include venture capital funds, SME Funds, social
impact funds, infrastructure funds, special situation funds and such other Alternative
Investment Funds as may be specified. Example: Venture Capital fund, Angel Funds,
Infrastructure Funds, Social Venture Funds.

Category II: are those which does not fall in Category I and III and which does not undertake
leverage or borrowing other than to meet day-to-day operational requirements and as
permitted in the AIF Regulations. Alternative Investment Funds such as private equity funds
or debt funds for which no specific incentives or concessions are given by the government or
any other Regulator shall be included under this category.
Example: Private Equity Fund, Debt Fund, Fund of Funds, Real Estate Funds.

Category III: which employs diverse or complex trading strategies and may employ leverage
including through investment in listed or unlisted derivatives. Alternative Investment Funds
such as hedge funds or funds which trade with a view to make short term returns or such
other funds which are open ended and for which no specific incentives or concessions are
given by the government or any other Regulator shall be included in this category. Example:
Private Investment in Public Equity, Hedge Funds.

Q. Define Unpublished Price Sensitive Information (UPSI).

"Unpublished price sensitive information" means any information, relating to a company or
its securities, directly or indirectly, that is not generally available which upon becoming
generally available, is likely to materially affect the price of the securities and shall, ordinarily
including but not restricted to, information relating to the following:
(i) financial results;
(ii) dividends;
(iii) change in capital structure;
(iv) mergers, de-mergers, acquisitions, de-listings, disposals and expansion of business and
such other transactions;
(v) changes in key managerial personnel.
Q. What is Hostile Takeover and what are the strategies to defend hostile takeovers?
Friendly takeovers, that take place by mutual agreement of the target and acquiring company,
after the overall assessment of the transaction, have been fairly predominant in the Indian
M&A landscape. Contrary to such takeovers, there is disagreement on part of the
management of the target company in the case of hostile takeovers i.e., the target company
does not want to be acquired. Despite this disagreement, the acquiring company, by
continuing to pursue the transaction makes it hostile. Various reasons like killing competition,
an undervalued target, et cetera, motivate a hostile takeover. In order to pursue the
transaction, the acquiring company can employ strategies like a tender offer or a proxy fight.
In a tender offer, the acquiring company makes an offer to buy the shares of the shareholders
at a premium price i.e., a fixed price that is more than the current market price, within a
particular window time. This gives the shareholders an incentive to sell their shares to the
acquiring company. In a proxy fight, however, the right of shareholders to vote on matters is
assigned to another person i.e., a proxy. These proxy votes are then used by the acquiring
company to discharge the management that opposed the takeover and install a new and
friendly management. In order to get the proxy votes, the acquiring company may highlight
alleged shortcomings of the target company’s management and have its own candidates
installed on the board, thus making the management more friendly and in agreement with
the takeover.
Defense Strategies
1. White Knight: A white knight is an individual or company that acquires the target company
when it is on the verge of being taken over by the black knight i.e., hostile/unfriendly acquirer,
thus, saving the target company from a hostile takeover.
2. Pac-man: In pac-man, during the hostile takeover, the target company tries to save itself by
reversing the roles i.e., the target company makes a counteroffer to the acquirer and begins
acquiring shares of the acquiring company threatening to acquire the raider themselves. Thus,
the raider becomes focused on saving itself which forces them to hammer out a truce.
3. Golden Parachute: In the strategy of golden parachute, substantial benefits are given to
executive employees in case the company is taken over by another company and as a result
of that their employment is terminated. The defense strategy is named golden parachute as
it provides soft landing to employees who hold certain positions in the target company.
Although this increases the cost to the acquiring company, the main aim is to protect the
interest of the employees who put efforts to build the company.
4. Crown Jewels: Under this strategy, the target makes itself look less attractive to the
acquirer by selling off its most valuable asset which might have attracted the acquirer in the
first place. This strategy could be employed by the target along with white knight where the
target company would demerge its valuable asset and sell it to a white knight from which it
could be bought again later at a fixed price.
5. The Staggered Board: The acquirer tries to gain representation and voting power in the
board of the target company in order to influence the shareholders to accept the bid. The
target company can construct a staggered board which will make the process of gaining
influence very time-consuming and costly for the acquirer. It is created by dividing the
members into small groups. All members of the board are not re-elected annually. Rather,
only a single group of members are re-elected every year. So, the acquirer will not be able to
replace the entire board in a single year. Thus, it prevents the acquirer from gaining control
over the board and resists hostile takeover. It should be noted that the formation of a
staggered board needs to be approved by shareholders in a Shareholders’ Meeting.
6. Poison Pill: The target company offers and issues securities, preferred shares, and stock
warrants to its shareholders at a lower price than the current market price. Usually, poison
pills are adopted without the approval of the shareholders. And also, it is quickly alterable
after the occurrence of the triggering event. But in some countries, it must be adopted
through shareholders’ voting. Thus, the acquirer’s share is diluted and prevents a takeover or
enhances the opportunity to bargain a fair price.
7. Greenmail: It is used when the acquirer has already taken over a significant chunk of shares
or when the bidder has only short-term goals. Greenmail is a comparatively simple process
and also known as Goodbye Kiss. The target company repurchases or buys the shares back
once the short-term goal of the acquirer has been achieved. It is a very costly process as the
target company has to offer a premium at a high price to repurchase the shares. When the
target company buys back the shares, then a standstill agreement is made, which restricts the
acquirer from buying more shares for a long period of time.

Q. What are the different types of prospectus used for public offer?
A prospectus is a notice, advertisement or any other document inviting the public to subscribe
for securities. Following are the types of Prospectus:
1. “Red Herring Prospectus”: is a prospectus, which does not have details of either price or
number of shares being offered, or the amount of issue. This means that in case price is not
disclosed, the number of shares and the upper and lower price bands are disclosed. On the
other hand, an issuer can state the issue size and the number of shares later. An RHP for an
FPO can be filed with the ROC without the price band and the issuer, in such a case will notify
the floor price or a price band by way of an advertisement one day prior to the opening of the
issue. In the case of book-built issues, it is a process of price discovery and the price cannot
be determined until the bidding process is completed. Hence, such details are not shown in
the RHP filed with ROC as per the Companies Act, 2013. Only on completion of the bidding
process, the details of the final price are included in the offer document. The offer document
filed thereafter with ROC is called a prospectus.
2. “Offer document”: means Prospectus in case of a public issue or offer for sale and Letter of
Offer in case of a right issue, which is filed with Registrar of Companies (ROC) and Stock
Exchanges. An offer document covers all the relevant information to help an investor to make
his/ her investment decision.
3. “Draft Offer document”: means the offer document in draft stage. The draft offer
documents are filed with the SEBI, at least 30 days prior to the filing of the Offer Document
with ROC/Stock Exchanges. The SEBI may specify changes, if any, in the Draft Offer Document
and the Issuer or the Lead Merchant banker shall carry out such changes in the draft offer
document before filing the Offer document with ROC/SEs. The Draft Offer document is
available on the SEBI website for public comments for a period of 21 days from the filing of
the Draft Offer Document with the SEBI.
4. “Shelf Prospectus”: is issued by a company that is planning multiple issues of bonds for
raising funds from the public. A shelf prospectus can only be issued by a publicly listed
company, and it is done by filing an information memorandum in Form PAS-2.
5. “Abridged Prospectus”: often referred to as simply an “abridged prospectus,” is a
condensed version of a company’s full prospectus. It serves as a concise and informative
document designed to provide potential investors with a quick overview of key information
about the company and its upcoming securities offering. Typically, an abridged prospectus
includes essential details such as the company’s business model, financial performance,
objectives, and the terms of the securities being offered, such as shares or bonds.

Q. What are the prohibited transactions from capital and current accounts as per FEMA?
Prohibited Capital Account Transactions:
1. Transfer of Immovable Property Outside India:
Generally, individuals and entities are prohibited from transferring immovable property
located in India to a person outside India without prior approval.
2. Transfer or Issue of Security by a Person Resident Outside India:
The transfer or issue of any security by a person resident outside India requires approval from
the Reserve Bank of India (RBI).
3. Transactions Involving Rupee Derivatives:
Certain transactions involving rupee derivatives and the rupee exchange rate are subject to
restrictions.
4. Borrowing and Lending in Foreign Exchange:
Borrowing or lending in foreign exchange by a person resident in India is subject to
restrictions, and specific approvals may be required.
5. Repatriation of Income on Investments:
Certain investments may have restrictions on the repatriation of income earned, and
approvals may be needed for repatriating such income.

Prohibited Current Account Transactions:

1. Remittance for Lottery Winnings or Gambling:
Remittance of money for lottery winnings or gambling activities is generally prohibited.
2. Remittance of Income from Racing/Prohibited Remittances:
Income from racing, riding, or any other hobby, as well as certain other prohibited
remittances, may be subject to restrictions.
3. Remittance out of Dividend:
Remittance of current income like dividends may be subject to specific regulations.
4. Remittance for Purchase of FCCBs:
There may be restrictions on remittances for the purchase of Foreign Currency Convertible
Bonds (FCCBs).
5. Remittance for Trading in Transferable Development Rights (TDRs):
Remittance for trading in Transferable Development Rights is typically restricted.
6. Remittance for Commission on Exports:
Remittances for commission on exports are subject to certain guidelines and limits.
Q. Explain Book Building Process as per ICDR.
Book building is a systematic process of generating, capturing and recording investor’s
demand for shares during their issuance in order to support efficient price discovery. It is also
known as price discovery method. According to this method, share prices are determined on
the basis of real demand for the shares at various price levels in the market.
Book building means a process undertaken to elicit demand and to assess the price for
determination of the price. The book building process in India is very transparent. All investors
including small investors can see demand for the shares of the company at various price points
on the website of the Exchange before applying.