a public company, putting to rest contradicting judicial precedents on this aspect. Through this change, provisions such as tag and drag along rights, ROFO (right of first offer) and ROFR (right of first refusal) commonly found in investment agreements have been granted legitimacy, providing much needed relief to private equity investors who rely on such contractual protections. The Bill has also sought to grant greater protection to non-executive directors by making them liable only in respect of such acts of omission/commission by the company which had occurred with their knowledge, attributable through board processes, and with their consent or connivance. This in-built protection should make it easier for private equity investors to nominate directors on boards of their portfolio companies, as it attempts to define the scope of liability of independent directors.
Lastly, the Bill has permitted entrenchment provisions in the articles of association of companies whereby the articles may contain certain specific provisions which can be amended only by way of adopting a standard higher than that prescribed by the law. This will allow private equity investors to negotiate certain protective clauses under their investment agreements to be entrenched in the articles such that these may be amended only with their prior approval, notwithstanding the promoters of their respective portfolio companies having majority voting power.
Authors are with J Sagar Associates. Views are personal