On behalf of our law firm, I would like to provide an informative and detailed opinion on the implications of Section 379A of the Companies Act, 1956 for Non Resident Indians (NRI).
Section 379A states that every company having share capital and listed on any recognised stock exchange in India shall within a prescribed time frame after the closure of its books for any financial year, offer to its shareholders an option to subscribe to shares proposed to be issued. This provision is designed to protect the interests of shareholders by ensuring they have the opportunity to invest in newly issued shares before they are made available to external investors.
In terms of legal provisions, Section 81(1A) and (1B) deal with such rights issues. Further, Regulation 16(2)(a) and (b) read with Schedule IA Part A Para A7(3)(c) & (d) contain relevant provisions relating thereto under Securities and Exchange Board of India Regulations,1997.
There are several case laws that illustrate the importance of complying with Section 379A. One such example is Hindustan Lever Employees’ Union vs Hindustan Lever Ltd  where it was held that companies must comply strictly with provision requiring them to offer newly issued shares first preference for existing shareholders. Similarly Ashok Popatlal Shah v Sheth Narottamdas Balkrishna And Orsheld that “the object behind giving these preferential treatment should be respected if possible.” These cases demonstrate how companies can face legal action if they fail or refuse their obligation under section 379A.
The relevance of this provision specifically for NRIs lies in their status as non-resident shareholders who may otherwise miss out on important shareholder rights. NRIs often face challenges when investing in Indian markets due to jurisdictional differences which can lead them vulnerable. Compliance with Section 379A ensures equal opportunities regardless whether a shareholder is resident or non-resident.
In conclusion, Section 379A of the Companies Act, 1956 is an important provision that protects shareholders’ interests by providing them with pre-emptive rights to purchase newly issued shares. Our legal firm recommends strict compliance with this provision as well as related regulations and case laws to ensure the equal treatment of NRIs for investment opportunities in India.