PRIVATE EQUITY REGULATION UNDER COMPANIES ACT: COMMENT ON PREVAILING PROVISIONS UNDER COMPANIES ACT, 2013

Abstract

The Companies Act 2013 has largely consolidated the law regulating public companies but as a consequence has imposed a severe compliance burden on private companies. Private Equity and Venture capital is considered as the fourth wheel of the industry and fuels growth in the economy by infusing professionalism into typical management owned firms. Over the years PE/VC levels have shown an upward trajectory and constant increase is essential to fund the startup industry in India that has started to show some decline. The complicated process of private placement in the Act and imposition of liability on Non-Executive directors places an unnecessary compliance burden that shall cause the investment levels to stagnate if the law continues to be enforced in its current form. Investors have found innovative and questionable strategies to bypass norms for regulation that threaten to hurt the legislative intent of the Act. India needs to understand the importance of Private Equity and the law needs to cement investor confidence. This paper traces the growth of the Private Equity industry in India over the last few years and highlights the relevant provisions under the companies Act that act as deterrents to investments. Much of the scholarship on the Act focuses on public companies whereas the private companies that comprehensively outnumber the public companies are swooped into the regulatory ambit under certain sections, hurting their scalability prospects without achieving any directly measurable public interest outcomes.