corporate compliance management
DESCRIPTION
TRANSCRIPT
Pavan Kumar Vijay Past President, ICSI
Compliance under
SEBI Regulations and Guidelines
Corporate Compliance Management
27.03.2010
27.03.2010
Do you usually confront with these??
I don’t know which laws are
applicable
How to make compliances
on time?
I am bored of
Stereotyped Compliance
system
27.03.2010
Outstanding Performance, Higher Profits,
Expanded Market Reach and the like FAILS
to protect a company which has put good governance & ethics
at the back burner….
History is Witness
S
U
C
E
S
S
D
I
S
A
S
T
E
R
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..…Only the culture of
strict adherence to good compliance can keep a company
ahead on sustainable basis , bring in larger profits…
Secret behind building foundations
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Disclosure & Transparency
Compliance in Letter
Compliance in Letter &
Spirit
Filing the Gap
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Designing effective & user friendly
COMPLIANCE MANAGEMENT SYSTEM
to lay down strong foundation for GOOD GOVERNANCE
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Compliance of Rules & Regulations
Good Corporate Governance
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Benefits of Effective Compliance
To Industry
Better Investors confidence
Brand Value Enhancement
Reduced risk of embarrassment due to defaults
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IMPLEMENTING EFFECTIVE
COMPLIANCE MANAGEMENT SYSTEM
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ROLE OF
CS ??
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Coporate Governance in System
Clause 49 of Listing Agreement: “ The Board shall periodically review compliancereports of all laws applicable to the company,prepared by the company as well as steps taken
bythe company to rectify instances of non-
compliances.”
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ENSURING
COMPLIANCE OF ALL LAWS
Therefore,
WE ARE ANSWERABLE……
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What is Compliance of all laws??
Compliance of all laws
Not just any another compliance ……………… it is a “HIDDEN
KHAZANA” for all stakeholders .
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HIDDEN KHAZANA for all
STAKEHOLDERS
INVESTORSINVESTORS
GOVERNMENT AND REGULATORS
GOVERNMENT AND REGULATORS
SOCIETYSOCIETY
SUPPLIERSSUPPLIERS
CUSTOMERSCUSTOMERS
LENDERSLENDERS
Company
Professional
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EXPLAINING THE PROCESS
TEXTILE INDUSTRY
• Manufacturing & Trading
• 1000 workers
• Export process
• Polluting Unit
• Unlisted Company
• Haryana
IDENTIFICATION, EVALUATION & ASSESSMENT AT ONE PLACE…
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Identification of applicable laws
General Laws
• Companies Act, 1956
•Securities Law
• Income Tax Act, 1961
Area Specific
• All laws applicable to
Uttar Pradesh City
Sector Specific
• Excise Act
• Factories Act
International Transaction
• FEMA , 1999
No of Employees
• Factories Act, 1948
• Payment of Wages Act, 1936
•Contract Labour (regulation & abolition) act,
1970
Subjective
• Air (Prevention of Pollution Control) Act, 1981
•Environment (Prevention of pollution control) Act,
1986
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Compliance Timings: Evaluation
Compliance Timings
Fixed / Regular Event Based
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The assessment process:
Identify the gap between the present compliance system and the results of evaluation
process
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Simplification: The Next MoveDeveloping Compliance Management Tools
Law wise
Period wise
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Corporate Compliance Management
Compliance under
SEBI Regulations and Guidelines
SEBI (SAST) Regulations,
1997
SEBI (PIT) Regulations,
1992
SEBI (ESOS & ESPS) Guidelines,
1999
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Topics Covered
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SEBI (SAST) Regulations, 1997
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Key Regulations
Regulation 3(3)
Regulation 3(4)
Regulation 3(5)
Regulation 6
Regulation 7
Regulation 8
Regulation 10, 11 & 12
Regulation 20(4) & 20(5)
Clause 40A of Listing Agreement
Regulation 3 (1) Exemptions under Takeover Code
Regulation 4 Takeover Panel Exemptions
Definitions
Regulation 2
Disclosures & Compliances
Open Offer Provisions
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Disclosures Requirements
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Thresholds Defined
Acquisition of more than 5%, 10%, 14%, 54% & 74% [Regulation 7 (1)]
Persons, who are holding between 15% - 55%, acquisition/ sale aggregating 2% or more share capital/ voting rights [Regulation 7(1A)]
Person holding more than 5% shares and Promoter or any person having control over the company.(Transitional Provisions) [Regulation 6]
27.03.2010
Compliance Chart – Regulation 6
Regulation No. By whom To whom Time limit (from date of
notification)
6(1) Any person holding More than
5% shares or voting rights
Target Company within 2 months
6(2) Target Company All Stock Exchanges
where shares are listed
within 3 months
6(3) Promoter or any person
having control over the
company
Target Company within 2 months
6(4) Target Company All Stock Exchanges
where shares are listed
within 3 months
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Compliance Chart – Regulation 7
Regulation No. By whom To whom Time limit
7(1) Any person who acquires more
than
5%, 10%, 14%, 54%, 74%
Target Company &
Stock Exchanges where shares
are listed
Within 2 Days
of Acquisition
7 (1A) Any person who holds 15%-
55% shares and
purchases/sells 2% or more of
shares
or
Any person who holds 55%-
75% shares and purchases 2%
or more of shares in terms of
second proviso to regulation
11(2)
Target Company &
Stock Exchanges where shares
are listed
Within 2 Days of
purchase/sale
7 (3) Target Company All Stock Exchanges where
shares are listed
Within 7 Days of receipt of
information
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Thresholds Defined
Disclosures by Promoters or Person having control over a company [Regulation 8 (2)]
Disclosure by Person holding more than 15% shares [Regulation 8(1)]
Disclosures by Target Company [Regulation 8 (3)]
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Compliance Chart – Regulation 8
Regulation No. By whom To whom When Time limit
8(1) Any person who holds
more than 15% shares
Company As on 31st March 21 Days
8 (2) Promoters or person
having control over a
company
Company As on 31st March
Record Date
21 Days
8 (3) Target Company Stock Exchange As on 31st March
Record Date
30 Days
8 (4) Maintenance of Register of Holdings
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Query
Whether an unlisted Company is also required to make disclosure under regulation 6, 7 & 8?
Yes
If an unlisted Company acquirers or holds shares/voting rights of a Listed Company beyond the limits specified under regulation 6, 7 & 8, then it is also required to make disclosures as any other acquirer.
DALP Tradepool Pvt. Ltd – IG
27.03.2010
Query
Whether dispatch of disclosures is sufficient to ensure compliance?
No
The proof of dispatch is not sufficient to prove compliance. The obligation is to ensure delivery to the stock exchange. Therefore,
proof of delivery should be produced.
Sudeep Chitlangia vs. AO
27.03.2010
Whether shares held by all persons acting in concert with acquirer have to be taken into account for determining whether regulation 7 gets triggered?
Query
Yes
The shares held by all the persons, who act in concert with the acquirer, are to be taken into account for determining whether regulation 7 gets triggered.
Radheshyam Tulsian –SAT
27.03.2010
Whether regulation 7(1) enjoins on any acquirer to report his shareholding once it exceeds 5 per cent regardless of whether his shareholding
was acquired or reacquired?
No, disclosures under regulation 7 are required to be made as and when the acquirers’ shareholding exceeds the threshold limits because the compliance
under regulation 7 is not one time compliance.
E.g. A person has acquired more than 5% shares and accordingly made disclosures under regulation 7(1), and then he sells 2% shares. Now, he will again
be required to make disclosures, if his shareholding again crossing the limit of 5% on further acquisitions.
Query
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Thresholds Defined-Regulation 8A
Disclosure by Promoters or Person forming part of promoter group about the shares pledged before notification [Regulation 8A(1)]
Disclosures by Promoters or Person forming part of promoter group on pledge of share.[Regulation 8A (2)]
Disclosures by Promoters or Person forming part of promoter group on invocation of pledge .[Regulation 8A (3)]
Disclosures by Company when shares pledged exceeds 25000 or 1% of share capital .[Regulation 8A (4)]
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Compliance Chart – Regulation 8A
Regulation
No.
By whom To whom When
(Event)
Time limit
8A(1) Promoter or person
forming part of the
promoter group
Company Details of
shares pledged
before
notification
Within 7 working Days of notification
8A (2) Promoter or person
forming part of the
promoter group
Company On pledge of
single shares
Within 7 working days of pledge
8A(3) Promoter or person
forming part of the
promoter group
Company On invocation of
pledge
Within 7 working days of invocation of pledge
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Compliance Chart – Regulation 8A
Regulation
No.
By whom To whom When Time limit
8A (4) Company Stock
Exchange
On receipt of information
under regulation 8A (1),
(2) and (3) if the total
number of shares
pledged during the
quarter exceeds 25000 or
1% of the total paid up
capital of the company
Within 7 working
days of receipt of
information
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Thresholds Defined
Acquisition of 15% or more voting rights [Regulation 10]
Persons, who are holding between 15% - 55%, acquisition more than 5% or more voting rights in a financial year.[Regulation 11(1)]
Persons, who are holding between 55% - 75%, acquisition of any additional single share or voting right [Regulation 11(2)]
Acquisition of Control or Change in Control with or without acquisition of shares [Regulation 12]
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Compliance Chart – Regulation 10, 11& 12
Regulation
No.
By whom To whom When
(Event)
Time limit
10 Acquirer or by his
PAC
Shareholders
of Target
Company
Acquisition of
15% or more
voting rights
Within 4 working Days of entering in to agreement for acquisition of share/voting rights
11(1) Acquirer or along
with PAC holding
equal or more than
15% but less than
55% of shares/
voting rights
Shareholders
of Target
Company
Acquisition of
5% or more
shares or
voting rights
in Financial
Year
Within 4 working Days of entering in to agreement for acquisition of share/voting rights
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Compliance Chart – Regulation 10, 11& 12
Regulati
on No.
By whom To whom When
(Event)
Time limit
11(2) Acquirer or along
with PAC holding
equal or more than
55% but less than
75% of shares/
voting rights
Shareholder
s of Target
Company
Acquisition of any
additional single
share or voting
right
Within 4 working
Days of entering
in to agreement
for acquisition of
share/voting
rights
12 Acquirer or by his
PAC
Shareholder
s of Target
Company
Acquisition of
control irrespective
of with or without
acquisition of
shares
Within 4 working Days of occurring
the event
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Amendment in Regulation 11 (2)
w.e.f. October 31, 2008
Proviso to Regulation 11 (2)
Extra limit of 5% is allowed to persons holding 55%-75% shares
Routes Allowed
Purchase through Open market
Buy-back
Routes Allowed
Purchase through Open market
Buy-back
Routes Dis-allowed
Bulk DealBlock DealOff-market
Preferential Allotment
Routes Dis-allowed
Bulk DealBlock DealOff-market
Preferential Allotment
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SEBI (Prohibition of Insider Trading) Regulations, 1992
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What Is
INSIDER TRADING?
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Insider Trading
It is dealing in the securities
by a Insider,
who has the knowledge of
material “inside” information
which is not known
to the general public
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Who Is Insider ???
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Reg 2 (e) ANY PERSON
WASIS
CONNECTED WITH THE COMPANY
WHO
OR
OR
DEEMED TO HAVE BEEN CONNECTED
AND
WHO IS REASONABLY EXPECTED TO HAVE
ACCESS HAS RECEIVED HAS HAD ACCESS OR OR
TO
UNPUBLISHED PRICE SENSITIVE INFORMATION
INSIDER
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Reg 2 (ha)
ANY INFORMATION
OR
AND
TO A COMPANY
LIKELY TO MATERIALLY AFFECT THE PRICE OF SECURITIES OF THE COMPANY
INDIRECTLYDIRECTLY
Price Sensitive Information
WHICH RELATES
WHICH IF PUBLISHED
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Disclosures
To be
Made
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Reg 13(1)
PARTICULARSTO BE
SUBMITTED ToPERIOD
Initial disclosure by person who holds
more than 5% shares/ voting rights
in any listed company
Company
within 2 working days of receipt of information of
allotment or the acquisition of
shares/voting right
Disclosures To be Made
TO INTIMATE
The number of shares held by such persons
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Reg 13(2)
PARTICULARSTO BE
SUBMITTED ToPERIOD
Initial disclosure by person who is either
director or officer of
listed company
Company
within 2 working days of becoming the director or
officer of company
Disclosures To be Made
TO INTIMATE
The number of shares held by such persons
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Reg 13(3 & 5)
PARTICULARSTO BE
SUBMITTED ToPERIOD
Continual disclosure by person who holds
more than 5% shares/ voting rights
in any listed company
Company
within 2 working days of receipt of information of
allotment or the acquisition of
shares/voting right
Disclosures To be Made
TO INTIMATE
The number of shares held & any Change exceeding 2%
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Reg 13(4 & 5)
PARTICULARS TO BE SUBMITTED To PERIOD
Continual disclosure by person who is
either director or officer
of listed company
Company as well as to the stock
exchange where the shares of the
company are listed
within 2working days of receipt of
information of allotment or the acquisition of
shares/voting right
Disclosures To be Made
TO INTIMATE The number of shares held & any Change exceeding Rs.
5 Lakh OR 25000 Shares OR 1%
whichever is Lower
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Reg 13(6) Disclosures To be Made
PARTICULARS TO BE SUBMITTED To PERIOD
Disclosure by the company on the
receipt of information under regulation 13(1), 13(2), 13(3) and
13(4)
Stock Exchange where the shares
of the company are listed
within 2working days of receipt of
information under regulation 13(1),
13(2), 13(3) and 13(4)
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Modal
Code
of Conduct
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Code of Conduct to be Abide By Reg 12
All Listed Companies
Organizations Associated with Securities Markets including:
All intermediaries
AMC and trustees of mutual funds;
The Self Regulatory Organizations;
The Stock Exchanges / Clearing House / Corporations;
The Public Financial Institutions
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The Professional Firms
Such as Auditors, Accountancy Firms, Law Firms,
Analysts, Consultants, etc.,
Assisting or Advising Listed Companies
Code of Conduct to be Abide By Reg 12
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Model Code of Conduct Schedules
SCHEDULE I
MODEL CODE OF CONDUCT FOR PREVENTION OF INSIDER TRADING
PART A - FOR LISTED COMPANIESPART B – FOR OTHER ENTITIES
SCHEDULE II CODE OF CORPORATE DISCLOSURE PRACTICES
FOR PREVENTION OF INSIDER TRADING
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Important Terms
In
Code of Conduct
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PSI should be disclosed only to those within the company who need the information to discharge their duty.
Limited access to confidential information
Files containing confidential information shall be kept secure.
Computer files must have adequate security of login and pass word etc.
Model Code of ConductIMPORTANT TERMS
NEED TO KNOW
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Model Code of Conduct
All D/O/E of the Co who intend to deal in the securities beyond a limit should pre-clear the transactions.
An application to the Compliance officer indicating
The estimated number of securities that the D/O/E intends to deal in,
The details as to the depository with which he has a security
account,
The details of securities in such depository mode.
Other details as may be required by any rule made by the company in this behalf.
IMPORTANT TERMS PRE CLEARANCE OF TRADES
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Company shall specify a trading period, to be called "Trading Window", for trading in the company’s securities.
The trading window shall be closed during the time the Price Sensitive information is un-published.
When the trading window is closed, the D/ E /O shall not trade in the company's securities in such period.
The trading window shall be opened 24 hours after the Price Sensitive Information is made public.
Model Code of ConductIMPORTANT TERMS
TRADING WINDOW
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To restrict trading in certain securities and designate such list as restricted / grey list.
Client Companies for which any assignment or appraisal report or credit rating assignments are going on.
Any security which is purchased or sold by the organisation / firm on behalf of its clients / schemes of mutual funds, etc. shall be put on the restricted / grey list.
As the restricted list itself is a highly confidential information, It shall be maintained by Compliance Officer.
Model Code of Conduct
RESTRICTED /GREY LISTIMPORTANT TERMS
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"Chinese Wall" policy demarcates “inside areas” from "public areas".
Those areas having access to confidential information, considered
“inside areas” and areas which deal with sales / marketing / investment considered "public areas".
The employees in the inside area shall not communicate any PSI to anyone in public area.
In exceptional circumstances employees from the public areas may be brought "over the wall" and given confidential information on the basis of "need to know" criteria, under intimation to the CO
CHINESE WALL
Model Code of ConductIMPORTANT TERMS
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Interesting
Judgements on
Insider Trading
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MATTER OF DEBATE
WHETHER AN ACTION UPON ANY PRICE SENSITIVE INFORMATION WHICH TURN OUT TO BE INCORRECT
FALLS UNDER INSIDER TRADING
SAMEER ARORA VS. SEBI
HELD
INFORMATION WHICH FINALLY TURNS OUT TO BE FALSE OR AT LEAST UNCERTAIN CANNOT EVEN BE
LABELED AS INFORMATION.
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MATTER OF DEBATE
WHEN AN PRICE SENSITIVE INFORMATION WILL BE TREATED AS MADE PUBLIC
DSQ HOLDINGS VS. SEBI
HELD
THE DAY ON WHICH THE INFORMATION IS SENT TO THE STOCK EXCHANGE AS PER THE LISTING
AGREEMENT.
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SEBI (ESOS & ESPS) Guidelines, 1999
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Objectives
The main objectives of implementing ESOPs are as under:
Link personal wealth creation to organizational wealth creation
Attract and retain talent at the start-up / growth stage
Reduction in cash costs - market pays not the company – can be
especially important for start-up companies that are cash starved
Promote employee ownership culture
Industry practice
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Legal Provisions relating to ESOS
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Legal Provisions relating to ESOS
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Eligibility to participate in ESOS
An Employee
Other than
Employee who is promoter
Employee who belongs to Promoter Group
Director who directly or indirectly holds more than 10% shares of the Company
OR
OR
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Constitution of Compensation Committee
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Important Provisions
Minimum vesting period of one year between the date of grant of option and
vesting of option.
The Company is free to specify any lock-in period for the shares issued pursuant
to exercise of option
Compliance with the Accounting Policies.
Obtain in principal approval from the stock exchange.
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The Board of Directors shall place the following documents at each
AGM:
• Directors’ report containing the specified details.
A certificate from the auditors of the company that the scheme has
been implemented in accordance with these guidelines and in
accordance with the resolution of the company in the general
meeting.
Important Provisions
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Calculation of Fair Market Value On the date of Vesting of Option
Calculation of Fair Market Value On the date of Vesting of Option
Listed CompanyListed Company Unlisted CompanyUnlisted Company
Stock Exchange means Recognized Stock Exchange where highest
trading volume has been recorded
Stock Exchange means Recognized Stock Exchange where highest
trading volume has been recorded
Listed on One Recognized Stock
Exchange
Listed on One Recognized Stock
Exchange
Date of Vesting of
Option
Date of Vesting of
Option
Any date earlier than, but not
more than 180 days earlier
than, the date of Vesting of
Option
Any date earlier than, but not
more than 180 days earlier
than, the date of Vesting of
OptionClosing price available on
last date preceding the date of vesting of option
Closing price available on last date preceding the
date of vesting of option
FMV shall be the value as determined by Category I
Merchant Banker
FMV shall be the value as determined by Category I
Merchant Banker
Listed on more than One Recognized Stock Exchange
Listed on more than One Recognized Stock Exchange
Average of Opening and Closing Price
on the date of Vesting of Option
Average of Opening and Closing Price
on the date of Vesting of Option
If price is not available on the date of vestingIf price is not available on the date of vesting
On Specified Date
On Specified Date
ESOS Valuation and Accounting
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Activity Time Line
CLAUSE 16
Notice for Book Closure/ Record DateIn case of Right issueIn case of Bonus IssueIn case of Dividend declaration
7 working days prior to Record Date
Compliance Under Listing Agreement
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CLAUSE 19(a),(d)
Board meeting notice for dividend, convertible debentures, buy-back, right issue
Declaration of dividend or cash bonus
2 working days prior to the date of Board meeting
5 days before the book closure or record date fixed for that purpose
CLAUSE 19(b)
Board meeting notice for bonus issue (No intimation to stock exchange is required if declaration of bonus is not part of agenda)
Simultaneously with the sending of notice to BODs
CLAUSE 22
Intimation regarding the outcome of Board meeting regarding increase in capital, reissue of forfeited shares, new issue, alteration of capital, calls to be made
Within 15 minutes of the conclusion of the Board meeting
Compliance Under Listing Agreement
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CLAUSE 31
Periodical Reports As soon as they are issued
Notices, resolutions, circulars regarding new issue of capital
Prior to their dispatch to the shareholders
Notices, circulars, call letters, annexures regarding s.391, 394
At the same time when they are sent to the concerned persons
Proceedings of AGM/EGM No time limit is given
Notices, circulars, proceeding regarding reconstruction or reduction of capital
No time limit is given
Compliance Under Listing Agreement
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CLAUSE 35
Share Holding Pattern Within 21 days of the end of each quarter
CLAUSE 38
Annual Listing Fees to the Stock exchange
Annual payment of Custodian Fees to the Depositories
On or before 30th April each year
CLAUSE 32
Submission of the Balance sheet and Profit and Loss account.
Supply a copy of the complete and full Balance Sheet, Profit and Loss Account and the Directors’ Report, to each Shareholder and upon application to any member of the
Exchange.
Compliance Under Listing Agreement
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CLAUSE 40 A
Minimum Level of Public Shareholding The company shall maintain on a continuous basis, public shareholding of at
least 25%/ 10% of the total number of issued shares of a class or kind as the case may be, for every such class or kind of its
shares which are listed.
CLAUSE 41
Financial Results Filing Within one month of the end of each quarter (other than last quarter)
Intimation of Board Meeting Atleast 7 clear days before Board meeting
Publication of financial results Within 48 hours of the conclusion of the Board Meeting at which financial results are
approved
Compliance Under Listing Agreement
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CLAUSE 49
Compliance report on corporate governance signed by CEO/Compliance officer
Within 15 days of the end of each quarter
Compliance Under Listing Agreement
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Advantages of Corporate Compliance
Easy Quantification of risk Establishing Risk appetite Identify and prioritize controls Multitude of Compliance obligations. Building Strong Foundations Extended Confidence to Investors Gaining Competitive Edge Good Compliance System leads to
Excellence in Operations
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Good Corporate governance
Reduces Risk
Higher Profits
Higher Valuation of Company
RESULT OF GOOD CORPORATE COMPLIANCE
MAKING YOUR COMPANY DIFFERENT & LEADING TOWARDS EXCELLENCE
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Happy Company
Happy Management
Happy Investors
Happy Customers
Happy Regulators
EXCELLENCE PAYS…
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The Conclusion is ………. Make Your Company GOOD
GOVERNED COMPANY
27.03.2010
Thank You
Pavan Kumar Vijay Managing Director
Corporate Professionals (India) Pvt. Ltd.D – 28, South Ext- I,New Delhi 1100049
Tel: +91.11.40622200,Fax: +91.11.40622201
Email: [email protected]
Visit us at:www.corporateprofessionals.com