insight vol. xiinsight (vol. xi l issue i) march 1, 2019 - june 30, 2019 03 amendments and circulars...

INSIGHT|Vol. XI Issue I

March 1, 2019 - June 30, 2019

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Welcome to this issue of Insight.

In this issue, as the lead article, we have analysed the recent discussion paper issued by the SEBI proposing amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 with a view to establish systems and processes (both within listed companies and at SEBI) that incentivise individuals to report insider trading violations, its implications for listed companies and potential roadblocks. We also discuss the decisions taken by the SEBI at its last board meeting including, inter alia, the proposed framework for differential voting rights shares and proposed amendments relating to pledge of shares by promoters.

Apart from the above, we have also captured the key notifications and orders issued by the Ministry of Corporate Affairs in relation to the Companies Act, 2013 as well as circulars and notifications issued by the RBI and SEBI for the period under review.

Any feedback and suggestions would be valuable in our pursuit to constantly improve Insight and ensure its continued success amongst readers. Please feel free to send any feedback, suggestions or comments to [email protected].

Regards,

CYRIL SHROFF Managing Partner Cyril Amarchand Mangaldas

Phone: +91-22-2496 4455/ 6660 4455 Fax: +91-22-2496 3666Email: [email protected]

INSIGHT (Vol. XI Issue I) lMarch 1, 2019 - June 30, 2019

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TABLE OF CONTENTS

PARTICULARS PAGE NO.

l Bounty hunting in corporate India – understanding SEBI’s latest discussion paper on the insider trading regulations

COMPANY LAW UPDATE

Amendments, Ordinances and Circulars

l Amendment to the Companies (Appointment and Qualification of Directors) Rules, 2014

l Amendment to the Companies (Acceptance of Deposits) Rules, 2014

l Amendment to the National Company Law Tribunal Rules, 2016

l Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014

l Amendment to Schedule VII of the Companies Act

l Amendment to the Companies (Incorporation) Rules, 2014

FOREIGN INVESTMENT AND RBI UPDATE

Amendments and Circulars

l Deferral of Implementation of Indian Accounting Standards

l Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations

l Revision of FPI investment limit in Government Securities for 2019-2020

l Establishment of a branch office or any other place of business in India by foreign entities

l Systemically Important Non-Deposit taking Investment and Credit Companies to be eligible for Authorized Dealer- Category II licence

l Amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017

l Appointment of Chief Risk Officer for NBFCs

l Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks - Sale of investments held under Held to Maturity category

l Annual Return on Foreign Liabilities and Assets Reporting by Indian Companies

SECURITIES LAW UPDATE

Informal Guidance

l Ability to issue ESOPs during buyback of securities

l Ability of SEBI Registered VCFs to invest unutilized investible funds in liquid mutual funds etc.

l Requirement to submit standalone financial results as per Regulation 52(1) of Listing Regulations

l Lock-in requirement in case of issuance of warrants through preferential allotment in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

l The nature of financial statements of the foreign subsidiaries to be uploaded on the website of the Indian listed holding company under Regulation 46 of the Listing Regulations

l Compliance with SEBI regulations by companies whose securities are listed on a recognized stock exchange not having a nationwide terminal

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Amendments and Circulars

l Review of Investment by FPIs in Debt Securities

l SEBI modifies the disclosure of significant beneficial ownership in the shareholding pattern

l SEBI prescribes framework for counter offers under the SEBI (Delisting of Equity Shares) Regulations, 2015

l Clarification on participation of Eligible Foreign Investors in Commodity Derivatives in IFSC

l SEBI amends the ICDR Regulations

l Investment in Municipal Bonds by FPIs

l SEBI amends the SEBI (Infrastructure Investment Trusts) Regulations, 2014

l SEBI amends the SEBI (Real Estate Investment Trusts) Regulations, 2014

l SEBI introduces guidelines for determination of allotment and trading lot size for REITs and InvITs

l Amendments to the SEBI (Mutual Funds) Regulations, 1996

l Amendment to the SEBI (Alternative Investment Funds) Regulations, 2012

l SEBI amends the SEBI (Debenture Trustees) Regulations, 1993

l SEBI amends the SEBI (Issue and Listing of Debt Securities) Regulations, 2008

l SEBI amends the Listing Regulations

l SEBI issues guidelines for enhanced disclosure in case of listed debt securities

Reports, Consultation Paper and Board Meetings

l SEBI consultation paper to amend the SEBI (Self-Regulatory Organizations) Regulations, 2004

l SEBI discussion paper on review of rights issue process

l SEBI discussion paper on review of buy-back of securities

l Report of the working group on the SEBI (Foreign Portfolio Investors) Regulations, 2014

l SEBI board meeting dated June 27, 2019

PARTICULARS PAGE NO.

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BOUNTY HUNTING IN CORPORATE INDIA – UNDERSTANDING SEBI'S LATEST DISCUSSION PAPER ON THE INSIDER TRADING REGULATIONS

Prosecuting insider trading cases has always been a challenge for the Securities Exchange Board of India (“SEBI”). Primary evidence is difficult to come by, which impacts success rates as well as investigation timelines.

On June 10, 2019, SEBI released a discussion paper (“Discussion Paper”) proposing amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Insider Trading Regulations”) to establish systems and processes (both within listed companies, as well as, at SEBI) that incentivise individuals to report insider trading violations, if they come to their knowledge. In terms of the Discussion Paper, the informant may be rewarded up to INR 1 crore (approx. USD 150,000) if SEBI undertakes disgorgement of at least INR 5 crores (approx. USD 0.72 million) as a result of any action taken on the basis of true, credible and original information.

The informant mechanism is proposed to be implemented through amendments to the Insider Trading Regulations. Some of its key features are as follows:

Ÿ Any individual who has knowledge or reasonable basis to believe that an insider trading violation has or is about to occur, whether through trading or communication, can voluntarily inform SEBI through the Voluntary Information Disclosure Form (“Form”). The informant must also provide the source of the information.

Ÿ The Discussion Paper also envisages submission of information anonymously, acting through a practising advocate. In such cases, the representative advocate would also have to adhere to certain obligations vis-à-vis the informant, such as verifying their identity and maintaining confidentiality.

Ÿ The Office of Informant Protection (“OIP”), would be set up as an independent wing (separate from SEBI's investigation and inspection wings), to act as the liaison with the informant. The OIP would be responsible for putting in place a policy for processing the Form, including a mechanism to assess the veracity of the information received. Once the information is processed by the OIP, it would be transferred to the relevant department, which would recommend suitable

enforcement action. Subsequently, the OIP would also make a decision regarding the grant of reward to the informant upon completion of the enforcement action by SEBI.

Ÿ Under the framework, the identity of the informant, as well as that of the information provided would be kept confidential by the OIP, including through any proceedings initiated by SEBI, except in cases where the informant's evidence is required to be relied on.

Ÿ Listed companies, intermediaries, etc., would be required to revise their internal codes to ensure that employees are not penalised merely on account of filing a Form or assisting SEBI.

Ÿ An amnesty scheme may also be offered to informants facing enforcement action, where they choose to co-operate with the regulatory investigation.

On the face of it, this Discussion Paper draws heavily from the US Security Exchange Commission's (“SEC”) whistle-blower protection framework, institutionalised under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and its three pillars of whistle-blower protection policy, viz., anonymity, bounties and job protection.

While the whistle-blower mechanism has been fairly successful in the US, replicating the model for the Indian market, though well-intentioned, may not be an automatic guarantee for success. Some of the concerns that could arise have been discussed below:

Ÿ At the outset, the Discussion Paper, as currently formulated, has potential for misuse as persons can file false and intentionally misleading complaints or simply result in tip-offs that prove to be red herrings; SEBI will need to demonstrate the tools at their disposal to prevent such misuse and remain discerning about the complaints.

Ÿ Deploying additional resources and time to establish a new division within SEBI that investigates the veracity of such complaints is not just logistically challenging, but also likely to make the main insider trading investigations even more protracted.

Ÿ The Discussion Paper cursorily states that frivolous and vexatious complaints would trigger regulatory action, but this will need more nuanced consideration. Insider trading, as SEBI itself acknowledges, is difficult to


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prove and conclusive evidence may not be available, even to an informant. Therefore, considerable thought needs to be given to the manner in which the bona fides of the informant should be established.

Ÿ Confidentiality of the complainant will be the fundamental measure of the success of such an initiative. The Discussion Paper states that the identity of the complainant remains anonymous unless their evidence needs to be relied on in proceedings. Such an exception may dilute the number of takers for this, especially in cases where the whistleblower is in a position to furnish primary evidence and hence is likely to be required for the enforcement process as well.

Ÿ Anonymous complaints can also be filed through lawyers who are charged with the responsibility of maintaining the confidentiality of the identity of the complainant. SEBI is, as yet, silent on the liability standards that legal advisors will be held to if such confidentiality is compromised, despite their best measures and efforts.

Ÿ In terms of the Discussion Paper, reporting to the internal compliance committee of a company is not considered for a reward. Given that the Insider Trading Regulations require listed companies to draft their whistle blower policy, SEBI may consider combining both. For example, if an employee were to report to the internal compliance committee of the company and within a prescribed time period, follow up with a SEBI complaint, then the individual should be able to avail of both protection and reward.

Bounty-hunting in the corporate world fosters a rather unique form of vigilantism; one that can benefit regulators and create greater awareness but also, simultaneously, clutter the regulator's attention with misleading or irrelevant issues. If and when this becomes law, SEBI will have to maintain a fine balance between encouraging proxy regulators within organisations and creating a more insti tutionalized, reward-based framework for whistleblowers. Also, if indeed implemented, SEBI must consider extending its application to fraudulent and unfair trade practices within companies as well. Many of the recent concerns surrounding governance practices and market conduct issues in Indian companies are, in theory, equally amenable to such a framework, given the similar set of constraints faced by SEBI in the course of investigations.

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COMPANY LAW UPDATE

1. Amendment to the Companies (Appointment and Qualification of Directors) Rules, 2014

The Ministry of Corporate Affairs (“MCA”) has, extended the deadline for filing of e-form DIR-3-KYC, by individuals who have been allotted a Director Identification Number (“DIN”). For those allotted a DIN as on March 31 of any financial year,

th ththe filing can now be made by 30 June (instead of 30 April) of the immediate next financial year.

(MCA Notification No. G.S.R. 339(E) dated April 30, 2019)

2. Amendment to the Companies (Acceptance of Deposits) Rules, 2014

The Companies (Acceptance of Deposits) Rules, 2014 has been amended to provide that every company (other than Government company) shall file a onetime return of outstanding receipt of money or loan by a company but not considered as deposits, in terms of Rule 2 (1)(c) from April 1, 2014 to March 31, 2019, in the specified form, within ninety days from March 31, 2019 along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.

(MCA Notification No. G.S.R. 341(E) dated April 30, 2019)

3. Amendment to the National Company Law Tribunal Rules, 2016

The MCA has amended the National Company Law Tribunal Rules, 2016, with effect from May 08, 2019, to provide the requisite number of persons for filing a class action under Section 245 of the Companies Act, 2013 (“Companies Act”):

Ø For a company having a share capital and in relation to a class action filed by members:

(A) the lower of: (i) at least 5% of the total number of members of the company; or (ii) 100 members of the company; or

(B) members holding not less than 5% in value of the issued share capital of an unlisted company or not less than 2% in value of the issued share capital of a listed company.

Ø For class action filing by depositors:

(A) the lower of (i) at least 5% of the total number of depositors of the company; or (ii) 100 depositors of the company; or

(B) depositor(s) to whom the company owes 5% of the total deposits of the company.

(MCA Notification No. G.S.R. 351(E) dated May 08, 2019)



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4. Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014

The MCA has amended the Companies (Prospectus and Allotment of Securities) Rules, 2014, with effect from September 30, 2019, to provide that:

Ø a new form PAS-6 regarding Reconciliation of Share Capital Audit Report has to be filed with the registrar, along with the prescribed fee, by every unlisted public company governed by Rule 9A, within 60 days from the conclusion of each half year.

Ø companies are obligated to bring to the notice of depositories, any difference observed in its issued capital and the capital held in dematerialised form.


5. Amendment to Schedule VII of the Companies Act

The MCA has amended Schedule VII of the Companies Act to include disaster management, including relief, rehabilitation and reconstruction activities as one of the activities which may be included by companies in their corporate social responsibility policies.


6. Amendment to the Companies (Incorporation) Rules, 2014

T h e M C A h a s a m e n d e d t h e C o m p a n i e s (Incorporation) Rules, 2014, with effect from May 10, 2019, to provide:

Ø matters which should be disregarded while comparing a name to the name of an existing company, for instance, plural or singular forms, differences in tenses, different phonetic spellings and so on;

Ø names which are undesirable; and

Ø words or expressions which can be used only after obtaining previous approval of the central government.

The MCA has further amended the Companies (Incorporation) Rules, 2014 via the Companies (Incorporation) Sixth Amendment Rules, 2019 which

shall be effective from August 15, 2019. The following changes have been made:

Ø Rule 19(1) has been amended to provide that a person or an association of persons desirous of incorporating a company with limited liability under Section 8(1) of the Companies Act, without the addition to its name of the word ‘Limited’, or ‘Private Limited’, shall make an application in Form INC-32 (SPICe) instead of the earlier Form No. INC-12.

Ø The words ‘draft memorandum’ have been replaced with ‘memorandum’ in Rule 19(3)(a) and Rule 19(3)(b). Consequently, the aforementioned application shall be accompanied by memorandum and articles of association. The application shall also be accompanied with a declaration by an advocate, a chartered accountant, cost accountant or company secretary in practice, that such memorandum and articles of association have been drawn up in conformity with the provisions of Section 8 of the Companies Act.

Ø Form INC 12 has been substituted to provide for application for grant of license to an existing company under Section 8.

(MCA Notification No. G.S.R. 357(E) dated May 10, 2019 and MCA Notification

No. G.S.R. 411(E) dated June 7, 2019, w.e.f August 15, 2019)

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FOREIGN INVESTMENT AND RBI UPDATE


1. Deferral of Implementation of Indian Accounting Standards

The Reserve Bank of India (“RBI”) has deferred the implementation of the Indian Accounting Standards (“Ind AS”) for banks till further notice, as the legislative amendments to the Banking Regulation Ac t , 1949 r ecommended by t he RBI fo r implementation are pending consideration of the Government of India.

(DBR. BP.BC. No. 29/21.07.001/2018-19 dated March 22, 2019)

2. Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations

In supersession of the Master Direction - External Commercial Borrowings, Trade Credit, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers dated January 1, 2016, RBI has issued the latest Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 ('Master Direction'). Key highlights of the Master Directions are as follows:

Ø The RBI has now merged foreign currency denominated External Commercial Borrowings (“ECB”) into a single track. Further, the RBI has also merged Track III (Rupee denominated ECB) and the

framework on Rupee denominated bonds (i.e. masala bonds) as ‘Rupee denominated ECB’. Earlier, the foreign currency denominated ECB could be availed under Track I and Track II, and the framework for ECBs and masala bonds were separate.

Ø The list of 'eligible borrowers' has been expanded to include all entities eligible to receive foreign direct investment (“FDI”). Further, port trusts, units in special economic zones, SIDBI, EXIM Bank, registered entities engaged in micro-finance activities, viz., registered not for profit companies, registered societies / trusts / cooperatives and non-Government organisations have been made eligible to avail ECB.

Ø Certain additions have been made to the list of eligible lenders, such as:

l Any resident of Financial Action Task Force or International Organization of Securities Commission compliant country can provide ECB to eligible Indian borrowers.

l Multilateral and regional financial institutions, where India is a member country, will be recognized lenders under the ECB Master Direction.

l Individuals as lenders can only be permitted if they are foreign equity holders or subscribers to bonds / debentures listed abroad.

l Foreign branches / subsidiaries of Indian banks continue to be recognized lenders for foreign


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3. Revision of FPI investment limit in Government Securities for 2019-2020

In terms of Schedule 5 of FEMA 20, FPIs are permitted to invest in Government securities(“G-Secs”), corporate bonds etc. subject to the terms and conditions specified by the SEBI and the RBI. The RBI has revised the limits of investment in some of the instruments as follows:

currency (“FCY”) denominated ECB (except foreign currency convertible bonds and foreign currency exchangeable bonds).

Ø ECB up to USD 750 million or its equivalent per financial year, irrespective of specified activities/ sector, can be raised under the automatic route, subject to conditions specified in the Master Direction.

Ø With respect to 'All in Cost' (“AIC”), the RBI has clarified that:

l Export Credit Agency charges and guarantee fees, whether paid in Rupees or FCY, will be included in AIC; and

l ECB proceeds cannot be used for payment of interest / charges.

Ø Form 83 (obtaining Loan Registration Number (“LRN”) by Indian borrowers) has now been done away with and has been replaced with Form ECB. Accordingly: (i) to obtain an LRN, borrowers are now required to submit duly certified Form ECB; and(ii) changes in ECB parameters, including reduced repayment by mutual agreement between the lender and borrower, is now required to be reported to RBI through revised Form ECB.

Ø Any entity recognized by the Central Government as a ‘start-up’ is allowed to raise ECB up to USD 3 million (approx. INR 21 crores) or equivalent per financial year.

(FED Master Direction No. 5/2018-19 dated March 26, 2019)

4. Establishment of a branch office or any other place of business in India by foreign entities

The RBI has updated the Master Direction on Establishment of Branch Office (“BO”)/Liaison Office (“LO”)/Project Office (“LO”) or any other place of business in India by foreign entities, to provide the following:

Ø For opening of a BO/LO/PO or any other place of business in India, where the principal business of the applicant falls in the Defence, Telecom, Private Security and Information and Broadcasting sector, no prior approval of the RBI shall be required, if Government approval or license/permission by the concerned Ministry/Regulator has already been granted.

Ø The term “permission” used above does not include general permission, if any, available for FDI in the automatic route, in respect of the above four sectors.

Ø In the case of a proposal for opening a PO relating to defence sector, no separate reference or approval of the Government of India shall be required if the said non-resident applicant has been awarded a contract by/entered into an agreement with the Ministry of the Defence or Service Headquarters or Defence Public Sector Undertakings.

(A .P. (DIR Series) Circular No. 27 dated March 28, 2019)

Revised Limits for FPI Investment in Debt - 2019-20(Rupees billion)

G-Sec-General

G-Sec-Long Term

SDL-General

SDL-Long Term

CorporateBonds

TotalDebt

CurrentLimit 2,233 923 381 71 2,891 6,499

RevisedLimit forthe HY Apr-Sep, 2019 2,347 1,037 497 71 3,031 6,983

RevisedLimit for the HY Oct 2019-March, 2020 2,461 1,151 612 71 3,170 7,465

(A .P. (DIR Series) Circular No. 26dated March 27, 2019)

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5. Systemically Important Non-Deposit taking Investment and Credit Companies to be eligible for Authorized Dealer- Category II licence

In order to increase the accessibility and efficiency of services extended to public for day-to-day non-trade current account transactions, the RBI has decided that Systemically Important Non-Deposit taking Investment and Credit Companies shall be eligible for Authorized Dealer-Category II licence, subject to meeting the following conditions:

Ø NBFCs offering such services shall have a ‘minimum investment grade rating’.

Ø Non-banking financial companies (“NBFCs”) offering such services shall put in place a board approved policy on (a) managing the risks, including currency risk, if any, and (b) handling customer grievances arising out of such activities. A monitoring mechanism, at least at monthly intervals, shall be put in place for such services.

(DNBR (PD) CC.No.098/03.10.001/2018-19 dated April 16, 2019)

6. Amendment to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017

The RBI has amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 (“FEMA 20”) to provide as follows:

Ø Foreign Portfolio Investors (“FPI”) are now permitted to invest in municipal bonds. Accordingly, 'municipal bonds' have been added to the list given in Para 1, sub-section A of Schedule 5.

Ø Municipal bonds have been defined in FEMA 20 to mean debt instruments issued by municipalities constituted under Article 243Q of the Constitution of India.

Ø FPI investment in municipal bonds shall be reckoned within the limits set for FPI investment in State Development Loans. �

� (A .P. (DIR Series) Circular No. 33 dated April 25, 2019 and Gazette No. G.S.R. 312(E) dated April 18,

2019)

7. Appointment of Chief Risk Officer for NBFCs

With the increasing role of NBFCs in direct credit intermediation, the RBI has mandated that NBFCs with asset size of more than Rs. 50 billion shall appoint a Chief Risk Officer (“CRO”) with clearly specified role and responsibilities. Detailed instructions regarding the CRO's appointment, tenure, independence and functioning have been specified, such as:

Ø The CRO shall be a senior official in the hierarchy of an NBFC, appointed for a fixed tenure with the approval of the Board.

Ø The CRO shall have direct reporting lines to the MD & CEO/risk management committee of the board. He shall not have any reporting relationship with the business verticals of the NBFC and shall not be given any business targets.

Ø The CRO shall be involved in the process of identification, measurement and mitigation of risks. All credit products (retail or wholesale) shall be vetted by the CRO from the angle of inherent and control risks.

(DNBR (PD) CC. No. 099/03.10.001/2018-19 dated May 16, 2019)

8. Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks - Sale of investments held under Held to Maturity category

The RBI Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks dated July 1, 2015 provides that if the value of sales and transfer of securities to/from Held To Maturity (“HTM”) category exceeds 5% of the book value of investments held in the HTM category at the beginning of the year, banks should disclose the market value of the investments held in the HTM category and indicate the excess of book value over market value for which provision is not made. The RBI has decided that apart from transactions already exempted from inclusion in such 5% cap, the repurchase of State Development Loans by the concerned state government shall also be exempted.

(DBR. No. BP.BC. 46/21.04.141/2018-19 dated June 10, 2019)

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9. Annual Return on Foreign Liabilities and Assets Reporting by Indian Companies

The RBI has replaced the present email-based reporting system for submission of the Foreign Liabilities and Assets return with the web-based system online reporting portal, with the objective to enhance the level of security in data submission and improve the data quality. RBI would provide a web-portal interface https://flair.rbi.org.in to the reporting entities for submitting ‘User Registration Form’. The form will seek investor-wise direct investment and other financial details on fiscal year basis, where all reporting entities are required to provide information on FATS related variables (it was mandatory only for subsidiary companies earlier).

Reporting entities will get system-generated acknowledgement receipt upon successful submission of the form.

Indian entities not complying with above will be treated as non-compliant with Foreign Exchange Management Act, 1999 and regulations made thereunder.

(A .P. (DIR Series) Circular No. 37 dated June 28, 2019)


SECURITIES LAWS UPDATES

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INFORMAL GUIDANCE

1. Ability to issue ESOPs during buyback of securities

Infosys Limited proposed to undertake buyback of its equity shares from its members. During the 'buy-back period', Infosys also proposed to issue stock options 'Grant Letters' granting employee stock option plans (“ESOPs”) to eligible employees pursuant to Infosys’ 2015 Incentive Compensation Plan (“Plan”).

Pursuant to the queries raised by Infosys, SEBI clarified that Infosys may issue Grant Letters granting ESOPs to eligible employees during the buyback period in accordance with the Plan. The stock options/conversion, however, would vest/happen only after the conclusion of the buyback offer. Further, minimum vesting period of one year, as provided under Regulation 18(1) of the SEBI (Share Based Employee Benefits) Regulations, 2014, would be computed from the date of grant letters.

(Informal Guidance SEBI/HO/CFD/DCR1/OW/P/2019/6489/1 dated March

12, 2019)

2. Ability of SEBI Registered VCFs to invest unutilized investible funds in liquid mutual funds etc.

JM Financial India Fund (“JM Fund”) is a SEBI registered venture capital fund (“VCF”), making investments in venture capital undertakings in

accordance with the SEBI (Venture Capital Funds) Regulations, 1996 (“SEBI VCF Regulations”). During the course of operations, JM Fund has unutilized funds lying in bank accounts.

Pursuant to the queries raised by JM Financial Limited, being the investment manager to the JM Fund, SEBI clarified that SEBI registered VCFs may invest unutilized funds of investible fund in units of liquid mutual funds or bank deposits or other liquid assets such as treasury bills, CBLOs, commercial papers etc. during the tenure of the fund specified in the private placement memorandum, subject to the following: (i) VCFs shall disclose such proposed transactions periodically to the investors; (ii) the provisions of Regulation 12 of the SEBI VCF Regulations shall remain applicable to all funds including investible and unutilized funds (when invested in liquid mutual funds etc.) at all times.

(Informal Guidance SEBI/HO/CFD/DCR1/OW/P/2019/0000002706/1 dated

January 28, 2019, published on May 2, 2019)

3. Requirement to submit standalone financial results as per Regulation 52(1) of Listing Regulations

Pursuant to this informal guidance, SEBI has clarified that for an entity which has listed only its debt securities, the requirement in Regulation 52(1) of the


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SEBI (Listing Obligations and Disclosure Requirement) Regulation, 2015 (“Listing Regulations”) is for submission of only standalone financial results.

(SEBI Informal Guidance SEBI/HO/DDHS/OW/P/2019/12856/1

dated May 22, 2019)

4. Lock-in requirement in case of issuance of warrants through preferential allotment in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

Pursuant to this informal guidance, SEBI has clarified that in case of issuance of convertible securities through preferential allotment under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, if the convertible securities are not listed, the entire pre-preferential holding of the allottee shall be locked-in from the relevant date up to six months from the date of allotment (in place of date of trading approval).

(SEBI Informal Guidance CFD/DIL/OW/2019/13729/1dated May 29, 2019)

5. The nature of financial statements of the foreign subsidiaries to be uploaded on the website of the Indian listed holding company under Regulation 46 of the Listing Regulations

Pursuant to this informal guidance, SEBI has clarified the following:

Ø In case of a foreign subsidiary which is statutorily required to prepare consolidated financial statements under any law of the country of its incorporation, the requirement under the Regulation 46 of the Listing Regulations will be met if such consolidated financial statements are placed on the website of the Indian listed holding company.

Ø In case of a foreign subsidiary which is not required to (and therefore does not) get its financial statement audited under any law of the country of incorporation, the requirement under the Regulation 46 of the Listing Regulations will be met if the unaudited financial statements are placed on the website of the Indian

listed holding company in accordance with Section 136(1) of the Companies Act.

Ø If the financial statements of foreign subsidiary are in a language other than English, a translated copy of such financial statement in English shall also be placed on the website.

(SEBI Informal GuidanceSEBI/CFD/CMD1/PR/OW/13689/1/2019

dated May 30, 2019)

6. Compliance with SEBI regulations by companies whose securities are listed on a recognized stock exchange not having a nationwide terminal.

Pursuant to this informal guidance, SEBI has clarified the following:

Ø If a listed company is proposing to raise funds by way of a preferential issue and/or a bonus issue, then it will have to comply with the provisions with respect to 'preferential issue' and 'bonus issue' laid down under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”) irrespective of the fact that its securities are listed on a recognized stock exchange not having a nationwide terminal.

Ø SEBI regulations such as the Listing Regulations and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) shall also be applicable to such companies.

(SEBI Informal Guidance SEBI/HO/CFD/DIL/OW/3679/2019

dated June 3, 2019)


AMENDMENTS AND CIRCULARS

1. Review of Investment by FPIs in Debt Securities

In order to encourage a wider spectrum of investors to access Indian corporate market, and pursuant to the RBI's circular A.P. (DIR Series) Circular No. 19 dated February 15, 2019, SEBI has withdrawn the provision in its circular CIR/IMD/CIR/P/2018/101, dated June 15, 2018, which mandated that no FPI shall have an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to related parties of corporate as defined under section 2(76)(viii) of Companies Act, 2013).

(SEBI Circular No. IMD/FPIC/CIR/P/2019/37 dated March 12, 2019)

2. SEBI modifies the disclosure of significant beneficial ownership in the shareholding pattern

SEBI vide circular dated March 12, 2019, modified the regime under the earlier circular dated December 7, 2018, by way of making changes to certain requirements pertaining to disclosure of significant beneficial ownership in the shareholding pattern of listed entities.

Ø The circular has come into force from June 30, 2019 onwards, and is applicable to companies which are ‘reporting companies’ as per the Companies (Significant Beneficial Owners) Rules, 2018 (“SBO Rules”). Further, the submissions under this circular shall be in line with the requirement of SBO Rules.

Ø The format for making disclosure has been modified to bring it in line with the revised format prescribed under the SBO Rules.

(SEBI Circular No. SEBI/HO/CFD/CMD1/CIR/P/2019/36 dated March 12,

2019)

3. SEBI prescribes framework for counter offers under the SEBI (Delisting of Equity Shares) Regulations, 2015

SEBI has stipulated timelines for counter offer process under the SEBI (Delisting of Equity Shares) Regulations, 2015 (“Delisting Regulations”), vide circular dated March 13, 2019:

Ø Public announcement (“PA”) of counter offer by promoter(s)/acquirer(s) through the stock exchange mechanism to be made within two working days from the date of closure of reverse book building (“RBB”) bidding process.

Ø Publication of counter offer PA in the same newspapers where original RBB PA to be made within four days from the date of closure of RBB bidding process.

Ø The shares tendered during the RBB process can be withdrawn within 10 working days from the date of the counter offer PA.

Ø The letter of offer for counter offer should be dispatched within four days from the date of closure of RBB bidding process.

Ø Opening of counter offer bidding process shall be done not later than seven working days from the date of PA.

Ø Counter offer bidding process to be open for five working days.

Ø PA of success/failure of counter offer in the same newspaper in which the PA was made to be done not later than five working days of the closing of the counter offer bidding process.

Ø Payment of consideration and return of equity shares to be not later than 10 working days from the closing of counter offer.

(SEBI Circular No. SEBI/HO/CFD/DCR2/CIR/P/2019/35 dated March 13,

2019)

4. Clarification on participation of Eligible Foreign Investors in Commodity Derivatives in IFSC

Further to circular IMD/HO/FPIC/CIR/P/ 2017/003 dated January 04, 2017 on Guidelines for participation/functioning of Eligible Foreign Investors (“EFIs”) and FPIs in International Financial Services Centre (“IFSC”), SEBI has now clarified that EFIs may participate in commodity derivatives contracts traded on stock exchanges in IFSC subject to the following conditions:


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Ø The participation would be limited to the derivatives contracts in non-agricultural commodities only.

Ø Contracts would be cash settled on the settlement price determined on overseas exchanges.

Ø All the transactions shall be denominated in foreign currency only.

(SEBI Circular No. SEBI/HO/MRD/DRMNP/CIR/P/2019/39, dated

March 18, 2019)

5. SEBI amends the ICDR Regulations

SEBI has amended the ICDR Regulations vide notifications dated March 29, 2018 and April 5, 2019. The key highlights of the amendment are as follows:

Ø In case of preferential issue, (i) SEBI has clarified that the term lenders referred to in Regulation 158(6)of the ICDR Regulations shall mean all scheduled commercial banks (excluding regional ruralbanks) and All India Financial Institutions, and(ii) Regulation 158(7) (which dealt with preferential issue of specified securities to persons at the time of lenders selling their holding of specified securities or enforcing change in ownership in favour of such persons pursuant to a debt restructuring scheme implemented in accordance with the guidelines specified by the RBI) has been omitted.

Ø The definition, along with reference in the ICDR Regulations, of 'institutional trading platform' has been replaced with 'innovators growth platform' (“IGP”). Additionally, the eligibility criteria for an issuer to list on the IGP has been substituted to provide that issuer which is intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition shall be eligible for listing on the IGP. Further at the date of filing of draft information document or draft offer document with SEBI, 25% of the pre issue capital of the issuer company for at least two years should have been held by qualified institutional buyers or family trusts with over Rs. 500 crore net worth or a Category III foreign portfolio investor or a pooled investment fund with minimum assets of USD 150 million (complying with

certain additional conditions) or an accredited investor. The requirement of minimum number of allottees in the initial public offer has been reduced from erstwhile 200 to 50. Further, the allotment to institutional investors as well as non-institutional investors shall be made on a proportionate basis. The minimum application size for an issue and minimum trading lot on the stock exchange, both have been reduced from erstwhile Rs. 10 lakh to Rs. 2 lakh and multiples thereof. It now requires the issuer companies to be in compliance with minimum public shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957, and required them to ensure that the minimum offer size be Rs. 100 million.

(SEBI Notifications No. SEBI/LAD-NRO/GN/2019/05 dated March 29, 2019 and SEBI/LAD- NRO/GN/2019/08 dated April 5, 2019)

6. Investment in Municipal Bonds by FPIs

Further to the RBI circular permitting FPIs to invest in municipal bonds, SEBI has now allowed FPIs to invest in municipal bonds in accordance with the provisions of Regulation 21(1)(p) of SEBI (Foreign Portfolio Investors) Regulations, 2014.

7. SEBI amends the SEBI (Infrastructure Investment Trusts) Regulations, 2014

SEBI has amended certain provisions of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) vide its notification dated April 22, 2019. The key highlights of the amendment are set out below. Additionally, subsequent to this amendment SEBI has also issued guidelines for determination of allotment and trading lot size for Infrastructure Investment Trusts (“InvITs”) vide circular no. SEBI/HO/DDHS/DDHS/CIR/P/2019/59 dated April 23, 2019.

Ø In the event an InvIT undertakes listing of its equity shares through a public issue of units, the minimum subscription from any investor in an initial and a follow-on offer has been reduced from Rs. 10 lakhs to Rs. one lakh.

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Ø The trading lot for units which are publicly offered units of an InvIT is currently 100 units which was previously Rs. 5 lakhs.

Ø The aggregate consolidated borrowings and deferred payments of the InvIT, holdco and the special purpose vehicles (“SPV(s)”) net of cash and cash equivalents, shall not exceed 70% of the value of the InvIT assets. The earlier limit stood at 49%.

Ø As per the new requirement, if the aggregate consolidated borrowings and deferred payments of the InvIT, holdco and the SPV(s) net of cash and cash equivalents exceeds 25% of the value of the InvIT assets, for any further borrowing,

o up to 49%, an InvIT shall obtain credit rating

from a credit rating agency registered with the SEBI; and obtain approval of at least 50% of unitholders, present and voting.

o above 49%, an InvIT shall obtain

· credit rating of “AAA” or equivalent for its consolidated borrowing and the proposed borrowing, from a credit rating agency registered with SEBI;

· utilize the funds only for acquisition or development of infrastructure projects;

· have a track record of at least six distributions on a continuous basis in accordance with the requirements of the InvIT Regulations, post listing, in the years preceding the financial year in which the enhanced borrowings are proposed to be availed;

· obtain the approval of 75% of the unitholders by value.

Ø The trustee and the investment manager of the InvIT shall apply for delisting of units of the InvIT to SEBI and the designated stock exchanges and such delisting of units shall be required to be approved by 60% of the unitholders present and voting.

Ø In the event the consolidated borrowings and deferred payments of a publicly offered InvIT is above 49% of the InvIT Assets, the valuation of the assets of such InvIT shall be conducted by the valuer for quarter

ending June, September and December, for incorporating any key changes in the previous quarter and such quarterly report shall be prepared within one month from the date of the end of such quarter. For publicly offered InvITs with consolidated borrowings and deferred payments below 49% of the InvIT assets, the valuation report shall only be prepared on a half-yearly basis. Further, there are certain additional quarterly reports required to be submitted to the designated stock exchange that have been prescribed in the event the consolidated borrowings and deferred payments of a publicly offered InvIT is above 49% of the InvIT Assets.

Ø The trustee and the investment manager of a privately placed and listed InvIT may consider applying to SEBI and the designated stock exchanges to delist the units of the InvIT in the event a privately placed and listed InvIT chooses to convert the InvIT to a privately placed unlisted InvIT. Such delisting of units of the InvIT shall be required to be approved by not less than 90% of the unit holders by value and an exit shall be provided to dissenting unitholders. In the event such units are delisted, the InvIT shall be permitted to retain its certificate of registration to undertake the activity of a privately placed and unlisted InvIT.

Ø A new chapter has been included in the InvIT Regulations which provides a framework for private placement of units of an InvIT which are not listed:

o An InvIT can raise funds by way of a private

placement (a) through a placement memorandum; (b) only from institutional investors and body corporates, subject to investment guidelines as may be specified by the RBI and the Government from time to time;(c) where the minimum investment by each investors shall be more than Rs. one crore;(d) where there are not more than 20 investors;(e) by filing placement memorandum with SEBI at least 5 days prior to opening of the issue and final placement memorandum with SEBI within 10 working days from the date of allotment of the units to the investors;

o An InvIT raising funds by way of a private

placement, the units of which are not listed shall invest not less than 80% of the value of the InvIT assets in eligible infrastructure projects either

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directly or through holdcos or through SPVs. Funds which are not invested shall be invested in the manner prescribed under the InvIT Regulations

o Such InvIT may undertake borrowing to the

extent permitted under the trust deed after obtaining approval of such number of unitholders as specified in the trust deed.

o The disclosures in the placement memorandum

shall be the same as required in case of publicly offered InvIT or a privately placed listed InvIT. The investment manager shall be responsible for all the activities pertaining to the units and shall ensure that the disclosure made in the placement memorandum contains true and adequate disclosure.

o The investment manager of a privately placed

unlisted InvIT shall also be required to submit quarterly, half-yearly and annual reports to the trustee and the unitholders.

o The investment manager shall disclose to the

trustee and unit holders any information having a bearing on operation or performance of the InvIT.

o The investment manger shall be responsible for

all activities pertaining to the issue of units including inter alia filing of placement memorandum with SEBI and the allotment of units. Further, the investment manager shall insure that the disclosures made in the placement memorandum are in accordance with applicable legal framework.

o The investment manager shall ensure that

(a) InvIT accounts are audited at least once a year with such report being submitted to the trustee and unitholders; and (b) investments made are in accordance with the applicable investment conditions and InvITs investment strategy.

o An InvIT which has issued units by way of private

placement which are not listed can (a) surrender the certificate to SEBI, upon acceptance of which it should cease to undertake activities of an InvIT, but said InvIT and parties to the InvIT will continue to be liable for their activities undertaken with respect to the InvIT; (b) list its

units on a recognised stock exchange, subject to it complying with the requirements specified for privately placed and listed InvIT under the applicable legal framework.

Separately, provisions in the InvIT Regulations in relation to change of control of the investment manager, investment conditions, listing and trading of units, delisting and winding of the InvIT, borrowings and deferred payments and disclosures required to be made by an InvIT are either separately provided for, or not applicable to, a privately placed and unlisted InvIT

(SEBI Notification No. SEBI/LAD- NRO/GN/2019/10 dated April 22, 2019)

8. SEBI amends the SEBI (Real Estate Investment Trusts) Regulations, 2014

SEBI has issued amendments to the SEBI (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”) vide notification dated April 22, 2019. The key highlights of the amendment are set out below. Additionally, pursuant to this amendment SEBI has also issued guidelines for determination of allotment and trading lot size for real estate investment trusts (“REIT”) vide circular no. SEBI/HO/DDHS/DDHS/CIR/P/2019/59 dated April 23, 2019.

Ø The minimum subscription from any investor in initial and follow-on offer has been reduced from Rs. 2 lakhs to Rs. 50,000 if the REIT raises funds by public issue.

Ø Trading lot for the purpose of trading of units on the designated stock exchange with respect to publicly offered units has now been changed to 100 units, from earlier requirement of Rs. one lakh.

(SEBI Notification No. SEBI/LAD- NRO/GN/2019/09 dated April 22, 2019)

9. SEBI introduces guidelines for determination of allotment and trading lot size for REITs and InvITs

SEBI has introduced guidelines for determination of allotment and trading lot size for publicly offered InvITs and REITs vide circular dated April 23, 2019, in subsequence to the notifications dated April 22, 2019 released for amendment of InvIT Regulations

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and REIT Regulations which inter alia reduced the minimum subscription requirement and defined the trading lot in terms of number of units. They key highlights of these guidelines are as follows:

Ø Determination of the allotment in an initial offer, by publicly offered InvITs/REITs, would require that allotment to any investor is done in the multiples of a lot, and the value of each allotment lot be less thanRs. one lakh for InvITs and Rs. 50 thousand for REITs, where such lot shall consist of 100 units.

Ø Determination of the allotment in a follow-on offer, by a publicly offered InvITs/REITs, would require that allotment to any investor is done in the multiples of a lot and the value of each allotment lot not be less than Rs. one lakh or InvITs and Rs. 50 thousand for REITs, where each lot shall consist of such number of units as in its trading lot.

Ø InvITs having aggregate consolidated borrowings and deferred payments above 49% will have to disclose additional line items including asset cover available, debt equity ratio, debt service coverage ratio, interest coverage ratio and net worth.

Ø The recognized stock exchanges shall, in consultation with the publicly offered InvIT/REIT whose units are listed, determine the number of units in the trading lot of such InvIT/REIT, within a period of six months from the date of this circular i.e., April 23, 2019.

(SEBI Circular No. SEBI/HO/DDHS/DDHS/CIR/P/2019/59 dated April

23, 2019)

10. Amendments to the SEBI (Mutual Funds) Regulations, 1996

SEBI has notified the SEBI (Mutual Funds) (Amendment) Regulations, 2019 providing, inter alia, as follows:

Ø A new definition of 'goods' has been inserted to mean “the goods notified by the Central Government under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 and forming the underlying of any commodity derivative”.

Ø A new proviso has been added to definition of mutual funds stating that mutual fund schemes investing in

exchange traded commodity derivatives may appoint a custodian to have custody of the underlying goods in case of physical settlement of such contracts. Same proviso has also been added to Regulation 26(1).

Ø New sub-clause (xiie) has been added to Regulation 52(4) providing that in case of schemes investing in exchange traded commodity derivatives, in addition to the fees mentioned in sub-regulation (2), the asset management company may charge the scheme with recurring expenses incurred towards storage and handling of the underlying goods, due to physical settlement of such contracts.�

(SEBI Notification No. SEBI/LAD-NRO/GN/2019/011 dated April 26, 2019, w.e.f April 26, 2019)

11. Amendments to SEBI (Alternative Investment Funds) Regulations, 2012

SEBI has amended the SEBI (Alternative Investment Funds) Regulations, 2012 as follows:

Ø The definition of ‘custodian’ and ‘goods’ has been added to Regulation 2. Accordingly:

“custodian” means a person who has been granted a certificate of registration to carry on the business of custodian under the Securities and Exchange Board of India (Custodian) Regulations, 1996.

“goods” means the goods notified by the Central Government under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 and forming the underlying of any commodity derivative.

Ø A new sub-clause has been added to Regulation 18 providing that Category III Alternative Investment Funds (“AIFs”) may deal in goods received in delivery against physical settlement of commodity derivatives.

Ø A proviso has been added to Regulation 20(2) providing that the custodian appointed by Category III AIF shall keep custody of securities and goods received in delivery against physical settlement of commodity derivatives.

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12. SEBI amends the SEBI (Debenture Trustees) Regulations, 1993

SEBI has issued amendments to the SEBI (Debenture Trustees) Regulations, 1993 (“Debenture Trustee Regulations”) vide notification dated May 7, 2019 in an effort to strengthen the regulatory framework around the debenture trustees (“DTs”). The key highlights of the said amendment are as follows:

Ø The capital adequacy requirement under Regulation 7A of the Debenture Trustee Regulations has been increased to Rs. 100 million (in place of 20 million). The DTs holding certificate of registration as on the date of commencement of the SEBI (Debenture Trustees) (Amendment) Regulations, 2019, shall fulfill the above requirement within three years from the date of commencement.

Ø In case DT calls for or causes to call by the body corporate a meeting of all the debenture holders as per Regulation 15(2) of the Debenture Trustee Regulations, pursuant to a proviso inserted after sub-clause (b), DTs may now seek the consent of debenture holders through e-voting, wherever applicable. Further, the requirement of convening a meeting of all debenture holders in case of a default in payment obligation by the issuer company will not be applicable in case of debentures issued by public issue.

(SEBI Notification No. SEBI/LAD-NRO/GN/2019/14 dated May 7, 2019)

13. SEBI amends the SEBI (Issue and Listing of Debt Securities) Regulations, 2008

SEBI has issued amendments to the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (“ILDS Regulations”) vide notification dated May 7, 2019 in an effort to strengthen the regulatory framework for DTs. The key highlights of the amendment are as follows:

Ø The issuer company of debt securities shall be liable to pay an interest of 2% per annum to the debenture holder over and above the agreed coupon rate, and without any prejudice to other legal liabilities under provisions of any law, till the date of execution of the trust deed if the said issuer company fails to execute

the trust deed within the time specified in Regulation 15(1) of the ILDS Regulations.

Ø The debenture trust deed should mandatorily contain a clause stipulating the aforementioned, and the same is to be disclosed in the offer document.

(SEBI Notification No. SEBI/LAD-NRO/GN/2019/13 dated May 7, 2019)

14. SEBI amends the Listing Regulations

SEBI, vide notification dated March 29, 2019, has amended the Listing Regulations to defer the implementation of Regulation 23(1A) concerning the payment relating to royalty and brand usage, to July 1, 2019 from erstwhile April 1, 2019. The said regulation provides that payments made to related parties towards brand usage or royalty be considered material if the transactions exceed 2% of the annual consolidated turnover of the listed entity during a financial year, and accordingly shareholders' approval be taken, with no related party having a vote to approve such resolutions. Further, SEBI in its board meeting dated June 27, 2019 has passed a proposal in relation to increasing the aforementioned 2% threshold.

Further, SEBI has issued amendments to Listing Regulations vide notification dated May 7, 2019 in an effort to strengthen the regulatory framework around the DTs. The key highlights of the said amendment are as follows:

Ø The entities which have their equity shares and debt securities listed on recognized stock exchange(s), should along with the stock exchange(s) also provide DTs with a copy of the financial results, on the same day the information is being submitted to stock exchanges.

Ø In terms of Regulation 52(4), the entities which have listed debt securities, while submitting half yearly / annual financial results, are required to disclose certain line items prescribed therein along with the financial results. Now, such entities are required to, within seven working days of submission of the abovementioned information to the stock exchanges, submit to the stock exchange(s) a certificate signed by DTs that it has taken note of the contents.

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(SEBI Notification No. SEBI/LAD-NRO/GN/2019/07 dated March 29, 2019 and SEBI Notification No.

SEBI/LAD-NRO/GN/2019/12 dated May 07, 2019)

15. SEBI issues guidelines for enhanced disclosure in case of listed debt securities

SEBI has issued guidelines for enhanced disclosure in case of listed debt securities, vide circular dated May 27, 2019. The key highlights of the circular are as follows:

Ø The DTs to disclose on their website, inter alia:

o the nature of compensation arrangements with its

clients, including the minimum fee.

o ISIN wise details of interest or redemption due to

the debenture holders in respect of all issues during a financial year within 5 working days of start of the financial year. DT to update the status of payment ISIN - wise against such issuers not later than 1 day from the due date.

Ø Issuer companies or registrar to an issue and transfer agent to furnish details of debenture holders to DTs at the time of allotment and thereafter every seventh working day of every next month.

Ø In privately placed issues, following key additional covenants to be included as part of the issue details in the summary term sheet as per the agreement between issuer and the investor:

o When there is a default in payment of the interest

and/or principal redemption on due dates, an additional interest rate of at least 2% per annum over the coupon rate shall be payable by the company for the period of default.

o When there is a delay in listing of the debt

securities beyond 20 days from the deemed date of allotment, the company shall be liable to pay penalty interest at least 1% per annum over the coupon rate from the expiry of 30 days from the deemed date of allotment till the time they are listed.

(SEBI Circular No. SEBI/HO/MIRSD/DOS3/CIR/P/2019/68 dated May

27, 2019)

REPORTS, CONSULTATION PAPERS AND SEBI BOARD MEETING

1. SEBI consultation paper to amend the SEBI (Self-Regulatory Organizations) Regulations, 2004

SEBI on April 1, 2019 has released a consultation paper, for the purpose of amending the SEBI (Self-Regulatory Organizations) Regulations, 2004. The amendments seek to simplify the process of recognizing SROs and to strengthen the role of SROs in the securities market. Some of the key changes sought to be introduced by the proposed amendments includes (a) amendment of the definition of self-regulatory organisation (“SRO”) to mean an organization of intermediaries or an entity promoted by a stock exchange, as may be recognized by SEBI; (b) constitution of a nomination committee comprising of external experts for giving recommendation to SEBI on suitability of an organisation / entity to be recognised as SRO;(c) constitution of a governing board which consists of elected representatives of SROs, SEBI nominated public interest directors and shareholders directors; (d) SRO to provide a dispute resolution mechanism including arbitration; (e) granting recognition on a permanent basis to SRO would be subject to it satisfactorily carrying out its role in compliance with regulations and mandates specified by SEBI.

(SEBI Consultation Paper on Self-Regulatory Organizations in Securities Market

dated April 1, 2019)

2. SEBI discussion paper on review of rights issue process

SEBI on May 21, 2019 released a discussion paper on review of rights issue process. These suggestions aim to reduce time between announcement of terms of issue and issue closing so as to reduce the pricing risk, and make the application and allotment process more efficient. Few key suggestions stipulated in the discussion paper are as follows:

Ø Reduction of the notice period for setting a record date from 7 working days to 3 working days.

Ø Removal of the requirement of publishing a newspaper advertisement confirming the completion of dispatch of the letter of offer and composite

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application forms to the company's shareholders. The issuer companies to intimate the stock exchanges before issue opening about the dispatch completion.

Ø Use of electronic modes of receiving entitlements, processing, payment and settlement in a rights issue. The measures include, inter alia, ASBA to be made mandatory for all investors as payment mode, whether shareholders, renouncers or renouncees.

(SEBI Discussion Paper on Review of Rights Issue Process dated May 21, 2019)

3. SEBI discussion paper on review of buy-back of securities

SEBI on May 22, 2019 has released a discussion paper on review of conditions for buy-back of securities to consider whether a different approach should be considered if the subsidiaries of a listed company proposing buy-backs are NBFCs housing finance companies (“HFCs”) and infrastructure companies. The Primary Markets Advisory Committee (“PMAC”) of SEBI has suggested the following approach with respect to meeting conditions for buy-back for companies having NBFCs and HFCs as subsidiaries:

Ø Post buy-back debt to capital and free reserves ratio of 2:1 (except for companies for which higher ratio of the debt to capital and free reserves for the company has been notified under the Companies Act) to be considered on consolidated basis, excluding subsidiaries only if the subsidiaries are regulated and have issuances with AAA ratings;

Ø Such subsidiaries to have debt to equity ratio of not more than 5:1 on standalone basis.

Ø The infrastructure companies are not separately regulated and have better use of money and therefore no such exclusion may be considered for infrastructure companies.

(SEBI Discussion Paper on Review of Buy-back of Securities dated May 22,

2019)

4. Report of the working group on the SEBI (Foreign Portfolio Investors) Regulations, 2014

SEBI has sought public comments on the report of working group on the SEBI (Foreign Portfolio Investors) Regulations, 2014 (“FPI Regulations”). The key recommendation proposed relate to, inter alia, fast track on-boarding process for select category II FPIs, simplified registration for multiple investment manager structures, pension fund to be considered for category I FPI registration, review of broad based condition for appropriately regulated entities, deemed broad based status for insurance/ re-insurance entities, entities majorly owned by investors eligible for category I FPI registration shall be deemed as category I FPI, simplified registration requirement for category III FPIs, removal of the definition of 'opaque structure', liberalized investment cap, liberalization for the regulated category III FPIs, and alignment between FPI and AIF routes.

(SEBI seeking public comments on the report of working group on FPI Regulations, dated May 24, 2019)

5. SEBI board meeting dated June 27, 2019

Differential voting rights (“DVRs”)

SEBI has approved a framework for issuance of differential voting rights shares together with amendments to the relevant regulations issued by SEBI to give effect to the framework.

Ø Eligible companies and voting rights: As per the approved framework, a company having superior voting rights shares may undertake an initial public offer of its ordinary shares, subject to, certain conditions. These include, inter alia, a tech companies (defined under Innovators Growth Platform) being permitted to issue shares with superior rights (“SR”), subject to the same being authorized by its shareholders by passing a special resolution at a general meeting. The shareholders of SR shares should form part of the promoter group whose collective net worth does not exceed Rs. 5,000 million. SR shares to be issued only to the promoters/founders who hold an executive position in the issuer company. SR shares should have been held for a period of at least 6 months prior to the filing of the

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red herring prospectus. SR shares to be at par with ordinary shares, except for voting rights. The SR shares to have voting rights of a minimum of 2 to one and maximum of 10 to one compared to ordinary shares.

The total voting rights of SR shareholders including ordinary shares, after listing to not exceed 74%.

Ø Enhanced corporate governance: At least half the board and two-third of committees (other than audit committee) as required under the Listing Regulations to comprise of independent directors and the audit committee to comprise of only independent directors.

Ø Coat-tail: SR shares to be treated as ordinary shares in terms of the voting rights for certain items which includes inter alia appointment or removal of independent directors or auditor, related party transactions in terms of the Listing Regulations involving SR shareholders, initiation of a voluntary resolution plan under the Insolvency and Bankruptcy Code, 2016, and changes in the articles and memorandum (other than changes affecting SR Shares).

Ø Holding period and lock-in: SR shares shall also be listed post the issuer company makes a public issue, but will remain locked-in until conversion to ordinary shares. Transfer amongst promoters or pledge/lien not permitted in relation to SR shares.

Ø Sunset Clauses: SR shares to convert to ordinary shares on the fifth anniversary of listing (extendable by a further five years, subject to conditions) or in the event of demise, resignation of SR shareholder or merger or acquisition where the control would no longer be with SR shareholder.

The issue of fractional rights shares by existing listed companies to not be allowed, and this decision may be reviewed after gaining enough experience with the use of SR shares.

Royalty and brand usage payments

SEBI has approved the revision in relation to the requirement of shareholders' approval if the payment made toward royalty and brand usage to related parties exceeds a specified threshold of the annual consolidated turnover of the listed entity during a

financial year. Further, the threshold has been revised from the existing 2% to 5% of the annual consolidated turnover.

Disclosure of Encumbrances

SEBI has approved the following proposals in relation to disclosure of encumbrances:

Ø The definition of 'encumbrance' under the Takeover Code, to include any restriction on the free and marketable title to shares (whether executed directly or indirectly), pledge, lien, non-disposal undertaking or any covenant, transaction, condition or arrangement in the nature of encumbrance (whether executed directly or indirectly).

Ø Detailed reasons for encumbrance to be disclosed to stock exchanges if combined encumbrance by promoters and persons acting in concert (“PAC”) exceeds 20% of the share capital or 50% of their shareholding in the listed entity, which would in turn be maintained by the stock exchanges on their website.

Ø Yearly declaration from the promoters to the audit committee of the company and the stock exchange that, except already disclosed, they or the PACs have not made any direct or indirect encumbrance during the financial year.

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LIST OF CONTRIBUTORS

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DISCLAIMER: This newsletter has been sent to you for informational purposes only and is intended merely to highlight issues. The information and/or observations contained in this newsletter do not constitute legal advice and should not be acted upon in any specific situation without appropriate legal advice.

The views expressed in this newsletter do not necessarily constitute the final opinion of Cyril Amarchand Mangaldas on the issues reported herein and should you have any queries in relation to any of the issues reported herein or on other areas of law, please feel free to contact us at the following co-ordinates:

CYRIL SHROFF Managing Partner [email protected]

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Cyril Amarchand Mangaldas

Peninsula Chambers, Peninsula Corporate Park, GK Marg, Lower Parel, Mumbai - 400 013 (India)

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insight vol. xiinsight (vol. xi l issue i) march 1, 2019 - june 30, 2019 03 amendments and circulars...

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