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INSIGHT|Vol. XI Issue II
July 01, 2019 – September 30, 2019
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Welcome to this issue of Insight.
In this issue of Insight, as lead articles, we have covered the circular issued by the Ministry of Corporate Affairs clarifying the concept of the appointed date of a scheme under Section 232(6) of the Companies Act, 2013, and also the key changes introduced by the Government of India to the Consolidated FDI Policy, 2017 by way of the press note 4 (2019 series) introducing further liberalization and clarification.
Apart from the above, we have also captured key developments relating to the 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 cam.publications@cyrilshroff.com.
Regards,
CYRIL SHROFF Managing Partner Cyril Amarchand Mangaldas
Phone: +91-22-2496 4455/ 6660 4455 Fax: +91-22-2496 3666Email: cyril.shroff@cyrilshroff.com
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TABLE OF CONTENTS
PARTICULARS
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l MCA clarification on “Appointed Date” - End of a Controversy
l Liberalisation of the FDI Policy
COMPANY LAW UPDATE
l Amendments to the Companies (Significant Beneficial Owners) Rules, 2018
l Commencement of certain provisions of the Companies (Amendment) Act, 2019
l Amendment to the Companies (Share Capital and Debentures) Rules, 2014
l Constitution of the Company Law Committee
FOREIGN INVESTMENT AND RBI UPDATE
l RBI eases end-use norms for external commercial borrowings by corporates, NBFCs
l RBI amends Foreign Exchange Management (Deposit) Regulations, 2016
l RBI releases draft Guidelines for 'on tap' Licensing of Small Finance Banks in the Private Sector
l RBI amends Frequently Asked Questions on Overseas Direct Investments in relation to round tripping
SECURITIES LAW UPDATE
Amendments and Circulars
l SEBI amends the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
l SEBI revises the formats for the corporate governance reports to be submitted by listed entities to the stock exchanges
l SEBI standardizes reporting of violations related to Code of Conduct under the SEBI (Prohibition of Insider Trading) Regulations, 2015
l SEBI revises the formats for limited review and audit reports of listed entities
l Amendment of Guidance Note on PIT Regulations
l SEBI amends the PIT Regulations
l SEBI amends regulations in relation to issuance of equity shares with superior voting rights
l SEBI amends the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
l Investment norms for AIFs operating in IFSC
l SEBI imposes penalties for non-compliance of certain provisions of the SEBI ICDR Regulations
l Payment of outstanding dues by listed entities before filing scheme of arrangement
l SEBI amends the SEBI Buy-Back Regulations
l Notification of the SEBI (Foreign Portfolio Investors) Regulations, 2019
Informal Guidance
l Exemption for a proposed merger of promoter group entities under Regulation 10(1)(d)(iii) of the SEBI (SAST) Regulations, 2011
l Exemption from submission of consolidated unaudited financial results under Regulation 33(3)(b) of the SEBI Listing Regulations
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INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
MCA CLARIFICATION ON “APPOINTED DATE” - END OF A CONTROVERSY
Introduction
On August 21, 2019, the Ministry of Corporate Affairs (“MCA”) issued a circular (“Circular”) which provided the much needed clarity on the issue surrounding the “appointed date” under Section 232(6) of the Companies
1Act, 2013 (“Act”) . Corporate India, or corporate lawyers at the very least, breathed a collective sigh of relief at this welcome clarification which significantly eases the pains felt during corporate re-organization and related accounting.
To appreciate the impact of the Circular, some background is warranted on the varied interpretations taken by regional directors (“RDs”) and jurisdictional National Company Law Tribunals (“NCLT”) on the appointed date and issues faced by the parties to the scheme on account of such interpretations.
In this issue of Insight, we have considered the genesis of the concept of the appointed date, the divergent interpretations being taken by the NCLTs and the benefits of the recent clarificatory circular issued by the MCA.
Background
Schemes of arrangement are corporate reorganizations that involve inter alia the transfer of assets and liabilities from one company to another. A scheme of arrangement often refers to an “appointed date”, an “effective date” and a “record date”. While the scheme comes into effect on the effective date (once the conditions specified in the scheme have been fulfilled), the scheme is deemed to have taken effect from the appointed date and the assets and liabilities of the transferor company are transferred in the books of the transferee company from that date. A record date is the date on which the shareholders of a transferor company are identified for the purposes of issuing securities of the transferee company, in accordance with the scheme.
Generally, the appointed date is fixed keeping in view the
1 Ministry of Corporate Affairs, Clarification under Section 232(6) of the Companies Act, 2013, dated August 21, 2019, available at http:// www.mca.gov.in/Ministry/pdf/GeneralCircular 21082019.pdf.
2 AIR 1997 SC 1763.3 For example, in Edelweiss Stock Broking Ltd, In Re., (2012) 109 CLA 30, (Gujarat High Court).4 Miheer H. Mafatlal v. Mafatlal Industries Limited, (1996) 87 Com Cases 792 (SC); Hindustan Lever Employees Union v. Hindustan Lever Ltd. (1995) 83 Com Cases 30; In Re Larsen & Toubro
(2004) 121 Comp Cas 523 (Bom.).
commercial objectives of the parties, ease of identifying the assets and liabilities or segregation of profits/losses, tax considerations and other factors.
In schemes involving related companies (such as holding and subsidiary/group companies), the parties usually identify an appointed date, which is specified in the scheme. However, in case of unrelated entities, since the two companies run as independent organizations until the scheme is effective (following the approval from the jurisdictional NCLT), and on account of the fact that the assets and liabilities are to be recorded as at the values appearing on the books as on the appointed date, parties sometimes specify that the appointed date shall be the effective date.
The Concept of “Appointed Date”
Under the Companies Act, 1956 (“1956 Act”), Sections 391-394 did not explicitly contain the concept of an appointed date. This concept received the blessing of the Supreme Court in Marshall Sons and Co. (India) v. Income
2Tax Officer , which held that every scheme shall provide for a date on which the scheme shall take effect and this date shall be the date of amalgamation/date of transfer. Companies were given the discretion to select the appointed date for the scheme. Such commercial decisions, which also had approval from the shareholders, were respected by the high courts and any objections regarding the appointed date were not held to be tenable and this was left to the commercial discretion of the
3parties . This principle has been upheld in various
4decisions of the high courts .
The concept of appointed date found legislative backing with the overhaul of the 1956 Act and the coming into effect of the Act which in Section 232(6) explicitly provides that a scheme under Section 232 shall indicate an “appointed date” from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date. However, the Act did not mandate that the appointed date of a scheme be a prospective date or a retrospective date, thus enabling the parties to fix the appointed date based on commercial rationale.
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In light of the language of Section 232(6) of the Act, certain RDs and consequently the NCLTs interpreted Section 232(6) to mean that the scheme shall provide for a specific calendar date as the appointed date in the scheme. The aforesaid interpretation became a cause for objection in schemes involving unrelated parties where the appointed date was linked to the effective date and the effectiveness of the scheme was linked to uncertain prospective events.
Following is a snapshot of the approach that had been followed by various NCLTs.
Ø “Appointed date” being linked to the “effective date”
In certain schemes, the effectiveness of the scheme was dependent on future uncertain events such as, regulatory approvals to be obtained from authorities. In these schemes, the appointed date was linked to the effective date rather than being a specific calendar date, which was approved by the jurisdictional High Courts/ NCLT.
(A) In the scheme of amalgamation involving Equitas Finance Limited (June 6, 2016), the Madras High Court held that the provisions of Section 394(1) of the 1956 Act provided enough freedom to a company to delay the date on which the scheme of arrangement shall take effect and tie the same to the occurrence of an event.
(B) In the scheme involving the amalgamation of Idea Cellular Limited, Vodafone India Limited and Vodafone Mobile Services Limited (December 2017), the NCLT Mumbai approved the appointed date of the scheme as theeffective date by observing that the scheme was subject to the approval of Department of Telecommunications (“DoT”) and it was not known when the DoT will approve the transfer of license consequent to sanction of merger by the NCLT. The NCLT observed that there is no legal impediment in accepting the tenability of provisions incorporated in the scheme relating appointed date to effective date.
(C) In the scheme involving Jaiprakash Associates Limited, Jaypee Cement Corporation Limited and UltraTech Cement Limited (February 15,
2017) and in the scheme involving SCIL Ventures Limited, Securities Analysis (India) Private Limited and Securities Research & Analysis Private Limited (August 9, 2017), the schemes defined the appointed date as the effective date, and were approved by the NCLT.
(D) In the scheme involving Tata Teleservices (Maharashtra) Limited and Bharti Airtel Limited (December, 2018), the scheme linked the appointed date to the effective date which was linked to approval from the DoT. The NCLT approved the scheme.
Ø “Appointed date” being linked to the valuation of assets and liabilities
Contrary to the above approach, the NCLT has, in certain cases insisted that the appointed date should be a specific calendar date which should be linked to the valuation of assets and liabilities of the transferor company.
(A) In the scheme involving East West Pipeline Limited and Pipeline Infrastructure Private Limited (September, 2018) (“Pipeline”), the NCLT noted that Section 232(6) of the Act stated that a scheme shall specify a clear calendar date as the appointed date in the scheme, instead of a date contingent on the NCLT approval. The order further specified that the appointed date shall be the date of the valuation of assets and liabilities of the companies (“Valuation Date”).
(B) In the scheme involving Century Textiles and Industries Limited and Ultratech Cement Limited (July, 2019), the NCLT followed the decision in Pipeline and stated the Valuation Date shall be the appointed date. It must be noted that in this scheme, the companies were willing to adopt a specific calendar date as the appointed date, however the NCLT insisted that the appointed date should be linked to the Valuation Date. The rationale behind these rulings appears to be that the assets to be transferred pursuant to the scheme should be valued on the cut-off date taken into consideration for the valuation, so as to ensure that the consideration payable is commensurate to the value of assets on such date.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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Implications
(A) Where the commercial intent of the parties is that the appointed date shall be the effective date of the scheme, but the NCLT directs the appointed date to be the Valuation Date, this would result in several implications in respect of the period between the Valuation Date and effective date (the “Interim Period”) which would be contrary to the commercial intent. For instance:
· The transferor company would be required to conduct its business between the appointed date and effective date in trust for the transferee company and the scheme may not have provided for this eventuality.
· The transferor company would face issues in dealing with its profits and declaring dividends during the Interim Period.
· The financial statements of the transferee company would need to account for the profits/ losses of the transferor company from the appointed date.
(B) As per Ind-AS 103 (Business Combinations), the “acquisition date” is the date on which the “acquirer obtains control of the acquiree”. Generally, this is the date on which the acquirer transfers the consideration and acquires the assets and liabilities of the acquiree. The acquirer may obtain control on a date that is either earlier or later than the date on which the transaction is closed or finalised at law. The date on which control passes from the transferor to the transferee is a matter of fact and cannot be artificially altered by the parties specifying a different date. Thus, even the Ind AS recognises that the appointed date can be a prospective effective date.
Key clarifications provided by the Circular
To bring the controversy surrounding the appointed date to rest and to ensure consistency in interpretation as also to encourage corporate reorganization and restructuring without the apprehension of unnecessary ambiguity, the MCA's Circular is helpful.
The Circular allows companies to choose an appointed date which could be a specific calendar date or a date that is linked to occurrence of agreed events such as receipt of required approvals which are relevant to the scheme. The Circular further clarifies the following:
Ø The 'appointed date' identified under the scheme shall also be deemed to be the 'acquisition date' and date of transfer of control for the purpose of conforming to accounting standards, Ind-AS 103.
Ø Where the 'appointed date' is chosen as a specific calendar date, it may precede the date of filing of the application for scheme of merger/amalgamation in the NCLT. However, if the 'appointed date' is significantly ante-dated beyond a year from the date of filing, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest. As a note of caution, in schemes under Section 392 of the 1956 Act, in which the 'appointed date' was significantly ante-dated, the Income Tax department frequently raised objections alleging the scheme being against public interest. It may be possible that the Income Tax department continues to object to the schemes where the 'appointed date' has been significantly ante-dated.
Ø The scheme may identify the 'appointed date' based on the occurrence of a trigger event which is key to the proposed scheme and agreed upon by the parties to the scheme. This event would have to be indicated in the scheme itself upon occurrence of which the scheme would become effective. However in case of such event based date being a date subsequent to the date of filing the order with the Registrar under section 232(5), the company shall file an intimation of the same within 30 days of such scheme coming into force.
Conclusion
The Circular is a welcome move by the MCA and puts an end to the ambiguity and controversy surrounding the appointed date and arbitrary interpretations taken by the RDs and the NCLTs in relation to the same. The Circular restores the construct that the appointed date can be linked to a date where the agreed conditions in relation to effectiveness of a scheme are completed, based on commercial considerations. This is in parity with the erstwhile position taken by the high courts, which have refrained from interfering with the commercial wisdom of the parties to schemes, their shareholders and creditors. The Circular also provides due clarity on the accounting treatment of schemes.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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LIBERALISATION OF THE FDI POLICY
With the aim to liberalize and simplify the FDI policy to provide ease of doing business in India, the Union Cabinet, through its Press Release dated August 28, 2019, approved certain amendments to the Consolidated FDI Policy 2017 (“FDI Policy”). The press release was followed by Press Note 4 (2019 Series) dated September 18, 2019.
The key changes are as follows:
Ø Coal Mining
The FDI Policy permitted 100% FDI under automatic route for coal and lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities. Further, 100% FDI under automatic route was also permitted for setting up coal processing plants, subject to certain conditions.
It has been now decided to permit 100% FDIunder automatic route for sale of coal and for coal mining activities including associated processing infrastructure, which would include coal washery, crushing, coal handling, and separation (magnetic and non-magnetic), subject to sectoral laws.
Ø Contract Manufacturing
The FDI Policy provided for 100% FDI under automatic route in the manufacturing sector, with no specific provision for contract manufacturing. It has now been decided to allow 100% FDI under automatic route in contract manufacturing as well.
Ø Single Brand Retail Trading (“SBRT”)
(a) The FDI Policy provided that SBRT entities having FDI beyond 51% must procure 30% of the value of the goods from India. Further, as regards local sourcing requirement, it was provided that the same can be met as an average during the first 5 years, and thereafter annually towards its India operations.
It has now been decided that all procurements made from India by the SBRT entity for that single brand shall be counted towards local
sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only has been removed.
(b) The FDI Policy also provided that incremental sourcing for global operations by the non-resident entities undertaking single brand retail trading, either directly or through their group companies, will also be counted towards local sourcing requirement for the first 5 years. In order to accommodate the practices of the prevalent business models, it has been decided that 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.
(c) The FDI Policy provided that only incremental sourcing (over and above previous year's value) for global operations shall be counted towards local sourcing requirement. It has now been decided that the entire sourcing from India for global operations shall be considered towards local sourcing requirement (and not the incremental value alone).
(d) The FDI Policy required that SBRT entities operate through brick and mortar stores before starting retail trading of that brand throughe-commerce. It has now been decided that retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of the commencement of online retail.
Ø Digital Media
The FDI Policy provides for 49% FDI under approval route in up-linking of news & current affairs TV channels. It has been decided to permit 26% FDI under government route for uploading/ streaming of news & current affairs through digital media, on the lines of print media.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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COMPANY LAW UPDATE
1. Amendments to the Companies (Significant Beneficial Owners) Rules, 2018
The MCA has amended the Companies (Significant Beneficial Owners) Rules, 2018 to provide for a new Form No. BEN-2 for filing return of significant beneficial owners to the Registrar under Section 90 of the Act.
(MCA Notification No. G.S.R. 466(E) dated July 01, 2019)
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
2. Commencement of certain provisions of the Companies (Amendment) Act, 2019
The MCA has appointed August 15, 2019 as the date on which, inter alia, the following provisions of the Companies (Amendment) Act, 2019 shall come into force:
Section the Companies Amendments to the Act(Amendment) Act, 2019
Section 7 Sub-section (1A) has been inserted in Section 29 (Public Offer of Securities to be in Dematerialised Form) to state that in a case the shares are issued by a company belonging to other class or classes of unlisted companies, as may be prescribed, then the securities shall be held or transferred only in a dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.
The phrase “public” has also been omitted from sub-section (1), in clause (b) of Section 29.
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(MCA Notification S.O 2947 (E) dated August 14, 2019)
Section the Companies Amendments to the Act(Amendment) Act, 2019
Clause (i) of section 14 In Section 90 (Register of significant beneficial owners in a company), sub-section (4A) has been added to impose an obligation on the company to take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require such individual to comply with the provisions of the section.
Section 33 Section 241 (Application to Tribunal for relief in cases of oppression, etc.) has been amended for inter alia the following:
Ø A new sub-section (3) has been inserted to provide powers to the Central Government to initiate a case against a person in certain cases and refer the same to the NCLT with a request that the NCLT may inquire into the case and record a decision.
Ø Sub-section (5) has been inserted providing that every application under sub-section (3): (a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and (b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908.
Section 35 Ø Sub-section (1A) has been inserted in Section 243 (Consequence of termination or modification of certain agreements) to state that the person who is not a fit and proper person (as determined by the NCLT) shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company for a period of 5 years from the date of the said decision. However, the Central Government may, with the leave of the NCLT, permit such person to hold any such office before the expiry of the said period of 5 years.
Ø A new sub-section (1B) has also been inserted which provides that, notwithstanding anything contained in the Act, or any contract, memorandum or articles, on the removal of such a person from office of a director or any other office connected with management of affairs of the company, such a person shall not be entitled to or be paid, any compensation for the loss or termination of office.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
3. Amendment to the Companies (Share Capital and Debentures) Rules, 2014
The MCA has amended the Companies (Share Capital and Debentures) Rules, 2014. The key amendments are as follows:
Ø Rule 4(1)(c) has been substituted to enhance the previously existing cap of 26% of the total post issue paid up equity share capital to a revised cap of 74% of total voting power in respect of shares with differential voting rights of a company.
Ø Rule 4(1)(d) has been omitted to remove the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with differential voting rights.
Ø The proviso to Rule 12(1) has been amended to increase the time period within which employee stock options can be issued by start-ups recognized by the Department for Promotion of Industry & Internal Trade to promoters or directors holding more than 10% of equity shares, from 5 years to 10 years from the date of their incorporation.
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Ø Rule 18(7) has been substituted, which provides for the conditions for creating Debenture Redemption Reserve.
(MCA Notification G.S.R 574 (E) dated August 16, 2019)
4. Constitution of the Company Law Committee
The MCA has decided to constitute a CompanyLaw Committee for examining and making r e c o m m e n d a t i o n s t o t h e G o v e r n m e n t o nvarious provisions and issues pertaining to implementation of the Act and the Limited Liability Partnership Act, 2008 (“LLP Act”). The terms of reference of the Committee would be as follows:-
Ø Analyze the nature of the offences and submit its recommendation as to whether any of the offences could be re-categorized as 'civil wrongs'.
Ø Examine the feasibility of introducing settlement mechanism, deferred prosecution agreement, etc., within the fold of the Act.
Ø Study the existing framework under the LLP Act and suggest measures to plug the gaps, if any.
Ø Propose measures to further de-clog and improve the functioning of the NCLTs.
Ø Suggest measures for removing any bottlenecks in the overall functioning of the statutory bodies like SFIO, IEPFA, NFRA, etc. under the Act.
Ø Identify specific provisions under the Act and the LLP Act which are required to be amended to bring about greater Ease of Living for the corporate stakeholders, including but not restricted to review of forms under the two acts.
(MCA Notification F. No. 2/1/2018-CL-V dated September 18, 2019)
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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FOREIGN INVESTMENT AND RBI UPDATE
1. RBI eases end-use norms for external commercial borrowings (“ECBs”) by corporates, NBFCs
Pursuant to the feedback from stakeholders and with a view to further liberalise the ECB framework, RBI has relaxed the end-use restrictions of ECBs by permitting the eligible borrowers to raise ECBs for the following purposes from recognised lenders, except foreign branches/overseas subsidiaries of Indian banks, subject to paragraph 2.2 of the ECB Directions:
Ø ECBs can be raised with a minimum average maturity period of 10 years for working capital purposes and general corporate purposes. Borrowing by NBFCs for the above mentioned maturity for on lending for the above purposes shall also be permitted.
Ø ECBs with a minimum average maturity period of 7 years could be availed by eligible borrowers for repayment of Rupee loans availed domestically for capital expenditure as also by NBFCs for on-lending for the same purpose. For repayment of Rupee loans availed domestically for purposes other than capital expenditure and for on-lending by NBFCs for the same, the minimum average maturity period of the ECB is required to be 10 years.
Ø The prescribed minimum average maturity provision for the aforesaid end-uses shall have to be strictly complied with under all circumstances.
(RBI/2019-20/20 AP. (DIR Series) Circular No. 04, dated July 30, 2019)
2. RBI amends Foreign Exchange Management (Deposit) Regulations, 2016 (“FEMA 5(R) ”)
Regulation 6(3) of FEMA 5(R) provided for acceptance of deposits by a Company through issue of Commercial Paper (“CP”). To bring about consistency in statutory provisions/regulations relating to CPs contained in Section 45 U(b) of RBI Act, 1934, Section 2(c) of Companies (Acceptance of Deposits), Rules 2014, which already allows investments in CPs issued by the Indian Companies, Regulation 6(3) of FEMA 5(R) has been deleted.
(RBI Circular No. 06, dated August 16, 2019)
3. RBI releases draft Guidelines for 'on tap' Licensing of Small Finance Banks (“SFBs”) in the Private Sector
RBI has released draft guidelines for 'on tap' L icens ing o f SFBs in the Pr iva te Sec to r (“Guidelines”). The highlights of the Guidelines are as follows:
Ø Registration, licensing and regulations: The SFB shall be registered as a public limited company under the Act and shall be licensed under Section 22 of the Banking Regulation Act, 1949.
Ø Eligibility: The following are eligible for setting up SFBs:
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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· Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level.
· Companies and societies in the private sector, that are owned and controlled by residents (as defined in FEMA regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of 5 years.
· Existing NBFCs, Micro Finance Institutions (“MFIs”), and Local Area Banks (“LABs”) in the private sector, that are controlled by residents (as defined in FEMA regulations), and having successful track record of running their businesses for at least a period of 5 years.
Ø Scope of activities: The SFB shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. It could also undertake other non-risk sharing simple financial services activities, not requiring any commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc. with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products.
Ø Capital requirement and foreign shareholding: The minimum paid-up voting equity capital for SFBs shall be Rs. 200 crore, except for such small finance banks which are converted from primary (urban) co-operative banks for which the capital requirement shall be as prescribed. The foreign shareholding in the SFB shall be as per the extant FDI Policy for private sector banks and as prescribed in these guidelines.
Ø Other conditions:
· A promoter shall not be granted licenses for both universal bank and SFB even if the proposal is to set them up under the (“NOFHC”) structure. If a
promoter of a payments bank desires to set up an SFB, both the banks should be under the NOFHC structure.
· If an existing payments bank desires to convert into an SFB, it could submit its application, if it meets the eligibility criteria mentioned in these guidelines.
· Individuals (including relatives) and entities other than the promoters shall not be permitted to have shareholding in excess of 10% of the paid-up voting equity capital of the bank. In case of existing NBFCs / MFIs / LABs converting into SFB, where there is shareholding in excess of 10% of the paid-up voting equity capital by entities other than the promoters (including private equity funds), RBI may consider providing time up to 3 years from the date of the 'in principle' approval for the shareholding to be brought down to a maximum of 10%.
· The SFB shall not be a Business Correspondent (“BC”) for another bank. However, it can have its own BC network.
(Draft guidelines dated September 13, 2019)
4. RBI amends Frequently Asked Questions (“FAQs”) on Overseas Direct Investments (“ODI”) in relation to round tripping
Earlier, the RBI FAQs on ODI provided that an Indian P a r t y ( “ I P ” ) c a n n o t s e t u p a s t e p - d o w n subsidiary/joint venture in India through its foreign entity, directly or indirectly through step-down subsidiary of the foreign entity. The RBI has amended this FAQ and now provides that for such transactions, IPs can approach the Reserve Bank for prior approval through their Authorised Dealer Banks which will be considered on a case to case basis, depending on the merits of the case.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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SECURITIES LAW UPDATE
AMENDMENTS AND CIRCULARS
1. SEBI amends the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015
(“SEBI Listing Regulations”)
Securities and Exchange Board of India (“SEBI”) has
notified the SEBI (Listing Obligations and Disclosure
Requirements) (Third Amendment) Regulations,
2019 to increase the materiality threshold for a related
party transaction, involving payments made to a
related party with respect to brand usage or royalty,
from 2% of the annual consolidated turnover of the
listed entity as per its last audited financial statements,
to 5%.
(SEBI Notification No. SEBI/LAD-NRO/GN/2019/22
dated June 27, 2019)
2. SEBI revises the formats for the corporate
governance reports to be submitted by listed
entities to the stock exchanges
SEBI had previously issued a circular bearing
reference number CIR/CFD/CMD/5/2015 dated
September 24, 2015 (“September Circular”),
prescribing formats for compliance reports on
corporate governance to be submitted by listed
entities. Pursuant to the recommendations made by
the Kotak Committee on Corporate Governance,
SEBI amended the SEBI Listing Regulations through
n o t i fi c a t i o n b e a r i n g n u m b e r S E B I / L A D -
NRO/GN/2018/10 dated May 9, 2018. Accordingly,
to align the formats of the corporate governance
reports with the amendments, SEBI has issued this
circular with effect from September 30, 2019,
modifying the relevant formats prescribed under the
September Circular, to the extent applicable.
(SEBI Circular No.
SEBI/HO/CFD/CMD1/CIR/P/2019/78
dated July 16, 2019)
3. SEBI standardizes reporting of violations related
to Code of Conduct under the SEBI (Prohibition of
Insider Trading) Regulations, 2015 (“PIT
Regulations”)
Under the PIT Regulations all listed firms,
intermediaries and fiduciaries are required to
formulate a code of conduct for designated persons as
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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well as for their relatives and inform the regulator
about any such violation.
With an objective to standardize the process relating
to dealing with violations of the Code of Conduct,
SEBI has directed all listed companies, intermediaries
and fiduciaries to:
Ø Report such violations by the designated persons and
immediate relatives of designated persons in the
standardized format to SEBI, in the format provided in
the Circular.
Ø Maintain a database of the violation of code of
conduct by designated persons and immediate
relatives of designated persons that would entail
initiation of appropriate action against them.
(SEBI Circular no. SEBI/HO/ISD/CIR/P/201982
dated July 19, 2019)
4. SEBI revises the formats for limited review and
audit reports of listed entities
SEBI has previously issued a circular bearing
reference number CIR/CFD/CMD1/44/2019 dated
March 29, 2019 (“March Circular”) prescribing
formats for limited review reports and audit reports of
listed entities and entities whose accounts are
consolidated with the listed entities as per Accounting
Standard 21. In order to align the formats of the audit
reports with the revised SA 700 and incorporate the
updates suggested by ICAI, SEBI has issued this
circular with effect from September 30, 2019
modifying relevant formats prescribed under the
March Circular, to the extent applicable.
(SEBI Circular No. CIR/CFD/CMD1/80/2019 dated July 19, 2019)
5. Amendment of Guidance Note on PIT Regulations
SEBI has revised the Guidance Note on PIT Regulations on July 05, 2019, which provides for the following:
Ø Maintaining structured digital database- Requirement to maintain structured digital database under
Regulation 3(5), containing the names of such persons or entities with whom Unpublished Price Sensitive Information (“UPSI”) is shared, is applicable to listed companies, and intermediaries and fiduciaries who handle UPSI of a listed company in the course of business operations.
Ø Scope of the term 'investment company' under Regulation 9(4)(iii) - Regulation 9(4)(iii) intends to include only those non-individual corporate promoters of intermediaries or fiduciaries as designated person, whose main object or principal activity, is investing in securities of other companies. For instance, if the promoter of a broking entity is a bank, then such promoter shall not be specified as designated person to be covered by the code of conduct of the intermediary. However, if the promoter of a broking entity is an investment company which holds investments in various companies, then such an entity shall be specified as designated person to be covered by the code of conduct of the intermediary.
(Press Release No. 17/2019 dated July 22, 2019)
6. SEBI amends the PIT Regulations
SEBI has amended the PIT Regulations to inter alia
provide the following:
Ø The system of internal controls shall include all
employees who have access to UPSI and such
employees shall be identified as designated person.
Ø The trading window restrictions will not apply in
respect of:
· The transaction which is an off-market inter-se
transfer between insiders (as per Regulation
4(1)(I) of the PIT Regulations).
· The transaction which was carried out through
the block deal window mechanism (as per
Regulation 4(1)(ii) of the PIT Regulations).
· The transaction carried out pursuant to a statutory
or regulatory obligation to carry out a bona fide
transaction (as per Regulation 4(1)(iii) of the PIT
Regulations).
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
14
· The transaction undertaken pursuant to the
exercise of stock options (as per Regulation
4(1)(iv) of the PIT Regulations).
· The trades pursuant to a trading plan set up in
accordance with Regulation 5 (as per Regulation
4(1)(vi) of the PIT Regulations).
· A pledge of shares for a bonafide purpose such as
raising of funds, subject to pre-clearance by the
compliance officer and compliance with the
respective regulations made by SEBI.
· Transactions which are undertaken in accordance
with respective regulations made by SEBI such as
acquisition by conversion of warrants or
debentures, subscribing to rights issue, further
public issue, preferential allotment or tendering
of shares in a buy-back offer, open offer, delisting
offer.
Ø Introduction of provisions relating to informant
mechanism, which shall come into force with effect th
from 100 day from September 17, 2019, which inter
alia include-
· Submission of original information by the
informant by furnishing the voluntary
information disclosure form to the office of
informant protection of SEBI in the prescribed
format.
· On receipt of the voluntary information
disclosure form, the office of informant
protection shall communicate the substance of
the information along with the evidence
submitted by the informant to the relevant
department or division of SEBI for examination
and initiation of necessary action, if any.
· Upon collection or substantial recovery of the
monetary sanctions amounting to at least twice
the reward, SEBI may at its sole discretion,
declare an informant eligible for reward and
advice the informant or his or her legal
representative to file an application for claiming
such reward. Provided that, the amount of
Reward shall be 10% of the monetary sanctions
collected or recovered and shall not exceed
Rupees one crore or such higher amount may be
specified.
· Any information including original information
may, at the discretion of SEBI, be made available
when it is required to be disclosed in connection
with any legal proceedings in furtherance of
SEBI's legal position;
(i) as permitted by the PIT Regulations; or
(ii) as may be otherwise required or permitted by
law.
· No amnesty or immunity shall be provided to an
informant for violation of securities law.
(SEBI Circular No. SEBI/LAD-NRO/GN/2019/23
dated July 25, 2019 w.e.f. July 25, 2019;
and No. SEBI/LAD-NRO/GN/2019/32.
Dated September 17,2019)
7. SEBI amends regulations in relation to issuance of
equity shares with superior voting rights
SEBI, pursuant to its decision in the board meeting on
June 27 , 2019 , app roved t he f r amework
(“Framework”) relating to issuance of equity shares
with superior voting rights (“SR Shares”). In
furtherance of the above, SEBI has:
Ø Notified the SEBI (Issue of Capital and Disclosure
Requirements) (Third Amendment) Regulations,
2019, thereby permitting companies having issued SR
Shares to its promoters/founders to undertake an
initial public offering of their ordinary equity shares.
Some of the key highlights are as follows:
· Certain additional eligibility conditions have
been prescribed for companies with SR Shares
undertaking an IPO, including (i) the issuer
company should be a tech company (as defined
therein), (ii) SR Shares shall have voting rights in
the ratio of a minimum of 2:1 up to a maximum of
10:1 compared to ordinary equity shares. The
ratio shall be in whole numbers, (iii) Holders of
SR Shares (“SR Shareholders”) shall not be part
of a promoter group whose collective net worth is
more than INR 500 crores, and SR Shares shall
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
15
only be issued to promoters or founders who hold
an executive position in the issuer company, (iv)
the issue of SR Shares is be authorized by a
special resolution passed at a general meeting of
the shareholders of the issuer company, and (v)
SR Shares shall have the same face value as
ordinary equity shares and shall be held by the
holders for at least 6 months prior to the filing of
the red herring prospectus.
· SR Shares held by promoters will be eligible for
the minimum promoter contribution under
Regulations 14 and Regulation 113 of the SEBI
(Issue of Capital and Disclosure Requirements)
Regulations, 2018 (“SEBI ICDR Regulations”).
Further, the SR Shares shall be locked-in for a
period of 3 years from the date of commencement
of commercial operations or date of allotment,
(whichever is later) or up to their conversion into
ordinary equity shares, whichever is later.
· SR Shares held by promoters cannot be pledged
as collateral security for any loans as prescribed
under Regulation 21 and Regulation 119 of the
SEBI ICDR Regulations. Further, SR Shares
cannot be transferred to another promoter or
member of promoter group or a new promoter, as
provided under Regulation 22 and Regulation
120 SEBI ICDR Regulations.
· In case of rights issue of SR Shares, holders of
existing SR Shares would not be permitted to
renounce their rights and SR Shares issued are be
locked-in until conversion into ordinary shares
along with existing SR Shares. In case of bonus
issue, SR Shares carry same ratio of voting rights
as compared to ordinary shares and such SR
Shares are to be converted to ordinary equity
shares along with existing SR Shares held by such
holders.
Ø Amended the SEBI (Buy-Back of Securities)
Regulations, 2018 (“SEBI Buy-Back Regulations”)
and the SEBI (Delisting of Equity Shares)
Regulations, 2009 to implement the aforesaid
Framework i.e. increasing the scope of 'Shares'
defined therein to include SR Shares.
Ø Notified the SEBI (Listing Obligations and Disclosure
Requirements) (Fourth Amendment) Regulations,
2019. The key amendments are as follows:
· Stricter corporate governance requirements have
been introduced for listed entities with SR
Shares:
(i) Composition of the board of directors: At
least half of the board of directors of
companies having outstanding SR Shares
shall comprise of independent directors.
(ii) Audit committee: The audit committee of
such an entity shall only comprise of
independent directors.
(iii) Other board committees: At least two-thirds
of the members of the Nomination and
Remuneration Committee, Stakeholder
Relationship Committee and the Risk
Management Committee shall comprise of
independent directors.
· The listed entity cannot issue shares with superior
or inferior dividend rights or inferior voting rights
vis-à-vis the equity shares listed on the stock
exchange. Further, the listed entity may issue SR
Shares to its existing SR Shareholders only by
way of a bonus, split or a rights issue in
compliance with applicable laws.
· The SR Shares at all times shall be treated at par
with the ordinary equity shares, except in case of
voting on resolutions. However, SR Shares shall
be treated at par with the ordinary equity shares
(i.e. one share shall only have one vote), in terms
of voting rights in certain cases including
appointment or removal of independent
directors/auditors, voluntary winding up,
initiation of voluntary resolution under the
Insolvency and Bankruptcy Code 2016, related
party transactions involving the SR Shareholders,
changes in the memorandum or articles of
association (except any change affecting the SR
Shares), etc.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
16
· The total voting rights of SR Shareholders
(including ordinary shares) upon listing, pursuant
to an initial public offer, shall not, at any point,
exceed 74%.
· The SEBI Listing Regulations prescribe certain
provisions for the conversion of the SR Shares
into ordinary equity shares of the listed entity.
· The SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 have been
amended to provide an exemption from the
obligation to make an open offer under
Regulation 3 in case of increase in the voting
rights of any shareholder beyond the threshold
limits specified under Sub Regulation (1) and (2)
of Regulation 3, without the acquisition of
control, pursuant to the conversion of SR Shares
into ordinary equity shares.
(SEBI Notification No. SEBI./LAD-NRO/GN/2019/25 SEBI Notification No. SEBI/LAD-NRO/GN/2019/26SEBI Notification No. SEBI/LAD-NRO/GN/2019/27
and SEBI Notification No. SEBI/LAD NRO/GN/2019/29
each dated July 29, 2019 and SEBI/LADNRO/GN/2019/28 dated July 29, 2019)
8. SEBI amends the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011
(“Takeover Regulations”)
SEBI, pursuant to its decision in the board meeting on
June 27, 2019, has amended certain provisions of
Takeover Regulations. The key highlights of the
amendment are as follows:
Ø The term 'encumbrance' has been defined to include
any restriction on the free and marketable title to
shares, by whatever name called, whether executed
directly or indirectly; pledge, lien, negative lien, non-
disposal undertaking; or any covenant, transaction,
condition or arrangement in the nature of
encumbrance.
Ø The promoter of every target company has to declare
on a yearly basis that the promoter, along with Persons
Acting in Concert (“PACs”), has not made any
encumbrance, directly or indirectly, other than those
already disclosed during the financial year. Such a
declaration has to be made within 7 working days
from the end of each financial year to every stock
exchange where the shares of the target company are
listed; and the audit committee of the target company.
Ø Additional disclosure requirements have been
prescribed by SEBI, as per the circular dated August
07, 2019:
· The promoter of every listed company shall
specifically disclose in the prescribed format,
detailed reasons for encumbrance, if the
combined encumbrance by the promoter along
with PACs with him equals or exceeds:
- 50% of their shareholding in the company; or
- 20% of the total share capital of the company
· The disclosure shall be made to every stock
exchange where the shares of the company are
listed and to the listed company within 2 working
days from the creation of such encumbrance.
· If the existing combined encumbrance by the
promoter along with PACs with him is either 50%
or more of their shareholding in the company or
20% or more of the total share capital of the
company as on September 30, 2019, he shall
specifically make first disclosure on detailed
reasons for encumbrance in the prescribed
format, by October 04, 2019.
(SEBI Notification No. SE
SEBI/HO/CFD/DCR1/CIR/P/2019/90 dated August
07, 2019 w.e.f. October 01, 2019)
9. Investment norms for AIFs operating in IFSC
In order to harmonize the provisions governing
investments by Alternative Investment Funds
(“AIFs”) incorporated in International Financial
Services Centres (“IFSC”) with those provisions
regarding investments applicable for domestic AIFs,
SEBI has permitted AIFs incorporated in IFSC to
make investments as per the provisions of the SEBI
(AIF) Regulations, 2012, and the guidelines and
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
17
circulars issued thereunder, including the operating
guidelines for AIFs in IFSC.
(SEBI Circular No. SEBI/HO/IFSC/CIR/P/2019/91
dated August 09, 2019)
10. SEBI imposes penalties for non-compliance of
certain provisions of the SEBI ICDR Regulations
In line with the provisions of Regulation 297 and 298
of the SEBI ICDR Regulations, which prescribe the
actions which may be taken by stock exchanges
against listed entities or any other person for
contravention of the provisions of the SEBI ICDR
Regulations, SEBI has prescribed the penalties which
may be imposed by stock exchanges on such listed
entities for certain specific non-compliances. SEBI
has issued this circular in supersession to its circular
bearing reference number CIR / CFD / DIL / 57 / 2017
dated June 15, 2017.
Ø A fine of INR 20,000 per day of non-compliance till
the date of compliance has been prescribed under the
circular for certain non-compliances, including delay
in completion of bonus issue, delay in completion of
conversion of convertible securities and allotment of
equity shares, delay in approaching the stock
exchanges for listing of equity shares and delay in
making an application for trading approval within the
timelines prescribed under the relevant regulations.
Ø In case of delay in completion of bonus issues, it is
clarified that while the approval for listing and trading
of promoters' bonus shares may be granted by stock
exchanges only after payment of the requisite fine,
such approval in relation to the non-promoter shares
may be granted, in the interest of investors, subject to
compliance with other requirements.
Ø The recognised stock exchange shall issue notices to
the non-compliant listed entities to ensure compliance
and collect fines as per the circular within 15 days
from the date of notice, failing which, appropriate
action may be initiated in furtherance of Regulation
298 of the SEBI ICDR Regulations. The stock
exchanges shall disclose, on their websites, the names
of the non-compliant listed entities (including details
of the fines imposed and/or received etc.).
(SEBI Circular No.
SEBIHO/CFD/DIL2/CIR/P/2019/94
dated August 19, 2019)
11. Payment of outstanding dues by listed entities
before filing scheme of arrangement
SEBI vide Circular dated September 12, 2019 has stipulated payment of all dues, fines or penalties imposed by SEBI, stock exchanges and the depositories on the listed entities before filing the draft scheme of arrangement with the designated stock exchange.
In case such dues remain unpaid, a 'report on the unpaid dues' shall be submitted to the stock exchanges (along with the draft scheme) by the listed entities prior to obtaining an observation letter from the stock exchanges, containing details of the unpaid dues, as per the prescribed format.
(SEBI Circular No. SEBI/HO/CFD/DIL1/CIR/P/2019/192 dated
September 12, 2019)
12. SEBI amends the SEBI Buy-Back Regulations
SEBI has notified the SEBI (Buy-back of Securities)
(Second Amendment) Regulations, 2019, whereby
following key changes have been made:
Ø The standalone and consolidated financial statements
will both be considered for evaluating the maximum
limit of buy-back, permitted size of buy-back from
open market, ratio of the aggregate of secured and
unsecured debts owed by the company to the paid-up
capital and free reserves after buy-back and limit of
buy-back beyond which special resolution at a general
meeting is required.
Ø For companies having subsidiaries that are NBFCs
and HFCs regulated by RBI or the National Housing
Bank, post buyback ratio of secured and unsecured
debts owed by the company to the paid-up capital and
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
18
free reserves to be 2:1, after excluding the
abovementioned subsidiaries. However, all such
excluded subsidiaries are required to have their ratio
of aggregate of secured and unsecured debts to the
paid-up capital and free reserves of not more than 6:1
on standalone basis.
(SEBI Notification No. SEBI/LAD-NRD/GN/2019/33
dated September 19, 2019)
13. Notification of the SEBI (Foreign Portfolio
Investors) Regulations, 2019
Based on the recommendation of the H. R. Khan
committee, SEBI has repealed the SEBI (Foreign
Portfolio Investors) Regulations, 2014 and notified
the SEBI (Foreign Portfolio Investors) Regulations,
2019 (“2019 FPI Regulations”). Set out below are the
key highlights.
Ø Foreign Portfolio Investor (“FPI”): Under the new
Regulations, FPIs would be classified into 2
categories instead of 3.
· Category – I FPIs: Include inter alia (a)
government and government-related investors
including entities controlled or at least 75%
directly or indirectly owned by such government
and government related investor; (b) pension
funds and university funds; (c) appropriately
regulated entities such as insurance or
reinsurance entities, banks etc.; (d) eligible
entities from the Financial Action Task Force
(“FATF”) member countries.
· Category II – FPIs : All the investors
n o t e l i g i b l e u n d e r C a t e g o r y I F P I s
such as (a) appropriately regulated funds not
eligible as Category-I foreign portfolio investor;
( b ) e n d o w m e n t s a n d f o u n d a t i o n s ;
(c) charitable organisations; (d) corporate bodies;
( e ) f a m i l y o f fi c e s ; ( f ) i n d i v i d u a l s ;
(g) appropriately regulated entities investing on
behalf of their client; and (h) unregulated funds in
the form of limited partnership and trusts.
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
Ø Investment Restrictions:
· An FPI shall invest only in shares, debentures and
warrants issued by a body corporate, listed or to
be listed on a recognized stock exchange in India;
units of schemes launched by mutual funds; units
of schemes floated by a collective investment
scheme; derivatives traded on a recognized stock
exchange; units of real estate investment trusts,
infrastructure investment trusts and units of
Category III alternative investment funds; indian
depository receipts; any debt securities or other
instruments as permitted by the RBI for FPIs.
· Where an FPI, prior to commencement of these
regulations, holds equity shares in a company
whose shares are not listed on any recognised
stock exchange, and continues to hold such shares
after the IPO and listing thereof, such shares shall
be subject to lock-in for the same period, if any, as
is applicable to shares held by a foreign direct
investor placed in similar position.
· FPIs are allowed to buy or sell illiquid or
suspended or delisted securities.
· FPIs are allowed to receive, hold and sell unlisted
securities as referred at Regulation 20(2) and
transact in unlisted securities received through
involuntary corporate actions including a scheme
of a merger or demerger or pursuant to
implementation of any resolution plan or in
accordance with the guidelines issued by the
Government of India or the RBI or any other
regulator for a scheme of debt resolution.
However, such unlisted holdings of the FPI shall
be treated as FPI.
· The purchase of equity shares of each company
by a single FPI including its investor group shall
be below 10% of the total paid-up equity capital
on a fully diluted basis of the company. Where the
total investment under these regulations by an
FPI including its investor group exceeds the
threshold of below 10% of the total paid up equity
19
INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
capital in a listed or to be listed company on a
fully diluted basis, the FPI shall divest the excess
holding within 5 trading days from the date of
settlement of the trades resulting in the breach. In
case the FPI fails to divest the excess holding, the
entire investment in the company by such foreign
portfolio investor including its investor group
shall be considered as investment under foreign
direct investment and the FPI and its investor
group shall not make further portfolio investment
in that company under these regulations.
(SEBI Notification No. SEBI/LAD-
NRO/GN/2019/36, dated September 23, 2019)
INFORMAL GUIDANCE
1. Exemption for a proposed merger of promoter group entities under Regulation 10(1)(d)(iii) of the SEBI (SAST) Regulations, 2011
Karun Carpets Pvt . Ltd. (“KCPL”) , DBH International Pvt. Ltd. (“DBHI”) and Bharat Starch Products Pvt. Ltd. (“BSP”) hold respectively 5.82%, 40.44% and 5.64% shares of Greaves Cotton Ltd. (“Target Company”) and are classified as promoters of the Target Company. KCPL, DBHI and BSP and their shareholders are directly or indirectly promoters of the Target Company.
With a view to consolidate group entities so as to eliminate the cross-holdings, DBHI, BSP and DBH Investments Pr ivate Limited (col lect ively “Transferor Companies”) were proposed to be amalgamated into KCPL (“Transferee Company”) through a scheme of amalgamation under Section 230-232 of the Companies Act.
Pursuant to the scheme, investment of DBHI and BSP in the Target Company would get consolidated in KCPL and will result in an increase in the investment of KCPL in the Target Company from 5.82% to 51.90%.
Relying on the informal guidance in Force Motors Limited and in the matter of Saldhar Investments and Trading Company Private Limited, KCPL sought confirmation from SEBI that the proposed acquisition would fall under the exemption provided under Regulat ions 10(1)(d)( i i i ) of the Takeover Regulations.
SEBI concluded that the transfer and vesting of shares of the Target Company, by the Transferor Companies with the Transferee Company would be exempt from the open offer obligations by virtue of Regulation 10(l)(d)(iii) of Takeover Regulations, based on the following:
Ø The transaction would be discharged by way of issue of equity shares of Transferee Company and there was no involvement of cash/cash equivalents.
Ø Mr. Karan Thapar along with family members have sole control over the KCPL, DBH Investment Private Limited and BSP, which holds 51.90% of shares Target Company and there will be no change in the indirect control over the 51.90% shares of the Target Company pursuant to the proposed scheme. Also, the Transferor Company-3, viz. DBH Investment Private Limited is held indirectly by Mr. Karan Thapar through DBH Investments Private Limited and KCPL. Further, there shall be no change in control of Mr. Karan Thapar in Target Company pursuant to the Scheme of Amalgamation.
(SEBI Informal Guidance CFD/DCRI/OW/P/2019/14383/1 dated June 06,
2019)
2. Exemption from submission of consolidated unaudited financial results under Regulation 33(3)(b) of the SEBI Listing Regulations
An informal guidance was sought by Shriram Transport Finance Company Limited (“STFCL”), a public listed company, in relation to the requirement of preparation and submission of unaudited consolidated financial results for the first 3 quarters of the fiscal 2020 i.e. the quarters ending June 30, 2019, September 30, 2019 and December 31, 2019 (“Quarters”) and for each such quarters for subsequent financial years under the SEBI Listing Regulations (since a subsidiary of STFCL ceased to be its subsidiary with effect from February 7, 2018 and became an associate of STFCL). Further, STFCL sought clarification on whether the submission of unaudited standalone financial results for the Quarters and for each such quarters for subsequent financial years would ensure compliance with regulation 33(3)(b) of the SEBI Listing Regulations.
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INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
SEBI, clarified that for the purpose of compliance with the SEBI Listing Regulations, if a listed entity has subsidiaries or associates, the listed entity is required to submit quarterly/ year-to-date consolidated financial results, in addition to standalone financial results as mentioned in Regulation 33(3)(a) of the SEBI Listing Regulations and the limited review report as mentioned in Regulation 33(3)(c)(i) of the SEBI Listing Regulations. Further, it clarified that the non-submission of the aforesaid financial results would result in non-compliance of the SEBI Listing Regulations.
(SEBI Informal Guidance No. SEBI/HO/CFD/CMD/OW /P/2019/19757/1
dated August 2, 2019)
LIST OF CONTRIBUTORS
21
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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 at the following co-ordinate:
CYRIL SHROFF Managing Partner cyril.shroff@cyrilshroff.com
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INSIGHT (Vol. XI Issue II) lJuly 01, 2019 – September 30, 2019
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