IBBI notifies Regulations for handling of Grievances and Complaints.

Minimum-Wage-Code-BillThe Insolvency and Bankruptcy Board of India (IBBI) has notified the IBBI (Grievance and Complaint Handling Procedure) Regulations, 2017 in the Gazette of India on 7th December, 2017. The Regulations enable a stakeholder, namely, debtor, creditor, claimant, service provider, resolution applicant or any other person having an interest in an insolvency resolution, liquidation, voluntary liquidation or bankruptcy transaction under the Insolvency and Bankruptcy Code, 2016 (Code), to file a grievance or a complaint against a service provider, namely, insolvency professional agency, insolvency professional, insolvency professional entity or information utility. The Regulations provide for an objective and transparent procedure for disposal of grievances and complaints by the IBBI, that does not spare a mischievous service provider, but does not harass an innocent service provider.

A stakeholder may file a grievance that shall state the details of the conduct of the service provider that has caused the suffering to the aggrieved; details of suffering, whether pecuniary or otherwise, the aggrieved has undergone; how the conduct of the service provider has caused the suffering of the aggrieved; details of his efforts to get the grievance redressed from the service provider; and how the grievance may be redressed.

A stakeholder may file a complaint in the specified form along with a fee of Rupees Two Thousand and Five Hundred (Rs.2,500). A complaint needs to state the details of the alleged contravention of any provision of the Code, or rules, regulations, or guidelines made there under or circulars or directions issued by the IBBI by a service provider or its associated persons; details of alleged conduct or activity of the service provider or its associated persons, along with date and place of such conduct or activity, which contravenes the provision of the law; and details of evidence in support of alleged contravention. If the complaint is not frivolous or malicious, the fee will be refunded.

Where the IBBI is of the opinion that there exists a prima facie case, it may order an inspection under sub-regulation (3) of Regulation 3, order an investigation under sub-regulation (2) of Regulation 7 or issue a Show Cause Notice under sub-regulation (2) of Regulation 11 of the Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017, as may be warranted and the matter shall be proceeded accordingly.

The Regulations are effective from 7th December, 2017. These are available at www.mca.gov.in and www.ibbi.gov.in.

 

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Categorization and Rationalization of Mutual Fund Schemes

safe_harbour_rulesSecurities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 4, 2017 for Categorization and Rationalization of Mutual Fund Schemes

SEBI, vide circular no. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017, has issued guidelines regarding categorization and rationalization of Mutual Fund Schemes.

Upon consideration of the subsequent representation received from AMFI, it has been decided to partially modify the aforesaid circular as under:

i.In pt. 8 of the aforesaid circular, after clause c, an additional clause ‘d’ shall be added as follows:

d.While preparing the single consolidated list of stocks, average full market capitalization of the previous six month of the stocks shall be considered.

ii.In respect of sr. nos. 3, 4, 6, 7, 8 and 9 of Section B of Annexure to the aforesaid circular, it is clarified that Macaulay duration shall be at portfolio level and accordingly, the column ‘Type of Scheme (Uniform description of scheme)’ of the respective scheme of the aforesaid sr.nos. is modified and shall be read as given below:

‘An open ended XYZ scheme investing in instruments such that the Macaulay duration of the portfolio is between A to B years (please refer to page no.__) #.’

# Please refer to the page number of the Offer Document on which the concept of Macaulay’s Duration has been explained

iii. With respect to the Medium Duration Fund and Medium to Long Duration Fund (sr. no. 7 and sr. no. 8 of Section B of the Annexure to the Circular), the characteristics of the scheme shall remain the same under normal circumstances as stated in the circular dated October 6, 2017. However, the fund manager, in the interest of investors, may reduce the portfolio duration of the aforementioned schemes upto one year, in case he has a view on interest rate movements in light of anticipated adverse situation. The AMC shall be required to mention its asset allocation under such adverse situation in its offer documents. Thus, the modified scheme characteristics for the following categories of schemes would now read as follows:

 

Category of Schemes Scheme Characteristics 
Medium Duration Fund – Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 years – 4 years.

Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years 

Medium to Long

Duration Fund –

 

Investment in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 years – 7 years.

Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years 

Also, whenever the portfolio duration is reduced below the specified floors of 3 years and 4 years in respect of Medium Duration Fund and Medium to Long Duration Fund respectively, the AMC shall be required to record the reasons for the same with adequate justification and maintain the same for inspection. The written justifications shall be placed before the Trustees in the subsequent Trustee meeting. Further, the Trustees shall also review the portfolio and report the same in their Half Yearly Trustee Report to SEBI.

iv.Further, Corporate Bond Funds (Sr. No. 11 of Section B of the Annexure to the Circular) would be permitted to invest in AA+ and above rated instruments. Accordingly, the Credit Risk Fund (Sr. No. 12 of Section B of the Annexure to the Circular) would now be permitted to invest in AA and below rated instruments (excluding AA+ rated instruments). Thus, the scheme characteristics and Type of Scheme for the Corporate Bond Fund and Credit Risk Fund would now read as follows:

Category of Schemes Scheme Characteristics Type of Schemes
Corporate Bond Fund Minimum investment in corporate bonds – 80% of total assets (only in AA+ and above rated corporate bonds.). An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds.
Credit Risk Fund Minimum investment in corporate bonds – 65% of total assets (only in AA* and below rated corporate bonds) An open ended debt scheme predominantly investing in AA and below rated corporate bonds excluding AA+ rated corporate bonds).

* excludes AA+ rated corporate bonds

v. Sr. no. 13 and 16 of Section B of the Annexure to the Circular , shall now read as follows:

Category of Schemes Scheme Characteristics Type of Schemes
Banking and PSU Fund Minimum investment in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds – 80% of total assets

 

An open ended debt scheme predominantly investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds
Floater Fund Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)– 65% of total assets

 

An open ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)

Mutual Funds are required to submit their proposals to SEBI after obtaining due approvals from their Trustees as early as possible but not later than December 15, 2017.

All other conditions specified in SEBI circular dated October 06, 2017 shall remain unchanged.

This circular is issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provision of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996 to protect the interests of investors in securities and to promote the development of, and to egulate the securities market.

 

Modification to Enhanced Supervision Circular

safe_harbour_rulesSecurities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/MIRSD/MIRSD2/CIR/P/2017/123 dated November 29, 2017 for Modification to Enhanced Supervision Circular

SEBI vide circular no. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016, has issued guidelines covering broad areas for enhanced supervision based on the recommendation of the committee constituted by SEBI.

In this regard, following modifications are made :

a. Clause 7.1.2 stands modified as follows: “End of day securities balances ISIN wise (as on last trading day of the month) and End of day securities balances (as on last trading day of the month) consolidated ISIN wise (i.e., total number of ISINs and total number of securities across all ISINs)”

b. Clause 7.1.3 stands modified as follows: “ISIN wise number of securities pledged, if any, and the funds raised from the pledging of such securities and consolidated number of securities pledged (i.e., total number of ISINs and total number of securities across all ISINs), if any and the funds raised from the pledging of such securities.”

c. Clause 7.1.4 stands modified as “The data at Para 7.1.1, 7.1.2 and 7.1.3 pertains to the last trading day of the month. The stock broker shall submit the aforesaid data within seven calendar days of the last trading day of the month.”

d. Clause 7.2 stands modified as below –

 “Each Stock Exchange shall in turn forward –

a. Information at Para 7.1.1, 7.1.2 and 7.1.3 to clients via Email on the email IDs uploaded by the stock broker to the exchange for their clients.

b. Information at Para 7.1.1, 7.1.2 (only consolidated data) and 7.1.3 (only consolidated data) to clients via SMS on mobile numbers uploaded by the stock broker to the Exchange for their clients.”

The above provisions shall be applicable one month from the date of this circular.

This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 

Enhancing fund governance for Mutual Funds

images0PNVS1EKSecurities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/IMD/DF2/CIR/P/2017/125 dated November 30, 2017 for Enhancing fund governance for Mutual Funds. In order to strengthen the governance structure for Mutual Funds (MFs), it has been decided to implement the following:

  1. Tenure of independent trustees and independent directors:

Regulation 16 (5) and Regulation 21 (1) (d) of SEBI (Mutual Funds) Regulations, 1996 mandate appointment of independent trustees of MFs (“independent trustees”) and independent directors of AMCs (“independent directors”) respectively. With respect to tenure of independent trustees and independent directors, it has been decided that:

An independent trustee and independent director shall hold office for a maximum of 2 terms with each term not exceeding a period of 5 consecutive years

No independent trustee or independent director shall hold office for more than two consecutive terms, however such individuals shall be eligible for re-appointment after a cooling-off period of 3 years. During the cooling-off period, such individuals should not be associated with the concerned MF, AMC & its subsidiaries and / or sponsor of AMC in any manner whatsoever.

Existing independent trustees and independent directors shall hold office for a maximum of 10 years (including all preceding years for which such individual has held office). In this respect, the following may be noted: a. Individuals who have held office for less than 9 years (as on date of issuance of this circular) may continue for the residual period of service. b. Individuals who have held office for 9 years or more (as on date of issuance of this circular) may continue for a maximum of 1 year from date of issuance of this circular. c. Such individuals shall subsequently be eligible for re-appointment after a cooling-off period of 3 years, in terms of Para mentioned above.

2.    Auditors of Mutual Funds

The auditor of a MF, appointed in terms of Regulation 55 (1) of SEBI (MFs) Regulations shall be a firm, including a limited liability firm, constituted under the LLP Act, 2008.

Period of appointment:

With respect to appointment of auditors in terms of Regulation 55 (1) of SEBI (MFs) Regulation, 1996, it has been decided that:

No MF shall appoint an auditor for more than 2 terms of maximum five consecutive years. Such auditor may be re-appointed after cooling off period of 5 years.

Further, during the cooling-off period of five years, the incoming auditor may not include: a. Any firm that has common partner(s) with the outgoing audit firm. b. Any associate / affiliate firm(s) of the outgoing audit firm which are under the same network of audit firms wherein the term “same network” includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control

Existing auditors may be appointed for a maximum of 10 years (including all preceding years for which an auditor has been appointed in terms of Regulation 55 (1) of SEBI (Mutual Funds) Regulation, 1996). In this respect, the following may be noted: a. Auditors who have conducted audit of the Mutual Fund for less than 9 years (as on date of issuance of this circular) may continue for the residual period of service. b. Auditors who have conducted audit of the Mutual Fund for 9 years or more (as on date of issuance of this circular) may continue for a maximum of 1 year from date of issuance of this circular. c. Such auditors shall subsequently be eligible for re-appointment after a cooling-off period of 5 years, in terms of Para B (2) (i) and Para B (2) (ii) above.

This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 

Clarification to Circular on Prevention of Unauthorised Trading by Stock Brokers

clarificationSecurities and Exchange Board of India (SEBI) has issued circular number CIR/HO/MIRSD/MIRSD2/CIR/P/2017/124 dated November 30, 2017 for Clarification to Circular on Prevention of Unauthorised Trading by Stock Brokers

SEBI vide circular no. CIR/HO/MIRSD/MIRSD2/CIR/P/2017/108 dated September 26, 2017 has inter-alia specified that brokers shall execute trades of clients only after keeping evidence of the client placing such order. Further, SEBI has made it mandatory to use telephone recording system to record client instructions and maintain telephone recordings wherever the order instructions are received from clients through the telephone.

Subsequently, SEBI has received representations from stock brokers and their associations expressing operational difficulties caused to stock brokers. Accordingly, in view of operational difficulties faced by stock brokers, it has been decided as under.

  • Brokers are required to maintain the records specified at para III of aforementioned circular for a minimum period for which the arbitration accepts investor complaints as notified from time to time, currently three years. However in cases where dispute has been raised, such records shall be kept till final resolution of the dispute.
  • If SEBI desires that specific records be preserved then such records shall be kept till further intimation by SEBI.
  • The above mentioned SEBI circular also prescribes that ‘when dispute arises, the burden of proof will be on the broker to produce the above records for the disputed trades’. However for exceptional cases such as technical failure etc. where broker fails to produce order placing evidences, the broker shall justify with reasons for the same and depending upon merit of the same, other appropriate evidences like post trade confirmation by client, receipt/payment of funds/ securities by client in respect of disputed trade, etc. shall also be considered.

The Stock Exchanges are directed to:

Bring the provisions of this circular to the notice of the Stock Brokers and also disseminate the same on their websites.

Make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above directions.

Communicate to SEBI, the status of the implementation of the provisions of this circular in their Monthly Development Reports.

This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 

Ordinance to amend the Insolvency and Bankruptcy Code, 2016.

amendThe Ordinance aims at putting in place safeguards to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the Code. The amendments aim to keep-out such persons who have wilfully defaulted, are associated with non-performing assets, or are habitually non-compliant and, therefore, are likely to be a risk to successful resolution of insolvency of a company. In addition to putting in place restrictions for such persons to participate in the resolution or liquidation process, the Amendment also provides such check by specifying that the Committee of Creditors ensure the viability and feasibility of the resolution plan before approving it. The Insolvency and Bankruptcy Board of India (IBBI) has also been given additional powers.

It may be recalled that the Regulations by the IBBI were also amended recently to ensure that information on the antecedent of the applicant submitting the Resolution Plan along with information on the preferential, undervalued or fraudulent transactions are placed before the Committee of Creditors in order for it to take an informed decision on the matter.

Along with other steps towards improving compliances, actions against defaulting companies to prevent misuse of corporate structures for diversion of funds, reforms in the banking sector, weeding-out of unscrupulous elements from the resolution process is part of on going reforms initiated by the Government. These would help strengthen the formal economy and encourage honest businesses and budding entrepreneurs to work in a trustworthy, predictable regulatory environment.

The Ordinance amends Sections 2, 5, 25, 30, 35 and 240 of the Code, and inserts new Sections 29A and 235A in the Code.

Gist of the amendments is given below:

(i) Clause (e) of Section 2 of the Code has been substituted with three Clauses. This would facilitate the commencement of Part III of the Code relating to individuals and partnership firms in phases.

(ii) Clause (25) and (26) of Section 5 of the Code which define “Resolution Plan” and “Resolution Applicant” are amended to provide clarity.

(iii) Section 25(2)(h) of the Code is amended to enable the Resolution Professional, with the approval of the Committee of Creditors (CoC), to specify eligibility conditions while inviting Resolution Plans from prospective Resolution Applicants keeping in view the scale and complexity of operations of business of the Corporate Debtor to avoid frivolous applicants.

(iv) Section 29A is a new Section that makes certain persons ineligible to be a Resolution Applicant. Those being made ineligible inter alia include:

  • wilful Defaulters,
  • Those who have their accounts classified as Non-Performing Assets (NPAs) for one year or more and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the Resolution Plan,
  • Those who have executed an enforceable guarantee in favour of a creditor, in respect of a Corporate Debtor undergoing a Corporate Insolvency Resolution Process or Liquidation Process under the Code
  • and connected persons to the above, such as those who are Promoters or in management of control of the Resolution Applicant, or will be Promoters or in management of control of Corporate Debtor during the implementation of the Resolution Plan, the holding company, subsidiary company, associate company or related party of the above referred persons.

(v) It has also been specifically provided that CoC shall reject a Resolution Plan, which is submitted before the commencement of the Ordinance but is yet to be approved, and where the Resolution Applicant is not eligible as per the new Section 29A. In such cases, on account of the rejection, where there is no other plan available with the CoC, it may invite fresh resolution plans.

(vi) Section 30(4) is amended to explicitly obligate the CoC to consider feasibility and viability of the Resolution Plan in addition to such conditions as may be specified by IBBI, before according its approval.

(vii) The Sale of Property to a person who is ineligible to be a Resolution Applicant under Section 29A has been barred through the amendment in Section 35(1)(f).

(viii) In order to ensure that the provisions of the Code and the Rules and Regulations prescribed thereunder are enforced effectively, the new Section 235A provides for punishment for contravention of the provisions where no specific penalty or punishment is provided. The punishment is fine which shall not be less than one lakh rupees but which may extend to two crore rupees.

(ix) Consequential amendments in Section 240 of the Code, which provides for power to make Regulations by IBBI, have been made for regulating making powers under Section 25(2)(h) and 30(4).

 

Some CPSEs are exempted from regulation of combinations

exemptionMinistry of Corporate Affairs (MCA) has issued notification number S.O. 3714(E dated

the 22nd November, 2017 that in exercise of the powers conferred by clause (a) of Section 54 of the Competition Act, 2002 (12 of 2003) (herein after referred to as the Act), the Central Government in the public interest hereby exempts all cases of combinations under section 5 of the Act involving the Central Public Sector Enterprises (CPSEs) operating in the Oil and Gas Sectors under the Petroleum Act, 1934 (30 of 1934) and the rules made there under or under the Oilfields (Regulation and Development) Act, 1948 (53 of 1948) and the rules made there under, along with their wholly or partly owned subsidiaries operating in the Oil and Gas Sectors, from the application of the provisions of sections 5 and 6 of the Act, for a period of five years from the date of publication of this notification in the Official Gazette.

Here it is pertaining to note that section 5 and 6 of the Competition Act, 2002 deals with combination and regulation of combinations.