Clarification on raising industry standards for RTAs, Issuer Companies and Banker to an Issue circular

clarificationSecurities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/MIRSD/DOS3/CIR/P/2018/115 dated July 16, 2018 for clarification of its earlier circular on strengthening the guidelines and raising Industry standards for RTAs, Issuer Companies and Banker to an Issue

SEBI, vide circular No. SEBI/HO/MIRSD/DOP1/CIR/P/2018/73 dated April 20, 2018, inter-alia, mandated RTAs to send a letter under Registered / Speed post seeking PAN and bank details within 90 days of the said circular and two reminders thereof after the gap of 30 days.

In this regard SEBI has received several representations to extend the timelines of first letter so as to bunch it up with annual reports/notices of AGM. Further, clarifications have been sought to send the reminders by way of modes other than Registered / Speed post, citing huge cost involved and the efficacy of sending reminders by way of other modes; especially in cases where first letter sent by Registered / Speed Post returned undelivered.

Accordingly, in respect of para II (12)(ii) of Annexure to the aforementioned circular, it is clarified that:

  1. The timeline for sending the initial letter by Registered / Speed Post to physical shareholders has been extended to September 30, 2018 to enable companies to send the initial letter along with Annual Reports/notice of AGM.
  2. Subsequently, two reminders may be sent by other modes including ordinary post / courier.
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Investment by Foreign Portfolio Investors through primary market issuances

imagesUWFIL6Y5Securities and Exchange Board of India (SEBI) has issued circular number IMD/FPIC/CIR/P/2018/114 dated July 13, 2018 for investment by Foreign Portfolio Investors (FPI) through primary market issuances

Regulation 21(7) of SEBI (Foreign Portfolio Investors) Regulations, 2014 (‘FPI Regulations’) mandates that the purchase of equity shares of each company by a single foreign portfolio investor or an investor group shall be below ten percent of the total issued capital of the company.

Further, Regulation 23(3) of FPI Regulations requires that in case the same set of ultimate beneficial owner(s) invest through multiple entities, such entities shall be treated as part of same investor group and the investment limits of all such entities shall be clubbed at the investment limit as applicable to a single foreign portfolio investor.

As prescribed in reply to FAQ No. 58 for FPIs, for the purpose of identifying the investor group, the Designated Depository Participant (DDP) shall obtain the details provided by the FPI under clause 2.2 of the FPI Application form (Form A) specified in First Schedule of FPI Regulations. The monitoring of investment limits at the level of investor group shall be performed by the depositories based on the information provided by DDPs.

To ensure compliance of the above, at the time of finalization of basis of allotment during primary market issuances, Registrar and Transfer Agents (‘RTAs’) shall:

a) Use Permanent Account Number (PAN) issued by Income Tax Department of India for checking compliance for a single foreign portfolio investor; and

b) Obtain validation from Depositories for the foreign portfolio investors who have invested in the particular primary market issuance to ensure there is no breach of investment limit within the timelines for issue procedure, as prescribed by SEBI from time to time.

The depositories shall put in place the necessary systems for sharing of information with RTAs within the timelines for issue procedure, as prescribed by SEBI from time to time.

This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992.

Committee to review the offences under the Companies Act, 2013

imagesZ2BG5TSKThe Ministry of Corporate Affairs (MCA) has constituted a 10 Member Committee, headed by the Secretary of Ministry of Corporate Affairs, for review of the penal provisions in the Companies Act, 2013 may be setup to examine ‘de-criminalisation’ of certain offences.

The MCA seeks to review offences under the Companies Act, 2013 as some of the offences may be required to be decriminalised and handled in an in-house mechanism, where a penalty could be levied in instances of default. This would also allow the trial courts to pay more attention on offences of serious nature. Consequently, it has been decided that the existing compoundable offences in the Companies Act – 2013 viz. offences punishable with fine only or punishable with fine or imprisonment or both may be examined and a decision may be taken as to whether any of such offences may be considered as ‘civil wrongs’ or ‘defaults’ where a penalty by an adjudicating officer may be imposed in the first place and only consequent to further non-compliance of the order of such authority will it be categorised as an offence triable by a special court.

It is also required to be seen as to whether any non-compoundable offences viz. offence punishable with imprisonment only, or punishable with imprisonment and also with fine under the Companies Act, 2013 may be made compoundable. The Committee shall submit its report within thirty days to the Central Government for consideration of its recommendations.

The terms of reference of the Committee are as follows:

  1. To examine the nature of all ‘acts’ categorised as compoundable offences viz. offences punishable with fine only or punishable with fine or imprisonment or both under the CA-13 and recommend if any of such ‘acts’ may be re-categorised as ‘acts’ which attract civil liabilities wherein the company and its ‘officers in default’ are liable for penalty;
  2. To review the provisions relating to non-compoundable offences and recommend whether any such provisions need to be re-categorised as compoundable offence;
  3. To examine the existing mechanism of levy of penalty under the CA-13 and suggest any improvements thereon;
  4. To lay down the broad contours of an in-house adjudicatory mechanism where penalty may be levied in a MCA21 system driven manner so that discretion is minimised;
  5. To take necessary steps in formulation of draft changes in the law;
  6. Any other matter which may be relevant in this regard.

Appointment of Authorised Representative for Classes of Creditors

delegationInsolvency and Bankruptcy Board of India (IBBI) has issued circular number No. IBBI/CIRP/015/2018 dated 13th July, 2018 for Appointment of Authorised Representative for Classes of Creditors under section 21 (6A) (b) of the Insolvency and Bankruptcy Code, 2016

Section 21 (6A) (b) of the Insolvency and Bankruptcy Code, 2016 (Code) read with regulation 16A (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations) provide that where the corporate debtor has at least ten financial creditors in a class, the interim resolution professional shall offer a choice of three insolvency professionals and a creditor in the class may indicate its choice of an insolvency professional, from amongst the three, to act as its authorised representative. The insolvency professional, who is the choice of the highest number of creditors in the class, is appointed as the authorised representative of the creditors of the respective class. The authorised representative collects voting instructions from the respective class of creditors, attends the meetings of the committee of creditors (CoC) and casts vote in respect of the said class in accordance with the instructions he receives from the creditors.

Section 21 (6A) (b) of the Code read with regulation 16A of the Regulations provide for a simplified mechanism of representation of financial creditors through authorised representatives, as detailed in para above, and are, therefore, matters of procedure. It is necessary that an ongoing corporate insolvency resolution process, where creditors belonging to a class are otherwise not represented in the CoC, uses this simplified mechanism, irrespective of the stage of the process. The resolution professional, who exercises the powers and performs the duties as vested or conferred on the interim resolution professional under section 23 (2) of the Code, shall facilitate representation through authorised representative(s).

It is, accordingly, clarified that wherever the approval of resolution plan under regulation 39 (3) of the Regulations is at least 15 days away, the resolution professional shall expeditiously obtain, by electronic means, the choice of the insolvency professional from creditors in a class to act as the authorised representative of the class and proceed further in the manner as specified in regulation 16A of the Regulations.

This Circular is issued in exercise of powers under section 196 (1) (aa) of the Insolvency and Bankruptcy Code, 2016, in consultation with the Ministry of Corporate Affairs.

Discontinuation of acceptance of cash by Stock Brokers

cashlessSecurities and Exchange Board of India (SEBI) has issued circular number SEBI/HO/MIRSD/DOP/CIR/P/2018/113 dated July 12, 2018 for discontinuation of acceptance of cash by Stock Brokers.

SEBI circular SEBI/MRD/SE/Cir- 33/2003/27/08 dated August 27, 2003, deals with Mode of Payment and Delivery.

Government of India has promoted various means for transfer / receipt of funds through digital mode for encouraging a cashless economy. Financial institutions/ Banks have introduced various modes of electronic payment facility including mobile banking, Unified Payment Interface (UPI) etc.

In view of the various modes of payment through electronic means available today, it is directed that Stock Brokers shall not accept cash from their clients either directly or by way of cash deposit to the bank account of stock broker. Accordingly, paragraph 3 of the SEBI circular dated August 27, 2003 is modified as under:

All payments shall be received / made by the stock brokers from / to the clients strictly by account payee crossed cheques / demand drafts or by way of direct credit into the bank account through electronic fund transfer, or any other mode permitted by the Reserve Bank of India. The stock brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. Stock Brokers shall not accept cash from their clients either directly or by way of cash deposit to the bank account of stock broker.

All other conditions specified in the SEBI circular dated August 27, 2003 shall continue to remain in force.

Stock Exchanges are directed to

a) make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above direction immediately;

b) bring the provisions of this circular to the notice of their members and also disseminate the same on their websites; and

c) communicate to SEBI, the status of implementation of the provisions of this circular in their Monthly Report.

 

Empanelment of Insolvency Professional Entities.

imagesMBHW13C4Insolvency and Bankruptcy Board of India (IBBI) has issued circular no. IBBI/IPE/014/2018 dated 6th July, 2018 refraining empanelment of Insolvency Professional Entities (IPE).

An IPE is recognised in accordance with regulation 12 (1) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, only if “its sole objective is to provide support services to the insolvency professionals, who are its partners or directors; as the case may be”. Thus, an IPE cannot provide any service to any person. It can provide only support services to the insolvency professionals who are its partners or directors. Thus, the role of IPE is clearly specified.

Section 206 of the Insolvency and Bankruptcy Code, 2016 (Code prohibits a person from rendering services as an insolvency professional (IP) unless he is: (a) enrolled as a member of an Insolvency Professional Agency (IPA), and (b) is registered with the Insolvency and Bankruptcy Board of India (IBBI). Thus, no person other than a person registered as an IP with the IBBI can render services as an IP. An IPE is neither enrolled as a member of an IPA nor registered as an IP with the IBBI. It cannot act as IP under the Code.

It has come to the notice of the IBBI that a few market participants are seeking empanelment of IPEs and a few IPEs are seeking empanelment with market participants. Given the role of an IPE, the IPEs are, therefore, directed to refrain from seeking or joining any panel of any market participant.

This circular is issued in exercise of the powers conferred under clause (a) of sub-section (1) of section 196 of the Insolvency and Bankruptcy Code 2016 read with regulation 12 of the IBBI (Insolvency Professional) Regulations, 2016.

 

Propagation for transfer of shares in demat form only

images2TYIXVJYThe amendment to Regulation 40 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 vide Gazette notification dated June 8, 2018 has mandated that transfer of securities would be carried out in dematerialized form only.

Accordingly, Listed Companies and their Registrars and Transfer Agents (RTAs) are hereby advised that, with effect from December 5, 2018, it should be ensured that shares which are lodged for transfer shall be in dematerialized form only.

 In order to implement the aforementioned Amendment in the Regulation and as advised by SEBI, all the Listed Companies are hereby directed to carry out the following actions:

1)      To take special efforts through their RTAs to send letter under Registered/Speed post to the holders of physical certificates appraising them about the amendment and sensitise them about the  impact of the regulation on the transfer of shares held by them in physical form w.e.f December 5, 2018.

2)      RTAs may also be advised to send two reminders, preferably at a gap of 30 days, to such shareholders who continue to hold their shares in physical form, advising them to get the same dematerialized

3)      Listed Companies shall prominently place information on their website intimating the investors about the proposed change and provide appropriate guidance on how to dematerialize their shares.

4)      Listed companies should ensure that the signature cards of all the holders of physical securities are handed over to its RTA at the earliest.

All listed companies are requested to take note of above and comply accordingly. Companies may also report compliance with these requirements by end September 2018 to the Exchange, in a specified format that will be sent out shortly.