30 January, 2018
Circular on Minimum Public Shareholding Requirements
The Securities and Exchange Board of India (‘SEBI’), by way of its circular dated October 10, 2017 (‘MPS Circular’), has put in place the procedure required to be followed by recognized stock exchanges and depositories with respect to listed entities that fail to comply with the minimum public shareholding (‘MPS’) requirements. Some of the key features of the MPS Circular are as follows:
i. Recognized stock exchanges are required to review compliance with MPS requirements based on shareholding pattern or other filings made by the listed entities, and issue notices to non-compliant listed entities within 15 days from such observation of non-compliance. A fine of . 5000 (approx. US$ 80) would be imposed on the listed entity upon observation of non-compliance for each day of such noncompliance.
ii. Stock exchanges are also required to intimate depositories to freeze the entire shareholding of the promoter and promoter group till the date of compliance. However, such an action would not serve as a restriction on the non-compliant entity to adhere to MPS norms through methods specified or approved by SEBI.
iii. The promoters, promoter group and directors of the listed entity have been barred from holding a new position as a director of any other listed entity during the period of non-compliance.
iv. If the listed entity fails to comply with the MPS requirement for more than one year, the aforementioned restrictions continue to apply during the period of noncompliance along with an enhanced fine of . 10,000 (approx. US$ 160) per day till the date of compliance.
v. Recognized stock exchange may also consider compulsory delisting of the noncompliant listed entity.
vi. If a listed entity adopts a method for compliance which is not prescribed or approved by SEBI , such cases will be referred to SEBI .
vii. For entities which are non-compliant as on the date of the MPS Circular: (a) the fines, as applicable, would be imposed prospectively; and (b) the MPS Circular will not be applicable to those entities where SEBI has already passed its orders under SEBI Act, 1992/Securities Contracts (Regulation) Act, 1956 in relation to non-compliance with MPS requirements.
SEBI Circular on Exemption Application under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Under Regulation 11(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘Takeover Code’), SEBI is empowered to grant an exemption to an acquirer from the obligation to make an open offer. Under Regulation 11(3) of the Takeover Code, the acquirer is required to file an application along with an affidavit and details of the proposed acquisition and the grounds on which the exemption has been sought. SEBI, by way of its circular dated December 22, 2017, has prescribed a standard format for filing such applications with SEBI in order to ensure uniformity of disclosure in the applications.
SEBI Notification on Settlement of Administrative and Civil Proceedings (Second Amendment) Regulations, 2017
SEBI, by way of a notification dated December 27, 2017, has amended the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (‘Settlement Regulations’). Some of the key features of the amendment to the Settlement Regulations are as follows:
i. Introduction of a summary settlement procedure: The Amendment has inserted a new chapter, Chapter VI A, in the Regulations that introduces a summary settlement procedure. Under this chapter, SEBI has the discretion to issue a notice of settlement in the prescribed format and call upon the noticee to file a settlement application with respect to the proceedings to be initiated for the following categories of default:
a. Late filing of returns, reports or documents;
b. Delay in making disclosures;
c. Non-disclosures with respect to companies listed solely on regional stock exchanges
that have exited;
d. Failure to make disclosures in the prescribed format;
e. Delay in compliance with any legal requirement or directions issued by SEBI; and
f. Any other violation as determined by SEBI.
The proceedings initiated for any of the abovementioned categories of defaults will not be settled if SEBI is of the opinion that the noticee has failed to fully and truly disclose the facts or has not co-operated in a satisfactory manner with SEBI.
SEBI has, however, reserved the right to modify the enforcement action to be brought against the noticee and the notice of settlement does not confer any right upon the noticee to seek settlement or avoid any enforcement action.
ii. The noticee has a period of 30 days from the date of receipt of the notice to: (a) file and submit the settlement application in the prescribed format; (b) pay the settlement amount; and (c) comply or undertake to comply with the non-monetary terms in the notice.
iii. SEBI, upon being satisfied with the remittance of settlement amount and the compliance or undertaking to comply with non-monetary terms, may pass an order under Regulation 15 of the Settlement Regulations. If: (a) the noticee fails to file a settlement application; (b) the noticee fails to fulfil the associated requirements of the settlement application; or (c) the noticee withdraws such settlement application, the proceedings for default would either continue or be initiated and the noticee would be permitted to file a settlement application with respect to proceedings pending before a Court or Tribunal after conclusion of proceedings before SEBI.
SEBI Circular on Fund Governance of Mutual Funds
SEBI, through its circular dated November 30, 2017, has implemented the following measures to strengthen the governance structure of mutual funds:
i. An independent trustee of the mutual fund (‘independent trustee’) and an independent director of the asset management company (‘independent director’) can now hold office for a maximum of two terms, with each term not exceeding five consecutive years. Such independent trustee or independent director is not permitted to hold office for more than two terms unless there is a cooling off period of three years for re-appointment. During the cooling off period, such individuals are prohibited from being associated with the concerned mutual fund, the asset management company or its subsidiaries and/or the sponsor of the asset management company.
ii. Existing independent trustees and independent directors are permitted to hold office for 10 years, which would include their preceding years in office. Individuals who have held office for less than nine years as on November 30, 2017 would be permitted to hold office for the residual period of their tenure. Individuals who have held office for nine years or more as on November 30, 2017 are permitted to continue for a maximum of one year from November 30, 2017. Such individuals, however, would be eligible for re-appointment after the requisite cooling-off period of three years.
iii. The auditor of a mutual fund is required to be a firm, including a limited liability partnership. No mutual fund will appoint an auditor for more than two terms of a maximum of five consecutive years. However, such auditor would be eligible for reappointment after a cooling-off period of five years. During the cooling-off period, the incoming auditor should not include: (a) any auditor that has common partners with the outgoing auditor; and (b) any associate or affiliate firms of the outgoing auditor which are under the same network of audit firms (the term ‘same
network’ includes the firms operating or functioning, hitherto or in future, under the same brand name, trade name or common control).
iv. Existing auditors are permitted to hold office for 10 years, which would include their preceding years in office. Auditors who have held office for less than nine years as on November 30, 2017, would be permitted to hold office for the residual period of their tenure. Auditors who have held office for nine years or more as on November 30, 2017 are permitted to continue for a maximum of one year from November 30, 2017. Such auditors, however, would be eligible for re-appointment after the requisite cooling-off period of five years.
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
