30 July, 2018
INTRODUCTION
The Securities Exchange Board of India (“SEBI”) vide its circular dated 5 June 2018 has issued detailed guidelines for issue of units on preferential basis by Infrastructure Investment Trusts (“InvITs”) to institutional investors, subject to satisfaction of certain pre-conditions by the institutional investors. Amongst other conditions, conditions pertaining to timelines for completion of the preferential issue, compliance with continuous listing and disclosure obligations, compliance with the condition of minimum public unit holding, minimum subscription, issue of units in dematerialized form, minimum and maximum number of investors, determination of price, transferability of units, etc. have been stipulated by SEBI.
1.SEBI GUIDELINES ON PREFERENTIAL ISSUE BY INVITS
SEBI vide its circular dated 5 June 2018 (“Circular”), has issued detailed guidelines for issue of units on preferential basis by InvITs to institutional investors, subject to satisfaction of certain pre-conditions by the institutional investors. Amongst other conditions, conditions pertaining to timelines for completion of the preferential issue, compliance with continuous listing and disclosure obligations, compliance with the condition of minimum public unit holding, minimum subscription, issue of units in dematerialized form, minimum and maximum number of investors, determination of price, transferability of units, etc. have been stipulated by SEBI.
2.CONSTITUTION OF EXPERT COMMITTEE FOR CONSIDERING DIRECT LISTING OF EQUITY SHARES OF INDIAN COMPANIES ON FOREIGN EXCHANGES AND VICE VERSA
SEBI has, vide its press release dated 12 June 2018, constituted a 9-member Expert Committee to consider facilitation of direct listing of equity shares of Indian companies on international stock exchanges and vice versa.
Presently, Indian companies are not permitted to list their equity shares abroad and they can only list the American depository receipts (“ADR”) or global depository receipts (“GDR”) which are issued by them against underlying equity shares. SEBI also added that companies incorporated in India today can list their debt securities on international exchanges (masala bonds), but their equity share capital can be listed abroad only through the ADR/GDR route. Likewise, companies incorporated outside India can access the Indian capital markets through the issue of Indian Depository Receipts.
Accordingly, SEBI has formed the Expert Committee to inter alia examine various legal, operational and regulatory constraints in facilitating Indian companies to directly list their equity shares abroad and vice versa and to make suitable recommendations for laying down such framework.
Previously the Ministry of Finance through a press release dated 27 September 2013, had permitted unlisted Indian companies to list directly on offshore stock exchanges without prior or simultaneous or subsequent listing requirement in India on a pilot basis within two years.
3.SEBI CONSTITUTES GROUP TO REVIEW ITP FRAMEWORK TO FACILITATE LISTING OF START UPS
SEBI has constituted a group to look into the existing Institutional Trading Platform (“ITP”) framework and suggest measures to facilitate listing of startups. SEBI had put in place the ITP framework in 2015 with a view to facilitating listing of new age companies in sectors like e- commerce, data analytics, bio-technology and other startups. However, this framework failed to gain any traction.
SEBI has discussed the issue with various stakeholders and formed a group primarily with the following objectives:
- to revisit the current ITP framework and identify the areas, if any, which require further changes;
- any other issue relevant to ITP which the group may like to assess.
The members of the group include representatives from the Indian Software Product Industry Round Table, the Indus Entrepreneurs, the Indian Private Equity and Venture Capital Association, law firms, merchant bankers, and stock exchanges. The group shall endeavor to submit the report to SEBI within a period of 1 month.
4.SEBI AMENDS LISTING REGULATIONS
SEBI vide SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2018 has amended Regulation 40 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 which deals with transfer, transmission or transposition of securities by issuing. As per the amendment, listed entities (including their registrar and transfer agents) shall be restricted from effecting transfer of shares in physical form. The SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2018 will come into effect from 5 December 2018. All off-market trades of shares shall be mandatorily done in dematerialized form. However, this shall not affect the transmission or transposition of shares in physical form.
5. SEBI APPROVES AMENDMENTS TO TAKEOVER REGULATIONS, ICDR REGULATIONS AND BUY-BACK REGULATIONS
SEBI in its board meeting held on 21 June 2018, approved the following key amendments:
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”)
SEBI has reviewed the Takeover Regulations and approved certain amendments to the same in order to simplify the language, remove redundant provisions and inconsistencies, update the references to the Companies Act, 2013/other new SEBI Regulations, and incorporating the relevant circulars, FAQs, informal guidance in the Takeover Regulations. As per the extant provisions of the Takeover Regulations, an acquirer may make upward revisions to the offer price at any time till 3 working days before the commencement of the tendering period. It has now been decided to grant additional time for upward revision of open offer price till 1 working day before the commencement of the tendering period.
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR Regulations”)
SEBI has approved the proposed SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Some of the key proposals approved by the SEBI are as follows:
- Price band to be announced 2 days before opening of the issue, as against 5 days under ICDR Regulations;
- Financial disclosures in case of public issue/rights issue to be made for preceding 3 years to the issue as against the present duration of 5 years;
- Threshold for submission of draft letter of offer to SEBI in case of rights issues to be increased to INR 10,00,00,000 as against the earlier prescribed INR 50,00,000;
- Currently, shortfall of up to 10% in minimum promoters' contribution may be met by alternative investment funds. It has been decided to permit such investment by the institutional investors such as by foreign venture capital investors, scheduled commercial banks, public financial institutions and insurance companies registered with Insurance Regulatory and Development Authority of India, in addition to AIFs, without being identified as “Promoters”;
- It has been decided to delete provisions pertaining to Institutional Placement Programme, Safety Net and IPO Grading;
- The shareholding threshold for identifying promoter group has been revised from 10% to 20%;
- Underwriting provisions to be aligned to requirements of minimum subscription. SEBI (Buy-back of Securities) Regulations, 1998 (“Buy-back Regulations”):
- SEBI has approved reframing a new set of SEBI (Buy-back of Securities) Regulations, 2018
- (“new Buyback Regulations”) in lieu of the extant Buy-back Regulations. Relevant provisions outlined under Sections 68 and 70 of the Companies Act, 2013 have been incorporated in the new Buyback Regulations to make it self-contained.
6.SAT ORDER IN THE MATTER OF PVP VENTURES
PVP Global Ventures Private Limited (“PVP Global”), a wholly owned subsidiary of PVP Ventures Limited, a listed company (“PVP Ventures”') held certain shares in PVP Ventures.
The financial results of PVP Ventures for FY ended 31 March 2009 were published on 15 July 2009 which indicated possible diminution in the value of its investment in PVP Global to the tune of INR 850,51,00,000. Later the financial results for the quarter ended September 2009 which were published on 30 October 2009 disclosed reduction in the value of the investment to the tune of INR 593,65,00,000. Between 30 September 2009 and 30 October 2009, PVP Global sold shares of PVP Ventures on various dates due to which its shareholding in PVP Ventures declined from 15.77% to 3.47%.
SEBI after investigation held that PVP Global traded in the shares of PVP Ventures while in possession of Unpublished Price Sensitive Information (“UPSI”) and failed to disclose the sale of more than 2% stake to PVP Ventures and stock exchanges.
SEBI levied the following penalties on the PVP Ventures and one of its directors (“Appellant”):
- INR 15,00,000 on Appellant for failure to make disclosure under regulation 7(1A) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“SAST Regulations”);
- INR 15,00,000 on Appellant for violation of disclosure requirements under Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations,1992 (“PIT Regulations”);
- INR 15,00,000 on Appellant for violation of provisions relating to insider trading. The issues considered by SEBI were:
- Whether the sale of shares by the Appellant, after disclosure of diminution in the value of its investment in PVP Global, amounts to insider trading?
- /Whether disclosure of holding in a listed company was made as required under Regulation 13 of the PIT Regulations? The SAT in its order found that:
The Appellants contended that the potential loss was disclosed by PVP Ventures in July 2009 and that there was no UPSI at the time of sale of shares. SAT while dismissing the said contention held that the directors had discounted those audit observations and the disclosure was not proper and exact but only indicative in nature. The Appellants further argued that both the company and its director cannot be punished for the same set of transactions. While holding both the company and its director liable for the violation of PIT Regulations, it observed that both need not be punished on equal measure, as only the company has benefited. Accordingly, penalty of INR 15,00,00,000 imposed on the director was reduced to INR 5,00,00,000.
SAT further held that the Appellants violated of regulation 13(6) of the PIT Regulations, as they had in the past, admitted on record that they had not made the required disclosures. Accordingly, the penalty levied by SEBI was sustained.
7.SAT ORDER IN THE MATTER OF NETWORK 18 & TV 18
A complaint was filed to SEBI alleging that Reliance Industries Limited (“RIL”) a listed company has failed to make disclosure under clause 36 of the listing agreement of acquiring indirect control over Network 18 Media & Investment Limited (“NW18”) and TV 18 Broadcast Limited (“TV18”) through Independent Trust (“IMT”). IMT was established having RIL as a sole beneficiary. However, SEBI rejected the complaint, stating that IMT was not a subsidiary of RIL and therefore no disclosures were required to be made under clause 36 of the listing agreement. The Appellant filed an appeal before the SAT challenging this decision of SEBI.
The issue that the SAT considered was whether RIL has violated clause 36 of the listing agreement by failing to disclose acquisition of indirect control over NW18 and TV18 through IMT.
SAT held that the decision of SEBI stating IMT was not a subsidiary of RIL and therefore no disclosures were required to be made under clause 36 of the Listing Agreement, is patently erroneous and contrary to the spirit of clause 36 of the Listing Agreement. Moreover, SAT has remanded back the matter to SEBI directing it to decide the matter afresh
8.SEBI ORDER IN THE MATTER OF IFL PROMOTERS LTD.
SEBI conducted investigation into alleged irregularity in the scrip of IFL Promoters Limited (“IFL”) for possible violation of provisions of Securities Contracts (Regulation) Act, 1956 (“SCRA”). During the investigation, it was found by SEBI that Heena Developers Private Limited (“Heena”) had transferred 5,19,000 shares of the IFL by way of off-market transactions to noticees. It was observed that Heena did not receive the entire consideration for the said shares of IFL from the noticees on the day of transaction or within the next 24 hours of the transaction, and hence it is in violation of section 2 (i) of the SCRA.
Section 2 (i) of the SCRA stipulates that a contract in securities market will be completed on actual delivery of shares and payment of consideration either on the same day or the next day of the contract (Spot Delivery Contract). However, in the case at hand, Heena transferred that shares of IFL and did not receive the total consideration in lieu of the transfer of the said shares within the stipulated period.
Further section 16(1) of the SCRA prohibits to enter into any contract for sale or purchase of securities other than Spot Delivery Contract for cash or hand delivery or contract in derivatives as is permissible under SCRA or the SEBI Act, 1992 (“Notification”).
The issue considered by SEBI was whether the noticees have entered into off market transaction without complying with the provisions of SCRA relating to Spot Delivery Contract.
SEBI held that every contract in securities must be executed through stock exchange unless it is a spot delivery contract. Since in this case contract entered by the noticees was off market transaction, it has to be in compliance with provisions related to the spot delivery contract. In order to be a legal transaction, it would have to qualify as a spot delivery contract as defined under section 2(i) of SCRA i.e. actual delivery/ transfer of shares and the payment should be on the same day as the date of contract or the next day. In the case at hand, the transaction was an off-market transaction and the payment and transfer of shares have not taken place as per the time limit prescribed for spot delivery contract as provided in SCRA.
9.NEW PLATFORM TO LIST “STARTUP” AT BSE SME SEGMENT
Bombay Stock Exchange (“BSE”) through Notice No. 20180621-17 dated 21st June 2018, has announced that BSE Startup Platform is enabled on BSE SME segment.
The platform will facilitate the listing of startup companies on BSE SME segment provided that these startup companies operate in the sector of IT, ITES, Bio-technology and Life Science, 3D Printing, Space technology, E-Commerce, Hi- Tech Defence, Drones, Nano Technologies, Artificial Intelligence, Big data, Enhance/Virtual Reality, E-gaming, Exoskeleton, Robotics, Holographic Technology, Genetic Engineering, Variable Computers Inside body computer technology and any other Hi-tech based company.
The eligibility criteria for the startup to be listed on BSE SME segment is as follows:
- The pre-issue paid up Equity share Capital of the company should be minimum of INR 1,00,00,000;
- The company should be in existence for a minimum period of 3 years on the date of filing the draft prospectus with BSE;
- There should preferably have investment by qualified institutional buyer investors (as defined under SEBI ICDR Regulations, 2009) / Angel Investors for a minimum period of 2 years at the time of filing of draft prospectus with BSE and such aggregate investment should be at least INR 1,00,00,000;
- The company should have positive net-worth;
- The company should not have been referred to NCLT under Insolvency and Bankruptcy Code, 2016; and
- There should be no winding up petition against the company that has been accepted by NCLT.
Further, startups listing on the BSE SME segment with the above-mentioned conditions are required to comply with other conditions for listing of SME companies as provided under Chapter XB of SEBI (ICDR) Regulations, 2009, relating to disclosures, migration to main board, etc.
10. SEBI ORDER ON COMPLETION OF 'DISCLOSURE'
SEBI conducted an examination in the scrip of Rei Six Ten Retail Ltd., a company listed on the Bombay Stock Exchange (”BSE”) and the National Stock Exchange (”NSE”). It was observed that the shareholding of the promoter of the company decreased from 18.01% to 9.47% and that the promoter did not make the requisite disclosures to the stock exchange.
The company contended that they had sent the disclosures to both BSE and NSE at the same time. BSE received the disclosures but NSE did not receive them.
SEBI considered the issue on whether sending the letters could be considered as adequate 'disclosure.'
SEBI relied on the previous order of SAT in the matter of Mega Resources Ltd. vs. SEBI, whereby SAT observed that mere dispatch of the information is short of disclosure. The requirement is that the information should reach the person to whom it is meant. The obligation does not end by simply posting the information in a letterbox.
Accordingly, SEBI held that even though the company could show that they had sent letters, it did not amount to disclosure. However, considering that disclosure to at least one stock
11. SEBI order in the matter of NDTV
The promoters of NDTV i.e. RRPR Holding Private Limited (“RRPR”), Prannoy Roy and Radhika Roy (“Promoters”/ “Borrowers”), had made an open offer to acquire shares of NDTV.
The open offer was funded by the Promoters by borrowing from Indiabulls Financial Services Limited (“Indiabulls”). To repay the loan from Indiabulls, another loan was taken from ICICI Bank by the Promoters.
This loan taken from ICICI Bank was repaid by taking another loan from Vishvapradhan Commercial Private Limited (“VCPL”) through a loan agreement (“Agreement”). Significant aspects/clauses of the Agreement are as follows:
- The loan is an unsecured loan and without any interest payment;
- RRPR will issue a convertible warrant to VCPL, convertible into equity shares aggregating to 99.99% of the fully diluted equity share capital of RRPR at the time of conversion, convertible at any time during the tenure of the loan or thereafter (“Conversion Option”);
- VCPL shall have the right to purchase from the Promoters all the equity shares of RRPR at par value (“Call Option”);
- VCPL to have nominee director right on the board of RRPR (“Nominee Director Right”); and
- Certain matters relating to NDTV would require Promoters to seek prior written consent of VCPL (“Reserved Matter Right”).
SEBI considered the issue of whether the Agreement is a loan transaction, or an arrangement entered into by the parties to acquire indirect control over NDTV.
SEBI held that the Agreement only appeared to be a loan transaction, however it in fact amounted to indirect acquisition of control over NDTV and hence ordered VCPL to make an open offer and levied a 10% interest on the offer price for the delay to make open offer.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
