Electrosteel Steels Limited v. Securities and Exchange Board of India

On November 14, 2019, almost a decade after the initial public offering of Electrosteel Steels Limited (Electrosteel), the Securities Appellate Tribunal (SAT) delivered its judgment in Electrosteel Steels Limited v. Securities and Exchange Board of India[1] (the SAT Order). It partially upheld the judgment dated March 31, 2016 (SEBI Order) of the adjudicating officer of the Securities and Exchange Board of India[2] (SEBI). The SAT Order has discussed the concept of ‘materiality’ in the context of disclosure in offer documents.
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 Regulation 22(2A) of SEBI Takeover Regulations

A question that comes up regularly in the context of an underlying secondary transaction that triggers an open offer is whether such a transaction can be closed on the stock exchange? This is due to reservations expressed by the Securities Exchange Board of India (SEBI) in relation to the interpretation of certain provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

This has led to unintended consequences, which cast a doubt on the legality of the on-market closure of underlying share purchase transactions. The shadow of this doubt unfortunately extends to on-market closures even if the on-market closure follows the completion of the open-offer process. In this blog post[1] we would like to clarify that the on-market closure of underlying transactions is not contrary to Takeover Regulations and the provisions of Takeover Regulations are not subject to multiple interpretations on this aspect.[2]
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Depository Receipts - SEBI Framework SMM

The Securities and Exchange Board of India (SEBI) has introduced a framework for issuance of depository receipts (DRs) by companies listed or to be listed in India ( DR Framework), by its circular dated October 10, 2019.

In the early years of liberalisation and up to the time SEBI permitted qualified institutions placement (QIPs) in 2006, DR issuances formed a significant and important part of foreign investment into the Indian equity markets. However, in the past five years, there have been very few DR issuances, for a variety of reasons including due to regulatory uncertainty around operational guidelines for DRs and concerns in relation to compliance with rules under the anti-money laundering legislation.
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Revised norms for foreign portfolio investors SEBI

The norms surrounding foreign portfolio investors have undergone continuous changes and tweaks since liberalisation. The framework introduced by Central Government was first consolidated and expanded upon by the Securities and Exchange Board of India (SEBI) under the SEBI (Foreign Institutional Investors) Regulations, 1995 (1995 Regulations).

A little under a decade later, in 2014, SEBI took steps to consolidate the categories of investors previously accessing Indian capital markets – i.e., foreign institutional investors, sub-accounts and qualified foreign investors – into a single class known as ‘foreign portfolio investors’ (FPIs). SEBI also delegated the responsibility of registering such FPIs to designated depository participants (DDPs). Multiple questions arising out of the new regime were subsequently answered by SEBI in a series of frequently asked questions (FAQs), updated from time to time. The 2014 Regulations also incorporated concepts such as opaque structures and a scope of investor group, which did not find a mention in the 1995 Regulations but were introduced through notifications and instructions from SEBI.

Five years later, SEBI has issued revised norms for FPIs in terms of the SEBI (Foreign Portfolio Investors) Regulations, 2019 (2019 Regulations) with a number of changes (as suggested by the committee headed by Mr. HR Khan), some to concepts dating back to the regime under the 1995 Regulations. The 2019 Regulations also consolidate the extensive guidance and requirements prescribed by SEBI by way of amendments to the 2014 Regulations as well as circulars and FAQs issued thereunder.

This post discusses some of the key aspects of the 2019 Regulations.
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Insider Trading Hotline SEBI - Informant Mechanism

In our previous blog post, dated June 12, 2019, we discussed the Securities Exchange Board of India’s (SEBI) efforts to institutionalise an informant mechanism for insider trading, through its discussion paper released in June 2019 (Discussion Paper).

The regulator has now formalised this into law through a recent amendment to the Insider Trading Regulations, which came after a SEBI board meeting approved the informant mechanism scheme on August 21 of last month. Interestingly, while the publicly available agenda of the SEBI board meeting states that it had received comments from certain entities on the Discussion Paper, these comments are not publicly available and are stated to have been excised for reasons of confidentiality.
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 Securities Law Enforcement - Calibrating the Discipline of Penalty Imposition

Equipped with broad statutory powers, the Securities Exchange Board of India (SEBI) has been hard at work for the past 30 years, shouldering the herculean task of managing the Indian securities market, through both regulation and enforcement. Naturally, to help SEBI respond to and deal with evolving challenges, its powers, specifically those under the Securities Contracts (Regulation) Act, 1956 (SCRA) and the SEBI Act, 1992 (SEBI Act), have been continuously at play, allowing it to mete out a wide range of penalties, both monetary and substantive. SEBI’s exercise of such powers, in its capacity as a quasi-judicial authority, has increasingly become a subject-matter of appellate interest, on questions of both jurisdictional remit and proportionality of penal action.
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shares with differential voting rights - DVR

Since December, 2000, Indian companies have been permitted to issue ‘dual class shares’. This was when the concept of ‘shares with differential voting rights’[1] was introduced in the Companies Act, 1956. The Securities and Exchange Board of India (SEBI) has, since July 21, 2009[2], disallowed listed companies to issue shares with superior rights to voting or dividend. However, listed companies were permitted to issue shares with inferior (or fractional) voting rights.

In an apparent reversal of its policy position, SEBI in its board meeting on June 27, 2019, approved a framework for the listing of companies that have shares with superior voting rights, while disallowing any further issuance of shares for those with inferior voting rights.
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SEBI’s Latest Discussion Paper on Insider Trading Regulations

Prosecuting insider trading cases has always been a challenge for the Securities Exchange Board of India (SEBI). Primary evidence is difficult to come by, which impacts success rates as well as investigation timelines.

On June 10, 2019, SEBI released a discussion paper (Discussion Paper) proposing amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations) to establish systems and processes (both within listed companies, as well as, at SEBI) that incentivise individuals to report insider trading violations, if they come to their knowledge. In terms of the Discussion Paper, the informant may be rewarded up to INR 1 crore (approx. USD 150,000) if SEBI undertakes disgorgement of at least INR 5 crores (approx. USD 0.72 million) as a result of any action taken on the basis of true, credible and original information.
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Part I - REIT Management Frameworks

*This is the first part of an eight-part series covering the commercial and legal considerations of REIT listings in India

Setting up a Real Estate Investment Trust (REIT) involves a number of synchronised actions by all parties to the REIT including the Sponsors, Sponsor Group, Trustee, Manager, Special Purpose Vehicles (SPVs) and their respective stakeholders.

Apart from settling the trust, one of the principal obligations of the Sponsors includes contribution of the initial portfolio of assets to the REIT (immediately preceding the closure of the public issue). While the assets may be transferred through various means, the favoured (and tax efficient) option is for the Sponsor to swap its shares in the SPVs housing the portfolio assets in exchange for REIT Units. Thus, the REIT becomes the shareholder and owner of the assets, the Sponsors become Unitholders of the REIT and the REIT Manager (which is typically controlled/ managed by the Sponsors), is entrusted with the responsibility of managing the affairs of the newly acquired assets, through an investment management framework.
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