Short-and-Long-term-Impact-of-Current-Market-Conditions-–-Part-II

Commercial and legal impact

In the previous part of this publication, we had set out an overview of the current market scenario and economic slowdown across key global markets, in view of factors such as global economic concerns, the COVID-19 pandemic as well as India-specific concerns such as the collapse of Yes Bank and pressure on Indian industries. We now evaluate the commercial and legal impact of these events on capital market transactions and highlight the key commercial and regulatory considerations for companies considering such transactions.
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Buy-Backs by Listed Companies - Key Considerations

A listed company proposing to undertake a buy-back is required to primarily comply with the provisions of the Companies Act, 2013 (the “Companies Act”) and the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 (the “SEBI Regulations”). However, a listed company is also required to ensure compliance with the requirements of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “SEBI Takeover Regulations”), the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Foreign Exchange Management Act, 1999, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and other applicable securities laws including in other jurisdictions.

As explained in our earlier blog, as prescribed in the SEBI Regulations, a listed company may undertake a buy-back of its shares and other specified securities through any of the following methods: (a) from the existing holders of securities on a proportionate basis through a tender offer; (b) from the open market either through the book building process or through the stock exchange mechanism; or (c) from odd-lot holders.
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ABOLITION OF DIVIDEND DISTRIBUTION TAX

Introduction

The Hon’ble Finance Minister, Ms Nirmala Sitharaman, had presented the Union Budget for the financial year 2020-21 on February 1, 2020, and introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprised of financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“IT Act”) for financial year 2020-21. The final Bill, incorporating certain amendments, was passed by the parliament on March 26 and received the assent of the President of India on March 27, 2020, and has now been enacted as the Finance Act, 2020 (the “Finance Act”).

In this post, we are covering the provisions of the Finance Act related to dividends distributed by Indian companies. For the changes impacting the tax on dividend distributions to the unitholders of Real Estate Investment Trust and Infrastructure Investment Trusts please see our earlier post here.
Continue Reading Abolition Of Dividend Distribution Tax: A New Paradigm For Equity Investments

Short And Long-Term Impact Of Current Market Conditions - Part I

 Overview of current markets

During the morning trading session on March 23, 2020, the S&P BSE Sensex crashed 2,991.85 points (10%) to hit 26,924.11, while the Nifty 50 fell 842.45 points (9.63%) to slip to 7,903.00, triggering a circuit breaker and suspension of trading for 45 minutes, for the second time this month.

Market indices across the globe have fallen at record rates following the World Health Organization’s declaration of the COVID-19 outbreak as an international public health emergency on January 30, 2020, and then as a global pandemic on March 11, 2020. Add to that the collapse of Yes Bank earlier this month, with a moratorium crippling liquidity, along with the sharp decline in oil and crude prices, and the Indian market indices have taken an unprecedented hit.
Continue Reading Short And Long-Term Impact Of Current Market Conditions – Part I

Open Market for Buy-Back of Securities - SEBI

The Securities and Exchange Board of India (“SEBI”) introduced the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018 (the “SEBI Regulations”) with effect from September 11, 2018, which govern buy-backs undertaken by a listed company.

A listed company’s shares and other specified securities can be bought back using any of the following methods:
Continue Reading Open Market for Buy-Backs: Key Considerations

SEBI General Order 2020

Markets regulator Securities and Exchange Board of India (Sebi) has recently issued a General Order on issuing observations on offer documents when there are pending regulatory actions, superseding a 2006 general order on the same subject. The General Order 1 of 2020, which was issued on February 5, 2020, sets out the circumstances under which SEBI can withhold observations on draft offer documents (companies cannot launch issues until SEBI provides observations).

We discuss the SEBI order, its implications, and whether this is a step in the right direction for a disclosure-oriented securities regime.
Continue Reading SEBI General Order 2020: What it means for cos, investors & overall capital markets’ efficiency

mplications of the Finance Bill, 2020, on INVITs, REITs and its Unitholders

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2020-2021 on February 1, 2020 and consequently, introduced the Finance Bill, 2020 (“Bill”) in the Lok Sabha. The Bill comprises the financial proposals, including taxation related proposals, to amend the provisions of the Income-tax Act, 1961 (“Income-tax Act”) for the financial year 2021.

The Income-tax Act comprised provisions in relation to the taxability of, and exemptions available to, infrastructure investment trusts (“InvITs”) and real estate investment trusts (“REITs”, together with “InvITs”, referred to as “business trusts”) registered with the Securities and Exchange Board of India under the Securities Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 (“InvIT Regulations”) or the Securities Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (“REIT Regulations”), respectively.
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Continuous disclosure obligations - Indian securities market

A regulatory environment that supports robust secondary market disclosures is critical for a well-functioning securities market. Ongoing disclosures by listed companies are being increasingly scrutinised by regulators, stock exchanges and market participants to see if timely and accurate disclosures of all material information are being made by the listed entity. Accordingly, it is important for companies to ensure that developments in their businesses translate to appropriate regulatory disclosures.

A recent example of the importance of secondary market disclosure is the Facebook case. In 2019, the US Securities and Exchange Commission (“SEC”) announced charges against Facebook Inc. (“Facebook”) for making misleading disclosures in its periodic filings against the risks pertaining to misuse of its user data by third parties. The SEC alleged that in public disclosures, Facebook presented the risk of misuse of user data as “merely hypothetical”, when they were aware that a third-party developer had actually misused Facebook user data. The SEC press release states that Facebook has agreed to pay $100 million to settle the charges.

We discuss this development and learnings for the Indian market below.
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SEBI-Streamlines-Rights-Issue-Process

The SEBI has streamlined certain aspects of the rights issue process that is expected to not only reduce the timelines but also provide clarity on the renunciation and trading of rights entitlements. These are welcome changes and will potentially make rights issues a preferred option to raise capital for listed companies.

Whilst rights issues are offerings to existing shareholders, it typically takes 55 to 58 days to complete the process (excluding SEBI review and the time taken for due diligence and drafting the offer document). The process involves (i) a minimum 15-day rights issue application period, (ii) mandatory participation by certain investors only through the non-ASBA process (such as through cheque) and (iii) a seven clear working days intimation prior to the record date. SEBI has addressed some of these concerns through amendments to the SEBI ICDR Regulations, SEBI Listing Regulations (both effective from December 26, 2019) and a circular with effect from February 14, 2020.
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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.
Continue Reading To Disclose or Not to Disclose? An Analysis of the Order of the Securities Appellate Tribunal in Electrosteel Steels Limited v. Securities and Exchange Board of India