SEBI Operational Guidelines

The Securities and Exchange Board of India (“SEBI”) has recently issued the operational guidelines (“Operational Guidelines”)[1] for its circular dated August 13, 2021, on ‘Security and Covenant Monitoring using Distributed Ledger Technology’ (the “DLT Circular”)[2]. This article will examine the key highlights of the Operational Guidelines and analyse their impact.

Continue Reading A Technology Driven Approach to Achieving Compliance: SEBI’s Operational Guidelines for Monitoring of Security and Covenants

Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test

Background

SEBI[1] has recently revised the materiality threshold for obtaining shareholder approval for related party transactions (“RPTs”) under Regulation 23(1) of the SEBI (LODR) Regulations, 2015 (“LODR”), to cover RPTs that exceed INR 1000 crore or 10% of a listed entity’s annual consolidated turnover (as per the last audited financial statements), whichever is lower.

The revised materiality threshold has come into effect on April 1, 2022, and this change assumes significance, as prior to April 1, 2022, there was no absolute numerical threshold for RPTs that require shareholders’ approval.

This also raises the question as to whether an absolute numerical threshold of INR 1000 crore could potentially be considered as violative of Article 14 of the Indian Constitution.

In this post, the authors aim to probe deeper into this constitutional aspect and examine some of the arguments that can be made from both sides of the spectrum.

Continue Reading Revised threshold of Rs. 1000 Crore for ‘material’ RPTs under LODR – Does it pass the Article 14 test?

SEBI

Background

In order to provide for an alternative and efficient dispute resolution mechanism for securities law violations, the Securities and Exchange Board of India (“SEBI”) introduced the consent mechanism through a circular in 2007[1] (which was partially modified in 2012)[2]. This was subsequently codified through the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (“2014 Regulations”), pursuant to the notification of the Securities Laws (Amendment) Act, 2014, which expressly empowered SEBI to settle matters with a view to removing any ambiguity over the validity of the settlement process. This regime specifically excluded certain serious violations (e.g. insider trading, fraud) from the purview of the settlement mechanism. Explicit provisions which enabled initiation of settlement proceedings prior to the issuance of show cause notice were also introduced, to reduce administrative burden and cost on SEBI.

Continue Reading Amendments to SEBI Settlement Regime – A Snapshot

Flashback 2021

The year 2021 saw 81 tender offers aggregating to INR 43,602 crore for acquisition of shares of publicly traded companies in India under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations)[1]. This is higher in terms of both value and number when compared to the pandemic-hit 2020 and the pre-pandemic 2019. During this period, strategic players took centre-stage in driving deal activities, making 78 out of 81 tender offers.

Continue Reading Takeover of Publicly Traded Companies: Flashback 2021

Delegated Legislation

Background

Over the last few decades, there has been a trend where only a small fraction of law stems directly from ‘legislations’ passed by the Parliament. In the sphere of corporate law, the tendency of the law makers is to enact ‘bare-bone’ statutes such as the SEBI Act, 1992 (“SEBI Act”) and the Foreign Exchange Management Act, 1999 (“FEMA”), and a bulk of the law is enacted by the designated regulators, such as the MCA, SEBI and RBI.

Continue Reading The Rise & Rise of Delegated Legislation – Do we need more Safeguards?

Widened scope of ‘employee under the New SEBI ESOP Regulations

Background:

The Securities and Exchange Board of India had notified the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (“New SEBI ESOP Regulations”), on August 13, 2021. The New SEBI ESOP Regulations govern all share-based employee benefit schemes dealing in securities, including employee stock options, employee share purchase, stock appreciation rights, general employee benefits and retirement benefits (“Share Based Benefit Schemes”). The New SEBI ESOP Regulations also include regulations on sweat equity shares.

Continue Reading Widened scope of ‘employee’ under the New SEBI ESOP Regulations

SEBI amends FPI Regulations to permit registration of AIFs in IFSC with resident sponsors managers as FPIs

Previously, RBI had permitted Indian entities to make mandatory sponsor commitment to AIFs in IFSC under the ‘automatic route’

Introduction

Alternative Investment Funds (“AIFs”) set up in an International Financial Services Centre (“IFSC”) are required to register themselves as Foreign Portfolio Investors (“FPIs”), for being able to invest inter alia in securities listed on Indian stock exchanges or in specific listed or unlisted corporate debt securities of Indian companies. Since entities set up in IFSCs are equivalent to ‘non-residents’ for the purposes of Indian foreign exchange regulations, restrictions placed by Securities Exchange Board of India (“SEBI”) and the Reserve Bank of India (“RBI”) on participation of Indian residents in FPIs are, by default, applicable to AIFs in IFSC. Considering that AIFs may be set up by managers/ sponsors who are resident Indian entities and that the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”), require managers/ sponsors of AIFs to make mandatory sponsor commitment[1] to the AIF, it is imperative that the restrictions on residents investing in FPIs do not conflict with the mandatory sponsor commitment requirements under AIF Regulations, as applicable to AIFs in IFSC.

Continue Reading SEBI amends FPI Regulations to permit registration of AIFs in IFSC with resident sponsors/ managers as FPIs

SEBI Prescribes New Registration Requirement

Marking a significant departure from the erstwhile position, SEBI has mandated that Cat I and II AIF managers should procure Portfolio Management license for facilitating Co-investments

Fund managers desirous of facilitating Co-investments for contributors, sponsors or themselves, in connection with their Category I or Category II AIFs (“Cat I and/or II AIFs”), shall be required to register themselves with SEBI as ‘Co-investment Portfolio Manager’ (as defined below) i.e. a new category of portfolio managers under SEBI (Portfolio Managers) Regulations, 2020 (“SEBI PM Regulations”), effective from December 9, 2021.

Continue Reading SEBI Prescribes New Registration Requirement for Cat I & II AIF Managers Facilitating Co-Investments

Decoding SEBI’s latest amendments to the RPT regime

Background

After a prolonged and anxious wait, on November 9, 2021, SEBI finally notified its far-reaching amendments to the regulatory regime for Related Party Transactions (“RPT”). The amendments[1] to the RPT regulatory regime under the SEBI (LODR) Regulations, 2015 (“LODR”), have their genesis in the Report of the Working Group on RPTs (“WG Report”), which was issued by SEBI on January 27, 2020.

Continue Reading Decoding SEBI’s latest amendments to the RPT regime

Aircraft Leasing in IFSC

The Government of India (“GOI”) has, in the recent years, realised the importance of aircraft leasing activities in the global market and has made its intentions clear to promote aircraft leasing and financing activities in India’s first International Financial Services Centre (“IFSC”) situated in GIFT City, Gandhinagar. The aim is to bring the aircraft leasing business,  currently being carried out in countries that have established themselves in this sector such as Ireland, USA, Hong Kong, Singapore, etc[1], to the Indian shores. Leasing aircraft from abroad leads to incurring substantial liabilities payable in foreign currencies. Hedging currency fluctuations also becomes an additional cost for Indian airline operating companies. The above reasons highlight cost-inefficiencies and put into perspective how crucial it is to begin aircraft leasing and financing activities in India.

Continue Reading Part III (A): Aircraft Leasing in IFSC – Let’s kick the tires and light the fires!