SEBI Guidelines on Establishing Wholly Owned Subsidiaries in GIFT IFSC

Prabhat Nigam

13 Sep, 2022

Recently, The Securities and Exchange Board of India (SEBI) in May, 2022 has issued guidelines for seeking No Objection Certificate (NOC) by Stock Brokers or Clearing Members to establish joint ventures, Step Down Subsidiaries, Joint Ventures, Wholly owned subsidiaries in GIFT (Gujarat International Finance Tech-City) International Financial Service Centre (IFSC) and the list of supporting documents to be attached with the application.     

What Is A Step Down Subsidiary? 

A step down subsidiary is a subsidiary company of a company who is a subsidiary of another company. For example where a company C is a subsidiary of a company B and company B is a subsidiary of company A. This means that company C shall be called as a step down subsidiary of company A.   

Applicability of SEBI Guidelines On Establishing Wholly Owned Subsidiaries In GIFT: 

SEBI guidelines on establishing wholly owned subsidiaries in GIFT shall be applicable on the following entities:

1. SEBI registered stock brokers through Stock Exchanges
2. Registered Clearing Members through Clearing Corporations
3. The Managing Directors/ Chief Executive Officers of all Stock Exchanges and Clearing Corporations

Highlights of the Guidelines for Setting up Wholly Owned Subsidiaries in GIFT

The general practice followed by Stock Brokers or Clearing Members for seeking NOC to establish or setting up Joint Ventures, Step down Subsidiaries, wholly owned subsidiaries in GIFT IFSC is to make an application to SEBI to grant NOC to set up the above mentioned legal entities by the Stock Brokers/ Clearing Members.

With these new guidelines, SEBI has streamlined and rationalised the process of obtaining NOC by Stock brokers/ Clearing members for setting up wholly owned subsidiaries in GIFT IFSC. Similar process goes for setting up Joint ventures, step down subsidiaries etc.  

The new guidelines released by SEBI^[1] for setting up wholly owned subsidiaries in GIFT IFSC are as follows:

1. Application according to the format provided: As per the new guidelines, SEBI has laid down the format of the application along with a list of supporting documents needed for seeking NOC for setting up joint ventures, step down subsidiaries, wholly owned subsidiaries in GIFT IFSC. The format has been laid down under Annexure-A of the guidelines.
2. Application through SEBI registered Stock Exchanges: SEBI has directed the stock brokers/ clearing members to make their applications through a SEBI registered Stock exchange where the applicant is a member. The applicant is also supposed to attach the required information, documents and NOC received from all Stock Exchanges/ Clearing Corporations/ Depositories in which the applicant is a member/ participant.
3. Stock exchanges to forward application: the guidelines mandate that the stock exchanges and the clearing corporations need to forward the complete application to SEBI, after completing the due verification of the same along with its recommendations.
4. Details sought in the Annexure: The Annexure comprises of four parts and requires different information from the applicants.
   • General Information: Part one of the annexure demands the applicant to provide some general information which includes details of all the registrations of the applicant company in India and abroad, net worth of the applicant company, Details related to Name, PAN, DIN of the Promoters, Directors, Key Persons of the applicant etc., details of regulatory action taken/ pending/ initiated, if any, against the applicant/ promoters/ directors/ key managerial personnel/ principal officer of the applicant company in India or abroad., details of any fee that is pending to be paid to SEBI by either the applicant itself or its associates, details of the proposed investment to be paid in Indian rupees, details about whether the applicant wants to establish a wholly owned subsidiary or a joint venture or a step down subsidiary or acquiring a stake in an existing company and details of these legal entities in the GIFT IFSC.  
   • Undertaking: The second part of the undertaking asks from the applicant to give an undertaking that after setting up Joint Ventures, step down subsidiaries, wholly owned subsidiaries in GIFT, the applicant shall maintain the net worth for each category of registration according to the SEBI Act and as per the Regulations/ Circulars issued there under and also according to the bye laws/ rules/ regulations issued by the respective stock exchanges/ Depositories.
   • Disclosures: The third part of the disclosure asks the applicant to attach some disclosures such as certificate of net worth of the applicant duly verified by the Chartered Accountant, NOC from all the stock exchanges/ depositories where the applicant is a member or participant, details of non-compliance with respect to the criteria of ‘fit and proper person’ specified in Schedule II of SEBI (Intermediaries) Regulations, 2008, latest shareholding pattern of the applicant and the list of the shareholders who are having a controlling interest.
   • Declaration cum undertaking: the last part of the Annexure-A contains a Declaration cum Undertaking where the intermediary gives an undertaking with respect to the above mentioned information in order to set up a joint venture, step down subsidiary, wholly owned subsidiary in GIFT IFSC. It must be noted that the said information needs to be signed and stamped by the Authorised signatories of the applicant.  

Conclusion

The above guidelines shall come into force with immediate effect. The guidelines in the above circular have been issued in exercise of the powers conferred under section 11(1) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) in order to protect the interests of the investors in securities and to promote the development of and to regulate the securities market.  

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