SEBI streamlines process of change in control of portfolio manager

Prabhat Nigam

13 Sep, 2022

On 2nd June 2022, vide circular number SEBI/HO/IMD-1/ DOF1/P/CIR/2022/77, the Securities and Exchange Board of India (SEBI) issued a Circular seeking prior approval for change in control of Portfolio Managers. In the Circular, SEBI has tried to streamline the procedure of providing approval to the proposed change in control of the portfolio manager. In this Circular, SEBI has prescribed the procedure which needs to be followed by the Portfolio Managers in matters which involve schemes of arrangement requiring the sanction of NCLT.     

Who are the entities to whom the circular on the streamlined procedure of change in control of portfolio manager is applicable?

The circular titled “Procedure for seeking prior approval for change in control of Portfolio Managers” is applicable to all the Portfolio Managers.

Highlights of the Circular on the streamlined procedure of change in control of portfolio manager   

Background

According to Regulation 11(aa) of SEBI (Portfolio Managers) Regulations, 2020, prior approval has to be obtained from SEBI in case of any change in control of the Portfolio Manager. The procedure for obtaining such prior approval in case of change in the control of the Portfolio Manager has been specified by SEBI vides Circular Number SEBI/HO/IMD/IMDI/DOF1/P/CIR/2021/564 issued on 12^th May 2021.

Streamlining of the process of change in control of portfolio manager

SEBI, through this Circular, has tried to streamline the process of providing approval to the proposed change in the control of the Portfolio Manager. In furtherance of this, modifications were made to the Circular Number SEBI/HO/IMD/IMDI/DOF1/P/CIR/2021/564 issued on 12th May 2021. The changes made are here as under:

1. The Portfolio Manager is supposed to send an online application to SEBI to obtain prior through SEBI Intermediary Portal.
2. The validity of the prior approval granted by SEBI shall be valid for six months from the date of such approval.
3. Applications have to be made to SEBI within a period of six months from the date of prior approval in case of fresh registration after change in control.
4. After obtaining the approval from SEBI, the Portfolio Manager shall inform its existing customers and investors about the proposed changes before bringing those changes into effect and also provide them with the option to exit without any exit load. Such intimation is done in order to enable the clients/ investors to make an informed decision about continuing or discontinuing the changed management. This option has to be provided to the clients/ investors within a period of not less than 30 calendar days from the date of such communication.
5. In the case of schemes whose arrangement requires sanction of the National Company Law Tribunal (NCLT) according to the provisions of Companies Act, 2013, then the Portfolio Manager has to ensure the following:
6. The application seeking approval for change in control of Portfolio Manager under Regulation 11(aa) of SEBI (Portfolio Managers) Regulations, 2020 shall be filed first with SEBI. Thereafter, the relevant application will be made with NCLT;
7. Once SEBI is satisfied with the compliances of the applicable regulatory requirements, it shall give in-principle approval to the applicant;
8. The in-principle approval so obtained from SEBI is valid for a period of three months from the date of approval within which the applicant needs to make a relevant application shall be made to NCLT;
9. After obtaining the order from NCLT, within a period of 15 days, the Portfolio Manager shall submit an application to SEBI in terms of point 5(a) of this Circular in order to obtain final approval from SEBI. Following are the documents that will be submitted for obtaining final approval:

• A copy of the NCLT^[1] order giving approval to the scheme;
• A copy of the approved scheme;
• A statement which explains the proposed modification, if any, in the approved scheme in relation to the draft scheme and reasons for the same; and
• Details of the compliances with the observations or conditions mentioned in the in the in-principle approval provided by SEBI.

• All other provisions regarding the procedure for seeking prior approval for change in control of Portfolio Manager mentioned above in point 5(b)-(d) shall also apply.     

Date of Coming into effect

The particulars of this circular shall come into effect from 15^th June 2022 onwards. The particulars of this Circular shall be applicable to all the applications for approval of applications for change in control of portfolio managers. It must be noted that, SEBI Circular number SEBI/HO/IMD/IMD-I/DOF1/P/CIR/2021/564 issued on 12^th May 2021 shall stand superseded with effect from the date when this revised Circular shall come into effect.  

Conclusion

This Circular on modified SOP on defaulting members has been issued in exercise of the powers conferred on the SEBI under section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Reg. 43 of the SEBI (Portfolio Managers) Regulations, 2020 in order to protect interests of the investors in the securities market and also to promote the development and regulation of the securities market.

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