SEBI

Weekly Roundup of Significant Notifications issued by Various Authorities

One of the ways in which eminent authorities communicate their actions and decisions to the general public is by issuing notifications and circulars. The article discusses the significant notifications issued by the authorities in the previous week.

Notifications issued by SEBI

(SEBI) has recently issued several notifications regarding the Framework for the protection of the interest of public equity shareholders in listed companies that are undergoing CIRP under IBC, Real Estate Investment Trusts^[1], Substantial Acquisition of Shares and Takeovers and Payment of Fees which  are discussed below –

Consultation Paper on Framework for Protection of the Interest of Public Equity Shareholders in Case of Listed Companies undergoing CIRP under IBC

SEBI issued the consultation paper on 10th November 2022, which discussed the following-

• Firstly it discussed the objectives of the insolvency laws as highlighted by IMF  in its report titled Orderly & Effective Insolvency Procedures,” i.e. allocating the risk among participants of the market economy in a predictable, equitable and transparent manner and for the benefit of all interested parties and Protecting and maximizing the value or the benefit of all parties that are interested and the economy in general.
• The next thing which was discussed in the paper was regarding the rights and obligations of equity Vs debt, wherein it was admitted that the rights available to the creditors in respect of claims in case of liquidation were distinguished and superior when compared to the equity shareholders. 
• Further, the concept of CIRP was discussed, wherein it was stated that IBC 2015, just like the BIFR mechanism earlier, is mainly meant for protecting the creditors/lenders if a company becomes insolvent, and the committee of creditors, as well as the resolution professional, that steers the insolvency process during that time. 

• The newsletter April – Jun of the IBBI also discussed about the number of corporate Insolvency Resolution Processes and the status of the same. 
• Another point that was discussed in the paper was regarding the outcomes of the approval of a resolution plan from the perspective of a listed company. 
• Significant reduction in the capital of the company; however, the company remain listed, or the company is delisted, followed by its liquidation as per the approval of NCLT and the receipt of various references and grievances from the delisted companies after the approval of the resolution plan.
• Therefore, a need was felt to take adequate measures to address the issues and protect the interests of the public equity shareholders in case of listed companies undergoing the CIRP) under the Insolvency and Bankruptcy Code.
• Consequently, a proposal considering the stakeholders, including minority public shareholders interests at the time of opening a new avenue for the purpose of raising funds for the corporate debtor and not compromising the efficiency and speed of the CIRP process is placed for the consultation of the public as below- 
• The non-promoter public shareholders, i.e. existing public equity shareholders of the corporate debtor, must be provided with an opportunity to acquire the fully diluted capital structure’s equity of the newly formed entity for up to the minimum public shareholding% (currently 25%) on the same pricing terms as the resolution applicant has agreed upon. The new entity shall achieve a minimum of 5% public shareholding through such a mode of the offer made to the non-promoter public shareholders. The offer for acquiring shares/allotment would be made equitably to such public equity Shareholders. The above-mentioned mechanism shall be an important part of the resolution plan that is furnished by the resolution applicant for all listed entities that are undergoing CIRP.
• The following category of shareholders (shares and shares underlying depository receipts) shall be excluded from identifying public equity shareholders- 

1. Promoter and Promoter Group 
2. Shares held by associate companies and subsidiaries
3. Family members of the Promoter and Promoter group are not covered under the definition of the promoter group
4. Trusts managed by Promoter and Promoter group
5. Directors and Director’s Relatives
6. KMPs of the Company
7. Public shareholder representing (nominating) a member (i.e. the Director) on Board
   • It might not be possible for the resolution applicant/successful bidder to upfront specify allotting a certain % of the equity to public equity shareholders, along with getting the same incorporated as part of the resolution plan as the subscription from public equity shareholders under such an offer for acquiring the fully diluted capital structure of the newly formed entity won’t be in the hand of the successful bidder/ resolution applicant. However, for the purpose of ensuring adequate float and liquidity in the new entity after it has been restructured, by the resolution plan, it might be specified that such entity can be permitted to continue as a listed entity provided that 5% of the fully diluted capital structure of the newly formed entity is with the public shareholders. The complete process of offering to the existing public shareholders for the purpose of acquiring the shares of the newly formed entity would be enabled by technology at exchanges in a manner of ensuring that the speed of the resolution process isn’t impacted adversely or is compromised and the said offer is executed via exchange mechanism in a short time span.
   • If a successful bidder/ resolution applicant is unable to muster 5% public shareholding as provided in the above-mentioned process, the company shall go for delisting resulting in the offer made to the existing shareholders being cancelled and the money received from the public equity shareholders by the said offer, be refunded before proceeding further with CIRP.
   • The exemptions granted as per the SEBI (Delisting of Equity Shares) Regulations 2021 for IBC can undergo a review and exemption from provisions of Delisting Regulations would be provided only in the following cases:
     • If the corporate debtor is required to undergo liquidation pursuant to CIRP.
     • Where the shareholding of public equity shareholders remain < 5% of the fully diluted capital structure of the newly formed entity after having exercised the option provided to them with regard to acquiring the shares of the newly formed entity up to the MPS % on the same terms of pricing as is applicable to the resolution applicant.  

• Briefly, the proposal aims towards providing an opportunity for minority shareholders for participating in the resolution process on the same terms of pricing as available to the resolution applicant (up to max 25%).

Merits of the above proposal:

• The company would be able to retain its status as a listed company with minimum public float post-restructuring
• A lesser burden on the successful bidder/ resolution applicant as capital for part equity in the newly formed entity can be achieved through an offer to non-promoter public shareholders. This additional source of raising money shall be available with the resolution applicant and, at the same time, shall also comply with MPS
• The existing public shareholders of the company under CIRP can become shareholders in the company after restructuring.
• The right to participation in the proportion of their shareholding shall be vested with the existing public shareholders. 
• Along with this, they shall have the opportunity to acquire the capital of a newly formed entity at the exact cost at which the new acquirer shall be coming. 

Upon considering the implications of the proposals mentioned above on the market participants, including investors, issuer companies and public comments are invited on the matters in the prescribed manner. 

SEBI (Substantial Acquisition of Shares & Takeovers) (Amendment) Regulations, 2022

SEBI issued this notification vide Notification No. SEBI/LAD-NRO/GN/2022/98 on 9th November 2022 for the further amendment of the SEBI regulations, namely (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. 

The amendments stated in this notification are discussed below 

1. Insertion of the following proviso in regulation 8, in sub-regulation (2), after clause (d), “Provided that the price ascertained as per clause (d) won’t apply in case of the disinvestment of a public sector undertaking by the Central Govt or a State Govt, as the case may be:

Further, it was stated that the proviso shall be applicable only if there are changes in the public sector undertaking.”

2. In regulation 8(3)(e), after the words “frequently traded;” and prior to the word “and”, the following provisos have been inserted – Provided that the price determined according to (e) won’t apply in the event of disinvestment of a public sector undertaking by the Central Govt or a State Govt, as per the case and would be applicable if there is a change in the control in the public sector undertaking.”

3. In regulation 22(2), after the word “cash” and prior to the words “of an amount”, there has been the insertion of words and symbol “or providing irrevocable and unconditional bank guarantee issued favouring the manager to the open offer by any SCB, subject to the approval of the RBI,” 

4. In regulation 22,(2), before the proviso, the following Explanation has been inserted, namely- 

“Explanation. – For sub-regulation (2), a bank guarantee will be issued only by such SCBs having a rating of AAA‟ from a credit rating agency that is registered with SEBI on any of its long-term debt instruments.”

These regulations came into force from November 09, 2022. 

SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2022

The Board vide Notification No. SEBI/LAD-NRO/GN/2022/100 issued the SEBI (Real Estate Investment Trusts) (Amendment) Regulations, 2022 for further amending the SEBI (Real Estate Investment Trusts) Regulations, 2014 on November 09, 2022, stating the following amendments –

The sub-regulation (3) of regulation has been substituted with the following sub-regulation, namely-

“(3) The sponsor(s) and sponsor group(s) would collectively hold a minimum of 15% of the total units of the REIT for at least 3 yrs from the date of listing of the units pursuant to the initial offer on a post-issue basis: 

Any holding of the sponsor(s) and sponsor group(s) that exceeds the minimum holding shall be held for at least 1 year from the date of listing of such units.”

• Along with the substitution of regulation (3), there has been the insertion of a new sub-regulation, i.e. sub-regulation (4) which states as follows.

“(4) Notwithstanding anything contained in any agreement or contract, the sponsor(s) and the sponsor group(s) would continue to be liable to the REIT and unit holders for all acts of omission or commission, covenants or representation regarding the formation of the REIT and the transfer or sale of assets or Holdco or SPV to the REIT.”

The regulations came into force from 09.11.22 

SEBI (Payment of Fees) (Amendment) Regulations, 2022 

SEBI vide SEBI/LAD-NRO/GN/2022/99 issued the SEBI (Payment of Fees) (Amendment) Regulations, 2022 to amend further the SEBI (Foreign Portfolio Investors) Regulations, 2019, and the SEBI (Foreign Venture Capital Investors) Regulations, 2000 on November 09, 2022, providing the following amendments. 

In the SEBI (Foreign Portfolio Investors) Regulations, 2019 –

• In Second Schedule, in Part A, in clause 1, the words and symbols “US $3000 and US $300” has been substituted with “US $2500 and US $250”.
• In Second Schedule, in Part C, in clause 1, the words and symbols “US $1000” has been substituted with “US $800”.
• In the SEBI (Foreign Venture Capital Investors) Regulations, 2000 – 
• In Second Schedule, PART A has been substituted with the following, namely 
• The application fee is (US$) 2,100, and the registration fee is (US$) 8,500.”

These regulations came into force from November 01, 2022.

Notification by DGFT

Another eminent authority that released a significant notification is the Directorate General of Foreign Trade or DGFT, which has been discussed below.

DGFT issued a notification in respect of amendments to the Foreign Trade Policy in sync with RBI A.P.(DIR Series) Circular No.10 dated 11 July 2022

DGFT issued a notification regarding amendments in the Foreign Trade Policy in sync with RBI A.P.(DIR Series) Circular No.10 dated 11 July 2022 on October 28, 2022, vide Notification No. 43/2015-20, stating the following amendments 

Para 2.46 Import for export has been revised.

Para 2.53 Applicability of FTP Schemes for Export Realisations in Indian Rupees has been revised.

Para 3.20 Status Holder has been revised.

Para 4.21 Currency for Realisation of Export Proceeds

Conclusion 

The notifications issued by various authorities can be quite helpful for the general public. The proposal can be beneficial for Public Equity Shareholders in the Case of Listed Companies undergoing CIRP as per the IBC and the other notifications by SEBI and DGFT regarding the latest amendments and can provide the much-needed information to the investors, shareholders or any other relevant person.  

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