INSIGHT Vol. X...INSIGHT (Vol. X l Issue IV) November 01, 2018 – February 28, 2019 02 TABLE OF...

INSIGHT|Vol. X Issue IV

November 01, 2018 – February 28, 2019

FOREWORD

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Welcome to this issue of Insight.

In this issue, as the lead article, we have covered the recent judicial developments under the Insolvency and Bankruptcy Code, 2016, particularly in respect of the acceptance or rejection of resolution plans by the committee of creditors constituted as part of the corporate insolvency resolution process and the consequences of such acceptance or rejection.

Apart from the above, we have also covered the key notications and orders issued by the Ministry of Corporate Affairs in relation to the Companies Act, 2013 as well as circulars and notications issued by the RBI and SEBI for the period under review.

Any feedback and suggestions would be valuable in our pursuit to constantly improve Insight and ensure

its continued success amongst readers. Please feel free to send any feedback, suggestions or comments to [email protected].

Regards,

CYRIL SHROFF Managing Partner Cyril Amarchand Mangaldas

Phone: +91-22-2496 4455/ 6660 4455 Fax: +91-22-2496 3666Email: [email protected]

INSIGHT (Vol. X Issue IV) lNovember 01, 2018 – February 28, 2019

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TABLE OF CONTENTS

PARTICULARS

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PAGE NO.

l Resolution Plans and Settlement Under the IBC – An Analysis Of Recent Judgments

COMPANY LAW UPDATE

Amendments and Circulars

l Ordinance for amendment to the Companies Act, 2013

l Amendment to the Companies (Registered Valuers and Valuation) Rules, 2017

l Amendment to the Companies (Incorporation) Rules, 2013

l Amendments to the Companies (Prospectus and Allotment of Securities) Rules,

l Amendment to Companies (Acceptance of Deposits) Rules, 2014

l Amendment to Companies (Signicant Benecial Owners) Rules, 2018

FOREIGN INVESTMENT AND RBI UPDATE


l Amendment of FEMA (Deposit) Regulations

l Issuance of New ECB Framework

l Amendment of Branch Ofce / Liaison Ofce regulations

l Revised norms for FDI in E-commerce

l Relaxation of norms for investments by FPIs in Debt

l Amendments to FEM (Foreign Currency Accounts) Regulations

SECURITIES LAW UPDATE


l Streamlining the process of public issue of equity shares and convertibles

l Standardisation of norms for transfer of securities in physical mode

l Amendments to Delisting Regulations

l Amendments to LODR Regulations

l Issuance of Operating Guidelines for AIFs in IFSC

l Issuance of a framework for fund raising by issuance of debt securities

l Amendment to the Mutual Funds Regulations

l Format for disclosing signicant benecial ownership in the shareholding pattern

l Clarication on clubbing of investment limits of FPIs

l Modication of guidelines on offer for sale through the stock exchange mechanism

l Amendments to SEBI (FPI) Regulations

l Amendments to SEBI (Prevention of Insider Trading) Regulations

l Amendments to SEBI (Fraudulent and Unfair Trade Practices) Regulations

l Amendments to the Takeover Regulations

l Amendments to the ICDR Regulation

l Acceptance of Probate of Will or Will for Transmission of Securities held in dematerialized mode

l Amendments to the guidelines for public issue of units of InvITs

l Issuance of format for annual secretarial audit report and annual secretarial compliance report

l Relaxation of requirement to furnish copy of PAN where equity shares transferred by non-residents

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TABLE OF CONTENTS

PARTICULARS PAGE NO.

Informal Guidance

l Informal guidance on exemption under Takeover Regulations in case of transfer of shares in off-market transactions between promoters

l Informal guidance on applicability of ICDR to preferential issue of OCDs

l Informal guidance on commencement of pre-IPO lock-in of investments in equity shares by Category I & II AIF schemes

l Informal Guidance on exemption under Takeover Regulations in case of transfer of shares between immediate relatives in off-market transactions

l Informal guidance on date of commencement of the lock-in period in case of unlisted warrants

Reports and Consultation Paper

l Recommendations by the expert committee for listing of equity shares of companies incorporated in India on foreign stock exchanges

l Proposed amendments to the SEBI (InvIT) Regulations and the SEBI (REIT) Regulations

OTHER UPDATES

l DPIIT expands the denition of “Start-Ups” to provide relief from Angel Tax

l Reforms to the Indian Stamp Act, 1889


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1 Company Appeal (AT) (Insolvency) No.82 of 2018, NCLAT, New Delhi, decided on November 14, 2018.

2 2019 (2) SCALE 5,

3 Civil Appeal No. 10673 of 2018, Supreme Court of India, decided on February 05, 2019.

4 Company Appeal (AT) (Insolvency) no. 198 of 2018, NCLAT, New Delhi, decided on February 04, 2019.

5 2019 (2) SCALE 352.

RESOLUTION PLANS AND SETTLEMENT UNDER THE IBC – AN ANALYSIS OF RECENT JUDGMENTS

The Insolvency and Bankruptcy Code, 2016 (the “Code”) was enacted at a very critical moment in India's economic history when the domestic banking sector in India was grappling with an alarming number of bad loans. Enacted on the lines of the UK and US Bankruptcy laws, the Code is aimed at a resolution oriented approach in order to balance the interest of all the stakeholders, including alteration in the order of priority for payment of Government dues and maximisation of the value of the assets of the corporate debtor. It has been close to 3 years since its enactment and the Code has undergone two amendments, the rst one coming into effect from November 23, 2017, which, among others, disqualied promoters from participating in the bidding process, and the second, coming into effect from June 06, 2018, which, amongst others, added home buyers as nancial creditors.

The corporate insolvency resolution process (“CIRP”) under the Code is a creditor driven process with the Committee of Creditors (the “CoC”) being empowered to accept or reject resolution plans put forth for the resolution of the insolvency of a corporate debtor. In this issue, we have looked at ve key recent judgements rendered by the

1courts, viz. Binani Industries Limited v. Bank of Baroda. ; 2Swiss Ribbons Pvt. Ltd v. Union of India. ; K Sashidhar v.

3Indian Overseas Bank ; Tata Steel Limited v. Liberty 4House Group Pte. Ltd. , and Vijay Kumar Jain v. Standard

5Chartered Bank , in respect of the acceptance or rejection of resolution plans by the CoC and the consequences following such acceptance or rejection.

1. Binani Industries Limited v Bank of Baroda (NCLAT)

The facts in this case was that the Adjudicating Authority, i.e., the National Company Law Tribunal (“NCLT”), rejected the resolution plan submitted by one of the resolution applicants, viz., Rajputana Properties Private Limited, which was approved by the CoC. The ground for such rejection was that the plan was discriminatory and contrary to the scheme of the Code. The NCLT directed the CoC to consider the other resolution plans submitted by other applicants. The resolution applicant raised various objections before the, Appellate Authority, i.e., the National Company Law Appellate Tribunal (“NCLAT”),

regarding the direction issued by the Adjudicating Authority. The NCLAT after a detailed discussion on the provisions and objectives of the Code held as under:

(i) The objective of the Code is resolution and aims at providing availability of credit along with maximisation of value of assets, hence, the liabilities of all creditors who are not part of the CoC must also be considered in the resolution.

(ii) The creditors should be treated equally with other similarly situated creditor.

(iii) A creditor cannot maximise his own interests in view of the moratorium and, if one type of credit is given a preferential treatment, the other type of credit will disappear from the market, which would be against the objective of availability of credit.

(iv) The resolution plan is a plan for insolvency resolution of the corporate debtor as a going concern, and is not a sale, auction, recovery or liquidation.

(v) NCLAT has given much importance to the process document issued by the resolution professional in the CIRP and the powers of the CoC contained therein.

On facts, NCLAT held that CoC approval was discriminatory treatment, since the plan of Rajputana Properties discriminated against some of the nancial creditors who were equally situated as the others. Therefore, the NCLAT held that the NCLT was right in directing the CoC to reconsider the resolution plan of another applicant.

2. Swiss Ribbons Pvt. Ltd & Anr. v Union of India (SC)

Swiss Ribbons saw a challenge to the constitutionality of the Code on several grounds, with specic reference to the rights of operational creditors and the distinction between the rights of operational creditors vis-à-vis the rights of nancial creditors.

In a landmark judgment upholding the constitutional validity of the Code, the Supreme Court made the following observations:

(i) The Supreme Court distinguished between operational and nancial creditors, stating that


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nancial creditors are better suited to assess the viability and feasibility of the business of the corporate debtor. First, nancial creditors are involved in assessing the viability of the debtor's business since the very beginning. Second, their exposure to the corporate debtor is usually far greater than that of operational creditors which makes them more willing to take the risk of postponing payments in return for better future prospects of the debtor.

(ii) Further, the court noted the checks and balances (such as the minimum payment of liquidation value and the priority in payment) that have been put in place to ensure that operational creditors are given fair and equitable treatment in the resolution process. This claries the decision of the NCLAT in Binani Industries and sets the requirement for treatment of operational creditors.

(iii) If the CoC arbitrarily rejects a just settlement and/ or withdrawal claim under Section 12A, the NCLT, and thereafter, the NCLAT can set aside such a decision under Section 60 of the Code. Therefore the decision of the CoC to reject a settlement on account of absence of the requisite 90% majority as required under Section 12A of the Code, can now be challenged by the person offering such settlement/ withdrawal beforethe NCLT on the above specied grounds.

(iv) If the CoC has not yet been constituted, a creditor can approach the NCLT under Rule 11 of the NCLT Rules, 2016 for withdrawal of its petition, which was already admitted.

3. Tata Steel v. Liberty House (NCLAT)

In this case Tata Steel claimed to have submitted the highest bid as on the original deadline of February 8, 2018, and objected to consideration of “belated” resolution plan submitted by Liberty House and the CoC's decision to require revised resolution plans from all three resolution applicants. Tata Steel contended that the resolution applicants have no right to revise their bids endlessly, and the CoC is not authorised to entertain or require fresh or revised bids. It insisted that after submission of the original resolution plan, no revised nancial offer can be submitted. The issue before the court was whether the CoC ought to consider revised resolution plans which are submitted beyond the timelines prescribed in the process documents.

The NCLAT held as under:

(i) While reiterating the principles of Binani Industries, the court held that that the CoC will have to ensure a time-bound process, to better preserve the economic value of the assets. Simultaneously, it is duty of the CoC to ensure that the resolution plan is viable, feasible and should maximise the assets of the corporate debtor. The NCLAT held that improved nancial offer(s) submitted by a resolution applicant is a continuation of its resolution plan already submitted.

(ii) Prior to the CoC voting upon a resolution plan, it is open for the CoC to call for, and consider, the 'improved nancial offer(s)' in accordance with the s tatutory mandate to ensure value maximisation.

The NCLAT also made certain observations regarding the manner of calculation of the requisite majority of nancial creditors, approving a resolution plan. It observed that the voting share of member of the CoC, who is not present in the meeting either directly or through video conferencing, cannot be counted for the purpose of calculating the total voting shares of the members of the CoC.

4. K. Sashidhar v. Indian Overseas Bank (SC)

The issue that came up for consideration before the Supreme Court related to the justiciability of commercial decisions of the CoC. The Supreme Court held as under:

(i) The NCLT has no jurisdiction and authority to analyse or evaluate the commercial decision of the CoC to enquire into the justness of the rejection of the resolution plan by the nancial creditors.

(ii) If the resolution plans have been rejected by the CoC, and the CIRP period is completed, the NCLT is obligated to initiate liquidation process under Section 33(1) of the Code.

(iii) The requisite threshold for the resolution plan to be considered as duly approved by the CoC is “not less than 75% of voting share of the nancial creditors.” In other words, the fact that substantial or majority percent of nancial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% of voting share of the nancial creditor. Therefore, the action of the liquidation


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process is avoidable only if approval of the resolution plan is by a vote of not less than 75% of voting share of the nancial creditors. Presently, post the Insolvency and Bankruptcy Code (Second Amendment), Act, 2018, the threshold for approval has been changed to 66%.

(iv) The scope of enquiry and the limited grounds on which the decision of the approval of the resolution plan by the CoC can be interfered with by the NCLT has been set out in Section 31(1) read with Section 30(2) and by the NCLAT under Section 32 read with Section 61(3) of the Code. There is no corresponding provision which empowers the resolution professional or the NCLT to reverse the commercial decision of the CoC.

(v) The non-recording of reasons for approving or rejecting the resolution plan by the concerned nancial creditor during the voting in the meeting of the CoC, would not render the nal collective decision of CoC a nullity per se.

5. Vijay Kumar Jain v Standard Chartered Bank (SC)

Under the Code, members of the erstwhile Board of the corporate debtor have the right to participate in CoC meetings. In Vijay Kumar Jain, the issue before the court was whether such a director of the company under CIRP has a right to access all the documents or information that the CoC considers during its meetings (including the resolution plans) for effective participation in the meetings. The Supreme Court held that:

(i) The scheme of the Code is clear on the position that directors, though not members of CoC, have a right to participate in every meeting of the CoC and, for effective participation as interested parties, they have the right to receive copies of the resolution plans presented to the CoC.

(ii) The Court considered that the directors are interested parties on the ground that such directors are often the guarantors and may be affected by the approved plan and, being well conversant with the affairs of the company, may actually be able to assist the CoC in determining whether the resolution plan successfully addresses the cause of default by the company.

Concluding remarks

The approach of the courts / tribunals in all these cases is grounded on certain fundamental objectives of the Code, viz. time and speed in resolution process, maximization of value of assets of the debtor, liquidation being the last resort when resolution cannot be achieved, and resolution process not being adversarial to the corporate debtor, but seeking to protect its interests.

Based on these objectives, these decisions have put to rest certain important questions, and enunciated some key principles, including the follows:

(i) Improved nancial offers submitted even after the last day for submission of the bids as contained in the process document may also be considered (but prior to voting by the COC), as long all resolution applicants are given a similar opportunity.

(ii) Approval of the resolution plan is a commercial decision in which the courts/ tribunals should not interfere. However, if the resolution plan is discriminatory against similarly situated creditors, the decision of the CoC could be interfered with.

(iii) The promoters have the ability to propose a settlement. The decision of a CoC to reject a settlement can be challenged before the NCLT / NCLAT on grounds of arbitrariness.

(iv) The directors of the corporate debtor are entitled to receive all documents and information that the CoC has, including the resolution plans.

These are land-mark judgements in evolution of the Code. Whilst the sanctity of the Code has been upheld by the Supreme Court and the powers of the CoC to approve a plan have been emphasized as well, the court has also brought some balance in giving the directors an opportunity to contribute to the resolution process, and by permitting settlements to be accepted by the NCLT prior to constitution of the CoC. On the whole, the court has strengthened the Code with checks and balances for improving the prospects of a successful resolution.

Cyril Amarchand Mangaldas has represented and/or advised the Financial Creditor, CoC or the Resolution Professional, in respect of the aforementioned matters.


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COMPANY LAW UPDATE

1. Ordinance for amendment to the Companies Act, 2013

With a view to ll critical gaps in the corporate governance and compliance framework, while simultaneously enhancing the ease of doing business, and pending the enactment of the Companies (Amendment) Bill, 2019, several ordinances have been promulgated to introduce, with effect from November 02, 2018, inter alia, the following amendments to the Companies Act, 2013 (the “Act”):

Ø In order to de-clog the National Company Law Tribunal (“NCLT”), the power to approve the following actions under the Act, which was earlier to be exercised by the NCLT, has now been vested in the Central Government:

l A company (being a holding or subsidiary or associate company of a company outside India) seeking to follow a different nancial year for the purposes of consolidating the accounts outside India;

l An alteration to the articles of association which has the effect of conversion of a public company into a private company.

Ø Insertion of Section 10A (Commencement of business, etc.) to the Act to provide that a company having share capital, incorporated after the commencement of the ordinance shall not commence business unless:(i) a declaration is led with the Registrar of Companies (“RoC”) by a director within 180 days of the date of incorporation that each subscriber to the memorandum has paid the value of shares subscribed by him, and (ii) verication of registered ofce is led with the RoC, failing which the RoC has been empowered to remove the name of the company from the Register of Companies.

Ø Insertion of proviso to Section 12 (Registered Ofce of Company) of the Act to provide that if the RoC has reasonable cause to believe that the company is not carrying on any business or operation, he may cause physical verication of registered ofce and if any default is found to have been made, the RoC may initiate action for removal of the name of the company from the Register of Companies.

Ø In respect of an order of the NCLT directing imposition of restrictions on transfer of interest, suspension of rights attached to the shares in respect of which requisite compliances under Section 90 (Register of signicant benecial owners in a company) have not been completed, a time period of1 (one) year has been prescribed for a company or person aggrieved by such order to make an application to the NCLT, failing which, the concerned shares shall stand transferred to Investor Education and Protection Fund (the “IEPF”) authority.

Ø Section 197(7) prohibiting an independent director from receiving any stock options or prot related commission has been omitted.

Ø Penalties for contravention of certain provisions of the Act have been prescribed, and several offences under the Act have been de-criminalized.

(The Companies (Amendment) Ordinance, 2018, the Companies (Amendment) Ordinance, 2019 and the Companies (Amendment) Second Ordinance, 2019)

2. Amendment to the Companies (Registered Valuers and Valuation) Rules, 2017

Ø The Ministry of Corporate Affairs (“MCA”) has, with effect from November 13, 2018, amended the Companies (Registered Valuers and Valuation) Rules, 2017 to clarify that the rules shall be applicable to valuation in respect of any property, stocks, shares,


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debentures, securities or goodwill or any other assets or net worth of a company or its liabilities under the provision of the Act.

(MCA Notication no. G.S.R. 1108 (E) dated November 13, 2018)

3. Amendment to the Companies (Incorporation) Rules, 2013

T h e M C A h a s a m e n d e d t h e C o m p a n i e s (Incorporation) Rules, 2013 to introduce three new forms as below:

Ø Form No. INC-20A has been introduced, with effect from December 18, 2018, for the purposes of ling the declaration under Section 10A (i.e. a declaration by director that all the subscribers to the memorandum have paid the value of shares subscribed by them).

Ø E-Form No. RD-1 has been introduced, with effect from December 18, 2018, for the purposes of ling the application for obtaining approval: (i) for adopting a period, other than as specied in Section 2(41) (Financial Year), as a nancial year, and (ii) for effecting such change in the Articles of a private company that would result in its conversion into a public company.

Ø E-Form ACTIVE (INC-22A), with effect from, February 25, 2019, as part of the Active Company Tagging Identities and Verication (ACTIVE) exercise, pursuant to which:

l Every company incorporated on or before December 31, 2017, which has not been struck off and is not in the process of being struck off or under liquidation, amalgamation or dissolution, shall le this form by April 25, 2019. A company which has defaulted in ling its nancial statements and / or annual returns under the Act will be restricted from ling INC-22A.

l Failure to le this form by the specied date, will result in such companies being marked as “ACTIVE-non-compliant”, pursuant to which action may be taken by the RoC for the removal of name of such company from the register of companies, and such company would not be permitted to le forms SH-7 (Change in Authorized Capital), PAS-3 (Change in Paid-up Capital), DIR-12 (Changes in Director except cessation), INC-22 (Change in Registered Ofce), INC-28 (for amalgamation /demerger).

(MCA Notication no. G.S.R. 1219(E) dated December 18, 2018 and MCA Notication dated

February 21, 2019)

4. Amendments to the Companies (Prospectus and Allotment of Securities) Rules, 2014

The MCA has, with effect from January 22, 2019, notied the amendments to the Companies (Prospectus and Allotment of Securities) Rules, 2014 to provide that Rule 9A pertaining to the issuance of securities mandatorily in dematerialized form by unlisted companies, shall not apply to an unlisted public company which is a Nidhi, a Government company or a wholly owned subsidiary.

(MCA Notication No. G.S.R. 43 (E) dated January 22, 2019)

5. Amendment to Companies (Acceptance of Deposits) Rules, 2014

The MCA has, with effect from January 22, 2019, amended the Companies (Acceptance of Deposits) Rules, 2014 to provide the following:

Ø Any amount received by a company from a Real Estate Investment Trust (“REIT”) registered with Securities and Exchange Board of India (“SEBI”) shall not be considered a “deposit”.

Ø Explanation has been inserted to Rule 16 (Return of deposits to be led with the Registrar) to clarify that Form DPT-3 has to be led by every company, other than a Government Company, for ling return of deposit or particulars of transaction not considered as deposit or both.

Ø Rule 16(A) (Disclosures in the nancial statement) has been amended, mandating every company, other than a Government company, to le a one-time return of outstanding receipt of money or loan by a company but not considered as deposits, within 90 (ninety) days of publication of the amendment in the gazette.

(MCA Notication no. G.S.R. 42(E) dated January 22, 2019)

6. Amendment to Companies (Signicant Benecial Owners) Rules, 2018

The MCA has amended the Companies (Signicant Benecial Owners) Rules, 2018, with effect from the date of publication, to provide the following:

Ø Criteria for identication of Signicant Benecial Owner (“SBO”): The amended rules lay down the criteria for identifying a SBO, where the registered member of the reporting entity is a body corporate, a trust, a Hindu Undivided Family (HUF), a partnership


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entity, a pooled investment vehicle or an entity controlled by such entity.

Ø Deemed SBO: An individual (acting alone or together, or through one or more persons or trust) will be deemed to be an SBO only on the basis of his indirect holdings or on the basis of direct holdings held together with indirect holdings.

Ø Direct Holding: The interest of a registered member of the company and an individual who has already made a declaration of holding benecial interest in the company (under S. 89(2) of the Act), constitutes direct holding.

Ø Persons acting together: The phrase “acting together” has been claried to include common intent or purpose of exercising any right or entitlement or control or signicant inuence over a reporting company pursuant to an agreement or understanding, formal or informal. This is similar to the concept of “persons acting in concert” under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the “Takeover Regulations”).

Ø Non-applicability of Rules: The rules are not applicable to the extent that the shares of a reporting entity are held by the Central Government, State Government or any local authority, or by another reporting entity controlled by them; the IEPF; SEBI registered investment vehicles such as mutual funds, Alternative Investment Funds (“AIFs”), REITs and Infrastructure Investment Trust (“InvITs”); and investment vehicles registered with the Reserve Bank of India (“RBI”), Insurance Regulatory and Developmental Authority of India (“IRDA”) or Pension Fund Regulatory and Development Authority.

Ø Filing Obligations: Every SBO is required to le a declaration to that effect within 90 days of the commencement of the amendment rules or 30 days from subsequently becoming an SBO, within 30 days of which declaration, the reporting company is required to le a return with the RoC in respect of such declaration in the prescribed form.

Ø Company's Obligation to identify SBO: Every reporting company is required to take steps to nd out if there is any individual who is a SBO (including serving notice to non-individual members holding not less than 10% of shares / voting rights / right to receive or participate in dividend or any distribution payable


in a nancial year, seeking information in accordance with Section 90(5)), and direct such individuals to le the SBO declaration.

(MCA Notication no. G.S.R. 100(E) dated February 08, 2019)

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FOREIGN INVESTMENT AND RBI UPDATE

eligible to receive foreign direct investment (“FDI”) and includes port trusts, units in special economic zones, SIDBI, EXIM Bank, registered entities engaged in micro-nance activities, viz., registered not for prot companies, registered societies / trusts / cooperatives and non-government organisations.

Ø Limits removed - The earlier sectoral limits for the amount of ECB which may be raised in a nancial year under the automatic route have been removed. All eligible borrowers may now raise ECBs of up to USD 750 million or its equivalent in any particular nancial year under the automatic route.

Ø Minimum average maturity - Earlier the minimum average maturity period was pegged to the amount of borrowing. Under the new ECB Policy, the minimum average maturity period is 3 years for all ECBs, irrespective of the amount of borrowing, subject to limited exceptions.

Ø Recognised Lenders - The new ECB Policy requires recognised lenders to be a resident of a country which is FATF or IOSCO compliant. Multilateral and regional nancial institutions will also be recognised, if India is a member country. Individuals and foreign branches or subsidiaries of Indian banks can also be lenders.

The RBI has issued a circular, in effect from February 07, 2019, permitting companies participating in CIRP under the Code to tap the ECB route. They may now raise ECBs from the recognised lenders, except the branches/ overseas subsidiaries of Indian banks, for repayment of rupee term loans of the target company under the approval route.

(A.P. (DIR Series) Circular No. 17 dated January 16, 2019 and A.P. (DIR Series) Circular No. 18

dated February 07, 2019)

1. Amendment of FEMA (Deposit) Regulations

The RBI has, with effect from November 09, 2018, amended the the Foreign Exchange Management (Deposit) Regulations, 2016 to, inter alia,:

Ø Permit an Authorized Dealer to allow an Foreign Portfolio Investor (“FPI”) and a Foreign Venture Capital Investor (“FVCI”) (registered with SEBI) to open and maintain non-interest bearing account for the purpose of making investment in accordance with Foreign Exchange Management (Transfer of Issue of a Security by as Person Resident Outside India) Regulations, 2017 (“FEMA 20(R)”).

Ø Additionally, the terms and conditions for opening an Escrow Account with an Authorised Dealer has been modied, to include as permissible credit, amounts by way of a guarantee issued by an Authorised Dealer bank subject to the terms and conditions of the Foreign Exchange Management (Guarantee) Regulations, 2000.

(Gazette No. G.S.R 109(E) dated November 09, 2018)

2. Issuance of new External Commercial Borrowing Framework

The RBI has, with effect from January 16, 2019 issued a revised external commercial borrowing (“ECB”) policy to further improve ease of doing business in India. The salient features of the new ECB Policy are:

Ø Merging of tracks - The tracks for ECBs under the erstwhile framework have now been merged into just two depending on the currency – Foreign Currency denominated ECB and Rupee Denominated ECB. The framework has been made instrument-neutral.

Ø Eligible Borrowers-The list of eligible borrowers has been signicantly expanded to include all entities


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3. Amendment of Branch Ofce / Liaison Ofce regulations

Ø The RBI has, with effect from January 21, 2019, amended the Foreign Exchange Management (Establishment in India of a branch ofce or a liaison ofce or a project ofce or any other place of business) Regulations, 2016 (“FEMA 20(R)”) to provide that in case of an applicant having its principal business in Defence, Telecom, Private Security and Information or Broadcasting sectors, and intending to open a branch / liaison / project ofce or other place of business in India, approval of the RBI would not be required where permission or license has already been granted by the concerned Ministry or Regulator.

Ø Further, in case of a proposal for opening a project ofce related to defence sector, where a non-resident applicant has been awarded a contract or has entered into an agreement with the Ministry of Defence or Service Headquarters or Defence Public Sector Undertakings, no separate reference or approval of the Central Government is required.

With effect from February 27, 2019, RBI has issued a c i rcular providing that non-government organisations, non-prot organisations or an agency or department of a foreign government do not require prior approval of the RBI under FEMA 20(R) to open a branch ofce / liaison ofce / project ofce in India, if they are engaged partly or wholly in activities covered under the Foreign Contribution (Regulation) Act, 2010 (“FCRA”). They will now only require a certicate under the FCRA.

(Gazette No. G.S.R 40(E) dated January 21, 2019 and A.P. (DIR Series) Circular No. 20 dated

February 27, 2019)

4. Revised norms for FDI in E-commerce

In terms of the extant framework, FDI was only permitted in the marketplace based model ofe-commerce, and not the inventory based mode. The Department of Industrial Promotion and Policy (DIPP) has issued press note 2 and the RBI has amended the FEMA 20(R), with effect from February 01, 2019, to provide as follows:

Ø An entity having equity participation by thee-commerce marketplace entity or its group companies, or having control on its inventory by e-commerce marketplace entity or its group companies, shall not be permitted to sell its products on the platform run by such marketplace entity.

Ø Inventory of a vendor would be deemed to be controlled by e-commerce marketplace entity if more than 25% of purchases of such vendor are from the marketplace entity or its group companies.

Ø It has now been decided that services shall be provided by e-commerce marketplace entity or other entities in which e-commerce marketplace entity has direct or indirect equity participation or common control, to vendors on the platform at arm's length and in a fair and non-discriminatory manner.

Ø The e-commerce marketplace entity shall not mandate any seller to sell any product exclusively on its platform only.

Ø Moreover, e-commerce marketplace entity shall furnish a certicate along with a report of statutory auditor to RBI, conrming compliance of above guidelines, by 30th of September of every year for the preceding nancial year.

Ø The press note also restricts group companies ofe-commerce entities from providing cashback to buyers.

(Gazette No. G.S.R 78(E) dated January 31, 2019 and DIPP Press Note no. 2 (2018 series))

5. Relaxation of norms for investments by FPIs in Debt

The RBI had previously vide its circular dated June 15, 2018, restricted FPIs from having an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate). The RBI has now withdrawn this restriction with immediate effect.

(A.P. (DIR Series) Circular No. 19 dated February 15, 2019)

6. Amendments to FEM (Foreign Currency Accounts) Regulations

With effect from February 27, 2019, ship-manning / crew managing agencies in India as well as re-assurance and composite insurance brokers registered with the IRDA are permitted to open non-interest bearing foreign currency accounts in India for undertaking transactions in the ordinary course of their business.

(Gazette No. G.S.R 160(E) dated February 27, 2019)


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SECURITIES LAW UPDATE

AMENDMENTS AND CIRCULARS

1. Streamlining of the process of public issue of equity shares and convertibles

Pursuant to circular dated November 1, 2018, SEBI has introduced the use of the Unied Payment Interface (“UPI”) as a payment mechanism with Application Supported by Block Amount (“ASBA”) for applications by retail individual investors through intermediaries, in public issues, for increasing efciency, eliminating manual intervention at various stages and reducing the time duration from issue closure to listing by three working days. The circular shall apply to red herring prospectus led for public issues opening on or after January 1, 2019, and the key highlights are as follows:

Ø The mechanism is proposed to be introduced in a phased manner:

l During phase I, the UPI mechanism for retail individual investors through intermediaries has been made effective from January 1, 2019 with the existing timeline of T+6 days. This will continue for 3 months or the oating of 5 main board public issues, whichever is later.

l Under phase II, the existing process (i.e. physical movement of forms from intermediaries to self-certied syndicate banks (“SCSBs”) for blocking of funds) will be discontinued and the UPI mechanism with timeline of T+6 days will continue for 3 months or the oating of 5 main board public issues, whichever is later. Therefore, of the four channels indicated in the circular, three channels will be available under phases II and III.

l During phase III, the nal reduced timeline would be made effective, which is yet to be notied.

Ø The issuer companies will now be required to appoint sponsor bank, banker to the issue registered with SEBI, which will act as a conduit between the stock exchanges and National Payments Corporation of India in order to push the mandate, collect requests and / or payment instructions of the retail investors into the UPI.

Ø An investor making application using any channel indicated in the circular is required to use only his / her own bank account or only his / her own bank account linked UPI ID to make an application in public issues.

Ø The circular lays down detailed procedure which needs to be followed for application by a retail individual investor in a public issue and indicative timelines there, and mandates requisite disclosures of commissions and processing fees payable to intermediaries and the timelines for payment, in the offer documents

(SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2018/138 dated

November 1, 2018)

2. Standardisation of norms for transfer of securities in physical mode

Pursuant to the circular dated November 6, 2018, SEBI has sought to modify the procedure for transfer of securities in physical mode, as follows:

Ø Registration of the transfer deeds executed prior to notication of the SEBI (Listing Obligations and


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Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), may be done with or without the permanent account number (“PAN”) of the transferor as per the requirement of quoting PAN under the applicable rules of income tax.

Ø In the event of mismatch between the name on the PAN and the name on the share certicate or transfer deed, the submission of a copy of the passport, legally recognized marriage certicate, gazette notication regarding change of name or Aadhaar card may sufce.

Ø Detailed procedure has been laid down to be followed in case of a major mismatch in or non-availability of the transferor's signature.

(SEBI Circular SEBI/HO/MIRSD/DOS3/CIR/P/2018/139 dated

November 6, 2018)

3. Amendments to the Delisting Regulations

The SEBI (Delisting of Equity Shares) Regulations, 2009 (the “Delisting Regulations”) have been amended with effect from November 14, 2018. The key highlights of the amendment are as follows:

Ø The denition of the term 'acquirer' has been added to have the same meaning as ascribed to it, under the Takeover Regulations and who has chosen to make an offer for delisting the company in terms of the Regulation 5A of the Delisting Regulations. Separately, the denition of the term 'public shareholder' has been amended to exclude the promoter groups, acquirers and their persons acting in concert (in addition to promoters and holders of depository receipts).

Ø The 'specied date' for determining the names of shareholders to whom the letter of offer shall be sent, to be a day not later than 1 working day from the date of the public announcement.

Ø The holders of depository receipts to participate in the book building process under Regulation 14(1) of the Delisting Regulations only after exchanging their depository receipts with the shares of the class that are proposed to be delisted.

Ø The reference date for computing the oor price to be the date on which the recognized stock exchange(s) are required to be notied of the meeting of the board of directors in which the proposal of delisting is to be considered. If the offer price is not acceptable to the acquirer or promoter, they can make a counter offer to

the public shareholders within two working days of the price being discovered. The counter offer to not be less than the book value of the company.

Ø If a counter offer has been made by the acquirer or promoter in accordance with Delisting Regulations, an offer made under Chapter III shall be deemed to be successful only if the post-offer shareholding of the promoter (along with persons acting in concert) taken together with the shares accepted at the counter offer price reaches 90% of the total issued and paid-up shares of that class (excluding shares underlying the depository receipts).

Ø The promoter is required to pay the public shareholders for acquisition of the delisted equity shares within three months of the date of delisting. For companies whose fair value is positive, (i) such a company and the depositories shall not effect transfer of any of the equity shares held by the promoters or the promoter group and shall freeze the corporate benets, until the promoters of such company provide an exit option to the public shareholders as mentioned above, and (ii) the promoters and whole-time directors of the compulsorily delisted company shall not be eligible to become directors of any listed company till the exit option as mentioned above is provided.

(SEBI Notication No. SEBI/LAD-NRO/GN/2018/46 dated November 14, 2018)

4. Amendments to the LODR Regulations

SEBI issued amendments to the LODR Regulations, which are effective from November 16, 2018. The key highlights of amendment are as follows:

Ø Introduced denitions of the terms 'promoter(s) seeking re-classication' and 'persons related to the promoter(s) seeking re-classication'.

Ø The revised process for re-classication of promoters and persons related to such promoters as public shareholder is as follows:

l Application for reclassication by the promoter, to be analyzed by the board of directors of the listed entity and placed for approval before the shareholders.

l There shall be a gap of at least three months but not exceeding six months between the date of board meeting and the shareholder's meeting considering the request of the promoter(s) seeking re-classication.


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l The request of the promoter(s) seeking re-classication shall be approved in the general meeting by an ordinary resolution in which the exiting promoters and related persons are not allowed to vote.

l The application for re-classication to the stock exchanges to be made by the listed entity, within 30 days from the date of approval by shareholders in general meeting.

Ø Eligibility conditions have been prescribed for the promoter / persons related to promoter seeking reclassication (viz. such promoter and / or related person, not, in respect of the listed entity, holding more than 10% of the voting rights, not exercising control of the affairs, not having any special rights, not being represented on the board, not acting as a managerial person and not being a 'wilful defaulter' or a fugitive economic offender). These conditions are to be complied with by the promoter and / or related persons even after re-classication, failing which will result in such person automatically being reclassied as promoter / persons belonging to promoter group, as applicable.

Ø Further, the listed entity making the application is to be compliant with the minimum public shareholding norms, not have trading in its shares suspended and not have any dues outstanding to SEBI, stock exchanges or depositories.

Ø A public shareholder seeking to be reclassied as a 'promoter' would require to make an open offer in accordance with the Takeover Regulations, as amended.

Ø If a listed entity does not have any promoter, due to re-classication or otherwise, it shall be considered as 'listed entity with no promoters'.

Ø Prescribed events (receipt of promoter request for re-classication, minutes of board meeting for considering such request, submission of application by listed entity to stock exchanges and decision of stock exchanges as communicated to listed entity) will be considered as material events, to be disclosed to the stock exchanges within 24 hours from its occurrence.

(SEBI Notication No. SEBI/LAD-NRO/GN/2018/47 dated November 16, 2018)

5. Issuance of Operating Guidelines for AIFs in IFSC

In 2015, SEBI had issued the Guidelines on International Financial Services Centres (“IFSCs”)

which provided for the broad framework for setting up an AIF in an IFSC. Detailed guidelines have now been issued which deal with registration, compliance requirements and restrictions on the operation of such AIFs in an IFSC, which guidelines have become effective from November 26, 2018.

(SEBI Circular SEBI/HO/IMD/DF1/CIR/P/143/2018 dated

November 26, 2018)

6. Issuance of framework for fund raising by issuance of debt securities

Pursuant to a discussion paper released on July 20, 2018, SEBI, on November 26, 2018, issued a framework (“Framework”) for fund raising by issuance of debt securities that will come into effect from the beginning of the nancial year April 1, 2019 or January 1, 2020, as the case may be, depending on the nancial year followed by the listed entity. The Framework shall be applicable to all listed entities (except for certain scheduled commercial banks) which fall within the criteria specied in this circular (“Large Company/ies”). The salient features of the Framework are as follows:

Ø A Large Company shall raise not less than 25% of its incremental borrowings through issuance of debt securities (as dened in the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, as amended) during the nancial year subsequent to the year in which it is recognised as a Large Company.

Ø For nancial years 2020 and 2021, the requirement of meeting the incremental borrowings norms shall be applicable on an annual basis. Further, from nancial year 2022 onwards, the requirement will need to be met over a contiguous block of two years. If, at the end of two years, there is a shortfall in the required borrowing, a monetary penalty of 0.2% of the shortfall in the borrowed amount shall be levied and paid to the stock exchanges.

Ø A Large Company is required to disclose its identity as a Large Company and details of the incremental borrowings during the nancial year to the stock exchanges within prescribed timelines. These disclosures are to be duly certied and shall form part of the audited annual nancial results of the Large Company.

(SEBI Circular SEBI/HO/DDHS/CIR/P/2018/144 dated November 26, 2018)


7. Amendments to the Mutual Funds Regulations

Ø Regulation 7B of the SEBI (Mutual Fund) Regulations, 1996 (“MF Regulations”) prohibits the sponsor of a mutual fund, its associate or group company including the asset management company of the fund, through the schemes of the mutual fund or otherwise, to hold 10% or more of the shareholding or voting power of the asset management company or trustee of another mutual fund, or have any board representation therein.

Ø SEBI has, with effect from December 06, 2018, amended the MF Regulations, to provide that in the event a merger, acquisition, scheme of arrangement or any other arrangement involving the sponsors of mutual funds, shareholders of asset management companies (AMCs) or trustee companies or their associate or group companies, results in the incidental acquisition of shares, voting rights or representation on the board of the AMCs or trustee companies, a period of one year shall be available for compliance with norms in Regulation 7B.

(SEBI Notication No. No. SEBI/LAD-NRO /GN/ 2018/50 dated December 06, 2018)

8. Format for disclosing signicant benecial ownership in the shareholding pattern

Pursuant to the notication of the Companies (SBO) Rules, 2018, and in the interest of transparency to investors in the securities market, SEBI has on December 07, 2018 prescribed a format for disclosure of signicant benecial ownership. All listed entities are required to disclose details regarding SBOs in the format prescribed in this circular, which shall come into effect from the quarter ended March 31, 2019. The format in the circular dated November 30, 2015 stands modied to that extent.

(SEBI Circular SEBI/HO/CFD/CMD1/CIR/P/2018/0000000149

dated December 7, 2018)

9. Clarication on clubbing of investment limits of FPIs

SEBI has, with effect from December 13, 2018, eased the norms for clubbing of FPI investment limits for foreign government/ foreign government related entities.

Ø Investment limit for FPIs will be clubbed on the basis of common ownership of more than 50% or based on common control, and the benecial ownership criteria

under the Prevention of Money laundering (Maintenance of Records) Rules, 2005 shall not apply for clubbing of FPI investments. Certain specied funds have been exempted from clubbing of investment limits.

Ø Norms have also been relaxed where Government of india has entered into treaties / agreements with other sovereign governments specically for recognizing certain entities as distinct and separate; and where entities have different ownership and control and are from different provinces / states of a country having a federal structure.

Ø Consequences of breach of investment limit have been specied.

(SEBI Circular SEBI/HO/IMD/FPIC/CIR/P/2018/150 dated

December 13, 2018)

10. SEBI modied the guidelines on offer for sale through the stock exchange mechanism

SEBI has, with effect from December 28, 2018, modied the Offer for Sale (“OFS”) framework through stock exchange by making it available to companies with a market capitalization of Rs. 1,000 crores and above, and the computation of threshold being done on the average market capitalisation for 6 months prior to the period in which OFS opens. If the seller fails to get sufcient demand from non-retail investors at or above the oor price on T day, the seller to have an option to cancel the offer post bidding in full (both retail and non-retail) on T day and not proceed with the offer to retail investors on T+1 day.

(SEBI Circular SEBI/HO/MRD/DOPI/CIR/P/2018/159 dated

December 28, 2018)

11. Amendments to SEBI (FPI) Regulations, 2014

SEBI has amended the SEBI (FPI) Regulations, 2014, with effect from December 31, 2018. The following key changes, inter alia, have been made:

Ø An inclusive denition of “control” has been added to include the right to appoint majority directors or control management or policy decisions directly or indirectly by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner.


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Ø Eligibility criteria has been inserted for instances where non-resident Indians or overseas citizens of India or resident Indians are constituents of the applicant or an existing FPI. Additionally, an applicant and an existing FPI and their underlying investors contributing 25% or more in their corpus, should not be persons mentioned in the Sanctions list notied by the UN Security Council, nor should they belong to jurisdictions with identied by the Financial Action Task Force as specied.

Ø The time period granted for compliance with these new eligibility criteria have also been laid down, along with consequences of non-compliance.

Ø The clarications on clubbing of investment limits of FPIs issued by SEBI vide its circular dated December 13, 2018 have also been reected in these amendments.

(SEBI Notication No. SEBI/LAD-NRO/GN/ 2018/58 dated December 31, 2018)

12. Amendments to the Prevention of Insider Trading Regulations

SEBI has notied amendments to the SEBI (Prevention of Insider Trading) Regulations 2015 (“PIT Regulations”), with effect from April 01, 2019. The key changes introduced are set out below:

Ø The term 'securities proposed to be listed' has now been dened to include companies which have led offer documents with the authorities or led the scheme of merger/amalgamation for companies being listed pursuant to a merger/ amalgamation.

Ø Regulation 3 of the PIT Regulations proscribes communication of unpublished price sensitive information (“UPSI”), other than in specied circumstances.

l In respect of the exemption under Regulation 3(1) for communication in furtherance of legitimate purposes, Regulation 3 has been amended to provide that:

ü the board of directors of a listed company shall formulate a policy for determination of “legitimate purposes” (as part of the Code of Fair Disclosure and Conduct) that justify disclosure of UPSI.

ü Illustratively, “legitimate purpose” shall include sharing of UPSI in the ordinary course of business by an insider with partners, collaborators, lenders, customers,

suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided thatsuch sharing has not been carried outto evade or circumvent the prohibitions of the regulations.

ü A person in receipt of UPSI pursuant to a “legitimate purpose” shall be considered an “insider” and due notice shall be given to such persons to maintain condentiality of such UPSI in compliance with the regulations.

ü The board of directors is required to ensure maintenance of a structured digital database containing the names of such persons / entities with whom information is shared along with the PAN or any other authorized identier. Such databases are to be maintained with adequate internal controls and checks such as time stamping and audit trails to ensure non-tampering of the database.

l In respect of the exemption under Regulation 3(3) permitting communication of UPSI in connection with a transaction, the burden on boards of companies has been reduced since they are now required to assess if sharing of UPSI is in the interests of the company. Previously, the board was required to assess the viability of the transaction itself at the stage of information sharing.

Ø A person trading whilst in possession of UPSI is now presumed to have been motivated by the knowledge and awareness of such information in his possession.

Ø A number of additional defences to insider trading have been introduced, viz. off-markets trades between insiders (and not just promoters) with parity of information / UPSI), trades executed on the block trade window between persons possessing the same UPSI, transaction carried out pursuant to a statutory or regulatory obligation to carry out a bona de transaction, and trade undertaken to exercise stock options at pre-determined exercise price.

Ø Requirement for pre-clearance of trades, and trading window norms and restrictions on contra-trade will not be applicable to trades undertaken in accordance with approved trading plan.

Ø The responsibi l i t ies of l is ted ent i t ies and intermediaries have undergone a change and have


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been made distinct. Professional rms such as auditors, accountancy rms, law rms, analysts, insolvency professional entities, consultants, banks etc., assisting or advising listed companies have been identied as 'duciaries', and responsibilities for compliance by such duciaries have been included.

Ø A new regulation has been inserted to provide for Institutional Mechanism for Prevention of Insider Trading, which includes requirement for listed companies to formulate a policy for inquiry in case of leak or suspected leak of UPSI.

SEBI once again notied amendments to the PIT Regulations with effect from January 21, 2019 to align the denition of “promoter group” with the meaning assigned to it as under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”).

(Notication No. SEBI/LAD-NRO/GN/2018/59 dated December 31, 2018 and Notication No. No.

SEBI/LAD-NRO/GN/2019/02 dated January 21, 2019)

13. Amendments to SEBI (Fraudulent and Unfair Trade Practices) Regulations

The SEBI (Prevention of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 have been amended with effect from February 01, 2019.

Ø These amendments inter alia seek to expand the scope of the term “dealing in securities” to include acts knowingly designed to inuence the decision of the investors in securities, and any act of providing assistance for such act of purchase, sale or subscription to any security.

Ø Further, the scope of practices which are considered manipulative, fraudulent or unfair trade practices have been claried. For instance, requirement of elements such as knowledge, inducement, and likelihood to inuence has been added to certain acts previously considered fraudulent or unfair. At the same time, for transactions in selling, dealing or pledging of stolen / counterfeit / fraudulently issued securities, relief has been granted for a holder in due course and for bona de transactions.

(Notication No. SEBI/LAD-NRO/GN/2018/56 dated December 31, 2018)

14. Amendments to the Takeover Regulations

SEBI has amended the Takeover Regulations, with effect from December 31, 2018, to extend the exemption granted to scheduled commercial banks and public nancial institutions, in their capacities as pledgees, from disclosing shares taken or given up as encumbrances in the ordinary course of business, to housing nance companies and systemically important non-banking nancial companies.

(Notication No. SEBI/LAD-NRO /GN/ 2018/55 dated December 31, 2018)

15. Amendments to the ICDR Regulations

SEBI has amended the ICDR Regulations, with effect from December 31, 2018, to provide that:

Ø In case of an initial public offer by small and medium enterprises, made other than through book building process, allocation of net offer to be (i) a minimum of 50% to retail individual investors, and (ii) the remaining to other individual applicants and investors. Unsubscribed portion in either category, may be allocated to applicants in other.

Ø The requirement of fresh ling of the draft offer document under Schedule XVI(1) of the ICDR Regulations has been relaxed for offer for sale. Now, in case of offer for sale, a fresh ling of the draft offer document will be required in case of any increase or decrease in either the number of shares offered for sale or the estimated issue size, by more than 50%.

(SEBI Notication No. SEBI/LAD-RO/GN/2018/57 dated December 31, 2018)

16. Acceptance of Probate of Will or Will for Transmission of Securities held in dematerialized mode

Ø SEBI has, with effect from January 04, 2019, harmonised the procedure for transmission of securities held in dematerialised form with that for transmission of securities held in physical form by prescribing succession certicate or probate of will or letter of administration of court or court decree (as may be applicable in terms of Indian Succession Act, 1925) as documentary requirement for transmission of shares held in dematerialised form as well.

(SEBI Circular SEBI/HO/MIRSD/DOP/CIR/P/2019/05 dated

January 04, 2019)


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17. Amendments to the guidelines for public issue of units of InvITs

Pursuant to the circulars dated January 15, 2019, SEBI has notied the amendments to the guidelines for public issue of units of InvITs and REITs issued by way of its circulars dated May 11, 2016 and December 19, 2016, with a view to further rationalize and ease the process of public issue of units of InvITs and REITs. The key highlights of the amendments are as follows:

Ø The merchant bankers or any associate of the merchant bankers (excluding AIFs, FPIs (except Category III) or mutual funds sponsored by, pension funds of, or insurance companies promoted by entities which are associate of the merchant bankers) to not apply under the anchor investors category.

Ø The bidding or issue period disclosed in the offer document can be extended for a minimum period of 3 working days in case of force majeure, banking strike or similar circumstances, provided that the total bidding period does not exceed 30 days.

Ø The oor price or price band to be announced at least2 working days before the opening of the bid (in case of an initial public offer).

Ø Certain changes have been effected in the bidding process which include, inter alia, acceptance of bids by InvITs or REITs using only the ASBA, submission of a completed bid-cum-application form by investors intending to subscribe to a public issue to SCSBs or to specic intermediaries listed therein, imposing responsibilities on intermediaries for uploading the bid (and other details) on the electronic bidding system of stock exchanges and submitting the forms to SCSBs for blocking of the funds, and imposing responsibilities on the stock exchanges.

Ø For REITs, the application value in the public issue in case of a strategic investors to be subject to Regulation 2(1)(ztb) of the SEBI (REIT) Regulations, 2014 (denition of strategic investors, which requires investment, either jointly or severally, of not less than 5% of the total offer size of the REIT or such amount as may be specied by SEBI from time to time).

(SEBI Circular SEBI/HO/DDHS/CIR/P/2019/16 dated January 15, 2019 and SEBI Circular

SEBI/HO/DDHS/CIR/P/2019/15 dated January 15, 2019)

18. Issuance of format for annual secretarial audit report and annual secretarial compliance report

Ø In pursuance of insertion of new Regulation 24A in the LODR Regulations, SEBI has issued a format for the annual secretarial audit report and the annual secretarial compliance report for listed companies and their material subsidiaries, in effect from the nancial year ended March 31, 2019.

Ø For avoidance of duplication, the format for the annual secretarial audit report will be in Form No. MR-3 as required under the Act. The annual secretarial audit will cover a verication of compliance with all SEBI regulations, circulars and guidelines in addition to broad compliance with all other laws.

(SEBI Circular CIR/CFD/CMD1/27/2019 dated February 08, 2019)

19. Relaxation of requirement to furnish copy of PAN where equity shares transferred by non-residents

Ø In cases of transfer of equity shares by way of gift by non-residents (such as non-residential Indians, overseas citizens of India, persons of Indian origin and foreign nationals) to their “immediate relatives” after January 01, 2016, non-residents are no longer required to furnish a copy of their PAN card. Instead, SEBI has permitted them to produce alternate valid documents.

(SEBI Circular SEBI/HO/MIRSD/DOS3/CIR/P/2019/30 dated

February 11, 2019)


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INFORMAL GUIDANCE

1. Informal guidance on exemption under Takeover Regulations in case of transfer of shares in off-market transactions between promoters

In an informal guidance sought by Praveen Kumar Arora, a promoter of M/s Shreevatsaa Finance and Leasing Ltd. (“Company”) holding 64.61% of the paid up equity capital of the Company in respect of his proposed acquisition of the 10.39% shares held by the other promoter, i.e. Agarni Leasing and Finance Pvt. Ltd. (“Agarni”) by way of an off-market transaction, SEBI has noted the following:

Ø Since the transaction was an inter se transfer between promoters enlisted in the promoter category for not less than 3 years, in terms of Regulation 10(1)(a)(ii) of the Takeover Regulations, the transaction was exempt from making an open offer under Regulation 3 and 4 of the Takeover Regulations.

Ø With respect to the query on whether the transaction would come under the exemption provided in Regulation 4(1)(I) of the PIT Regulations or if it is mandatory for them to furnish a trading plan, SEBI noted that the proviso under Regulation 4(1) is not an exemption from compliance with Regulation 4 of PIT Regulations but merely give the insider an opportunity to prove his innocence by establishing that the transaction was an off-market inter se transfer between promoters in possession of the same UPSI. Further, Regulation 5 which deals with trading plans, only provides an option to insiders to formulate a trading plan which may act as a circumstance to prove an insider innocent when a trade is executed in terms of proviso (ii) of Regulation 4(1) of the PIT Regulations.

(SEBI Informal Guidance No. SEBI/HO/CFD/DCR2/OW/P/28340/2018 dated

October 09, 2018 published on January 21, 2019)

2. Informal guidance on applicability of ICDR to preferential issue of OCDs

In an informal guidance sought by GMR Infrastructure Limited (“GIL”), a public listed company, in respect of its proposed issuance of unlisted unsecured optionally convertible debentures (“OCDs”) in terms of Section 42 and 62(3) of the Act to an Indian party and a subsidiary of a foreign company (“Security Holder”), in settlement of a debt due to the Security Holder, SEBI has claried the following:

Ø Since preferential issue of OCDs by GIL under the Section 62(3) of Act is not covered in the exemptions provided in Regulation 70(1)(a) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“2009 SEBI ICDR Regulations”), the provisions of Chapter VII of 2009 SEBI ICDR Regulations will be applicable to the proposed issue of OCDs by GIL.

Ø Therefore, as per the requirement under Regulation 75 of 2009 SEBI ICDR Regulations, GIL cannot x tenure of OCDs beyond 18 months. Further, the OCDs proposed to be issued by GIL would be required to comply with lock-in requirements / restrictions.

Ø If GIL issues equity shares pursuant to conversion of OCDs in compliance with Section 62(3) of the Act, the provisions of Chapter VII of 2009 SEBI ICDR Regulations would not be applicable at the time of such issuance of equity shares.

(SEBI Informal Guidance CFD/DIL-1/OW/2018/29185/1dated October 19, 2018)

3. Informal guidance on the date of commencement of lock-in for investments by Category I & II AIF schemes in equity shares, before the company's initial public offering

IIFL Asset Management Limited is the investment manager to a trust i.e. IIFL Private Equity Fund (“IIFL Trust”). IIFL Special Opportunities Fund and its further series (“IIFL Schemes”) were launched under the IIFL Trust and an investment was made by the IIFL Special Opportunities Fund in the equity shares of ICICI Lombard General Insurance Company Limited (“ICICI Lombard”) on July 7, 2017. The equity shares acquired through the said investment were transferred into demat accounts of IIFL Scheme and its series under the same fund for better accounting purpose and net asset value (“NAV”) calculation. Subsequently, ICICI Lombard undertook an initial public offer, and equity shares were allotted thereto on September 23, 2017.

Pursuant to the queries raised by IIFL, SEBI claried that in terms of sub regulation (b) of Regulation 37 of the SEBI (AIF) Regulations, 2012, equity shares held by a venture capital fund or AIF of category I or category II or a FVCI shall be locked in for a period of at least one year from the date of purchase (and not the date of allotment of the equity shares in the initial public offer).

(SEBI Informal Guidance CFD/DIL/OW/2018/31017/1 dated November 6,

2018)


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4. Informal Guidance on exemption under Takeover Regulations in case of transfer of shares between immediate relatives in off-market transactions

In an informal guidance sought by S.S. Toshiwala, being a promoter of Lactose ( India) Ltd. (“Company”) in respect of certain transaction involving the gift of certain shares (in excess of 5%) of the Company (i) rst from Mr. Toshiwala's neice to his sister; and (ii) subsequently from his sister to Mr. Toshiwala, SEBI has noted that while the transactions would trigger an open offer under the Regulation 3(2) of the Takeover Regulations, however, since the transaction is between immediate relatives, the transaction is exempted from the open offer requirement, subject to compliance with other applicable provisions of Regulation 10.

(SEBI Informal Guidance No. SEBI/HO/CFD/DCR1/OW/P/2018/31460/1 dated

November 14, 2018 published on November 15, 2018)

5. Informal guidance on date of commencement of the lock-in period in case of unlisted warrants

Jindal Steel & Power Limited (“JSPL”) issued 48,000,000 warrants to one of its promoter / group entities, namely, Opelina Finance and Investment limited (“Opelina”), on a preferential basis. The warrants were unlisted and are convertible into equity shares of JSPL at any time before the expiry of 18 months from the date of issue of the warrants (May 9, 2019).

Pursuant to the queries raised by JSPL, SEBI claried that in case of warrants, which are unlisted, lock-in of the pre-preferential allotment shareholding of the allottees, if any, shall commence from the relevant date and end on the expiry of 6 months from the date of allotment of the warrants.

(SEBI Informal Guidance CFD/DIL-1/OW/2019/2726/1 dated January28. 2019)

REPORTS AND CONSULTATION PAPER

1. Recommendations by the expert committee for listing of equity shares of companies incorporated in India on foreign stock exchanges

In order to analyse the proposal of facilitating companies incorporated in India to directly list their equity shares on foreign stock exchanges (“Scenario I”) and companies incorporated outside India to list on Indian stock exchanges (“Scenario II”) considering the ongoing evolution and internationalization of capital markets across the world, SEBI had constituted a committee of experts on June 12, 2018, which published its report on December 4, 2018 (“Report”). The key recommendations are as follows:

Ø For Scenario I, listing to be allowed only on specied stock exchanges in 'Permissible Jurisdictions'. Similarly, in case of Scenario II, only companies incorporated in 'Permissible Jurisdictions' to be permitted to list on Indian stock exchanges. The Report provides criteria for identifying such jurisdictions along with the initial list of jurisdictions and stock exchanges.

Ø RBI and MCA may be requested to make necessary modications to the FEMA 20(R), the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004, the Foreign Exchange Management (Deposit) Regulations, 2016 and the Act, as applicable. The Report provides guidance on such modications.

Ø For Scenario I, listing of unlisted companies incorporated in India on foreign stock exchanges to be governed by the listing framework of the relevant 'Permissible Jurisdiction'. For Scenario II, the ICDR Regulations may be modied for providing a framework for enabling listing of equity shares of companies incorporated outside India on Indian stock exchanges. Further, necessary modications may be made to LODR Regulations, Delisting Regulations, the PIT Regulations, the Takeover Regulations, and the SEBI (Buy-Back of Securities) Regulations, 2018.

Ø For Scenario I, the KYC / AML framework prevalent in 'Permissible Jurisdictions' may be taken as acceptable standards for compliance with norms on KYC / AML. The requirement of benecial ownership prescribed under the Companies (Signicant Benecial Owners) Rules, 2018, may be met by submitting the information furnished by the investors in the manner prescribed in the 'Permissible Jurisdictions'.


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Ø Department of Revenue may be requested to issue clarications on certain specic provisions of the Income Tax Act, 1961 (“IT Act”) and the Income Tax Rules, 1962.

Mr. Cyril S. Shroff, Managing Partner, Cyril Amarchand Mangaldas was one of the members of this Committee.

(Report of the Expert Committee for Listing of Equity Shares of Companies Incorporated in India on Foreign Stock Exchanges and of Companies Incorporated outside India on Indian Stock Exchanges dated December 4, 2018)

2. Proposed amendments to the SEBI (InvIT) Regulations, 2014 and the SEBI (REIT) Regulations, 2014

SEBI has released a consultation paper dated January 25, 2018, for amending its regulations relating to REITs and InvITs, based on the experience gained and feedback received from market participants. The key amendments proposed relate to, inter alia, reduction in the minimum allotment and trading lot for publicly issued InvITs and REITs, increase in the leverage limit for InvITs and new regulatory structure for privately placed unlisted InvITs. The public comments were to be provided by February 18, 2019.

(SEBI Consultation Paper on Amendment of SEBI (Infrastructure Investment Trusts) Regulation, 2014 and SEBI (Real Estate Investment Trusts) Regulation, 2014 dated January 25, 2019)


1. Department for Promotion of Industry and Internal Trade expands the denition of “Start-Ups” to provide relief from Angel Tax

With effect from February 19, 2019, the Department for Promotion of Industry and Internal Trade (“DPIIT”) has issued a notication that widens the denition of “Start-Ups” and aims to ease the burden of angel tax on Start-Ups.

Ø Entities which are “Start-Ups”: A private limited company or a registered partnership or a limited liability partnership, shall be considered a Start-Up:

ü for upto 10 years (instead of the current 7 years) from the date of its incorporation / registration;

ü if the turnover of the entity does not exceed Rs. 100 crores (instead of the existing cap of Rs. 25 crores) in any of the nancial years since incorporation / registration; and

ü the entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Ø Recognition by DPIIT: The Start-Up must make an online application with the DPIIT for recognition as a Start-Up.

Ø Exemption under S. 56(2)(viib) of IT Act: Consideration received upto an aggregate limit ofRs. 25 crore, for shares issued or proposed to be issued by an entity will be exempt from tax under S. 56(2)(viib) of the IT Act, if:

ü the entity has been recognised as a Start-Up by the DPIIT;

ü the aggregate of the paid up share capital and the share premium of the Start-Up after issuance of shares (or the proposed issuance), does not exceed Rs. 25 crores, where such limit of Rs. 25 crores (earlier Rs. 10 crore) will exclude funds from certain sources such as non-residents, venture capital company / fund, and public companies with regularly traded shares and having a net worth of INR 100 crore or turnover of at least INR 250 crore;

ü the entity has not invested and shall not invest for a period of 7 years from the issue of shares a premium in (i) specied assets, such as in residential property (other than that used for the purposes of renting), non-residential property (other than that occupied for its business or used by it for purposes of renting), loans and advances, motor vehicles (the actual cost of which exceeds INR 10 lakh) and jewellery, except in the ordinary course of business; and (ii) capital contribution to any other entity, or investment in shares and securities, archaeological drawings, drawings, paintings, sculptures, any work of art and bullion.

The Central Board of Direct Taxes (“CBDT”) vide its notication dated March 5, 2019 has further conrmed the above treatment, endorsing the notication of the DPIIT, thereby aligning the tax provisions with the government’s intention to provide

OTHER UPDATES


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relief to Start-Ups in respect of tax under section 56(2)(viib) (commonly referred to as ‘angel tax’).

Ø Aiming to further simplify the exemption process, the requirement of merchant banker valuation report for fair market value of the shares and preconditions relating to the angel investor's average returned income and net worth have been eliminated.

Ø A Start-Up recognised by DPIIT and having aggregate paid up share capital and share premium less thanRs. 25 crores, shall le duly signed declaration to DPIIT conrming that it fullls the aforesaid conditions, which shall be forwarded by DPIIT to the CBDT.

The notication is applicable to all issues of shares at a premium by those Start-Ups who are granted exemption by the DPIIT, except those issues in respect of which assessment under Section 56(2)(viib) of the IT Act has already been completed prior to February 19, 2019.

(Notication No. G.S.R. 127 (E) dated February 19, 2019 and CBDT Notication No. SO 1131E dated

March 05, 2019)

2. Reforms to the Indian Stamp Act, 1889

Amendments to the Indian Stamp Act, 1899 have been introduced as part of the Finance Act 2019, pursuant to which:

Ø The transfer or issuance of each security shall be chargeable with a duty at specied rates, which rates shall be the same across India, irrespective of the state of execution.

Ø For all exchange based secondary market transactions in securities, stock exchanges (SEs) shall collect the duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, depositories shall collect the duty.

Ø The State of domicile of the buying client or that of the broking house/depository participant of the buying client (in case the buyer is outside India, as in the case of FPIs) would be taken as the basis for remitting duty to the respective States.

Ø Issue of securities has also been proposed to be brought into the same tax framework as that of trading of securities, that is, authorizing depositories to collect duty from companies and redistributing to States based on the domicile State of subscribers /buyers of security.


Ø It is proposed that no stamp duty shall be collected by the State on any secondary record of transaction(eg. Share subscription / purchase agreement) associated with a transaction on which the depository/stock exchange has been authorised by the State Government to collect the stamp duty to avoid multiple incidence of stamp duty. This proposed change is expected to come into effect only when the State Governments amend their respective stamp duty legislations.

Ø Subsequent to the enactment of amendments, it is proposed to create a Coordination Council under Article 263 of the Indian Constitution by a separate order/notication of the President of India. This council comprising of representatives from the Union and the States may be tasked with the responsibility of making recommendations regarding review / revision of stamp duty rates. The Government will also notify the required rules.

These amendments shall come into effect from such date as may be notied by the Central Government.

(The Finance Act, 2019, Act No. 7 of 2019)

LIST OF CONTRIBUTORS

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DISCLAIMER: This newsletter has been sent to you for informational purposes only and is intended merely to highlight issues. The information and/or observations contained in this newsletter do not constitute legal advice and should not be acted upon in any specic situation without appropriate legal advice.

The views expressed in this newsletter do not necessarily constitute the nal opinion of Cyril Amarchand Mangaldas on the issues reported herein and should you have any queries in relation to any of the issues reported herein or on other areas of law, please feel free to contact us at the following co-ordinates:

CYRIL SHROFF Managing Partner [email protected]

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Cyril Amarchand Mangaldas

Peninsula Chambers, Peninsula Corporate Park, GK Marg, Lower Parel, Mumbai - 400 013 (India)

Tel: +91 22 2496 4455 Fax:+91 - 22 2496 3666

Website: www.cyrilshroff.com

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INSIGHT Vol. X...INSIGHT (Vol. X l Issue IV) November 01, 2018 – February 28, 2019 02 TABLE OF...

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