The proviso proposed to be inserted as per paragraph 3 of the Draft Circulars - Amendment to Master Circular for Infrastructure Investment Trusts (InvITs) dated May 15, 2024 and Amendment to Master Circular for Real Estate Investment Trusts (REITs) dated May 15, 2024, is appropriate.
As mentioned in para 3 of the consultation paper, proposed provisions for summary proceeding shall help to take enforcement action in expeditious and efficient manner to handle cases related to violations which are obvious in nature or are either accepted by the Intermediary or need minimal documents or evidence to corroborate the facts. The swift and timely action shall help to maintain the integrity, transparency and efficiency of the securities market.
The summery proceedings shall be applicable to the cases referred at para 4.2 of the consultation paper (corresponding proposed provisions in Regulation 30A(1) of Intermediaries Regulations mentioned the Annexure A of the consultation paper).
The intermediary shall be required to make its written submission(s), if any, within twenty-one days from the receipt of the notice (proposed provisions of Regulation 30A(3) of Intermediaries Regulations mentioned in Annexure A of the consultation paper).
The factors that the Board may, while passing the order, require the intermediary to satisfy are adequately covered in the proposed provisions of Regulation 30A (9) of Intermediaries Regulations mentioned in Annexure A of the consultation paper.
The obligations that the intermediary shall be required to fulfil post-cancellation of the certificate of registration, are adequately covered in the proposed provisions of Regulation 30A(10) of Intermediaries Regulations mentioned in Annexure A of the consultation paper.
Comments/suggestions for the nomenclature of the ‘New Asset Class’.
Whether the eligibility criteria mentioned under Strong Track Record route and Alternate route, as specified in para 3.2 & 3.3 above, are appropriate? Please provide comments/suggestions with appropriate rationale.
Comments/suggestions on any other criteria of eligibility for the New Asset Class that can be considered?
Whether the proposals mentioned under para 4 above are appropriate? Please provide comments/suggestions with appropriate rationale.
Whether the proposals regarding branding of the New Asset Class mentioned under para 5 above are appropriate? Please provide comments/suggestions with appropriate rationale.
In addition to the proposals mentioned under para 5.3, what other branding or advertising guidelines or restrictions should be considered to ensure distinction between Mutual Funds and products under the New Asset Class?
Is the nomenclature ‘Investment Strategy’ appropriate for the products/schemes offered under the New Asset Class? Please provide comments/suggestions with appropriate rationale.
For better understanding, products launched under Mutual Funds are called ‘Schemes’, whereas products offered under PMS are usually termed as ‘Investment Approaches’.
Whether the overall structure of the New Asset Class, as specified in para 6 above, is appropriate?
What are your suggestions for various potential ‘Investment Strategies’ that can be launched under the New Asset Class as mentioned in para 6.7?
Whether the minimum investment threshold of INR 10 lakh is appropriate? Please provide your comments/suggestions with appropriate rationale.
Should the minimum investment threshold be applied at the per investment strategy level or at the level of New Asset Class within an AMC/MF?
Whether any other investments, apart from those permitted to Mutual Funds and as mentioned in para 8 above, be made available for investments under the New Asset Class? Please provide comments/suggestions with appropriate rationale.
Whether the New Asset Class should be allowed to take exposure in derivatives for purposes other than hedging and portfolio rebalancing? Please provide comments/suggestions with appropriate rationale.
Whether the relaxations from the provisions of the MF Regulations and Master Circular, as specified at para 9 above, are appropriate? Please provide comments/suggestions with appropriate rationale.
Any other relaxations/restrictions that may be considered for the New Asset Class? Please provide comments/suggestions with appropriate rationale.
Whether the proposal under para 10 above is appropriate? Provide comments/suggestions with appropriate rationale.
Whether the limit of 50% on the exposure in derivative segment, as specified in para 10.2.1, is appropriate?
Whether the nomenclature and depiction of Risk Band suggested at para 11.1 above, is appropriate? Please provide your comments/suggestions with appropriate rationale.
Whether provisions regarding Portfolio Disclosure, frequency of such disclosure and constitutional documents, as specified at para 11.2 & 11.3, are appropriate?
What additional information, if any, should be disclosed to the public regarding the investment strategies under the New Asset Class, to enhance transparency and investor protection?
Any other suggestions or comments on the overall proposal for the New Asset Class as outlined in this Consultation paper?
Is the proposed modification to the Master Circular appropriate and adequate?
The filing done on one stock exchange need to be automatically disseminated to other stock exchanges using an API-based integration that is being jointly developed by stock exchanges.
Periodic filings under the LODR need to be merged into two broad categories: Integrated filing (Governance) and Integrated Filing (Financial).
The timeline for Integrated Filing (Governance) needs to be 30 days from the end of the quarter. The time for Integrated Filing (Financial) needs to be within 45 days (or 60 days for the last quarter) from the end of the quarter / half-year for submission to stock exchanges.
The following filing requirements under the LODR need to be done away with:
i. Reg. 7(3) on having registered share transfer agent (already captured in quarterly share capital reconciliation audit report).
ii. Reg. 39(3) - on event-based disclosure of loss of physical share certificates
iii. Reg. 40(9)/(10) - Annual certification on adhering to the timeline for processing requests relating to physical shares.
Disclosure of new or revision in credit ratings need to be automated at the end of stock exchanges.
Disclosure of shareholding pattern need to be automated at the end of depositories and stock exchanges which shall eventually become an automated monthly disclosure.
Listed entities need to be permitted to publish exact link to the webpage where information required to be disclosed under regulation 46(2) of LODR has already been made available by the listed entity on Stock Exchange website (curated links to the disclosure available on Stock Exchange).
The requirement of publishing detailed advertisements in newspapers for financial results to be made optional for listed entities. However, a small box advertisement with the QR code and weblink to the page where the full financial results of the listed entity are available shall be published for the benefit of the investors.
Vacancy in the committees of Board of Directors of the listed entity needs to be filled up within a period of 3 months from the date of such vacancy.
The time taken for regulatory or statutory or government approvals for appointment or reappointment of a person as a director need to be excluded for the purposes of determining the time limit of 3 months for obtaining shareholder approval under regulation 17(1C) of the LODR Regulations.
Exemption needs to be granted from the requirement of shareholder approval for directors nominated by Court or Tribunal or financial sector regulators.
The process of reclassification of an entity from promoter to public needs to be rationalised as follows:
i. The board of directors of a listed entity to consider the request for reclassification in the immediate next board meeting or within two months, whichever is earlier.
ii. Within 5 days of obtaining Board's views, the listed entity to make an application to the recognized stock exchanges for their no-objection certificate (NOC) and stock exchanges to provide their NOC within 30 days from the submission of the request.
iii. Shareholders' approval to be sought within 60 days of receipt of NOC from recognized stock exchanges.
iv. Upon receipt of shareholder approval, the listed entity to notify the stock exchanges within 5 days and effect reclassification of the entity.
Penalty needs to be imposed on a listed entity that does not place a fully compliant reclassification request before its board of directors within 60 days of its receipt.
Outcome of the board meeting (instead of minutes) needs to be disclosed under regulation 31A(8)(b) of LODR, including the views of the board on the reclassification request.
The promoter, promoter group, key managerial personnel, directors or any other person dealing with the listed entity need to disclose all information necessary for the listed entity to ensure compliance with LODR and other applicable laws.
Corporate actions by subsidiaries of a listed entity and corporate actions received by the listed entity or its subsidiaries which are uniformly applicable / offered to all shareholders in proportion to their shareholding need to be exempted from the definition of RPT.
Acceptance of current account deposits or saving account deposits by banks in compliance with the directions issued by RBI from time to time need to be exempted from the definition of RPT.
Retail purchases from any listed entity or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable / offered to all employees and directors need to be exempted from the definition of RPT.
Remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of the promoter or promoter group, need to be exempted from the requirement of approval by the audit committee provided that it is not material as per Regulation 23(1) of LODR (more than Rs. 1000 crore or 10% of annual consolidated turnover, whichever is lower).
The independent directors who are members of the audit committee of a listed entity may provide post-facto ratification to RPTs within 3 months from the date of the transaction or in the immediate next meeting of the audit committee, whichever is earlier, subject to following conditions:
i. the value of ratified transaction(s), whether entered into individually or taken together, during a financial year shall not exceed Rs. 1 crore.
ii. the transaction is not material as per Regulation 23(1) of LODR (more than Rs. 1000 crore or 10% of annual consolidated turnover, whichever is lower).
iii. rationale for inability to seek prior approval for the transaction shall be placed before the audit committee at the time of seeking ratification.
iv. the details of ratification shall be disclosed along with the half-yealry disclosures of RPTs under Regulation 23(9) of LODR.
v. any other condition as specified by the audit committee.
Failure to seek ratification of the audit committee shall render the transaction voidable at the option of the board of directors and if the transaction is with a related party to any director, or is authorised by any other director, the director(s) concerned shall indemnify the listed entity against any loss incurred by it.
The provision of omnibus approval under Regulation 23(3) of LODR to be made applicable to RPTs by subsidiaries as well.
Payment of statutory dues, fees or charges to the Central Government and/or any State Government need to be exempted from approval requirements for RPTs.
Transactions entered into between two public sector companies (including government companies), and transactions entered into between a public sector company (including government company) on one hand and the Central Government or any State Government or any combination thereof on the other hand need to be exempted from approval requirements for RPTs.
Remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of the promoter or promoter group, need to be exempted from disclosure provided that it is not material as per Regulation 23(1) of LODR (more than Rs. 1000 crore or 10% of annual consolidated turnover, whichever is lower).
The events which are decided in the board meeting need to be disclosed in the following manner:
i. In case the board meeting closes after the normal trading hours but more than 3 hours before the beginning of the next normal trading hours, the disclosure shall be made within 3 hours from the closure of the board meeting.
ii. In case the board meeting closes during the normal trading hours or within 3 hours before the beginning of the normal trading hours, the disclosure shall be made within 30 minutes from the closure of the board meeting.
Timeline for disclosure need to be increased to 72 hours from the existing 24 hours in case of litigations or disputes wherein claims are made against the listed entity.
Disclosure of acquisition shall be required if the listed entity, whether directly or indirectly, holds shares or voting rights aggregating to 20% (increased from 5% at present) or there has been any subsequent change in holding exceeding 5% (increased from 2% at present). However, acquisition of shares or voting rights in an unlisted company, aggregating to 5% or any subsequent change in holding exceeding 2%, need to be disclosed on a quarterly basis as part of the Integrated Filing (Governance).
Details to be provided along with the disclosure of 'to be incorporated' companies need to be specified in Annexure I to SEBI circular dated July 13, 2023.
Clarification to be provided in Annexure I to SEBI circular dated July 13, 2023 that tax litigations / disputes including tax penalties need to be disclosed under Para B(8) of Part A of Schedule III of LODR based on application of criteria for materiality. Further, the tax litigations or disputes, if material, need to be disclosed in the following manner:
i. Disclosure of new tax litigations or disputes within 24 hours.
ii. Quarterly updates on existing tax litigations or disputes as part of the Integrated Filing (Governance).
iii. Tax litigations or disputes, the outcomes of which are likely to have a high correlation, should be cumulated for determining materiality.
Monetary limit for disclosure of imposition of penalty under Para A(20) of Part A of Schedule III of LODR need to be specified in the following manner:
i. A lower threshold of Rs. 10,000 need to be specified for disclosure of penalties levied by sectoral regulators or enforcement agencies within 24 hours.
ii. A higher threshold of Rs. 10 lacs need to be specified for disclosure of penalties levied by other authorities within 24 hours.
iii. Penalties levied which are lower than the monetary thresholds specified above need to be disclosed on a quarterly basis as part of the Integrated Filing (Governance), along with the details mentioned in Para A(20) of Part A of Schedule III of LODR.
The types of fund raising which are required to be disclosed as outcome of board meeting under Para A(4) of Part A of Schedule III of LODR, need to be aligned with Regulation 29 for prior intimation for board meetings.
Fraud by senior management under Para A(6) of Part A of Schedule III of LODR need to be disclosed only if it is in relation to the listed entity.
FAQ on the types of forensic audit which are required to be disclosed under Para A(17) of Part A of Schedule III of LODR need to be specified in the LODR Regulations for ample clarity.
For companies coming out of corporate insolvency resolution process (CIRP), 3 months' time from the date of approval of resolution plan by NCLT need to be provided for filling up the vacancy of key managerial personnel subject to having at least one full-time key managerial personnel.
For companies coming out of corporate insolvency resolution process (CIRP), 3 months' time from the date of approval of resolution plan by NCLT need to be provided to have required composition of the board of directors and its committees.
For companies coming out of corporate insolvency resolution process (CIRP), additional time of 45 days (or 60 days for annual results) need to be provided for disclosure of financial results for the quarter in which the resolution plan is approved by NCLT.
Approval of shareholders under regulation 24(6) of LODR need not be required for sale, disposal or lease of assets of material subsidiary, if such a transaction is between two wholly-owned subsidiaries of the listed entity.
The gap between intimation and the record date need to be reduced to 3 working days for all events specified in regulation 42(1) except for corporate actions through scheme of arrangements involving mergers, demergers or amalgamations etc.
The phrase "cash bonus" needs to be deleted from regulation 42(3) of LODR as it is redundant and no longer relevant.
The gap between two record dates need to be reduced to 5 working days as physical shares, which require book closure, are negligible in the market ecosystem. Further, the requirement of 30 days gap between two book closures need to be omitted as transfer of shares in physical mode is no longer permitted and therefore, the provision is redundant.
The requirement of obtaining no-objection letter from stock exchanges for draft schemes involving writing off accumulated losses against share capital of the company (applied uniformly to all categories of shareholders) or against the reserves of the company need to be done away with. Such draft schemes need to be filed with stock exchanges only for disclosure purposes.
In the prior intimation for analyst or institutional investor meet, disclosure of names of analysts or institutional investors needs to be optional.
Presentations prepared by a listed entity for analyst or institutional investors meet or post-earnings / quarterly calls need to be disclosed to Stock Exchanges before the beginning of such events.
Video recordings of post-earnings / quarterly calls need to be uploaded within 48 hours from the conclusion of such calls.
Audio / video recordings need to be available on website for 2 years instead of 5 years (to be preserved by company for 8 years) and transcripts to be available on the website for 5 years (to be preserved by the company for 8 years).
To do away with the requirement of sending physical copies of abridged Annual Report to shareholders whose email id is not available. Instead a letter to be sent to such shareholders indicating the link from which the annual report can be downloaded.
The timeline for dispatch of Annual Reports by the listed entity (not less than 21 days before the annual general meeting) under regulation 36(2) of the LODR needs to be omitted.
Annual Report needs to be submitted to the Stock Exchange on or before commencement of its dispatch to the shareholders.
The requirement to send proxy forms for general meetings held virtually need to be dispensed with.
Encourage top 2000 companies to have one woman independent director and constitute a risk management committee (right now only top 1000 listed entities).
Encouraging top 2000 companies to have more than the mandatory annual meeting of independent directors without the presence of non-independent directors and the management.
Compliance Officer needs to be designated as key managerial personnel and to be a whole-time employee not one level below the board of directors.
In line with the provisions for appointment, re-appointment of statutory auditors prescribed under section 139(1) and 139(2) of Companies Act, 2013, an individual may be appointed as secretarial auditor for a term of 5 years and a firm may be appointed as secretarial auditor for a maximum of 2 terms of 5 years each subject to approval of shareholders in a general meeting.
Provisions relating to eligibility (shall be a peer reviewed company secretary) and disqualifications (where there is conflict of interest) need to be prescribed in the LODR Regulations.
A cooling-off period of 5 years need to be prescribed for re-appointment of an individual or firm after completion of its term(s).
Provisions relating to removal of secretarial auditors with the approval of shareholders of a listed entity need to be inserted in the LODR Regulations.
Appointment, re-appointment or continuation of secretarial auditors of listed entities needs to be in compliance with the proposed provisions under para 31.3 of the Report from April 1, 2025. The Secretarial Compliance Report submitted by a listed entity needs to be signed only by the Secretarial Auditor or by a Peer Reviewed Company Secretary who satisfies the proposed requirements under para 31.3 of the Report from April 1, 2025.
Any pre-listing compensation or profit sharing agreement that subsists after listing would require ratification of shareholders in the first general meeting held after listing.
Article of Association, Memorandum of Association, Brief profile of board of directors and Employee benefits related scheme documents need to be disclosed on the website of a listed entity.
Following drafting changes to certain provisions of the LODR regulations and related circulars:
i. Omission of definition of half-year, disclosure of details of material RPTs in the quarterly corporate governance, references to transfer of shares in physical form under regulation 40 of LODR, and redundant disclosures in the annual report.
ii. Clarification on cessation of applicability of corporate governance provisions, prior approval of shareholders for appointment or re-appointment of non-executive director crossing 75 years of age, applicability of regulation 17(1D) of LODR, gap between 2 consecutive meetings of the Board of Directors and its Committees, disclosure of details of agreements under regulation 30A of LODR, and group governance unit.
iii. Recommendations of the Board of Directors to the shareholders to specifically include rationale of the Board.
iv. Modification to regulation 39(2) of LODR on issuance of Letter of Confirmation instead of certificates.
Doing away with requirement to have separate pre-issue advertisement and price band advertisement and having a combined 'pre-issue advertisement and price band advertisement' as single advertisement.
To reduce advertisement size without impacting content, certain information in combined 'pre-issue advertisement and price band advertisement' need to be disclosed using a QR code link / cross reference to RHP.
Disclosure of pre-issue shareholding and post-issue shareholding (based on price band) for promoter, promoter group and additional top 10 shareholders in the 'pre-issue and price band advertisement' as at the date of advertisement and disclosure of post issue shareholding (based on final price) as at allotment, in the prospectus.
Permitting Issuers to voluntarily include proforma financial statements for such additional fiscal periods as it deems necessary, including, even if the acquisition or divestment was undertaken before the completion of the latest period(s) for which financial statements are disclosed in offer document.
Permitting Issuers to voluntarily disclose financial statements of the subsidiaries/businesses that have been acquired or divested in offer document.
Permitting Issuers to voluntarily disclose proforma financials (on a consolidated basis) to disclose the impact of acquisition proposed to be done from proceeds of the issue in offer document.
The requirement to issue advertisement after filing DRHP to be changed from "two days" to "two working days" and 21 day period for public comments to be calculated from the date of advertisement instead of date of filing.
Certificate for utilization of the loan can be obtained from a peer reviewed chartered accountant instead of statutory auditor, in following cases: (i) for period not audited by the current statutory auditor or (ii) loan was for subsidiary and current statutory auditor of the issuer is not the statutory auditor of subsidiary.
Flexibility to be provided under eligibility conditions for an IPO by allowing issuers with outstanding Stock appreciation rights (SARs) to file DRHP where such SARs are granted to employees only and are fully exercised for equity shares prior to the filing of the RHP.
Limits set out for offer for sale under Regulation 8A of ICDR needs to be calculated with reference to the shareholding as of the date of the draft offer document and apply cumulatively to the total number of shares offered for sale to the public and any secondary sale transactions prior to the issue.
In terms of the framework of a rights issue under the Companies Act, 2013 and Regulation 74(3) of ICDR, shares are required to be offered on a rights basis only to shareholders of the company as of the record date. Accordingly, in the context of a rights issue, ICDR provision related to employee reservation needs to be deleted in rights issue chapter.
For illustrative format on disclosure of certain ratios in the basis for offer price section given at Schedule VI of ICDR, following clarification needs to be provided:
"The table above is for illustrative purposes only. Appropriate due diligence shall be exercised by the lead managers in assigning weights."
To enhance transparency and information available for investors, issuer needs to make disclosure of pre-IPO transactions after filing of DRHP and details pertaining to such transactions to stock exchange(s).
In case of loans being repaid from the proceeds of the issue and if such loans were utilized for capital expenditure, it needs to be clarified that longer promoter lock-in period as in case of capital expenditure object, applies.
Additional disclosures to be provided based on the audited standalone financial statements in cases where issue proceeds is used to fund working capital.
Alignment of the material litigation disclosure requirements by listed companies and to-be-listed companies, ensuring clarity and parity in disclosures of litigation prior to and after the listing of an issuer.
Aligning terminology for identification of a material subsidiary under the ICDR and LODR by referring to consolidated "turnover" instead of "income".
Aligning requirement on disclosure of material agreements that are entered into by shareholders, promoters, directors etc. to ensure parity in disclosures of material agreements by listed and to-be-listed companies.
Aligning ICDR with LODR by mandating the compliance officer to be a Company Secretary.
Harmonizing ICDR and LODR to:
i. align the definition of the term "associate" and "securities laws" in both the regulations;
ii. include definition for term "financial year" in ICDR from LODR
iii. include definition of superior voting rights share i.e. "SR equity shares" in LODR from ICDR.