Trading window closure in case of debt listed company

/1 Comment/in , /by

CS Nitu Poddar, Senior Associate, Vinod Kothari & Company

corplaw@vinodkothari.com

 

SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘Regulations’) is applicable in relation to securities listed and proposed to be listed. Companies having its debentures listed are also required to comply with the provisions of the Regulations. The intent of the Regulations is to prohibit trading in listed securities while in possession of Unpublished Price Sensitive Information (UPSI). UPSI has been defined to mean such information that is not generally available and which can materially affect the price of the securities on becoming generally available and includes information in relating to financial results, dividends, change in capital structure, restructuring and changes in key managerial personnel.

UPSI in case of debt listed entities

Sensitivity of an information largely depends on the kind of security it is associated with; Information that may be regarded as UPSI for an equity listed entity may not necessarily affect prices of the debt listed. For example, declaration of dividend is price sensitive information for an equity listed entity but may not have any impact on the debt listed. The reason for the same is that debentures receive fixed rate of interest and is not at the discretion of the management. However, default/ expected default in payment of interest on a loan is price sensitive information as it may result in non-service of obligations in relation to the debt listed too.

 

Generally speaking, the information with respect to the financial position of the company,revision in ratings, instance of defaultmade by the company in repayment of any debt or any such information which affects the payment of principal and /or interest of the debentures are probable price sensitive information for listed debt securities.

 

Given the uniform applicability of the Regulation for all listed companies, there are certain implementation issues with respect to the closure of trading window in case of debt listed company which has been discussed in this article.

 

Closure of Trading Window in case of Financial Results

 

Trading Window denotes a notional window used as an instrument of monitoring the trades of Designated Persons. A Designated Person is permitted to trade only when the Trading Window is not closed.

 

As per Para 4 of Schedule B to the Regulations, it is mandatoryfor all listed companies to close its Trading Windowfrom the end of “every quarter” till 48 hours after the declaration of financial results.

 

“Trading restriction period can be made applicable from the end of every quarter till 48 hours after the declaration of financial results”

 

 

An equity listed entity is required to submit financial results on a quarterly basis. In case of debt listed entity, listed entities are required to submit un-audited or audited financial results on a half yearly basis. If the debt listed entity is a subsidiary of an equity listed entity, in that case it is required to submit financial results on quarterly basis for consolidation purpose.

 

The quarterly results so submitted may not be published on the website of the debt listed entity; however, the information becomes generally available by forming part of the consolidated financial results.

 

Accordingly, few pertinent questions that arise are:

 

  1. Should the trading window of a debt listed entity be closed from the end of every quarter till the declaration of financial results by the company which will happen only after the completion of a half year?

 

  1. Should the debt listed company close the trading window every quarter while submitting results to holding company for consolidation purpose?

 

Possible interpretation:

 

Quarters/ Half Year Timeline for submission of results to stock exchange Period of trading window closure in case debt listed entity has not holding company. Period of trading window closure in case of submission of results for consolidation.
April to June (Q1) – Not required From July 1 till 48 hours of declaration of consolidated results by holding company.
July-September (Q2)

 

April – September (HY 1)

 –

 

November 14

  

 

From October 1 till 48 hours after declaration of financial results

 From October 1 till 48 hours after declaration of financial results by debt listed entity.
October – December (Q3) – Not required From January 1 till 48 hours of declaration of consolidated results by holding company.
January – March (Q4)

 

October – March (HY 2)

 –

 

 

May 30

  

 

From April 1 till 48 hours after declaration of financial results.

 From April 1 till 48 hours after declaration of financial results by debt listed entity.

 

It is to be noted that, with the amended[1] provisions in place, the tenure of closure of Trading Window got elongated and covers almost 180 days/ 6 months of the year. Now, if the provisions of PIT, for a debt listed company, are interpreted in a way that the window should be closed from the end of each quarter and opened once the financial results are declared after the half year, one can easily imagine that the window is closed for almost the 8-9 months of the year! Does that mean that the designated person of such companies will be allowed barely 3 months for trading? Taking such a view will be squarely impractical.

 

A debt listed company which is not a subsidiary of an equity listed holding company, cannot be mandated to close trading window every quarter merely to comply with Schedule B requirements. This will result in absolute impractical situation.

 

Where the debt listed company is required to share quarterly financials for consolidation purpose,standalone financial results of the debtlisted company are notpublished separately. Accordingly, the UPSI becomes published and publicly available, to the extent of consolidated figures, on declaration of results by the holding company and therefore, keeping up with the intent of closing of the Trading Window (to prohibit trading by designated person while in possession of UPSI) it will be appropriate to interpret that the trading window of such debt listed companies should be closed quarterly and opened after 48 hours of declaration of consolidated financial results by the holding company to public.

 

Compliances for sharing of financial result with the Parent company

 

So far as sharing of the quarterly results of the debt listed company with the holding company is concerned, the same being for legitimate purpose, certain compliances have to be ensured by the debt listed company in line with its code of conduct viz.

  • Promoters are regarded as Designated Persons under the Regulations. Therefore, signing of non-disclosure / confidentiality agreement with the holding company may not be required;
  • Designated Person shall not trade in the listed securities of the debt listed company until the information becomes generally available either pursuant to publishing of financial results by the debt listed entity or publishing of consolidated figures by holding company, as applicable.
  • Entry to be made in the structured digital database in relation to sharing of information with employees of the holding company.

[1]Securities and Exchange Board of India (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (w.e.f. April 01, 2019)

Project Rupee Raftaar: An Analysis

/0 Comments/in , , , , , , /by

-Kanakprabha Jethani | Executive

Vinod Kothari Consultants Pvt. Ltd.

kanak@vinodkothari.com, finserv@vinodkothari.com

BACKGROUND

The Working Group on Developing Avenues for Aircraft Financing and Leasing Activities in India, constituted by Ministry of Civil Aviation submitted its report[1] on measures for developing this industry in the country. The Working Group was formed to examine the regulatory framework relating to financing and leasing of aircrafts. The idea was derived from the Cape Town convention and it has also been proposed to enact a bill in order to fully implement the convention. This project is based on the theme “Flying for All”. The Indian civil aviation market has been exhibiting tremendous growth for past years. There is an overwhelming increase in demand for passenger transportation for which airlines in India have placed orders for more than 1000 aircrafts. Moreover, Indian airlines have been relying on other countries for financing acquisition of aircrafts on export credit, loan or lease basis. This hair-triggers the need for India to have in place its own systems for financing of such acquisitions.

One of the motivations of the project is to ensure that the dependence of Indian aviation industry on import leases is reduced. Currently more than 90% of the aircrafts operating in the country are on import lease basis, and there is a huge monthly outflow of foreign exchange by way of lease rentals, which is not reported as ECB, since it is an operating expense.

GLOBAL PERSPECTIVE TO AIRCRAFT FINANCING AND LEASING

The key players in global aircraft financing and leasing market are Ireland and the US. Countries like China, Singapore, Hong Kong and Japan are emerging competitors in the market. The structures of aircraft financing, however, differ largely in all of these countries. The overall trends in the global arena can be evaluated on following bases:

Regional Outlook: through a research conducted for the Aviation Industry Leaders Report[2], it was concluded that North America is viewed as the most optimistic market player. Europe shows mixed signals due to market being strong and simultaneous slowing down of economy and other political issues. The Middle Eastern countries show a slow pace of growth and their models exhibit signs of stress. African airline market still has a lot of unrealised potential.

Financing Trends: sale and lease back transactions have become the most frequently used medium of aircraft finance over the world. Other forms of financing such as commercial bank debt, pre-delivering payment financing etc. have picked up pace. Also, traditional forms of financing such as export credit continue to be in operation but with reducing levels. Overall, the capital market remains very active and innovative in the aircraft finance sector.

Technology: new technology in aircrafts is being introduced frequently. However, implementation and commercialisation of the same continues to be a challenge. The Aviation Working Group’s Global Aircraft Trading System (GATS) proposed digitisation of transfer of lease deed ownership system which shall be expected to be activated by end of the year 2019.

CURRENT SCENARIO OF AIRCRAFT FINANCING IN INDIA

In terms of growth and advancement, India is far behind other Asian economies such as China, Singapore and Hong Kong. However, the Indian Aviation market has shown exponential rise in the past few years with an annual growth rate of 18.86% in 2017-18 and overall growth of 16.08% in passenger traffic. From 74 operational airports in 2013, it has reached a height of 101 operational airports in 2016. Expectations of having 190-200 operational airports by the end of 2040 are pointed out through various studies.

Currently, India has large aircraft order books, virtually all of which are leased through leasing companies located offshore. Under the regional connectivity scheme Ude Desh ka Aam Nagrik (UDAN), the government has decide to lease out operations, maintenance, and development of certain airports under Public private Partnership (PPP) model.

Overall, India has immense potential for growth in aviation sector but little means to aid the growth. It is in need of systems that aid the growth in a cost-effective and sustainable manner.

AIRCRAFT FINANCING STRUCTURE

Why is it needed?

In the view of increasing demand and non-availability of own sources of aircraft financing, it is essential for India to set up its own structures for the same. Moreover, civil aviation sector is an important sector for development of the economy. In the civil aviation industry, aircraft financing is the most profitable segment and there are no entities in the country exploring this line of business. All the benefits from this gap are being enjoyed by foreign entities.

What will be the structure?

For this structure, GIFT-CITY in Gujarat has been identified as preferred destination for initiation of operations in this industry as it offers a tax regime competitive to that of leasing companies all over the world.

Barriers in the structure

The aforementioned structure will face following barriers:

  • GAAR prevents Indian financers from taking advantage of other jurisdictions.
  • Aircraft financing is not a specifically permitted activity for banks.
  • Units operating in GIFT-CITY not permitted to undertake aircraft financing.
  • Framework for setting-up of NBFCs in GIFT-CITY and provisions as to treatment of income from operating lease is not provided.
  • Taxes and duties:
  • GST of 5% on import of aircraft
  • GST on lease rentals
  • Interest amount which forms part of lease rentals in case of financial lease is not eligible for any tax benefit.
  • No exemptions from withholding taxes
  • Stamp duty on instruments and documents executed.

The working group has proposed corresponding changes and amendments to be made to overcome these barriers. The response of relevant authorities is awaited.

Tax implications of the structure

Particulars

Tax rates
IFSC-GIFT CITY (proposed structure) INDIA (not following the structure)
INCOME TAX
Corporate Tax Rate: 34.94

o   Year 1 to 5

 0.00

o   Year 6 to 10

 17.47

o   Year 11 onwards

 34.94
Minimum Alternate Tax 10.48 21.55
Capital gains on sale of aircraft 0.00 34.94
Withholding tax

o   Operating lease rentals

 0.00 2.00

o   Interest payment (USD debt)

 0.00 5.46

o   Interest payment (INR debt)

 0.00 0.00

o   Other payments

 0.00 10.00
Dividend Distribution Tax nil 20.56
GOODS AND SERVICES TAX
Purchase of aircraft 0.00 0.00
Operating lease rentals 0.00 5.00
Underfinance lease(interest portion) 0.00 5.00
Other services nil 18.00
Stamp duty on lease related documents 0.00 3.00

ANALYSIS OF TAX IMPLICATIONS UNDER VARIOUS MODELS OF FINANCING

Following table shows an analysis of indirect tax implications from the point of view of lessee and compares the proposed structure with the existing practice of financing as well as situation if financing is done outside the proposed structure but in India.

This table is based on following assumptions:

  • Value of aircraft- Rs.3500 crores
  • Residual value- Rs.500 crores
  • Rate of interest- 7.5%
  • Lease tenure- 25 years
  • Processing fee- 2%

On the aforesaid assumptions, lease rental per annum would amount to Rs.306.63 crores

Amount (in Rs. crores)

Tax expenditure Ireland IFSC-GIFT CITY Rest of India
GST on lease rentals 15.3315 0.00 15.3315
Stamp duty 0.00 0.00 105
GST on other services 0.00 nil 12.6
Overall indirect tax expenditure 15.3315 0.00 27.9315

OVERCOMING THE BARRIERS

Recommendations have been made by the Working Group to various regulatory authorities in order to overcome various barriers that are a hindrance to establishment of India’s own structure of aircraft financing and leasing. Following table shows some of the major recommendations:

Authority Recommendations
RBI Confirm that the term “equipment” includes aircrafts or notify aircraft financing and leasing as permitted activity for banks or subsidiaries of banks.
Amend IBU circular to include equipment leasing and investment in capital of leasing entities in scope of activities of banks
Confirm that equipment leasing entities shall be eligible to register as NBFC in IFSC
Issue specific directions in regard to investment in or by foreign entities engaged in aircraft financing and leasing activities.
Tax authorities Capital gains on sale of leased aircrafts should be fully exempted.
GST on leasing aircraft should be made zero-rated.
Nil withholding tax should be specified for airline companies.
Transfer/novation of aircraft financing / leasing contracts to units in an IFSC should not be under the purview of GAAR, for both the lessee and lessor
SEBI Amend SEBI (AIF) Regulations to create a separate category of AIFs for investment in aircraft financing/leasing activities or permit greater concentration of investment in aircraft financing/leasing entities.
Clarify whether 25% investment cap by AIFs applies on investment in equipment and grant additional relaxations to AIFs investing in aircraft financing activities.
Create separate category of mutual funds of investment in entities engaged in aircraft financing and leasing activities.
Clarify which institution can invest in entities registered in IFSC.
IRDAI Amend IRDAI regulations permitting companies set up in IFSC to invest in entities engaged in aircraft financing and leasing activities.
Clarify whether investment of funds of policyholders’ in entities registered in IFSC be considered as funds invested in India only.
Others Clarify under aircraft rules that aircrafts of lessors cannot be detained against any statutory or other outstanding dues.
Entities like pension funds, insurance companies, employee provident fund organisations be allowed to invest directly or indirectly in aircraft financing and leasing activities.
SARFAESI Act not be applicable to aircrafts.
Gujarat Stamp Act to exempt aircraft financing and leasing from its purview.
Permit airlines to set up branch in IFSC.

CONCLUSION

It is absolutely evident that aircraft industry is on upsurge and will continue to be rising globally in the coming years. To meet the rising demand and expand the country’s hold in the aviation market the proposed structure provides a well-established groundwork through the proposed structure. All recommendations, if accepted and implemented in a proper manner, will enable India to pioneer a very profitable and growth-oriented aviation market.

 

[1] https://www.globalaviationsummit.in/documents/PROJECTRUPEERAFTAAR.pdf

[2] https://assets.kpmg/content/dam/kpmg/ie/pdf/2019/01/ie-aviation-industry-leaders-report-2019.pdf

 

Snapshot of SEBI Board Meeting

/0 Comments/in /by

By Corplaw Team (corplaw@vinodkothari.com)

SEBI Board Meeting held on 27th June, 2019 has proposed certain amendments in various Regulations. We aim to briefly highlight the changes with analysis.

1.  Framework for issuance of DVR

a)   Eligibility

Company having Superior Rights (SR) shares will be permitted to do IPO of ordinary shares to be listed subject to fulfilment of conditions of SEBI (ICDR) Regulations, 2018 and with fulfilment of following conditions:

  1. Issuer company is a tech company having intensive use of technology.
  2. SR shareholder should be part of promoter group whose collective networth should not exceed Rs. 500 crore (excluding investment of SR shareholder).
  3. SR shares have been issued to promoters who hold executive position in the Company.
  4. Issue of SR shares should be authorised by special resolution.
  5. SR shares should have been issued 6 months prior to filing of RHP.
  6. SR shares should be in the ratio of 2:1 to max 10:1 compared to Ordinary Right (OR) shares.
VKC Comments

The proposal of SEBI intends to motivate raising of money and control in the hands of founders of the company. This especially has been introduced to motivate tech startups, to raise capital without losing control. The SEBI Board Meeting has accepted most of the recommendations proposed by SEBI’s discussion paper. However, some new insertions have been introduced keeping in pace with the international practice. Such proposal includes SR shareholder to be a part of promoter group whose collective networth should not exceed Rs. 500 crore. Further, the issuance of SR shares prior to filing of RHP has been imported from Hong Kong law.

b)   Listing & Lock-In

SR shares shall also be listed on Stock Exchange after the issuer company makes a public issue. However, SR shares shall be under lock-in after the IPO until their conversion to ordinary shares. Transfer of SR shares among promoters shall not be permitted. No pledge/ lien shall be allowed on SR shares.

VKC Comments

Recommendation of SEBI’s discussion paper has been accepted.

c)   Rights of SR shares

SR  shares  shall  be  treated  at  par  with  the  ordinary  equity shares  in  every  respect,  including  dividends,  except  in  the  case  of  voting  on resolutions. The total voting rights of SR shareholders (including ordinary shares), post listing, shall not exceed 74%.

VKC Comments

The voting rights of SR shareholders have been capped to 74% of total voting rights, whereas, the Companies (Share Capital) Rules limits that total DVR in the Company to maximum 26% of post issued share capital of the Company. However, SEBI in its discussion paper had recommended a cap of 75% of the total voting rights.

d)   Enhanced corporate governance

  1. Min ½ of Board and 2/3 of Committees other than audit committee shall comprise of IDs
  2. Audit Committee shall be comprised of only IDs
VKC Comments

Companies with promoters having superior voting rights have been exposed to enhanced corporate governance with more independence on their Board and Committees.

e)   Coat Tail Provision

SR shares shall be treated as OR shares in following circumstances:

  1. Appointment or removal of independent directors and/or auditor
  2. In case where promoter is willingly transferring control to another entity
  3. Related Party Transactions in terms of SEBI(LODR) Regulations involving SR shareholder
  4. Voluntary winding up of the company;
  5. Changes in the company’s Article of Association or Memorandum
  6. except any changes affecting the SR instrument
  7. Initiation of a voluntary resolution plan under IBC;
  8. Utilization of funds for purposes other than business
  9. Substantial value  transaction  based  on  materiality  threshold  as  prescribed under LODR;
  10. passing of special resolution in respect of delisting or buy-back of shares; and
  11. Any other provisions notified by SEBI in this regard from time to time.
VKC Comments

The matters of significant interest of the Company have been eliminated from the purview of superior rights. This is because there might be instances where the interest of minority shareholders could be adversely affected by the holder of SR shares, therefore, certain checks and balances to prevent the misuse of the instruments have been imposed by SEBI to protect the interest of the shareholders as well as the genuine issuers.

f)    Sunset Clause

SR shall be converted into OR in following cases:

  1. SR shares shall be converted to Ordinary Shares within 5 years of listing which can be extended by 5 years through a resolution
  2. SR would not be permitted to vote on such resolutions.
  3. SR shares shall compulsorily get converted into OR on occurrence of   certain   events   such   as
  4. demise
  5. resignation of   SR shareholders
  6. merger or acquisition where the control would be no longer with SR shareholder
VKC Comments

The Sunset Clause in case of SR shares shall keep a check on the tenure of the DVRs and companies issuing the DVRs shall have to observe better corporate governance practices which was missing in the proposed structure of DVRs.

g)   Fractional Rights Shares

Concept of fractional rights have been proposed to be done away with and may be revived only after reviewing the experience of superior rights.

2.  SEBI (LODR) Regulations, 2015

The existing materiality limit for brand usage and royalty payments is proposed to be increased from 2% to 5% of annual consolidated turnover of the listed entity.

VKC Comments

SEBI constituted committee under the chairmanship of Mr. Uday Kotak on 2 nd June, 2018 provided a report on corporate governance with certain recommendations for implementation. One of the recommendations was to insert provision pertaining to payments made for brand and royalty to related parties. In this regard, the Committee suggested that where royalty payout levels are high and exceed 5% of consolidated revenues, the terms of conditions of such royalty must require shareholder approval and should be regarded as material related party transactions. SEBI applied its discretion to make the provision stricter and subsequently reduced the limit to 2%. However, based on the representations made by the stakeholders, SEBI proposes to increase the limit to 5% of annual consolidated turnover.

3.  SEBI PIT Regulations

The current language of the Code of Conduct indicated a voluntary requirement for closure of trading window from the end of quarter. Later, NSE issued a circular on April 2, 2019 to the effect that the requirement is mandatory. Accordingly, SEBI Board meeting has also clarified that during the trading window closure from the end of the quarter till 48 hours from the declaration of the results, the following trades shall be an exception to the same:

  • off-market inter-se transfer between insiders,
  • transaction through block deal window mechanism between insiders,
  • transaction due to statutory or regulatory obligations,
  • exercising of stock  options,
  • pledging of  shares  for  bona  fide  transaction  such  as  raising  of funds and
  • transactions for acquiring shares under further public issue, right issue and preferential issue, exercising conversion of warrants / debentures, tendering shares under buy-back, open offer and delisting etc. under respective regulations.

The Board meeting indicates that the trading during such period shall be allowed only if certain specified conditions are complied. The conditions are however, not mentioned in the outcome. Clarification has also been approved in relation to material financial relationship (nature of clarification not provided in the press release).

VKC Comments

The proposed amendments were much awaited. The existing set of the PIT Regulations provide a leeway for most of these trading activities under contra-trade restrictions or trading under Regulation 4 (exemptions to insider trading). The aforesaid amendment will provide much needed clarity to stakeholders who were facing operational difficulties due to the implementation of the quarter end trading window closure. However, one needs to see the nature and extent of conditions imposed for availing the aforesaid exemption.

4.  Definition and compliances w.r.t. “Encumbrance” under Takeover Regulations

  1. The definition of the term “encumbrance” has been made broad to include the following under the SEBI Takeover Regulations:
  • Any restriction on  the  free  and  marketable  title  to  shares,  by  whatever  name called, whether executed directly or indirectly;
  • pledge, lien, negative lien, non-disposal undertaking;
  • any covenant, transaction,   condition   or   arrangement   in   the   nature   of encumbrance,   by   whatever   name   called,   whether   executed   directly   or indirectly.
  1. Promoters required to   disclose   separately   detailed   reasons   for encumbrance,  whenever:
  • the combined  encumbrance  by  the  promoters  and PACs crosses  20%  of  the  total  share  capital  in  the company; or
  • 50% of their shareholding in the company.
  1. Stock exchanges will maintain the details of such encumbrance along with purpose of encumbrance, on their websites.
  2. Annual disclosure by the promoters to the audit committee and the stock exchanges stating that no other encumbrance , either directly or indirectly has been made other than those declared by them.
VKC Comments

As we understand, the aforesaid change has been made in view of the growing concerns over the complex arrangement of fund raising by promoters. The existing definition of encumbrance was also an inclusive definition, however, the proposed amendment intends to make it wide enough to cover negative lien or even any arrangement entered for the purpose of creating restrictions on free transferability of the shares, either directly or indirectly.

Further, the obligation has been casted to report the same internally as well as to allow the same to be reflected in the public domain for ensuring transparency in the dealings whereby promoters create encumbrance over the shares of the company.

SEBI proposed amendments in PIT Regulation to incentivize Informants…

/0 Comments/in , , /by

By Dibisha Mishra (dibisha@vinodkothari.com)

corplaw@vinodkothari.com

Introduction

SEBI’s recent Discussion Paper[i] on amendment to the SEBI (PIT) Regulations, 2015 presses the fact that mere Regulator’s watch on the illegal transactions are not enough to practically eliminate trading on the basis of UPSI. Wherein insiders are finding new ways to get into such illegal transactions including transactions through proxy, difficulty in tracking and proving the same even if they are tracked remains a challenge for SEBI. Hence, to ensure better tracking and maintain the integrity of the securities market, the regulator is intending to bring in informants to the stage. The informants shall basically be the employees or any other person who observes actual or suspected cases on insider trading. Such mechanism shall have a dedicated reporting window and also provide for ‘near absolute confidentiality’ to so that the informants are not deterred by the fear of retaliation or discrimination or disclosure of personal data.

Is this altogether a new concept?

Such Informant Mechanism, is not a new concept brought in to tackle the issue of insider trading altogether. Several other regulation though out the globe have been following the same practice. One such example being UK’s Market Abuse Regulation (596/2014) which provides similar kind of reporting mechanism. This concept is similar to ‘Whistle Blower Policy’ for frauds as provided under the Companies Act, 2013. However, SEBI’s Informant Mechanism enables reporting to the regulator directly rather than routing the same to the Company’s management itself. It also takes a step further to incentivize the informants to encourage pro-active reporting.

Features

The salient features of the proposed Informant Mechanism shall be as follows:

  1. Voluntary Information Disclosure Form where information can be reported.
  2. Disclosure on source of information: The information should be original and not sourced from any other person
  3. Office of Informant Protection(OIP): A dedicated department separate from investigation and inspection wings.
  4. Submission of Information: either by himself or through a practicing advocate where the informant decides to report unanimously.
  5. Confidentiality of Informant shall be maintained throughout the proceedings, if any, initiated by SEBI unless evidence of such informant is required such proceedings.
  6. Information reported shall be taken up further if the same is material. Such information may further be forwarded to the operational department for suitable actions only after slashing down the identity details of the informant.
  7. Reporting of the functioning of OIP on an annual basis to SEBI.
  8. A dedicated hotline to guide persons on how to file information.
  9. Grant of reward where information provided as as per informant policy and amount of disgorgement exceeds Rs. 5 crores. The reward shall be paid from IEPF account.
  10. Provision for amnesty.

Few downsides

  1. Smaller cases nor covered: While the proposed Informant Reward Policy is headed to incentivize the informant to promote pro-active reporting of insider trading transactions which were earlier left undetected, the department also proposes to put the minimum threshold for the amount of disgorgement. Only those information revealing insider trading transaction amounting to Rupees Five Crores or more shall be taken up for the purpose of rewarding. This clause itself slashes down majority of comparatively smaller but rather more frequent transactions from coming under its purview.
  2. Material cases: Proposed policy states that only those cases that are material shall be processed further. The official who shall be responsible to determine whether the information is material is nowhere mentioned.
  3. Tracking System: The policy mentions no such system of tracking by the informants regarding the status of information by them.

Conclusion

The discussion paper indicates SEBI’s intention to buckle up its systems for tracking down insider trading transactions and take appropriate action. However, the extent to which the proposed policy gets implemented along with modifications, if any, is yet to be seen.

[i] https://www.sebi.gov.in/reports/reports/jun-2019/discussion-paper-on-amendment-to-the-sebi-prohibition-of-insider-trading-regulations-2015-to-provision-for-an-informant-mechanism_43237.html

Press Release: Working Group of Ministry of Civil Aviation, which Vinod Kothari was a part of, releases its report

/0 Comments/in /by

The Working Group on Developing Avenues for Aircraft Financing and Leasing Activities in India constituted by Ministry of Civil Aviation has submitted its report ‘Project Rupee Raftaar’ which is a road map for developing an Aircraft Financing and Leasing Ecosystem in India. The project is based on the theme of “Flying for All”.

The working group comprised of diverse stakeholders from across the government, regulatory authorities, public and private corporates, industry associations, academia, and legal and financial consultants. Mr. Vinod Kothari, Director of Vinod Kothari Consultants was also a part of this working group.

The terms of reference of the group, inter alia, included examining and recommending changes along with potential strategies for making aircraft financing and leasing activities more attractive for entities set up in GIFT-City International Financial Services Centre (IFSC) Its terms of reference, inter alia, included examining and recommending changes along with potential strategies for making aircraft financing and leasing activities more attractive for entities set up in GIFT-City International Financial Services Centre (IFSC).

The report of the group also refers to India Leasing Report-2016, with subsequent editions, produced by M/s. Vinod Kothari Consultants Pvt. Ltd. for details on the growth and development of the overall Indian leasing industry, and notably the classification of lease products, accounting standards, and regulatory provisions and issues.
The detailed report submitted by the Working Group can be viewed here: https://www.globalaviationsummit.in/documents/PROJECTRUPEERAFTAAR.pdf