SEBI amends LODR in relation to listing of Security Receipts

By CS Vinita Nair (corplaw@vinodkothari.com)

Aligns with recent amendment made in SEBI regulations for listing of Securitised Debt Instruments

SEBI has notified amendments to LODR Regulations vide SEBI (Listing obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2018[1] (‘Present Amendment’) dated September 6, 2018 and has aligned the said regulations with the amendments made in SEBI (Public Offer and Listing of Securitised Debt Instruments) (Amendment) Regulations, 2018 dated June 26, 2018[2]. Read more

Non-compliance of Listing Regulations may lead to compulsory delisting

by Munmi Phukon ,(corplaw@vinodkothari.com)

Introduction and Background

SEBI, on May 3, 2018 came out with a Circular[1] (the “Circular” or “New Circular”) on uniform structure for imposing fines as a first resort for non-compliance with certain provisions of the Listing Regulations and the standard operating procedure (SOP) for suspension of trading. This circular is issued in supersession of the previous two Circulars dated November 30, 2015[2] (May Circular) and October 26, 2016[3] (June Circular) (collectively “Previous Circulars”) and shall be effective from the compliance periods ending on or after 30th September, 2018 i.e. from the quarter ending on the said date.

How is it different from the Previous Circulars?

Evidently, the Circular is a combination of the Previous Circulars. While the May Circular covered the details of fine for respective regulations and SOP for suspension of trading, it however, did not cover the manner of freezing of the shareholding of promoters and promoter group entities of the defaulting entity. Thereafter, the June Circular was issued providing the manner to be followed by the depositories for freezing of shareholding of promoters and promoter group entities which was to be read with the May Circular.

The primary differences between the Circular and the Previous Circulars seem to be the following:

  1. The Circular covers 18 regulations of the Listing Regulations as against only 4 regulations covered by the May Circular which were primarily concerned with filing of periodic reports;

 

  1. The Circular provides uniform fine structure for non- compliance while the May Circular segregated the fine structure based on an initial non- compliance and a subsequent and consecutive non- compliances. Further, there was additional fine structure based on the paid- up capital of the defaulting entity if the non- compliance continues for more than 15 days;

 

  1. The Circular provides for the freezing of entire shareholding as well as other securities holding of the promoter and promoter group while the May Circular covered only shareholding.

 

  1. The Circular requires the listed entity to place before the Board, the details of non- compliance and action taken by the stock exchange and informing about the comments made by the Board thereon to the stock exchange for public dissemination. This was not there in the Previous Circulars.

 

  1. Moving of the scrip of the listed entity to “Z” Category was required in case of two or more consecutive defaults made within 15 days of the date of notice of the stock exchanges which has now been aligned with the failure for two consecutive quarters.

Contents of the New Circular

The New Circular may be segregated into the following parts-

  1. Structure of fines to be imposed for each of the Regulations covered thereunder;
  2. Freezing the entire shareholding in the entity and other security holding in demat form of the promoter and the promoter group;
  3. Moving of scrip to ‘Z Category;
  4. Suspension of trading of securities;
  5. Revocation of suspension;
  6. Delisting of the entity.

Each of the aforesaid are described as follows:

Part A: Structure of fines to be imposed

The Circular covers 18 Regulations for which fine shall be imposed. Further, the fines shall be accrued till the date of compliance made by the listed entity. The table below contains the said Regulations and respective fines against each of them.

Sl. No. Regulation Fine

 

Remarks
1.        Regulation 6(1)-

Non-compliance with requirement to appoint a qualified company secretary as the compliance officer.

 

₹ 1,000 per day

 

New insertion.
2.        Regulation 7(1)-

Non-compliance with requirement to appoint share transfer agent.

 

₹ 1,000 per day New insertion.

 

3.        Regulation 13-

(1)  Failure to ensure that adequate steps   are   taken for expeditious redressal of investor complaints.

(3)  Non-submission  of  the statement on Shareholder complaints within the  period prescribed under  this Regulation or  under  any  circular issued  in  respect  of redressal  of investor grievances.

 

₹ 1,000 per day New insertion.

 

However, sub- regulations (2) & (4) have not been taken into consideration. Sub- regulation (2) is w.r.t registration on the SCORES platform. Since the Circular does not cover this clause, accordingly, the listed entities will still require to observe the requirements of SEBI Circular dated December 18, 2014[4] which entrusts the responsibility of ensuring compliance with same on the Board of the listed entity.

 

Further, sub- regulation (4) is related to sub- regulation (3) wherein the statement of shareholders complaint is required to be placed before the Board on quarterly basis.

 

4.        Regulation 17(1)

Non-compliance with the requirements pertaining to the composition of the Board including failure to appoint woman director.

 

₹ 5,000 per day New insertion. Non- compliance due to casual vacancies of directors shall also get covered in this.
5.        Regulation 18(1)

Non-compliance with the constitution of audit committee.

 

₹ 2,000 per day New insertion. Non- compliance due to casual vacancies of directors shall also get covered in this.
6.        Regulation 19(1)/ 19(2)

Non-compliance with the constitution of nomination and remuneration committee.

 

₹ 2,000 per day New insertion. Non- compliance due to casual vacancies of directors shall also get covered in this.
7.        Regulation 20(2)

Non-compliance with the constitution of stakeholder relationship committee.

 

₹ 2,000 per day New insertion.
8.        Regulation 21(2)

Non-compliance with the Constitution of risk management committee.

 

₹ 2,000 per day New insertion.
9.        Regulation 27(2)

Non-submission of the Corporate governance compliance report within the period provided under this regulation.

 

₹ 2,000 per day Previously there were different figures for the 1st and the subsequent non-compliances i.e. Rs. 1000 and Rs. 2000 respectively. But as per the new circular overall ₹ 2,000 per day will be charged.

 

10.   Regulation 29(2)/29(3)

Delay  in  furnishing  prior intimation about  the  meeting  of  the  board  of directors

 

₹ 10,000 per instance of non-

compliance per item.

 

Sub- regulation (2) is related to sub- regulation (1). Sub- regulation (1) enlists 6 items for which the prior intimation to stock exchange is required. Further, sub- regulation (3) provides 2 more items requiring prior intimation.

 

The fine shall be per item, per instance and also on lump sum basis. Therefore, day count shall not be applicable.

 

11.   Regulation 31

Non-submission of shareholding pattern within the period prescribed.

 

₹ 2,000 per day Previously there were different figures for the 1st and subsequent non-compliances i.e. Rs. 1000 and Rs. 2000 respectively. Further, for continuous non- compliance for more than 15 days, additional fine was provided of 0.1 % of paid up capital of the entity or ₹ 1 crore, lower. But as per the new circular overall ₹ 2,000 per day will be charged.

 

12.   Regulation 32(1)

Non-submission of deviations/ variations in utilization of issue proceeds.

 

₹ 1,000 per day New insertion.
13.   Regulation 33

Non-submission of the financial results within the period prescribed under this regulation.

 

₹ 5,000 per day Previously there were different figures for the 1st and the subsequent non-compliances. i.e. 5000 and 10000 rupees respectively. Further, for continuous non- compliance for more than 15 days, additional fine was provided of 0.1 % of paid up capital of the entity or ₹ 1 crore, lower.

 

As per the new circular overall ₹ 5,000 per day will be charged.

 

14.   Regulation 34

Non-submission of the Annual Report within the period prescribed under this regulation.

 

₹ 2,000 per day Previously there were different figures for the 1st and the subsequent non-compliances i.e. 1000 and 2000 rupees respectively. However, the initial fine was to accrue only if the non- compliance continues for 5 days or more unlike for other regulations wherein from the very first day the fines are imposed.

 

As per the new circular overall ₹ 2,000 per day will be charged.

 

15.   Regulation 39(3)

Non-submission of information regarding loss of share certificates and issue of the     duplicate certificates within the period prescribed under this regulation.

₹ 1,000 per day

 

 

 

 

 

New insertion.
16.   Regulation 42(2)

Delay in/ non-disclosure of record date along with the purpose thereof.

 

Regulation 42(3)

Failure/ delay in dividend declaration within prescribed timeline.

 

Regulation 42(4)

Non-compliance with ensuring the prescribed time gap between two record dates.

 

Regulation 42(5)

Non-compliance with fixing of book closure dates and ensuring the prescribed time gap between two book closures.

 

₹10,000 per instance of non-

compliance per item

 

New insertion.
17.   Regulation 44(3)

Non-submission of the voting results within the period provided under this regulation.

 

₹10,000 per instance of non-

Compliance

New insertion.
18.   Regulation 46

Non-compliance with norms pertaining to functional website and disclosure of information thereon.

 

1st step:

Advisory/warning letter per instance of non-compliance per item.

 

2nd step:

 

₹10,000 per instance for every

Additional advisory/ warning

letter exceeding the four advisory/ warning letters in a financial year.

 

The stock exchange shall circulate advisory or warning letter as a first course of action. If such letter is sent for more than 4 times in a financial year, a lump sum of rupees 10000 shall be paid by the entity as fine for every such instances per item. This is to be noted that the Regulation enlists 17 items.

 

All of the aforesaid fines shall accrue till the time of rectification of the non- compliance to the satisfaction of the concerned recognized stock exchange or till the scrip of the entity is suspended from trading for non-compliance with the aforesaid provisions.

Part B: Freezing of shareholding and security holding of the promoter and the promoter group

Review of compliance by stock exchange

The New Circular provides for review of compliance status of the listed entities by the stock exchanges based on the receipt of information. However, the same is not clear on what will constitute an information or who will provide such information. If the term ‘information’ is to mean those information which are required to be submitted by the listed entities, the requirement will be incomplete as the regulations covered aforesaid do not only related to submission of information but also certain other compliances such as, disclosure of information on the website. In this regard, the May Circular was clear on the fact that the review by stock exchanges shall be based on the due date for compliances of respective regulations which should have retained in the new Circular too.

Notice in view of compliance status

Based on the review of compliance status of the entities, the stock exchange shall send notice to the concerned entity to comply with the relevant regulation and pay fine within 15 days. Such notice shall also be forwarded to other stock exchanges where the shares of the entity are listed.

Freezing

Upon failure to comply with the requirements of the notice, the depositories shall be approached by the stock exchange to freeze the shareholding of the promoters and promoter group in the concerned entity and also of the holding in other securities in the demat accounts. This is to be noted that the May Circular did not cover other security holdings.

Unfreezing

If the non-compliant listed entity pays the fine levied, the same shall be displayed on their website by the concerned stock exchange. The stock exchange shall also intimate the depositories to unfreeze the shareholding and security holding after one month from the date of compliance.

Duties of Board of Directors of the listed entity

The Board of Directors (BoD) of the listed entity has been entrusted with the duty to review the nature of the non- compliance and to comment thereon. The comments of BoD shall also be intimated to the stock exchanges.

Part C: Moving of Scrip to ‘Z Category

Which all regulations are covered?

The stock exchange, in addition to the imposition of fine, shall also move the scrip of the listed entity to ‘Z Category’. In that case the share shall be traded only on ‘trade for trade’ basis. However, this is applicable only for certain regulations and that too on failure to comply with the requirements of those regulations for two consecutive quarters. The regulations covered hereunder are as follows-

  1. Regulation 17(1);
  2. Regulation 18(1);
  3. Regulation 27(2);
  4. Regulation 31;
  5. Regulation 33;
  6. Regulation 34;
  7. Submission of information on  the  reconciliation  of  shares  and capital audit report;
  8. Receipt of  the  notice  of  suspension  of  trading  of  that  entity  by  any other recognized stock exchange on any or all of the above grounds.
Prior intimation to the investors

The stock exchange shall give 7 days prior public notice to the investors before moving the scrip to Z category along with simultaneous intimation to the other stock exchanges.

Moving back of the scrip

The stock exchange shall move back the scrip to normal trading category on compliance with respective provisions and payment of relevant fines thereof. However, the same can be done only if the trading has not been suspended. Other stock exchanges shall also be intimated by the stock exchange.

Part D: Suspension of trading of securities

The regulations for taking action of suspension of trading are same as provided in Part C above.

Procedure of suspension

Before suspension, a written notice shall be sent to the non-compliant listed entity in order to pay the appropriate fine within 21 days of the date of intimation. A public notice shall be placed on the website of the recognised stock exchange providing details of the same. The recognised stock exchange shall also inform other recognised stock exchange where the securities are listed in order to ensure uniformity in case of suspension.

If the entity fails to comply with the respective requirements and pay fine within the stipulated period, the trading in the shares shall be suspended. The entire shareholding and security holding of the promoter and promoter group shall remain frozen during the period of suspension.

Uniform suspension

While suspending trading in the shares of the non- compliant entity, the stock  exchange(s) shall  send  intimation  of  suspension  to other  stock  exchange(s)  where  the  shares  of  the  non- compliant  entity  are  listed to  ensure  that  the  date  of  suspension  is uniform across all the recognised stock exchange(s).

If the fine is paid before suspension

If the fine is paid within two working days before the proposed date of suspension, the suspension of securities shall not take place and public notice to this effect shall be published on the website of the stock exchange. Other stock exchange shall also be intimated of the same.

Further, the stock exchange shall also intimate the depositories to unfreeze the entire shareholding and security holding of the promoter and promoter group so frozen earlier. However, the shareholding and security holding shall be unfreezed only after one month from the date of compliance.

Post suspension trading

After 15 days of suspension, trading in the shares of the entity may be allowed on a ‘Trade for Trade’ basis. Such trading shall be allowed on the first trading day of every week for 6 months. Necessary instruction in this regard shall be issued by the stock exchange to the trading members.

Part E: Revocation of suspension

When revocation happens?

If the non-compliant entity complies with the requirements and pays the fine post suspension of trading in the shares, the stock exchange shall revoke the suspension and a public notice in this regard shall be displayed on its website informing about the same. The revocation of suspension shall be made after 7 days from the date of the notice and also inform other stock exchanges where the shares of the entity are listed.

Trading post revocation

After such revocation of suspension, the trading of shares shall be permitted only in ‘Trade for Trade’ basis for a period of 7 days from the date of revocation and thereafter, trading in the shares of the entity shall be shifted back to the normal trading category.

Unfreezing of share and security holding of promoter and promoter group

The  stock  exchange(s)  shall  intimate  the  depositories to unfreeze the entire shareholding of the promoter and promoter group in the entity as well as all other securities held in the demat account of the promoter and promoter group, after three months from the date of revocation of the suspension.

Part F: Compulsory delisting of the company

If the non-compliant entity fails to adhere to the requirements of the New Circular or fails to pay the applicable fine within 6 months from the date of suspension, the process of compulsory delisting of the non-compliant listed company will take place which will be commenced by the stock exchanges in accordance with the provisions of the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 read with the Securities Contracts (Regulation) Act, 1956, the Securities Contracts (Regulation) Rules, 1957 as amended from time to time.

Conclusion

Evidently, the New Circular is more stringent than the Previous Circulars in many ways. Earlier, only shareholding of the promoters and promoter group in the listed entity were covered for freezing while the New Circular covers other security holding also. Accordingly, this shall include the debt securities, preference shares etc. held in the listed entity as well as in other entities if held in demat form. Further, the Board of Directors has been entrusted with an additional duty to review the compliance status and to provide comments thereon. The non- compliance for 6 months shall also lead to compulsory delisting of the listing entity. Accordingly, the Compliance Officer of the listed entity shall have to observe all these requirements to avoid the stringent consequences.


[1] https://www.sebi.gov.in/legal/circulars/may-2018/non-compliance-with-provisions-of-sebi-listing-obligations-and-disclosure-requirements-regulations-2015-and-standard-operating-procedure-for-suspension-and-revocation-of-trading-of-specified-securi-_38841.html

[2] https://www.nseindia.com/content/equities/SEBI_Circ_30112015_6.pdf

[3] https://www.nseindia.com/content/equities/SEBI_Circ_26102016.pdf

[4] https://scores.gov.in/scores/Docs/Circular%20-%20Redressal%20of%20Investor%20Grievances%20through%20SCORES.pdf

Presentation on Related Party Transaction(RPTs)- An Overview

Amendments to the SEBI (Debenture Trustee) Regulations, 1993 by Somesh Lund

The Securities and Exchange Board of India (SEBI) in its board meeting held on 26 April 2017 [1] has approved the amendments to the SEBI (Debenture Trustee) Regulations, 1993[2] (hereinafter referred to as “Regulations”)as proposed in the consultative paper issued on 16 February 2017[3].The consultative paper was placed on SEBI’s website and suggestions were invited.

The Companies acts, 2013, as well as the SEBI regulations, prescribe the framework pertaining to debenture trustees. This led to several overlaps and ambiguities. Thus with a view to address this issue, SEBI formed a task force comprising of SEBI officials and representatives of the debenture trustees to conform the Debenture Trustee Regulations with the Companies Act,2013.

Read more