SEBI amends ILDS Regulations, clarifies on AOA amendment

SEBI vide notification dated March 24, 2015^[1] had provided framework for consolidation and re-issuance of debt securities under Regulation 20A of SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (‘ILDS Regulations’) subject to fulfillment of certain conditions. One of the conditions was to have an enabling provision in the Articles of the Company w.r.t. consolidation and re-issuance of debt securities. In line with the aforesaid condition, SEBI in its circular dated June 30, 2017 ^[2] provided a time period of 6 months to Issuers in order to incorporate such enabling provisions in the Articles of Association (‘Articles’). Our analysis of the said circular can be viewed here.

Thereafter, SEBI vide its notification dated July 13, 2017[3] amended Regulation 20A of ILDS Regulations and inserted Regulation 20B.

Regulation 20A of ILDS Regulations

Section 121 of the erstwhile Companies Act, 1956 provided for consolidation and re-issuance of debentures. However, the Companies Act, 2013 did not have any such corresponding provisions.

As provided in Para C of SEBI’s Consultation Paper[4], the Ministry of Corporate Affairs (MCA) clarified that since Companies Act, 2013 is silent on the issue, it may be assumed that such reissuance is possible if there is an enabling provision in this regard in the Articles of the company. In view of the clarification provided by MCA, SEBI inserted Regulation 20A of ILDS Regulations^[5]. Clause (a) of Regulation 20A provided as under:

a) there is such an enabling provision in its articles under which it has been incorporated;

SEBI amended clause (a) of Regulation 20A of ILDS Regulations to following effect:

the articles of association of the issuer shall not have any provision, whether express or implied, contrary to such consolidation and re-issuance.

On the basis of the aforesaid amendment, enabling provisions has been replaced with absence of contrary provisions w.r.t. consolidation and re-issuance of debt securities which means that even if the Articles of the Company are silent w.r.t consolidation and re-issuance of debt securities the Company may consolidate and re-issue debt securities if the Articles do not contain anything contrary.

Insertion of Regulation 20B

In view of the compliance requirements proposed by SEBI w.r.t. International Securities Identification Number (ISIN), SEBI inserted Regulation 20B mandating issuers of privately placed debentures to comply with requirements relating to issue of ISIN as specified by SEBI from time to time.

Conflicting provisions of clause (a) and SEBI circular

SEBI circular dated June 30, 2017 provided 6 month time limit for carrying out necessary changes in the Articles and have an enabling provision in the Articles. Pursuant to Para 3.1.4 of SEBI circular, the issuer is required to submit a confirmation certificate to the Stock Exchange with respect to compliance of aforesaid requirement within thirty working days from end of six months from June 30, 2017.

Given the language of amended clause (a) of Regulation 20A it seems that it is not mandatory to carry out any amendment in the Articles in the absence of any provision to the contrary. The language of the present notification is not aligned with the requirements under SEBI circular.

Companies may take a conservative view and carry out the amendment of Articles. Further, companies may even consolidate and re-issue debentures prior to amending the Articles and get the acts of the Board ratified and confirmed by the shareholders at the time of seeking approval for amendment of Articles

[1] http://www.sebi.gov.in/sebi_data/commondocs/ildsmar2015.pdf

[2] http://www.sebi.gov.in/legal/circulars/jun-2017/specifications-related-to-international-securities-identification-number-isins-for-debt-securities-issued-under-the-sebi-issue-and-listing-of-debt-securities-regulations-2008_35215.html

[3] http://www.sebi.gov.in/legal/regulations/jul-2017/securities-and-exchange-board-of-india-issue-and-listing-of-debt-securities-amendment-regulations-2017_35314.html

[4] http://www.sebi.gov.in/sebi_data/attachdocs/1486034791614.pdf

[5] http://www.sebi.gov.in/sebi_data/commondocs/ildsmar2015.pdf

Aman Nijhawan

corplaw@vinodkothari.com