Recent regulatory developments for listed entities – critical changes under LODR and PIT Regulations
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Open in new tab THE NEW FDI POLICY – MIX OF RELIEF AND BURDEN OF ADDITIONAL COMPLIANCES AND LIMITATIONS
– Soma Bagaria & Nidhi Ladha
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Cyber security incidents to be reported quarterly to stock exchanges
Circular differs from the discussion in SEBI Board meeting
– Aisha Begum Ansari | corplaw@vinodkothari.com
Brief background
With business operations going digital, the threat of cyber attacks have increased considerably. Effective from April 2019, the Risk Management Committee of a listed entity was mandated by SEBI to discharge the function for laying down a framework for identifying the cyber security risks. In case of financial sector entities, the requirements laid down by the sectoral regulators are stricter and elaborate[1].
Additionally, the companies are required to report the cyber security incidents to an agency called Indian Computer Emergency Response Team (‘CERT-In’) which is established in terms of section 70B of the Information Technology Act, 2000 and comes under the Ministry of Electronics and Information Technology (‘MEITY’).
Present Circular
Since, the cyber security incidents are material in nature and may be relevant for the investors, SEBI vide its notification dated June 14, 2023 inserted reg. 27(2)(ba) in the Listing Regulations mandating the listed entities to disclose the details of cyber security incidents or breaches or loss of data or documents in its quarterly Corporate Governance (CG) report filed in terms of Reg. 27 (2) effective from July 13, 2023. Pursuant to the same, the stock exchanges, on September 29, 2023, released a format for disclosure of cyber security incidents in the quarterly CG report commencing from quarter ended September 30, 2023 , which covers the following:
- Confirmation on any instance of cyber security incident or breach or loss of data or documents during the quarter;
- Date of the event;
- Brief details of the event.
This article analyzes the above requirement in light of the proposal made in the consultation paper, discussion in SEBI Board meeting agenda and the gaps arising therefrom .
Read more →Amendment in Rule 11UA
– Nitu Poddar and Ankit Singh Mehar | corplaw@vinodkothari.com
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Delegation of the power to invest – absolute or conditional?
– Nitu Poddar | corplaw@vinodkothari.com
As per section 186(5), any investment has to be approved by the board in its meeting by all the directors present in the meeting. First proviso to section 179(3) allows delegation of power of the board with respect to investing the funds of the company. This power can be delegated to a committee of directors / MD / manager or any principal officer. Are these two provisions contradictory? No, delegation allowed in section 179 is to remove bottlenecks in terms of activities being carried out by the company in its day-to-day operations. There are several investment opportunities which are available only at opportune times. If these opportunities have to wait for the board meeting to happen, the very opportunity may be lost. Also, companies need to ensure that they do not sit with idle funds. For this, they are often required to make investment decisions – investments which are non-strategic, short term and have to be reinvested soon enough.
Read more →Stock options entail multi-stage disclosure to stock exchanges
Requirement under SEBI Listing Regulations and SBEB Regulations
– Aisha Begum Ansari | corplaw@vinodkothari.com
Employee share benefit schemes in the form of ESOP, ESPS, etc. (‘stock options’) facilitate the employees to participate in the growth of the companies. Since, the issue of shares pursuant to exercise of stock options leads to dilution of the share capital of the company, the same may be relevant or material event or information for the investors. Therefore, right from the board meeting in which the decision relating to ESOP scheme is undertaken till the time of allotment of shares, disclosure is required to be made at different stages either in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) or SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (‘SBEB Regulations’). This article deals with the requirements and the stages when the disclosure is required to be made by a company.
Read more →Defaulters at will, and defaulters of size: RBI proposes new Directions
Middle and Upper Layer NBFCs also part of the system
Team Finserv, finserv@vinodkothari.com (updated as on March 30,2024)
Introduction
The Reserve Bank of India on September 21, 2023 has issued the Draft Master Directions on Treatment of Wilful Defaulters and Large Defaulters (‘Proposed Directions’). The Directions, when finalized, will replace the existing Master circulars (referred below). The draft Directions are largely consolidating in nature, with some significant differences. Importantly, NBFCs of middle and upper layer have been brought into the framework, and additionally, as was clear from the recent circular on compromise/settlements, the tag of willful defaulter may be removed if the borrower does a compromise settlement with the lender. However, a mere sale of the loan will not cause removal of the tag, as the tag will pass on to the buyer. The draft Directions also assimilate the provisions about large defaulters, which was earlier a CIC filing requirement, and make it a part of these Directions.
Read more →Do’s and Don’ts for Investment Advisors
Hari Dwivedi | corplaw@vinodkothari.com
Introduction
SEBI, the regulatory body overseeing various intermediaries in primary and secondary markets, such as merchant bankers, portfolio managers, research analysts, debentures trustees, underwriters, stock brokers, sub brokers, bankers to an issue, investment advisors, registered custodians, and more, has registered over 33,000 intermediaries as per SEBI’s recognized intermediaries data. Among them, there are 1331 Investment Advisors (referred to as “IA”) as on 24th September, 2023. In this article, we will discuss the role of IA in the securities market and outline some important do’s and don’ts for them, given their significant role.
IA plays a pivotal role in facilitating prudent financial decision-making for both individuals and institutions. Their expertise, customized strategies, and risk management proficiency are instrumental in aiding clients to realize their financial objectives and navigate the intricacies of financial markets. This client-advisor relationship hinges on a foundation of trust, invoking a stringent fiduciary obligation upon IA. They are ethically and legally mandated to prioritize the best interests of their clients, entailing the provision of transparent and candid counsel, the avoidance of conflicts of interest, and meticulous disclosure of any potential conflicts. In fulfilling these responsibilities, it is imperative for IA to meticulously adhere to the regulatory provisions, observing both the prescribed protocols and constraints. This not only safeguards against penalties but also upholds client satisfaction, fostering a harmonious and productive relationship.
But before we delve into the do’s and don’ts for an IA, let’s first understand who is an IA under the applicable legal provisions.
Our other related and relevant write ups on similar issues can be read below:
- SEBI Guidelines for Investment Advisers
- Partitioning of advisory services from distribution activities
- SEBI proposes to regulate ‘Finfluencers’
- Snippet SEBI Consultation Paper (CP) to curb association of SEBI Registered Intermediaries (RIs) with unregistered Finfluencers
Fractional ownership schemes: Distinguishing between investment schemes and shared ownership of real assets
Vinod Kothari | vinod@vinodkothari.com
Schemes to crowdfund real assets (that is, assets other than financial assets) continue to proliferate. Known by various names as fractionalisation, tokenisation, fractional property shares, etc., these schemes invite multiple retail investors to become fractional owners of assets. The assets in question may consist of properties, solar assets, leased equipment, etc. The assets, in turn, are deployed by some asset manager, who produces returns from these assets. These returns are earned by the investors.
Money for money, or interest in assets for money:
A money-for-money transaction is essentially an investment contract. The meaning of money-for-money transaction is one where a person puts in money, and is promised money in return. That is to say, the essence of the activity is producing monetary returns by investing a certain sum of money. This is opposed to a shared property ownership or business where money is invested for acquiring stake in an asset. The asset, in turn, may be deployed for a common good, but the key question to ask is: have the investors been promised returns by the manager of the scheme? That is, do investors acquire equity in the asset, exposing themselves to the risks/returns of the asset, or do investors have been promised, explicitly or implicitly, a fixed rate of return? In the latter case, it is clearly an investment transaction, and being a pooled investment vehicle, it may be termed as “collective investment scheme”.
There are stringent regulations in India for Collective Investment Schemes i.e. the SEBI (Collective Investment Scheme) Regulations, 1999, and India is not unique in this respect. We have earlier discussed the law regarding fractional ownership of properties, and the ingredients that distinguish between a participated ownership, versus a collective investment scheme.
Read more →Workshop on Recent regulatory developments for listed entities: critical changes under LODR and PIT Regulations
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