FAQs on SBO Rules – Version 3
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Open in new tab Investor awareness by BSE & NSE- forceful dematerialization
By Munmi Phukon, Smriti Wadehra and Shreya Jain
Currently, the provisions of Regulation 40 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, facilitate transfer of securities both in physical and dematerialized form. However, SEBI vide its notification dated 8th June, 2018 had notified the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2018[1] by virtue of which it has mandated the processing of transfer of securities only when such securities are held in dematerialised form. The aforesaid amendment shall come into force on the 180th day from the publication of the Amendment Regulations i.e. 5th December, 2018.
Considering the need of the hour, BSE and NSE on 5th July, 2018[2] and 9th July, 2018[3], respectively, has issued two Circulars requiring companies and their RTAs to set up a mechanism for dissemination of information and spreading awareness among various investors about mandatory dematerialization of securities. Though some of the companies have already placed this information in the AGM notices, based on the aforesaid Circulars, the companies are also required to put in place a mechanism including the following in order to spread awareness about the proposed change:
- The companies through their RTA should send a letter through post to the holders of physical shares and reminding them about the said amendment and also about the impact of the said regulation on transfer of the said physical format shares w.e.f. December 5th, 2018.
- Atleast two reminders by RTAs is advised to be sent to in a gap of 30 days to the all those shareholders who are holding their shares in physical format, to get it dematerialized.
- Companies to disseminate such information on their website intimating the investors about the proposed change and provide appropriate guidance on how to dematerialize their shares.
- Companies should ensure that the signature cards of all the holders of physical securities are handed over to its RTA at the earliest.
It is understood that the intent of the aforesaid Circulars is to provide for the actionable on the part of the companies so as to inform their respective shareholders to convert their physical shares into demat form at the earliest so that the liquidity of the securities does not get affected. Further, though the NSE Circular is silent but BSE may require a reporting to be made by the companies to the effect of compliance of the aforesaid requirements in a specified format to be prescribed by it by end of September 2018.
To conclude we may say that through such automation the burden of compliance shall be reduced on the part of the Company and in this regard SEBI is enhancing the role of depositories in various activities of the Company. Therefore, the companies should take adequate steps to ensure dematerializing the physical shares before the commencement of this Regulation so as to avoid any last minute hassle.
[1] https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/jun-2018/1528952919510.pdf#page=1&zoom=auto,-23,792
[2] https://www.bseindia.com/corporates/Displaydata.aspx?Id=cd22b184-1153-4b05-8ad9-d04699161f89&Page=cir
[3] https://www.nseindia.com/corporates/content/eq_listcompanies.htm
Corporatisation Prospects for Unregistered Entities – Amendment in Section 366 of the Companies Act, 2013
By Pammy Jaiswal (corplaw@vinodkothari.com)
Partner, Vinod Kothari and Company
Background
By virtue of the enforcement notification of MCA dated 5th July, 2018[1], the proposed change under section 75 of the Companies (Amendment) Act, 2017 (‘Amendment Act’) relating to section 366 of the Companies Act, 2013 (‘Act, 2013’) has been notified with effect from 15th August, 2018. Further, MCA vide its notification dated 5th July, 2018[2] has also brought the Companies (Authorised to Register) Second Amendment Rules, 2018 (‘Amendment Rules’). The said Amendment Rules shall also come into force from 15th August, 2018.
The section deals with registration of unregistered entities like partnership firms, LLPs, cooperative societies and such other entities, as a company under the Act, 2013. The amendment paves way for such entities having two or more members to get themselves registered under the Act, 2013 either as a company limited by guarantee, company limited by shares or unlimited companies. Read more →
Enhanced ODI Limits for AIFs and VCFs
By Simran Jalan (corplaw@vinodkothari.com)
Background
The Securities and Exchange Board of India (SEBI) came out with a circular on July 3, 2018[1] (Circular) to liberalise the regulatory regime surrounding overseas investments by Alternative Investments Funds (AIF) and Venture Capitals Funds (VCF). However, before we delve further into the contents of the notification, let us have a quick discussion on what AIFs and VCFs are.
AIFs are privately pooled investment vehicles established in India and registered with the SEBI and is not a mutual fund or collective investment scheme. AIFs can be of following three categories –
- Category I – These funds invest only in early stage start-ups.
- Category II – Category II AIFs shall include AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements
- Category III – These include AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives.