Event bearing material impact on financials of a listed company to be disclosed immediately – SAT Orders

SAT orders ‘technical’ breaches an insufficient ground for imposing penalty for violation of law

SEBI amends LODR in relation to equity shares with superior rights

Manoj Kumar Tiwari, Executive, Vinod Kothari & Company

SEBI has vide notification published in the Official Gazette dated July 29, 2019 notified the SEBI (Listing Obligations and Disclosure Requirements) (Fourth Amendment) Regulations, 2019 (‘Amendment Regulations’). The said Amendment Regulations shall come into force from the date of publication in the Official Gazette i.e. July 29, 2019.

The amendments pertain to compliances in relation to corporate governance provisions for listed entities which have issued shares with Superior Rights (SRs). SEBI has issued a framework for issuance of DVR as an outcome of SEBI Board Meeting held on June 27, 2019 some of which have been included in the Amendment Regulations.

Brief of the changes made in line with the framework are as under:

Regulation 17(1) w.r.t. Board Composition

  • Atleast half of the board of directors of the listed company which has outstanding SR equity shares shall comprise of independent directors;

Regulation 18(1)(b) w.r.t. Audit Committee Composition

  • The audit committee of a listed entity having outstanding SR equity shares shall comprise only of independent directors;

Regulation 19(1)(c) w.r.t. Nomination and Remuneration Committee (NRC) Composition

  • Two third of the NRC of a listed entity having outstanding SR equity shares shall comprise of independent directors;

Regulation 20(2A) w.r.t. Stakeholders Relationship Committee (SRC) Composition

  • Two third of the SRC of a listed entity having outstanding SR equity shares shall comprise of independent directors;

Regulation 21(2) w.r.t Risk Management Committee (RMC) Composition

  • Two third of the RMC of a listed entity having outstanding SR equity shares shall comprise of independent directors;

Regulation 41(3) w.r.t prohibition on issue of shares with SR substituted with the following

  • The listed entity shall not issue shares in any manner that may confer on any person;
    1. superior or inferior rights as to dividend vis-à-vis the rights on equity shares that are already listed; or
    2. inferior voting rights vis-à-vis the rights on equity shares that are already listed:
  • a listed entity having SR equity shares issued to its promoters/ founders, may issue SR equity shares to its SR shareholders only through a bonus, split or rights issue in accordance with the provisions of the SEBI (ICDR) Regulations, 2018.

Regulation 41A – Other provisions relating to outstanding SR equity shares

A new regulation has been inserted w.r.t SR equity shares

  • The SR equity 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) in the issuer upon listing, pursuant to an initial public offer, shall not at any point of time exceed seventy four per cent.
  • List of Circumstances in which SR equity shares shall be treated as ordinary equity shares in terms of voting rights viz. appointment/ removal of IDs, RPTs involving SR shareholder, Voluntary winding up, Voluntary resolution process under IBC, changes in AOA/ MOA except change affecting SR equity share, delisting of equity shares etc.
  • Conversion of SR equity shares into ordinary shares w.e.f. 5 years after listing of the ordinary shares. The same can be extended for further 5 years after passing a resolution to that effect, with the SR shareholders abstaining from voting.
  • Circumstances when SR equity shares shall be mandatorily converted into ordinary shares viz. demise of promoter holding such shares, SR shareholder resigning from executive position, merger or acquisition of listed entity resulting in SR shareholders cease to have control etc;

The notification in the Official Gazette can be accessed here: http://egazette.nic.in/WriteReadData/2019/209215.pdf

The outcome of the SEBI Board Meeting held on June 27, 2019 can be accessed here: https://www.sebi.gov.in/media/press-releases/jun-2019/sebi-board-meeting_43417.html

The following Regulations have also been amended to include shares with superior voting rights.

SEBI (Delisting of Equity Shares) Regulations, 2009

Regulation 3 w.r.t applicability of the regulation

The term ‘shares’ shall include equity shares having superior voting rights.

The said amendment can be accessed here: http://egazette.nic.in/WriteReadData/2019/209243.pdf

SEBI (Buy-Back of Securities) Regulations, 2018

Regulation 3 w.r.t applicability of the regulation

The term ‘shares’ shall include equity shares having superior voting rights.

The said amendment can be accessed here: http://egazette.nic.in/WriteReadData/2019/209214.pdf

Highlights of 2nd Amendment to PIT Regulations

-by Dibisha Mishra

(dibisha@vinodkothari.com ; corplaw@vinodkothari.com)


SEBI vide Notification dated 25th July, 2019 further amended the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015. The major part of this amendment is to make curative changes in the Regulations, in response to difficulties expressed by the stakeholders. In this regard, VK&Co. also had occasion to make representation to SEBI, a few of which have been brought in via this amendment.


Highlights of the SEBI (PIT) (Second Amendment) Regulations, 2019.are as follows:


  1. Employees having access to unpublished price sensitive information are to be identified as ‘designated persons’ [DPs]: Keeping the intent of regulating and monitoring trading by such employees, the earlier provision of identifying them as ‘designated employees’ was merely a laxity in drafting since no corresponding duties/obligations were put upon ‘designated employees’ anywhere in the PIT Regulations.
  2. Mandatory closure of trading window from the end of every quarter till 48 hours after the declaration of financial results [the word ‘can’ substituted by ‘shall’]
  3. Permitted transactions by DPs while trading window is closed:

a. off-market inter-se transfer between DPs having possession of the same unpublished price sensitive information where both parties have made informed trade decision;

b. transaction through block-deal mechanism between persons having possession of the same unpublished price sensitive information where both parties have made informed trade decision;

c. arising out of a statutory or regulatory obligation to carry out a bona fide transaction;

d. exercise of stock options in respect of which the exercise price was pre-determined;

e. pursuant to a trading plan;

f. pledge of shares for a bonafide purpose like raising of funds subject to pre-clearance by the compliance office

g. acquisition by conversion of warrants or debentures, subscribing to rights issue, further public issue, preferential allotment or tendering of shares in a buyback offer, open offer, delisting offer: Difficulties were frequently being faced by companies as to whether the trading window bar will apply to corporate actions involving transaction in shares. This amendment makes a clear way out for the same. While only a few corporate actions are listed in the amendment, these should be taken as illustrative rather than exhaustive.

4. In order to qualify as a “material financial relationship”, payment by way of loan or gift should flow from a designated person equivalent to at least 25% of his annual income [excluding payment is based on arm’s length transactions] in last twelve months.

5. Educational institutions from which designated persons have graduated, is to be disclosed to the intermediary or fiduciary on an annual basis and as and when the information changes.

Unregulated Deposit Banning Bill passed by Lok Sabha,2019


The Unregulated Deposit Banning Bill, 2019[1] was introduced in the Lok Sabha on 24th July, 2019 and has since been passed.

The Bill enacts into law the provisions promulgated by a Presidential Ordinance[2] from 21st February 2019.

From our preliminary comparison, it appears that the Bill is largely the same as the text of the Ordinance.

However, a very significant, though very vague, amendment is the insertion of section 41 in the Bill which provides as under: “The provisions of this Act shall not apply to deposits taken in the ordinary course of business”

Of course, one will keep wondering as to what does this provision imply? What exactly is deposit taking in ordinance course of business? Is it to exclude deposits or loans taken for business purposes? Notably, almost all the so-called deposits that were taken during the Chit funds scam in West Bengal were apparently for some business purpose, though they were effectively nothing but money-for-money transactions. While the intent of this exception may be quell fears expressed across the country by small businesses that even taking of loans for business purposes will be barred, the provision does not jell with the meaning of excluded deposits which gives very specific carve-outs.

Also, one may potentially argue that deposit-taking itself may be a business. Or, deposits sourced may be used for money-lending business, which is also a deposit taken in ordinary course of business.

Basically, the insertion of this provision in section 41 may completely rob the statute of its intent and impact, even though it has an understandable purpose.

Please see our write ups on the Ordinance



SEBI requires companies to be serious in reporting Insider Trading lapses

Pammy Jaiswal

Partner, Vinod Kothari and Company


The listed entities are burdened with the compliance requirements under numerous regulations issued by SEBI including the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’). The said regulations lay down various to dos for the listed companies as well as the designated persons (‘DP’) for the purpose of regulating and prohibiting the insider trading in the securities of the listed company.

SEBI has vide its circular[1] dated 19th July, 2019 laid a format for reporting insider trading lapses thereby forcing all companies to follow a standard reporting format. The existing practice of companies using rather informal and self- generated reporting formats will no longer be available to them.

It is not that insider trading lapses noted by companies are those of profiteering based on Unpublished Price Sensitive Information (UPSI). Most of the noted instances in practice are technical and unintentional breaches of either the trading window closure or contra trading restrictions. Most of these are reported to the audit committee or stakeholder’s relationship committee which typically takes action based on the gravity of the offence. However, reporting to SEBI was done on a rather diminutive manner.

Further, the circular also provides for recording the violations in the digital database maintained by the compliance officer under the PIT Regulations for the purpose of taking appropriate action against the offender. The said circular is effective with immediate effect.

Current Reporting Scenario

The current practice of the corporates for reporting the violation under the code (either for entering into contra-trade within a period of six months or trading during the closure of trading window, etc.) along with the action taken by the entity is diverse. While some companies used to mark a copy of the reprimand to SEBI while sending the same to the concerned DP or their immediate relatives, others used to send a brief of the violation along with the action taken to SEBI depending on the frequency and gravity of the violation so made in accordance with their respective codes.

Revised Reporting

The revised reporting format contains all the required fields for the entity (listed entity, intermediary or fiduciary) to report the violation to SEBI. Following is the summary of details that is mandatory required to be filled up about the entity, the DP or his immediate relative and the violation along with the action taken by the entity:

Information about the entity Information about the DP/ immediate relative Transaction details
·            Name and capacity of the entity.

·            Action taken by the entity.

·            Reasons for the action taken.

·     Name and PAN.


·     Designation and functional role of DP.


·     Whether a part of the promoter and promoter group or holding CXO position.



·      Name of the scrip

·      No. and value of shares traded (including pledge)

·      In case trading value exceeds Rs. 10 lakhs date of disclosure made under regulation 7 of the PIT Regulations by both the entity as well as the concerned person.


·      Details of violation observed under the PIT Regulations.


·      Instances of any violation in the previous financial year.

Concluding Remarks

Evidently, the format contains concrete information about the violation which will place SEBI in a better position to oversee and take on record the instances of violation taking place in the regulated entities. While the current practice had deficiencies in terms of the basic information supplied to SBI, the revised reporting format will take care of the same henceforth.

However, the prompt reporting will be a task for the entities. At the same time, SEBI will now be in receipt of the complete information on the offence and may take strict action against the offender or may even direct the entities to take stricter action in cases where it feels the action taken is not commensurate with the nature and gravity of the violation.


Our other resources on SEBI PIT Regulations can be viewed here

[1] https://www.sebi.gov.in/legal/circulars/jul-2019/standardizing-reporting-of-violations-related-to-code-of-conduct-under-sebi-prohibition-of-insider-trading-regulations-2015_43618.html