SEBI proposes to restructure the issuance of shares with DVRs

By Nikita Snehil and Shaifali Sharma |

Vinod Kothari & Company

The basic principle behind the issuance of shares with differential voting rights, commonly known as ‘DVRs’ in India and dual class shares or ‘DCS’ in the international context, is to enable the companies to raise capital without dilution of control and decision-making power in company. In promoter/ founder led companies where promoters/ founders are instrumental in the success of the company, such structures enable them to retain decision-making powers and rights vis-a-vis other shareholders either through retaining shares with superior voting rights or issuance of shares with lower or fractional voting rights to public investors.

The concept was first recognized under the Companies (Amendment) Act, 2000 followed by similar provisions adopted by the Companies Act, 2013. However, the current practical scenario depicts a different picture, as the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 does not permit DVRs with higher or superior voting rights. However, subject to certain conditions, DVR shares with lower voting rights are permitted. Till date, only 5 listed companies have used this structure in India. Strict pre-condition and corporate governance norms, unavailability of investors due to lack of awareness are some grounds of company’s reluctance from adopting such idea.

SEBI’s Consultation Paper to restructure the issuance of DVRs

On December 19, 2018, Mr. Ajay Tyagi, Chairman of SEBI, had said in an interview that SEBI has made a sub-committee for reintroducing Differential Voting Rights on shares, which will make recommendation on the same by next month. Post this, SEBI on March 20, 2019, has come out with a Consultation Paper[1] on issuance of shares with Differential Voting Rights. The Consultation Paper provides that the matter of issuance of shares with DVRs was deliberated in the Primary Market Advisory Committee of SEBI (‘Committee’) and a group (‘DVR Group’) was constituted amongst the Committee members to do an in-depth study of the proposal of introduction of shares with DVRs in Indian Scenario.

The Consultation Paper addresses the norms for issuance of shares with DVRs under two categories –

  1. issuance by companies whose equity shares are already listed on stock exchanges;
  2. companies with equity shares not hitherto listed but proposed to be offered to the public.

The basic moto behind allowing shares with differential voting rights is to raise equity without dilution of promoter control i.e., to allow the promoters/ founders to maintain control as they would hold shares with superior voting rights.

Therefore, considering SEBI’s proposed structure, there shall be four categories of companies which can issue DVRs:

  • Equity listed cos – as per this Consultation Paper;
  • Unlisted cos, which are intending to get their equity listed — as per this Consultation Paper;
  • Unlisted cos, not intending to list their equity shares – as per Section 43 of the Companies Act, 2013 (‘Act’) read with Rule 4 of the Companies (Share Capital and Debenture) Rules, 2014;
  • Private Cos — exempted from applicability Section 43 of the Act, if either its memorandum or articles of association so provides- vide notification number G.S.R. 464(E) dated 5th June 2015.

Need for DVRs in India

In order to maintain the current growth phase in India, it is pertinent for the companies to raise capital to sustain this growth. For companies with high leverage or asset light models, they may prefer equity over debt capital. Raising DVRs will reduce the dilution of founder/ promoter stake which would otherwise be a case in capital raised by equity.

The protection of founder/ promoter’s stake/ control is especially relevant for new technology entities which have asset light models, with little or no need for debt financing. However, these entities generally raise funds through equity which dilutes the promoter’s/ founder’s stake, thereby diluting control. Considering the issue, the Consultation Paper states that retaining founder’s interest & control in the business is of great value to all shareholders and the same can be achieved by:

  1. Issue of shares with superior voting rights (‘SR’) to founders and/or
  2. Issue of shares with lower or fractional voting rights (‘FR’) to raise funds from private/ public investors.

International Scenario

The global market has witnessed a mixed response to the concept of DVRs, while many countries have permitted the listing of companies with Dual Class Shares or DCS (internationally used term for DVRs), some countries like UK, Australia, Spain, Germany and China do not permit the Issuers with DCS structure for listing. Singapore and Hong Kong have recently permitted DCS structures with detailed checks and balances. Considering the international scenario, the Consultation Paper has provided a detailed comparison of the issuance & listing of DCS structure in internal jurisdictions, the summary of which is presented below:

  • 700 public companies in the US have DCS structures, predominant listed ones being Google, Facebook, Snapchat, Nike and Alibaba. There is ongoing debate in the SEC about the continuation of DCS[2].
  • Hong Kong and Singapore recently allowed DCS to encourage more new technology firms to list.
  • In the UK[3], DCS structures were used in the 1960s to protect corporations from hostile takeovers or for the Queen to have ‘golden share’, before institutional investors expressed strong opposition to such structures. DSC is presently not allowed in the UK.
  • Over the past decade, a number of European governments have implemented or debated the use of different voting rights.
  • US, Canada, HK, Singapore, Denmark, Spain, Sweden and Italy allow dual-class shares. Germany, Spain, China, Australia disallow listing of shares of companies with DCS structures.

Recommendations of the DVR Group

Ø Pre-conditions

A company would be entitled to issue DVR Shares, subject to following pre-conditions:

  • issue of DVR Shares must have been be authorized in the AoA of the company; and
  • the issue of DVR Shares should be authorized by a special resolution passed at a general meeting of the shareholders.
  • for companies already listed, by way of e-voting as per Companies Act, 2013
  • The notice should mention specific matters, including but not limited to, size of issuance, ratio of the difference in the voting rights, rights as to differential dividends, if any, sunset clause, coattail provisions, etc., as made applicable by SEBI regulations to be notified in this regard.

Ø Requirements for both the categories

Category I: Companies whose equity shares are already listed – issuance of FR Shares;

Category II: Companies whose equity shares are proposed to be listed – issuance of SR shares.



Requirements for Category I Requirements for Category II
Conditions Cos whose shares have been listed on a SE for atleast a year, may issue FR Shares.


Note: listed cos are still not allowed to issue SR Shares.

Unlisted cos may issue SRs, only to promoters.

First issuance of FR/ SR shares

Type of issuance Through a) rights issue; b) bonus issue pro rata to all equity shareholders; or c) a Follow-on Public Offer (“FPO”) of FR shares. An unlisted co. where the promoters hold SR Shares shall be permitted to do an Initial Public Offer (“IPO”) of only ordinary equity shares provided the SR Shares are held by the promoters for more than one year prior to filing of the draft offer document with SEBI.

Subsequent issues of FR Shares once FR Shares are already listed

Type of issuance A company that has already listed FR Shares shall be eligible to do:

a) rights issue; b) bonus issue; c) preferential issue; d) QIP of FR Shares of the same class;


A company whose SR Shares and ordinary equity shares are already listed shall be permitted to issue FR Shares in terms of the applicable provisions for issue of FR Shares by listed companies – which means same as Category I.


Note: Issuance of SR shares not allowed post listing.

Depository Receipts A company whose FR Shares are listed for at least one year shall be eligible to issue depositary receipts where the underlying shares are FR Shares.
Convertible Instruments A company can issue convertible instruments which will convert into FR Shares subject to applicable regulatory considerations.
Voting and other rights The FR shares shall not be treated at par with the ordinary equity shares.


Max ratio


The FR Shares shall not exceed a ratio of 1:10, i.e. one vote as applicable to one Ordinary Equity Share, would be voting entitlement on 10 FR Shares. The ratio can be in full numbers from 1:2 to 1:10.



At any point of time, the co. can only have one class of FR Shares.

The SR Shares shall be treated at par with the ordinary equity shares in every respect except in the case of voting on certain matters.


Max ratio


The SR Shares shall be of a maximum ratio of 10:1, i.e. ten votes for every SR Share held. The ratio can be in whole numbers from 2:1 to 10:1. A ratio once adopted by a company shall remain valid for any subsequent issuances of SR Shares.


A co. can issue only one class of SR Shares.


Any rights or bonus issue by the co. post-listing shall be offered only as ordinary equity shares

to the holders of the SR Shares.


On certain matters to be notified by regulations, the SR Shares would be treated as having only one vote. The initial list of the same is set out in the coattail provisions set out in the Committee Report (the same has been explained later in this Article).


Dividends The company may, at its discretion, decide to pay additional dividend per FR Share compared to dividend paid on ordinary Equity Share, which shall be higher than the dividend per

ordinary Equity Share and the same shall be stated in the terms of the offering. No dividend may be payable on FR Shares for such years where no dividend has been declared by the company for the ordinary equity shares.


Post IPO, the SR shares shall be eligible for the same dividend and other rights as ordinary equity shares, except for superior voting rights.
Minimum Public Shareholding The co. should comply with the req of Securities Contracts (Regulation) Rules, 1957 (“SCRR”) and other applicable regulations formulated in this regard. The co. shall comply with the SCRR and other applicable regulations formulated, for the ordinary equity shares that will be listed.


Post-listing, the voting rights with the promoters through the SR Shares and ordinary equity shares shall not exceed 75% of the total voting rights.

Pricing The pricing of FR shares shall be in accordance with regulatory considerations applicable to

mode of issuance of FR Shares

Face Value The face value of a company’s FR Shares shall be the same as that of its

ordinary equity shares.

The face value of a company’s SR Shares shall be the same as of that of the ordinary equity shares.
Number of FR / SR Shares The number of FR Shares that may be issued by a company shall be subject to

provisions of the Companies Act, 2013 and the rules framed thereunder

A company shall be permitted to issue any number of SR Shares of the same class prior to an IPO, subject to provisions of the Companies Act, 2013.
Lock-in period All SR Shares shall remain under a perpetual lock-in after the IPO.
Pledge of shares Creation of any encumbrance over SR Shares including pledge, lien, negative lien, non-disposal undertaking, etc. shall not be permissible.

In other words, no third-party interest may be created over the SR Shares and any instrument purporting to do so would be void ab initio.

Fasttrack issuance


A company shall be eligible to issue FR Shares in a rights issue or an FPO through the fasttrack method in case it meets the eligibility criteria of fast-track issuances.
Conversion of FR / SR shares


[Also known as ‘Sunset Clause in case of SR Shares]

The FR Shares can be converted into ordinary equity shares only in cases of schemes of


The validity of SR shares is 5 years from the date of listing of ordinary shares. Which means, such shares shall be compulsory converted into ordinary shares on the 5th year anniversary of the listing of such ordinary shares i.e. superior rights will fall under the standard rule of ‘one-share one-vote’. Conversion shall be done in the following manner:


For promoters: at any time prior to the 5th year anniversary of the listing of the Ordinary Shares or such extended period as decided by the shareholders by passing special resolution.


For other than promoters: on completion of the 5th year anniversary of the listing of the Ordinary Shares or such extended period of 5 years with the approval of shareholders by way of special resolution in the meeting where all members vote on one-share-one vote basis.


Besides the aforementioned validity of 5 years, the SR shares shall be converted into ordinary shares on the merger or acquisition of the company or sale of such shares by the identified promoters who hold such shares or in the case of demise of the promoter(s).

Extinguishment The FR Shares can be extinguished only through buy-back by the company or reduction of capital in accordance with applicable laws.
Delisting The company can delist the FR Shares in accordance with the SEBI (Delisting of Equity Shares) Regulations, 2009. However, in the event ordinary equity shares of the company are delisted, the company shall be mandatorily required to delist the FR Shares.
Listing and Trading The FR Shares shall be held in dematerialized form. However, FR Shares can be

issued in physical form, if such FR Shares have been issued pursuant to a bonus issue and the underlying shares are held in physical form.


The FR Shares shall be listed and traded on all SEs where ordinary equity shares of the co. are listed with a separate identifier from the ordinary equity shares.

All SR Shares shall be held in dematerialized form and shall be listed on the main board platform of the recognized SEs.

For listing of SR Shares, exemption will be granted from Rule 19(2)(b) of SCRR.


The SR Shares, however, cannot be traded except upon conversion into ordinary equity shares.

Post-Issue Disclosures The shareholding pattern filed by the co. with the SEs shall provide the details of the FR Shares separately and in the format specified by SEBI and the SEs The shareholding pattern to be filed by the co. with the SEs shall provide the details of both ordinary equity shares and SR Shares in the format specified by SEBI and the stock exchanges.
ESOPs A co. can issue ESOPs of FR Shares post the listing of such shares, subject to applicable laws.
Bonus issue by the co. which has issued FR shares If a co. which has issued FR shares, issues bonus shares, then it shall issue to FR shareholders bonus FR shares in the same proportion in which bonus shares are issued on ordinary equity shares.
Applicability of other SEBI Regulations SEBI regulations in respect of buy-back, and takeovers shall apply to FR Shares, subject to such modification as may be required in the context of FR Shares. The FR Shares once listed shall not be delisted on a standalone basis and may be delisted as and when the ordinary equity shares are delisted. SEBI regulations in respect of buy-back, and takeovers shall be applicable to SR Shares, subject to such modification as may be required in the context of SR shares.


Ø ”Coattail”  Provisions for issuance of SR shares

Post-IPO, the SR Shares shall be treated as ordinary equity shares in terms of voting rights (i.e. one SR share-one vote) in the following circumstances:

  1. provisions relating to appointment or removal of independent directors and/or auditor;
  2. in case there is a change in control of the company;
  3. any contract or agreement of the company with any person holding the SR Shares, in excess of the materiality threshold prescribed under Regulation 23 of the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015;
  4. voluntary winding up of the company;
  5. any material changes in the company’s AoA or MoA, including but not limited to, undertaking variation in the voting rights of the shareholders, changing the principal objects of the company, granting special rights in favour of a particular shareholder or shareholder groups and such other items as may be prescribed by the SEBI;
  6. initiation of a voluntary resolution plan under the Insolvency and Bankruptcy Code, 2016;
  7. extension of the validity of the SR Shares post completion of 5 years from date of listing of ordinary equity shares; and
  8. any other provisions notified by SEBI in this regard from time to time.


The major benefits of DVRs structure highlighted in the DVR Group Report are as follows:

  1. DVRs promote fund raising without diluting control;
  2. In a promoter led companies, DVR structure will enable such promoters to retain control, the decision-making powers and other rights in the company;
  3. DVRs structure acts as defense mechanism for hostile takeover.

The recommendations by DVRs Group seems to extend a hand of opportunity to listed companies and those companies including, newly incorporated companies, who intend to issue DVRs but do not have a consistent track record of distributable profits as stated in the existing ICDR regulations, i.e. 3 years.

The Sunset Clause in case of SR shares shall keep a check on the tenure of the DVRs, however, the provisions requiring companies issuing the DVRs to observe better corporate governance practices is missing in the proposed structure of DVRs. Further, there might be instances where the interest of minority shareholders could be adversely affected by the holder of SR shares, therefore, certain checks and balances to prevent the misuse of the instruments should be imposed by SEBI to protect the interest of the shareholders as well as the genuine issuers.




Guidelines for Review of Loans and Investments by the Audit Committee

Team Vinod Kothari & Company



Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015 (‘Listing Regulations’) as well as Companies Act, 2013 (‘Act, 2013’) specify the role of the audit committee and mandates the audit committee to mandatorily review certain matters. Among the matters to be reviewed by the audit committee, section 177 of the Act, 2013 provides for review of inter-corporate loans and investments. Additionally, under Regulation 18 read with Schedule II and Regulation 24 of the Listing Regulations, the audit committee shall review the utilization of the loans/advances given to subsidiaries which exceed a certain threshold and shall also review the financial statements of its unlisted subsidiary.


The intent of audit committee review is to provide an independent view of the strength, objectivity and transparency of long-term investments made by the company and financial exposures taken by the company into other entities. Additionally, the audit committee may also review whether the loans/investments are still serving the purpose that they were intended to achieve, and whether the health/fair value of the loans and investments has substantially been affected over time. The audit committee’s review may also become the basis for strategic decisions on continuing the said financial exposures.


In case of subsidiaries, they are a part of the extended enterprise led by the holding entity. The holding entity puts in capital and other resources into subsidiaries. The subsidiaries are engaged in specific activities/verticals based on the business model of the enterprise. The subsidiaries may make further downstream investments and thus, create a network, once again, within the larger group objective of the enterprise. However, the review by the audit committee ensures that the subsidiaries are serving the larger group objective that they were designed to serve.


The following is a guideline as to what should be the perspective of the review and the specific areas of concern for such loans and investments which are placed for review/scrutiny before the audit committee; when such review is to be made etc. Further, the perspective and purpose of the audit committee is different while reviewing the loans and investments to its subsidiaries and that given to others.

Relevant provisions of Listing Regulations:


Regulation 24(2):


“The audit committee of the listed entity shall review the financial statements, in particular, the investments made by the unlisted subsidiary.”


Para A of Part C of Schedule II:


“The role of the audit committee shall include the following:

  1. Scrutiny of inter-corporate loans and investments.


  1. reviewing the utilization of loans and/ or advances from/investment by the holding company in the subsidiary exceeding rupees 100 crore or 10% of the asset size of the subsidiary, whichever is lower including existing loans / advances / investments existing as on the date of coming into force of this provision”

Parallel provisions of Companies Act, 2013:


Section 177(4) 

“Every audit committee shall act in accordance with the terms of reference specified in writing by the board which shall, inter alia, include:

(v) Scrutiny of inter-corporate loans and investments;



Clarification on the terms loans, advances and investment


Need to review inter corporate loans and investments by the audit committee:


Inter corporate loans and investments made by the company implies a long term financial exposure. Generally speaking, unless the company is into the business of making investments, the inter-corporate investments are not directional investments; they are strategic in nature. Similarly the inter-corporate loans, except in case of companies engaged in the business of lending, are not intended for reaping interest income. Therefore, the review of these long-term financial exposures to be taken by the audit committee is to ensure that these outlays of funds do not lead to long-term resources of the entity being diverted to a purpose which is not congenial or related to the corporate objective. The objective also includes review of the health and integrity of these loans and investments. Where required, disinvestment calls may also have to be taken based on review by the audit committee.


While the law requires the audit committee to review the inter-corporate loans and investments, there seems to be no reason for excluding the review of guarantees/ securities provided by the company in connection with the loan.


Need to review investments in and made by the unlisted subsidiaries:


The holding company invests in the capital of subsidiaries. While the need for reviewing the investment in subsidiaries does not come from the Companies Act, 2013, the Listing Regulations specifically requires the listed holding company to review the investments of its unlisted subsidiaries. The investments made by the subsidiaries are indirect investments of the holding company itself. Where the subsidiaries are listed entity, the investments made are subject to similar review by their audit committee. However, in case of unlisted subsidiaries, there is less likelihood that the subsidiary will have its own audit committee. Irrespective, the audit committee of the holding listed entity is entrusted with the responsibility of monitoring and reviewing the investments made by such subsidiaries. The audit committee of the holding company has to review such investments to understand if there is any diversion from the objectives of the investment. Further, in case of downward investment by the subsidiary, the audit committee shall review whether the larger objective of the holding company is being served.


Need to review loans given to unlisted subsidiary


The audit committee the holding company is required to review whether the loans granted by it to its subsidiary is being utilized for the approved purpose or not. Any case of diversion of funds has to be brought to the notice of the audit committee since any sort of funding to the subsidiary is always with an intent of expanding or stabilizing the operations of the holding company. Further, the audit committee while reviewing needs to check whether the terms on the loan are reasonably fair and at arm’s length.


Scope of ‘loans’ to be reviewed by audit committee:


The audit committee of the listed entity is required to scrutinize inter-corporate loans availed/ granted by the listed entity. Inter- corporate loans for the purpose of review shall include-


  • Inter-corporate guarantees given by the listed entity;
  • Inter-corporate security provided by the listed entity;
  • Loans with terms and conditions substantially at variance with the loans ordinarily provided;
  • Guarantees with terms and conditions substantially at variance with the guarantees usually provided;
  • Loans other than in the ordinary course of business


Loans/ guarantees which are granted or security provided in the ordinary course of business or to exempted categories need not be reviewed by the audit committee.


Scope of ‘Investments’ to be reviewed by audit committee:


Investments as are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not ‘investments’.


Investments which shall be reviewed by the audit committee of the listed entity will include strategic investments made with the motive to earn yield or regular investment income. Investing the funds reduces the investible funds of the entity, funds available for business and therefore it is necessary to review the same. Investments should not be restricted to investments in securities only. Investment in the assets/property should also be covered within the ambit. Certain investments, as specified here under, need not be included within the ambit:


  • Trade investments made by the listed entity or its unlisted subsidiary;
  • Investments made in the ordinary course of business;
  • Statutory investments made under applicable law;


Specific concerns for review by the audit committee:


The perspective of the audit committee is different while scrutinizing loans and investments of the listed entity as well as while reviewing the investments made in/by the unlisted subsidiary. For this purpose the following points should be included by the audit committee in its review –


1.      Specific concerns for loans to other entities


  • Purpose of loan, how does it serve the business interest of the company;
  • Tenure of loan;
  • Where the company has raised any money by issuing any shares/ debentures, does the giving of the loan amount to utilization of issue proceeds for a purpose other than that disclosed in the offer document;
  • Rate of interest appropriate in view of credit risk of investee;
  • Security interest and liquidity;
  • Whether the loan is being serviced or has become impaired;
  • Whether the quality of the borrower has deteriorated;
  • Whether repayment happens as per stated repayment schedule;
  • Whether there exists a scope for premature repayment;
  • Whether there exists any reason to opt for premature repayment;
  • If loan is not to a related party, how and why the transaction emanate;
  • Whether the loan has been extended on reasonably fair terms and conditions and at arm’s length.

2.      Specific concerns for investment in other entities


  • Purpose of investment, how does it serve the business interest of the company;
  • Whether there has been any diversion in utilizing the investment of the company from the objects and purposes approved by the audit committee;
  • Whether the subsidiary has made any downstream investment and whether such downstream investment is at par with the objectives of the investment of the company
  • Performance of investment – in terms of yield, returns;
  • Likely performance of the investment in future;
  • Liquidity of the investment;
  • Any reason to seek liquidation/ exit from investment.


  1. Specific concerns in case of subsidiaries


While many of the above may not be relevant in case of subsidiaries, the following areas of concern shall be looked into by the audit committee in case of loans and investment made:




  • Whether the loan is being utilized for the purposes approved by the company;
  • Is there any diversion in the end use of the loan;
  • Covenants of the loan, particularly, with a view to ensure that there are no chances of diversion of funds from the purpose for which they are purportedly intended to be provided.




  • Whether there has been any diversion in utilizing the investment of the company from the

objective and purposes approved by the audit committee;

  • Whether the subsidiary has made any downstream investment and whether such downstream investment is at par with the objectives of the investment of the company;
  • Whether the investment made is a fit case for impairment considering the performance of the investee company.

On-going review by audit committee:


As per Regulation 24(2), investments of the unlisted subsidiary shall be reviewed by the audit committee of the holding listed entity at the time of review of financial statements of the unlisted subsidiary. Financial statements are prepared annually; therefore, the review shall be done on an annual basis for the investments made by unlisted subsidiaries during the year.


Further, as per Clause 9 of Para A, Part C of Schedule II to Listing Regulations the loans/ investments of the listed entity shall be subject to scrutiny by its audit committee before making investment/disbursing loans, to the extent possible or after the same have been made.


Furthermore, the holding company also reviews the following in case of its unlisted subsidiary, on an on-going basis:


  • Whether the subsidiary has sufficient accumulated reserves while considering its performance;
  • Whether the dividend policy of the subsidiary is in line with the larger objectives of the holding company;
  • Whether the subsidiary has large amount of surplus lying in its books so as to enable it to plan a buy back.


Format for reporting to the audit committee


There is no specific format for reporting the performance / status report to the audit committee for enabling the committee to review the same. However, the same may be reported in the following manner:


Sr. No Particulars of investment / loan


[Name of the party, date of investment or loan, purpose, tenure, etc.]

Concerns Amount involved Performance / Update
    Whether Secured or unsecured    
What is the yield
Whether liquid or illiquid
Market price of the securities
Whether there is any potential risk associated with the investment /loan
Servicing / repayment schedule
Any change in the credit rating of the investee company


Overlap in reporting of secretarial compliance

-Format under Regulation 24A

By Pammy Jaiswal (


The LODR (Amendment) Regulations, 2018 based on the recommendation of the Kotak Committee brought many changes on corporate governance. These changes included the requirement of annexing a secretarial audit report for both the listed entity and its material subsidiary in a specified format. Regulation 24A was inserted to be effective for the year ended on March 31, 2019. Read more

Decoding “large number” in case of Group Governance Policy under LODR

By CS Megha Saraf (


The Securities Exchange Board of India (“SEBI”) formulated a Corporate Governance Committee (“CG Committee/ Committee”) under the Chairmanship of Shri Uday Kotak to amend/insert new provisions in the existing SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”). With a vision to enhance the standards of corporate governance of listed entities, several recommendations were made by the CG Committee in its Report dated October 2017 which were kept open for public comments/ suggestions. Out of the several recommendations made by the Committee, many of them were accepted with or without modifications and necessary amendments were brought in the Listing Regulations vide SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 dated 9th May, 2018 enforcing them in tranches.

However, certain recommendations though accepted, were left with SEBI for implementation by way of circulars from time to time. In view of this, SEBI Circular SEBI/HO/CFD/CMD/CIR/P/2018/79 dated 10th May, 2018 (“Circular”) was issued requiring the listed entities having subsidiaries to adopt a Group Governance Policy in order to enhance the standards of corporate governance at a group level. Group Governance Policy is required when there is a “large number” of subsidiaries in a group.

This article seeks to lay down rules/guidance as to how to decipher the meaning of the “large number” in context of a group. In essence, whether there may be numerical number, which may, in absolute terms, be regarded as large, or whether the determination of large number is relative, and will depend on various factors. If so, what are those factors? In short, this article gets into the unclear question of how to determine whether a particular group has a large number of subsidiaries.

Read more

Guide to PIT Documentation

By Vinod Kothari & Company (

Comprehensive changes were done in SEBI (Prohibition of Insider Trading) Regulations, 2015  (‘PIT Regulations’) vide SEBI (Prohibition of Insider Trading) Amendment Regulations, 2018[1] (effective from April 1, 2019). Recently, minor amendment has also been made in disclosure requirements by members of promoter group vide SEBI (Prohibition of Insider Trading) Amendment Regulations, 2019[2] (effective from January 21, 2019) Read more

SEBI proposes to liberalise norms for REITs & InvITs

By Simran Jalan (


Infrastructure Investment Trusts (InvITs) is an innovative vehicle that allows investors to invest in infrastructure assets. It was established with an objective of easing out the liquidity crunch in the infrastructure space. Real Estate Investment Trusts (REITs) has been one of the most important vehicles for making collective investments in commercial real estate. Emanating in the USA in 1960s as a tax transparent collective investment vehicle, REITs subsequently have been used by several other countries, and have done remarkably well.

The Securities Exchange Board of India (SEBI) had notified the SEBI (Infrastructure Investment Trusts) Regulations, 2014[1] (InvITs Regulations) and SEBI (Real Estate Investment Trusts) Regulations, 2014[2] (REITs Regulations) on September 26, 2014. With the introduction of these regulations and fast-growing cities needing more investments in commercial properties and infrastructures, it was expected that there will be a surge in these collective investment vehicles in India. However, the current scenario depicts a different story. Till date, only 3 InvITs have issued and listed their units raising approximately Rs. 10,000 crores and 1 REIT is in the process of making a public offer. Despite various relaxations given by the market regulator to these investment vehicles, they failed to attract investors.

Therefore, to gear up the market for REITs and InvITs and to increase the participants in this sector, SEBI has issued a consultation paper[3] with a proposal to amend regulations pertaining to REITs and InvITs. In this write up we intend to discuss the amendments proposed by SEBI.

Read more