Recent regulatory developments for listed entities – critical changes under LODR and PIT Regulations
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Clog on redemption of mortgage after publication of sale notice – SC reiterates word of law u/s 13(8)
– Team Resolution | resolution@vinodkothari.com
Introduction
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( ‘SARFAESI Act’) provides methods that can be undertaken by a secured creditor to recover its dues in case of a default.
Section 13 of the SARFAESI Act being an important section contains provisions relating to ‘Enforcement of Security Interest’. Sub-section (2) and (4) of section 13 describes the manner and timeline within which the creditor can enforce its rights to recover the dues against a Non-Performing Asset (‘NPA’). While, on one hand, the creditor has a right to sell the secured asset; in juxtaposition is the right of the borrower to have the property released on repayment of dues. These rights are in conflict with each other and therefore, there is a need to have clarity around the point of time at which the borrower would lose the right of redemption and the lender’s right of sale becomes absolute.
At this stage, section 13(8) of the SARFAESI Act comes into picture. The present provision of section 13(8) states that where any default has been made by the borrower in terms of repayment of the dues, the amount outstanding if repaid by the borrower at any time before the date of publication of auction notice by the creditor, such a creditor shall not have any further right to transfer or to take any other step in relation to transfer of such secured asset. On a contrary, the earlier provision stated that the right of the borrower to redeem the mortgaged property shall be available till the date fixed for sale or transfer.
The provision of section 13(8) has often been debated upon wherein, several High Courts have held different views. However, a recent ruling of the Hon’ble Supreme Court in the matter of Celir Llp v Bafna Motors (Mumbai) Pvt. Ltd.[1] , has clarified the position and scope of section 13(8) before and after the amendment.
Read more →Decoupling from direct assignments, Indian securitisation moves the global way
– Vinod Kothari, Director | vinod@vinodkothari.com
The data for securitisation transactions in India for the first half of FY24 are just out, and some remarkable features are:
- Sharp growth – nearly 40% on YoY basis, to cross Rs 100000 crores H1FY24.
- Proper securitisations, that is, PTC transactions, register almost 90% growth
- Direct assignment volumes may further reduce relatively, post the merger of HDFC into HDFC Bank
- Asset-backed securities as an asset class increased share from 45% in FY 23 to 53% in FY 24.
With this, securitisation markets in India have truly started moving towards maturity. The so-called direct assignment/DA (now under regulations termed as Transfer of Loan Exposures) was a market aberration and was a convenient way for lenders to shift priority sector loan exposures. During the half year, the impact of the HDFC Ltd-HDFC Bank merger might have had some impact; it will see more impact going forward, as the bulk of the DA business was accounted for by the erstwhile duo. Further, co-lending has emerged as a very convenient alternative to direct assignments.
Read more →THE NEW FDI POLICY – MIX OF RELIEF AND BURDEN OF ADDITIONAL COMPLIANCES AND LIMITATIONS
– Soma Bagaria & Nidhi Ladha
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Implementation of Compliance Function by NBFC-ML
Eliza Bahrainwala, Executive| eliza@vinodkothari.com
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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 →Operation of Pre-sanctioned credit lines at Banks through UPI
Eliza Bahrainwala, Executive | eliza@vinodkothari.com
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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.
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