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Vinita Nair and Prapti Kanakia l corplaw@vinodkothari.com
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Trust, but verify: AIFs cannot be used as regulatory arbitrage
SEBI mandates ongoing due diligence for investors and investments made by AIFs
-Vinita Nair, Senior Partner and Lavanya Tandon, Executive | corplaw@vinodkothari.com
May 03, 2024 (updated on October 9, 2024)
Background
SEBI had raised concerns relating to evergreening of loans, circumvention of FEMA norms, QIB regulations and other concerns on regulatory arbitrage by Alternative Investment Funds (‘AIFs’) in its Consultation Paper issued in January, 2024. SEBI also recorded 40+ cases wherein the structure of AIF had been abused and used to circumvent extant financial sector regulations. Read our analysis in the article ‘AIFs ail SEBI: Cannot be used for regulatory breach’ dated January 31, 2024. Further, RBI had also barred all regulated entities (REs) with respect to their investments in AIFs, discussed in our article.
Subsequent to receipt of public comments, the proposal to mandate due-diligence (‘DD’) of investors and each of the investments made by the AIF was approved in the SEBI Board meeting held on March 15, 2024. SEBI notified SEBI (Alternative Investment Funds) (Second Amendment) Regulations, 2024 effective from April 25, 2024 amending Reg. 20 of the SEBI (Alternative Investment Funds) Regulations, 2012 (‘AIF Regulations’) dealing with general obligations thereby requiring every a. AIF, b. investment manager of the AIF, c. KMP of the AIF, and d. KMP of the investment manager, to exercise specific DD with respect to their investors and investments in order to prevent facilitation of circumvention of such laws as may be specified by SEBI from time to time.
The list of laws, thresholds and conditions for DD, reporting requirements etc. has been provided in SEBI circular dated Oct 8, 2024 (‘SEBI Circular’). DD is required to be carried out prior to making of investments as per implementation standards formulated by Standard Setting Forum for AIFs (‘SFA’) and published on websites of the industry associations which are part of the SFA, i.e., Indian Venture and Alternate Capital Association (‘IVCA’), PE VC CFO Association and Trustee Association of India.
Scope of laws covered under the ambit of due diligence
The list of laws provided in the SEBI Circular comprises of the following:
- Provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ICDR Regulations’), and other regulations of SEBI wherein benefits or relaxations have been provided to entities designated as Qualified Institutional Buyers (‘QIBs’).
- Provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) wherein benefits are provided to entities designated as Qualified Buyers (‘QBs’).
- Prudential norms specified by RBI for regulated lenders with respect to Income Recognition, Asset Classification, Provisioning and restructuring of stressed assets;
- Rule 6 of FEMA (Non-Debt Instruments) Rules, 2019 (NDI Rules) for investment from countries sharing land border with India ( read with Press Note 3 dated April 17, 2020 of FDI Policy 2020)
Timing, thresholds for DD, reporting requirements
Pursuant to the SEBI Circular, the due diligence for various investors and investments is required to be carried out by a. AIF, b. investment manager of the AIF, c. KMP of the AIF, and d. KMP of the investment manager in accordance with the Implementation Standards. The table below indicates in brief the criteria, checkpoints and timelines for conducting due diligence along with the consequences of the outcome.
| Sr. No | Objective intended to be achieved by investors through investments in AIF scheme | Regulations/ Directions/ Norms applicable | Applicability of requirement of DD for every scheme of AIF (refer Note 1) | Checkpoints for manager for specific DD | Timing of DD | Consequence of outcome of DD & reporting requirements, if any |
|---|---|---|---|---|---|---|
| 1 | Benefits designated for QIBs | ICDR and other SEBI Regulations | If an investor, or investors belonging to the same group, contribute(s)50% or more to the corpus of the scheme. | Manager to check if such if investor/ investors of the same group is/are:(i) QIBs themselves or,(ii) Entities established, owned or controlled by the Central Government or a State Government or the Government of a foreign country, including central banks and sovereign wealth funds.Note: Where such investor is an AIF or fund set up in IFSC or outside India, above check to be carried out on a look through basis. | Prior to availing benefits available to QIBs | Refer Note 2 below for existing investments & Note 3 for proposed investments.Manager to provide confirmation to SE or lead manager or merchant banker on this. |
| 2 | Benefits designated for QBs | Under SARFAESI Act | If an investor, or investors belonging to the same group, contribute(s)50% or more to the corpus of the scheme. | Same as above | Prior to making any investments or availing benefits | Refer Note 2 below for existing investments & Note 3 for proposed investments. |
| 3 | RBI regulated lenders/ entities ever-greening their stressed loans/ assets & circumventing RBI norms | RBI norms on Income Recognition, Asset Classification, Provisioning and Restructuring of stressed loans/ assets | (a)whose manager or sponsor is an entity regulated by RBI; or,(b)that has investor(s)regulated by RBI who:(i)individually or along with investors of the same group contribute(s) 25% or more to the corpus of the scheme; or(ii) is an associate of the manager/ sponsor of the AIF;(iii) has majority or veto power [by itself, or through its representatives/ nominees] in voting over decisions of the investment committee set up by the manager to approve investment decisions of the scheme.Note: where investor is an AIF or fund set up in IFSC or outside India, criteria check to be carried out on a look through basis. | Refer Note 4. | Prior to making any investments, to avoid indirect investment by RBI regulated lender/ entity. | Refer Note 2 below for existing investments & Note 3 for proposed investments. |
| 4 | Investment from countries sharing land border with India | FEMA (NDI) Rules, 2019 | Where 50% or more of the corpus of the scheme is contributed by investors (a)who are citizens of/are from/are situated in a country which shares land border with India; or(b)whose beneficial owners, as determined in terms of Rule 9 (3) of the PMLA (Maintenance of Records) Rules, 2005, are citizens of/are from/are situated in a country which shares a land border with India. | If the proposed investment would result in the scheme holding 10 % or more of equity/equity-linked securities issued by the company (on a fully-diluted basis), the manager to check details stated in the previous column, by collecting information on the country of investors and their beneficial owners. | Prior to making any investment | Refer Note 2 below for existing investments & Note 5 for proposed investments. |
Note 1: same group’ shall mean ‘related parties’ and ‘relatives’ as defined in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Note 2:
For Sr nos 1 to 3: DD requirement is applicable for existing investments too, held by AIF schemes as on October 8, 2024:
- If DD check not satisfactory – details of investment to be reported to AIF’s custodian on or before April 07, 2025, in the format as per Annexure 1 of the circular;
- If DD check satisfactory – AIF manager to submit an undertaking to AIF’s custodian on or before April 07, 2025.
For Sr no. 4: Reporting is required to be made for existing investments held by AIF schemes as on October 8, 2024 if the scheme holds 10% or more of equity/ equity-linked securities on a fully-diluted basis, to AIF’s custodian on or before April 07, 2025 in the format prescribed by SFA.
Note 3:
Consequence of not satisfying requirements of DD checks specified by SFA for proposed investments in case of Sr nos 1 to 3:
- Such investor or investor group to be excluded along with necessary disclosure in the private placement memorandum (PPM); or
- Investment cannot be made.
Note 4:
Note 5: Details of investment, which would result in the scheme holding 10% or more of equity/ equity-linked securities on a fully-diluted basis, to be reported to the custodian within 30 days of investment, in the below format specified by SFA.
DD requirement – one-time or ongoing?
As discussed in the SEBI BM Agenda, the purpose of the due-diligence check is to prevent facilitation of any circumvention of provisions of financial sector regulators, which cannot be a time specific check. An entity who intends to circumvent can design the structure in such a way that, at a later date post investment, it acquires the units of AIFs post investment, such as buying the units of an existing investor or by acquiring control over the existing investor entity, as per prior arrangement. Accordingly, it has been indicated that due diligence around investors and investments will be an ongoing one.
Applicability of DD – prospective or retrospective?
As per the SEBI circular this is applicable for existing and prospective investments. Refer Note 2 above.
Obligations of Custodian to the AIF
- Information received from AIFs under Note 2 to be furnished to SEBI on or before May 7, 2025.
- Information received from AIFs in terms of Note 4 above on a monthly basis to be compiled and reported to SEBI within 10 working days from month end.
Power of AIF to exclude an investor
As per SEBI Circular, in cases where the outcome of DD is not satisfactory, in that case the AIF will either have to exclude the investor or investor group or abstain from making the proposed investment.
Dealing with power to exclude an investor, in April 2023 SEBI had issued ‘Guidelines with respect to excusing or excluding an investor from an investment of AIF that empowered an AIF to excuse its investor from participating in a particular investment in the following circumstances:
Figure 1: Circumstances to excuse an investor of AIF
Conclusion
The present amendment and SEBI Circular lays an onerous burden on the AIF, manager and KMP of the AIF and the manager. The DD requirement has become effective from October 8, 2024 and applies to existing investments as well. The AIFs have an actionable of evaluating the existing investments in the scheme in the light of the present amendment and ensure reporting in next 6 months. The obligation of on-going due diligence will result in a compliance burden, but is justified given the intent of law as “quando aliquid prohibetur ex directo, prohibetur et per obliquum” i.e. things that cannot be done directly should not be done indirectly either. AIFs will continue ‘trust, but verify’ using the DD standards for due diligence. The trustee/ sponsor of the AIF is required to ensure that compliance status of this amendment is reported to SEBI in the ‘Compliance Test Report’ prepared by the manager in terms of Chapter 15 of Master Circular for AIFs.
Our other resources:
LEAP to listing: India permits direct listing of shares overseas through IFSC
MCA & MOF notify rules for the same
– Vinita Nair & Prapti Kanakia | corplaw@vinodkothari.com
January 25, 2024 (Updated on August 31, 2024)
Indian companies were permitted to raise funds from overseas either pursuant to issue of depository receipts listed overseas or having the non-residents subscribe to issuances made in India or by way of borrowing overseas. As an initiative to provide an avenue to access global capital markets, GoI had announced the decision to ease the raising of foreign funds in order to boost foreign investment inflows, unlock growth opportunities, and offer flexibility to Indian companies to raise funds. Consequently, an enabling provision for direct listing of prescribed class of securities on permitted stock exchanges in permissible foreign jurisdictions was inserted vide Companies (Amendment) Act, 2020 in Section 23 of Companies Act, 2013 (‘CA, 2013’), that deals with permissible modes of issue of securities, vide notification dated September 28, 2020, and made effective from October 30, 2023. Thereafter, the Ministry of Corporate Affairs (‘MCA’) notified Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024 (‘LEAP Rules’) effective from January 24, 2024. As listing of shares abroad will result in raising funds from Persons Resident Outside India (PROI), Ministry of Finance (‘MoF’) notified FEMA (Non-Debt Instruments) Amendment Rules, 2024 amending FEMA (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) with effect from January 24, 2024. SEBI is also expected to roll out the operational guidelines for listed companies to list their equity shares on permitted stock exchanges.[1]
Additionally, FAQs on direct listing scheme (FAQs) have also been rolled out on January 24, 2024. Further, two of the key recommendations of the working group report on Direct Listing of Listed Indian Companies on IFSC Exchanges submitted in December 2023 were to notify the rules under Section 23 (3) and (4) of CA, 2013 and notify necessary amendments in NDI Rules to permit cross-jurisdiction issuance and trading of equity shares of Indian companies on IFSC exchanges.
Presently, both the LEAP Rules as well as NDI Rules have notified International Financial Services Centre in India (‘Gift City’) as the permissible jurisdiction and India International Exchange and NSE International Exchange (‘IFSC Exchanges’) as the permissible stock exchange. International Financial Services Centres Authority (‘IFSCA’) had issued the IFSCA (Listing) Regulations, 2024 effective August 29, 2024 (‘IFSC Regulations’) however, in the absence of enabling provision under CA, 2013 and NDI Rules, Indian companies were unable to undertake listing of securities abroad.
In this article we provide an overview of the regulatory regime and deal with the procedural aspect.
Regulatory regime for listing securities in IFSC
Chapter X of the NDI Rules permits investment by a permissible holder subject to conditions specified in Schedule XI. Schedule XI inter-alia provides the permissible mode of issuance, eligibility conditions for a permissible holder and Indian companies, obligations of the companies and requirements relating to voting rights and pricing.
LEAP Rules prescribe the eligibility norms for unlisted public companies and procedural aspects in relation to timeline and form for filing the prospectus, complying with Indian Accounting Standards post listing etc.
The IFSC Regulations provide the general conditions w.r.t the principles and eligibility criteria for issuer, specific eligibility criteria for IPO, procedural requirements in case of an entity freshly listing on IFSC exchanges (Chapters I, II, III) and also norms for secondary listing of specified securities (Chapter V). Chapter VI deals with listing of special purpose acquisition companies (SPAC). Comparison of the requirements under IFSC Regulations vis-a-vis under ICDR Regulations is enclosed as Annexure 1.
Mode of Listing
Companies can raise the funds either by issuing fresh capital or by offering the existing shares. In the latter case, the existing shareholders tender their shares. Both the methods are allowed under LEAP Rules & NDI Rules for listing the equity shares on IFSCA exchanges.
Figure 2: Mode of listing
Para 2 of Schedule I to NDI Rules prohibits certain sectors for investment, meaning the company engaged in prohibited sector is not allowed to raise foreign funds[2]. The same conditions are applicable in case of listing in IFSC either by way of fresh issuance/offer for sale. Eg. Nidhi company is a prohibited sector and therefore the nidhi company cannot list its equity share in IFSC.
Further, Schedule I to NDI Rules prescribes sectoral caps which are required to be complied by the public Indian company at the time of direct listing. Refer Cap on Foreign Funds for further details.
Companies ineligible to list in IFSC
NDI Rules, LEAP Rules, and IFSC Regulations provide certain eligibility criteria for companies intending to list the specified securities on permissible stock exchanges. The same are discussed below:
Companies ineligible under LEAP Rules
LEAP Rules are applicable to both unlisted public companies and listed public companies, however, the eligibility criteria under LEAP Rules are applicable to unlisted public companies only. Rule 5 of LEAP Rules provides that the following companies shall not be eligible for listing the equity shares in IFSC;
Figure 3: Companies ineligible under LEAP Rules
Companies ineligible under NDI Rules
Para 3 of Schedule XI to NDI Rules provides the eligibility criteria for direct listing. Para 3(1) & 3(3) is applicable to unlisted public companies and para 3(1) & 3(2) is applicable to listed companies. The eligibility conditions are based on the type of issuance i.e. fresh issuance or offer for sale.
In case of fresh issuance, the following companies are ineligible:
Figure 4: Companies ineligible under NDI Rules, in case of fresh issuance
Most of the conditions above are similar to those provided in Reg. 5, 61, 102, etc. of SEBI (ICDR) Regulations, 2018 (‘ICDR Regulations’) except for the ineligibility arising on account of inspection or investigation under CA, 2013. Chapter XIV of CA, 2013 deals with the requirements relating to inspection, inquiry, and investigation. The Registrar of Companies is empowered to carry out inspection in terms of Section 206 of CA, 2013 and on the basis of the outcome of the same or for other reasons specified in Section 210, the Central Government may order an investigation. In case of inspection or investigation, it is likely that the same may continue for a longer period without any tangible outcome. In such cases, this restriction will act as a deterrent for the companies eligible otherwise. Additionally, reg. 5 (2) of ICDR Regulations, an issuer is not eligible to make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares of the issuer. There is no such similar restriction under IFSC Regulations.
The following companies are ineligible, in case of offer for sale by existing shareholders:
Figure 5: Companies ineligible under NDI Rules, in case of offer for sale
Companies Ineligible under IFSC Regulations
Companies incorporated in India/IFSC/foreign jurisdiction are allowed to list on IFSC Exchanges, however, the issuer, any of its promoters, controlling shareholders, directors or existing shareholders offering shares should not be
- debarred from accessing the capital market; or
- a wilful defaulter; or
- a fugitive economic offender
Further, Regulation 9 of IFSC Regulation prescribes certain eligibility criteria for listing such as operating revenue, minimum market capitalization, PBT, etc. (Refer our article IFSC Gateway to Global Access for Indian unlisted companies to understand the conditions in detail). Hence, the entities that are not ineligible as per LEAP Rules, NDI Rules, and IFSCA Regulations and fulfilling the eligibility criteria of IFSC Regulation can list its equity shares in IFSC Exchanges.
Permissible holder
Para 2 of Schedule XI to NDI Rules provides the eligibility criteria for the permissible holders of equity shares listed on permissible stock exchanges. Any Person Resident Outside India (‘PROI’) can be a permissible holder. Thus, an Indian resident cannot hold such shares, however a non-resident Indian can hold such shares (FAQ no. 15 & 16). The said conditions are also applicable to a beneficial owner.[3]
Where a holder is a citizen of a country which shares land border with India, or an entity incorporated in such a country, or an entity whose beneficial owner is from such a country, they can hold equity shares of such a public Indian company only with the approval of the Central Government.
To ensure that the investor is aware of the above conditions of the permissible holders, the Indian company is required to indicate the same in its offer document issued while raising funds in Gift City.
Voting rights on such equity shares will be exercised directly by the permissible holder or through their custodian pursuant to voting instruction only from such permissible holder.
As per RBI Master Directions – Liberalized Remittance Scheme (LRS) investments in IFSCs in securities except those issued by entities or companies in India (outside IFSC) were permitted. RBI Circular dated July 10, 2024 permits availing of financial services or financial products[4] (which inter alia includes securities)within IFSC. However, this cannot be construed to override the eligibility of ‘permissible holder’ prescribed under NDI Rules.
Investment Limit for permissible holder
A permissible holder can invest upto the limits prescribed for foreign portfolio investors i.e. less than 10% of the total paid-up equity capital on a fully diluted basis. That means one single investor can hold less than 10% of the equity share capital on a fully diluted basis of the public Indian Company.
Manner of Purchase/Sale
A permissible holder is allowed to pay the purchase/subscription consideration either to a bank account in India or deposited in a foreign currency account of the Indian company held in accordance with the FEM (Foreign currency accounts by a person resident in India) Regulations, 2015, as amended from time to time.
In case of a sale, the consideration may be remitted out of India or can be credited to the bank account of the permissible holder maintained in accordance with FEM (Deposit) Regulations, 2016 i.e. NRO/ NRE/ FNCR/ SNRR account.
Cap on Foreign Funds
Schedule I to NDI Rules provides the sectoral caps, i.e. the maximum foreign investment permissible in a particular sector. The said conditions are to be complied in case of listing on permitted stock exchanges as well since, listing on IFSC will result in raising funds from PROI. Accordingly, amounts offered to PROI in permissible jurisdiction along with equity shares held in India by PROI should be compliant of the sectoral cap. The aggregate amount held by PROI should not exceed the limits prescribed.
Further, wherever Government approval is required under Schedule I, the same shall be obtained while raising funds from permitted foreign exchange. Eg. in case of print media, foreign investment upto 26% is permitted under government route, therefore a company engaged in print media business can raise only upto 26% from permitted stock exchanges after obtaining requisite approval.
Also, the company has the option of receiving the funds either in the bank account maintained in India or in the foreign currency account maintained outside India. Indian companies are allowed to keep funds in the foreign currency account maintained with the Bank outside India, until its utilization or repatriation to India.
Pricing of Equity Shares
Para 6 of Schedule XI to NDI Rules provides for pricing of equity shares to be listed on the permitted stock exchange. LEAP Rules does not prescribe any pricing conditions.
Figure 6: Pricing of equity shares
Other actionable
- The unlisted public company is required to file the prospectus in form LEAP-1 with ROC within a period of seven days after the same has been finalised and filed in the permitted exchange.
- Post listing, the company will be required to prepare the financial statements as per Ind AS in addition to any other accounting standard, if applicable.
- The Indian company will be required to report to RBI through AD Banks in form LEC (FII) about the purchase/subscription of equity shares listed on IFSC Exchanges.[5]
Direct listing overseas v/s depository receipts
Issuance of depository receipts is governed by Depository Receipt Scheme, 2014 read with FEMA NDI Rules and SEBI’s framework for issue of depository receipts. The regime is different from the issue of ADR/ GDR and listing on overseas exchanges.
- While the Scheme provided for any Indian company being eligible to issue depository receipts, SEBI restricted the eligibility to issue only by ‘a company incorporated in India and listed on a recognised stock exchange in India’. Therefore, unlisted entities are not eligible to issue depository receipts.
- Mode of listing of DRs are similar to present regime i.e. fresh issuance or OFS of permissible securities.
- There are 8 permissible jurisdictions for ADR/GDR issuance[6] as compared to just IFSC in case of direct listing.
- The concept of permissible holder for depository receipts is similar to permissible holder in the context of direct listing (discussed above) such that residents are not eligible to hold the same even as a beneficial owner. In case of depository receipts, even NRIs are ineligible to invest. However, as clarified by SEBI vide circular dated December 18, 2020 issue of DRs to NRIs is permitted pursuant to share based employee benefit schemes which are implemented by a company in terms of SEBI (Share Based Employee Benefits) Regulations 2014[7] and pursuant to a bonus issue or a rights issue;
- The norms relating to pricing and voting rights are also on similar lines in both cases.
Status after listing
In case of direct listing, Indian companies would be listing its ‘equity shares’ and/or ‘convertible securities’. The Companies Act, 2013 defines the term ‘listed company’ as a company which has any of its securities listed on any recognised stock exchange. However, clause (c) of Rule 2A of the Companies (Specifications of Definitions Details) Rules, 2014 (‘SDD Rules’) provides that public companies which have not listed their equity shares on a recognized stock exchange but whose equity shares are listed on a stock exchange in a jurisdiction as specified in sub-section (3) of section 23 of the Act shall not be considered as a listed company.
Therefore, the status of an unlisted public company will not change upon direct listing and consequently, the additional compliances as applicable to a listed company under CA, 2013 will not apply to such company in view of express carve-out in terms of the SDD rules.
However, every Indian company getting its securities listed on stock exchanges in IFSC will be required to comply with Chapter XII[8] of the IFSC Regulations dealing with listing obligations and disclosure requirements, as applicable.
Minimum Public Shareholding Requirement
Securities Contracts (Regulation) Rules, 1957 (‘SCR Rules’) mandates listed companies in India to have a minimum public shareholding (MPS) of atleast 25% of each kind of equity shares.
On the requirement for minimum offer and allotment to public, Ministry of Finance vide notification dated 28th August, 2024, amended Rule 19 of SCR Rules prescribing a minimum of 10% irrespective of the post issue paid up capital (as opposed to 25% applicable to listed entities in India) for companies intending to list their securities on recognized stock exchanges in IFSC. Further, the continuous listing requirement in Rule 19A has also been amended prescribing MPS requirement of atleast 10%. In case it falls below 10% at any time, the company will be required to bring the public shareholding to 10% within a maximum period of 12 months from the date of such fall[9].
In this regard, the working group committee suggested that the public holding fulfilling the definition of public shareholding as per SCR Rules[10] should be considered towards MPS and such requirements should be complied in both jurisdictions separately to ensure free float in both jurisdictions. Basis the recommendations, the working group committee recommended making appropriate changes in the SCR Rule. In view of the aforesaid amendment, it seems that MPS norms are required to be separately maintained.
Tax incentives available to permissible holders
Non-residents i.e. permissible holders are exempt from the applicability of capital gains tax in case of transfer of foreign currency denominated equity shares of a company where the consideration is payable in foreign currency pursuant to Section 47(viiab) of Income Tax Act, 1961 read with Notification dated 5th March, 2020. Also, Securities Transaction Tax, Commodities Transaction Tax, and stamp duty in respect of transactions carried out on IFSC exchanges is exempt.
Conclusion
The initiative is quite encouraging and will benefit India Inc. in fundraising, however, the ineligibility on account of pending inspection/investigation needs to be revisited. The requirements post listing, as per IFSC Regulations are also numerous, several of them being on similar lines as provided under Listing Regulations.
[1] As per the press release by PIB.
[2] Prohibited sectors include- Lottery business, Gambling and betting, Chit funds, Nidhi company, Trading in TDR, (a) Real estate business or construction of farm houses, Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes, Atomic energy, Railway operations, Foreign technology collaborations in any form for lottery business and gambling and betting activities.
[3] Beneficial owner as defined as per proviso to sub-rule (1) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005
[4] “financial product” means—(i) securities; (ii) contracts of insurance; (iii) deposits; (iv) credit arrangements; (v) foreign currency contracts other than contracts to exchange one currency for another that are to be settled immediately; and (vi) any other product or instrument that may be notified by the Central Government from time to time.
[5] Inserted vide FEM (Mode of Payment and Reporting of NonDebt Instruments) (Amendment) Regulations, 2024
[6] 1. United States of America – NASDAQ, NYSE 2. Japan – Tokyo Stock Exchange 3. South Korea – Korea Exchange Inc. 4. United Kingdom excluding British Overseas Territories- London Stock Exchange 5. France – Euronext Paris 6. Germany – Frankfurt Stock Exchange 7. Canada – Toronto Stock Exchange 8. International Financial Services Centre in India – India International Exchange, NSE International Exchange.
[7] The onus of identification of NRIs holders, who are issued DRs in terms of employee benefit scheme, would lie with the listed company. The listed company is required to provide the information of such NRI DR holders to the designated depository for the purpose of monitoring of limits.
[8] Part A: General Obligations; Part B: Companies with Specified Securities Listed on Recognised Stock Exchanges as a Primary Listing and Part C: Secondary Listing of Specified Securities.
[9] Manner of achieving MPS has been prescribed vide SEBI Circular dated February 3, 2023.
[10]Rule 2(e) of SCR Rules defines public shareholding as equity shares of the company held by public including shares underlying the depository receipts if the holder of such depository receipts has the right to issue voting instruction and such depository receipts are listed on an international exchange in accordance with the Depository Receipts Scheme, 2014.
Provided that the equity shares of the company held by the trust set up for implementing employee benefit schemes under the regulations framed by the Securities and Exchange Board of India shall be excluded from public shareholding.
Provided that the equity shares of the company held by the trust set up for implementing employee benefit schemes under the regulations framed by the Securities and Exchange Board of India shall be excluded from public shareholding.
FPIs – Synoptic Overview
THE NEW FDI POLICY – MIX OF RELIEF AND BURDEN OF ADDITIONAL COMPLIANCES AND LIMITATIONS
– Soma Bagaria & Nidhi Ladha
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National financial information repository: One more or one for all?
– Lovish Jain, Executive | lovish@vinodkothari.com
Some days ago, Mr. Vinod Kothari had commented on a LinkedIn post :
“Do we realise how many places does a lender (NBFC, Bank) register information about a loan? There are 4 credit information companies (such as CIBIL) where the credit data, including performance history, is uploaded. If the exposure is Rs 5 crores or above, in the aggregate over the banking system, information goes on CRILC too.
RBI has recently written to NBFCs reminding them of the obligation to register details with NeSL, an information utility under IBC, irrespective of whether the provisions of Code apply (for example in case of individuals), or whether the lender in question is at all contemplating resorting to IBC as a remedy (for example, consumer loans).
If the loan is a secured loan, the details need to be filed with CERSAI. If the secured loan borrower is a company, details need to be filed with RoC too. If the security interest is on immovable property, one needs to file particulars with land registry. If the security interest is on motor vehicles, the hypothecation is registered with Vahan portal too.
Read more →External Commercial Borrowings
2022 in retrospect: Regulatory activity in the financial sector
– Vinod Kothari | finserv@vinodkothari.com
It has been a brisk year in terms of activity – a busy regulator kept all regulated entities busier. This year marked the initiation of a new SBR framework for NBFCs – hence there was a lot of buzz in terms of understanding the new regulatory framework. The names of 16 Upper layer entities were declared by the RBI – consisting of 5 HFCs, 10 NBFC-ICCs, one CIC[1]. As is the design, UL entities are treated at par with banks in terms of regulatory intensity –hence, there is a LEF (large exposure framework), differential provisioning norms in case of standard assets, CET-1 capital requirement, mandatory listing etc.
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