FAQs on preferential issue of equity shares and convertible securities under SEBI ICDR
Anushka Vohra, Manager | corplaw@vinodkothari.com
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Maintenance of security cover for secured debt made transparent by SEBI
Debenture trustees responsible for monitoring the security cover and covenants effective October 1, 2022
– Vinita Nair, Senior Partner | corplaw@vinodkothari.com
Background
Securities and Exchange Board of India (‘SEBI’) is carrying out radical changes in relation to monitoring the security cover and covenants with respect to listed debt securities. Recently, SEBI amended SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) and SEBI (Debenture Trustees) Regulations, 1993 (‘DT Regulations’) and SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 (‘NCS Regulations’) in order to substitute the concept of ‘asset cover’ with ‘security cover’ and accordingly, prescribed the requirement of maintenance and reporting of the security cover in case of listed secured debentures[1].
Monitoring of security cover has always been the key responsibility of the DT and therefore, SEBI in November 2020, had prescribed norms for independent due diligence by DTs for the purpose of creation of security[2] and for periodical monitoring of the security created and enhanced disclosures by DTs[3]. Thereafter, in August, 2021[4] SEBI rolled out the norms for security and covenant monitoring using Distributed Ledger Technology (‘DLT’) and in March, 2022 prescribed operational guidelines for security and covenant monitoring wherein system generated unique identifier (Asset ID) will be generated for each security offered by issuer in order to enable the DTs and Credit Rating Agencies (‘CRAs’) for better tracking[5]. Lastly, on August 4, 2022[6] SEBI issued enhanced guidelines for DTs and listed issuer companies on security creation and initial due diligence which inter-alia provides directions to harmonize the process of creation of security.
Read more →CSR Rules tweaked to rationalize committee constitution, implementing agencies etc
– Nitu Poddar, Partner | Lovish Jain, Executive | corplaw@vinodkothari.com
MCA vide its notification dated September 20, 2022 has made amendments in the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“Rules”). The said amendment seeks to do away with the redundant requirements in Rule 3(2) of making CSR expenditure and other compliances even after the companies cease to be covered within the thresholds under section 135(1), provide for continuation of CSR committee in case of amount lying in the unspent CSR account, amend the scope of implementing agencies and in the ceiling of expenditure towards impact assessment as well as some changes in the annual report on CSR.
Read more →Corporate climate change litigation: Increasing heat on boardrooms?
– Payal Agarwal and Neha Sinha | corplaw@vinodkothari.com
The importance of ESG aspects in the corporate world does not need an introduction in the current scenario. As the concept travels from the global conferences to the corporate boardrooms, so do the risks and opportunities of the same. Climate change has evolved from an “ethical, environmental” issue to one that presents foreseeable financial and systemic risks (and opportunities) over mainstream investment horizons, as discussed in detail in the Fiduciary Duties and Climate Change in the United States published by Commonwealth Climate and Law Initiative (CCLI). The corporate laws provide a general duty of the directors towards the protection of the environment, and therefore, directors cannot deny their responsibilities towards the same. The same has been dealt with at length in our writeup “Directors’ Liability towards Climate Change: Why Boards should be bothered”.
In this article, the authors try to look at the kinds of litigation in the field of climate change where corporations have been held accountable and identify the potential of litigation risks and the extent to which the directors of a company can be held liable for the climate change actions.
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Open in new tab Practical aspects relating to amended ODI framework
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Our resources on amended regulatory framework of Overseas Investments can be accessed here –
Regulatory framework for Overseas Investments
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IRDA rolls out conditions for common directorship in insurance company and intermediary
If compliant, to be regarded as deemed approval under Section 48A of the Insurance Act, 1938.
– Aanchal Kaur Nagpal, Manager & Sharon Pinto, Manager (corplaw@vinodkothari.com)
Insurance relationships are fundamentally built on trust between insurers and their customers. (Insurance and Regulatory Development Authority of India (‘IRDA’) has been quite stringent with respect to curbing instances of conflicts of interest in case of insurance companies and/ or insurance intermediaries.
As per Exposure Draft on IRDAI (Conflict of Interest) Guidelines, 2019[1], “Conflict of Interest” means a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another and includes situations when a person’s impartial and objective performance of duties or decision-making could be jeopardized because of personal interests being involved;
Read more →Debentureholders’ rights in Intercreditor agreements
Supreme Court lays principles in case of debenture defaults
– Sikha Bansal, Partner, Vinod Kothari & Company | corplaw@vinodkothari.com
A well-developed corporate bond market not only provides cost-effective funds to the issuer, but also enables lenders like banks and other financial institutions to streamline their asset-liability mismatches. As such, there have been a lot of efforts to facilitate the development of the corporate bond market in India. While the market is growing steadily, the size of the market remains small as compared to other emerging markets in Asia[1]. Therefore, India may still have a long way to go.
An important element in ensuring smooth functioning of the bond market is to ensure that there is sufficient clarity on the options, remedies, and rights which the debentureholders have or may have in a given scenario. One such aspect has been dealt with by the Supreme Court (SC) in the recent ruling Securities and Exchange Board of India v. Rajkumar Nagpal and Others[2] (‘SC ruling’). The SC was dealing with the interplay between the RBI’s ‘Prudential Framework for Resolution of Stressed Assets’ issued in June, 2019 (‘RBI Resolution Framework’) and SEBI’s Circular on ‘Standardisation of procedure to be followed by Debenture Trustees in case of ‘Default’ by Issuers of listed debt securities’ (‘SEBI Circular’) and consequent impact of the same on the rights of the debentureholders.
As we see below, the SC ruling is crucial – that it clears the air around the force which SEBI Circular carries and protects dissenting investors from non-statutory compromises. However, most importantly, this SC ruling can be seen as highlighting the problems and gaps which may arise because of segregated rule-making where two regulators were bound by their respective regulatory ambit, thereby leading to a not-so-comprehensive resolution framework.
The author, in this article, has not gone into the facts of the particular case (which, inter alia, necessitated the SC to invoke Article 142 of the Constitution). Instead, the author has deliberated on the key takeaways from the SC ruling.
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