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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Stock options entail multi-stage disclosure to stock exchanges

Requirement under SEBI Listing Regulations and SBEB Regulations

– Aisha Begum Ansari | corplaw@vinodkothari.com

Employee share benefit schemes in the form of ESOP, ESPS, etc. (‘stock options’) facilitate the employees to participate in the growth of the companies. Since, the issue of shares pursuant to exercise of stock options leads to dilution of the share capital of the company, the same may be relevant or material event or information for the investors. Therefore, right from the board meeting in which the decision relating to ESOP scheme is undertaken till the time of allotment of shares, disclosure is required to be made at different stages either in terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) or SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 (‘SBEB Regulations’). This article deals with the requirements and the stages when the disclosure is required to be made by a company.

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Defaulters at will, and defaulters of size: RBI proposes new Directions: Middle and Upper Layer NBFCs also part of the system

Team Finserv, Vinod Kothari Consultants 

finserv@vinodkothari.com

Introduction

The Reserve Bank of India on September 21, 2023 has issued the Draft Master Directions on Treatment of Wilful Defaulters and Large Defaulters (‘Proposed Directions’). The Directions, when finalised, will replace the existing Master circulars (referred below). The draft Directions are largely consolidating in nature, with some significant differences. Importantly, NBFCs of middle and upper layer have been brought into the framework, and additionally, as was clear from the recent circular on compromise/settlements, the tag of willful defaulter may be removed if the borrower does a compromise settlement with the lender. However, a mere sale of the loan will not cause removal of the tag, as the tag will pass on to the buyer. The draft Directions also assimilate the provisions about large defaulters, which was earlier a CIC filing requirement, and make it a part of these Directions.

While a default itself is bad for a bank, where the default is backed by ability, but unwillingness to pay, it assumes a different level of seriousness. Such a borrower, and the entities that such borrower promoters or fosters, should remain deprived of further assistance from the financial system.

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Do’s and Don’ts for Investment Advisors

Hari Dwivedi | corplaw@vinodkothari.com

Introduction

SEBI, the regulatory body overseeing various intermediaries in primary and secondary markets, such as merchant bankers, portfolio managers, research analysts, debentures trustees, underwriters, stock brokers, sub brokers, bankers to an issue, investment advisors, registered custodians, and more, has registered over 33,000 intermediaries as per SEBI’s recognized intermediaries data. Among them, there are 1331 Investment Advisors (referred to as “IA”) as on 24th September, 2023. In this article, we will discuss the role of IA in the securities market and outline some important do’s and don’ts for them, given their significant role.

IA plays a pivotal role in facilitating prudent financial decision-making for both individuals and institutions. Their expertise, customized strategies, and risk management proficiency are instrumental in aiding clients to realize their financial objectives and navigate the intricacies of financial markets. This client-advisor relationship hinges on a foundation of trust, invoking a stringent fiduciary obligation upon IA. They are ethically and legally mandated to prioritize the best interests of their clients, entailing the provision of transparent and candid counsel, the avoidance of conflicts of interest, and meticulous disclosure of any potential conflicts. In fulfilling these responsibilities, it is imperative for IA to meticulously adhere to the regulatory provisions, observing both the prescribed protocols and constraints. This not only safeguards against penalties but also upholds client satisfaction, fostering a harmonious and productive relationship.

But before we delve into the do’s and don’ts for an IA, let’s first understand who is an IA under the applicable legal provisions.

Our other related and relevant write ups on similar issues can be read below:

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Fractional ownership schemes: Distinguishing between investment schemes and shared ownership of real assets

Vinod Kothari | vinod@vinodkothari.com

Schemes to crowdfund real assets (that is, assets other than financial assets) continue to proliferate. Known by various names as fractionalisation, tokenisation, fractional property shares, etc., these schemes invite multiple retail investors to become fractional owners of assets. The assets in question may consist of properties, solar assets, leased equipment, etc. The assets, in turn, are deployed by some asset manager, who produces returns from these assets. These returns are earned by the investors.

Money for money, or interest in assets for money:

A money-for-money transaction is essentially an investment contract. The meaning of money-for-money transaction is one where a person puts in money, and is promised money in return. That is to say, the essence of the activity is producing monetary returns by investing a certain sum of money. This is opposed to a shared property ownership or business where money is invested for acquiring stake in an asset. The asset, in turn, may be deployed for a common good, but the key question to ask is: have the investors been promised returns by the manager of the scheme? That is, do investors  acquire equity in the asset, exposing themselves to the risks/returns of the asset, or do investors have been promised, explicitly or implicitly, a fixed rate of return? In the latter case, it is clearly an investment transaction, and being a pooled investment vehicle, it may be termed as “collective investment scheme”.

There are stringent regulations in India for Collective Investment Schemes i.e. the SEBI (Collective Investment Scheme) Regulations, 1999, and India is not unique in this respect. We have earlier discussed the law regarding fractional ownership of properties, and the ingredients that distinguish between a participated ownership, versus a collective investment scheme.

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Workshop on Recent regulatory developments for listed entities: critical changes under LODR and PIT Regulations

Register here: https://forms.gle/dmzuWFjxp8sL3VR4A
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G20/OECD’s Corporate Governance Principles, 2023

Ankit Singh Mehar, Executive | corplaw@vinodkothari.com

The G20 leaders in the recent G20 Summit held on 8th -10th September,  2023, endorsed the revised ‘G20/OECD Principles of Corporate Governance’ (‘Revised Principles’). The Revised Principles replace the extant set of principles released in 2015 in light of the evolution in capital markets and global economy, following a review of the erstwhile principles over a period from 2021-2023. 

As stated in the Summit Declaration, the Revised Principles have been endorsed by the G20 leaders “with the aim to strengthen policy and regulatory frameworks for corporate governance that support sustainability and access to finance from capital markets, which in turn can contribute to the resilience of the broader economy.”

The Revised Principles, besides making alterations to the existing principles, also introduce two new chapters, viz., 

Chapter III – ‘Institutional investors, stock markets, and other intermediaries’ focussing on  engagement of institutional investors with the investee company, essential disclosure requirement and management of conflict of interest pursuant to exercise of their key ownership rights. 

Chapter VI – ‘Sustainability and resilience’ focussing on corporate governance policies for managing the risks and opportunities of sustainability and resilience 

Below we summarise the key highlights of the Revised Principles. 

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REIT and InvIT unitholders with 10% aggregate holding get Board nomination rights

Avinash Shetty, Assistant Manager | corplaw@vinodkothari.com

CSR spending in the Indian sports sector

-Shreya Salampuria | corplaw@vinodkothari.com

Background

Corporate social responsibility (CSR) spending in India, as is well known, is focused on certain statutorily recognised social activities, of which sports is one. Schedule VII, clause (vii) deals with activities related to “training to promote rural sports, nationally recognised sports, paralympic sports and olympic sports”.

Most of the attention under the schedule is taken away by contribution on activities connected with healthcare followed by education.

Khelo India, Kheloge toh Khiloge, an attempt to improve the performance of our vast country in sports, however, can we tap csr funds for the same?

When it comes to choosing or prioritizing the sports related activities, the outlook of the Indian companies cannot be said to be very impressive, however,  there has been an increment on the CSR spending under the sports sector.

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