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Open in new tab Regulatory round up: Corporate Law updates for the year 2023
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| Regulatory round-up 2023: Link to YouTube videos | ||
| Part I | Listing Regulations | https://www.youtube.com/watch?v=RJbGM9AGu2Y |
| Part II | SEBI Regulations and other miscellaneous regulatory developments | https://www.youtube.com/watch?v=UTuEgXAkYW0 |
| Part III | MCA | https://www.youtube.com/watch?v=luRn7NcI_PU |
| Part IV | SEBI amendments relating to corporate debt | https://www.youtube.com/watch?v=u2FGSfsyQOM |
| Part V | Regulatory round-up for NBFCs | https://www.youtube.com/watch?v=H82D3t38nio |
Mandatory conversion of share warrants issued under CA 1956 into demat securities – Snippet on MCA Notification
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You may also refer to our detailed article and youtube video.
Designated Persons to reveal beneficial owners:Summary of the 27th October notification
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You may also refer to our detailed article and YouTube video on the same.
CG norms for REITs and InvITs aligned with equity-listed entity
Kaushal Shah, Executive | kaushal@vinodkothari.com
SEBI prescribed format for reporting CG compliance
Background
In order to promote transparency and safeguard the interests of unitholders, SEBI recognizes the importance of streamlined governance practices for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). With the existence of 5 registered REITs and 21 InvITs, SEBI aims to establish effective mechanisms that ensure the flow of accurate information and provide protection to unitholders. This article explores the significance of streamlined governance practices in the REIT and InvIT sectors, highlighting SEBI’s efforts in fostering transparency and accountability.
Based on various representations received on the applicability of Corporate Governance (‘CG’) norms on ‘REITs and InvITs, SEBI in its Board meeting held on December 20, 2022, approved the introduction of CG-related provisions in SEBI (Real Estate Investment Trust) Regulations, 2014 (‘REITs Regulations’)[1] and SEBI (Infrastructure Investment Trust) Regulations, 2014, (‘InvITs Regulations’)[2] vide notification dated February 14, 2023. SEBI harmonized the requirements with SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, (‘LODR/ Listing regulations’) in relation to following areas, modified considering the structure of REITs and InvITs:
Read more →SEBI notifies amendments in LODR for NCS entities Scheme of Arrangement | Submission of financial results & line items | Transfer to IPEF for unclaimed NCS amounts by body corporate
Ajay Ramanathan, Executive |
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Read our related resources :
- SEBI LODR amendments: Minority say in independent directors, added regulations for debt issuersSEBI rationalizes ID appointment and removal process for first term Re-appointment process to be rationalized post amendment in CA, 2013
- SEBI rationalizes ID appointment and removal process for first term Re-appointment process to be rationalized post amendment in CA, 2013
SEBI rationalizes ID appointment and removal process for first term Re-appointment process to be rationalized post amendment in CA, 2013
Utilisation of accumulated surplus by section 8 companies
-Can surrogate means be used to relegate funds or benefits to shareholders
Pammy Jaiswal | Partner | Vinod Kothari and Company
Shraddha Shivani | Executive | Vinod Kothari and Company
Background
Section 8 of the Companies Act, 2013 (‘CA’) provides for the formation of companies with specific objects. Since the section revolves around incorporation of companies with charitable or some other specified welfare objectives, it gives an impression that these companies do not work to earn financial gains for their shareholders. This impression becomes evident since Section 8 companies are commonly referred to as ‘not-for-profit’ companies which further substantiates this understanding and adds to the confusion. They may make profits, as indeed, they very often do; however, the profit necessarily gets redeployed to carry the very same objects for which the company was formed, and cannot be relegated to the shareholders.
In fact, earning profits is not just permitted but is also essential for their continued existence and organic growth of its affairs. Most such companies do not borrow; hence, they carry their activities either through corpus contributions or through retained profits. Thus, the restrictions under CA are not on earning profits but on the distribution of the same to its shareholders.
The most common way for a company to distribute profits to its shareholders is by way of payment of dividend. This is explicitly barred in case of a Section 8 company. Having said that, these companies may also come across a situation where they do not foresee any immediate application of their accumulated profits and therefore, may look out for ways to utilise it for some other purpose. The management running these companies, potentially representing shareholders, may not be necessarily driven by avarice when they intend to use the funds other than for the purpose for which the company was formed.
Read more →List of Disclosures Requirements Applicable to NBFCs
| Srl No | Particular | Clause Reference | Remarks |
| List of Disclosure in Annual Report – As per RBI Direction | |||
| 1 | NBFCs shall disclose in their annual reports the details of the auctions conducted during the financial year including the number of loan accounts, outstanding amounts, value fetched and whether any of its sister concerns participated in the auction. | Para 27(4) (d)-Loans against security of single product – gold jewellery | Applicable for Gold loan business |
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Non-deposit taking NBFC with asset size of ₹ 500 crore and above issuing PDI, shall make suitable disclosures in their Annual Report about : | Annex XVII | |
| (i) Amount of funds raised through PDI during the year and outstanding at the close of the financial year; (ii) Percentage of the amount of PDI of the amount of its Tier I Capital; (iii) Mention the financial year in which interest on PDI has not been paid in accordance with clause 1(viii) above. |
Terms and Conditions Applicable to Perpetual Debt Instruments (PDI) for Being Eligible for Inclusion in Tier I capital | Applicable for NBFCs issuing PDIs | |
| 2A | Details of all material transactions with related parties shall be disclosed in the annual report along with policy on dealing with Annual Report | Para 4.3 – Annex IV, Master Directions | |
| 2B | (i) Remunerarion of Directors (Para 4.5) (ii) a Management Discussion and Analysis report |
Para 4.3 – Annex IV, Master Directions | |
| Disclosure in Financial Statements- as per RBI Direction | |||
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Disclosure in the balance sheet | ||
| The provision towards standard assets need not be netted from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet. | Master Directions Para 14 | ||
| Every applicable NBFCshall separately disclose in its balance sheet the provisions made as per these Directions without netting them from the income or against the value of assets.
The provisions shall be distinctly indicated under separate heads of account as under:- |
Master Direction Para 17 (1) and (2) | ||
| In addition to the above every applicable NBFCshall disclose the following particulars in its Balance Sheet: (i) Capital to Risk Assets Ratio (CRAR); (ii) Exposure to real estate sector, both direct and indirect; and (iii) Maturity pattern of assets and liabilities. |
Master Direction Para 17 (5) | ||
| 4 | Indicative List of Balance Sheet Disclosure for non-deposit taking NBFCs with Asset Size ₹500 Crore and Above and Deposit Taking NBFCs (hereinafter called as Applicable NBFCs) | Annex XIV | Please refer Annex XIV |
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Disclosures to be made by the Originator in Notes to Annual Accounts | Guidelines on Securitisation Transactions | |
| The Notes to Annual Accounts of the originating NBFCs shall indicate the outstanding amount of securitised assets as per books of the SPVs sponsored by the NBFC and total amount of exposures retained by the NBFC as on the date of balance sheet to comply with the MRR. These figures shall be based on the information duly certified by the SPV’s auditors obtained by the originating NBFC from the SPV. These disclosures shall be made in the format given in Appendix 2. | |||
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LRM Framework | ||
| An NBFC shall publicly disclose information (Appendix I) on a quarterly basis on the official website of the company and in the annual financial statement as notes to account that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position. | Guidelines on Liquidity Risk Management | Please refer Appendix I | |
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LCR Disclosure Standards | ||
| NBFCs in their annual financial statements under Notes to Accounts, starting with the financial year ending March 31, 2021, shall disclose information on LCR for all the four quarters of the relevant financial year. The disclosure format is given in the Appendix I. | Data must be presented as simple averages of monthly observations over the previous quarter (i.e., the average is calculated over a period of 90 days). However, with effect from the financial year ending March 31, 2022, the simple average shall be calculated on daily observations. | ||
| NBFCs should provide sufficient qualitative discussion (in their annual financial statements under Notes to Accounts) around the LCR to facilitate understanding of the results and data provided. | Please refer Appendix I (Part B) | ||
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Schedule to the balance sheet | Master Direction Clause 19 | |
| Every applicable NBFC shall append to its balance sheet prescribed under the Companies Act, 2013, the particulars in the schedule as set out in Annex IV. | |||
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Participation in Currency Options | Master Direction Clause 83 | |
| Disclosures shall be made in the balance sheet regarding transactions undertaken, in accordance with the guidelines issued by SEBI. | |||
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Participation in Currency Futures | Master Direction Clause 94 | |
| Disclosures shall be made in the balance sheet relating to transactions undertaken in the currency futures market, in accordance with the guidelines issued by SEBI. | |||
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Disclosure for Restructured Accounts | Master Direction Annex VII | |
| With effect from the financial year ending March 2014 NBFCs shall disclose in their published annual Balance Sheets, under “Notes on Accounts”, information relating to number and amount of advances restructured, and the amount of diminution in the fair value of the restructured advances as per the format given in Appendix – 4 | |||
| 12 | Disclosures relating to fraud in terms of the notification issued by Reserve Bank of India | ||
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Moratorium Circular | ||
| The lending institutions shall suitably disclose the following in the ‘Notes to Accounts’ while preparing their financial statements for the half year ending September 30, 2020 as well as the financial years 2019-20 and 2020-2021:
(i) Respective amounts in SMA/overdue categories, where the moratorium/deferment was extended, in terms of paragraph 2 and 3; (ii) Respective amount where asset classification benefits is extended. (iii) Provisions made during the Q4FY2020 and Q1FY2021 in terms of paragraph 5; (iv) Provisions adjusted during the respective accounting periods against slippages and the residual provisions in terms of paragraph 6. |
Para 10 COVID19 Regulatory Package – Asset Classification and Provisioning | ||
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Disclosure under sector – Restructuring of Advances, Circular | ||
| NBFCs shall make appropriate disclosures in their financial statements, under ‘Notes on Accounts’, relating to the MSME accounts restructured under these instructions as per the following format:
No. of accounts restructured Amount (₹ in million) |
Micro, Small and Medium Enterprises (MSME) sector – Restructuring of Advances | ||
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Lending institutions publishing quarterly statements shall, at the minimum, make disclosures as per the format prescribed in Format-A | Para 52 of Resolution Framework for COVID-19-related Stress | In the financial statements for the quarters ending March 31, 2021, June 30, 2021 and September 30, 2021 |
| 16A | (i) registration/ licence/ authorisation, by whatever name called, obtained from other financial sector regulators; (ii) ratings assigned by credit rating agencies and migration of ratings during the year; (iii) penalties, if any, levied by any regulator; (iv) information namely, area, country of operation and joint venture partners with regard to joint ventures and overseas subsidiaries and (v) Asset-Liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitization/ assignment transactions and other disclosures |
Para 73 – Master Directions (Ref. Annexure XIV) | |
| Other Disclosure | |||
| 17 | Report on-line to stock exchanges on a quarterly basis, information on the shares pledged against LAS, in their favour, by borrowers for availing loans | 22 of Master Directions | In format as given in Annex V for Master Direction. |
| 18 | Quarterly statement to RBI on change of directors, and a certificate from the Managing Director of the applicable NBFC that fit and proper criteria in selection of the directors has been followed | 72 of Master Direction | The statement must be sent 15 days of the close of the respective quarter. The statement for the quarter ending March 31, shall be certified by the auditors |
| 19 | On a quarterly basis, NBFCs shall report “total exposure” in all cases where they have assumed exposures against borrowers in excess of the normal single / group exposure limits due to the credit protections obtained by them through CDS, guarantees or any other permitted instruments of credit risk transfer | Para 8 of Guidelines for Credit Default Swaps – NBFCs as users | |
| Website Disclosure | |||
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Public disclosure | ||
| An NBFC shall publicly disclose information (Appendix I) on a quarterly basis on the official website of the company that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position. | Guidelines on Liquidity Risk Management | Please refer Appendix I | |
| 21 | NBFCs are required to disclose information on their LCR every quarter | Para 6 LCR Framework | To be made on website |
| Additional Disclosures w.r.t. COVID-19 | |||
| 22 | Lending institutions publishing quarterly financial statements shall, at the minimum, shall make disclosures in their financial statements for the quarters ending September 30, 2021 and December 31, 2021. The resolution plans implemented in terms of Part A of this framework should also be included in the continuous disclosures required as per Format-B prescribed in the Resolution Framework – 1.0. | As per format prescribed in Format-X | |
| 23 | The number of borrower accounts where modifications were sanctioned and implemented in terms of Clause 22 above, and the aggregate exposure of the lending institution to such borrowers may also be disclosed on a quarterly basis, | ||
| 24 | The credit reporting by the lending institutions in respect of borrowers where the resolution plan is implemented under Part A of this window shall reflect the “restructured due to COVID-19” status of the account | ||