FAQs on half-yearly disclosure of RPTs to the stock exchanges

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– Team Corplaw | corplaw@vinodkothari.com

Table of Contents
BackgroundDisclosure of RPTs to which listed entity is a party
ApplicabilityDisclosure of RPTs to which the listed entity is not a party
Timeline for disclosureDisclosure by Banks and NBFCs
Format of disclosureApproval and disclosure matrix

Background

SEBI, vide its notification dated November 09, 2021 amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’) carrying out radical changes in the regulatory framework for the Related Party Transactions (‘RPTs’), including but not limited to the definition of Related Party (‘RP’), RPTs, its approval mechanism and disclosure requirements to the stock exchange. The amended provisions have been effective from April 01, 2022, except for the few provisions which will be applicable w.e.f. April 01, 2023. Information to be placed before the Audit Committee and shareholders (in case of material RPT) and the format of disclosure of RPTs to be filed with the Stock Exchanges (‘SEs’) has been separately prescribed vide SEBI Circular dated November 22, 2021. The circular was also made applicable to High Value Debt Listed Entities (‘HVDLEs’)[1] vide SEBI Circular dated January 7, 2022.

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FAQs on preferential issue of equity shares and convertible securities under SEBI ICDR

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Anushka Vohra, Manager | corplaw@vinodkothari.com

Table of Contents
Governing provisionsAllotment
Issuer and Allottee – eligibilityBoard’s approval
Conditions precedentShareholders’ approval
Relevant Date for determining the priceIn-principle approval
PricingListing approval
Lock-in requirementAnnexure-I
Consideration
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16 NBFCs identified as Upper Layer entities for bank-like compliances

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– Anita Baid, Vice-President, VKCPL | finserv@vinodkothari.com

In line with the guidance given in the Scale Based Regulatory Framework of the RBI[1], the new regulatory framework is effective from October 1, 2022. Just one day before D-day, the RBI on September 30, has kickstarted the new regulatory version for NBFCs by identifying 16 of the 9472 odd NBFCs[2], as NBFCs constituting the Upper Layer. These entities have been asked to migrate to a bank-like regulatory system. The first step upon this identification would be to put in place a Board approved policy for the adoption of the enhanced regulatory framework applicable to NBFC-UL. Further, these entities will prepare a glide path of compliance within three months, i.e. by December 30, 2022 and the glide path itself will have two years of adherence time, i.e. by September 30, 2024.

Our resources on the SBR Framework can be read here- https://vinodkothari.com/sbr/

In-house Training on SBR Framework for NBFC-ML/UL –
https://vinodkothari.com/2022/09/in-house-training-on-sbr-framework-for-nbfc-ml-ul/
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Stressed for reform: RBI proposes stressed assets securitisation and loss provisioning

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– Team Finserv (finserv@vinodkothari.com)

Rating agency Standard and Poor’s recently noted that at least 60 percent of the world’s economies are either into recession already or heading towards the same. The same report notes that 29 of the 33 countries covered by the study have disorderly inflation above the targets set by the respective central banks[1]. OECD’s interim report of September, 2022 says that despite a boost in activity as COVID-19 infections drop worldwide, global growth is projected to remain subdued in the second half of 2022, before slowing further in 2023 to an annual growth of just 2.2%. This is accompanied by inflationary pressures in most countries[2]. India is one of the two countries projected to have a growth rate of more than 6%.

The RBI’s monetary policy, September, 2022, as expected, has announced an interest rate hike of 50 bps in the policy rates.

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Maintenance of security cover for secured debt made transparent by SEBI

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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.

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In-house Training on SBR Framework for NBFC-ML/UL

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Resources on Scale Based Regulations

CSR Rules tweaked to rationalize committee constitution, implementing agencies etc

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– 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.

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Financial Leases getting a new lease of life?

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– Kanakprabha Jethani, Senior Manager | kanak@vinodkothari.com

Background

Leasing industry in India started and grew, as in several other countries, with financial leasing. However, over last several years, it seemed as if financial leases had lost their relevance, for reasons discussed below. While activity in the leasing space was not very brisk, but whatever activity was there was seen mostly in operating leases. Operating leases were sold on the strength of either off-balance sheet treatment, or with lower monthly rentals, or residual value management etc. In case of financial leases, on the other hand, there seemed very little motivation.

Some recent developments seem to be rekindling the interest in financial leases, and if the tax ruling by the ITAT Chennai either goes unchallenged or is affirmed on further appeal, there may be just a new lease of life for financial leases. Coupled with other benefits such as bankruptcy remoteness etc., there may be strong reasons for looking at financial leases, both by lessors and lessees.

In financial year 2021-22, the volume of financial leasing reached to around 7% of the total leasing volumes in the country, compared to 20% in the financial year 16-17[1]. Considering the legal and regulatory construct in India, the reducing volumes of financial leasing make complete sense. However, the recent rulings on taxation of leases may reverse the long known reasons for not doing financial leases.

In this article, the author discusses the reasons why financial leases do not appeal to lessors and lessees and how the recent developments on the taxation aspects of leasing may seem to be bringing financial leases back to life.

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Corporate climate change litigation: Increasing heat on boardrooms?

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– 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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