Tag Archive for: intermediaries

– Easing ESOPs for IPO-bound companies, relaxations to SEBI regd. intermediaries, providing clarity for uniformity of practices  

– Team Corplaw | corplaw@vinodkothari.com

Various proposals have been approved by SEBI in its Board meeting dated June 18, 2025, pertaining to various relevant regulations. The approved changes may impact various market participants – listed entities as well as IPO-bound companies, SEBI registered intermediaries and regulated entities such as REITs, Invits, AIFs, FPIs, etc. We briefly discuss some of the important proposals as approved by SEBI. 

Relief for promoters in IPO-bound companies: easing rules on ESOPs and offer for sale 

• Relaxation in eligibility norms with respect to Offer for Sale (OFS) in IPO (see Consultation Paper here)
  • Exemption from minimum holding period of 1 year extended to equity shares arising from conversion of Compulsory Convertible Securities (CCS), where such CCS were acquired pursuant to an approved scheme (earlier limited to equity shares) to assist in reverse flipping (i.e. shifting the country of incorporation from a foreign jurisdiction to India) [Reg 8 & 105 of ICDR Regulations].

• Enabling Minimum Promoter Contribution (MPC) by Relevant Persons (apart from promoter) through equity shares arising from conversion of fully paid-up CCS  
  • Relevant Persons comprise of AIFs, FVCIs, Scheduled Commercial Banks, PFIs, insurance cos etc.

• Founders-turned-promoters can retain share based benefits, ESOPs granted 1 year prior to filing of DRHP (see Consultation Paper here)
  • Brings relaxation for treatment of options granted prior to becoming a promoter, which was otherwise required to be liquidated

Dematerialisation of shares: pre-IPO and post-listing requirements 

• Mandatory dematerialization of securities held by critical pre-IPO shareholders before filing of DRHP (see Consultation Paper here):
  • Following categories covered:
    • Promoter Group
    • KMPs
    • Directors
    • Employees
    • Selling Shareholders
    • QIBs
    • Senior Management
    • Financial sector entities 
  • To reduce volume of physical shares 
  • CA, 2013 also requires mandatory dematerialisation of holding of promoters, directors and KMP of companies prior to undertaking any share based corporate action [Rule 9A and 9B of Companies (Prospectus and Allotment of Securities) Rules]
• Corporate actions by listed entities in dematerialised form only
  • For shares to be issued pursuant to consolidation/split of face value of  securities  and  scheme  of  arrangements
    • CA, 2013 already requires companies to issue shares in dematerialised form only

Fund raising mandatory for social enterprises registered with SSE, relaxations in eligibility conditions for registration 

• Mandatory fund raising through SSE 
  • Registration to lapse if social enterprise registered with SSE does not raise funds within 2 years from registration
• Definition of “Not for Profit Organization” expanded [Reg 292A(e) of ICDR]
  • Trusts registered under Indian Registration Act, 1908 permitted (extant regulations refer to Indian Trusts Act, 1882 and a trust registered under the public trust statute of the relevant state) 
  • Charitable society registered under relevant state Act (extant regulations covered only society registered under the Societies Registration Act, 1860)
  • Companies registered under Section 25 of the erstwhile Companies Act, 1956 (clarity provided since extant regulation refers to section 8 of 2013 Act) 
• List of eligible activities expanded to align with Schedule VII of the Act, 2013 (pertaining to CSR activities)
• Criteria of 67% of total activities reflecting in eligible activities (through revenues, expenditure or total customer base) relaxed
  • To be applicable only to “for profit social enterprises” 
• Annual disclosures bifurcated into financial and non-financial disclosures
  • Different timelines to be prescribed for such disclosures 
  • CP prescribes the extant 60 days’ period for non-financial disclosures, and upto 31st October after end of FY for financial disclosures 
• Self-reporting of Annual Impact Report instead of certification from Social Impact Assessor
  • For social enterprise that has not raised funds through the SSE 
• Change in nomenclature of “Social Impact Assessment Firm” to “Social Impact Assessment Organization”(SIAO) and eligibility conditions for the SIAO prescribed 
  • SIAO to is permitted to conduct social impact assessment provided they have at least two social impact assessors in full time employment 
  • Having an and such impact assessors have experience of at least 3 years of conducting social impact assessment.
  • Social impact assessor to sign the report if SIAO does not have 3 years’ track record 

Revamping of regulatory framework for Angel Funds under AIF Regulations 

[refer SEBI consultation paper dated November 13, 2024 and February 21, 2025]

• Mandatory registration of Angel Investors as Accredited Investors(AI)  
  • Attracts independent verification of investor status
    • Recent CP dated June 17, 2025 proposes certain flexibilities under the accreditation framework.
  • Grandfathering of earlier investments as non AI, and implementation through glide path 
• Accredited Investors included as Qualified Institutional Buyer in ICDR for investments in Angel Funds.
• Relaxation in investment norms by angel funds in investee company 
  • Floor and cap relaxed from Rs. 25 lacs to Rs. 10 lacs, and from Rs. 10 crores to Rs. 25 crores respectively 
  • Concentration limits of 25% per investee company removed.
  • Follow on investments permitted in investee company, though may no longer be start-up
• Scheme may now have more than 200 AIs
• Minimum continuing interest of Sponsor/ Manager at investment level instead of Fund level
  • higher of 0.5% of investment amount or Rs. 50,000
  • Earlier the commitment was required to be maintained at a fund level only

SEBI regulated entities enabled to carry out activities not regulated by SEBI

• Merchant Bankers and Debenture Trustees have been permitted to carry out activities not regulated by SEBI within the same legal entity subject to following conditions:
  • DT may undertake activity within the purview of any other financial sector regulator (FSR), subject to compliance with the regulatory framework specified by such regulator 
  • For activities not within the purview of SEBI or other FSR, the same shall  be  fee-based and non-fund-based activity and pertain to FSR
    • Had been previously required to hive off such activities pursuant to SEBI Board Meeting decision in December, 2024
• Custodians permitted to carry out other financial services under  the regulatory oversight  of  other  financial sector regulators within  the  same  legal  entity
• subject  to  having  adequate  mechanisms  to  address  issues  of conflicts of interest
• Non-bank associated custodians offering services which are not overseen by any financial sector regulator to : 

• Disclose clearly that such activities are outside the purview of, and without  recourse  to  SEBI
• Set up distinct strategic business units (SBUs) for undertaking activities not under the purview of SEBI with adequate mechanisms to address issues of conflicts of interest

Clarity of responsibilities and uniformity measures for DTs

• Specifying rights of DT and corresponding obligations on issuer under LODR
  • To enable DT in enforcing its rights 
• Enabling provisions for providing format for model debenture trust deed (DTD) [Refer Annexure-1 of Consultation paper dated Nov 04, 2024 for the model DTD as proposed by SEBI]  
• Modification in manner of utilization of Recovery Expense Fund (REF) (see an article on REF here)
  • Elaboration of list of expenses for which REF can be utilised
  • To provide ease to DTs to take prompt action upon default by listed entity   

Relaxations in regulatory norms for REITs and InvITs [see consultation paper dated May 02, 2025]

• Definition of ‘public’ under REITs / InvITs to be amended to include related  parties  of  the sponsor,  investment  manager/manager  and  project  manager to qualify as public if such related parties are Qualified Institutional Buyers
  • Relevant for determination of minimum public holding 
  • Related party of REIT/ InvIT viz. sponsor, sponsor group, investment manager, project manager are not regarded as ‘public’
• Adjustment of negative net distributable cash flows generated by the Holdco against  cash received from the SPVs
  • Net cash flow post adjustment to be distributed to unitholders

• Alignment of timelines of submission of various reports including quarterly reports, valuation reports with the timelines for submission of financial results.
• Reduction of minimum allotment lot for privately placed InVITs to INR 25 lacs from INR 1 crore to align with the trading lot in secondary market.

Read more:

SEBI’s stringent norms for secured debentures

No shares, no say, yet a promoter: How marital ties create fictional “promoter groups”
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