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Laundry List: SEBI’s proposal to elongate list of deemed UPSIs

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Critical Reg. 30 events assimilate into illustrative list of UPSI as SEBI strives for EoDB and easier compliance requirement

Refer Consultation Paper | Time to provide comments – by Nov 30

Vinita Nair | corplaw@vinodkothari.com

If your idea of price sensitive information, which companies have to guard as confidential until disclosed to investors, is something which may impact the stock prices, you will now have a long list of things which are purely operational or business-as-usual for listed companies, but still sitting in the long list of “deemed UPSIs” that a SEBI Consultation Paper seeks to insert, thereby making compliance officers do the drill of digital database entry to even trading window closure every time such an event occurs. And some such events seem like inconsequential for the stock prices and frequently occurring for companies.

Consider, for example, a debt-raising proposal by a financial entity—something that might be happening every now and then. Or consider an officer in the company hopping into a job at a new employer. The market will dismiss these organisational changes, but the compliance officer will not only have to keep close-to-chest the letter of resignation till it is made public and all the remaining UPSI compliances.

In our view, price sensitivity of an event has to do with the impact of the event on the company’s profitability, turnover, long-term or short-term prospects, shareholding base, etc. The identification of these events is done based on the materiality of the event to the business and business model. The more prescriptive the lists supplied by the lawmaker are, the more one takes away the sense of responsibility and accountability to the corporate team that flags corporate events as material. If the lawmakers flag them all, or flag a lot, the very seriousness of tagging an information as price sensitive is taken away. Last year, a related amendment made the list of “material event” disclosures under reg. 30 long enough, with over 20 items being in the list of “deemed material”. The present proposals go in the same direction of making the regulations more prescriptive.

Background:

  • Earlier, SEBI had proposed considering every material event as UPSI. Based on the feedback received for earlier CP citing concerns of significant increase in compliance management and potential perpetual closure of trading window, SEBI now proposes to include specific material events of Schedule III to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR’) as UPSI instead of all material events under Reg. 30 of LODR.
  • SEBI recently approved LODR amendments in Reg. 30 & Schedule III for EoDB (yet to be notified) and made Trading Plans flexible (effective November 1, 2024).

Deemed material events (Para A of Schedule III) added to the UPSI list:

  1. Credit ratings: Upward/ downward revision to be considered UPSI. [Clause 3]
  • New ratings for fresh issue of securities will get covered under ‘change in capital structure’ or ‘fund raising proposed to be undertaken’;
  • VKCo Comments: Rating revision need not necessarily result in security/ instrument going below investment grade or resulting in a breach of any covenant to be considered as UPSI. By virtue of the proposed amendment, revision from AAA to AA+ or from AA to AA (-) will also be considered as UPSI, as it will impact the cost of funds, investor’s perspective etc.
  1. Fundraising proposed to be undertaken. [Clause 4(d)]
  • VKCo Comments:Reg 29 covers intimation of fund raising by issue of securities, term loans are anyways excluded. While fundraising by way of issue of capital is deemed UPSI, every instance of debt issuance may not necessarily be UPSI.  
  1. Agreements impacting management and control of the company. [Clause 5]
  • Where the company has knowledge about the agreement. 
  1. Fraud or defaults by a listed entity, its promoter, director, KMP, SMP, or subsidiary or arrest of KMP, SMP, promoter or director of the listed entity, whether occurred within India or abroad [Clause 6]
  • As explained in LODR, default by a promoter, director, key managerial personnel, senior management, subsidiary shall mean default which has or may have an impact on the listed entity.
  1. Change in KMP, other than due to superannuation or end of term. [Clause 7]
  • VKCo Comments:MD/WTD/CEO not proposed to be re-appointed may be potential UPSI. Further, resignation of CFO or CS for better prospects, while may result in a change, may not be in the nature of UPSI. Resignations citing governance issues should be considered as UPSI. 
  1. Resignation of the Statutory Auditor or Secretarial Auditor of the listed entity. [Clause 7A]
  • VKCo Comments: Resignation on account of corporate governance concerns, may be considered as UPSI. Every instance of resignation need not be UPSI.
  1. Resolution plan/ Restructuring/one-time settlement in relation to loans/borrowings from banks/financial institutions. [Clause 9]
  1. Admission of winding-up petition filed by any party / creditors, admission of application by the corporate applicant or financial creditors for initiation of CIRP of a listed corporate debtor and its approval or rejection thereof under the Insolvency Code. [Clause 11]
  1. Initiation of forensic audit (by whatever name called) by company or any other entity for detecting mis-statement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report. [Clause 17]
  1. Action(s) initiated or orders passed by any regulatory, statutory, enforcement authority or judicial body against the listed entity or its directors, KMP, SMP, promoter or subsidiary, in relation to the listed entity. [Clause 19]
  • VKCo Comments:Intent is to include matters covered in Clause 19 and 20 of Para A. Clause 19 items viz. search or seizure, re-opening of accounts, investigation may be in the nature of UPSI, but each of clause 20 items may not be UPSI. Actions like suspension, disqualification, debarment or closure of operations may be in the nature of UPSI. However, in case of fines & penalties, SEBI had proposed to impose monetary limits for disclosure of fine or penalty under clause 20 – Rs. 1 lakh for fine/ penalty imposed by sector regulators/ enforcement agencies and  Rs.  10  lakhs for other authorities. Lower amount thresholds to be disclosed on a quarterly basis as part of the Integrated Filing  (Governance). While imposition of penalty or fine by sector regulators/ enforcement agencies reflect on the state of governance/ functioning of the entity, every instance of levy of fine or penalty may not be UPSI. 

Determined material events (Para B of Schedule III) added to UPSI list

  1. Award or  termination  of  order/contracts  not  in  the  normal course of business [Clause 4]
  2. Outcome of any litigation(s)/dispute(s) which may have an impact on the listed entity [Clause 8]
  3. Giving of guarantees or indemnity or becoming a surety, by whatever name called, for any third party [Clause 11]
  4. Granting, withdrawal, surrender, cancellation or suspension of key licences or regulatory approvals. [Clause 12]

VKCo Comments: In our view, each of the events that is determined to be material by the listed entity are in the nature of UPSI. The clauses not expressly covered above viz. product launch, capacity addition, strategic tie-up, loan agreements not in the normal course of business etc can be in the nature of UPSI.

Actionable arising on UPSI identification under PIT Regulations

  • Closure of trading window for DPs in possession of UPSI;
  • Recording of sharing of such UPSI, internally or externally, for legitimate purpose in the Structured Digital Database;
  • Preserving the confidentiality of UPSI and ensuring making it generally available in accordance with the Code of Fair Disclosure.

Conclusion

While the present proposal of indicating specific material events is better than the earlier proposal, law cannot prescribe an exhaustive list of UPSI events as it will differ from entity to entity. Given the diverse items of information that may be material, it will be impossible to have a closed list of all; therefore, the list of potential UPSI items (UPSI Library) needs to be formulated by every listed entity which is (a) Dynamic – it will have to be populated regularly, based on a feedback system and (b) Granular – the more granular the items are, easier it will be assign the first point of responsibility and to minimise the nodes or the stop-overs that information travels, from its first source of recognition to the ultimate centre. 

Refer to our related resources below:

  1. Prohibition of Insider Trading – Resource Centre
  2. Will Insiders Tread Trading Plan 2.0?
  3. SEBI widens the definition of ‘Connected Persons’ for facilitating enhanced enforcement against insider trading
  4. Mutual Fund units now under the net of insider trading regulations

Will Insiders Tread Trading Plan 2.0?

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Insider Trading Regulations amended in line with Consultation Paper

Heta Mehta | Executive | corplaw@vinodkothari.com

The concept of Trading Plan (‘TP’) that existed since May 2015 continued to remain unpopular due to the stringent conditions laid down in the Insider Trading Regulations. The framework was set to be reviewed based on empirical evidence and feedback post introduction and determine if SEBI needs to dilute or increase the regulatory requirement. In order to make it more realistic and captivating, SEBI’s Working Group suggested reforms vide Consultation Paper dated 24th November, 2023[1] that was approved by SEBI in its board meeting held on  March 15, 2024. SEBI (Prohibition of Insider Trading) (Second Amendment) Regulations, 2024 notified on June 25, 2024 will be effective from September 24, 2024. As a concept, it is not unique to India, globally, both the US and UK have similar TP concepts with some or the other variations when compared to our legislation. This article discusses the amendments, including the rationale provided in the CP, relevant points discussed in the SEBI Board meeting and our analysis on the same.

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SEBI Consultation Paper (CP) to ease trading plans by company insiders

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Sanya Agrawal | corplaw@vinodkothari.com

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Our detailed article on the topic can be read here

Link to our PIT resource centre: https://vinodkothari.com/prohibition-of-insider-trading-resource-centre/

SEBI proposals to ease trading plans by company insiders

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-Consultation paper proposes to rationalise the existing framework under insider trading

Anushka Vohra | Senior Manager

corplaw@vinodkothari.com

Background

The concept of trading plan was introduced for the first time in the SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’). The rationale for introducing the same, as indicated in the Report of the High Level Committee constituted for the purpose of reviewing the erstwhile 1992 Regulations, chaired by Mr. N.K. Sodhi, was  that there may be certain persons in a company who may perpetually be in possession of UPSI, which would render them incapable of trading in securities throughout the year. The concept of trading plan would enable compliant trading by insiders without compromising the prohibitions imposed in the PIT Regulations. 

Trading plan means a plan framed by an insider (and not just a designated person) for trades to be executed at a future date. Trading plan is particularly suitable for those persons within the organization, who may by way of their position, seniority or any other reason, be in possession of UPSI at all times. Since, the PIT Regulations prohibit trading when in possession of UPSI, trading plans are an exemption to such prohibition.  In order to ensure that the insiders while formulating the trading plan do not have possession to UPSI, cooling-off period of 6 months has been prescribed in the PIT Regulations. As per Reg. 5(1) of the PIT Regulations, the trading plan has to be presented before the compliance officer of the company for approval. As per sub-regulation (3), the compliance officer has to review the trading plan and assess for any violation of the PIT Regulations. If at the time of formulation of trading plan, there was no UPSI or later on a new UPSI was generated, then the trading can be carried out as per the trading plan, even if the new UPSI has not been made generally available.

When the trades are executed as per trading plan, certain provisions of the PIT Regulations are exempted viz. trading window restrictions, pre-clearance of trades and contra trade restrictions.

SEBI has issued a Consultation Paper on November 24, 2023 for inviting public comments on the recommendations of the Working Group (‘Report’) to review provisions related to trading plans.

This article discusses the proposed amendments to the framework of the trading plan as mentioned in the Consultation Paper.

Challenges in the present framework

The Report discusses that during the last 5 years only 30 trading plans have been submitted annually by the insiders, which indicates that the trading plans are not very popular. 

The year wise data on trading plans as mentioned in the Report is given below:

The data w.r.t. number of listed companies and DPs during FY 2022-23 is also given below:

The above clearly shows that during FY 2022-23, the number of designated persons among the listed companies was around 2,56,878 and there were only infinitesimal trading plan received by the exchange(s). 

Further, the five features of the trading plan as highlighted in the Report are as under:

(i) can be executed only after 6 (six) months from its public disclosure; 

(ii) are required to cover a period of at least 12 (twelve) months; 

(iii) must be disclosed to the stock exchanges prior to its implementation (i.e., actual trading); 

(iv) are irrevocable; and 

(v) cannot be deviated from, once publicly disclosed.

As evident from above, while the concept has been into existence since 2015, trading plans have not been very popular owing to certain restrictive conditions viz. mandatory execution of the same even if the market prices are unfavorable for an insider, inability to trade for a reasonable period around the declaration of financial results and mandatory cooling off period of 6 months etc.

Proposed amendments

  1. Cooling-off period

Cooling-off period means gap between the formulation and public disclosure of the plan  and actual execution of the plan. Reg. 5(2) of the PIT Regulations presently provides a cooling-off period for 6 months as the  period of 6 months was considered reasonable for the UPSI that may be in the possession of the insider while formulating the trading plan to become generally available or any new UPSI to come into existence.

This period is proposed to be reduced to 4 months. The Report states that as per the current requirement, the insiders have to plan their trade 6 months ahead which may not be favorable, considering the volatility in the markets. It was proposed to either reduce the period or to do away with it. 

The Report classifies UPSI into two types; short-term UPSI and long-term UPSI to ascertain the time within which the UPSI is expected to become generally available.

The Report further highlights that in case of short-term UPSI, a period of 4 months would be sufficiently long for it to become generally available. 

In case of long-term UPSI, the Report refers back to proviso to Reg. 5(4) according to which the insider cannot execute the trading plan if the UPSI does not become generally available. 

The Report also gives reference to the cooling-off period for trading plans in the US, where SEC introduced the cooling-off period only in December 2022.

  1. Minimum coverage period

Reg.5(2)(iii) states that a trading plan shall entail trading for not less than 12 months. A period of 12 months was specified to avoid frequent announcements of trading plans. This again provides a very long period for insider to execute their trading. This period is proposed to be reduced to 2 months.

  1. Black-out period

As per Reg 5(2)(ii), trading plan cannot entail trades for the period between the twentieth trading day prior to the last day of any financial period for which results are required to be announced by the issuer of the securities and the second trading day after the disclosure of such financial results. This period is known as the black-out period. 

The Report states that this period forms a significant part of the year, considering 4 quarters and hence it is proposed to omit the same.

The Report also discusses the potential concerns that may arise on removing the black-out period. The Working Group noted that the same is addressed by the cooling-off period and non alteration of plan once approved and disclosed.

  1. Price limit

As per Reg. 5(2)(v) of the PIT Regulations, the insider can set out either the value of trades to be effected and the number of securities to be traded along with the nature of the trade, intervals at, or dates on which such trades shall be effected.

The Working Group noted that there was no price limit that the insider could mention. The Report recommends a price limit of 20%, up or down of the closing price on the date of submission of the trading plan. 

  1. Irrevocability

As per Reg. 5(4), the trading plan once approved shall be irrevocable and the insider will have to mandatorily implement the plan without any deviation from it. This puts the insider in a disadvantageous position as he has to execute the trades (buy / sell) even when the price is not favorable.

As per the proposed amendment, where the price of the security is outside the price limit set by the insider, the trade shall not be executed. The plan will be irrevocable only where no price limit is opted for.

  1. Exemption from contra-trade restrictions

As per Reg. 5(3) of the PIT Regulations, restrictions on contra trade are not applicable on trades carried out in accordance with an approved trading plan. 

The Working Group deliberated that it is difficult to envisage a reasonable and genuine need for any insider to plan two opposite trades with a gap of less than 6 months. The Report states that the insider may misuse the exemption for undertaking a contra position. Therefore, the exemption is proposed to be omitted. 

  1. Disclosure of trading plan: timeline & content

As per Reg. 5(5), upon approval of the trading plan, the compliance officer has to notify the plan to the stock exchange(s). However, presently there is no specific timeline indicated. The Working Group recommends disclosure within 2 trading days of the approval of the plan. Further, it recommends disclosure of the price limit as well.

While the format of the trading plan will be rolled out basis discussion with the market participants, the Consultation Paper, basis the recommendations of the Working Group on protecting the privacy of the insiders by masking the personal details, discussed three alternatives of disclosure, as under:

It was discussed that disclosing personal details of the insiders publicly may raise privacy and safety concerns for senior management and insiders and not disclosing personal details to the stock exchange(s) would lead to misuse / abuse of trading plans by other insiders. That is, a trading plan submitted by one person may instead be used by someone else.

Having discussed the above, the Consultation Paper suggests alternative 3 i.e. making two separate disclosures of the trading plan; (i) full (confidential) disclosure to the stock exchange and (ii) disclosure without personal details to the public through stock exchange. Further, these separate disclosures may have a unique identifier for reconciliation purposes.

Concluding remarks

The proposed amendments indicate a welcome change as it attempts to plug the gaps prevalent in the erstwhile framework and offers flexibility to the insiders. At the same time, the Compliance officer will have to remain mindful of any scope for potential abuse by the insiders, while approving the same.One will have to await the actual amendment, basis the receipt of public comments, to ascertain if trading plans are all set to become popular and more frequent.

Our resources on the topic:

  1. SEBI Consultation Paper (CP) to ease trading plans by company insiders

Link to our PIT resource centre: https://vinodkothari.com/prohibition-of-insider-trading-resource-centre/

Contra trade restrictions – traversing out of PAN to common control

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Anushka Vohra | Senior Manager

corplaw@vinodkothari.com

Introduction

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) impose certain restrictions and obligations on the DPs, one of which is contra trade restriction.

The DPs and their immediate relatives are restricted from entering into contra trade which refers to opposite trades executed viz. buy / sale within a shorter period of time usually within a period of 6 months with an intent to book short term profits. Where contra – trade is executed in violation of the restriction, the profit earned is to be disgorged for remittance to the IPEF.

In case of an individual DP (promoters / directors / etc. as recognized by the listed company), the immediate relatives also have certain obligations under the Regulations as their trades may be said to be influenced by the DPs. Similarly, in case of non-individual DPs (promoters), there may be other promoters and persons belonging to the promoter group who may act in concert with a particular non-individual promoter.

Having said that, it is important to understand the intent of contra trade, whether the same would apply individually on DPs based on trades executed against their PAN or the same would apply jointly on DPs and their immediate relatives or the entire promoter group inter-se. The same has been a matter of discussion in various Informal Guidance (‘IG’) of SEBI. We discuss the same briefly along with other illustrations.

Informal Guidance

Generally, the concept of Persons Acting in Concert (‘PACs’) is used in the Takeover Code and under the PIT Regulations, the perspective so far has been PAN based. In the recent IG in the matter of Deccan Gold Mines Ltd[1], SEBI in its interpretative letter has given the view that contra trade restrictions would apply on the promoter group jointly, given the case in hand. The facts of the case have been represented diagrammatically below.

We see that the listed company is being held by two corporate promoters, which in turn are held by common shareholders. Here, RMML intended to sell its shareholding in open-market within 6  months of the allotment made to AIRL.

Since there is common control in both the promoter entities, it was stated that contra-trade restriction would apply jointly on both.

Intent of contra-trade

The intent of contra trade, as also mentioned above is to ensure that the persons who are privy to UPSI do not make short term profits in the securities of the listed company. For instance, if a DP has bought a security of the listed company in anticipation of a rise in prices that might be caused by the UPSI, such DP cannot sell such security within 6 months of the purchase. While trades can be executed by different DPs having different PAN, however where a single person is the “driving force” (as cited by the SAT in Shubhkam Ventures (I) Private Limited v. SEBI[2], it cannot be said that the persons acted in their individual capacity.

There have been instances in the past where SEBI has given the view that contra trade restrictions apply individually on DPs. The view seems to be supported by the interpretation of clause 10 of Schedule B of the Regulations, which states that:

The code of conduct shall specify the period, which in any event shall not be less than six months, within which a designated person who is permitted to trade shall not execute a contra trade. XXX

Previously, in 2020, in the matter of Raghav Commercial Ltd[3], SEBI in its interpretative letter took the view that the contra trade restrictions apply to trades made by promoters individually and not the entire promoter group.

Taking the case of individual DPs, in the matter of Star Cement Limited[4], while answering the question on applicability of contra trade restrictions – whether individually or to the entire promoter group, SEBI cited the above clause 10 stating that the same applies individually.

Reference of the above case was taken in 2019 in the matter of Arvind Limited[5], where contra trade restrictions were said to apply individually on DP through PAN, disregarding who took the trading decision. Our detailed article on the same can be read here.

The current case makes it quite clear that the facts of the case have to be considered to analyze whether there is a single person taking trading decision.

Let us take several other examples to understand the intent of contra trade.

1.

Whether Leg 2 will be contra to Leg1? Here we see that significant stake i.e. 50% is being held by Partner A (promoter of X Ltd) in the LLP. The trades of LLP can be said to be influenced by the decision of Partner A. This can be a case of common control and therefore Leg 2 becomes contra to Leg 1.

2.

In this case, we will have to see who is behind A Ltd and B Ltd. If both A Ltd and B Ltd are held by the same set of shareholders, Leg 2 would become contra to Leg 1.

Further, there are certain exemptions w.r.t. contra-trade restrictions that have been prescribed in the PIT Regulations and also in SEBI FAQs.

As per PIT Regulations, contra trade shall not apply for trades pursuant to exercise of stock options. SEBI Faqs further elaborate on the same stating that, in respect of ESOPs, subscribing, exercising and subsequent sale of shares, so acquired by exercising ESOPs (hereinafter “ESOP shares”), shall not attract contra trade restrictions.

Further trades pursuant to any non- market transaction is exempted (SEBI Faqs).

The rationale behind exemption is that for stock options and non-market transactions, the exercise price / purchase price is predetermined. The selling transaction pursuant to exercise of stock options or pursuant to acquisition of shares in non-open market is not influenced by purchases made basis some UPSI. The exercise price / acquisition price is already decided by the company.

Let us understand another example.

3.

In the above case, it is evident that A is the decision maker for A Pvt Ltd. Here, Leg 2 is not contra to Leg 1.Leg 4 is contra to Leg 3 as there is no exemption provided.

Often, it is also interpreted that contra-trade is applicable share wise. To take an example, suppose; first –  stock options are acquired by a DP, second – open market purchase is done, third – stock options are sold (all three within a period of 6 months). Here, it is interpreted that third would not be contra to first and second. This is a wrong interpretation, as the moment the DP makes any open market purchase or already has the company’s shares in portfolio, the immunity w.r.t. selling shares acquired pursuant to exercise of stock options is lost. One cannot differentiate between the shares as what is important to establish for contra-trade is the intention to make short term profits. Such intention, also, is evident when trading decisions are made by a single person, irrespective of the different individuals executing trades.

Global scenario

Contra-trade is understood by different names in other jurisdictions. It is referred to as short swing in the US and reversal trade in some jurisdictions.

  1. United States – Securities Exchange Commission Act, 1934[6]

Section 16(b) deals with prohibition on short-swing trades by beneficial owner, director, or officer of the companies. The section reads as under:

“For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner[7], director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) or a security-based swap agreement involving any such equity security within any period of less than six months, unless such security or security-based swap agreement was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security or security based swap agreement purchased or of not repurchasing the security or security-based swap agreement sold for a period exceeding six months.XXX”

  1. China – Securities Law of the People’s Republic of China[8]

Article 41 and 42 deals with contra trade restrictions. It reads as under:

Article 41 A shareholder that holds five percent of the shares issued by a company limited by shares shall, within three days from the date on which the number of shares held by him reaches this percentage, report the same to the company, which shall, within three days from the date on which it receives the report, report the same to the securities regulatory authority under the State Council. If the company is a listed company, it shall report the matter to the stock exchange at the same time.

Article 42 If the shareholder described in the preceding article sells, within six months of purchase, the shares he holds of the said company or repurchases the shares within six months after selling the same, the earnings so obtained by the shareholder shall belong to the company and be recovered by the board of directors of the company. However, a securities company that has a shareholding of not less than five percent due to purchase of the remaining shares in the capacity of a company that underwrites as the sole agent shall not be subject to the restriction of six months when selling the said shares.

If the company’s board of directors fails to comply with the provisions of the preceding paragraph, the other shareholders shall have the right to require the board of directors to comply.

If the company’s board of directors fails to comply with the provisions of the first paragraph and thereby causes losses to the company, the directors responsible therefore shall bear joint and several liabilities for the losses.

Concluding remarks

We had earlier in our article (supra) given the view that contra-trade should be seen jointly and not individually, considering the intent. To establish violation of PIT Regulations, one has to go beyond tracking trades based on PAN. It is important to know the decision maker behind the trades, in order to establish a clear nexus. It would be important to see whether such a view was taken by SEBI because of the case in hand or is it reflective of a new trend i.e. position of common control.

Link to our PIT Resource centre: Click here

[1] https://www.sebi.gov.in/enforcement/informal-guidance/oct-2023/in-the-matter-of-rama-mines-mauritius-ltd-under-sebi-prohibition-of-insider-trading-regulations-2015_78308.html

[2] https://www.sebi.gov.in/satorders/subhkamventures.pdf

[3] https://www.sebi.gov.in/sebi_data/commondocs/sep-2020/SEBI%20let%20Raghav%20IG_p.pdf

[4] https://www.sebi.gov.in/sebi_data/commondocs/jul-2018/StarCementGuidanceletter_p.pdf

[5] https://www.sebi.gov.in/sebi_data/commondocs/nov-2019/Inf%20Gui%20letter%20by%20SEBI%20Arvind_p.pdf

[6] https://www.govinfo.gov/content/pkg/COMPS-1885/pdf/COMPS-1885.pdf

[7] Every person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security (other than exempted security) [Ref. 16(a)(1)]

[8] http://www.npc.gov.cn/zgrdw/englishnpc/Law/2007-12/11/content_1383569.htm#:~:text=Article%201%20This%20Law%20is,of%20the%20socialist%20market%20economy.

Recent regulatory developments for listed entities – critical changes under LODR and PIT Regulations

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

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Register here: https://forms.gle/dmzuWFjxp8sL3VR4A
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Our LODR Resource Centre can be accessed here
Our PIT Resource Centre can be accessed here

The triumphs and tribulations of being a promoter in listed entities

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– Team Corplaw | corplaw@vinodkothari.com

Introduction

The classic rule of Solomon, that the shareholders are different and the company that they promote is different, and that the liabilities of the company cannot be passed over to the shareholders, seems to be getting constantly indented, particularly as courts and regulators realize that companies are inanimate; it is the controlling heads who actually run companies. Therefore, if there is a vice in the schematics of a company, it must rope in the promoters too. Securities regulator, and our own SEBI too, has been fastening several obligations of listed entities on the promoters, including the recent ‘Consultation paper on strengthening corporate governance at listed entities by empowering shareholders’ proposal to block the personal shareholdings of the promoters for continued lapses by the listed entity.

There are several other implications of being a promoter or promoter group entity, transactions by such entities with the listed entity are mandatorily treated as related party transactions, public disclosures on sale of shares. There are several sections of the Companies Act, 2013 (“Act”) as well, which impose liabilities, including criminal liabilities, on promoters. Some of these provisions are section 7 (imposing criminal liability for incorporation related offenses), of the Act, if it is found that the company has been incorporated by furnishing any false information or representation or by suppression of any material information, the promoters would be held liable for action under section 447. Further, section 34 elaborates that if any statement in the prospectus is untrue or misleading, the promoter will be held criminally liable under Section 447. On the same lines, section 35 (imposing civil liability for public issue related mis-statements), section 42 (imposing penalty for contravening the provisions w.r.t private placement including default in filing of return of allotment), section 102 (imposing penalty for non-disclosure / wrongful disclosure in the explanatory statement), 284 (liability with respect to non-cooperation with liquidator) to list a few.

This article focuses on who is a promoter/promoter group entity (PGE), what are the implications of being either, how does one get out of the classification, having been into either, both in case of listed and unlisted companies.

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Mutual Fund units now under the net of insider trading regulations

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Effective November 1, 2024; numerous actionable for Asset Management Companies

Vinita Nair | Senior Partner, Vinod Kothari & Company

Updated as on October 23, 2024

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Refer to our related resources below:

  1. DPs to furnish periodic & continual disclosures for units of its own mutual fund to AMC
  2. FAQs on Insider Trading Framework for Mutual Funds
  3. Prohibition of Insider Trading – Resource Centre