Suspension of initiation of corporate insolvency process under the Insolvency and Bankruptcy Code
On 5 June 2020, the Ministry of Law and Justice issued the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 in order to amend the Insolvency and Bankruptcy Code, 2016. Pursuant to this, section 10A has been inserted vide this Ordinance in terms of which no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed for any default arising on or after 25 March 2020, for a period of 6 months or such further period, not exceeding 1 year from such date, as may be notified on this behalf.
Framework for Regulatory Sandbox
On 5 June 2020, the Securities and Exchange Board of India (“SEBI”) introduced a framework for “Regulatory Sandbox”. Under this sandbox framework, entities regulated by SEBI shall be granted certain facilities and flexibilities to experiment with financial technologies (“FinTech“) solutions in a live environment and on limited set of real customers for a limited time frame. These features shall be fortified with necessary safeguards for investor protection and risk mitigation
SEBI believes that encouraging adoption and usage of FinTech can act as an instrument to further develop and maintain an efficient, fair and transparent securities market ecosystem. Towards this end, SEBI on 20 May 2019, stipulated a framework for an industry-wide Innovation Sandbox, whereby FinTech startups and entities not regulated by SEBI were permitted to use the Innovation Sandbox for offline testing of their proposed solution.
The framework for “Regulatory Sandbox” as issued by SEBI provides for the following aspects:
- Eligibility criteria for the project,
- Application and approval process,
- Evaluation criteria,
- Regulatory exemptions,
- Submission of test related information and reports,
- Obligations of the applicant towards the user,
- Extending or exiting the Sandbox,
- Revocation of the approval, and
- Regulatory Sandbox Application Form
Relaxations from certain provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 in respect of Further Public Offer
On 9 June 2020, SEBI, in the wake of developments relating to the COVID-19 pandemic, introduced temporary relaxation in eligibility conditions related to Fast Track Rights Issue on 21 April 2020. In continuation, SEBI has decided to provide similar relaxations in the eligibility conditions related to Fast Track Further Public Offer (FPO) as contained in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations“) as follows:
- Certain requirements related to filing of the draft offer document and offer documents shall not apply if the issuer satisfies the conditions mentioned under Regulation 155 of ICDR Regulations for making a further public offer through the fast track route.
- Further, in light of the COVID-19
pandemic, certain temporary relaxations with respect to Regulation
155 of ICDR Regulations are extended for FPO's that open on or
before 31 March 2021, which are as follows:
- average market capitalisation of public shareholding of the issuer is at least five hundred crore rupees in case of public issue,
- average market capitalisation of
public shareholding of the issuer is at least five hundred crore
rupees in case of public issue,
- a show cause notice(s) has been issued by the Board in an adjudication proceeding or,
- prosecution proceedings have been initiated by the Board, necessary disclosures in respect of such action(s) along-with its potential adverse impact on the issuer shall be made in the offer documents.
- the issuer or promoter or promoter group or director of the issuer has fulfilled the settlement terms or adhered to directions of the settlement order(s) in cases where it has settled any alleged violation of securities laws through the consent or settlement mechanism with the Board.
- impact of audit qualifications, if any and where quantifiable, on the audited accounts of the issuer in respect of those financial years for which such accounts are disclosed, shall be appropriately disclosed and accounts accordingly restated, in the offer documents. Further, that for the qualifications wherein impact on the financials cannot be ascertained the same shall be disclosed appropriately in the offer documents.
Investment by the sponsor or asset management company in the scheme
In terms of the SEBI (Mutual Funds) (Amendment) Regulations, 2020, the sponsor or asset management company is required to invest not less than 1% of the amount which would be raised in the new fund offer or fifty lakh rupees, whichever is less in such option of the scheme, as may be specified by the Board.
In this regard, on 12 June 2020, SEBI decided that the above referred investment shall be made in growth option of the scheme. For such schemes where growth option is not available the investment shall be made in the dividend reinvestment option of the scheme. Further, for such schemes where growth option as well as dividend reinvestment options, are not available the investment shall be made in the dividend option of the scheme. This Circular shall come into force with immediate effect.
Clarifications on Disclosure Standards for Alternative Investment Funds (AIFs)
On 12 June 2020, SEBI issued the following clarifications / amendments on the disclosure standards for AIFs:
- Audit of compliance with terms of the private placement memorandum (PPM) shall be conducted at the end of each Financial Year and the findings of audit along with corrective steps, if any, shall be communicated to the Trustee or Board or Designated Partners of the AIF, Board of the Manager and SEBI, within 6 months from the end of the Financial Year.
- The requirement of audit of compliance with terms of the PPM shall not apply to AIFs which have not raised any funds from their However, such AIFs shall submit a certificate from a Chartered Accountant to the effect that no funds have been raised, within 6 months from the end of the Financial Year.
- For the Financial Year 2019-20, the above requirements shall be fulfilled on or before 31 December 2020.
- Any association of AIFs, which in terms of membership, represents at least 33% of the number of AIFs, may notify one or more Benchmarking Agencies, with whom each AIF shall enter into an agreement for carrying out the benchmarking process.
- In light of market events due to the COVID-19 pandemic, the timeline for making available the first industry benchmark and AIF level performance versus Benchmark Reports, is extended till 1 October 2020.
Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2020
On 15 June 2020, the Reserve Bank of India (“RBI”) issued the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2020 thereby amending certain provisions of the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019. The amendments which come into effect from 15 June 2020 are as follows:
- In Schedule II (Investments by
Foreign Portfolio Investors) - The amount of consideration shall be
paid as inward remittance from abroad through banking channels or
out of funds held in a foreign currency account and/ or a Special
Non-Resident Rupee (SNRR) account maintained in accordance with the
Foreign Exchange Management (Deposit) Regulations, 2016. Further,
unless otherwise specified, the foreign currency account and SNRR
account shall be used only and exclusively for transactions under
Additionally, the sale proceeds (net of taxes) of equity instruments and units of REITs, InViTs and domestic mutual fund may be remitted outside India or credited to the foreign currency account or a SNRR account of the FPI.
- In Schedule VII (Investment by a Foreign Venture Capital Investor) - Unless otherwise specified, the foreign currency account and SNRR account shall be used only and exclusively for transactions under Schedule VII.
- In Schedule VIII (Investment by a person resident outside India in an Investment Vehicle) - The amount of consideration shall be paid as inward remittance from abroad through banking channels or by way of swap of shares of a Special Purpose Vehicle or out of funds held in NRE or FCNR(B) account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. Further, for an FPI or FVCI, amount of consideration may be paid out of their SNRR account for trading in units of Investment Vehicle listed or to be listed (primary issuance) on the stock exchanges in India.
Additionally, the sale/ maturity proceeds (net of taxes) of the units may be remitted outside India or may be credited to the NRE or FCNR(B) or SNRR account, as applicable of the person concerned.
Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2020
On 16 June 2020, SEBI issued the Securities and Exchange Board of India (Infrastructure Investment Trusts) (Second Amendment) Regulations, 2020 (which came into force from 16 June 2020) to further amend the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014. In terms of the amendment, new clauses have been introduced that, amongst others, provide for:
- de-classification of the status of a
sponsor(s) of an Infrastructure Investment Trusts (InvIT) whose
units have been listed on the stock exchanges for a period of three
years shall be permitted upon receipt of an application from the
InvIT and subject to compliance with the following conditions:
- The unit holding of such sponsor and its associates taken together does not exceed 10% of the outstanding units of the InvIT;
- The investment manager of the InvIT is not an entity controlled by such sponsor or its associates;
- Approval of unit holders has been obtained in accordance with sub-regulation 4 of Regulation 22 (related to rights and meetings of unit holders).
- No person, other than sponsor(s), its related parties and its associates, shall acquire units of an InvIT which taken together with units held by such person and by persons acting in concert with such person in such InvIT, exceeds 25% of the value of outstanding InvIT units unless approval from 75% of the unit holders by value excluding the value of units held by parties related to the transaction, is obtained. Provided that if the required approval is not received, the person acquiring the units shall provide an exit option to the dissenting unit holders to the extent and in the manner as may be specified by the Board.
SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2020
On 16 June 2020, SEBI issued the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2020 which came into force from 16 June 2020. The amendment has been made to sub-clause (3) in Regulation 172 (Eligibility conditions for qualified institutions placement (QIP)) wherein the issuer shall not make any subsequent QIP until the expiry of two weeks (prior to the amendment, this time period was until the expiry of six months) from the date of the prior QIP made pursuant to one or more special resolutions.
SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2020
On 16 June 2020, SEBI issued the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2020 which came into force from 16 June 2020. A proviso has been inserted in Regulation 3 (Substantial acquisition of shares or voting rights) which provides that acquisition beyond 5% but up to 10% of the voting rights in the target company shall be permitted for the financial year 2020-21 only in respect of acquisition by a promoter pursuant to the preferential issue of equity shares by the target company.
Relaxation in timelines for compliance with regulatory requirements
On 19 June 2020, SEBI issued a circular further extending the timelines / period of exclusion for certain compliance requirements as under:
- Compliance requirements for Client Funding Reporting has been extended till 31 July 2020 for the months of April, May and June 2020,
- Compliance requirements for Reporting for Artificial Intelligence (AI) and Machine Learning (ML) applications has been extended till July 31, 2020 for the quarter ended on 31 March 2020,
- Compliance requirements for compliance certificate for Margin Trading for CM Segment and risk based supervision has been extended till 31 July 2020,
- Compliance requirements for (i) internal Audit Report for half year ending (HYE) 31 March 2020, (ii) Net worth certificate in Margin Trading for CM Segment for HYE 31 March 2020, and (iii) Net worth certificate for all members for HYE March 2020, has been extended till 31 July 2020 for the half year ended on 31 March 2020.
- Compliance requirements for penalty for non-collection / short collection of upfront margins in cash segment and maintaining call recordings of orders/instructions received from clients has been extended till 31 July 2020,
- The period of exclusion for compliance requirements for KYC application form and supporting documents of the clients to be uploaded on system of KRA within 10 working days shall be from 23 March 2020 till 31 July 2020,
- Compliance requirements for (i) submission towards weekly monitoring of client funds under the provisions of Enhanced Supervision, (ii) submission of data on monthly basis towards clients' and fund balance under the provisions of Enhanced Supervision, and (iii) daily margin trading reporting, has been extended till 31 July 2020, and
- Compliance requirements for updation in Income Tax Permanent Account Number of Key Management Personnel / Directors and the issue of Annual Global Statement to clients has been extended for a period of three months' from the due date.
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2020
On 22 June 2020, SEBI issued the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2020 thereby adding a new regulation (regulation 102B) which provides that any acquisition of shares or voting rights or control of the target company by way of preferential issue (in terms of regulation 164A) shall be exempt from the obligation to make an open offer under regulation 3 (1) and regulation 4 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Conducting meeting of unitholders of InvITs and REITs through Video Conferencing (VC) or through other audio-visual means (OAVM)
On 22 June 2020, SEBI issued a circular clarifying that InvITs / REITs may conduct meeting of unitholders through VC or OAVM. InvITs / REITs conducting such meetings through VC or OAVM subject to certain conditions. Further, the facility of VC or OAVM shall be available for annual meeting of unitholders in terms of Regulation 22(3)(a) of InvIT Regulations and Regulation 22(3) of REIT Regulations, to be conducted during calendar year 2020. For meetings, other than annual meeting of unitholders, the facility for conducting meeting of unitholders through VC or OAVM shall be available upto 30 September 2020.
Temporary relaxation in processing of documents pertaining to FPIs due to COVID-19
On 23 June 2020, SEBI issued a circular specifying that the temporary relaxations in relation to the processing of documents pertaining to Foreign Portfolio Investors (FPIs) shall be extended to 31 August 2020 given the prevailing COVID-19 situation. All other terms and conditions shall remain unchanged.
Further extension of time for submission of financial results for the quarter/half year / financial year ending 31 March 2020 due to COVID-19
On 24 June 2020, SEBI decided to further extend the timeline for submission of financial results for listed entities under Regulation 33 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 by a month, to 31 July 2020, for the quarter and the year ending 31 March 2020. Similarly, the timeline under Regulation 52 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for submission of half yearly and / or annual financial results for the period ending 31 March 2020 for entities that have listed non-convertible debentures (NCDs), Non-Convertible Redeemable Preference Shares (NCRPS), Municipal Debt Securities (MDS) and Commercial Papers (CPs) is also extended to 31 July 2020.
Ministry of Micro, Small and Medium Enterprises (MSMEs) issues circular regarding notification of Udyam Registration
On 26 June 2020, the Ministry of Micro, Small and Medium Enterprises notified certain criteria for classifying the enterprises as MSMEs and specified the form and procedure for filing the memorandum (to be known as ―”Udyam Registration”), with effect from the 1 July 2020.
Guidelines for Portfolio Managers - Extension of implementation timeline
On 29 June 2020, SEBI decided to extend the timeline for compliance with the requirements of the SEBI Guidelines for Portfolio Managers issued on 13 February 2020, by further three months. Accordingly, the provisions of said SEBI circular shall be applicable with effect from 1 October 2020.
Implementation of amendments in the Indian Stamp Act, 1899 and rules made thereunder from 1 July 2020 for Rationalized Collection Mechanism of Stamp Duty across India with respect to Securities Market Instruments
On 30 June 2020, the Ministry of Finance issued a circular in relation to the amendments in the Indian Stamp Act, 1899 brought through Finance Act, 2019 and rules made thereunder which come into effect from 1 July 2020 (vide notifications dated 30 March 2020). In order to facilitate ease of doing business and to bring in uniformity of the stamp duty on securities across States and thereby build a pan-India securities market, the Central Government, after due deliberations and consultations with the States, through requisite amendments in the Indian Stamp Act, 1899 and rules made thereunder, has created the legal and institutional mechanism to enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one Instrument. To achieve the rationalization of stamp duty structures, the amendments, inter-alia, provide for the following structural reforms:
- The stamp-duty on sale, transfer and issue of securities shall be collected on behalf of the State Government by the collecting agents who then shall transfer the collected stamp-duty in the account of the concerned State Government.
- In order to prevent multiple incidences of taxation, no stamp duty shall be collected by the States on any secondary record of transaction associated with a transaction on which the depository / stock exchange has been authorised to collect the stamp duty.
- In the extant scenario, stamp duty was payable by both seller and buyer whereas in the new system it is levied only on one side (payable either by the buyer or by the seller but not by both, except in case of certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).
- The collecting agents shall be the Stock Exchanges or authorized Clearing Corporations and the Depositories.
- For all exchange based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty; and for off-market transactions (which are made for a consideration as disclosed by trading parties) and initial issue of securities happening in demat form, Depositories shall collect the stamp duty.
- The Central Government has also notified the Clearing Corporation of India Limited (CCIL) under the jurisdiction of RBI and the Registrars to an Issue and/or Share Transfer Agents (RTI/STAs) to act as a collecting agent. The objective is to bring OTC derivative transactions reported to CCIL and physical space (non-demat) transactions in mutual funds handled through RTI/STAs under the ambit of stamp duty regime so as to avoid any tax arbitrage.
- The collecting agents shall within three weeks of the end of each month transfer the stamp-duty collected to the State Government where the residence of the buyer is located and in case the buyer is located outside India, to the State Government having the registered office of the trading member or broker of such buyer and in case where there is no such trading member of the buyer, to the State Government having the registered office of the participant.
- The collecting agent shall transfer the collected stamp-duty in the account of concerned State Government with the Reserve Bank of India or any scheduled commercial bank, as informed to the collecting agent by the Reserve Bank of India or the concerned State Government.
- The collecting agent may deduct 0.2% of the stamp-duty collected on behalf of the State Government towards facilitation charges before transferring the same to such State Government.
- For many segments, there is reduction in duty. For example, the rate prescribed is lower for issue of equity/debentures and for transfer of debentures (including re-issue) to aid capital formation and to promote corporate bond market.
- For equity cash segment trading (both delivery and non-delivery-based transactions) and options, since rates are to be charged only on one side in line with the new scheme, it can be stated that there is an overall reduction in tax burden.
- Secondary market transfer of instruments which are traded with differences in a few basis points, like interest rate / currency derivatives or corporate bonds are being charged at a very lower rate from the existing rates. For the newly introduced ‘repo on corporate bonds', a far lower rate is specified, since similarly positioned repo on Government Securities is not subject to duty.
Indian Stamp Act, 1899 amendments and rules made thereunder
On 1 July 2020, the RBI issued a press release stating that with the objective of bringing uniformity in the stamp duty levied on securities transactions across states, the Government of India amended the Indian Stamp Act 1899 (revised Act), through the Finance Act, 2019, and the relevant Stamp Rules, 2019, on 10 December 2019. The revised Act has come into effect from 1 July 2020. Under the revised Act, Clearing Corporation of India Limited (CCIL) has been appointed as the collecting agent for foreign exchange, interest rate and credit derivative transactions which are reported to it. Further, the revised stamp duty rate for transfer of security other than debenture on delivery basis is 0.015% (which was earlier 0.25% of the total consideration or fair value of shares as on the date of execution of the share transfer form, whichever is higher).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.