ARTICLE
18 December 2024

Legalaxy - Monthly Newsletter Series - Vol XIX - December, 2024

VA
Vaish Associates Advocates

Contributor

Established in 1971, Vaish Associates, Advocates is one of the best-known full-service law firms in India. Since its inception, it continues to serve a diverse clientele, including domestic and overseas corporations, multinational companies and individuals. Presently, the Firm has its operations in Delhi, Mumbai and Bengaluru.
Securities and Exchange Board of India ("SEBI"), vide its circular dated November 11, 2024, has amended the procedure for reclassification of Foreign Portfolio Investor ("FPI") investment to Foreign Direct Investment.
India Corporate/Commercial Law

SEBI NOTIFIES THE PROCEDURE FOR RECLASSIFICATION OF FPI INVESTMENT TO FDI

Securities and Exchange Board of India (“SEBI”), vide its circular dated November 11, 2024, has amended the procedure for reclassification of Foreign Portfolio Investor (“FPI”) investment to Foreign Direct Investment (“FDI”) by amending Para 17 of Part C of SEBI ‘Master Circular for Foreign Portfolio Investors, Designated Depository Participants and Eligible Foreign Investors' dated May 30, 2024. The amended procedure is as mentioned below

a. In case the investment made by a FPI (along with its investor group) reaches 10% or more of the total paid up equity capital of a company on a fully diluted basis and the FPI (along with its investor group) intends to reclassify its FPI holdings as FDI, it shall follow extant Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and circulars issued thereunder in this regard;

b. Pursuant to receipt of such intent from the FPI, the respective custodian shall report the same to SEBI and freeze purchase transactions by such FPI in equity instruments of such Indian company, till completion of the reclassification; and

c. On receipt of request from the FPI for transfer of the equity instruments of such Indian company from its FPI demat account to its demat account maintained for holding FDI investments, the custodian shall process the request if the reporting for reclassification, as prescribed by RBI, is complete in all respects.

To read the circular https://www.sebi.gov.in/legal/circulars/nov-2024/procedure-for-reclassification-of-fpi-investment-to-fdi_88329.html click here.

SEBI INTRODUCES AMENDMENTS TO MASTER CIRCULAR FOR InvITs and REITs

SEBI, vide its circular(s) dated November 13, 2024, has introduced certain amendments to the Master Circular for Infrastructure Investment Trusts ("InvITs") dated May 15, 2024 ("InvIT Master Circular") and Master Circular for Real Estate Investment Trusts ("REITs") dated May 15, 2024 ("REIT Master Circular").

a. Relaxation from certain provisions for units allotted to an employee benefit trust for the purpose of a unit based employee benefit scheme - The provisions for preferential issue of units to persons other than the sponsor(s) provides for lock-in restriction of 1 year from the date of trading approval for such units. Further, the entire pre-preferential issue unitholding of the allottees, if any, shall be locked-in from the relevant date up to a period of 6 months from the date of trading approval. Further, preferential issue of units shall not be made to any person who has sold or transferred any units of the issuer during the 90 trading days preceding the relevant date. Further, where any person belonging to the sponsor(s) has sold/transferred their units of the issuer during the 90 days preceding the relevant date, all sponsors shall be ineligible for allotment of units on a preferential basis. Such restriction shall not apply to a sponsor(s), in case any asset is being acquired by the InvIT/REIT from that sponsor(s), and preferential issue of units is being made to that sponsor, as full consideration for the acquisition of such asset.
Pursuant to these circulars, the lock in requirement and allotment restrictions shall not be applicable in case of units allotted to an employee benefit trust for the purpose of a unit based employee benefit scheme in compliance with Chapter IVB of the SEBI (Infrastructure Investment Trusts) Regulations, 2014 ("InvIT Regulations")/ SEBI (Real Estate Investment Trusts) Regulations, 2014 ("REIT Regulations").

b. Format of Quarterly Report and Compliance Certificate - To ensure uniformity across the industry, Bharat InvITs Association ("BIA") (in case of InvITs) and Indian REITs Association ("IRA") (in case of REITs), in consultation with SEBI, shall specify the format of quarterly report and compliance certificate required to be submitted by the Investment Manager of the InvIT/REIT to the Trustee under the InvIT Regulations/ REIT Regulations, and publish it on its website. Any future changes to this format shall be made by BIA/IRA in consultation with SEBI, prior to implementation.

c. Transfer of unclaimed amount to Unpaid Distribution Account - Where a distribution has been made by the Investment Manager within the timelines specified under Regulation 18(6)(c) of the InvIT Regulations/ REIT Regulations, but the payment to any unitholders has remained unpaid or unclaimed, the Investment Manager/ Manager shall, within 7 working days from the date of expiry of timelines specified under Regulation 18(6)(c) of the InvIT Regulations/ REIT Regulations, transfer such unclaimed amounts to an escrow account to be opened by it on behalf of the InvIT/REIT in any scheduled bank. Such account shall be termed as the 'Unpaid Distribution Account'.

To read the InvIT circular click here & to read the REIT circular click here.

Click here to read the full report.

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Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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