Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): A Division Bench of Justice Jarat Kumar Jain (Judicial Member) and Balvinder Singh (Technical Member) while addressing the present appeal observed that,

Scheme under Section 230 of the Companies Act, 2013 cannot be used as method of rectification of the actions already taken.

Appellant preferred the instant appeal under Section 421 of the Companies Act, 2013 challenging the impugned order passed by the National Company Law Tribunal, Mumbai.

What led to the filing of the present appeal?

Respondent 1 presented a Scheme of Arrangement under Sections 391-394 of Companies Act, 1956 (Existing Sections 230-232 of Companies Act, 2013) for sanction of the Arrangement embodied in the scheme originally filed before Bombay High Court which by virtue of MCA notification got transferred to NCLT, Mumbai.

Appellant pointed out certain irregularities and non-compliance and raised the objections that the Scheme of Arrangements is a mere rectification of action already taken by the respondent company without obtaining approval of Tribunal and other Regulatory Authorities as required under the provisions of Companies Act.

Since, NCLT, Mumbai in its order held that the scheme appeared to be fair and reasonable, the appellant being aggrieved with the same filed the present appeal.

Observations of the Tribunal

Bench noted that the in view of the records it was apparent that there were irregularities and non-compliances from a very long time due to which Stock Exchange took action against the respondent 1 company and suspended the trading of its securities in the year 2002.

No action being taken on behalf of the respondent 1 company had a serious impact on the investors who invested their hard-earned money in the company. The non-compliances and irregularities or any illegal act already committed cannot be ratified under the umbrella of “scheme” as envisaged under Section 230-232 of Companies Act, 2013.

Further, even if the objection of the Respondent 1 Company that the Appellant has no locus standi under Section 230 (4) to object the scheme is accepted but this will not affect the power of Regional Director as there is no such limitation prescribed for the Regional Director to file his objections as he is a public authority and has to look after the interest of the public/shareholders/investors at large.

Bench noted from the observations made by the Regional Director that there were irregularities and non-compliances that were present at the time of sanctioning of the scheme by the NCLT.

Company must be in compliance of the provision of law and cannot act just on the basis of a legal opinion.

The respondent 1 Company should have instantly rejected the application money for 10,375 shares as the Application applied were for less than the minimum lot size i.e. 100 shares.

Since the scheme appeared to be used as a course of action to rectify the irregularities previously done/committed by respondent 1 company, grounds raised by the regional director for dismissing the petition was just and reasonable.

Main objective behind the establishment of SEBI is to protect the interest of the investors and their hard-earned money trading in the stock exchanges, to regulate and facilitate efficient and flawless functioning of the securities market, to promote its development and to resolve the matters connected to it.

NCLT overruled the objections of the Regional Director in view of the said being procedural in nature.

Wrong Precedent

For the above aspect, Bench stated that even if the objections were procedural in nature, it is the jurisdiction of the Tribunal that such procedural aspects need to be duly complied with before sanctioning of the scheme as it would lay down a wrong precedent which would allow companies to do whatever acts without the compliance and confirmation of the Court and other sectoral and regulatory authorities and thereafter get it ratified by the Court under the Umbrella of “scheme”.


Tribunal held that before the sanctioning of Scheme under Section 230 of the Companies Act, 2013, no action should be pending against the company by the public authorities.

It is the duty of the Tribunal or any Court that their Orders should encourage compliances and not defaults.

Hence, the appeal was allowed and the impugned order set aside. [Ashish O. Lalpuria v. Kumaka Industries Ltd., Company Appeal (AT) No. 136 of 2020, decided on 20-10-2020]

Case BriefsHigh Courts

Bombay High Court: A Division bench of Nitin Jamdar and Milind Jadhav, JJ., observed that there is no duty on the SEBI Board while considering an exemption application under Regulation 29 of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to give a personal hearing.

Petitioner requested respondent– SEBI for a personal hearing regarding exemption application filed by it under a regulation governing employee stock options. Though SEBI Board refused the rest fro personal hearing.

Question in the present petition is:

Whether the Board is obliged to grant a personal hearing to the petitioner while considering an exemption application under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014?

Answer for the above-stated question is — NO.

Facts and reasons in regard to the above-stated have been laid down.

An employee welfare trust named JK Paper Welfare Trust was formed by the petitioner.

On an earlier date in the year 2018, petitioner sought clarification regarding the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. SEBI informed that the Regulations 2014 apply to the petitioner.

Petitioner sought relaxation from the applicability of Regulations under Regulation 29 of the Regulations of 2014, the SEBI empowered to grant relaxation for the strict compliance of the Regulations.

Securities Appellate Tribunal held that the SEBI had to give reasons in the order rejecting exemption application and hence tribunal directed the SEBI to pass a reasoned order within the set time limit.

Since the request for a personal hearing was refused, the Petitioner has approached this Court with a prayer that SEBI be directed to give an opportunity of hearing to the Petitioner in respect to its exemption application.

Counsel for the petitioner, Senior Advocate, Janak Dwarkadas and Rafique Dada, Senior Advocate for respondents — SEBI.

High Court’s decision

Relying upon Regulation 29, petitioner sought exemption from the strict compliance of Regulations 1(3), 1(4), 3(1), 26(2) and 31(2)(b)(i) and (ii).

Regulation 3 specifies the manner of implementation of the schemes.

Regulation 26 mandates certain conditions regarding the position of shares of the company.

Regulation 31 specifies certain compliances.

Regulation 29: Power to relax strict enforcement of the regulations

(1) The Board may suo motu or on an application made by a company, for reasons recorded in writing, grant relaxation from strict compliance with any of these regulations subject to such conditions as the Board deems fit to impose in the interests of investors in securities and the securities market.

(2) A company making an application under sub-regulation (1), shall pay a non-refundable fee of rupees one lakh by way of direct credit in the bank account through NEFT/RTGS/IMPS or any other mode allowed by RBI or by way of a banker’s cheque or demand draft payable at Mumbai in favour of the Board.”

The Petitioner’s first contention is that the Appellate Tribunal in its order dated 11 August 2020 held that the power under Regulation 29 is a quasi-judicial power and since it is a finding rendered in the litigation between the parties the same is binding on SEBI.

High Court rejected the above contention of the petitioner.

The second contention of the petitioner was that irrespective of the finding of the Tribunal, this Court should hold that the power under Regulation 29 is quasi-judicial power and therefore, a personal hearing is mandated.

Bench stated that the power to grant relaxation under Regulation 29 is a discretion to be exercised by the SEBI, and the conditions to be imposed are in the interest of the investors.

Refusal to grant an exception under Regulation 29 is not the origin of liability. Grant of exemption is a matter of exception from the general rule contained under the Regulations. In view of the said, the second contention was also rejected.

Next limb argument of the Petitioner was that, on looking at the consequences that would follow, whatever may be the nature of Regulation 29, in requirement of fairness, transparency and principles of natural justice, personal hearing be read into these provisions.

In Supreme Court’s decision of Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I, (2008) 14 SCC 151, it was observed that the requirement of giving reasonable opportunity of being heard is generally read into the provisions of a statute, particularly when the order has adverse civil consequences and this principle will hold good irrespective of whether the power conferred on the statutory body or the tribunal is administrative or quasi-judicial.

In the above-cited case, the Supreme Court observed that reading of requirement of personal hearing in a statute when there are consequences cannot be applied as a rule. It was also stated that no general rule of universal application can be laid down to the applicability of principle audi alteram partem in addition to the provision.

Regulations of 2014 are a code in itself. They regulate eployee stock option schemes in the larger interest of the onvestors.

Court stated that,

If SEBI finds that exemption need not be granted, it will give reasons for the same which can be tested in appeal. If the conditions are arbitrarily imposed or that the exercise is perverse, the validity can be challenged.

Petitioner’s argument which proceeds on the footing that the principles of natural justice in all circumstances include personal hearing which is not a correct position of law.

Power in question is a discretionary power and the use of this discretion can be challenged in appeal within the well-settled parameters. Full transparency is maintained by permitting written submissions providing reasons and the right to appeal.

The apprehension expressed by the SEBI that by reading duty to give personal hearing in this Regulation would have adverse ramifications on its working cannot be said to be unwarranted.

Functioning of SEBI will be hampered if the exercise of its every power is preceded by mandatory personal hearing, whether the regulation provider for it or not.

[JK Paper Ltd. v. SEBI, WP (L) No. 3441 of 2020, decided on 06-10-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Anant Barua (Whole-time member) passed the order in exercise of his powers under Sections 11 and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992.

The facts in the instant case are such that the company PDS Agro Industries Ltd. i.e. PAIL was incorporated on 20-04-2010 and noticee 3 (subject of this order) was signatory to the Memorandum of Association of the company having subscribed to 4000 shares and was thus a promoter of PAIL. Noticee 3 was also the non-executive director in the Company from April 20, 2010, to July 30, 2010. PAIL had raised Rs 50,29,300 during the financial years 2010-11 and Rs 2,53,200 during the financial year 2011-12, from the public through issue of RPS, in violation of the provisions of the Companies Act, 1956. Hence SEBI passed an ex parte interim order dated 26-04-2018 against the company PDS Agro Industries Ltd. and its directors for a violation under Sections 56, 60(1) and 73(1) of Companies Act, 1956 thereby

  1. Restraining / prohibiting the access to the securities market or buy, sell or otherwise deal in the securities market, either directly or indirectly, or associate themselves with any listed company or company intending to raise money from the public;
  2. Prohibiting /retraining to dispose of, alienate or encumber any of its /their assets nor divert any funds raised from public through the offer and allotment of Redeemable Preference Shares;
  3. Cooperating with SEBI and shall furnish all information/documents in connection with the offer and allotment of Redeemable Preference Shares sought vide letters dated February 13, 2017.

The interim order also called for show cause by PAIL and its directors, promoters by filing a reply within 21 days to show cause or seek opportunity of hearing related to reasons why suitable directions/ prohibitions under Sections 11, 11(4), and 11B of the SEBI Act, 1992 should not be issued/ imposed along with certain prohibitory directions failing which the interim order will deemed to be considered as final and absolute.

Noticee 3 i.e. Sumana Ghosh Roy being the only one who served a reply dated 20-06-2018 and accepted the opportunity of hearing. Counsel submitted that Noticee 3 does not in any manner is involved in the running of the respondent-company and they have nothing to do so as far the present case is concerned.

The Court relying on the judgment titled Pritha Bag v. SEBI (Appeal no. 291 of 2017) observed that the liability for refund under Section 73(2) of the Companies Act, 1956, lies on the company along with the director who is ‘officer in default’ as per Section 5 of the Companies Act, 1956.

In view of the observations above, the Court held that Noticee 3 was appointed as a non-executive director in PAIL on April 20, 2010 and remained so till July 30, 2010 whereas during the same period Mr. Prabir Roy (Noticee 4 to the interim order) was the Managing Director of PAIL. Hence Noticee 3 was not the ‘officer in default’ in terms of Section 5 of the Companies Act, 1956. The Court further held that Noticee 3 to not be liable for refund in terms of Section 73(2) of the Companies Act, 1956. However, the violations under Sections 56 and 60 of the Companies Act, 1956, has prejudicially affected the interest of investors and the securities market which has not been denied/ raised contention by Noticee 3. Therefore, Noticee 3 may not be liable for refund but was found liable for directions under SEBI Act, 1992.

The Court while disposing off the petition held that Noticee 3 be refrained/prohibited from accessing the securities market by issue of prospectus/ offer document/ advertisement or otherwise in any manner whatsoever, and shall be refrained/prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, directly or indirectly, for a period of 3 years.[PDS Agro Industries Ltd., In Re.,  WTM/AB/ERO/ERO/9380/2020-21, decided on 07-10-2020]

Arunima Bose, Editorial Assistant has put this story together

Amendments to existing lawsLegislation Updates

The Companies (Amendment) Bill, 2020 received Presidential Assent on 28-09-2020.

The Companies (Amendment) Act, 2020


Based on the recommendations of the Company Law Committee and an internal review by the Government, it is proposed to amend various provisions of the Act to decriminalise minor procedural or technical lapses under the provisions of the said Act, into civil wrong; and considering the overall pendency of the courts, a principle-based approach was adopted to further remove criminality in case of defaults, which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest. In addition, the Government also proposes to provide greater ease of living to corporates through certain other amendments to the Act.

Key Features:

(a) to decriminalise certain offences under the Act in case of defaults which can be determined objectively and which otherwise lack any element of fraud or do not involve larger public interest;

(b) to empower the Central Government to exclude, in consultation with the Securities and Exchange Board, a certain class of companies from the definition of “listed company”, mainly for listing of debt securities;

(c) to clarify the jurisdiction of the trial court on the basis of place of commission of offence under Section 452 of the Act for wrongful withholding of property of a company by its officers or employees, as the case may be;

(d) to incorporate a new Chapter XXIA in the Act relating to Producer Companies, which was earlier part of the Companies Act, 1956;

(e) to set up Benches of the National Company Law Appellate Tribunal;

(f) to make provisions for allowing payment of adequate remuneration to non-executive directors in case of inadequacy of profits, by aligning the same with the provisions for remuneration to executive directors in such cases;

(g) to relax provisions relating to charging of higher additional fees for default on two or more occasions in submitting, filing, registering or recording any document, fact or information as provided in Section 403;

(h) to extend the applicability of Section 446B, relating to lesser penalties for small companies and one-person companies, to all provisions of the Act which attract monetary penalties and also extend the same benefit to Producer Companies and start-ups;

(i) to exempt any class of persons from complying with the requirements of Section 89 relating to declaration of beneficial interest in shares and exempt any class of foreign companies or companies incorporated outside India from the provisions of Chapter XXII relating to companies incorporated outside India;

(j) to reduce timelines for applying for rights issues so as to speed up such issues under Section 62;

(k) to extend exemptions to certain classes of non-banking financial companies and housing finance companies from filing certain resolutions under Section 117;

(l) to provide that the companies which have Corporate Social Responsibility spending obligation up to 50 lakh rupees shall not be required to constitute the Corporate Social Responsibility Committee and to allow eligible companies under Section 135 to set off any amount spent in excess of their Corporate Social Responsibility spending obligation in a particular financial year towards such obligation in subsequent financial years;

(m) to provide for a window within which penalties shall not be levied for delay in filing annual returns and financial statements in certain cases;

(n) to provide for specified classes of unlisted companies to prepare and file their periodical financial results;

(o) to allow direct listing of securities by Indian companies in permissible foreign jurisdictions as per rules to be prescribed.

Read the detailed Act here: ACT

Ministry of Law and Justice

Experts CornerGaurav Pingle and Associates


Meetings have a very important role to play in the functioning of company where decisions are taken and recorded. In case of companies, whether Board meetings or shareholders’ meetings, there is an exchange of idea, proposal, problems and decision on the further of action. In case of companies, a meeting of members, directors, debenture holders, class shareholders, creditors can be called and conducted. This article is a checklist for preparation and sending of the notice of shareholders’ meeting by a private company or unlisted public company under Sections 101 and 102 of the Act read with the Rules.

  1. Applicability of Provisions.—The said provisions are applicable to annual general meeting or extraordinary general meeting of the members of private company or unlisted public company. A listed company shall also comply with the provisions of the Act and Securities and Exchange Board of India (SEBI) (Issue of Capital and Disclosure Requirements) Regulations, 2018.
  2. Contents of the Notice of Meeting.—Every notice of a general meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. The statement of business includes the resolutions that are proposed for the voting of the shareholders of the company. Ordinary business (as referred to in Section 102 of the Act) means: (i) consideration of financial statements and the reports of the Board of Directors and auditors; (ii) declaration of any dividend; (iii) appointment of Directors in place of those retiring; and (iv) appointment of, and the fixing of the remuneration of, the auditors. Any other business shall be considered as “special business”. Necessary reference of type of business (ordinary or special) and type of resolution (ordinary or special) shall be given in the notice of the general meeting.
  3. Contents of the Notice of General Meeting through Videoconferencing (VC).—Ministry of Corporate Affairs has allowed companies to hold the general meeting through VC or other audio-visual means (OAVM). In addition to any other requirement provided in the Act or the Rules, the notice for the general meeting shall make disclosures with regard to the manner in which framework provided in the MCA Circular (i.e. General Circular No. 14/2020 [F. No. 2/1/2020-CL-V] dated 8-4-2020) shall be available for use by the members and also contain clear instructions on how to access and participate in the meeting. The company shall also provide a helpline number through the registrar and transfer agent, technology provider, or otherwise, for those shareholders who need assistance with using the technology before or during the meeting. A copy of the meeting notice shall also be prominently displayed on the website of the company and due intimation may be made to the exchanges in case of a listed company.
  4. Explanatory Statement.—A statement setting out the material facts concerning each item of “special business” to be transacted at a general meeting, shall be annexed to the notice calling such meeting. The statement shall set out the nature of concern or interest, financial or otherwise, if any, in respect of each item of every director, key managerial personnel, manager and their relatives. The explanatory statement shall also include information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon.
  5. Length of Notice of Meeting.—A general meeting of a company may be called by giving not less than clear 21 days’ notice. In case of private company, the articles of association may provide for a shorter period for the length of notice of general meeting. In case of companies incorporated under Section 8 of the Act, a general meeting of a company may be called by giving not less than clear 14 days’ notice.
  6. Mode of Sending Notice of General Meeting.—The notice of general meeting can be given either in writing or through electronic mode in such manner as may be prescribed.
  7. Sending of Notice through Electronic Mode.—Rule 18 of the Companies (Management and Administration) Rules, 2014 prescribes detailed procedure for sending notice in electronic mode[1]. A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing electronic link or uniform resource locator (URL) for accessing such notice. The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company or as provided by the depository. The subject line in e-mail shall state the name of the company, notice of the type of meeting, place and the date on which the meeting is scheduled. If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in. PDF or in a non-editable format together with a “link or instructions” for recipient for downloading relevant version of the software. The company should ensure that it uses a system which produces confirmation of the total number of recipients e-mailed and a record of each recipient to whom the notice has been sent and copy of such record and any notices of any failed transmissions and subsequent resending shall be retained by or on behalf of the company as “proof of sending”. The company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be held responsible for a failure in transmission beyond its control. The company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third-party agency providing bulk e-mail facility. The notice of the general meeting of the company shall be simultaneously placed on the website of the company, if any, and on the website as may be notified by the Central Government.
  8. Opportunity for E-mail Address Registration.—The company shall provide an advance opportunity at least once in a financial year, to the member to register his e-mail address and changes therein. Such request may be made by only those members who have not got their e-mail id recorded or to update a fresh e-mail id and not from the members whose e-mail ids are already registered. If a member entitled to receive notice fails to provide or update relevant e-mail address to the company, or to the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.
  9. Shorter Notice Consent for Shareholders Meeting.—A general meeting may be called after giving shorter notice than clear 21 days’ notice (or any other period as mentioned in the articles of association of the company), if consent, in writing or by electronic mode, is accorded thereto:

(i) In Case of an Annual General Meeting (Company with Share Capital or without Share Capital).—By not less than 95% of the members entitled to vote thereat.

(ii) In the Case of Extraordinary General Meeting (for Company with Share Capital).—By members of the company holding majority in number of members entitled to vote and who represent not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting.

(iii) In the Case of Extraordinary General Meeting (for Company without Share Capital).—By members of the company having, if the company has no share capital, not less than 95% of the total voting power exercisable at that meeting.

  1. Recipients of Notice of Shareholders’ Meeting.—The notice of every meeting of the company shall be given to: (a) every member of the company, legal representative of any deceased member or the assignee of an insolvent member; (b) auditor(s) of the company; and (c) every director of the company.
  2. Accidental Omission to Give Notice of General Meeting.—Any accidental omission to give notice to, or the non-receipt of such notice by, any member or other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the meeting.

*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at

[1] Here, “electronic mode” means any communication sent by a company through its authorised and secured computer program which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member.

NewsTreaties/Conventions/International Agreements

A formal Memorandum of Understanding (MoU) was signed today between the Central Board of Direct Taxes (CBDT) and the Securities and Exchange Board of India (SEBI) for data exchange between the two organizations.

The MoU was signed by  Anu J. Singh, Pr. DGIT (Systems), CBDT and  Madhabi Puri Buch, Whole Time Member, SEBI in the presence of senior officers from both the organizations via video conference.

The MoU will facilitate the sharing of data and information between SEBI and CBDT on an automatic and regular basis. In addition to regular exchange of data, SEBI and CBDT will also exchange with each other, on request and suo moto basis, any information available in their respective databases, for the purpose of carrying out their functions under various laws.

The MoU comes into force from the date it was signed and is an ongoing initiative of CBDT and SEBI, who are already collaborating through various existing mechanisms. A Data Exchange Steering Group has also been constituted for the initiative, which will meet periodically to review the data exchange status and take steps to further improve the effectiveness of the data sharing mechanism.

The MoU marks the beginning of a new era of cooperation and synergy between SEBI and CBDT.

Ministry of Finance



Two days after promoter billionaire Anil Agarwal expressed his plans of delisting Vedanta Limited[1] from Indian stock exchanges, its Board of Directors approved the proposal in their meeting last month[2]. The proposal to delist comes at a time when the stock market is facing difficulties due to COVID-19’s effect on the Indian economy, and two years after Vedanta delisted from London Stock Exchange (LSE). With the pandemic hit in 2020, the risk calculations started to lose its track. The financial upheaval has brought the securities regulators across the globe on the doors of deliberation. Regulators including Security Exchange Board of Indian (SEBI) have concerted to collective cooperation with the International Organisation of Securities Commissions (IOSCO) Board to ensure lesser disruptions in capital markets in the ongoing scenario[3]. While the corporations claim to merely breathe in these economic conditions, they are not left without options. Liquidity and monetary inflow in continuum for corporations is the elephant in the room. Dealing with this challenge, the listed companies are resorting to delisting their shares from the stock exchanges. While Vedanta has publicly announced its delisting, reports suggest that United Spirits and Adani Power are still deliberating on it.[4]

Delisting as a feasible move

In the early years of this decade, UK witnessed a number of its corporations deciding to delist their shares from the Alternative Investment Market (AIM). In the then institutional and economic setting, the delisting trend bothered the Financial Services Authority (FSA) to take up necessary reforms to tame the delisting behavior. Why then do we say voluntary delisting in the current economic crisis is a feasible move? The simple answer is that when a company fails to get benefits of listing, it opts for delisting; then why not now?

With the grueling microeconomic impact, to maintain the balance in the capital structure of the corporations is difficult. One of the financial repositions corporations would want to take is to cut the listing costs at the earliest. This move will bring back the scattered shareholding into the hands of the designated few to ensure financial and operational control, which is undoubtedly crucial in times like these. The move is directed to re-establish a balanced capital structure of the company in the times when earning per share (EPS) is volatile. Once a company is listed on a stock exchange, it has to follow various regulations regarding corporate governance which often prove to be expensive and tedious. As was said in the official statement released by Vedanta, it is being done for “corporate simplification”. Despite this lens of sanguinity, delisting is a risky business decision that can take as long as half a decade and if it doesn’t fructify as per the plans, it can collapse the share price in its entirety, as was witnessed in delisting of Saushish Diamonds Ltd. Another example is Essar Steel’s delisting process which lasted for four years. The studies of market trends show that the effect of delisting is usually positive for gaining back control and ensuring financial and commercial flexibility in the hands of decision-makers of the entities.

Bare-bones of delisting

Let us understand what is delisting. A private company, in order to raise capital from the public, often chooses to go public i.e. list itself on a stock exchange. It, thereafter, becomes a public company. If the company wants to convert itself back into a private limited company, it will have to delist its shares from the stock exchanges from where it was listed. By delisting, it un-registers its securities from the exchange(s) and converts itself back into a private limited company. This involves stages of scrutiny and standardisation.

In India, delisting is regulated by the SEBI (Delisting of Equity Shares) Regulations, 2009[5], which speaks of both voluntary and compulsory delisting. Since Vedanta’s is a case of voluntary delisting, prior approval of the Board is necessary[6] and it should be followed by prior approval of the existing shareholders by special resolution through postal ballot[7]. The regulation prescribes that votes cast by public shareholders[8] in favour should be twice the votes cast against the proposal. If the proposal is passed, (which in case of Vedanta should not normally be a difficult task as less than 7 per cent shareholders are retail investors), the Board would have to appoint a Merchant Banker for carrying out all the functions of due-diligence and delisting[9]. Next in line is the in-principle approval of the recognised stock exchange[10] from where the shares are being delisted from, which, in this case, is both National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Within one year of such approval, a final application shall be made to stock exchanges.

The most important pre-requisite for delisting a company from all the stock exchanges is that the public shareholders must be given an exit opportunity[11]. Vedanta would then have to open an escrow account and deposit the total estimated amount of consideration calculated on the basis of floor price and number of equity shares outstanding with public shareholders[12]. It should be followed by a public announcement and within 2 days of the announcement, Vedanta must dispatch the letter of offer to its public shareholders[13] disclosing the offer price. Presently, the floor price has been set as Rs. 87.25 per share, which is being said to be unfair by Institutional Investor Advisory Services[14].

During the bidding process, public shareholders play an important role as only they are allowed to bid and the promoters are not[15]. The bid will be successful if the shareholding of the promoter and its affiliates increases to 90 per cent.[16] It must also be noted that the promoter has a right to not accept offer price. There are two cases when the delisting could fail: (1) promoter’s refusal to accept the offer price, (2) if the promoter shareholding post bidding does not reach to 90 per cent.

A closer look on the shareholding pattern of Vedanta Limited[17] evidences that the promotor group holds 50.89 per cent, foreign institutional investors (FII) 17.63 per cent, domestic institutional investors (DII) 29.21 per cent, mutual fund, financial institutions and insurance companies hold 19.89 per cent, while retail investors hold the minimum share of 6.92 per cent. Therefore, decision-making authority in no way lies with the retail investors.

Indicators of failed delisting

Public shareholders in Vedanta Ltd. own a little less than half the stake in the company. Approval from them would invite several round of negotiations and lucrative exit opportunities. If the public shareholders restrain from participating in the bidding process or refuse to vote in favour, then the delisting could fail like it happened in DIC India’s delisting where the required number of shares were not bid for in the reverse book-building process[18]. While the floor price is Rs. 87.25, the discovery price (final price after the bidding) will determine the way forward. There have been instances where the promotors have rejected the discovery price, like in delisting of Ricoh India[19] and Linde India[20]. Delisting is a risky decision as not only is it a lengthy process but also that there is uncertainty until the reverse book building process is actually completed.

As per a recent news report by LiveMint[21], many of the shareholders do not agree on the offer price of Rs. 87.25, including LIC which holds 6.37 per cent of the shares in the company. It is, therefore, speculative radar as to whether the delisting would be successful or not.

*Authors are pursuing Master of Laws (LL M) from NALSAR University of Law, Hyderabad, with specialisation in ‘Corporate and Commercial Law’. They can be reached at and

[1] “Anil Agarwal Plans to Delist Vedanta from Indian Bourses”, Economic Times (13th May, 2020).

[2] Aditi Divekar, “Vedanta Board Okays Delisting Plan”, Business Standard (19th May, 2020).

[3] “Securities regulators coordinate responses to COVID-19 through IOSCO”, IOSCO, 24th March 2020.

[4] Nikita Vashisht, “Vedanta, United Spirits: Why are firms opting to delist in the current mkt?” Business Standard (20th May, 2020).

[5] Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009. The Regulations were last amended in 2019  for simplifying the process of delisting.

[6]. Regn. 8(1)(a), Delisting Regulations, 2009.

[7] Regn. 8(1)(b), Delisting Regulations, 2009.

[8] Public shareholders refer to the shareholders other the shares held by promoter group or its subsidiaries or affiliates or persons acting in concert.

[9] Regns. 8(1-A) and 8(1-D), Delisting Regulations, 2009.

[10] Regn. 8(1)(c), Delisting Regulations, 2009

[11] Proviso to Regn. 5, Delisting Regulations, 2009

[12] Regn. 11, Delisting Regulations, 2009

[13] Regn. 12, Delisting Regulations, 2009

[14] Aditi Divekar, “Vedanta board okays delisting plan; floor price per share unfair, says IIAS”, Business Standard (19th May, 2020).

[15] Regn. 14, Delisting Regulations, 2009.

[16] Regn. 17, Delisting Regulations, 2009.

[17]See Shareholding pattern of Vedanta Limited,

[18] See “DIC India stock plunges on failed delisting offer”, Hindu Business Line (21st October, 2014),

[19] See “Ricoh India down 20% for second day as delisting offer fails”, Business Standard (18th June 2014),

[20] See Yatin  Mota, “Linde India Delisting Fails As Promoters Reject Discovered Price” Bloomberg Quint (25th January 2019),

[21] See Jayshree Upadhya & Anirudh Laskar, “Vedanta delisting faces small shareholder snag” Livemint (21st May, 2020),

Op EdsOP. ED.

Interest republicae ut sit finis litium, meaning it is in the interest of the State that there should be an end to litigation. In pursuance of this objective, the Indian legal regime adopted various alternative forms of adjudicatory mechanism. The capital market regulator, Securities and Exchange Board of India (hereinafter referred as ‘SEBI’) introduced the consent mechanism efficacy of which has been discussed in this article.


The Code of Civil Procedure, 1908 and the Criminal Procedure Code, 1973 enumerate concepts of ‘compromise’ and ‘compounding of offences’ respectively. Similarly, under Section 15-JB[1] of the Securities and Exchange Board of India Act, 1992 is vested with the power to settle cases of securities law violation in the capital market. The idea was adopted from the success of its US counterpart, the Securities and Exchange Commission. Initially, the consent mechanism was proposed vide circular, Circular No. EFD/ED/Cir-1/2007 that enumerated the Guidelines for Consent Orders, introduced in 2007. The mechanism has evolved over the past years to take the form of the Settlement Regulations, 2018.[2]

The consent mechanism may be defined as “a proceeding in which the regulator and the alleged violator, may at any stage of the proceeding negotiate a settlement in lieu of administrative/civil proceeding, in the process saving cost, time and efforts for the parties involved. The mechanism does not require admission or denial of findings.”

Interpreting settlement orders

To test the proposition in respect of the success of this mechanism, a few cases of settlement have been analysed. The vital question that arises is “Where the interest of investors is at stake, is settlement a viable solution?”

The recent settlement order passed by SEBI in the matter of HDFC AMC (hereinafter referred to as ‘the applicant’) provides insight to the above question. The applicant was served with a show-cause notice for violation of the SEBI (Mutual Funds) Regulations, 1996.  The applicant had invested in the debt instruments of Essel group of companies through its various mutual fund schemes. As per the show-cause notice, the investment made did not adhere to the (Mutual Funds) Regulations, 1996 as it failed to maintain proper due diligence that led to the loss of the unit-holders. In furtherance of the notice, the applicant filed a settlement application with SEBI and the High Powered Committee (constituted under the Settlement Regulations, 2018) agreed to settle the matter. As a part of the settlement terms, the applicant ensured that the unit-holders were compensated along with redressal of their complaints. Further, it was agreed that the settlement amount would be paid by the funds of the applicant.

Certainly, the above order was in the interest of the investors and the regulator. The alleged violations were committed in May 2019, and within a span of a year, the settlement process has been concluded. Settlement in the present case indeed served as an expeditious solution contrary to the prolonged administrative/legal proceedings.

One major concern that has hindered the growth of the settlement mechanism is the conundrum surrounding the settlement of serious offences like insider trading and fraudulent unfair trade practices. It is pertinent to note here that such offences were a part of the initial guidelines issued under the circular in 2007. Subsequently, the amended Settlement Regulations, 2014 removed serious offences based on the severity of such offences. However, the Committee set up under the chairmanship of Justice Dave that drafted the Settlement Regulations, 2018, undertook an alternative approach by vesting discretion with the Board to decide based on facts and circumstances of each case than make it principle based by creating an absolute bar to settle such offences.

The question that requires attention is that “Has the discretion vested with the Board regarding the nature of offences to be settled been exercised wisely by it?”

On observation of previously adjudicated cases that have been settled, it was noticed that only those cases where market interests and market impact was limited and loss to the investors was minuscule, were taken through the settlement route. In  Abhay Gandhi and Kiran Abhay Gandhi, the CEO of Ranbaxy Laboratories Limited, was charged under the  Prohibition of Insider Trading Regulations, 2015[3] for selling shares while in possession of Unpublished Price Sensitive Information, the matter was settled by remitting an amount of Rs Thirty-five lakhs, that would have been evaluated considering the profit made by the applicants, the multiplier for deciding penalty as provided in  Chapter VI[4] of the Settlement Proceedings Regulations, 2018.    

Settlement – An Antidote to Litigation?

On considering the above proposition, it raises two further questions.

1. Will SEBI in all cases allow the settlement process?

2. Is the settlement mechanism a full proof mechanism where the interests of SEBI, stakeholders and investors can be balanced?

To answer the former, the essential grounds for the basis of the settlement are laid down exhaustively under the purview of Regulation 10 of the Settlement Regulations, 2018. The Board established under Section 5 of the Act may reject matters for settlement that have a wide impact on investors, are repetitive in their defaults or the person making the application is a wilful defaulter. SEBI has adopted a stringent approach in accepting applications for Consent Orders. For instance, NSE was alleged to have deals with brokers and unduly favouring and assisting them in unauthorised trading, and it applied for settlement. SEBI rejected the NSE settlement application and ordered disgorgement by asking them to pay over INR 1000 Crores.

After the infamous IL&FS scam where credit rating agencies were under the scanner for not changing the credit rating of the instruments before the default, SEBI based on a reasoned order categorically stated that the matter involved wide market impact including an adverse effect on the interest of the investors thereby questioned the integrity of the market, and rejected ICRA’s application for settlement.   

To answer the latter, no mechanism can be a panacea, it comes with its fragilities. In the author’s opinion, the biggest drawback of this mechanism is that it may undermine the problem which may in a certain point of time be the tip of the iceberg. To illustrate, in the case of Yes Bank, it was charged for violating the disclosure norms prescribed in Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, that required the disclosure of material information.

Yes Bank as per the settlement order made selective disclosure of divergence and partially concealed the report the issued by RBI and its settlement then, concluded the matter but all those along with a gamut of other issues including a liquidity crisis and failure of the corporate governance bounced back together and led to its collapse. Therefore, in certain cases, it may not be possible for the regulator to see through and understand the actual reasons behind the violation, divergence. 

The way ahead

The increasing role of the consent mechanism can be witnessed from the fact that an average of ten settlement orders were passed in the year 2019. It is evident that the Settlement Regulations, 2019 have ushered a fresh air in the arena of ‘Consent Orders’. Certain key features of the regulations are that transparency is ensured by vesting limited discretion with the Board. The penalty payable by the applicant is derived based on a comprehensive multiplier on consideration of the number of defaults, the stage of proceedings along with the stage at which settlement is introduced. It will not be a misnomer to say that capital market regulations in India have evolved tremendously along with the market and provided an effective adjudication process that serves the need of the hour. In cases where all three chords of prompt action, investor interest, and effective enforcement are struck, it is only then the underlying objective of consent orders will be achieved in its essence.

*Legal professional, with an avid interest in Securities Law and previously worked with KPMG as a part of the Forensic Investigation Team.

[1] Section 15-JB, Securities and Exchange Board of India Act, 1992    

[2] Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018

[3] The SEBI (Prohibition of Insider Trading) Regulations, 2015 

[4] Ch. VI, SEBI (Settlement Proceedings) Regulations, 2018  

Corp Comm LegalCOVID 19Experts Corner

While presenting her maiden budget last year, India’s Finance Minister Nirmala Sitharaman indicated that the Government would be considering raising the Minimum Public Shareholding (“MPS”) norms from the current minimum limit of 25% in all listed entities to a new baseline of 35%[1]. This would mean that a minimum of 35% of shares of any listed entity would now have to be held by the public shareholders.

According to various market sources, this increase in minimum public shareholding norms is likely to affect 1174 of the 4700 companies[2] listed in the Indian stock market and the total quantum of sale that would be required to be made by these companies would be around Rs. 3,87,000 Crores[3]. TCS (~Rs. 59,600 Crores), Wipro (~Rs. 15,000 Crores) and D-Mart (~Rs. 14,000 Crores) would have to make some of the biggest sales[4] and the stocks of such companies would be expected to underperform as there might not always be sufficient demand to ensure price stability[5]

The dilution of promoter holding in some of the biggest listed entities in the Indian market would lead to better price discovery, as the shares would now be held by multiple entities instead of a few promoters and connected entities. Further, the increase in liquidity would also help in adding depth to the market. However, certain companies, especially multinational corporations may choose to delist as now the promoters and promoter group entities would not be able to unilaterally pass special resolutions (which required 2/3rd majority), which would take away effective control from them on certain issues. This increase in equity in the market would also have an effect on SENSEX and NIFTY, which are calculated by the free float method[6]. The sale of equity would result in earnings of Rs 3,87,000 crores by the promoters which in turn would augur a windfall on the government’s coffers in the form of capital gains tax. However, whether the Indian markets are in a state to absorb such additional equity given the current market conditions remains in question. Fortunately, no change has been made to the thresholds yet and as per news reports, even SEBI is looking to differ the introduction of the new norms[7].

In light of the COVID-19 pandemic that has brought  the entire economy to screeching halt, SEBI has granted some necessary exemptions and one of them is delaying of filing the shareholding by the promoters from April 15th to June 1st, 2020[8]. However, SEBI has not relaxed the minimum public shareholding norms and rightly so. Given how low the current market is, relaxing these norms would only allow the promoters to buy company stocks at a cheaper rate and then resell this stock the public once they are required to comply with the shareholding norms again. Not only this, but it is in this time of chaos that the corporate governance standards in any company need to be applied stringently and allowing promoters to acquire further shareholding might become a hindrance to this. Further, such exemptions might put at least moral obligations on companies to give their public shareholders an exit, which would add to the duress they currently face. Hence, the status quo maintained by SEBI on the shareholding issue on either side has helped maintain the stability in times of the pandemic.

As public shareholding is the opposite of promoter shareholding, it is essential to understand who a promoter is. According to the SEBI Regulations, a promoter is essentially someone who is in control of the company[9]. However, along with the concept of “promoter”, SEBI has also introduced the concept of “promoter group”[10] which artificially imports certain categories of people such as the immediate relatives and virtually bounds them in the concept of controlling group, which is otherwise a rather fluid concept in most foreign jurisdictions.

If we look at the nature of this relationship through the lens of various SEBI Regulations that seek to regulate the conduct of the promoters of a company, this inclusion into the promoter shareholder category imposes immense burden and liability on the promoter group entity without giving them many rights. Along with this, this classification of entities in the “promoter group” category is based on direct or actual control that is being exercised by such entities on the actions of the company but on the likelihood of the person applying control over the company, and hence, this label of promoter group in not a desirable one, especially for those that are not actually in control of the company.

The problems, however, do not stop here. Once someone is classified as a promoter, getting reclassified is a long drawn and painful process where not only the person who wants to get reclassified but also the persons related to him have to reduce their shareholding to less than 10%[11] and have to get the approval of minority shareholders[12]. Thus, it is essential that SEBI, before coming out with the requirement to actually increase the public float rule to 35% should reconsider the concept of “promoter” and more importantly “promoter group” in order to give a more equitable treatment to this category.

A suitable alternative to this concept of promoter and promoter group is the concept of “Controlling Shareholder”. According to the Financial Conduct Authority (“FCA”), which is the regulatory authority for the United Kingdom, a controlling shareholder is a person who, on his own or with someone he is acting in concert with, is able to cast more than 30% of the voting rights or is able to substantially control all the matters in the general meeting of a company[13]. Further, according to the Singapore Exchange, a “controlling shareholder” is someone who holds directly or indirectly holds more than 15% shares of a company or is in fact in control of a company[14].  In China, there is a concept of “Actual Controlling Person” according to which, any natural person, government authority, enterprise or international organisation that may exercise ultimate control, either directly or indirectly through equity interests, trusts, contracts or any other means should be considered as a the “actual controlling person”. Further, it provides that control might be asserted in the following three ways:

  1. by holding more than 50% equity interests, shares, voting rights, property, either held individually or along with related parties; or
  2. by holding less than 50% equity interests, shares, voting rights, property, but holding adequate voting power to materially influence the decision making of a company; or
  3. by holding material influence over the company’s finances, technology or human resources etc.[15]

China also has a concept of “Actual Controlling Party” which is someone who is not a shareholder of a company but exercises control over a company through an agreement, an investment relationship or through other relationships[16].

Thus, observing these three definitions of controlling shareholder, it can be seen that the controlling shareholder regime is similar to the promoter regime. However, the key point of differentia between the two regimes is who does it encompass within the scope of its definition, and thus, the principle of actual versus implied control. While in the promoter, and more importantly promoter group regime, the principle was not that of actual application of control over the company by the related parties but rather the likelihood of them applying this control through the promoter they are related to.

Now, what this does in essence is that it obligates these related parties to periodically and repeatedly disclose their shareholding and transactions for the off chance that they might be colluding with the promoter they are related to, in order to assert control over the functioning of the company. However, in the controlling shareholder regime, the focus is on the shareholder that holds the requisite shares or voting rights in order to actually assert control over the functioning of the company. Further, if we observe the regulatory regime in China, even there, the principle is that of liability to the person who holds control. All of these regimes are in congruence with the principle of applying liability to the person who is actually in a position to or has the power to assert control over a company.

Thus, in terms of parity between the two kinds of shareholders, the entities belonging to the “Promoter Group” class are at a disadvantage just because of their personal or business relations with the promoter or the company, without any actual proof of them asserting any control over the company and hence, the controlling shareholder regime gives a better footing all of the stakeholders of the company.

Along with this reconsideration of the concept of promoters and promoter groups, SEBI also needs to revamp its reclassification norms in order to make it easier for people to classified or declassified as promoters based on the amount of control that could be exercised by them. If the principle of being a promoter is based on shareholding and control, then it is only logical that when a person ceases to hold such shareholding or control that such person is declassified from the promoter status. The requirement for an approval by the minority shareholders only adds to the procedural red tape, especially when the person had ceased to hold the shareholding or the power to actually control the actions of a company.

To sum up, while it may be a commendable initiative of the Government of India to raise the minimum public shareholding norms, there are certain policy considerations that need to be taken into account before such a change is implemented. Given the huge costs associated with this move, and the resultant instability in the market of this move, it is essential that government takes into consideration issues such as the status of the promoter as well as the regulatory red tape associated with reclassification of the status of promoters in order to bring parity between the two classes of shareholders that form the market.


* Managing Partner, Corp Comm Legal

**5th Yr, B.A. LL.B.(Hons.) MNLU, Mumbai and student researcher.

[1] (2019, July 05), Budget 2019-20: Minimum public holding raised for listed firms. The Hindu, retrieved from

[2] Bhuva, R. (2019, July 05), Market Gives a Thumbs Down to Budget. Fortune India, retrieved from

[3] Sharma, A. (2019, July 05), Minimum Public Shareholding at 35%; Here’s How it Will Impact Stock Market Liquidity. Business Today, retrieved from

[4] (2019, July 05), Stocks that will be hit by Budget move to raise public float to 35%. Economic Times, retrieved from

[5] Mascerenhas, R. (2019, July 09). High promoter holding companies likely to underperform. Economic Times, retrieved from

[6] (2017, Dec. 01), What is Sensex and Nifty? How are they calculated? IIFL, retrieved from

[7] (2019, Sept. 12), SEBI may defer raising of minimum public shareholding to 35%, Business Standard, retrieved from

[8] (2020, Mar. 27), Relaxation from compliance with certain provisions of the SAST Regulations, 2011 due to the COVID-19 pandemic, SEBI, retrieved from

[9] Reg. 2(1)(oo) of SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2018 

[10].Reg. 2(1)(pp) of SEBI (Issuance of Capital and Disclosure Requirements) Regulations, 2018

[11] Reg. 31-A(3)(b)(i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

[12].Reg. 31-A(3)(a)(ii) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

[13] (2014, March 28) “Controlling Shareholder”, Financial Conduct Authority Handbook, retrieved from

[14] Definition and Interpretation, Singapore Exchange Rulebook, Singapore Exchange,

[15] Appendix 1 to the 2016 Measures, the Filing Form for Establishment of Foreign Invested Enterprises issued by the Ministry of Commerce, People’s Republic of China. 

[16] Article 216 of the PRC Company Law, issued and latest amended by the Standing Committee of the National People’s Congress on December 28, 2013 and came into effect on March 1, 2014.

COVID 19Hot Off The PressNews

In terms of Order No. 40-3/2020-DM-I(A) dated March 24, 2020 of the Ministry of Home Affairs, the Securities and Exchange Board of India had issued a notification dated March 24, 2020 notifying various entities to provide capital and debt market services for a period of 21 days with effect from March 25, 2020.

The Ministry of Home Affairs vide Order No. 40-3/2020- DM-I (A) dated April 15, 2020 has issued revised guidelines on the measures to be taken for containment of COVID-19 in the country and directed that these measures will continue to remain in force upto May 03, 2020.

These guidelines permit continuation of certain services which includes the Securities and Exchange Board of India and Capital and Debt Market Services as notified by SEBI.

Accordingly in terms of clause 7 iii, of the said Guidelines, the Notification dated March 24, 2020 issued by SEBI will continue to remain in force in all parts of the country upto May 03, 2020.

Securities Exchange Board of India

[Circular dt. 15-04-2020]

COVID 19Legislation UpdatesNotifications

  1. The disclosure filings under Regulations 30(1), 30(2) and 31(4) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), require the shareholders to compile, collate, and disseminate information of their consolidated shareholding as on March 31, 2020, to the company and the stock exchanges within seven working days from the end of the financial year. These report as per the 2020 calendar are required to be filed by April 15, 2020.
  2. In view of the developments arising due to the spread of the COVID-19 pandemic, a need for temporary relaxations in compliance with certain deadlines in SAST Regulations is warranted due to the prevailing travel restrictions and various other logistical challenges.
  3. It has therefore been decided to extend the due date of filing disclosures, in terms of Regulations 30(1), 30(2) and 31(4) of the SAST Regulations for the financial year ending March 31, 2020 to June 01, 2020.
  4. This circular shall come into force with immediate effect. The stock exchanges are advised to bring the provisions of this circular to the notice of all the stakeholders including the listed entities and also disseminate on their websites.
  5. The circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with regulation 33 of the SAST Regulations.

Securities Exchange Board of India

[Circular dt. 27-03-2020]

COVID 19Legislation UpdatesNotifications

1. Due to the developments arising due to the spread of the COVID 19 virus, a need for temporary relaxations in compliance requirements for REITs and InvITs is warranted. Accordingly, it has been decided to extend the due date for regulatory filings and compliances for REIT and InvIT for the period ending March 31, 2020 by one month over and above the timelines, prescribed under SEBI (Infrastructure Investment Trusts) Regulations, 2014 (InvIT Regulations) and SEBI (Real estate Investment Trusts) Regulations, 2014 (REIT Regulations) and circulars issued thereunder.

2. This Circular shall come into force with immediate effect. The Stock Exchanges are. advised to bring the provisions of this circular to the notice of all REITs and InvITs and also disseminate on their websites.

3. The Circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 33 of InvIT Regulations and Regulation 33 of REIT Regulations.

Securities Exchange Board of India

[Circular dt. 23-03-2020]

Cabinet DecisionsLegislation Updates

The Union Cabinet has approved the proposal of the Securities & Exchange Board of India (SEBI) to sign an updated Alternative Investment Fund Managers Directive (AIFMD) MoU signed between SEBI and Financial Conduct Authority (FCA), UK, pursuant to UK’s exit from the European Union on 31-01-2020.

Major impact

The UK exited the EU on 31st January 2020. FCA, UK had submitted to SEBI that no transitional measures would be available if the amended MoU is not signed before the date when the UK exits the European Union (Brexit), and requested SEBI to sign an updated MoU as early as possible. As such, the proposal is not expected or intended to have any effect on employment in India.


In accordance with the requirement of establishing adequate supervisory cooperation arrangements between EU and non-EU authorities under the European Union Alternative Investment Fund Managers Directive (AIFMD), a bilateral MoU was signed by SEBI with securities regulators of 27 member States of EU / European Economic Area, including Financial Conduct Authority (FCA), United Kingdom on 28th July 2014. In the context of UK’s proposed withdrawal from EU, FCA brought to the notice of SEBI that the existing MoU between SEBI and FCA relating to AIFMD, which is currently anchored on EU law, will no longer apply directly in the UK, and have, therefore, suggested signing an updated MoU after amending the AIFMD MoU by suitably modifying it and substituting references to EU legislation with the relevant UK law.


[Press Release dt. 19-02-2020]

[Source: PIB]

Case BriefsSupreme Court

Supreme Court: A Division Bench of Arun Mishra and Indira Banerjee, JJ., diluted certain adverse observations made by the Securities Appellate Tribunal (“SAT”) against the Securities and Exchange Board of India (“SEBI”) in para 20 of its order passed in Ashok Dayabhai Shah v. SEBI (Appeal No. 428 of 2019, dt. 14-11-2019).    

The matter relates to the disposal of the complaints filed by the minority shareholders of Bharat Nidhi Ltd. (“BNL”), PNB Finance & Industries Ltd. (“PNBF”) and Camac Commercial Co. Ltd. (“Camac”). These three entities together hold 47% shares in Bennett Coleman & Co. Ltd. (“BCCL”) commonly known as the Times Group, one of India’s largest media conglomerate. Vineet Jain and Samir Jain (“the Jains”) are the Managing Directors of BCCL. 

The minority shareholders had alleged that BNL, PNBF and Camac are under effective control of the Jains who also exercise control over BCCL by virtue of their ownership of the three above named entities and eight other entities who are shareholders of BCCL. The minority shareholders had filed approached SAT against SEBI alleging that since 2013, some of them have jointly or individually filed several complaints before SEBI urging it to investigate and take action in respect of two violations, namely: 

(i) Incorrect disclosures being made by BNL, PNBF and Camac regarding their promoter shareholding thereby failing to disclose the true promoters; and 

(ii) Consequently, failure by these companies to comply with Minimum Public Shareholding norms prescribed under applicable securities laws.    

The minority shareholders, in appeal before SAT, alleged that SEBI had time and again taken varying stands wherein it had either not responded to the complaints at all or adopted a position that investigation in the matter is underway or treated the complaints as market intelligence, without concluding such investigations or passing any reasoned order while disposing of the complaints filed by them. It was alleged that their complaints remained unaddressed except the complaints filed on the SCORES platform. The last complaint filed on 3-8-2019 on SCORES platform was disposed of by the order of SEBI against which the minority shareholders had preferred the appeal before SAT. 

Disapproving of the approach of SEBI, the SAT has held that the disposal of the complaints by SEBI on SCORES platform was no disposal in eyes of law. The written complaints made to SEBI from 2013 onwards had not been disposed of as yet but complaints filed on the SCORES platform had been disposed of without deciding/settling the issue that was raised in the complaints. This, according to SAT, was merely an eye wash. 

SCORES (SEBI Complaints Redress System) is an online platform designed to help investors to lodge their complaints pertaining to the securities market. These complaints are filed online with SEBI against listed companies and SEBI registered intermediaries. All complaints received by SEBI against listed companies are dealt through SCORES.

By the order against which appeal was filed by the minority shareholders before SAT, the SEBI had intimated to the minority shareholders that the information provided by the complainants would be treated as market intelligence and would also be treated as confidential. Why would the complaint be treated as market intelligence or be treated as confidential was not known, nor in SAT’s view the complaint was such which required SEBI to treat it as market intelligence or confidential. According to SAT, it was not a price-sensitive matter which required SEBI to keep such matters under wraps or confidential in nature. 

Finally, SAT had set aside the order passed by SEBI and directed the minority shareholders to file a consolidated complaint before SEBI which would then decide the matter by a reasoned and speaking order. 

However, while disapproving of the SEBI’s approach and setting aside the order passed by it, SAT made certain observations casting aspersions on the role of SEBI in disposing of the complaints. These observations were made in para 20 of SAT’s order, which is reproduced below:

20. We find the approach adopted by the respondents to be a strange one. Such computer-generated disposal of a serious complaint speaks volume on the conduct of the respondents in treating the minority shareholders in this shabby manner. It seems that the respondents have lost sight of the mandate provided to them under Section 11 of the SEBI Act which mandates SEBI to safeguard the interest of the investors. Disposal of the complaint in this manner in the instant case indicates non-application of mind and non-consideration of the interest of the investors. We have no hesitation in stating that the SEBI as a regulator in the instant case has not performed its duties and has kept the complaint pending for more than six years which speaks volumes by itself. The Tribunal fails to fathom as to why the complaint could not have been decided unless SEBI officials had a vested interest in not deciding the matter.” 

SEBI, aggrieved by the order of SAT, approached the Supreme Court. The Court heard Senior Advocate Chander Uday Singh appearing for SEBI and Senior Advocates C.A. Sundaram and Maninder Singh for the minority shareholders. 

The Supreme Court was of the opinion that certain observations made in para 20 of the impugned order passed by SAT were not called for, such as “the computer-generated disposal of a serious complaint speaks volume on the conduct of the respondents as well as the part of the order relating to “vested interest in not deciding the matter were not at all called for. It was observed by the Supreme Court that maybe there was some remiss on the part of SEBI to act as a regulator, but casting aspersion was not warranted in the facts and circumstances of the case. 

As such, the adverse observations against SEBI made by SAT in para 20 of its order passed in Ashok Dayabhai Shah v. SEBI (Appeal No. 428 of 2019, dt. 14-11-2019) were diluted. However, as the complaints were to be dealt by SEBI, the Court did not made any observation on the remaining part of the merits of the order passed by SAT in view of the limited relief pressed. [SEBI v. Ashok Dayabhai Shah,  2020 SCC OnLine SC 82, decided on 27-01-2020]

Legislation UpdatesNotifications

SEBI vide its Circular no. CIR/MRD/DRMNP/25/2014 dated August 27, 2014, has, inter alia, specified guidelines pertaining to Core Settlement Guarantee Fund and Default Waterfall for Clearing Corporations.

2. Pursuant to deliberations with the Risk Management Review Committee (RMRC) of SEBI and various stakeholders, it has been decided to amend the following provisions of the aforesaid Circular.

a. Clause 14 of the said Circular dated August 27, 2014 shall stand modified as under:

“Further Contribution to/ Recoupment of Core SGF

14) Requisite contributions to Core SGF by various contributors (as per clauses 7 and 8) for any month shall be made by the contributors before start of the month. In the event of usage of Core SGF during a calendar month, contributors shall, as per usage of their individual contribution, immediately replenish the Core SGF to MRC. However, such contribution towards replenishment of Core SGF by the members would be restricted to only once during a period of 30 calendar days regardless of the number of defaults during the period. The period of 30 calendar days shall commence from the date of notice of default by Clearing Corporation to market participants.

In case there is failure on part of some contributor(s) to replenish its (their) contribution, same shall be immediately met, on a temporary basis during the month, in the following order:

(i) By CC

(ii) By SE”

b. Layer VII of the default waterfall, as specified under clause 16 of the said Circular dated August 27, 2014, shall stand modified as under:

“VII. Capped additional contribution by non-defaulting members of the segment. **


(i) CC shall call for the capped additional contribution only once during a period of 30 calendar days regardless of the number of defaults during the period. The period of 30 calendar days shall commence from the date of notice of default by CC to market participants.

(ii) CCs shall have relevant regulations/provisions for non-defaulting members to resign un-conditionally within the abovementioned period of 30 calendar days, subject to member closing out/settling any outstanding positions, paying the capped additional contribution and any outstanding dues to SEBI. No further contribution shall be called from such resigned members.

(iii) The maximum capped additional contribution by non-defaulting members shall be lower of 2 times of their primary contribution to Core SGF or 10% of the Core SGF of the segment on the date of default in case of equity/ debt segments.

(iv) The maximum capped additional contribution by non-defaulting members shall be lower of 2 times of their primary contribution to Core SGF or 20% of the Core SGF of the segment on the date of default in case of derivatives segment.

(v) In case of shortfall in recovery of assessed amounts from non-defaulting members, further loss can be allocated to layer ‘VI’ with approval of SEBI.”

3. Clearing Corporations are directed to:

(i) put in place the adequate systems and issue the necessary guidelines for implementing the above decision.

(ii) make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision.

(iii) bring the provisions of this circular to the notice of the trading members/clearing members/custodians and also to disseminate the same on the website.

(iv) communicate to SEBI the status of implementation of the provisions of this circular through the Monthly Development Report.

4. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Securities Exchange Board of India

[Circular dt. 03-01-2020]


A core Settlement Guarantee Fund (SGF) is a corpus used for settlement of trades during defaults and all intermediaries — stock exchanges, clearing corporations, and brokers — contribute towards it.

Appointments & TransfersNews

Appointment of Executive Director of SEBI

Ms G. Babita Rayudu took charge as Executive Director in SEBI on 01-01-2020.

She will handle the Legal Affairs Department, Enforcement Department and Special Enforcement Cell (SEC).  Prior to her promotion as Executive Director, Ms. Rayudu was in the Legal Affairs Department in SEBI.

Securities Exchange Board of India

[Press Release dt. 01-01-2020]

PR No.: 1/2020

Legislation UpdatesRules & Regulations

Submission of Information to the Office of Informant Protection

Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) was amended, vide notification dated September 17, 2019, by inserting a new chapter (IIIA) dealing with informant policy in relation to insider trading laws. The amendments introduced therein came into force with effect from December 26, 2019.

The salient features of the informant policy are as follows:

1. Office of Informant Protection (‘OIP’): OIP has been established by SEBI as an independent office for receiving and processing Voluntarily Information Disclosure Form(s) (VID Form).

2. Submission of information: An informant may voluntarily submit original information pertaining to any violation of insider trading laws to the OIP, through a VID Form. The information may be submitted by the informant directly in which case his identity would be required to be revealed at the time of submission of the VID Form. In case, the information is submitted through a legal representative, the identity of the informant is not required to be revealed at the time of submission of the VID Form. However, the identity of the informant would be required to be revealed prior to payment of Reward, if any.

3. Reward: Reward would be given in case the information provided leads to disgorgement of at least Rupees one crore, in accordance with the PIT Regulations.

4. Confidentiality of Informant: The confidentiality regarding the identity of the informant would be protected through the OIP.

5. Protection against victimization: Every person required to have a Code of Conduct under PIT regulations shall ensure that such a Code of Conduct provides for suitable protection against any discharge, termination, demotion, suspension, threats, harassment, directly or indirectly or discrimination against any employee who files a VID Form.

Securities Exchange Board of India

[Press Release dt. 24-12-2019]

Cabinet DecisionsLegislation Updates

The Union Cabinet approved for withdrawing of the International Financial Services Centres Authority, 2019 Bill which was introduced in the Rajya Sabha on 12thFebruary, 2019 and pending in the Rajya Sabha and introducing the International Financial Services Centres Authority Bill, 2019 in the Lok Sabha in the ensuing session of the Parliament.


Currently, the banking, capital markets and insurance sectors in IFSC are regulated by multiple regulators i.e. RBI, SEBI and IRDAI. The dynamic nature of business in the IFSCs necessitates a high degree of inter-regulatory coordination.  It also requires clarifications and frequent amendments in the existing regulations governing financial activities in IFSCs.

The development of financial services and products in IFSCs would require focused and dedicated regulatory interventions.  Hence a need is felt for having a unified financial regulator for IFSCs in India to provide a world-class regulatory environment to financial market participants.

Further, this would also be essential from an ease of doing business perspective. The unified authority would also provide the much-needed impetus to further development of IFSC in India in-sync with the global best practices.


The Union Cabinet in its meeting held on February 6, 2019, had approved the proposal for the establishment of a unified authority for regulating all financial services through the introduction of the International Financial Services Centres Authority Bill 2019 in the Parliament.  Subsequently, the International Financial Services Centres Authority Bill, 2019 was introduced in the Rajya Sabha on February 12, 2019, by the then Hon’ble Minister of State (Finance).

The Lok Sabha Secretariat has now conveyed that this is a Finance Bill under Article 117(1) of the Constitution and that it should be introduced in Lok Sabha accordingly with the recommendation of the President under Article 117(1) and 274(1) of the Constitution.

Ministry of Finance

[Press Release dt. 20-11-2019]

[Source: PIB]

Op EdsOP. ED.


The Securities and Exchange Board of India (SEBI) has always been fraught with the arduous task of curbing insider trading but the difficulty in detecting and prosecuting the perpetrators still remains a challenge. This is primarily due to the fact that there is a dearth of clinching primary evidence which can prove the complicity of ones who commit insider trading thus, in turn having an adverse impact on the success rates and investigation timelines of such cases. SEBI has tried to eliminate this hindrance in the past by seeking powers to intercept and tap phone calls[1] to aid its investigation and surveillance machinery[2]. Moreover, it has also sought to grant immunity to whistleblowers or levy a lesser penalty on those who come forward with full and true disclosure of alleged violations. However, these measures have either not seen the light of day or their full-fledged execution is still a far-fetched thought.

On 10-6-2019, SEBI released a discussion paper[3] which proposed amendments to the SEBI (Prohibition of Insider Trading) Regulations, 2015. This paper presses the fact that mere regulator’s watch on illegal transactions is not enough to practically eliminate trading on the basis of unpublished price sensitive information (UPSI). In the current scenario, insiders are finding new ways to venture into illegal transactions including transactions through proxy which further makes tracking and proving any claims against such transactions even more taxing. Therefore, in a bid to uphold the sanctity of the securities market and to ensure better tracking, SEBI is intending to introduce an informant mechanism which brings informants to the forefront. The proposed mechanism will have a dedicated reporting window and also seeks to achieve near-absolute confidentiality with regards to the identity of the informants in order to alleviate any kind of deterrence stemming out from fear of discrimination, retaliation and prejudice.

This mechanism is not a sui generis phenomenon, as is evident from the effective application of similar mechanisms adopted by other countries to address the issue of insider trading. The European Union (EU) Market Abuse Regulation provides for a reporting mechanism on similar lines. The proposed mechanism is also somewhat similar to the vigil mechanism prescribed under Section 177(9) of the Companies Act, 2013.


The Committee on fair market conduct has made several recommendations to strengthen the legal framework for prevention of insider trading. Further, in Sahara India[4] vide its order dated 31-8-2012, the Supreme Court stated that Section 11(1) of the SEBI Act, 1992 casts an obligation to protect the interest of the investors in securities by such measures as it thinks fit. However, the Nifty WhatsApp leak incident[5] which witnessed price sensitive data of several Nifty companies being circulated through WhatsApp messages ahead of their scheduled disclosure to exchanges, proved to be the final nail in the coffin. The issue was even more perturbing because most of the leaked data matched those numbers to the tune of the last digit which were released subsequently. SEBI, on the other hand did not have any inkling on the source of the leak, as it did not have direct evidence against the individuals involved in the alleged insider trading.

Hence, SEBI finds it difficult to establish its claims that trading took place while in possession of UPSI. Establishing transmission of UPSI and proving flow of such information makes prosecution of defaulters very difficult for SEBI.

In the light of the aforementioned recommendations and cases, it is indisputable that there is an inherent exigency of measures which restrain instances of insider trading. So in this regard, the proposed informant mechanism will be beneficial as the company employees are likely to be acquainted with the unscrupulous activities of the management which are necessary to be established so that the irregularities may be exposed and timely action can be taken.

Proposed Features[6]

Voluntary Information Disclosure Form (VIDF) — Any informant having complete, original and credible information relating to an act of insider trading can inform SEBI either directly or through an advocate by submitting the VIDF. The informant can keep his identity confidential by submitting the VIDF through an advocate but the confidentiality may be compromised under the following circumstances—

(i) Non-compliance with the given regulations.

(ii) If the nature of the information is such that the informant is required to be examined.

(iii) When it is required in court proceedings.

(iv) For verification at the time of granting rewards.

Lastly, the source of original information has to be provided along with the undertaking that the information has not been sourced from any employee of SEBI.

Office of Informant Protection (OIP) — The OIP will be set up as an independent office and shall be separate from the inspection and investigation departments of SEBI. The OIP will be responsible for devising the policy relating to receipt and registration of VIDF, assessing the veracity of the information received and analysing the application of regulations. Once the information is processed, the same shall be forwarded to the relevant department, which would in turn suggest suitable enforcement action and recover amounts by way of disgorgement. Thereafter, the OIP will make a final decision with regards to issue of grant reward to the informant. The OIP will also be maintaining a hotline that will smoothen the process of submitting information.

Reward — The informant will be rewarded by SEBI only if the information provided by him is true, credible, complete and original. Further, the action taken on the basis of that information should lead to the disgorgement of five crore INR. The quantum of the reward set by SEBI shall be 10% of the monies collected but shall not exceed one crore INR. Moreover, an interim reward not exceeding ten lakhs INR shall be given at the stage of issuance of the final order by SEBI against the person directed to disgorge.

Protection against Victimisation — Listed companies and intermediaries would be required to alter their internal codes of conduct so as to incorporate provisions which ensure that no employee faces suspension, termination, demotion or discrimination, directly or indirectly, on grounds of filing VIDF or assisting SEBI.

Vexatious/Frivolous Complaints — If the OIP determines that any information submitted is of a vexatious or frivolous nature then SEBI may initiate appropriate action against the informant concerned under the securities and other applicable laws.

Amnesty — In cases where an informant facing enforcement action wilfully cooperates and assists SEBI, he/she may be eligible for a reward and settlement with confidentiality in the proceedings that may be initiated against him under the proposed amnesty clause.


At first sight, the discussion paper seems to be heavily sourced from the United States Securities and Exchange Commission’s (SEC) framework for protection of whistleblowers which was systematised under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,[7] and the three essential pillars of whistleblower protection policy which are anonymity, bounty and job security.

Under American law, the non-inclusion of the internal reporting requirement in the informant mechanism has been criticised as it tempts the employees to bypass internal compliance in pursuit of rewards. However, it is suggested that the internal compliance committee of a company should be combined with the informant mechanism so that SEBI does not face the same obstructions which regulators in US face owing to the short-sighted policy existing there in this regard.

Moreover, the discussion paper nowhere mentions the liability standards of the legal advisors if the confidentiality of the informant is compromised despite their best efforts. On the contrary, under American law, no liability shall be apportioned on the legal advisors in these cases.

Another shortcoming of the proposed discussion paper is that, it cuts down the smaller but more frequently occurring transactions from its purview. This goes against the very objective of the discussion paper which is to incentivise proactive reporting of insider trading. Hence, it will be better for SEBI to deploy additional resources and make insider trading investigations even more robust.

Additionally, the exception where informant’s confidentiality may be revealed on account of him being required to be present in court proceedings may, in turn, dilute the number of takers in cases where the informant is in a position to furnish primary evidence and is likely to be required for the enforcement as well.

Lastly, to achieve the objective of the discussion paper the upper limit imposed on the quantum of reward should be removed so that the employees are tempted and a proactive reporting mechanism is achieved. Conversely, under the Dodd-Frank Wall Street Reforms and Consumer Protection Act of 2010, there is no upper limit imposed on the quantum of reward and it varies from a range of 10%-30% of the total amounts collected[8] unlike as proposed in the discussion paper.


The discussion paper indicates SEBI’s intention to tighten its grasp on tracking down insider trading and take fitting action. The regulators appear optimistic that the increased protection and potential for financial awards available to the informants will foster increased transparency and a culture of accountability within the financial market.

SEBI must consider extending the informant mechanism to fraudulent and unfair trade practices. Lastly, this amendment would be a big weapon in the arsenal of SEBI as direct evidence gathered will leave fewer lacunae, reducing the chances of overturning of a SEBI order at the appellate stage.

  Fifth-year student, BA LLB (Hons.), National University of Advanced Legal Studies, Kochi.

††  Fourth-year student, BA LLB (Hons.), National University of Advanced Legal Studies, Kochi.

[1]  Report of Committee on Fair Market Conduct, available at <>.

[2] Report of Committee on Fair Market Conduct, available at <>.

[3]  Discussion Paper on amendment to the SEBI (Prohibition of Insider Trading) Regulations, 2015 to provision for an informant mechanism, available at < sebi-prohibition-of-insider-trading-regulations-2015-to-provision-for-an-informant-mechanism_43237.html>.

[4] Sahara India Real Estate Corpn. Ltd. v. SEBI, (2013) 1 SCC 1 : (2012) 174 Comp Cas 154.

[5] NSE, BSE Write to Companies over WhatsApp Earnings Leak, available at <>.

[6]  Discussion Paper on amendment to the SEBI (Prohibition of Insider Trading) Regulations, 2015 to provision for an informant mechanism, available at <>.

[7]  S. 922, Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010.

[8]  S. 922, Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010.

Business NewsNews

The Hon’ble Finance Minister as part of the Budget Speech for FY 2019-20 had proposed to initiate steps towards creating a social stock exchange, under the regulatory ambit of Securities and Exchange Board of India, for listing social enterprise and voluntary organizations.

Pursuant to initial discussions with various stakeholders, SEBI has decided to constitute a working group under the Chairmanship of Shri Ishaat Hussain (Director, SBI Foundation; Ex-Director (Finance) Tata Sons Limited). The other members of the working group shall be:

i. Shri TV Mohandas Pai, Chairman of Manipal Global Education; Ex-Director (Infosys)
ii. Ms. Roopa Kudva, MD, Omidyar Network India
iii. Shri Amit Chandra, Chairman, Bain Capital (Private Equity firm); noted philanthropist
iv. Dr. Saurabh Garg, Principal Secretary to Government of Odisha
v. Dr. Shamika Ravi, Director of Research, Brookings India; Member, PM’s Economic Advisory Council
vi. Shri Vineet Rai, – Founder and MD, Aavishkaar Venture Management Services Private Limited
vii. Representative from Ministry of Corporate Affairs
viii. Representative from Department of Economic Affairs
ix. Shri Hemant Gupta, MD &CEO, BSE Samman
x. Representative from NSE
xi. Shri Girish G. Sohani, President, BAIF Development Research Foundation
xii. Shri Amarjeet Singh, Executive Director (SEBI)
xiii. Ms. Ruchi Chojer, CGM (SEBI)
xiv. Shri Jeevan Sonparote, CGM (SEBI) – Convener

The working group shall examine and make recommendations with respect to possible structures and mechanisms, within the securities market domain, to facilitate the raising of funds by social enterprises and voluntary organizations.

Securities Exchange Board of India

[Press Release dt. 19-09-2019]