Op EdsOP. ED.

The doctrine of ‘double jeopardy’ protects a person from being punished again for the same offence, following a valid conviction or acquittal. It emanates from the legal maxim ‘non bis in idem’, which translates literally from Latin as ‘not twice in the same thing‘.

This rule is well recognised under Indian law and even finds place in the fundamental rights guaranteed under our Constitution. Article 20(2) of the Indian Constitution states “No person shall be prosecuted and punished for the same offence more than once”. Likewise, Section 300 of the Code of Criminal Procedure, 1978 (“CrPC”) protects a person once acquitted or convicted, from re-trial for the same offence or on the same facts for any other offence. Section 26 of the General Clauses Act, 1897 further goes on to protect from double prosecution under two or more enactments, limiting the prosecution and punishment to any one of those enactments.

The landmark case on the subject is the case of Thomas Dana v. State of Punjab [1], wherein a Constitutional Bench of five Judges of the Supreme Court evaluated the three requirements for double jeopardy i.e., prosecution, punishment and same offence and held that if these three requirements are satisfied, then the protection under Article 20(2) of the Constitution is guaranteed.

However, the question of ‘identity of offence’ is one to be determined on the facts and circumstances of a particular case. In a recent decision, the Securities Appellate Tribunal (“SAT”) in the case of PVP Ventures Ltd. v. Bombay Stock Exchange Ltd.[2], has held that Bombay Stock Exchange (“BSE”) and National Stock Exchange (“NSE”) can separately impose a penalty for violations of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). The penalty imposed was for non-compliance of provisions of Regulation 17 (Board of Directors) and Regulation 19 (Nomination and remuneration committee) of the LODR Regulations in two consecutive quarters.

The Appellant did raise a defence of double jeopardy and cited a former decision of Securities Appellate Tribunal (“SAT”).[3], wherein SAT considering this objection as a plausible one, referred this question to SEBI. In response to this, SEBI informed the Tribunal that it had considered the matter and took a conscious decision that separate penalties could be imposed by the stock exchanges. Following the suit, SAT has now diverged from its previous prima facie view. While making the reference to SEBI, SAT had observed that “the violation, if any, made by the appellant is of Regulation 17(1) of LODR Regulations. It is not a Stock Exchange based violation where each Stock Exchange would be within its right to impose a fine. Prima facie only one fine could be imposed and not two sets of fines by the Stock Exchanges. This aspect of a violation of the LODR Regulations, in our opinion, is required to be considered by SEBI.

Justifying the double whammy, SEBI while deciding the reference held the issuer company accountable for making a conscious decision of listing on multiple bourses, which may also entail consequence such as penalties from each exchange. SEBI also observed that the LODR Regulations put in place a framework, where the primary responsibility for monitoring compliance was assigned to the stock exchanges. In terms of Regulation 97 of the LODR Regulations, recognised stock exchanges have been mandated to monitor the compliance with the provisions of the regulations, by entities listed on such exchanges. Exchanges have simultaneously been empowered to take action against listed entities for non-compliances, inter alia by way of penalties, suspension of trading activities, etc.

Pertinently, as per the regulatory requirements prescribed under both the Companies Act and securities law, entities are mandatorily required to seek listing only on any one stock exchange having country wide terminals. While listing on multiple bourses may include additional liquidity, visibility, access to more trading members, etc., it may assail multiple penalties in case of a default. Even in the regime of Listing Agreements, prior to the LODR Regulations, non-compliance would have assailed consequences under each such agreement.

What therefore emerges, is that the doctrine of double jeopardy is not applicable in case of actions by multiple exchanges under the LODR Regulations.


 *Deputy Managing Partner, Naik, Naik & Company, Mumbai

** Senior Associate, Naik, Naik & Company, Mumbai

[1] 1959 Supp (1) SCR 274.

[2] 2021 SCC OnLine SAT 90.

[3] W.S. Industries (India) Limited vs. BSE Ltd. 2019 SCC OnLine SAT 389

Op EdsOP. ED.

A. Reforms to the independent directors’ regime

 The modern business corporations are often shrouded with a perplexing issue – which stakeholder should perform the governance activity and what is the appropriate way that one must bestow risks and rewards on various stakeholders of the company? According to one school of thought, the corporate entity is a “legal fiction”[1] wherein the managers undertake various profit-making activities keeping in mind the interests of the shareholders of such entity. Whereas there is an opposing view which considers the corporate entity as a “social being”[2] i.e. it owes obligations towards not only shareholders, but also towards the employees and the society.

The Securities Exchange Board of India (SEBI) vide consultation paper dated 1-3-2021 (Consultation Paper), proposed a slew of measures to address the extant corporate governance scenario in India[3] and thereafter, SEBI at its board meeting of 29-6-2021 (Board Meeting), retracted certain proposals which were aimed at overhauling the Indian corporate governance framework, while duly approving several other proposals.[4]

In the Consultation Paper, SEBI noted that an independent director (ID) is a critical spoke in the entire wheel of corporate governance, especially in the case of safeguarding minority shareholders’ rights.[5]Subsequent to the corporate sector being confronted with two recent corporate governance failures viz. the dismissal of Nusli Wadia (ID at certain Tata group companies) for supporting the minority shareholder group in the Tata v. Mistry dispute[6] and PNB Bank – Nirav Modi scam[7], SEBI attempted to solve two pertinent issues (i.e. conflict of interest arising from proximity of ID with the promoter and insufficient protection of minority shareholders’ rights) by promoting the UK and Israel model of appointment/reappointment of IDs.[8]

Accordingly, in the Consultation Paper, SEBI proposed for appointment and reappointment of IDs through “dual approval” route i.e.

“(i) approval of shareholders;

(ii) approval by ‘majority of the minority’ (simple majority) shareholders.

The approval at point (i) above, shall be through ordinary resolution in case of appointment and special resolution in case of reappointment. If either of the approval thresholds are not met, the person would have failed to get appointed/re-appointed as ID.

Further, in such case, the listed entity may either:

(i) propose a new candidate for appointment/reappointment; or

(ii) propose the same person as an ID for a second vote of all shareholders (without a separate requirement of approval   by ‘majority of the minority’), after a cooling-off period of 90 days but within a period of 120 days. Such approval for appointment/reappointment shall be through special resolution and the notice to shareholders will include reasons for proposing the same person despite not getting approval of the shareholders in the first vote.”

Similarly, in the Consultation Paper, SEBI promoted for a dual approval system for removal of IDs as well. However, in its Board Meeting, SEBI disregarded this dual approval approach entirely and mentioned that any appointment, reappointment, and removal of IDs shall be carried out through a special resolution in the listed companies.[9] The amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015[10], reflecting this approach will be effective from 1-1-2022. It is noteworthy that the SEBI Board of Directors also agreed to make a reference to the Ministry of Corporate Affairs, for giving greater flexibility to the companies while deciding the remuneration for all directors (including IDs), which may include profit-linked commissions, sitting fees, Employees Stock Ownership Plans (ESOPs), etc., within the overall prescribed limit specified under the Companies Act, 2013[11]. This would certainly enable companies to a great extent in securing qualified and competent directors.

However, these laudatory measures may not be adequate in distancing IDs from their alleged entwined relationship with the promoter group and thereby, lingering doubts remain regarding IDs being truly “independent” or not.

It is worthwhile to note that the Report of Kumar Mangalam Birla Committee on Corporate Governance in the year 2000 made a forward-looking statement that the corporate governance mechanism needs to be dynamic to cater to the needs of increased competition in the markets and rapidly evolving technological systems.[12] It is not all water under the bridge yet and the regulators could give more teeth to the relevant listing regulations so that the listed entities adhere to 3Cs approach (i.e. compliance, conduct and competence) while selecting, removing and setting out the roles and responsibilities of IDs.

B. Proposed reforms to the promoter regime

In a welcome move and in line with SEBI’s continuous efforts to adopt international best practices, SEBI had floated a consultation paper earlier this year in May 2021 proposing a shift from the concept of a “promoter” to a “person in control”.[13] This would be a most fundamental change, potentially impacting current regulations under the Indian companies’ law, restructuring & insolvency law, banking & insurance law and the merger-control regime, particularly in the context of “control”.

The proposed reform is an acknowledgement of the current scenario relating to ownership and control of a number of Indian companies, which is indeed shifting from the traditional family-owned, closely held structures, to widely dispersed shareholding, with institutional and private equity investments and often, nothaving a clearly identifiable “promoter” or “promoter group”, a concept which in itself is fairly unique to the Indian companies.

The Consultation Paper has even cited that:

The aggregate shareholdings of promoters in the top 500 listed entities in terms of market value, peaked at 58% in 2009 and is showing a downward trend. The promoters’ shareholding was approximately 50% in 2018. At the same time, the shareholding of institutional investors in the top 500 listed companies, in terms of market value, increased from approximately 25% in 2009 to 34% in 2018[14].

This is also a reflection of continuing control deals across sectors by private equity investors, and often tailored to unique situations in the Indian mergers & acquisitions and private equity regime.

One needs to be mindful about the fact that the “promoter” concept is deeply entrenched amongst Indian companies and the proposed reform will also require a mindset change, which the consultation paper has appropriately planned for by proposing that such reform is carried out over a period of 3 years.

On 6-8-2021, the SEBI Board of Directors gave its in-principle approval to “shifting from the concept of promoter to ‘person in control’ or ‘controlling shareholders’ in a smooth, progressive and holistic manner”[15].


*Partner at Quillon Partners (formerly Platinum Partners, Mumbai). Rohan’s LinkedIn profile can be accessed at https://in.linkedin.com/in/rohan-kumar-a53187a.

**Senior Legal Manager at SpiceJet Limited, an airline company in India. Shinjni’s LinkedIn profile can be accessed at https://in.linkedin.com/in/shinjnikharbanda.

The authors would like to clarify that the views mentioned in this article are the authors’ personal views and do not reflect the views of their respective organisations.

[1]Lynn S. Paine and Suraj Srinivasan, A Guide to the Big Ideas and Debates in Corporate Governance, Harvard Business Review (2019) <https://hbr.org/2019/10/a-guide-to-the-big-ideas-and-debates-in-corporate-governance>.

[2]Gerald F. Davis, Marina V.N. Whitman and Mayer N. Zald, The Responsibility Paradox, Stanford Social Innovation Review (Winter 2008) <https://ssir.org/articles/entry/the_responsibility_paradox>.

[3]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[4]SEBI, SEBI Board Meeting, SEBI Press Releases (June 2021) <https://www.sebi.gov.in/media/press-releases/jun-2021/sebi-board-meeting_50771.html>.

[5]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[6]UmakanthVarottil, SEBI’s Backtrack on Independent Directors, The Indian Express (July 2021) <https://indianexpress.com/article/opinion/columns/tata-mistry-corporate-dispute-nusli-wadia-sebi-appointment-removal-of-independent-directors-7403380/>.

[7] Param Pandya, Public Sector Banks in India: Revisiting Regulatory and Corporate Governance in the Light of the PNB Scam, South Asia @ LSE blog (30-5-2018) <https://blogs.lse.ac.uk/southasia/2018/05/30/public-sector-banks-in-india-revisiting-regulatory-and-corporate-governance-in-the-light-of-the-pnb-scam/>

[8]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[9]SEBI, Consultation Paper on Review of Regulatory Provisions related to Independent Directors, SEBI Reports and Statistics (March 2021) <https://www.sebi.gov.in/reports-and-statistics/reports/mar-2021/consultation-paper-on-review-of-regulatory-provisions-related-to-independent-directors_49336.html>.

[10]Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

[11]Companies Act, 2013.

[12]SEBI, Report of the Kumar Mangalam Birla Committee on Corporate Governance, SEBI Reports (2002) <https://www.sebi.gov.in/media/press-releases/oct-1999/corporate-governance_18186.html>.

[13]SEBI, Consultation Paper on Review of the regulatory framework of promoter, promoter group and group companies as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI Reports (11-5-2021) <https://www.sebi.gov.in/reports-and-statistics/reports/may-2021/consultation-paper-on-review-of-the-regulatory-framework-of-promoter-promoter-group-and-group-companies-as-per-securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-re-_50099.html>.

[14]SEBI, Consultation Paper on Review of the regulatory framework of promoter, promoter group and group companies as per Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, p. 6, SEBI Reports (11-5-2021) <https://www.sebi.gov.in/reports-and-statistics/reports/may-2021/consultation-paper-on-review-of-the-regulatory-framework-of-promoter-promoter-group-and-group-companies-as-per-securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-re-_50099.html>.

[15]SEBI, Minutes of SEBI Board Meeting, SEBI Press Releases (6-8-2021)

<https://www.sebi.gov.in/media/press-releases/aug-2021/sebi-board-meeting_51707.html>

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI)-Madhabi Puri Buch, Whole Time Member, while exercising powers under Section 19 read with Sections 11(1), 11(4) and 11B (1) and 11B(2) of the Securities and Exchange Board of India Act, 1992 restricted the Noticees involved in manipulation of the scrip.

In the present matter the show cause notice alleged that 21 connected entities (i.e. the ECL group) and 10 amalgamation allottees acted in concert in the scheme in manipulating the scrip price and facilitated in sale of shares by amalgamation allottees at a higher price thereby enabling the 10 amalgamation allottees to make wrongful gains. It was found during the investigation connected Noticees 1 to 18 (ECL group entities) acted in concert in trading in small quantity, at price above LTP, as counter parties to each other’s trades, etc. manipulated the price of the scrip and created a misleading appearance of trading in the scrip. And the 10 amalgamation allottees connected to the ECL Group sold majority of shares at a higher price to these connected ECL Group entities not buy any share during the IP except one. Thus Noticee 1 to 18, are alleged to have violated Section 12 A (a), (b), (c) of SEBI Act 1992, Regulation 3 (a), (b), (c), (d), 4(1) and 4(2) (a) and (e) of SEBI (PFUTP) Regulations, 2003. And through the trading patterns Noticee 31 showed the Noticee was not acting as a genuine buyer and had no bona fide intention to buy in-spite of sufficient sell order quantity being available in the market. And Noticee 32 by virtue of being in promoter and promoter group, for non-disclosure of acquisition of the shares of the company.

The Tribunal after considering the contentions and the submissions put forth was of the view that,

Few Noticees have contended that the price and volume rise was result of the corporate  announcements  and  listing  and  the  same  has  not  been  considered during the price volume analysis. It is worthwhile to mention here that, at the time when   the   price   of   ECL   share   was   going   up,   there   were   no   corporate  announcements other than declaration of financial results, shareholding pattern and  appointment/change  of  directors”. It found that the 18 connected Noticees traded among themselves and manipulated the price of the scrip and created misleading appearance of trading in the scrip”.

It considered the facts established and further stated that,

“All these above facts confirm that the price and volume movements by the connected Noticees was a calibrated effort towards price increase. Further being an illiquid scrip the entities acting in concert can easily manipulate the volume and price acting counter parties to each other’s trades. Since the number of the traders available for the scrip are not too many, the execution is difficult and therefore time difference between the order placing and the execution time are immaterial as the same are played by the manipulators itself”.

The Tribunal referred to the SAT’s order Bhavesh Pabari v. SEBI decided on July 3, 2012,

 “…We agree with the adjudicating officer that matching of a large number of trades between the selected set of persons/entities for a considerable period of time in illiquid scrip cannot be a coincidence. Therefore, the adjudicating officer has rightly concluded that on the basis of the material on record, it is established that the appellant acted in collusion with others and created artificial volumes in the market and also influenced price of the scrip by placing and executing a large number of buy orders at a price higher than the last traded price and indulged in unfair trade practices”.

The Tribunal considered that the contentions put forth by the Noticees were not tenable because the Noticees are participants in the scheme. And therefore, restricted the Noticees from the securities market for different relevant periods. Also directed them to disgorge the amount so collected.[Excel Castronics Limited, In re, WTM/MB/IVD/ID11/13672/2021-22, decided on 01-10-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI)-G Mahalingam, Whole Time Member, restricted the entities from the securities market, involved in the fraudulent issuance of GDRs without appropriate disclosures. However, the Tribunal disposed of the proceedings against Noticee 1 without any directions since was already ‘under liquidation’. The Tribunal stated,

“…that Hiran Orgochem in connivance with Vintage FZE devised a fraudulent scheme whereby Vintage FZE received GDRs without paying any consideration, at the cost of the shareholders / investors of Hiran Orgochem. Further, the Director of Hiran Orgochem i.e. Kantilal Hiran, is liable for the above mentioned fraudulent scheme as he was fully involved in the day–to–day activities of the Company, and had complete knowledge of the activities of the Company during the process of issuance of GDRs”.

In the pertinent matter the question under scrutiny was whether the shares underlying the GDRs were issued with proper consideration and with appropriate disclosures with respect to the GDRs issue. The show cause notice alleged that issuance of GDRs by Hiran Orgochem (Noticee 1) was fraudulent as the Company had entered into a Pledge Agreement with EURAM Bank for a loan that had been availed by Vintage FZE towards the subscription of GDRs issued by the Company. The Pledge Agreement was not disclosed to the stock exchanges which, the SCN alleges, made the investors believe that the said GDR Issue was genuinely subscribed to by the foreign investors.

The Tribunal considering the chronology of events believed that it clearly brought out the fact that there was an understanding between Hiran Orgochem and Vintage FZE. The Tribunal was of the opinion,

“…from a conjoint reading of the above mentioned terms of the Loan Agreement and the Pledge Agreement, it is quite clear that the pledging of the proceeds of the GDR Issue by way of a Pledge Agreement to allow the said deposit account to be used as security for all the obligations of Vintage FZE under the Loan Agreement, was a pre–condition for the grant of loan to Vintage FZE. The simultaneous execution of both the Loan Agreement and the Pledge Agreement indicates that Hiran Orgochem was itself financing the subscription of its GDR Issue”.

After considering the relevant facts and the entire scheme of fraudulent activities, the Tribunal concluded that Arun Panchariya, the Director of Vintage FZE was not only instrumental but was the principal architect in activation and orchestration of the fraudulent scheme and benefitted the most from the same being the beneficial owner of Vintage FZE, resultantly was restricted from accessing the securities market for 10 years. Kantilal Hiran was restricted from holding any key managerial position and from the market for three years. Similarly, Vintage FZE was part of the fraudulent scheme as a consequence of which, it received a large number of GDRs without payment of consideration, and hence was restricted from the market for eight years. Restricted Noticee 5, Mukesh Chauradiya for three years, Noticees 6 and 7 for 10 years and Noticees 8,9,10 for two years.[GDR Issue of Hiran Orgochem Ltd., In re, WTM/GM/IVD/ID4/13684/2021–22, decided on 06-10-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Legislation UpdatesNotifications

The Securities and Exchange Board of India has banned the usage of pool accounts for mutual fund transactions on October 6, 2021.

 

Key points of the circular are:

  • The asset management companies (AMCs) shall ensure that intermediate pooling of funds or units in any manner by MFDs, IAs, MFU, channel partners or any other service providers/ platforms are discontinued for Mutual Fund transactions.
  • This requirement shall not apply to the SEBI registered Portfolio Managers subject to compliance with SEBI (Portfolio Managers) Regulations, 2020. The AMCs shall put in place necessary systems to ensure that transactions of funds and units pertaining to subscription as well as redemption are directly done between the accounts of the investors and the mutual fund scheme accounts concerned. There will not be any intermediate pooling.
  • In order to ensure that the folio and source bank account belong to the same person, AMCs shall make sure that payment for MF transactions are accepted through only such modes where independent traceability of end investor can be ensured and source account details are available as audit trail without relying on any other intermediary’s records.
  • AMC would be liable to compensate for losses, where unauthorised transaction(s) occur(s) in unit holder’s folio due to fraud/ negligence/ deficiency on the part of the AMC, employee of AMC or persons/ entities whose services have been availed by the AMC including the platform providers, MFDs, RTAs, MFU, and channel partners, irrespective of whether or not the fraud is reported by the unit holder.

*Tanvi Singh, Editorial Assistant has reported this brief.

Legislation UpdatesNotifications

The Securities and Exchange Board of India has issued circular on Disclosure of Complaints against Stock Exchange and Clearing Corporation on October 04, 2021. The provisions of this circular shall come into effect from January 01, 2022, and the disclosure requirements are in addition to those already mandated by SEBI.

 

Key highlights of the circular are:

  • The Stock Exchanges and the Clearing Corporations are advised to disclose on their websites, the data on complaints received against them and redressal thereof, latest by 7th of succeeding month.
  • The provisions of the circular in context shall come into effect from January 01, 2022.
  • The Stock Exchanges and Clearing Corporations are advised to make necessary amendments to the bye-laws, rules, and regulations, and communicate to SEBI, the status of the implementation of the provisions of this circular through the Monthly Development Report (MDR).
  • This circular is issued in exercise of the powers conferred under Section 11(1) of the SEBI Act, 1992 read with Section 10 of the Securities Contracts (Regulations) Act, 1956 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI)-G Mahalingam, Whole Time Member, in a detailed 95 paged order, while disposing off the proceedings against Noticee 1 without any directions, considering the order for winding up of the Company by the High Court of Calcutta, issued directions for Noticee 1 in case the same order is reversed, for any reason. Further, passed relevant directions against Noticees 2-11, for orchestrated acts of GDR issues by several listed companies in India, to reap benefits by sitting on the other side of the issuance and subscribing to the GDRs, through an arrangement.

In the instant matter it was alleged that the Noticees were involved in several other GDR (Global Depository Receipts) issues wherein loan was taken by a foreign entity and the security of the loan was provided by the GDR issuing company by signing an account charge/pledge agreement. And that the Noticee 5, Arun Panchariya (beneficial owner), was the main architect in the activation of the fraudulent scheme, having orchestrated the whole scheme, including the GDR issuance, subscription of GDRs, and conversion of the GDRs and sale of the equity shares through a concerted efforts of all in the scheme, with the intention of making illegal gains. And, the Noticees 9-13 acted as conduits by facilitating the sale of illegally acquired securities in the securities market.

Notably, the Tribunal also considered the relevant fact that this particular event was not an isolated occurrence, where it was observed that Noticee 5 was central to the fraud perpetrated on the investors in the Indian securities market. For the same,  Pan Asia Advisors Limited  v. SEBI Appeal No. 126 of 2013, was referred to where the  SAT while dismissing the appeal filed by the appellants therein, had inter alia observed,

 “Even though all GDRs were not converted and sold, it is apparent that the modus operandi adopted by the appellants was not only to create an artificial impression that the GDRs have been subscribed by foreign investors, but also to create an impression that after the GDR Issue, investors in India have started subscribing to the shares of issuer companies when in fact the shares were sold and acquired by the entities controlled by Arun Panchariya. In these circumstances inference drawn by SEBI that at every stage of the GDR Issue, the acts committed by the appellants constituted fraud on the investors in India cannot be faulted. …”

The Tribunal keeping all the above observations made in the past and the inference drawn from such observations, was of the opinion that,

“It appears that the whole series of GDR issues by several listed companies in India was an act orchestrated by Arun Panchariya to reap benefits by sitting on the other side of the issuance and subscribing to the GDRs through an arrangement with Vintage. The respective Indian companies have also apparently participated in such schemes. Accordingly, as brought in the foregoing paragraphs, in view of the repetitive nature of such acts along with the gravity of the offences that have been perpetrated by Arun Panchariya, I am of the considered opinion that stern measures need to be taken against him and his connected entities”.

Resultantly gave the following directions:

  • Noticee 2, 3, 4  to be restrained from accessing the securities market for a period of 3 years and restrained for a period of 3 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 5 to be restrained from accessing the Indian securities market for a period of 10 years and restrained for a period of 10 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 6 to be restrained from accessing the Indian securities market, for a period of 8 years.
  • Noticee 7 to be restrained from accessing the Indian securities market for a period of 3 years and restrained for a period of 3 years from holding any position of Director or key managerial personnel in any listed company or any intermediary registered with SEBI.
  • Noticee 8 to be restrained from accessing the Indian securities market for a period of 8 years.
  • Noticee 9  and Noticee 10 to be restrained from accessing the securities market, for a period of 8 years and
  • Noticee 11, Noticee 12  and Noticee 13 to be restrained from accessing the securities market for a period of 2 years.
  • While Noticees 5, 6, 9, 10 were further directed to disgorge illegal gains of Rs. 4,93,85,831.43, made by way of sale of equity shares, with an  interest of 12% per annum.

[Vikash Metal and Power Limited, In re,WTM/GM/IVD/ID4/13571/2021-22, decided on 29-09-2021]


Agatha Shukla, Editorial Assistant has put this report together 

Legislation UpdatesNotifications

SEBI vide circular dated September, 2020 issued “ Guidelines for Investment Advisers” which prescribed timeline of six months from the end of each financial year for Investment Advisers (IA) to conduct annual audit in respect of compliance of SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) and circulars issued thereunder.
After due consideration, for financial year ending March 31, 2021, it has been decided to extend the timeline for compliance with the aforesaid requirements by three months.
Accordingly, the Circular stands partially modified as under:
  • In accordance with clause 2 (vii) of the Circular, for financial year ending March 31, 2021, the IAs shall conduct the annual compliance audit by December 31, 2021 and submit the adverse findings of the audit, if any, by January 31, 2022.
  • Further, in accordance with clause 2 (i) of the Circular, for financial year ending March 31, 2021, IA shall obtain a certificate from an auditor by December 31, 2021.
Legislation UpdatesNotifications

On September 29, 2021, SEBI has issued a circular Swing pricing framework for mutual fund schemes. The Swing pricing framework was introduced for open ended debt mutual fund schemes (except overnight funds, Gilt funds and Gilt with 10-year maturity funds). The circular shall be applicable with effect from March 1, 2022.
Under this framework, to begin with, the swing pricing framework will be made applicable only for scenarios related to net outflows from the schemes. The framework shall be a hybrid framework with:
  •  a partial swing during normal times and
  •  a mandatory full swing during market dislocation times for high risk open ended debt schemes.

Swing pricing for normal times

  • For normal times, the swing pricing framework is stipulated as under:
(i) AMFI shall prescribe broad parameters for determination of thresholds for triggering swing pricing which shall be followed by the AMCs. AMFI shall also prescribe an indicative range of swing threshold to the industry for normal times.
(ii) Additionally, AMC may be allowed to have other parameters, if it desires so, considering the nature and characteristics of the mutual fund scheme.
(iii) For normal times, AMCs shall decide on the applicability of swing pricing and the quantum of swing factor depending on scheme specific issues.
(iv) All of the above shall be disclosed by the AMC in its Scheme Information Document (SID).
  • AMCs may, if they desire so, implement the swing pricing framework for normal period, after incorporating clauses pertaining to the same in their SIDs and the same shall be considered as a Fundamental Attribute Change of the scheme in terms of regulation 18(15A) of SEBI (Mutual Fund) Regulations, 1996.

Swing pricing for market dislocation

  • For the purpose of determining market dislocation, AMFI shall develop a set of guidelines/parameters/model for recommending the same to SEBI. SEBI will determine ‘market dislocation’ either based on AMFI’s recommendation
    or suo moto. Once market dislocation is declared, it will be notified by SEBI that swing pricing will be applicable for a specified period.
  • Subsequent to the announcement of market dislocation, the swing pricing framework shall be mandated only for open ended debt schemes (except overnight funds, Gilt funds and Gilt with 10-year maturity funds) which have:
    1. have High or Very High risk on the risk-o-meter;
    2. classify themselves in the cells A-III, B-II, B-III, C-I, C-II and C-III of Potential Risk Class (PRC) Matrix.
For more details, refer HERE
Legislation UpdatesNotifications

The Securities & Exchange Board of India has revised the Risk Management Framework (RMF) for Mutual Funds vide circular dated September 27, 2021. The Circular provides a set of standards comprising the policies, procedures, risk management functions and roles and responsibilities of the management, the Board of Asset Management Companies (AMC) and the Board of Trustees. Key points of the Framework are:

  • The AMCs shall perform a self-assessment of their RMF and practices and submit a report to their Board along with the roadmap for implementation of the framework.
  • The elements of RMF have been segregated into ‘mandatory elements’ which should be implemented by the AMCs and ‘recommendatory elements’ which address other leading industry practices that can be considered for implementation by the AMCs.
  • The self-assessment must be completed and the necessary systems must be in place at the AMCs to enable compliance with the provisions of this circular with effect from 1st January, 2022. However, AMCs may choose to adopt the provisions of this circular before the effective date.
  • Compliance with the RMF should be reviewed annually by the AMC.
  • Reports of such reviews shall be placed before the Board of AMC and Trustees for their consideration and appropriate directions. Trustees may forward the findings and steps taken to mitigate the risk along with their comments to SEBI in the half-yearly trustee reports.
  • There shall be at least one CXO level officer identified to be responsible for the risk management of specific functions of the AMC/Mutual Fund.

The framework will be effective from January 01, 2022.

For details, refer to Risk Management Framework (RMF) for Mutual Funds.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India- Ananta Barua, Whole Time Member, while agreeing with the Enquiry Report, restrained SIC Stocks and Services Pvt. Ltd. from accepting new clients for a period of three months and further warned Sidharth Handa and Gita Handa to ensure that all their future dealings in the securities market should be done strictly in accordance with law. Though the proceedings against Col. Rajinder Handa stood abated

In the pertinent case after the Enquiry Report in the show cause notice it was alleged that the Noticees had created false and artificial market in shares of Vertex Group Ltd. (VSL) during the investigation period by executing synchronised trades, self-trades, cross dealings as a stock broker for promoters/ directors and connected entities of VSL resulting in inflation of the price and volume of VSL and further made third party transfers of client funds, thereby indulging in fraudulent trade practices. It was further alleged that the Noticees failed to exercise due skill, care and diligence expected from stock-brokers. While in reply to the show cause notice (after many recalling attempts) the Noticees denied any such advice given to the clients and further submitted that there was an inordinate delay in initiation of the proceedings and the SCN has been issued after more than 8 years from the alleged violation and investigation. While it contended that any action at this stage would amount to ‘triple jeopardy’ amounting to judicial insubordination.

While agreeing to the Enquiry report and rejecting the submissions of the Noticees, considering the total penalty of Rs. 26,00,000 levied by the adjudicating authority appointed by SEBI, on the Noticees for the impugned transactions,  the Tribunal restrained SIC Stocks and Services Pvt. Ltd. from accepting new clients for a period of three months and further warned Sidharth Handa and Gita Handa to ensure that all their future dealings in the securities market should be done strictly in accordance with law. Though the proceedings against Col. Rajinder Handa stood abated.[Vertex Spinning Ltd., In re, WTM/AB/EFD1/DRA4/20/2021-22, decided on 21-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member, in a detailed order held that the Managing Director, Abhay Bhutada along with the other entities, was involved in insider trading, and resultantly restrained the entities from the securities market, impounded their bank accounts among other things.  Further stated that if the Entities had any open position in any exchange traded derivative contracts, they can square off such open positions within three months from the date of order or at the expiry of such contracts, which ever is earlier.

In the pertinent matter, SEBI conducted preliminary examination into the trading scrip of Magma (a non-banking finance company)  to ascertain as to whether certain entities traded in the said scrip while they were in possession of the basis of Unpublished Price Sensitive Information ( UPSI) which were later alleged as contravention of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with the SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as “PIT Regulations, 2015”).

The Tribunal in a detailed order of 46 pages, gave brief findings explaining the role of each entity in the manipulative, unusually abnormal trading pattern, wherein the relations between the entities was further established by the phone records and the transactions into the bank accounts.

The Court made several observations, such as:

– factual findings on the connections, phone calls and funds transfers amongst various Entities as well as transmission of UPSI from Entity no. 1 to other Entities as dealt with in detail in preceding paragraphs, it can now be prima facie held that the Entities, by pursuing a modus operandi, have carried out insider trading activities in the scrip of Magma, wherein each Entity has played his / her respective part in pursuance of the said modus operandi. Entity no. 1 by communicating UPSI to Entity nos. 2, 6 and 8 enabled them to engage themselves or facilitate other Entities to indulge in insider trading activities, and as is clearly borne out from the activities of Entity nos. 2, 6 and 8, they have quite apparently engaged themselves in insider trading activities.

-that this was a ‘compelling case of preponderance of probabilities leading to a prima-facie observation’.

-the sudden spurt of exuberance on the part of Entity no. 3 as an investor/trader in securities market towards a specific scrip i.e. the scrip of Magma and consequently such an abnormal trading in the scrip of the said Company during the UPSI period as demonstrated above, preponderantly indicates that the trades executed by Entity nos. 2 and 3 from the trading account of Entity no. 3 were prima facie based on or influenced by the possession of UPSI, by both the Entities.

-from the aforementioned business connections and financial dealings, apparently it becomes obvious that Entity no. 1 and 6 have known to each other for many years and both the Entities shared certain commercial relationships over the years.

-the trading done in the accounts of Entity nos. 6 and 7 in the scrip of the Company appears to be significantly influenced by the possession of UPSI by Entity no. 6.

-the fact that the trading account of Entity no. 6 with HDFC Securities from where the trades in the scrip of Magma were executed by Entity no. 6, was opened only on February 08, 2021 i.e. just one day prior to the trading in Magma, raises stoutly a bonafide suspicion about the abnormal trading pattern followed by these two Entities in the scrip of Magma.

-It is evident from the banking transactions noted in the paragraph above more so from such large amount of funds transfer in favour of Entity no. 1 from a company in which Entity no. 8 is the significant beneficial owner (SBO), that Entity no. 8 is sharing a close relationship with Entity no. 1.

-the funds for the buy trades executed in the scrip of Magma by Entity nos. 4 and 5 were sourced from premature withdrawal of Fixed Deposits and taking credit from the Overdraft account by Entity no. 4 and his wife

And held, I find that the pictorial representation (Figure 2) given below this paragraph very well illustrates the connections enjoyed and funds transfers made by different Entities amongst themselves as well as the trades executed by certain Entities in the scrip of Magma during the UPSI period based on or influenced by possession of UPSI which was prima facie transmitted by Entity no. 1 to other Entities. In my view the pictorial illustration provided below is fairly self-speaking and makes a very strong prima facie case of insider trading indulged in by the Entities based on preponderance of probabilities emerging out of the factual details about possession as well as communication of UPSI and use thereof for the insider trading in the scrip of Magma which have been explained at length in the preceding paragraphs of this order”.

Ensuingly impounded the bank accounts:

(i) Entity nos. 1, 6, 7 and 8 shall be jointly and severally liable for an amount of ₹8,32,80,941.

(ii) Entity nos. 4, 5 and 6 shall be jointly and severally liable for an amount of ₹3,49,95,920.

(iii)Entity no. 2 and 3 shall be jointly and severally liable for an amount of ₹1,76,03,579.

[Magma Fincorp Limited (now known as Poonawalla Fincorp Limited), In re, WTM/SM/ISD /13379/2021-22,decided on 15-09-2021


Agatha Shukla, Editorial Assistant has reported this brief.

OP. ED.Practical Lawyer Archives

Remuneration to executive and non-executive directors has always one of the most deliberated and debated topics in corporate governance. The topic gains importance as there it involves outflow of money from the company, calculation of net profits, disclosures to its shareholders, approval of directors, shareholders and remuneration Committee. Remuneration to directors of loss-making company or company which is very sensitive to the economy or sector performance is always in the limelight. This article is an analysis of the important and relevant provisions of the Companies Act and the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 w.r.t. remuneration to non-executive directors. There is also a reference to the recent amendment introduced to Schedule V of the Companies Act.

Limits on the remuneration to directors

According to the provisions of Section 197 of the Act, the total managerial remuneration payable by a public company, to its directors (including managing director, whole-time director, non-executive directors whether independent or not), and its manager in respect of any financial year shall not exceed 11% of the net profits of that company for that financial year. The net profits shall be computed in the manner laid down in Section 198 of the Act.

The company in general meeting may, authorise the payment of remuneration 11% of the net profit of the company. Earlier this required the approval of the Central Government. But now, the approval of Central Government is not required by the amendment introduced by Companies (Amendment) Act, 2017. By this provision, the company can take an approval of the shareholders in general meeting and authorise payment of remuneration up to 30% (an example) of the net profit of the company.

Limits on the remuneration to non-executive directors under the Companies Act

According to Section 197 of the Act, except with the approval of the company in general meeting by passing a special resolution, the company can pay remuneration to its non-executive directors as follows:

(a) 1% of the net profit of the company, if there is an existing managing or whole-time director or manager. Here “1% of the net profit” means for all non-executive directors of the company (whether independent or not).

(b) 3% of the net profit in any other case i.e. where there is no managing or whole-time director or manager. In situation is very rare, where all the directors are non-executive directors. Here “3% of the net profit” means for all non-executive directors of the company (whether independent or not).

With the amendments introduced by the Companies (Amendment) Act, 2017, with the approval of shareholders in general meeting by special resolution, the above percentages can be changed. However, in such case, the company would be required to obtain few more approvals. Where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, the prior approval of the bank or public financial institution concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general meeting.

The above percentages do not include sitting fees. Such payment is excluded from the calculation of the remuneration to directors.

Section 197(6) of the Act provides that a director (i.e. any director–executive director or non-executive director) or manager may be paid remuneration either by way of a monthly payment (i.e. salary) or at a specified percentage of the net profit of the company (i.e. commission) or partly by one way and partly by the other (i.e. combination of both).

Remuneration to non-executive directors in a loss-making company

Till the Companies (Amendment) Bill, 2020 [now, Companies (Amendment) Act, 2020], there was no specific provision in the Act to pay non-executive directors by way of commission, in the event of loss or inadequate profits of the public company.  Section 197(3) of the Act was amended by the Companies (Amendment) Act, 2020, wherein a company having no profits or inadequate profits, can pay to all its directors (executive and non-executive directors) by way of remuneration any sum in accordance with the provisions of Schedule V to the Act.

It is important to note here that even in the case of inadequate profits or losses, the sitting fees paid by the company is not a part of the remuneration to directors.

The Ministry of Corporate Affairs (MCA) has amended[1] Schedule V of the Companies Act, 2013, in Part II, under the heading—“Remuneration” and allowed companies to pay remuneration to non-executive directors or independent directors. The limit of yearly remuneration payable to such directors shall not exceed prescribed amount. The maximum amount of remuneration depends upon the effective capital of the company. Where in any financial year during the currency of tenure of non-executive directors or independent directors, a company has no profits or its profits are inadequate, it may, pay remuneration to such director not exceeding, the limits given below:

Sl. No. Where the effective capital

(in rupees) is

Limit of yearly remuneration payable shall not exceed (in rupees) in case of non-executive directors or independent directors
1 Negative or less than 5 crores. 12 lakhs
2 5 crores and above but less

than 100 crores.

17 lakhs
3 100 crores and above but less

than 250 crores.

24 lakhs
4 250 crores and above. 24 lakhs plus 0.01% of the effective capital in excess of Rs 250 crores.

Relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI Listing Regulations)

Regulation 17 of the SEBI Listing Regulations relates to “Board of Directors”. It provides for composition, Board meetings, appointment of non-executive directors, succession planning, code of conduct, remuneration, Board evaluation, etc.

Following are the key points relating to the remuneration to directors under SEBI Listing Regulations:

(a) The Board of Directors shall recommend all fees or compensation, if any, paid to non-executive directors, including independent directors and shall require approval of shareholders in general meeting. Therefore, approval of shareholders in mandatory for remuneration to non-executive directors, irrespective of the provisions of the Companies Act.

(b) The requirement of obtaining approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government. Therefore, shareholders approval is not required for payment of sitting fees to non-executive directors. Similar provisions are provided in the Companies Act. According to Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a company may pay a sitting fee to a director for attending meetings of the Board or Committees thereof, such sum as may be decided by the Board of Directors thereof which shall not exceed Rs 1 lakh per meeting of the Board of Directors or Committee thereof. However, for independent directors and women directors, the sitting fee shall not be less than the sitting fee payable to other directors.

(c) The approval of shareholders shall specify the limits for the maximum number of stock options that may be granted to non-executive directors, in any financial year and in aggregate. However, independent directors shall not be entitled to any stock option;

(d) The SEBI Listing Regulations introduce a very interesting provision for payment of remuneration to non-executive directors. According to the relevant provisions approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. It is necessary to understand this provision in light of 2 situations:

(i) Company having adequate profits: In this case, a company can pay up to 1% or 3% of the net profit for that financial year. Here, it would be necessary to calculate the profits of the company and then confirm the share of any specific non-executive director(s) in the profit in the form of remuneration.

(ii) Company having inadequate profits: In this case, to calculate the effective capital and the remuneration paid to any non-executive director of the company. It is important to note here that specific approval would be rarely applicable as the remuneration of a non-executive director is compared to the remuneration of all non-executive directors and not all executive directors (under SEBI Listing Regulations).

In both the above cases, the remuneration shall not include sitting fees paid to the directors in accordance with the provisions of the Companies Act.

In these challenging times of Covid-19, its impact on the economy and companies, the amendment to Schedule V of the Companies Act will be very helpful for companies to pay all its directors.


Practising Company Secretary, Pune

[1]      MCA Notification dated 18-3-2021, S.O. 1256(E) [F. No. 1/5/2013-CL-V].

Legislation UpdatesRules & Regulations

On September 08, 2021, the Securities and Exchange Board of India (SEBI) has issued the SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021 to further amend the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

 

Key Amendments:

  • In Regulation 3, which specifies Applicability of Regulations, sub-regulation (3) has been inserted, namely:

(3) The provisions of these regulations which become applicable to listed entities on the basis of the criterion of the value of outstanding listed debt securities shall continue to apply to such entities even if they fall below such thresholds as mentioned in sub-regulation (1A) of regulation 15.

  • In Regulation 15, which specifies Applicability, sub-regulation 1A has been inserted, namely:

(1A) The provisions of this regulation and regulation 16 to regulation 27 of this chapter shall apply to a listed entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of Rupees Five Hundred Crore and above:

Provided that in case an entity that has listed its non-convertible debt securities triggers the specified threshold of Rupees Five Hundred Crore during the course of the year, it shall ensure compliance with these provisions within six months from the date of such trigger:

Provided further that these provisions shall be applicable to a ‘high value debt listed entity’ on a ‘comply or explain’ basis until March 31, 2023 and on a mandatory basis thereafter.

Explanation (1)- The entities referred in the first proviso to sub-regulation (1A) of regulation 15 are referred to as ‘high value debt listed entities’ for the purpose of this chapter.

Explanation (2) – The ‘high value debt listed entities’ on the date of notification of this amendment would be determined on basis of value of principal outstanding of listed debt securities as on March 31, 2021.

Explanation (3) – ‘Comply or explain’ for the purpose of the second proviso to sub-regulation (1A) of regulation 15 shall mean that the entity shall 18ecogniz to comply with the provisions and achieve full compliance by March 31, 2023. In case the entity is not able to achieve full compliance with the provisions, till such time, it shall explain the reasons for such noncompliance/ partial compliance and the steps initiated to achieve full compliance in the quarterly compliance report filed under clause (a), sub-regulation (2) of regulation 27 of these regulations.

Explanation (4) –

(a) In case of a ‘high value debt listed entity’ that is a Real Estate Investment Trust (REIT), the Board of the Manager of the Real Estate Investment Trust (REIT), shall comply with regulation 15 to regulation 27 of these regulations related to corporate governance;

(b) In case of a ‘high value debt listed entity’ that is an Infrastructure Investment Trust (InvIT), the Board of the Investment Manager of the Infrastructure Investment Trust (InvIT), shall comply with regulation 15 to regulation 27 of these regulations related to corporate governance.

  • In Regulation 21, which specifies Risk management Company, sub-regulation (5) has been substituted:

(5) The provisions of this regulation shall be applicable to:

 i. the top 1000 listed entities, determined on the basis of market capitalization as at the end of the immediate preceding financial year; and, 

ii. a ‘high value debt listed entity’.

  • In Regulation 23, which specifies related party transactions, in sub-regulation (9) the following proviso has been inserted:

Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half year.

  • In Regulation 25, which specifies obligation with respect to independent directors, sub-regulation 12 has been inserted, namely:

(12) A ‘high value debt listed entity’ shall undertake Directors and Officers insurance (D and O insurance) for all its independent directors for such sum assured and for such risks as may be determined by its board of directors.

  • In Regulation 49, Applicability, sub-regulation (1) has been substituted:

(1) The provisions of this chapter shall apply only to a listed entity which has listed its nonconvertible securities on a recognised stock exchange in accordance with Securities and Exchange Board of India (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

  • In Regulation 49, Applicability, sub-regulation (2) has been omitted.
  • In Regulation 50, which specifies Intimation to stock exchange, sub-regulation (1)&(2) has been substituted, namely:

(1) The listed entity shall give prior intimation to the stock exchange of at least two working days in advance, excluding the date of the intimation and the date of the meeting of the board of directors, about the Board meeting in which any of the following proposals is to be considered:

(a) an alteration in the form or nature of non-convertible securities that are listed on the stock exchange or in the rights or privileges of the holders thereof;

(b) an alteration in the date of the interest/ dividend/ redemption payment of non-convertible securities;

(c) financial results viz. quarterly or annual, as the case may be;

(d) fund raising by way of issuance of non-convertible securities; or

(e) any matter affecting the rights or interests of holders of non-convertible securities.

(2) The listed entity shall also intimate the stock exchange not later than the date of commencement of dispatch of notices, in case of:

(a) any annual general meeting or extraordinary general meeting that is proposed to be held for obtaining shareholder approval for the proposals at clauses (c) and (d) under sub-regulation (1) of this regulation;

(b) any meeting of the holders of non-convertible securities in relation to the proposal at clause (e) of sub-regulation (1) of this regulation.

  • In Regulation 50, which specifies Intimation to stock exchange, sub-regulation (3) has been omitted.
  • In Regulation 51, which specifies Disclosure of information having bearing on performance/operation of listed entity and/or price sensitive information, sub-regulation (3) has been inserted, namely:

(3) The listed entity shall disclose on its website, all such events or information which have been disclosed to the stock exchange(s) under this regulation and such disclosures shall be hosted on the website of the listed entity for a minimum period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website.

  • In Regulation 52, which specifies financial results, Sub-regulation (1) has been substituted, namely:

“(1) The listed entity shall prepare and submit un-audited or audited quarterly and year to date standalone financial results on a quarterly basis in the format as specified by the Board within forty- five days from the end of the quarter, other than last quarter, to the 20ecognized stock exchange(s):

Provided that in case of entities which have listed their debt securities, a copy of the financial results submitted to stock exchanges shall also be provided to Debenture Trustees on the same day the information is submitted to stock exchanges.” 

  • In Regulation 52, which specifies financial results, Sub-regulation (7) has been substituted, namely:

“(7) The listed entity shall within forty-five days from the end of every quarter submit to the stock exchange, a statement indicating the utilization of issue proceeds of non-convertible securities, which shall be continued to be given till such time the issue proceeds have been fully utilised or the purpose for which these proceeds were raised has been achieved.”

  • In Regulation 52, which specifies financial results, Sub-regulation (7A) has been Inserted namely:

“(7A) In case of any material deviation in the use of proceeds as compared to the objects of the issue, the same shall be indicated in the format as specified by the Board.”

  • In Regulation 56, which specifies Documents and Intimation to Debenture Trustees, Sub-section 1A has been inserted, namely:

“(1A) The listed entity shall also disclose to the Debenture Trustee at the same time as it has intimated to the stock exchange, all material events and/or information as disclosed under regulation 51of these regulations in so far as it relates to the interest, principal, issue and terms of non-convertible debt securities, rating, creation of charge on the assets, notices, resolutions and meetings of holders of non-convertible debt securities.”

  • In Regulation 57, which specifies other submissions to stock exchange(s), sub-regulation (1) has been substituted, namely:

“(1) The listed entity shall submit a certificate to the stock exchange within one working day of the interest or dividend or principal becoming due regarding status of payment in case of nonconvertible securities.”

  • In Regulation 57, which specifies other submissions to stock exchange(s), sub-regulation (4)&(5) has been inserted, namely:

(4) The listed entity shall within five working days prior to the beginning of the quarter provide details for all the non-convertible securities for which interest/dividend/principal obligations shall be payable during the quarter.

(5) The listed entity shall within seven working days from the end of the quarter provide:

(a) a certificate confirming the payment of interest/dividend/principal obligations for nonconvertible securities which were due in that quarter; and

(b) the details of all unpaid interest/dividend/principal obligations in relation to nonconvertible securities at the end of the quarter.

  • In Regulation 61, which specifies Terms of non-convertible debt securities and non-convertible redeemable preference shares, sub regulation (2) has been omitted.
  • Regulation 61A, which specifies, “Dealing with unclaimed non-convertible securities and benefits accrued thereon, has been inserted, namely:

(1) The listed entity shall not forfeit unclaimed interest/dividend/redemption amount.

(2) Where the interest/dividend/redemption amount has not been claimed within thirty days from the due date of interest/ dividend / redemption payment, a listed entity shall within seven days from the date of expiry of the said period of thirty days, transfer the amount to an escrow account to be opened by the listed entity in any scheduled bank:

Provided that the interest/ dividend/ redemption amount that is unclaimed and outstanding for a period of less than seven years as on the date of notification of this sub-regulation shall be transferred to the escrow account within thirty days, where it shall remain for the intervening period up to seven years.

(3) Any amount transferred to the escrow account that remains unclaimed for seven years shall be transferred to the ‘Investor Education and Protection Fund’ constituted in terms of section 125 of the Companies Act, 2013.”

  • In Regulation 62, which specifies website, sub regulation 1A has been inserted namely:

(1A) The listed entities to whom regulations 15 to regulation 27 are applicable shall also make the following additional disclosures on their website:

(a) composition of the various committees of the board of directors;

(b) terms and conditions of appointment of independent directors;

(c) code of conduct of the board of directors and senior management personnel;

(d) details of establishment of vigil mechanism/ whistle blower policy;

(e) criteria of making payments to non-executive directors, if the same has not been disclosed in the annual report;

(f) secretarial compliance report as per sub-regulation (2) of regulation 24A of these regulations;

(g) policy on dealing with related party transactions;

(h) policy for determining ‘material’ subsidiaries;

(i) details of familiarization programmes imparted to independent directors including the following details:

(i) number of programmes attended by the independent directors (during the year and on a cumulative basis till date)

(ii) number of hours spent by the independent directors in such programmes (during the year and on cumulative basis till date), and

 (iii) other relevant details.

  • In Regulation 62, which specifies website, sub regulation (4) has been inserted namely:

(4) The listed entity shall update any change in the content of its website within two working days from the date of such change in content.

  • In Schedule III, part B which specifies Disclosure of Information having bearing on performance/operation of listed entity and/or price sensitive operations: Non-convertible debt security & non-convertibles redeemable preference shares, has also been amended.
Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): G. Mahalingam, Whole Time Member, did not find it suitable to pass any further directions in the matter. The Tribunal disposed of the show cause notice for the Noticees, however, for Mukkaram Jan (Noticee 3), ordered it to subsist in view of the stay by the Supreme Court in Special Leave to Appeal.

The present matter was initiated pursuant to the complaints received from the shareholders for non-payment of dividend by Cranes Software International Ltd. for the financial year 2008-2009. The Noticees while asserting that the dividend declared for the financial year 2008-2009 was already paid, submitted a certified certificate to that effect. The Company further stated that all the complaints, pursuant to which the present proceedings were initiated, have been resolved and disbursement of dividend has been made.

The violations for which Sections 11 and 11B were invoked in the show cause notice were:

  1. Failure of the Company to disburse the dividend declared; and
  2. Receipt of complaints from the shareholders consequent to the failure of the Company to disburse the dividend declared.

The Tribunal noted that the SEBI’s SCORES system had already closed on the payments and the prosecution was already been initiated by SEBI, in respect of delay in payment of dividend, and prosecution was already initiated for violation of Sections 205(1A), 205A(1) and 207 read with Sections 55A and 621 of Companies Act,1956 of the Companies Act, 1956 before the Court of Special Economic Offences in Bangalore. Therefore, after considering the show cause notice and the submissions made, the Tribunal confined the allegations to Noticees 1, 2 and 4-10, and not Noticee 3, Mukkaram Jan, owing to the stay granted by the Supreme Court.[Cranes Software International Ltd., In re, WTM/GM/EFD/DRA2/13329/2021-22, decided on 06-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Legislation UpdatesNotifications

The Securities & Exchange Board of India (SEBI) has notified certification requirements of an associated person functioning as principal officer of a Portfolio Manager under Securities and Exchange Board of India (Certification of Associated Persons in the Securities Markets) Regulations, 2007 vide notification dated September 7, 2021. The certification requirements are as follows:

 

  • Such persons shall obtain certification from the National Institute of Securities Markets by passing the NISM-Series-XXI-B.
  • The Portfolio Managers shall ensure that all such persons who obtain the certification by passing the NISM-Series-XXI-B within 2 years from the date of this notification. If a Portfolio Manager employs any such associated person shall ensure that such person obtains certification by passing the NISM-Series-XXI-B: Portfolio Managers Certification Examination within 1 year from the date of their employment.

 


*Tanvi Singh, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): G. Mahalingam, Whole Time Member, while exercising the powers under Sections 11(1), 11(4) and Section 11B of the SEBI Act, gave directions restricting the Noticees from accessing the securities market for fraudulently manipulating of the price of the scrip with connected entities.

In the present matter, pursuant to investigation by SEBI, it was alleged following the allotment of shares under the Scheme of Amalgamation, Noticee nos. 1–6 i.e. Sunrise Asian and its Directors, had devised an arrangement whereby 83 connected entities had manipulated the price of the scrip in four patches of trading during the Investigation period. Out of which, 77 entities were counterparties to the sale of shares by 1059 entities at the manipulated price. Resultantly, Noticees 1–6 and 7-89 were alleged to have violated the provisions of the PFUTP Regulations, 2003.

The Tribunal, after considering the show cause notice, replies and the submissions that followed thereafter, was of the opinion that in the instant proceedings, Sunrise Asian and its Directors, had devised an arrangement for manipulating the price of the scrip with 83 other entities, thus violated Regulations 3(a)–(d) read with Regulation 4(1) of the PFUTP Regulations, 2003. And since 77 out of the 83 ‘connected entities’ were counterparties to the sale of shares, thus violated Regulations 3(a)–(d) read with Regulation 4(1), Regulations 4(2)(a) and (e) of the PFUTP Regulations, 2003. The Court further noted,

“…during the Financial Years 2013, 2014 and 2015, Sunrise Asian had registered a profit of only 0.27 Crore, 0.70 Crore and 0.95 Crore, respectively. The aforementioned actions of the aforementioned Noticees as detailed in the preceding paragraphs clearly resulted in ‘fraud’ under the PFUTP Regulations, 2003, being committed, which in turn affected the interests of investors in the securities market”.

Consequentially, Noticees 1-6 were restricted to access the securities market for a year, while Noticees 7-89 for six months. Whereas proceedings intiated against Noticees 50, 69 and 70 i.e. Ramesh Gopaldas Kataria, Ramesh G. Kataria HUF and Sarojini Ramesh Kataria stood abated.[Sunrise Asian Ltd., In re WTM/GM/IVD/ID7/13328/2021–22, decided on 06-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Madhabi Puri Buch, Whole Time Member, while affirming the interim order, rejected all the submission of the Noticees, on the ground that they have prima facie employed a fraudulent scheme to execute the impugned trades, resulting in the prima facie contravention of the provisions of Section 12A (b) of SEBI Act and regulations 3 (c) and (d) and 4(1) of PFUTP Regulations

In the instant matter the Noticees, Hemant Ghai, Jaya Hemant Ghai (wife) and Shyam Mohini Ghai (mother) it was alleged that the Noticees had prima facie indulged in unfair trade practice and have prima facie employed a fraudulent scheme to execute the impugned trades, resulting in the prima facie contravention of the provisions of Section 12A (b) of SEBI Act and regulations 3 (c) and (d) and 4(1) of PFUTP Regulations, stand confirmed. Hemant Ghai was hosting the show, Stock 20-20, wherein recommendations on certain stocks to be bought/sold during the day, were made. It was observed that Jaya Hemant Ghai (spouse) and Shyam Mohini Ghai (mother) had undertaken a large number of Buy-Today-Sell-Tomorrow trades during the Relevant Period in synchronization with the recommendations made in the Show. Shares were bought on the previous day to the recommendations being made on the Show and sold immediately on the recommendation day. The earned proceeds were amounting to Rs 2,95,18,680/- through the limited number of trades examined during the Relevant Period.

The Noticee made many submissions, for instance, the trades in the accounts of Jaya Ghai and Shyam Mohini Ghai were an attempt to avoid regulatory surveillance or code of conduct, that the recommendations made in the course of each episode of the Show during the Relevant Period has not been considered, and they were not provided with any report of the investigation conducted by SEBI, and had denied that the impugned trades were synchronized with the recommendations in the Show, further that the concept of lending of trading accounts is not recognized by SEBI Act or the Rules and Regulations framed thereunder, were all rejected with sound reasons by the Tribunal one by one.

The Tribunal while confirming the interim order, held that the prima facie findings in the interim order dated January 13, 2021, that Mr Hemant Ghai, Ms Jaya Hemant Ghai and Ms Shyam Mohini Ghai have prima facie indulged in unfair trade practice and have prima facie employed a fraudulent scheme to execute the impugned trades, resulting in the prima facie contravention of the provisions of Section 12A (b) of SEBI Act and regulations 3 (c) and (d) and 4(1) of PFUTP Regulations, stand confirmed.[CNBC Awaaz “Stock 20-20” Show co-hosted by Mr Hemant Ghai, In re, WTM/MB/ISD/13305/2021-22, decided on 02-09-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Exchange Board of India (SEBI): Madhabi Puri Bach, Whole Time Member, while affirming ex-parte ad Interim Order on not finding any justifiable reason to revoke or modify the directions against the Noticee held her liable for various provisions of the SEBI Act, the IA Regulations and the PFUTP Regulations.

In the instant matter Meeshika Vishwakarma, Proprietor, Sai Proficient Research Advisory (Noticee) was a registered Investment Adviser (IA). It was alleged that IA was taking hefty fees from clients by guaranteeing assured returns, huge loss was incurred by clients due to inappropriate advice given by Sai Proficient, pressurizing the clients to buy multiple products and pay more amount, etc.

The allegations against the Noticee were:

  1. had offered expected/sure profits to its clients and violated provisions of SEBI (Investment Advisers) Regulations,
  2. did not resolve investor grievances as per prescribed timelines and did not cooperate with SEBI for inspection.
  3. had also triggered violation of the Code of Conduct for Investment Advisers

Keeping in view the allegations, an interim order was passed against Sai Proficient and the proprietor for violation of SEBI Act 1992 (hereinafter referred to as SEBI Act), IA Regulation and SEBI (PFUTP) Regulations (hereinafter referred to as PFUTP Regulations).

The Tribunal while affirming the order stated,

“Since there is prima facie violation of securities laws, there is a further urgent requirement that investors be insulated from the undesirable effects of further breach of securities laws and the code of conduct of the IA. Further, the Interim Order has been passed in order to maintain the status quo, so that on final adjudication after granting fair opportunity of hearing on merits, if the liability to repay is established, the possible direction in the final order does not become infructuous. Therefore, based on the facts and circumstance of the case, I find that the balance of convenience is not in favour of the Noticee. In view of the above, the request of the Noticee to consider allowing to continue rendering services as IA cannot be considered as this stage”.

The Tribunal made interesting remarks while addressing to the facts and the behaviour of the Noticee prior and during and subsequent to the inquiry. It was of the opinion,

“…It is interesting to observe that if the suspicious employees wanted to misrepresent and deceive the amount/fees from the client/complainant should probably have been received in the suspicious employees account rather than Noticee’s bank account which invariably is the beneficiary. Further, I also note that the Noticee has also not provided any documentary evidence making any clarification or warning or disclaimer in this respect to either to employees or to the clients/investors”.

While addressing the submissions of the Noticee it stated,

“Considering the dynamics of the market, the returns from the investment in the market are unpredictable, no matter how much and for how long the investment is made. Any information that puts out for the consumption of its existing and prospective clients has to be done with great responsibility and should be of such nature that it enables investors to take reasoned and unbiased decisions regarding their investment This act of the IA is nothing but prima facie appears to be an attempt to induce the client to subscribe to its advisory service by showing projected and expected return/profit, which prima facie is an act to mislead the client as full disclosure is not made by the IA that the proposed investment of the client may incur loss. This act prima facie, appears to have done with an intention to bring in more customers and thereby increasing the income of the IA”.

[Sai Proficient Research Investment Advisory, In re., WTM/MB/WRO/WRO/13178/2021-22, decided on 27-08-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

Legislation UpdatesNotifications

The Securities and Exchange Board of India has notified revised guidelines for Liquidity Enhancement Scheme in the Equity Cash and Equity Derivatives Segments vide circular dated September 1, 2021

 

Initially, on April 23, 2014, SEBI had issued circular permitting stock exchanges to introduce liquidity enhancement schemes in the equity cash and equity derivatives segments to enhance liquidity in illiquid securities. Observing the stock exchanges, SEBI has decided to modify clauses 3.1 and 4.1 of said Circular in the following manner:

  • The Scheme shall have prior approval of the Governing Board of the Stock Exchange which will be valid for one year. The Governing Board of the Stock Exchange may give yearly approval till the time the scheme is in operation. Further, its implementation and outcome shall be monitored by the Governing Board at quarterly intervals.
  • The Stock Exchange shall introduce liquidity enhancement schemes on any security. Once the scheme is discontinued, the scheme can be re-introduced on the same security.

 

These changes shall also be applicable to existing schemes. Other conditions prescribed in aforesaid SEBI Circular dated April 23, 2014 shall remain unchanged.

 


*Tanvi Singh, Editorial Assistant has reported this brief.