SEBI Board in its meeting dated 06th August 2021 took some long pending and progressive decisions in synch with the changing investor landscape, to enable ease of doing business and to simplify and rationalize compliances. The key highlights of decisions taken are summarized herein below:
- New SEBI (Share Based Employee Benefit and Sweat Equity) Regulations 2021
- Board decided to merge the existing SEBI (issue of Sweat Equity) Regulations 2002 and SEBI (Share Based Employee Benefit) Regulations 2014 and to come out with new Regulations i.e. SEBI (Share Based Employee Benefit and Sweat Equity) Regulations 2021
- Certain other amendment which are proposed and can be seen in the new Regulations include proposed flexibility to switching scheme administration from trust route to direct and vice versa subject to shareholder’s approval and switch not being prejudicial to employee, increase in time period from 1 year to 2 years for appropriation of unappropriated trust inventory
- The proposed amendment also provides for relaxation on the quantum of sweat equity shares that can be issued by a company listed on Innovators Growth Platform (IGP) to an overall limit of 50% of the paid-up equity capital of the company at anytime (with yearly limit of 15%). This enhanced overall limit to be applicable for 10 years from date of company’s incorporation.
- Review of regulatory framework for promoters, promoter group and group companies
- Relaxation in lock-in requirements-
- In case of IPO and FPO for the objects of the issue (as specified), the lock requirement of promoter shareholding (to the extent of minimum promoter contribution of 20%), has been agreed to be reduced to eighteen months (18) from the existing three (3) years and the excess promoter shareholder (over and above 20%) to be locked in for a period of six (6) months instead of existing one (1) year requirement.
- The lock in requirements for pre-IPO shareholding of persons other than promoters too has been reduced to six (6) months from date of allotment instead of existing one (1) year.
- Reduced disclosure requirements at the time of IPO-
- To rationalize “Promoter” definition in case of body corporate promoters, to exclude companies having common financial investors.
- To rationalize disclosure requirement in offer documents, to give away the requirement of disclosure of financials of top 5 group companies of the issuer entity. Although these disclosures to be continued to be made available on the website of the group companies.
- In-principal agreement on the Shift from the concept of “Promoter” to “Person in control” or “Controlling Shareholder”. This most crucial and awaited decision to be implemented post discussions with other regulators, preparation of necessary draft amendment to securities market regulations and analysing its impact and further deliberation by the PMAC and development of roadmap for proper implementation of the same.
- Amendment to SEBI (Alternative Investment Funds) Regulations, 2012:
- The investment conditions applicable to Category I AIF – Venture Capital Funds (VCF) have been simplified with requirement of VCF to now invest upto 75% of the investible funds in unlisted equity shares and equity linked instruments of venture capital undertakings or companies listed or proposed to be listed on a SME segment of an exchange. The restriction on residual 25% of the investible funds have been done away with.
- For Category I AIF – Social Funds, the requirement of grant amount of minimum Rs. 25 lacs has been removed for grants received from Accredited Investors.
- It is now specifically allowed that AIFs can issue partly paid up units to investors to represent the portion of committed capital invested.
- In an important proposed amendment, it is now provided that the Private Placement Memorandum of an AIF to be filed with SEBI through a registered Merchant Banker.
- Review of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:
- It is proposed to review SEBI (LODR) Regulations 2015 vis-à-vis Issuers of listed Non-Convertible Debt Securities, Non-Convertible Redeemable Preference Shares, Perpetual Debt Instruments and/ or Perpetual Non-Cumulative Preference Shares to bring in more transparency, rationalization and removing redundant provisions.
- Ease of doing business in Market Infrastructure Institutions:
- The requirement of seeking SEBI approval for acquiring 2% to 5% shareholding in stock exchanges/clearing corporations/ depositories shall be done away with for the eligible shareholders and these MIIs to put in place appropriate mechanism to ensure compliance with Fit and Proper criteria as prescribed.
- Amendment in SEBI (Substantial Acquisition of Shares and Takeover) Regulations 2011:
- It is decided to give away the requirement of disclosures obligations for promoters/acquirers, pertaining to acquisition or disposal of shares aggregating to 5% and any change of 2% subsequently. The requirement of disclosure of annual shareholding of promoters and creation/invocation/release of encumbrances registered in depositories system is also proposed to be done away with. These changes are proposed to become effective from April 2022.
Overall, the changes and amendments proposed are well thought of and much needed to move towards a regime of self-governance and lesser regulatory interference and to make the regulatory regime concurrent with the current business and economic framework in India and worldwide and will surely boost investor confidence.
By
Deepika Vijay Sawhney
Founder
Transique Corporate Advisors
Disclaimer:
The information contained in this note is provided for informational purpose only and is not intended to substitute for professional advice. The author expressly disclaim any financial or other responsibility arising due to any action taken by any person on basis of this note.
