SEBI (LISTING OBLIGATION AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015
The Securities and Exchange Board of India (SEBI) has notified the listing regulations aligned with the Companies Act, 2013 on 02nd September, 2015.
The latest notified SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 will consolidate and streamline the provisions of existing listing agreements for different segments of the capital market. This will also replace the existing listing agreements for all types of securities. The regulations thus have been structured to provide ease of reference by consolidating into one single document across various types of securities listed on the stock exchanges’.
As per Regulation 1(2), the provisions of this regulation will be effective from 90th day from the day of the publication of the same in the Official Gazette. Two provisions viz. Regulation 23(4) and 31A will be applicable with the immediate effect. These two regulations pertains to
- 1. Passing of ordinary resolution instead of special resolution in case of all material related party transactions subject to related parties abstaining from voting on such resolutions; and
- 2. Re-classification of promoters as public shareholders under various circumstances.
SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 have been divided into two parts. The substantive provisions incorporated in the main body of regulations and procedural requirements in the form of schedules to the regulations.
According to the SEBI, a shorten version of the listing agreement would be prescribed shortly and the same has to be signed by the companies while getting its securities listed on the recognized stock exchanges. Existing listed entities will be required to sign the shortened version within 6 months of the notification of the regulations.
APPLICABILITY : RULE 3
SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, is applicable on the listed entity having any of the below mentioned securities listed on the recognized stock exchange(s):
· 1. specified securities listed on main board or SME Exchange or institutional trading platform;
· 2. non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument, perpetual non-cumulative preference shares;
· 3. Indian depository receipts;
· 4. securitised debt instruments;
· 5. units issued by mutual funds;
· 6. any other securities as may be specified by the Board.
Now lets us discuss the provisions which will be applicable with immediate effect.
REGUALTION 23: RELATED PARTY TRANSACTIONS
Regulation 23(4) will be applicable with immediate effect. As per the sub-regulation 4 of regulation 23, for any material related party transaction, the company is required to take the approval of the shareholders through ordinary resolution and the related parties shall abstain from voting on such resolutions whether the entity is a related party to the related party transactions or not.
Earlier for the approval of the related parties’ transactions, the company is required to take approval of the shareholders through special resolution. This change is being made in align with the changes made in the Companies Act, 2013 through the amendment.
Before moving to regulation 31A, we have to first understand the terms ‘promoter and promoter group’ and ‘professionally managed’.
Promoters: As per regulation 2(1)(w), the word ‘promoter and promoter group’ mean the same as assigned in clauses (za) and (zb) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.
As per Regulation 2(1)(za) “promoter” includes:
(i) the person or persons who are in control of the issuer;
(ii) the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;
(iii) the person or persons named in the offer document as promoters:
Following persons cannot be deemed to be promoter:
- 1. A director or officer of the company acting merely in his professional capacity.
- 2. Financial Institutions, scheduled bank, foreign institutional investor and mutual fund even it holds 10% or more equity shares of the company but these are treated as promoters for the subsidiaries or companies promoted by them or for mutual fund sponsored by them.
As per Regulation 2(1)(zb) “promoter group” includes
(i) the promoter;
(ii) an immediate relative of the promoter (i.e., any spouse of that person, or any parent, brother, sister or child of the person or of the spouse); and
(iii) in case promoter is a body corporate:
(A) a subsidiary or holding company of such body corporate;
(B) any body corporate in which the promoter holds ten per cent. or more of the equity share capital or which holds ten per cent. or more of the equity share capital of the promoter;
(C) any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent. or more of the equity share capital in that body corporate also holds twenty per cent. or more of the equity share capital of the issuer; and
(iv) in case the promoter is an individual:
(A) any body corporate in which ten per cent. or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;
(B) any body corporate in which a body corporate as provided in (A) above holds ten per cent. or more, of the equity share capital;
(C) any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than ten per cent. of the total; and
(v) all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus under the heading "shareholding of the promoter group"
Financial Institutions, scheduled bank, foreign institutional investor and mutual fund even it holds 10% or more equity shares of the company are not treated as promoter group but these are treated as promoter group for the subsidiaries or companies promoted by them or for mutual fund sponsored by them.
Professionally Managed: For the purpose of Regulation 31A, an entity may be considered as professionally managed, if:
(i) No person or group along with persons acting in concert taken together shall hold more than one per cent paid-up equity capital of the entity including any holding of convertibles/outstanding warrants/ Depository Receipts:
Provided that any mutual fund, bank, insurance company, financial institution, foreign portfolio investor may individually hold up to ten per cent paid-up equity capital of the entity including any holding of convertibles/outstanding warrants/Depository Receipts.
(ii) The promoters seeking reclassification and their relatives may act as key managerial personnel in the entity only subject to shareholders’ approval and for a period not exceeding three years from the date of shareholders’ approval.
(iii) The promoter seeking reclassification along with his promoter group entities and the persons acting in concert shall not have any special right through formal or informal arrangements. All shareholding agreements granting special rights to such outgoing entities shall be terminated.
REGULATION 31A: DISCLOSE OF CLASS OF SHAREHOLDERS AND CONDITIONS FOR RECLASSIFICATION
As per Regulation 31A, shareholding pattern of promoter and promoter group shall be disclosed separately on the “Shareholding Pattern” appearing on the website of all stock exchanges where the securities listed in accordance with the format prescribed by SEBI (format is available on the website of the respective stock exchanges).
If there is any change in the shareholding pattern and the stock exchange receive application to modify or reclassify the same then it may allow on satisfaction that the compliance of the relevant provision and evidences regarding the change in the status of the shareholders. In case the entity is listed on more than one stock exchanges then all stock exchanges shall jointly decide on the application for modification or reclassification.
In case of transmission/ succession/ inheritance, the inheritor shall be classified as promoter.
When a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, reclassification may be permitted subject to fulfillment of the following 2 conditions:
(i) Approval of the shareholders for the same in the general meeting;
(ii) Compliances of the following conditions:
o Such promoter along with the promoter group and the Persons Acting in Concert shall not hold more than ten per cent of the paid-up equity capital of the entity.
o Such promoter shall not continue to have any special rights through formal or informal arrangements. All shareholding agreements granting special rights to such entities shall be terminated.
o Such promoters and their relatives shall not act as key managerial person for a period of more than three years from the date of shareholders’ approval. (The resolution of the said shareholders’ meeting must specifically grant approval for such promoter to act as KMP)
With the approval of the shareholders in a general meeting, the existing promoter of the company may be re-classified as public shareholders if the company becomes professionally managed. Existing promoters cannot classified as public shareholders, if it exercises control over the affairs of the company
If the public shareholders seek to re-classify itself as promoter, then it shall make an open offer in accordance with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Remaining provisions of the Regulation will be updated shortly on our website along with FAQs
Thanks and regards,
Address: 46A, 1st Floor, Amar Plaza, IP Extension, Delhi- 110092
Contact: 011- 43558440