By Rupin Chopra and Vibhuti Vasisth
Since our previous update dated April 28, 2020, the Securities and Exchange Board of India (“SEBI”) has introduced further measures considering the COVID-19 outbreak.
SEBI Measures and Regulatory updates amid COVID-19
Certain key updates have been outlined hereunder:
Relaxations in respect of the timelines for activities of the Depository Participants (“DPs”), RTAs, Issuers, KYC Registration Agencies (“KRAs”), Stock Brokers
Vide a Circular dated April 16, 2020, SEBI has provided for certain relaxations in the timelines of some compliance requirements relating to DPs, RTAs, issuers, KRAs, and stock brokers. The Circular prescribes that the time period between March 23, 2020 and May 17, 2020, would now be excluded while computing timelines for the following activities:
- Processing of the dematerialisation request form; and
- Uploading the Know Your Client (“KYC”) application form and other relevant and supporting documents on the system of the KRAs.
Further, a period of 15 days from May 17, 2020, has also been granted to SEBI intermediaries so as to clear their backlog.
Reduced burden on registrars to issue and share transfer agents (“RTAs”)
In its Circular dated April 13, 2020, SEBI extended the time period for completion of certain activities that were required to be carried out by the RTAs holding category I or II, SEBI registration or issuer companies, within 21 days, in addition to the prescribed time period. Such activities include: process of re-materialisation and/or transmission request, processing of issuance of duplicate share certificates, processing of requests for deletion/ change in name etc., handling investor grievances/SCORES complaints, audit and compliance reports, and other similar necessities.
Reduction in compliance burden on trading members / clearing members
Vide its Circular dated April 16, 2020, SEBI has extended the due dates as follows for the herein mentioned regulatory filings and compliances required by the trading members and clearing members:
- May 17, 2020: penalty for non/short collection of upfront margins in cash settlements and maintaining call recordings of orders / instructions received from the concerned clients;
- May 31, 2020: client funding reporting and artificial intelligence and machine learning application reporting;
- June 30, 2020: compliance certificates for margin trading for the capital market segment, risk based supervision, internal audit report for half year (ending March 31, 2020), net worth certificate in margin trading for capital markets segment for half year (ending March 31, 2020), and net worth certificate for all members for half year (ending March, 2020); and
- July 31, 2020: system audit report.
Additionally, by another Circular dated April 21, 2020, SEBI provided the following extended relaxations for certain compliance requirements of trading members and clearing members:
- Delay in submission of the herein below mentioned reports would not attract any penal provisions until May 17, 2020: (a) submissions towards weekly monitoring of client funds under the provisions of enhanced supervision; (b) submissions of monthly basis data towards clients’ and fund balance under the provisions of enhanced supervision; and (c) daily margin trading reports.
- The date for the following compliances have also been extended by 1 month from their existing due dates: (a) updates in income tax permanent account number of key managerial personnel, and or directors; and (b) issuance of annual global statement for clients.
Additional relaxations in relation to the SEBI listing regulations
Vide Circulars dated April 17, 2020, and April 23, 2020, SEBI has issued further relaxations and clarifications in respect of certain compliances, required under SEBI Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) to the listed entitles. The key features of the Circular dated April 17, 2020 have been outlined herein:
- Minimum prior intimation to stock exchanges under Regulation 29, LODR of a minimum of 5 days for a board meeting where financial results are to be considered, has now been reduced to 2 days (whether or not working days) for board meetings that would be held until July 31, 2020;
- Delay by listed companies in informing stock exchanges, beyond the stipulated time period of 2 days from receipt of information, regarding loss of share certificates and issue of duplicate certificates would now not attract specified penal provisions for intimations that were made between March 1, 2020 and May 31, 2020;
- Digital signature certifications can/may be used for authentication of any filing and, or submissions made to the stock exchanges under the LODR till June 30, 2020;
- Entities consisting of listed non-convertible debentures and/or non-convertible-redeemable preference shares shall be exempted from requirement of publishing advertisements in newspapers relating to its half yearly and annual financial results under Regulation 52(8), LODR until May 15, 2020.
Further, in the Circular dated April 23, 2020, SEBI also relaxed the requirements of holding annual general meeting (“AGM”) by the top 100 listed entities (in terms of market capitalization) while allowing such companies, whose financial year (“FY”) ended on December 31, 2019, to hold its AGM within a period of 9 months (earlier 5 months) from the closure of the FY i.e. up to September 30, 2020.
Relaxation in Regulation 24(i)(f), SEBI Buy-Back Regulations
Regulation 24(i)(f), SEBI (Buy-back of Securities) Regulations, 2018, prescribes for a restriction that a company would not raise further capital for a total period of 1 year from the expiry of the buyback period, except while in discharge of their subsisting obligations. Vide a Circular dated April 23, 2020, SEBI reduced the said period to 6 months, so as to bring it in line with Section 68(8), Companies Act, 2013. The said relaxation would stay in place till December 31, 2020.
Relaxations with respect to a Rights Issue
SEBI, vide its Circular dated April 21, 2020, introduced temporary relaxations for companies undertaking a Rights issue. Relaxations granted are in respect of: (i) minimum subscriptions; (ii) minimum threshold for filing the draft letter of offer with SEBI; and (iii) the eligibility conditions for companies undertaking a fast track rights issue.
These relaxations would be applicable for rights issue that may open on or before March 31, 2021. In terms of the above noted Circular, companies undertaking a Rights issue, the criteria for the minimum subscription has now been reduced to 75% from the earlier existing requirement of 90%. Furthermore, the companies would not be required to file a draft letter of offer with SEBI (as is/was required), if the issue size for a Rights issue is up to INR 25 crore, in contrast to the existing minimum threshold of INR 10 crore.
The SEBI Circular also offers the following additional relaxations to the eligibility requirements for a company undertaking a fast track rights issue:
- The period of: (a) having the equity shares listed on stock exchange; (b) having complied with either the listing agreement or the requirements in accordance with the LODR immediately preceding the reference date; and (c) the equity shares not being suspended from trading of the equity shares as a disciplinary measure immediately preceding the reference date; now stands reduced to 18 months, which was previously 3 years;
- The minimum average market capitalization of public shareholding of the issuer has now been reduced to INR 100 crore, previously 250 crore;
- In cases of show cause notices, excluding the ones required under adjudication proceedings, issued by SEBI against the issuer/ promoters / whole-time directors as on the reference date such issuers would now be eligible to apply in fast track Rights issue. Furthermore, adequate disclosures with regards to: (a) show cause notices issued by SEBI in adjudication proceedings; and (b) prosecution proceedings initiated by SEBI, against the issuer, promoters, directors or group companies, are required to be made in the letter of offer along with due consideration to its potential impact on the issuer;
- The issuers, promoters, promoter groups or the directors who have fulfilled the settlement terms or have adhered to the directions of the settlement order issued by SEBI through consent or settlement mechanism, would now be eligible to participate; and
- Where financial statements of the issuers, as disclosed in the letter of offer, consists of any/all audit qualifications, such issuer may now include the restated financial statements in the letter of offer, while adjusting the impact of these audit qualifications. Further, where the impact of such audit qualifications cannot be clearly ascertained, the same would now have to be disclosed appropriately in the letter of offer.
Extension of various regulatory measures
By a Press Release dated April 20, 2020, SEBI extended the applicability of all the measures implemented by its earlier Press Release dated March 20, 2020, until May 28, 2020.
Relaxation of timelines for compliances with regulatory requirements by Depositories as well as the DPs
On April 24, 2020, SEBI provided relaxations for compliances with certain regulatory requirements relating to depositories and DPs by extending the timelines which were as follows:
- May 18, 2020: submission of beneficial owners’ grievances reports to depositories for March 2020 and April 2020;
- May 31, 2020: reporting for Artificial Intelligence and Machine Learning applications for quarters that ended March, 2020;
- June 30, 2020: submissions of: (a) half yearly internal audit report (“IAR”) by DPs; and (b) risk based supervision for half yearly, ending on March 31, 2020;
- July 31, 2020: systems audits on annual basis for the FYs ending on March 31, 2020; and
- The time period beginning from March 23, 2020, to May 17, 2020, would be excluded for computing timelines for certain requirements being: (a) redressal of investor’s grievance; (b) transmission of securities; and (c) closure of Demat accounts. Furthermore, for compliances with the foregoing requirements, the depositories/DPs could clear the backlog within a period of 15 days post May 17, 2020.
One-time relaxations relating to the validity of SEBI observations in case of a Public Issue and a Rights Issue
Vide a Circular dated April 21, 2020, SEBI decided to extend the validity of SEBI observations on all public issues/ rights issues by a period of 6 months from the date of expiry for issuers whose observation has expired or will expire between March 1, 2020 to September 30, 2020. Currently, a public issue / rights issue may/can be opened within a span of 12 months from the date of issuance of observations by SEBI. This is permitted provided an undertaking from a lead manager of the issue confirming compliance with Schedule XVI, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, while submitting its updated offer document with SEBI.
Further, an issuer, whose offer document is pending receipt of SEBI observation, would also be permitted to increase or decrease the fresh issue size of the estimated issue size to up to 50% (present limit 20%) without requiring to file a fresh draft offer document with SEBI. The relaxation would be applicable for all offer documents pending receipt of SEBI observations till December 31, 2020.